SECURITY AGREEMENT
Exhibit
10.7
THIS
SECURITY AGREEMENT (this “Agreement”)
is
made as of November 14, 2007, among SMART ONLINE, INC., a Delaware corporation
(the “Company”),
and
Xxxxx Xxxxxxxx, as agent for the Investors (as defined below) (together with
its
successors and assigns in such capacity, “Collateral
Agent”).
RECITALS
A. Company,
Collateral Agent and certain purchasers (each an “Investor”,
and
collectively, the “Investors”)
have
entered into a Convertible Secured Subordinated Note Purchase Agreement, dated
as of the date hereof (the “Purchase
Agreement”),
pursuant to which Company has issued convertible promissory notes, dated as
of
the date hereof (as amended, modified or otherwise supplemented from time to
time, each a “Note”
and
collectively, the “Notes”).
B. In
order
to induce each Investor to extend the credit evidenced by the Notes, Company
has
agreed to enter into this Security Agreement and to grant Collateral Agent,
for
the benefit of itself and the Investors, the security interest in the Collateral
described below.
AGREEMENT
NOW,
THEREFORE, in consideration of the above recitals and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Company hereby agrees with Collateral Agent and the Investors
as
follows:
1. Definitions
and Interpretation.
When
used in this Security Agreement, the following terms have the following
respective meanings:
“Collateral”
has
the
meaning given to that term in Section
2
hereof.
“Excluded
Investment Property”
means
any and all right, title and interest of the
Company
in and
to 100 shares of the capital stock of Smart Commerce, Inc., a Delaware
corporation (“Smart
Commerce”),
issued to the Company, and respectively evidenced by stock certificate no.
1 and
all
rights incident thereto, and in and to any additional interest in Smart Commerce
hereafter acquired by the Company including all the Company’s now existing or
hereafter acquired shares of stock or other equity security (including any
interests, rights and other securities however evidenced which are convertible
to stock or any other equity security of Smart Commerce and all rights incident
thereto), including the right to vote the foregoing interests during the
continuation of an event of default, and further including, but not limited
to,
the Company’s interest in, and rights to: (x) the profits, surplus,
distributions and dividends, whether in cash or in kind (and including, but
not
limited to, any distributions of the proceeds of the liquidation of the assets
of Smart Commerce made in connection with, as a result of, or pursuant to,
a
dissolution of Smart Commerce), and (y) the assets of Smart
Commerce.
“Obligations”
means
all loans, advances, debts, liabilities and obligations, howsoever arising,
owed
by Company to Collateral Agent and the Investors of every kind and description
(whether or not evidenced by any note or instrument and whether or not for
the
payment of money), now existing or hereafter arising under or pursuant to the
terms of the Notes and the other Transaction Documents, including all interest,
fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and
costs chargeable to and payable by Company hereunder and thereunder, in each
case, whether direct or indirect, absolute or contingent, due or to become
due,
and whether or not arising after the commencement of a proceeding under Title
11
of the United States Code (11 U.S.C. Section 101 et seq.), as amended from
time
to time (including post-petition interest) and whether or not allowed or
allowable as a claim in any such proceeding.
“Permitted
Liens”
means
(a) Liens granted to secure indebtedness of Company permitted under the Purchase
Agreement and incurred to finance the acquisition (whether by purchase or
capitalized lease) of tangible assets (other than Inventory), but only on the
assets acquired with the proceeds of such indebtedness, (b) Liens for taxes,
assessments or other governmental charges or levies not at the time delinquent
or thereafter payable without penalty or being contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP
shall have been set aside on its books, (c) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by Liens
existing on the date of the Notes or of Liens described in clause (a) above,
provided
that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of indebtedness being
extended, renewed or refinanced does not increase, (d) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics and materialman and
other similar Liens arising in favor of a person imposed without action by
such
person, in each case that are incurred in the ordinary course of business for
sums not overdue or being contested in good faith by appropriate proceedings
and
for which adequate reserves in accordance with GAAP shall have been set aside
on
its books, (e) Liens (other than Liens arising under the Employee Retirement
Income Security Act of 1974, as amended, or Section 412(n) of the Internal
Revenue Code of 1986, as amended) incurred in the ordinary course of business
in
connection with workers’ compensation, unemployment insurance, social security
or other forms of governmental insurance or benefits, or to secure performance
of tenders, statutory obligations, leases and contracts (other than for borrowed
money) entered into in the ordinary course of business or to secure obligations
on surety or appeal bonds, (f) judgment Liens in existence less than 60 days
after the entry thereof or with respect to which execution has been stayed
in an
amount not to exceed $500,000 singly or in the aggregate and (g) Liens existing
on the date hereof and described on Attachment
2
hereto.
“Senior
Obligations”
means
all indebtedness and obligations of Smart Commerce to Fifth Third Bank evidenced
by that certain promissory note issued by Smart Commerce to Fifth Third Bank
on
October 17, 2006 under that certain Business Loan Agreement dated October 17,
2006 between Smart Commerce and Fifth Third Bank and any amendment, restatement,
modification, renewal, extension or refinance thereof.
“UCC”
means
the Uniform Commercial Code as in effect in the State of California from time
to
time.
2
All
capitalized terms not otherwise defined herein shall have the respective
meanings given in the Notes. Unless otherwise defined herein or in the Notes,
all terms used herein that are defined in the UCC, whether capitalized or not,
have the respective meanings given to those terms in the UCC.
2. Grant
of Security Interest.
To
secure prompt payment and performance of the Obligations, Company hereby pledges
to Collateral Agent and grants to Collateral Agent, for the benefit of
Collateral Agent and the Investors, a security interest in all right, title
and
interests of Company in and to the property described in Attachment
1
hereto,
whether now existing or hereafter from time to time acquired (collectively,
the
“Collateral”).
Such
security interest shall be prior to all Liens other than Permitted Liens.
Notwithstanding the foregoing, the security interest granted herein shall not
extend to and the term “Collateral” shall not include any equipment or other
property financed by a third party, provided
that
such third party’s Liens are Liens of the type described in clause (a) of the
definition of Permitted Liens; provided,
further,
that
such equipment or other property shall be deemed “Collateral” hereunder if such
third party’s Lien is released or otherwise terminated or if the agreement
governing such Lien does not prohibit the Lien granted hereunder. For avoidance
of doubt, so long as the Senior Obligations are outstanding, the security
interest granted herein shall not extend to and the term “Collateral” shall not
include the Excluded Investment Property and upon the indefeasible satisfaction
of the Senior Obligations in full, the security interest granted herein shall
automatically extend to and the term “Collateral” shall include the Excluded
Investment Property effective as of the date such Senior Obligations are
satisfied in full.
3. General
Representations and Warranties.
Company
represents and warrants to Collateral Agent and the Investors that
(a) Company is the owner of the Collateral (or, in the case of (i)
after-acquired Collateral, at the time Company acquires rights in the
Collateral, or (ii) the Excluded Investment Property, at the time the Excluded
Investment Property becomes subject to the security interested granted herein,
will be the owner thereof) and that no other Person has (or, in the case of
(i)
after-acquired Collateral, at the time Company acquires rights in the
Collateral, or (ii) the Excluded Investment Property, at the time the Excluded
Investment Property becomes subject to the security interested granted herein,
will have) any right, title, claim or interest (by way of Lien or otherwise)
in,
against or to the Collateral, other than Permitted Liens; (b) this Security
Agreement creates a valid security interest in favor of Collateral Agent, for
the benefit of Collateral Agent and the Investors, in the Collateral of Company,
to the extent a security interest therein can be created under the UCC; (c)
upon
the filing of UCC-1 financing statements in the filing office listed on
Attachment
3
hereto,
Collateral Agent has (or in the case of (i) after-acquired Collateral, at the
time Company acquires rights in the Collateral, or (ii) the Excluded Investment
Property, at the time the Excluded Investment Property becomes subject to the
security interested granted herein, will have) a perfected security interest
in
the Collateral, prior to all Liens other than Permitted Liens, to the extent
that a security interest in the Collateral can be perfected by such filing,
except for Permitted Liens; (d) with respect to any Collateral consisting
of a Deposit Account, Securities Entitlement or held in a Securities Account,
upon execution and delivery by Company, the applicable depository bank or
Securities Intermediary and Collateral Agent of an authenticated agreement
granting control in accordance with the UCC to Collateral Agent over such
Collateral, Collateral Agent shall have a valid and perfected, security interest
in such Collateral, prior to all Liens other than Permitted Liens; (e) all
Inventory has been (or, in the case of hereafter produced Inventory, will be)
produced in compliance with applicable laws, including the Fair Labor Standards
Act; and (f) all accounts receivable and payment intangibles are genuine
and enforceable against the party obligated to pay the same;
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4. Covenants
Relating to Collateral.
Company
covenants and agrees with Collateral Agent and Investors that from and after
the
date of this Security Agreement and until the date of termination of this
Security Agreement in accordance with the terms hereof:
(a) Company
shall (i) perform all acts that may be necessary to maintain, preserve and
protect the Collateral and to maintain, preserve, protect and perfect the Lien
granted to Collateral Agent therein and the perfection and priority (subject
to
Permitted Liens) of such Lien; (ii) not use or permit any Collateral to be
used (A) in violation in any material respect of any applicable law, rule
or regulation, or (B) in violation of any policy of insurance covering the
Collateral; (iii) pay promptly when due all taxes and other governmental
charges, all obligations to which any Lien is related and all other charges
and
other obligations now or hereafter imposed upon or affecting any Collateral;
(iv) not, without 30 days prior written notice to Collateral Agent,
(A) change Company’s name or place of business (or, if Company has more
than one place of business, its chief executive office), or the office in which
Company’s records relating to accounts receivable and payment intangibles are
kept or (B) change Company’s state of incorporation, entity type or state
organizational number, (v) procure,
execute and deliver from time to time any endorsements, assignments, financing
statements and other writings reasonably deemed necessary or appropriate by
Collateral Agent to perfect, maintain and protect its Lien hereunder and the
priority thereof and to deliver promptly upon the request of Collateral Agent
all originals of Collateral consisting of instruments.
(b) Company
covenants and agrees that upon the acquisition of any fee interest in real
property it will promptly (and in any event within five (5) business days of
acquisition) notify Collateral Agent of the acquisition of such real property
and will grant to Collateral Agent, for the benefit of Collateral Agent and
the
Investors, a mortgage or other real property security instrument on each fee
interest in real property now or hereafter owned by Company and shall deliver
such other documentation and opinions, in form and substance satisfactory to
Collateral Agent, in connection with the grant of such mortgage or security
instrument as Collateral Agent shall request, including title insurance
policies, financing statements, fixture filings and environmental audits and
Company shall pay all recording costs, intangible taxes and other fees and
costs
(including reasonable attorneys fees and expenses) incurred in connection
therewith. Such mortgage or other real property security instrument shall be
prior to all Liens other than Permitted Liens. Company acknowledges and agrees
that, to the extent permitted by applicable law, all of the Collateral shall
remain personal property regardless of the manner of its attachment or
affixation to real property.
(c) Company
shall promptly (and in any event within five (5) business days of receipt
thereof), notify Collateral Agent in writing upon incurring or otherwise
obtaining a Commercial Tort Claim after the date hereof against any third party
and, upon request of Collateral Agent, authorize the filing of additional
financing statements or amendments to existing financing statements and do
such
other acts or things deemed necessary or desirable by Collateral Agent to give
Collateral Agent, perfected security interest in any such Commercial Tort Claim,
prior to all Liens other than Permitted Liens.
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(d) Company
shall promptly (and in any event within five (5) business days of acquiring
or
obtaining such Collateral) notify Collateral Agent in writing upon (i) acquiring
or otherwise obtaining any Collateral after the date hereof consisting of
Trademarks, Patents, Copyrights, licenses with respect to any of the foregoing,
Investment Property, Chattel Paper (electronic, tangible or otherwise),
Documents, Instruments or Letter-of-Credit Rights or (ii) any amount payable
under or in connection with any of the Collateral being or becoming evidenced
after the date hereof by any Chattel Paper, Documents or Instruments and, in
each such case upon the request of Collateral Agent and in accordance with
Section 6 hereof, promptly execute such other documents, or if applicable,
deliver such Chattel Paper, Documents, Instruments, other possessory collateral
or certificates evidencing any Investment Property (other than the Excluded
Investment Property) in accordance with Section 6 hereof and do such other
acts
or things reasonably deemed necessary or desirable by Collateral Agent to
protect Collateral Agent’s Lien therein.
(e) At
the
request of Collateral Agent, Company shall obtain an authenticated control
agreement, in form and substance satisfactory to Collateral Agent, from each
bank holding a Deposit Account for Company and each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or
holding any financial assets or commodities to or for Company.
(f) Company
shall not (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral, except
(A) expressly permitted by the Purchase Agreement, (B) sales, assignments or
other dispositions of inventory in the ordinary course of business, (C) sales,
assignments or other dispositions of worn-out or obsolete equipment no longer
used or useful in the business of Company in the ordinary course of business,
(D) licenses of intellectual property pursuant to a non-exclusive license
granted to others not interfering in any material respect with the business
of
Company, and (E) licenses of intellectual property pursuant to an exclusive
license with respect to geographic location, limited time duration or field
of
use granted to others not interfering in any material respect with the business
of Company, or (ii) create or permit to exist any Lien upon or with respect
to
any of the Collateral, except for Permitted Liens. The inclusion of proceeds
in
the Collateral shall not be deemed to constitute Collateral Agent’s consent to
any sale or other disposition of any of the Collateral except as expressly
permitted in this Security Agreement or the Purchase Agreement.
5. Authorized
Action by Collateral Agent.
Company
hereby appoints Collateral Agent as its attorney-in-fact (which appointment
is
coupled with an interest) and agrees that Collateral Agent may perform (but
Collateral Agent shall not be obligated to and shall incur no liability to
Company or any third party for failure so to do) any act which Company is
obligated by this Security Agreement to perform, exercise such rights and powers
as Company might exercise with respect to the Collateral, and take any other
action and execute any instrument which Collateral Agent may deem necessary
or
advisable to accomplish the purposes of this Security Agreement, including
the
right to (a) collect by legal proceedings or otherwise and endorse, receive
and receipt for all dividends, interest, payments, proceeds and other sums
and
property now or hereafter payable on or on account of the Collateral;
(b) enter into any extension, reorganization, deposit, merger,
consolidation or other agreement pertaining to, or deposit, surrender, accept,
hold or apply other property in exchange for the Collateral; (c) make any
compromise or settlement, and take any action it deems advisable, with respect
to the Collateral; (d) insure, process and preserve the Collateral;
(e) pay any indebtedness of Company relating to the Collateral; and (f) to
perform any and all of the obligations of Company contained in any contract,
lease, or other agreement and exercise any and all rights of Company therein
contained as fully as Company itself could; and (g) execute other
documents, instruments and agreements required hereunder; provided,
however,
that
Collateral Agent shall not exercise any such powers granted pursuant to
subsections (a) through (f) prior to the occurrence of an Event of Default
and
shall only exercise such powers during the continuance of an Event of Default.
Company agrees to reimburse Collateral Agent upon demand for any costs and
expenses, including reasonable attorneys’ fees, Collateral Agent may incur while
acting as Company’s attorney-in-fact hereunder, all of which costs and expenses
are included in the Obligations. It is further agreed and understood between
the
parties hereto that such care as Collateral Agent gives to the safekeeping
of
its own property of like kind shall constitute reasonable care of the Collateral
when in Collateral Agent’s possession; provided,
however,
that
Collateral Agent shall not be required to make any presentment, demand or
protest, or give any notice and need not take any action to preserve any rights
against any prior party or any other person in connection with the Obligations
or with respect to the Collateral. To the extent permitted by law, Company
hereby ratifies all that such attorney-in-fact shall lawfully do or cause to
be
done by virtue hereof and within the limits set forth above. This power of
attorney is coupled with an interest and shall be irrevocable until this
Security Agreement is terminated.
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6. Further
Assurances.
(a) Company
agrees that from time to time, at its own expense, Company will promptly execute
and deliver all further endorsements, assignments, instruments, documents and
other writings, and take all further action, that may be necessary or that
Collateral Agent may reasonably request, in order to perfect, protect and
maintain any Lien granted or purported to be granted hereby or to enable
Collateral Agent to exercise and enforce its rights and remedies hereunder
with
respect to any of the Collateral.
(b) Company
authorizes the filing by Collateral Agent financing or continuation statements,
or amendments thereto, and Company will execute and deliver to Collateral Agent
such other instruments or notices as may be necessary or as Collateral Agent
may
reasonably request, in order to perfect and preserve the Lien granted or
purported to be granted hereby.
(c) Company
authorizes Collateral Agent at any time and from time to time to file, transmit,
or communicate, as applicable, financing statements and amendments (i)
describing the Collateral as “all personal property of debtor” or “all assets of
debtor” or words of similar effect, (ii) describing the Collateral as being of
equal or lesser scope or with greater detail, or (iii) that contain any
information required by part 5 of Article 9 of the UCC for the sufficiency
or
filing office acceptance. Company also hereby ratifies any and all financing
statements or amendments previously filed by Collateral Agent in any
jurisdiction.
(d) Company
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
filed
in connection with this Security Agreement without the prior written consent
of
Collateral Agent, subject to Company’s rights under Section 9-509(d)(2) of the
UCC.
6
7. Default
and Remedies.
(a) Default.
Company
shall be deemed in default under this Security Agreement upon the occurrence
and
during the continuance of an Event of Default (as defined in the Notes).
(b) General
Remedies.
Upon
the occurrence of an Event of Default and during continuation thereof,
Collateral Agent shall have, in addition to the rights and remedies provided
herein, in the Transaction Documents, in any other documents relating to the
Obligations, or by applicable law (including, but not limited to, levy of
attachment, garnishment and the rights and remedies set forth in the UCC of
the
jurisdiction applicable to the affected Collateral), the rights and remedies
of
a secured party under the UCC (regardless of whether the UCC is the law of
the
jurisdiction where the rights and remedies are asserted and regardless of
whether the UCC applies to the affected Collateral), and further, Collateral
Agent may, with or without judicial process or the aid and assistance of others,
(i) enter on any premises on which any of the Collateral may be located and,
without resistance or interference by Company, take possession of the
Collateral, (ii) dispose of any Collateral on any such premises, (iii) require
Company to assemble and make available to Collateral Agent at the expense of
Company any Collateral at one or more locations where Company regularly
maintains inventory, (iv) remove any Collateral from any such premises for
the
purpose of effecting sale or other disposition thereof, and/or (v) without
notice, except as provided below, which Company hereby waives to the fullest
extent permitted by law, at any place and time or times, sell and deliver any
or
all Collateral held by or for it at public or private sale, at any exchange
or
broker’s board or elsewhere, by one or more contracts, in one or more parcels,
for cash, upon credit or otherwise, at such prices and upon such terms as
Collateral Agent deems advisable, in its sole discretion (subject to any and
all
mandatory legal requirements). Company acknowledges that any such private sale
may be at prices and on terms less favorable to the seller than the prices
and
other terms which might have been obtained at a public sale and, notwithstanding
the foregoing, agrees that such private sale shall be deemed to have been made
in a commercially reasonable manner. Neither Collateral Agent’s compliance with
applicable law nor its disclaimer of warranties relating to the Collateral
shall
be considered to adversely affect the commercial reasonableness of any sale.
Company agrees that to the extent notice of sale shall be required by law,
any
requirement of reasonable notice shall be met if such notice, specifying the
place of any public sale or the time after which any private sale is to be
made,
is personally served on or mailed, postage prepaid, to Company in accordance
with the notice provisions of this Security Agreement at least 10 days before
the time of sale or other event giving rise to the requirement of such notice.
Collateral Agent shall not be obligated to make any sale or other disposition
of
the Collateral regardless of notice having been given. To the extent permitted
by applicable law, Collateral Agent or any Investor may be a purchaser at any
such sale. To the extent permitted by applicable law, Company hereby waives
all
of its rights of redemption with respect to any such sale. Subject to the
provisions of applicable law, Collateral Agent may postpone or cause the
postponement of the sale of all or any portion of the Collateral by announcement
at the time and place of such sale, and such sale may, without further notice,
to the extent permitted by law, be made at the time and place to which the
sale
was postponed, or Collateral Agent may further postpone such sale by
announcement made at such time and place.
(c) Intellectual
Property License.
In
furtherance of Collateral Agent’s rights hereunder, Company hereby grants to
Collateral Agent an irrevocable, non-exclusive license, exercisable without
royalty or other payment by Collateral Agent, and in connection with the
exercise of remedies hereunder, to use, license or sublicense any patent,
trademark, trade name, copyright or other intellectual property in which Company
now or hereafter has any right, title or interest, together with the right
of
access to all media in which any of the foregoing may be recorded or
stored.
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(d) Access.
In
addition to the rights and remedies hereunder, upon the occurrence of an Event
of Default and during the continuance thereof, Collateral Agent shall have
the
right to enter and remain upon the various premises of Company without cost
or
charge to Collateral Agent, and use the same, together with materials, supplies,
books and records of Company for the purpose of collecting and liquidating
the
Collateral, or for preparing for sale and conducting the sale of the Collateral,
whether by foreclosure, auction or otherwise. In addition, upon the occurrence
and during the continuation of an Event of Default, Collateral Agent may remove
Collateral, or any part thereof, from such premises and/or any records with
respect thereto, in order to effectively collect or liquidate such
Collateral.
(e) Nonexclusive
Nature of Remedies.
Failure
by Collateral Agent or the Investors to exercise any right, remedy or option
under this Security Agreement, any other Transaction Document, any other
document relating to the Obligations, or as provided by applicable law, or
any
delay by Collateral Agent or the holders of the Obligations in exercising the
same, shall not operate as a waiver of any such right, remedy or option. To
the
extent permitted by law, neither Collateral Agent, the Investors, nor any party
acting as attorney for Collateral Agent or the Investors, shall be liable
hereunder for any acts or omissions or for any error of judgment or mistake
of
fact or law other than their gross negligence or willful misconduct hereunder.
The rights and remedies of Collateral Agent and the Investors under this
Security Agreement shall be cumulative and not exclusive of any other right
or
remedy which Collateral Agent or the Investors may have.
(f) Marshaling.
Collateral Agent shall not be required to marshal any present or future
collateral security (including but not limited to the Collateral) for, or other
assurances of payment of, the Obligations or any of them or to resort to such
collateral security or other assurances of payment in any particular order,
and
all of its rights and remedies hereunder and in respect of such collateral
security and other assurances of payment shall be cumulative and in addition
to
all other rights and remedies, however existing or arising. To the extent that
it lawfully may, Company hereby agrees that it will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of Collateral Agent’s rights and remedies under this Security
Agreement or under any other instrument creating or evidencing any of the
Obligations or under which any of the Obligations is outstanding or by which
any
of the Obligations is secured or payment thereof is otherwise assured, and,
to
the extent that it lawfully may, Company hereby irrevocably waives the benefits
of all such laws.
(g) Application
of Collateral Proceeds.
The
proceeds and/or avails of the Collateral, or any part thereof, and the proceeds
and the avails of any remedy hereunder (as well as any other amounts of any
kind
held by Collateral Agent at the time of, or received by Collateral Agent after,
the occurrence of an Event of Default) shall be paid to and applied as
follows:
8
(i) First,
to the
payment of costs and expenses, including all amounts expended to preserve the
value of the Collateral, of foreclosure or suit, if any, and of such sale and
the exercise of any other rights or remedies, and of all proper fees, expenses,
liability and advances, including reasonable legal expenses and attorneys’ fees,
incurred or made hereunder by Collateral Agent;
(ii) Second,
to the
payment to each Investor of the interest due, owing or unpaid on such Investor’s
Note, and in case such proceeds shall be insufficient to pay in full the whole
amount due, owing or unpaid upon such Note, then its Pro Rata Share of the
amount remaining to be distributed;
(iii) Third,
to the
payment to each Investor of the principal amount due, owing or unpaid on such
Investor’s Note, and in case such proceeds shall be insufficient to pay in full
the whole amount due, owing or unpaid upon such Note, then its Pro Rata Share
of
the amount remaining to be distributed;
(iv) Fourth,
to the
payment of other amounts payable to Collateral Agent and each Investor under
any
of the Transaction Documents, and in case such proceeds shall be insufficient
to
pay in full the whole amount due, owing or unpaid under such Transaction
Documents, the amount remaining to be distributed shall be distributed pro
rata
in accordance with such other amounts payable; and
(v) Fifth,
to the
payment of the surplus, if any, to Company, its successors and assigns, or
to
whomsoever may be lawfully entitled to receive the same.
For
purposes of this Security Agreement, the term “Pro Rata Share” shall mean, when
calculating a Investor’s portion of any distribution or amount, that
distribution or amount (expressed as a percentage) equal to a fraction (i)
the
numerator of which is the outstanding principal amount of such Investor’s
Note(s) and (ii) the denominator of which is the aggregate outstanding principal
amount of all Notes issued under the Purchase Agreement. In the event that
an
Investor receives payments or distributions in excess of its Pro Rata Share,
then such Investor shall hold in trust all such excess payments or distributions
for the benefit of the other Investors and shall pay such amounts held in trust
to such other Investors upon demand by such Investors in accordance with the
Pro
Rata Shares of such Investors.
(h) Deficiency.
In the
event that the proceeds of any sale, collection or realization are insufficient
to pay all amounts to which Collateral Agent or the Investors are legally
entitled, Company shall be liable for the deficiency, together with interest
thereon at the rate of interest set forth in the Notes the costs of collection
and the reasonable fees, charges and disbursements of counsel. Any surplus
remaining after the full payment and satisfaction of the Obligations shall
be
returned to Company or to whomsoever a court of competent jurisdiction shall
determine to be entitled thereto.
8. Miscellaneous.
(a) Notices.
Except
as otherwise provided herein, all notices, requests, demands, consents,
instructions or other communications to or upon Company or Collateral Agent
under this Security Agreement shall be in writing and faxed, mailed or delivered
to each party to the facsimile number or its address set forth below (or to
such
other facsimile number or address as the recipient of any notice shall have
notified the other in writing). All such notices, requests, demands, consents,
instructions or other communications will be deemed effectively given the
earlier of (i) when received, (ii) when delivered personally, (iii) one business
day after being delivered by facsimile (with receipt of appropriate
confirmation), (iv) one business day after being deposited with an overnight
courier service of recognized standing or (v) four days after being deposited
in
the U.S. mail, first class with postage prepaid.
9
Collateral
Agent:
Xxxxx
Xxxxxxxx
c/o
Xxxxxx Xxxxx, Adv.
Gibor
Sport House (28th floor)
7,
Menahem Begin (Betzalel) St.
Ramat
Gan
52521, Israel
Tel.:
+972 (3) 575-5525 ext. 111
Fax:
x000
(0) 000-0000
Company:
Smart
Online, Inc
0000
Xxxxxxxx Xxxxxxx, 0xx
Xxxxx
Xxxxxx,
XX 00000
Attention:
Xxxxx Xxxxxx, Corporate Counsel
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
with
a
copy to:
Smith,
Anderson, Blount, Dorsett,
Xxxxxxxx
& Xxxxxxxx, LLP
0000
Xxxxxxxx Xxxxxxx Xxxxxx
Xxxxxxx,
Xxxxx Xxxxxxxx 00000-0000
Attention:
Xxxxxxxx X. Xxxxxxxxx
Telephone: (000)
000-0000
Facsimile:
(000) 000-0000
(b) Termination
of Security Interest.
(i) Upon
the
payment in full of all Obligations to the satisfaction of Collateral Agent
and
the Investors, the security interest granted herein shall terminate. Upon such
termination Collateral Agent shall, upon the request and at the expense of
Company, forthwith release all of its liens and security interests hereunder
and
shall execute and deliver all UCC termination statements and/or other documents
reasonably requested by Company evidencing such termination.
10
(ii) This
Security Agreement shall continue to be effective or be automatically
reinstated, as the case may be, if at any time payment, in whole or in part,
of
any of the Obligations is rescinded or must otherwise be restored or returned
by
Collateral Agent or any Investor as a preference, fraudulent conveyance or
otherwise under any federal, state or foreign bankruptcy, reorganization,
insolvency or similar law, all as though such payment had not been made;
provided that in the event payment of all or any part of the Obligations is
rescinded or must be restored or returned, all reasonable costs and expenses
(including without limitation any reasonable legal fees and disbursements)
incurred by Collateral Agent or any Investor in defending and enforcing such
reinstatement shall be deemed to be included as a part of the Obligations.
(c) Nonwaiver.
No
failure or delay on Collateral Agent’s part in exercising any right hereunder
shall operate as a waiver thereof or of any other right nor shall any single
or
partial exercise of any such right preclude any other further exercise thereof
or of any other right.
(d) Amendments
and Waivers.
This
Security Agreement may not be amended or modified, nor may any of its terms
be
waived, except by written instruments signed by Company and Collateral Agent.
Each waiver or consent under any provision hereof shall be effective only in
the
specific instances for the purpose for which given.
(e) Assignments.
This
Security Agreement shall be binding upon and inure to the benefit of Collateral
Agent and Company and their respective successors and assigns; provided,
however,
that
Company may not sell, assign or delegate rights and obligations hereunder
without the prior written consent of Collateral Agent.
(f) Cumulative
Rights, etc.
The
rights, powers and remedies of Collateral Agent under this Security Agreement
shall be in addition to all rights, powers and remedies given to Collateral
Agent by virtue of any applicable law, rule or regulation of any governmental
authority, any Transaction Document or any other agreement, all of which rights,
powers, and remedies shall be cumulative and may be exercised successively
or
concurrently without impairing Collateral Agent’s rights hereunder. Company
waives any right to require Collateral Agent to proceed against any person
or
entity or to exhaust any Collateral or to pursue any remedy in Collateral
Agent’s power.
(g) Payments
Free of Taxes, Etc.
All
payments made by Company under the Transaction Documents shall be made by
Company free and clear of and without deduction for any and all present and
future taxes, levies, charges, deductions and withholdings. In addition, Company
shall pay upon demand any stamp or other taxes, levies or charges of any
jurisdiction with respect to the execution, delivery, registration, performance
and enforcement of this Security Agreement. Upon request by Collateral Agent,
Company shall furnish evidence satisfactory to Collateral Agent that all
requisite authorizations and approvals by, and notices to and filings with,
governmental authorities and regulatory bodies have been obtained and made
and
that all requisite taxes, levies and charges have been paid.
(h) Partial
Invalidity.
If at
any time any provision of this Security Agreement is or becomes illegal, invalid
or unenforceable in any respect under the law or any jurisdiction, neither
the
legality, validity or enforceability of the remaining provisions of this
Security Agreement nor the legality, validity or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected
or impaired thereby.
11
(i) Construction.
Each of
this Security Agreement and the other Transaction Documents is the result of
negotiations among, and has been reviewed by, Company, the Investors, Collateral
Agent and their respective counsel. Accordingly, this Security Agreement and
the
other Transaction Documents shall be deemed to be the product of all parties
hereto, and no ambiguity shall be construed in favor of or against Company,
Investors or Collateral Agent.
(j) Entire
Agreement.
This
Security Agreement taken together with the other Transaction Documents
constitute and contain the entire agreement of Company, Investors and Collateral
Agent and supersede any and all prior agreements, negotiations, correspondence,
understandings and communications among the parties, whether written or oral,
respecting the subject matter hereof.
(k) Other
Interpretive Provisions.
References in this Security Agreement and each of the other Transaction
Documents to any document, instrument or agreement (a) includes all
exhibits, schedules and other attachments thereto, (b) includes all
documents, instruments or agreements issued or executed in replacement thereof,
and (c) means such document, instrument or agreement, or replacement or
predecessor thereto, as amended, modified and supplemented from time to time
and
in effect at any given time. The words “hereof,” “herein” and “hereunder” and
words of similar import when used in this Security Agreement or any other
Transaction Document refer to this Security Agreement or such other Transaction
Document, as the case may be, as a whole and not to any particular provision
of
this Security Agreement or such other Transaction Document, as the case may
be.
The words “include” and “including” and words of similar import when used in
this Security Agreement or any other Transaction Document shall not be construed
to be limiting or exclusive.
(l) Governing
Law.
This
Security Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without reference to conflicts of law rules
(except to the extent governed by the UCC).
(m) Counterparts.
This
Security Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall be deemed to constitute
one instrument. Delivery of an executed counterpart of this Security Agreement
by telefacsimile or other electronic method of transmission shall be equally
as
effective as delivery of an original executed counterpart of this Security
Agreement.
(n) Collateral
Agent’s Duties.
The
powers conferred on Collateral Agent hereunder are solely to protect Collateral
Agent’s interest in the Collateral, for the benefit of Collateral Agent and the
Investors, and shall not impose any duty upon Collateral Agent to exercise
any
such powers. Except for the safe custody of any Collateral in its actual
possession and the accounting for moneys actually received by it hereunder,
Collateral Agent shall have no duty as to any Collateral or as to the taking
of
any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral. Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its actual
possession if such Collateral is accorded treatment substantially equal to
that
which Collateral Agent accords its own property.
12
(o) Collateral
Agent May Perform.
After
the occurrence and during the continuation of an Event of Default, if Company
fails to perform any agreement contained herein, Collateral Agent may itself
perform, or cause performance of, such agreement, and the reasonable expenses
of
Collateral Agent incurred in connection therewith shall be payable by
Company.
[The
remainder of this page is intentionally left blank]
13
IN
WITNESS WHEREOF, Company has caused this Security Agreement to be executed
as of
the day and year first above written.
SMART
ONLINE, INC.
By:
/s/ Xxxxx X.
Xxxxxxx
Name: Xxxxx
X.
Xxxxxxx
Title:
President and
CEO
XXXXX
XXXXXXXX
As
Collateral Agent
/s/
Xxxxx
Xxxxxxxx
Name:
Xxxxx Xxxxxxxx
[Signature page to Security Agreement]
14
ATTACHMENT
1
TO
SECURITY AGREEMENT
All
right, title, interest, claims and demands of Company in and to the following
property in full:
(i) All
Accounts;
(ii) All
Chattel Paper;
(iii) All
Commercial Tort Claims listed on Exhibit
A;
(iv) All
Deposit Accounts and cash;
(v) All
Documents;
(vi) All
Equipment;
(vii) All
General Intangibles;
(viii) All
Goods;
(ix) All
Instruments;
(x) All
Intellectual Property;
(xi) All
Inventory;
(xii) All
Investment Property;
(xiii) All
Letter-of-Credit Rights; and
(xiv) To
the
extent not otherwise included, all Supporting Obligations, Proceeds and products
of any and all of the foregoing, and all accessions to, substitutions and
replacements for, and rents and profits of each of the foregoing.
Provided,
however,
Collateral does not include the Excluded Investment Property until such time
as
the Senior Obligations have been indefeasibly satisfied in full; provided,
further, however
upon the
indefeasible satisfaction of the Senior Obligations in full, Collateral does
include the Excluded Investment Property.
The
term
“Intellectual
Property”
means
all
intellectual and similar property of every kind and nature now owned or
hereafter acquired by Company, including inventions, designs, patents (whether
registered or unregistered), copyrights (whether registered or unregistered),
trademarks (whether registered or unregistered), trade secrets, domain names,
confidential or proprietary technical and business information, know-how,
methods, processes, drawings, specifications or other data or information and
all memoranda, notes and records with respect to any research and development,
software and databases and all embodiments or fixations thereof whether in
tangible or intangible form or contained on magnetic media readable by machine
together with all such magnetic media and related documentation, registrations
and franchises, and all additions, improvements and accessions to, and books
and
records describing or used in connection with, any of the
foregoing.
All
capitalized terms used in this Attachment
1
and not
otherwise defined herein shall have the respective meanings given to such terms
in the Uniform Commercial Code of the State of California as in effect from
time
to time.
2
ATTACHMENT
2
TO
SECURITY AGREEMENT
Loan
Agreement dated as of November 14, 2006 between the Company and Wachovia Bank,
N.A. and Security Agreement dated as of November 14, 2006 between the Company
and Wachovia Bank, N.A.
3
ATTACHMENT
3
TO
SECURITY AGREEMENT
State
of
Delaware
