EXHIBIT 10.2
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT (this "SECURITY AGREEMENT") is made and
entered into as of December 22, 2005, by and among INTERLAND, INC., a Minnesota
corporation ("INTERLAND"), WDC HOLDCO, INC., a Delaware corporation
("SUBSIDIARY" and together with Interland, the "DEBTORS"), and Web Service
Company, Inc., a California corporation ("SECURED PARTY").
RECITALS
A. Interland and Web Internet, LLC ("WEB INTERNET") are both parties to an
Asset Purchase Agreement dated as of November 29, 2005 (the "WEB INTERNET
PURCHASE AGREEMENT") pursuant to which Interland agreed to purchase
substantially all of the assets of Web Internet.
B. Concurrently with the execution of the Web Internet Purchase Agreement,
Debtors and Secured Party entered into that certain Intellectual Property
Purchase and Sale Agreement dated as of November 29, 2005 (the "IP PURCHASE
AGREEMENT") pursuant to which Secured Party agreed to sell to Debtors the Domain
Name and the Service Marks (both as defined in the IP Purchase Agreement). As
consideration for the sale of the Domain Name and the Service Marks, Debtors
agreed to execute and deliver to Secured Party the Note (as defined below)
pursuant to which Debtors assumed all of Web Internet's obligations under the
Loan Agreement (as defined in the Note).
C. As a condition precedent to the transactions contemplated by the Web
Internet Purchase Agreement and the IP Purchase Agreement, the Debtors have
agreed to execute and deliver this Security Agreement to the Secured Party.
NOW, THEREFORE, in consideration of the recitals and the covenants and
agreements herein set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Secured Obligations. The term "OBLIGATIONS" as used in this
Security Agreement shall mean the obligations of Debtors to Secured Party
hereunder and under that certain Amended and Restated Line of Credit Note and
Loan Agreement (the "NOTE") of even date herewith.
Section 2. Grant of Security Interest.
(a) Security Interest in Domain Name and Service Marks. As security
for the due and punctual payment and performance by Debtors of the Obligations,
Subsidiary hereby grants a first priority security interest and mortgage to
Secured Party, as security, in and to Subsidiary's entire right, title and
interest in, to and under the following intellectual property, now owned or
hereafter acquired by Subsidiary or in which Subsidiary now holds or hereafter
acquires any interest (collectively, the "IP COLLATERAL"):
1
(i) the Domain Name and the Service Marks and all trademarks,
trade names, corporate names, business names, trade styles, service marks,
logos, other source or business identifiers, prints and labels on which any of
the foregoing have appeared or appear, designs and general intangibles of like
nature, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and any applications in connection therewith, including,
without limitation, registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, and reissues, extensions or renewals thereof, and the
entire goodwill of the business of Subsidiary connected with and symbolized by
such Domain Name and Service Marks;
(ii) any and all claims for damages by way of past, present and
future infringement of the intellectual property referred to in Section 2(a)(i)
hereto (the "INTELLECTUAL PROPERTY"), with the right, but not the obligation, to
xxx for and collect such damages for said use or infringement of the
intellectual property rights associated with the Domain Name and the Service
Marks;
(iii) all licenses or other rights to use any of the Intellectual
Property, and all license fees and royalties arising from such use to the extent
permitted by such license or rights;
(iv) all amendments, renewals and extensions of any of the
Intellectual Property; and
(v) all proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
(b) Security Interest in Subsidiary Shares. As additional
security for the due and punctual payment and performance by Debtors of the
Obligations, Interland hereby pledges, conveys, assigns, sets over, and grants
to Secured Party a first priority security interest in and to 100 shares of the
outstanding common stock of Subsidiary owned by Interland, together with all
present and future rights of Interland to receive payment of money or other
distributions or payments arising out of or in connection with the such shares
and its rights under the organizational documents and any and all other related
agreements, and all other general intangibles relating thereto and proceeds
resulting therefrom (collectively, the "STOCK COLLATERAL"); to have and to hold
the Stock Collateral together with all right, title and interest pertaining or
incidental thereto, unto Secured Party, its successors and assigns, subject to
the terms, covenants and conditions hereinafter set forth. The Stock Collateral
shall be subject to equitable adjustment for any stock splits, combinations,
consolidations, recapitalizations, reorganizations, reclassifications, stock
distributions, stock dividends or other similar events with respect to such
shares. The Stock Collateral shall also be subject to equitable adjustment in
the event Interland or its respective affiliates sell, issue, or agree to sell
or issue, to any person or entity any shares of stock of Subsidiary, whether or
not such shares of stock are held by Subsidiary in treasury or constitute
authorized but unissued shares of stock of Subsidiary.
The IP Collateral and the Stock Collateral are referred to collectively herein
as the "COLLATERAL."
2
(c) Continuing Security Interest. This Security Agreement creates a
continuing security interest in the Collateral and will remain in full force and
effect until the irrevocable and indefeasible payment in full of the ultimate
balance of the Obligations as provided in Section 7, regardless of any
intermediate payment or discharge. If, at any time for any reason (including the
bankruptcy, insolvency, receivership, reorganization, dissolution or liquidation
of any Debtor or the appointment of any receiver, intervenor or conservator of,
or agent or similar official for, any Debtor or any of its properties), any
payment received by the Secured Party in respect of the Obligations is rescinded
or avoided or must otherwise be restored or returned by the Secured Party, that
payment shall not be considered to have been made for purposes of this Security
Agreement, and this Security Agreement will continue to be effective or will be
reinstated, if necessary, as if that payment has not been made.
Section 3. Representations, Warranties and Covenants of Debtors. Each of
the Debtors hereby jointly and severally represents and warrants to and
covenants with Secured Party, as follows:
(a) Each of the Debtors is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of organization cited
in the caption to this Security Agreement and has all corporate powers and
authority and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
(b) The execution, delivery and performance by each of the Debtors of
this Security Agreement and the consummation by each of the Debtors of the
transactions contemplated hereby are within its corporate powers and have been
duly authorized by all necessary corporate action on the part of each of the
Debtors. This Security Agreement constitutes a valid and binding agreement of
each of the Debtors, enforceable against each in accordance with its terms
except that (a) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium (whether general or specific) or other similar laws
now or hereafter in effect relating to creditor's rights generally and (b) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) Debtors are the legal and equitable owner of the Collateral, free
from any prior or adverse lien, security interest, encumbrance or restriction on
transfer (other than as contemplated hereby and restrictions imposed by
applicable federal and state securities laws), and there are no restrictions
upon the voting rights of the Stock Collateral, and Debtors have the authority
to convey and pledge the Collateral to Secured Party free of any encumbrances.
(d) Debtors will not, without the prior written consent of Secured
Party, sell, assign, hypothecate, transfer, pledge, encumber, or create or
permit to exist any lien on or security interest in all or any part of the
Collateral to or in favor of anyone other than Secured Party.
(e) In the event that Debtors shall apply for an application for the
issuance of any trademark or service xxxx with the United States Patent and
Trademark Office relating to the Domain Name or the Service Marks, Debtor shall
(i) inform Secured Party of any such event or action, and (ii) execute and
deliver any and all assignments, agreements, instruments, documents and papers
3
as are necessary or appropriate or as Secured Party may reasonably request to
evidence the Secured Party's security interest in such trademark or service xxxx
and the goodwill and general intangibles of Secured Party relating thereto or
represented thereby (provided that no security interest shall be granted in
United States intent-to-use trademark applications to the extent that, and
solely during the period in which, the grant of a security interest therein
would impair the validity or enforceability of such intent-to-use trademark
applications under applicable federal law). Debtor shall, from time to time,
execute and file such other instruments, and take such further actions as
Secured Party may reasonably request from time to time to perfect or continue
the perfection of Secured Party's interest in the Collateral. Debtor shall give
Secured Party notice of all such applications or registrations.
(f) Debtors shall not enter into any agreement that would materially
impair or conflict with Debtors' obligations hereunder without Secured Party's
prior written consent. Debtors shall not permit the inclusion in any material
contract to which it becomes a party of any provisions that could or might in
any way prevent the creation of a security interest in Debtors' rights and
interests in any property included within the definition of the Collateral
acquired under such contracts.
(g) At their own expense Debtors will defend Secured Party against any
claims and demands of other persons at any time claiming a superior interest in
the Collateral.
(h) Interland has delivered to the Secured Party the stock
certificates described on EXHIBIT A hereto, and representing the number of
shares set forth on EXHIBIT A, together with stock powers duly executed by
Interland in blank, to be held by Secured Party hereunder.
(i) The Stock Collateral is validly issued, fully paid and
non-assessable, and Interland holds the stock certificates listed on EXHIBIT A
evidencing the Stock Collateral issued in the name of Interland.
(j) Each of the Debtors will comply with all contracts, instruments
and agreements to which each of the Debtors is a party and which may materially
adversely affect the Collateral.
(k) Unless and until an Event of Default shall have occurred under
this Security Agreement, as between Interland and Secured Party, Interland shall
have and retain full legal and beneficial ownership of the Stock Collateral,
subject to the terms and conditions of this Security Agreement; provided,
however, the Interland shall not take any action with respect to the Stock
Collateral that would be inconsistent with this Security Agreement. Interland
shall pay all taxes, assessments or other charges upon or with respect to the
Stock Collateral.
(l) Until such time as the Obligations have been satisfied in full:
(i) The Debtors shall promptly notify Lender in
writing of the existence of any Event of Default
under this Security Agreement;
4
(ii) The Debtors shall comply with the laws, regulation
and orders of any government body with authority
over the Debtor's business;
(iii) Interland shall maintain its listing in good
standing on the NASDAQ National Market Exchange
and make all material SEC filings required by
applicable law;
(iv) Neither Debtor shall sell, assign, or transfer all
or substantially all of the assets of such Debtor
to any third party without the prior written
consent of Lender (for the sake of clarity, the
foregoing shall not restrict the Debtor from
selling, assigning or transferring any of a
Debtor's assets in the ordinary course of such
Debtor's business, provided such sale or
assignment is made in compliance with the IP
Purchase Agreement);
(v) Neither Interland nor Subsidiary shall merge or
consolidate with any third party;
(vi) Subsidiary may not incur any additional
indebtedness of any amount whatsoever from a third
party unless such indebtedness is fully
subordinated to Debtor's obligations under the
this Note;
(vii) Subsidiary may not make any distributions to its
shareholders; and
(ix) Subsidiary shall not, and Interland shall not
cause Subsidiary to, issue or commit to issue any
shares of Subsidiary's capital stock or any other
securities or any securities convertible into
shares of Subsidiary's capital stock or any other
securities, including options and warrants
therefor.
Section 4. Events of Default. If any one or more of the following events
shall occur, any such event shall constitute an Event of Default: (a) Debtor
shall fail to pay when due any installment of principal or interest under the
Note; or (b) Debtor shall fail to pay when due any other Obligations (other than
payments of principal and interest under the Note) and such failure shall
continue unremedied fifteen (15) days after receipt of notice thereof; or (c)
Debtor shall fail to perform or comply with any material term or condition
contained in this Security Agreement and such failure shall continue unremedied
fifteen (15) days following written notice thereof from Secured Party; or (d)
Secured Party shall cease to have a valid and perfected first priority security
interest in the Collateral; or (e) Debtors place, or suffer to exist any levy,
assessment, attachment, seizure, lien or encumbrance upon all or any part of the
Collateral (unless discharged by payment, release or fully bonded against not
more than ten days after such event has occurred); or (f) the occurrence of any
"Event of Default" under the Note.
Section 5. Remedies upon Default.
(a) Upon the occurrence of an Event of Default, Secured Party may, in
its sole discretion and without further demand, subject only to the limitations
5
described herein, (a) upon written notice to Interland, cause the Stock
Collateral to be transferred of record in Secured Party's name, whereupon
Secured Party shall be entitled to receive and retain all dividends and
distributions on the Stock Collateral, and to exercise all voting and other
powers of ownership pertaining to the Stock Collateral and (b) proceed
immediately to exercise any and all of Secured Party's rights, powers, and
privileges provided herein with respect to the Collateral, including, without
limitation, all rights and remedies of a secured party under the Uniform
Commercial Code (the "UCC") in any applicable jurisdiction. Notwithstanding the
foregoing, upon an Event of Default described in Section 4(a), above, Secured
Party shall not be entitled to exercise its rights hereunder with respect to the
Collateral unless and until, for the first two Events of Default only, Secured
Party has provided Debtors with written notice of such Event of Default and
Debtors have not cured such Default within thirty (30) days of the date of such
notice.
(b) Application of Proceeds. All proceeds realized as the result of
any disposition of the Collateral shall be applied by Secured Party first to the
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred by Secured Party in the exercise of its rights under this Security
Agreement and second to the Obligations in any order determined by Secured Party
in its sole discretion. The surplus, if any, shall be promptly paid to Debtors;
if any deficiency shall arise, Debtors shall remain liable to Secured Party
therefor.
(c) Remedies Cumulative. In addition to the rights and remedies set
forth in this Security Agreement, Secured Party shall have all the other rights
and remedies accorded a secured party under applicable law and in any other
agreement now or hereafter entered into between Secured Party and Debtors, and
all of such rights are cumulative. Exercise or partial exercise by Secured Party
of one or more of its rights or remedies shall not be deemed an election, nor
bar Secured Party from subsequent exercise or partial exercise of any other
rights or remedies.
Section 6. Further Assurances; Power of Attorney.
(a) Further Assurances. On a continuing basis, Debtors will make,
execute, acknowledge and deliver to Secured Party any instruments, including
appropriate financing and continuation statements and collateral agreements and
filings with the United States Patent and Trademark Office reasonably requested
by Secured Party, and take all such action as Secured Party may reasonably deem
necessary or advisable to perfect Secured Party's security interest in the IP
Collateral and otherwise to carry out the intent and purposes of this Security
Agreement, or for assuring and confirming to Secured Party the grant or
perfection of a security interest in all Collateral.
(b) Power of Attorney. Debtors hereby irrevocably appoint Secured
Party as Debtors' attorney-in-fact, with full authority in the place and stead
of Debtors and in the name of Debtors, from time to time in Secured Party's
discretion, to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to accomplish the purposes of this Security
Agreement, including (i) to file, in its sole discretion, one or more financing
or continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Debtors where permitted by law, and (ii)
after the occurrence of an Event of Default and in accordance with the terms of
the Note (including, without limitation, the expiration of any forbearance
6
periods set forth therein), (x) to transfer the Collateral into the name of
Secured Party or a third party to the extent permitted under the UCC.
Section 7. Duration. This Security Agreement shall continue in effect until
all of the Obligations have been paid and performed in full.
Section 8. Indemnity. Debtors hereby agree to indemnify Secured Party and
its agents and employees against, and agrees to protect, save, and hold harmless
Secured Party from, any and all liabilities, obligations, losses, damages,
penalties, actions, suits, costs, expenses, and disbursements of whatever kind
and description imposed on, incurred by, or asserted against any such person in
any way arising out of or related to the Collateral or this Security Agreement,
the transactions contemplated thereby and hereby, the ownership of the
Collateral, or any other defense against Secured Party's realization upon the
Collateral.
Section 9. Survival of Representations and Warranties. All representations
and warranties contained herein or made by Debtors in connection herewith shall
survive the execution and delivery of this Security Agreement.
Section 10. Modification. No modification, amendment, or alteration of any
provision of this Security Agreement shall be effective unless contained in a
written agreement signed by the parties hereto, and then such modification,
amendment, or alteration shall be effective only in the specific instances and
for the specific purposes for which given.
Section 11. Continuing Security Interest; Transfer of Obligations. This
Security Agreement creates a continuing security interest in the Collateral and
shall remain in full force and effect until the termination of this Security
Agreement pursuant to Section 7 hereof; and shall bind and inure to the benefit
of the parties and their respective heirs, legal representatives, successors,
and permitted assigns. Nothing in this Security Agreement, express or implied,
is intended to confer upon any person or entity other than the parties hereto
and their respective permitted successors and assigns any rights, benefits or
obligations hereunder.
Section 12. Time of Essence. Time is of the essence in interpreting and
performing this Security Agreement.
Section 13. Expenses. Debtors will pay to Secured Party all costs and
expenses, including without limitation, reasonable attorney fees, of or
incidental to the enforcement of any of the provisions of this Security
Agreement. Secured Party will provide Debtors with prompt written notice of the
incurrence of any such costs, expenses or attorneys fees. Notwithstanding the
foregoing, Debtors have no obligation to reimburse Secured Party for its costs,
expenses or attorneys fees in connection with the negotiation, preparation,
execution and deliver of the Note, this Security Agreement, the IP Purchase
Agreement or any other documents or agreements executed by the parties on or
before the Closing (as defined in the Web Internet Purchase Agreement).
Section 14. No Waiver. No delay or failure on the part of Secured Party in
the exercise of any right, power, or privilege under this Security Agreement
shall impair any such right, power, or privilege or be construed as a waiver of
any default or any acquiescence therein. No single or partial exercise of such
right, power or privilege shall preclude the further exercise of such right,
7
power, or privilege or the exercise of any other right, power, or privilege. No
waiver shall be valid against Secured Party unless made in writing and signed by
Secured Party, and then only to the extent expressly specified therein. Debtors
hereby waive presentment and notice of dishonor and protest of all instruments
included in or evidencing the liability of Debtors in respect to the Collateral
and any and all notices and demands whatsoever, whether or not relating to such
instrument, except as otherwise provided in such instrument.
Section 15. Notices. All notices or other communications hereunder shall be
deemed to have been duly given and made if in writing and if served by personal
delivery upon the party for whom it is intended, if delivered by registered or
certified mail, return receipt requested, or by a national courier service, to
the appropriate person at the address set forth below, or at such other address
as may be designated in writing hereafter, in the same manner, by such person:
If to Secured Party, to:
Web Service Company, Inc.
0000 Xxxxxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx Xx.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copies to:
Web Service Company, Inc.
0000 Xxxxxxx Xxxxx Xxxxxx
Xxxxxxx Xxxxx, XX 00000-0000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and:
Xxxxxx Xxxxxxx Xxxxxx & Marmaro
1900 Avenue of the Stars, 0xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Attention: Xxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
8
If to Debtors:
Interland, Inc.
000 Xxxxxxxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxx Xxxxxx, President
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
With a copy to:
Xxxxx & French, LLP
0000 Xxxxxxxxx Xxxxxx, X.X..
Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Any such notice shall be deemed delivered (a) on the date delivered if
by personal delivery, (b) on the date upon which receipt is signed or delivery
is made, (c) on the date upon which the return receipt is signed or delivery is
refused, as the case may be, if mailed by registered or certified mail, (d) on
the next succeeding Business Day if sent by national courier service, or (e) on
the date telecommunicated if by telecopier if confirmed by telephone
confirmation.
Section 16. Severability. If any part of any provision contained in this
Security Agreement shall be invalid or unenforceable under applicable law, such
part shall be ineffective to the extent of such invalidity only, without in any
way affecting the remaining parts of said provisions or the remaining
provisions.
Section 17. Choice of Law. This Security Agreement shall be governed by and
interpreted in accordance with the substantive, and not the conflicts, laws of
the State of California, without regard to its conflicts of law principles.
Section 18. Descriptive Headings. The descriptive headings of the several
paragraphs of this Security Agreement are inserted for convenience only and do
not constitute a part of this Security Agreement.
Section 19. Counterparts. This Security Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which, taken together, shall constitute one and the same instrument.
Section 20. Entire Agreement. This Security Agreement, together with the
exhibits attached hereto, constitute the entire understanding of the parties
with respect to the subject matter hereof and any prior agreements, whether
9
written or oral, with respect thereof, are expressly superseded hereby.
IN WITNESS WHEREOF, the undersigned have executed this Security Agreement
as of the date first above written.
DEBTORS:
INTERLAND, INC.
By: /s/ Xxxxxxxx X. Xxxxxx
--------------------------------------------------
Name: Xxxxxxxx X. Xxxxxx
--------------------------------------------------
Title: Senior VP and General Counsel
--------------------------------------------------
WDC HOLDCO, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxx
--------------------------------------------------
Name: Xxxxxxx X. Xxxxxxxxxx
--------------------------------------------------
Title: President
--------------------------------------------------
SECURED PARTY:
WEB SERVICE COMPANY, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxx, Xx.
--------------------------------------------------
Name: Xxxxxxx X. Xxxxxxxxxx, Xx.
--------------------------------------------------
Title: Chairman
--------------------------------------------------
10
