SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of May 13, 2004, is by
---------
and between KARLNET, INC., a Delaware corporation (the "Debtor"), and YDI
------
WIRELESS, INC., a Delaware corporation (the "Secured Party").
-------------
RECITALS
A. The Secured Party and the Debtor, together with, inter alia, KFire
Merger Corporation ("Merger Sub"), have entered into an Agreement and Plan of
----------
Merger, dated as of May 13, 2004 (the "Merger Agreement") pursuant to which the
----------------
Debtor will merge with and into Merger Sub.
B. It is a condition precedent to the Secured Party entering into the
Merger Agreement that the Debtor execute and deliver to the Secured Party a
security agreement in substantially the form hereof.
C. The Debtor wishes to grant a security interest in favor of the Secured
Party as herein provided.
NOW, THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. All capitalized terms used herein without definitions shall
-----------
have the respective meanings provided therefor in the Merger Agreement. The term
"State" as used herein, means the State of Delaware. All terms defined in the
Uniform Commercial Code of the State and used herein shall have the same
-----
definitions herein as specified therein. However, if a term is defined in
Article 9 of the Uniform Commercial Code of the State differently than in
another Article of the Uniform Commercial Code of the State, the term has the
meaning specified in Article 9. The term "Obligations," as used herein, means
-----------
all of the indebtedness, obligations and liabilities of the Debtor to the
Secured Party, individually or collectively, whether direct or indirect, joint
or several, absolute or contingent, due or to become due, now existing or
hereafter arising, including without limitation all indebtedness and obligations
arising under or in respect of the Secured Promissory Note, dated May 13, 2004
(the "Note"), from the Debtor in favor of the Secured Party. The term "Event of
---- --------
Default" means the failure of the Debtor to pay or perform any of the
-------
Obligations as and when due to be paid or performed under the terms of the
applicable agreement.
2. Grant of Security Interest. The Debtor hereby grants to the Secured
--------------------------
Party, to secure the payment and performance in full of all of the Obligations,
a security interest in and so pledges and assigns to the Secured Party the
following properties, assets and rights of the Debtor, wherever located, whether
now owned or hereafter acquired or arising, and all proceeds and products
thereof (all of the same being hereinafter called the "Collateral"): all
----------
personal and fixture property of every kind and nature including without
limitation all goods (including inventory, equipment and any accessions
thereto), instruments (including promissory notes), documents, accounts
(including health-care-insurance receivables), chattel paper (whether
1
tangible or electronic), deposit accounts, letter-of-credit rights (whether or
not the letter of credit is evidenced by a writing), commercial tort claims,
securities and all other investment property, supporting obligations, any other
contract rights or rights to the payment of money, insurance claims and
proceeds, and all general intangibles (including all payment intangibles). The
Secured Party acknowledges that the attachment of its security interest in any
additional commercial tort claim as original collateral is subject to the
Debtor's compliance with Section 4.7.
3. Authorization to File Financing Statements. The Debtor hereby
------------------------------------------
irrevocably authorizes the Secured Party at any time and from time to time to
file in any filing office in any Uniform Commercial Code jurisdiction any
initial financing statements and amendments thereto that reflect the security
interest created by this Agreement and (a) indicate the Collateral (i) as all
assets of the Debtor or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as
being of an equal or lesser scope or with greater detail, and (b) provide any
other information required by part 5 of Article 9 of the Uniform Commercial Code
of the State, or such other jurisdiction, for the sufficiency or filing office
acceptance of any financing statement or amendment, including (i) whether the
Debtor is an organization, the type of organization and any organizational
identification number issued to the Debtor and (ii) in the case of a financing
statement filed as a fixture filing or indicating Collateral as as-extracted
collateral or timber to be cut, a sufficient description of real property to
which the Collateral relates. The Debtor agrees to furnish any such information
to the Secured Party promptly upon the Secured Party's request.
4. Other Actions. To further the attachment, perfection and first priority
-------------
of, and the ability of the Secured Party to enforce, the Secured Party's
security interest in the Collateral, and without limitation on the Debtor's
other obligations in this Agreement, the Debtor agrees, in each case at the
Debtor's expense, to take the following actions with respect to the following
Collateral:
4.1. Promissory Notes and Tangible Chattel Paper. If the Debtor shall at
-------------------------------------------
any time hold or acquire any promissory notes or tangible chattel paper, the
Debtor shall forthwith endorse, assign and deliver the same to the Secured
Party, accompanied by such instruments of transfer or assignment duly executed
in blank as the Secured Party may from time to time specify.
4.2. Deposit Accounts. For each deposit account that the Debtor at any time
----------------
opens or maintains, the Debtor shall, at the Secured Party's request and option,
pursuant to an agreement in form and substance satisfactory to the Secured
Party, either (a) cause the depositary bank to comply at any time with
instructions from the Secured Party to such depositary bank directing the
disposition of funds from time to time credited to such deposit account, without
further consent of the Debtor, or (b) arrange for the Secured Party to become
the customer of the depositary bank with respect to the deposit account, with
the Debtor being permitted, only with the consent of the Secured Party, to
exercise rights to withdraw funds from such deposit account. The provisions of
this paragraph shall not apply to (i) any deposit account for which the Debtor,
the depositary bank and the Secured Party have entered into a cash collateral
agreement specially negotiated among the Debtor, the depositary bank and the
Secured Party for the specific purpose
2
set forth therein, (ii) a deposit account for which the Secured Party is the
depositary bank and is in automatic control, and (iii) deposit accounts
specially and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of the Debtor's salaried
employees.
4.3. Investment Property. If the Debtor shall at any time hold or acquire
-------------------
any certificated securities, the Debtor shall forthwith endorse, assign and
deliver the same to the Secured Party, accompanied by such instruments of
transfer or assignment duly executed in blank as the Secured Party may from time
to time specify. If any securities now or hereafter acquired by the Debtor are
uncertificated and are issued to the Debtor or its nominee directly by the
issuer thereof, the Debtor shall immediately notify the Secured Party thereof
and, at the Secured Party's request and option, pursuant to an agreement in form
and substance satisfactory to the Secured Party, either (a) cause the issuer to
agree to comply with instructions from the Secured Party as to such securities,
without further consent of the Debtor or such nominee, or (b) arrange for the
Secured Party to become the registered owner of the securities. If any
securities, whether certificated or uncertificated, or other investment property
now or hereafter acquired by the Debtor are held by the Debtor or its nominee
through a securities intermediary or commodity intermediary, the Debtor shall
immediately notify the Secured Party thereof and, at the Secured Party's request
and option, pursuant to an agreement in form and substance satisfactory to the
Secured Party, either (i) cause such securities intermediary or (as the case may
be) commodity intermediary to agree to comply with entitlement orders or other
instructions from the Secured Party to such securities intermediary as to such
securities or other investment property, or (as the case may be) to apply any
value distributed on account of any commodity contract as directed by the
Secured Party to such commodity intermediary, in each case without further
consent of the Debtor or such nominee, or (ii) in the case of financial assets
or other investment property held through a securities intermediary, arrange for
the Secured Party to become the entitlement holder with respect to such
investment property, with the Debtor being permitted, only with the consent of
the Secured Party, to exercise rights to withdraw or otherwise deal with such
investment property. The provisions of this paragraph shall not apply to any
financial assets credited to a securities account for which the Secured Party is
the securities intermediary.
4.4. Collateral in the Possession of a Bailee. If any Collateral is at any
----------------------------------------
time in the possession of a bailee, the Debtor shall promptly notify the Secured
Party thereof and, at the Secured Party's request and option, shall promptly
obtain an acknowledgement from the bailee, in form and substance satisfactory to
the Secured Party, that the bailee holds such Collateral for the benefit of the
Secured Party, and that such bailee agrees to comply, without further consent of
the Debtor, with instructions from the Secured Party as to such Collateral.
4.5. Electronic Chattel Paper and Transferable Records. If the Debtor at
-------------------------------------------------
any time holds or acquires an interest in any electronic chattel paper or any
"transferable record," as that term is defined in Section 201 of the federal
Electronic Signatures in Global and National Commerce Act, or in Section 16 of
the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, the Debtor shall promptly notify the Secured Party thereof and, at
the request and option of the Secured Party, shall take such action as the
Secured Party may reasonably request to vest in the Secured Party control, under
Section 9-105 of the Uniform Commercial Code, of such electronic chattel paper
or control under Section 201 of the federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, Section 16 of the Uniform
Electronic Transactions Act, as so in effect in such jurisdiction, of such
transferable record.
3
4.6. Letter-of-Credit Rights. If the Debtor is at any time a beneficiary
-----------------------
under a letter of credit, the Debtor shall promptly notify the Secured Party
thereof and, at the request and option of the Secured Party, the Debtor shall,
pursuant to an agreement in form and substance satisfactory to the Secured
Party, either (i) arrange for the issuer and any confirmer or other nominated
person of such letter of credit to consent to an assignment to the Secured Party
of the proceeds of the letter of credit, or (ii) arrange for the Secured Party
to become the transferee beneficiary of the letter of credit, with the Secured
Party agreeing, in each case, that the proceeds of the letter to credit are to
be applied as provided in the Note.
4.7. Commercial Tort Claims. If the Debtor shall at any time hold or
----------------------
acquire a commercial tort claim, the Debtor shall immediately notify the Secured
Party in a writing signed by the Debtor of the particulars thereof and grant to
the Secured Party in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to the Secured Party.
4.8. Other Actions as to Any and All Collateral. The Debtor further agrees,
------------------------------------------
at the request and option of the Secured Party, to take any and all other
actions the Secured Party may determine to be necessary or useful for the
attachment, perfection and first priority of, and the ability of the Secured
Party to enforce, the Secured Party's security interest in any and all of the
Collateral, including, without limitation, (a) executing, delivering and, where
appropriate, filing financing statements and amendments relating thereto under
the Uniform Commercial Code, to the extent, if any, that the Debtor's signature
thereon is required therefor, (b) causing the Secured Party's name to be noted
as secured party on any certificate of title for a titled good if such notation
is a condition to attachment, perfection or priority of, or ability of the
Secured Party to enforce, the Secured Party's security interest in such
Collateral, (c) complying with any provision of any statute, regulation or
treaty of the United States as to any Collateral if compliance with such
provision is a condition to attachment, perfection or priority of, or ability of
the Secured Party to enforce, the Secured Party's security interest in such
Collateral, (d) obtaining governmental and other third party waivers, consents
and approvals in form and substance satisfactory to Secured Party, including,
without limitation, any consent of any licensor, lessor or other person
obligated on Collateral, (e) obtaining waivers from mortgagees and landlords in
form and substance satisfactory to the Secured Party, and (f) taking all actions
under any earlier versions of the Uniform Commercial Code or under any other
law, as reasonably determined by the Secured Party to be applicable in any
relevant Uniform Commercial Code or other jurisdiction, including any foreign
jurisdiction.
5. Relation to Other Security Documents. The provisions of this Agreement
------------------------------------
supplement the provisions of any real estate mortgage or deed of trust granted
by the Debtor to the Secured Party which secures the payment or performance of
any of the Obligations. Nothing contained in any such real estate mortgage or
deed of trust shall derogate from any of the rights or remedies of the Secured
Party hereunder. In addition to the provisions of this Agreement being so read
and construed with any such mortgage or deed of trust, the provisions of this
Agreement shall be read and construed with the other security documents referred
to below in the manner so indicated.
4
5.1. Pledge Agreement. At the request of the Secured Party, the Debtor will
----------------
execute and deliver to the Secured Party pledge agreement(s) pursuant to which
the Debtor will pledge to the Secured Party all the shares of the capital stock
of the Borrower's subsidiary or subsidiaries. From and after the execution of
any such pledge agreement(s), any such pledge(s) shall be governed by the terms
of such pledge agreement(s) and not by the terms of this Agreement.
5.2. Patent, Trademark, and Copyright Security Agreements. At the request
----------------------------------------------------
of the Secured Party, the Debtor will execute and deliver to the Secured Party
patent, trademark, and/or copyright security agreement(s) pursuant to which the
Debtor will grant to the Secured Party specific security interests in certain
Collateral consisting of patents and patent rights, trademarks, service marks
and trademark and service ▇▇▇▇ rights, together with the goodwill appurtenant
thereto, and/or copyrights and copyright registrations. The provisions of any
such patent, trademark, and/or copyright security agreement(s) are supplemental
to the provisions of this Agreement, and nothing contained in any such patent,
trademark, and/or copyright security agreement(s) shall derogate from any of the
rights or remedies of the Secured Party hereunder. Neither the delivery of, nor
anything contained in, any such patent, trademark, and/or copyright security
agreement(s) shall be deemed to prevent or postpone the time of attachment or
perfection of any security interest in such Collateral created hereby.
5.3. Copyright Memorandum. At the request of the Secured Party, the Debtor
--------------------
will execute and deliver to the Secured Party for recording in the United States
Copyright Office (the "Copyright Office") a Memorandum of Grant of Security
Interest in Copyrights. The Debtor represents and warrants to the Secured Party
that such Memorandum will identify all material copyrights and other rights in
and to all material copyrightable works of the Debtor, identified, where
applicable, by title, author and/or Copyright Office registration number and
date. The Debtor covenants, promptly following the Debtor's acquisition thereof,
to provide to the Secured Party upon request like identifications of all
material copyrights and other rights in and to all material copyrightable works
hereafter acquired by the Debtor, to register such copyrights with the Copyright
Office, and to execute and deliver to the Secured Party a supplemental
Memorandum of Grant of Security Interest in Copyrights, in form and substance
satisfactory to the Secured Party, modified to reflect such subsequent
acquisitions and registrations.
6. Representations and Warranties Concerning Debtor's Legal Status. The
---------------------------------------------------------------
Debtor has previously delivered to the Secured Party a certificate signed by the
Debtor and entitled "Perfection Certificate" (the "Perfection Certificate"). The
----------------------
Debtor represents and warrants to the Secured Party as follows: (a) the Debtor's
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof, (b) the Debtor is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate, (c) the
Perfection Certificate accurately sets forth the Debtor's organizational
identification number or accurately states that the Debtor has none, (d) the
Perfection Certificate accurately sets forth the Debtor's place of business or,
if more than one, its chief executive office, as well as the Debtor's mailing
address, if different, (e) all other information set forth on the Perfection
Certificate pertaining to the Debtor is accurate and complete, and (f) there has
been no change in any information provided in the Perfection Certificate since
the date on which it was executed by the Debtor.
5
7. Covenants Concerning Debtor's Legal Status. The Debtor covenants with
------------------------------------------
the Secured Party as follows: (a) without providing at least 30 days prior
written notice to the Secured Party, the Debtor will not change its name, its
place of business or, if more than one, chief executive office, or its mailing
address or organizational identification number if it has one, (b) if the Debtor
does not have an organizational identification number and later obtains one, the
Debtor shall forthwith notify the Secured Party of such organizational
identification number, and (c) the Debtor will not change its type of
organization, jurisdiction of organization or other legal structure.
8. Representations and Warranties Concerning Collateral, etc. The Debtor
---------------------------------------------------------
further represents and warrants to the Secured Party as follows: (a) the Debtor
is the owner of or has other rights in or power to transfer the Collateral, free
from any right or claim or any person or any adverse lien, security interest or
other encumbrance, except for the security interest created by this Agreement,
(b) none of the Collateral constitutes, or is the proceeds of, "farm products"
as defined in Section 9-102(a)(34) of the Uniform Commercial Code of the State,
(c) none of the account debtors or other persons obligated on any of the
Collateral is a governmental authority covered by the Federal Assignment of
Claims Act or like federal, state or local statute or rule in respect of such
Collateral, (d) the Debtor holds no commercial tort claim except as indicated on
the Perfection Certificate, (e) the Debtor has at all times operated its
business in compliance with all applicable provisions of the federal Fair Labor
Standards Act, as amended, and with all applicable provisions of federal, state
and local statutes and ordinances dealing with the control, shipment, storage or
disposal of hazardous materials or substances, (f) all other information set
forth on the Perfection Certificate pertaining to the Collateral is accurate and
complete, and (g) that there has been no change in any information provided in
the Perfection Certificate since the date on which it was executed by the
Debtor.
9. Covenants Concerning Collateral, etc. The Debtor further covenants with
------------------------------------
the Secured Party as follows: (a) the Collateral, to the extent not delivered to
the Secured Party pursuant to Section 4, will be kept at those locations listed
on the Perfection Certificate and the Debtor will not remove the Collateral from
such locations, without providing at least thirty days prior written notice to
the Secured Party, (b) except for the security interest herein granted, the
Debtor shall be the owner of or have other rights in the Collateral free from
any right or claim of any other person, lien, security interest or other
encumbrance, and the Debtor shall defend the same against all claims and demands
of all persons at any time claiming the same or any interests therein adverse to
the Secured Party, (c) the Debtor shall not pledge, mortgage or create, or
suffer to exist any right of any person in or claim by any person to the
Collateral, or any security interest, lien or encumbrance in the Collateral in
favor of any person, other than the Secured Party, (d) the Debtor will keep the
Collateral in good order and repair and will not use the same in violation of
law or any policy of insurance thereon, (e) the Debtor will permit the Secured
Party, or its designee, to inspect the Collateral at any reasonable time,
wherever located, (f) the Debtor will pay promptly when due all taxes,
assessments, governmental charges and levies upon the Collateral or incurred in
connection with the use or operation of such Collateral or incurred in
connection with this Agreement, (g) the Debtor will continue to operate, its
business in compliance with all applicable provisions of the federal Fair Labor
Standards Act, as amended, and with all applicable provisions of federal, state
and local statutes and ordinances dealing with the control, shipment, storage or
disposal of hazardous materials or substances, and (h) the Debtor will not sell
or otherwise dispose, or offer to sell or otherwise dispose, of the
6
Collateral or any interest therein except for sales and leases of inventory and
licenses of general intangibles in the ordinary course of business.
10. Insurance.
---------
10.1. Maintenance of Insurance. The Debtor will maintain with
------------------------
financially sound and reputable insurers insurance with respect to its
properties and business against such casualties and contingencies as shall be in
accordance with general practices of businesses engaged in similar activities in
similar geographic areas. Such insurance shall be in such minimum amounts that
the Debtor will not be deemed a co-insurer under applicable insurance laws,
regulations and policies and otherwise shall be in such amounts, contain such
terms, be in such forms and be for such periods as may be reasonably
satisfactory to the Secured Party. In addition, all such insurance shall be
payable to the Secured Party as loss payee. Without limiting the foregoing, the
Debtor will (i) keep all of its physical property insured with casualty or
physical hazard insurance on an "all risks" basis, with broad form flood and
earthquake coverages and electronic data processing coverage, with a full
replacement cost endorsement and an "agreed amount" clause in an amount equal to
100% of the full replacement cost of such property, (ii) maintain all such
workers' compensation or similar insurance as may be required by law, and (iii)
maintain, in amounts and with deductibles equal to those generally maintained by
businesses engaged in similar activities in similar geographic areas, general
public liability insurance against claims of bodily injury, death or property
damage occurring, on, in or about the properties of the Debtor; business
interruption insurance; and product liability insurance.
10.2. Insurance Proceeds. The proceeds of any casualty insurance in
------------------
respect of any casualty loss of any of the Collateral shall, subject to the
rights, if any, of other parties with an interest having priority in the
property covered thereby, (i) so long as no Default or Event of Default has
occurred and is continuing and to the extent that the amount of such proceeds is
less than $10,000, be disbursed to the Debtor for direct application by the
Debtor solely to the repair or replacement of the Debtor's property so damaged
or destroyed, and (ii) in all other circumstances, be held by the Secured Party
as cash collateral for the Obligations. The Secured Party may, at its sole
option, disburse from time to time all or any part of such proceeds so held as
cash collateral, upon such terms and conditions as the Secured Party may
reasonably prescribe, for direct application by the Debtor solely to the repair
or replacement of the Debtor's property so damaged or destroyed, or the Secured
Party may apply all or any part of such proceeds to the Obligations.
10.3. Continuation of Insurance. All policies of insurance shall provide
-------------------------
for at least 30 days prior written cancellation notice to the Secured Party. In
the event of failure by the Debtor to provide and maintain insurance as herein
provided, the Secured Party may, at its option, provide such insurance and
charge the amount thereof to the Debtor. The Debtor shall furnish the Secured
Party with certificates of insurance and policies evidencing compliance with the
foregoing insurance provision.
7
11. Collateral Protection Expenses; Preservation of Collateral.
----------------------------------------------------------
11.1. Expenses Incurred by Secured Party. In the Secured Party's
----------------------------------
discretion, if the Debtor fails to do so, the Secured Party may discharge taxes
and other encumbrances at any time levied or placed on any of the Collateral,
maintain any of the Collateral, make repairs thereto and pay any necessary
filing fees or insurance premiums. Any such expenditures shall become and be
treated as Obligations. The Debtor agrees to reimburse the Secured Party on
demand for all expenditures so made. The Secured Party shall have no obligation
to the Debtor to make any such expenditures, nor shall the making thereof be
construed as the waiver or cure of any Event of Default.
11.2. Secured Party's Obligations and Duties. Anything herein to the
--------------------------------------
contrary notwithstanding, the Debtor shall remain obligated and liable under
each contract or agreement comprised in the Collateral to be observed or
performed by the Debtor thereunder. The Secured Party shall not have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by the Secured Party of any payment
relating to any of the Collateral, nor shall the Secured Party be obligated in
any manner to perform any of the obligations of the Debtor under or pursuant to
any such contract or agreement, to make inquiry as to the nature or sufficiency
of any payment received by the Secured Party in respect of the Collateral or as
to the sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Secured Party or to which the Secured Party may be entitled at
any time or times. The Secured Party's sole duty with respect to the custody,
safe keeping and physical preservation of the Collateral in its possession,
under Section 9-207 of the Uniform Commercial Code of the State or otherwise,
shall be to deal with such Collateral in the same manner as the Secured Party
deals with similar property for its own account.
12. Securities and Deposits. The Secured Party may at any time, at its
-----------------------
option, transfer to itself or any nominee any securities constituting
Collateral, receive any income thereon and hold such income as additional
Collateral or apply it to the Obligations. Whether or not any Obligations are
due, the Secured Party may demand, ▇▇▇ for, collect, or make any settlement or
compromise which it deems desirable with respect to the Collateral. Regardless
of the adequacy of Collateral or any other security for the Obligations, any
deposits or other sums at any time credited by or due from the Secured Party to
the Debtor may at any time be applied to or set off against any of the
Obligations.
13. Notification to Account Debtors and Other Persons Obligated on
--------------------------------------------------------------
Collateral. The Debtor shall, at the request and option of the Secured Party,
----------
notify account debtors and other persons obligated on any of the Collateral of
the security interest of the Secured Party in any account, chattel paper,
general intangible, instrument or other Collateral and that payment thereof is
to be made directly to the Secured Party or to any financial institution
designated by the Secured Party as the Secured Party's agent therefor, and the
Secured Party may itself, without notice to or demand upon the Debtor, so notify
account debtors and other persons obligated on Collateral. After the making of
such a request or the giving of any such notification, the Debtor shall hold any
proceeds of collection of accounts, chattel paper, general intangibles,
instruments and other Collateral received by the Debtor as trustee for the
Secured Party without commingling
8
the same with other funds of the Debtor and shall turn the same over to the
Secured Party in the identical form received, together with any necessary
endorsements or assignments. The Secured Party shall apply the proceeds of
collection of accounts, chattel paper, general intangibles, instruments and
other Collateral received by the Secured Party to the Obligations, such proceeds
to be immediately credited after final payment in cash or other immediately
available funds of the items giving rise to them.
14. Power of Attorney.
-----------------
14.1. Appointment and Powers of Secured Party. The Debtor hereby
---------------------------------------
irrevocably constitutes and appoints the Secured Party and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in the place and
stead of the Debtor or in the Secured Party's own name, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action
and to execute any and all documents and instruments that may be necessary or
useful to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives said attorneys the power and right, on
behalf of the Debtor, without notice to or assent by the Debtor, to do the
following:
(a) upon the occurrence and during the continuance of an Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise dispose of or deal with any of the Collateral in such manner as is
consistent with the Uniform Commercial Code of the State and as fully and
completely as though the Secured Party were the absolute owner thereof for all
purposes, and to do, at the Debtor's expense, at any time, or from time to time,
all acts and things which the Secured Party deems necessary or useful to
protect, preserve or realize upon the Collateral and the Secured Party's
security interest therein, in order to effect the intent of this Agreement, all
at least as fully and effectively as the Debtor might do, including, without
limitation, (i) the filing and prosecuting of registration and transfer
applications with the appropriate federal, state, local or other agencies or
authorities with respect to trademarks, copyrights and patentable inventions and
processes, (ii) the exercise of voting rights with respect to voting securities,
which rights may be exercised, if the Secured Party so elects, with a view to
causing the liquidation of assets of the issuer of any such securities, and
(iii) the execution, delivery and recording, in connection with any sale or
other disposition of any Collateral, of the endorsements, assignments or other
instruments of conveyance or transfer with respect to such Collateral; and
(b) to the extent that the Debtor's authorization given in
Section 3 is not sufficient, to file such financing statements with respect
hereto, with or without the Debtor's signature, or a photocopy of this Agreement
in substitution for a financing statement, as the Secured Party may deem
appropriate and to execute in the Debtor's name such financing statements and
amendments thereto and continuation statements which may require the Debtor's
signature.
14.2. Ratification by Debtor. To the extent permitted by law, the Debtor
----------------------
hereby ratifies all that said attorneys shall lawfully do or cause to be done by
virtue hereof. This power of attorney is a power coupled with an interest and is
irrevocable.
9
14.3. No Duty on Secured Party. The powers conferred on the Secured Party
------------------------
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. The Secured Party shall be
accountable only for the amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Debtor for any act or failure to
act, except for the Secured Party's own gross negligence or willful misconduct.
15. Rights and Remedies. If an Event of Default shall have occurred and be
-------------------
continuing, the Secured Party, without any other notice to or demand upon the
Debtor, shall have in any jurisdiction in which enforcement hereof is sought, in
addition to all other rights and remedies, the rights and remedies of a secured
party under the Uniform Commercial Code of the State and any additional rights
and remedies which may be provided to a secured party in any jurisdiction in
which Collateral is located, including, without limitation, the right to take
possession of the Collateral, and for that purpose the Secured Party may, so far
as the Debtor can give authority therefor, enter upon any premises on which the
Collateral may be situated and remove the same therefrom. The Secured Party may
in its discretion require the Debtor to assemble all or any part of the
Collateral at such location or locations within the jurisdiction(s) of the
Debtor's principal office(s) or at such other locations as the Secured Party may
reasonably designate. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, the Secured Party shall give to the Debtor at least five business days
prior written notice of the time and place of any public sale of Collateral or
of the time after which any private sale or any other intended disposition is to
be made. The Debtor hereby acknowledges that five business days prior written
notice of such sale or sales shall be reasonable notice. In addition, the Debtor
waives any and all rights that it may have to a judicial hearing in advance of
the enforcement of any of the Secured Party's rights and remedies hereunder,
including, without limitation, its right following an Event of Default to take
immediate possession of the Collateral and to exercise its rights and remedies
with respect thereto.
16. Standards for Exercising Rights and Remedies. To the extent that
--------------------------------------------
applicable law imposes duties on the Secured Party to exercise remedies in a
commercially reasonable manner, the Debtor acknowledges and agrees that it is
not commercially unreasonable for the Secured Party (a) to fail to incur
expenses reasonably deemed significant by the Secured Party to prepare
Collateral for disposition or otherwise to fail to complete raw material or work
in process into finished goods or other finished products for disposition, (b)
to fail to obtain third party consents for access to Collateral to be disposed
of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (c) to fail to exercise collection
remedies against account debtors or other persons obligated on Collateral or to
fail to remove liens or encumbrances on or any adverse claims against
Collateral, (d) to exercise collection remedies against account debtors and
other persons obligated on Collateral directly or through the use of collection
agencies and other collection specialists, (e) to advertise dispositions of
Collateral through publications or media of general circulation, whether or not
the Collateral is of a specialized nature, (f) to contact other persons, whether
or not in the same business as the Debtor, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (h) to dispose of Collateral by
utilizing Internet sites that provide for the auction of assets of the
10
types included in the Collateral or that have the reasonable capability of doing
so, or that match buyers and sellers of assets, (i) to dispose of assets in
wholesale rather than retail markets, (j) to disclaim disposition warranties,
(k) to purchase insurance or credit enhancements to insure the Secured Party
against risks of loss, collection or disposition of Collateral or to provide to
the Secured Party a guaranteed return from the collection or disposition of
Collateral, or (l) to the extent deemed appropriate by the Secured Party, to
obtain the services of other brokers, investment bankers, consultants and other
professionals to assist the Secured Party in the collection or disposition of
any of the Collateral. The Debtor acknowledges that the purpose of this Section
16 is to provide non-exhaustive indications of what actions or omissions by the
Secured Party would fulfill the Secured Party's duties under the Uniform
Commercial Code or other law of the State or any other relevant jurisdiction in
the Secured Party's exercise of remedies against the Collateral and that other
actions or omissions by the Secured Party shall not be deemed to fail to fulfill
such duties solely on account of not being indicated in this Section 16. Without
limitation upon the foregoing, nothing contained in this Section 16 shall be
construed to grant any rights to the Debtor or to impose any duties on the
Secured Party that would not have been granted or imposed by this Agreement or
by applicable law in the absence of this Section 16.
17. No Waiver by Secured Party, etc. The Secured Party shall not be deemed
-------------------------------
to have waived any of its rights or remedies in respect of the Obligations or
the Collateral unless such waiver shall be in writing and signed by the Secured
Party. No delay or omission on the part of the Secured Party in exercising any
right or remedy shall operate as a waiver of such right or remedy or any other
right or remedy. A waiver on any one occasion shall not be construed as a bar to
or waiver of any right or remedy on any future occasion. All rights and remedies
of the Secured Party with respect to the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised singularly, alternatively, successively or concurrently at such
time or at such times as the Secured Party deems expedient.
18. Suretyship Waivers by Debtor. The Debtor waives demand, notice,
----------------------------
protest, notice of acceptance of this Agreement, notice of loans made, credit
extended, Collateral received or delivered or other action taken in reliance
hereon and all other demands and notices of any description. With respect to
both the Obligations and the Collateral, the Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security interest
in any Collateral, to the addition or release of any party or person primarily
or secondarily liable, to the acceptance of partial payment thereon and the
settlement, compromising or adjusting of any thereof, all in such manner and at
such time or times as the Secured Party may deem advisable. The Secured Party
shall have no duty as to the collection or protection of the Collateral or any
income therefrom, the preservation of rights against prior parties, or the
preservation of any rights pertaining thereto beyond the safe custody thereof as
set forth in Section 11.2. The Debtor further waives any and all other
suretyship defenses.
19. Marshalling. The Secured Party 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
11
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, the Debtor hereby agrees that it
will not invoke any law relating to the marshalling of collateral which might
cause delay in or impede the enforcement of the Secured Party's rights and
remedies under this 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, the Debtor hereby
irrevocably waives the benefits of all such laws.
20. Proceeds of Dispositions; Expenses. The Debtor shall pay to the Secured
----------------------------------
Party on demand any and all expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by the Secured Party in protecting, preserving
or enforcing the Secured Party's rights and remedies under or in respect of any
of the Obligations or any of the Collateral. After deducting all of said
expenses, the residue of any proceeds of collection or sale or other disposition
of the Collateral shall, to the extent actually received in cash, be applied to
the payment of the Obligations in such order or preference as the Secured Party
may determine, proper allowance and provision being made for any Obligations not
then due. Upon the final payment and satisfaction in full of all of the
Obligations and after making any payments required by Sections 9-608(a)(1)(C) or
9-615(a)(3) of the Uniform Commercial Code of the State, any excess shall be
returned to the Debtor. In the absence of final payment and satisfaction in full
of all of the Obligations, the Debtor shall remain liable for any deficiency.
21. Overdue Amounts. Until paid, all amounts due and payable by the Debtor
---------------
hereunder shall be an Obligation secured by the Collateral and shall bear,
whether before or after judgment, interest at the rate of interest for overdue
principal set forth in the Note.
22. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED TO
--------------------------------------
TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against the Obligor in the state or federal courts
whose local geographic jurisdiction includes Falls Church, Virginia, and the
Obligor consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any and all rights
it may have to contest the appropriateness of any such action or proceeding,
whether based on lack of personal jurisdiction, lack or insufficiency of
service, improper venue, forum non conveniens, or any other basis. Process in
any action or proceeding referred to in the preceding sentence may be served on
the Obligor anywhere in the world.
23. Waiver of Jury Trial. THE DEBTOR WAIVES ITS RIGHT TO A JURY TRIAL WITH
--------------------
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH
THIS AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS, OR DUTIES HEREUNDER, OR THE
PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF. Except as prohibited by law, the
Debtor waives any right which it may have to claim or recover in any litigation
referred to in the preceding sentence any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. The Debtor (i) certifies that neither the Secured Party nor any
representative, agent or attorney of
12
the Secured Party has represented, expressly or otherwise, that the Secured
Party would not, in the event of litigation, seek to enforce the foregoing
waivers or other waivers contained in this Agreement, and (ii) acknowledges
that, in entering into the Note, the Secured Party is relying upon, among other
things, the waivers and certifications contained in this Section 23.
24. Miscellaneous. The headings of each section of this Agreement are for
-------------
convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon the
Debtor and its respective successors and assigns, and shall inure to the benefit
of the Secured Party and its successors and assigns. If any term of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity of
all other terms hereof shall in no way be affected thereby, and this Agreement
shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein. The Debtor acknowledges receipt
of a copy of this Agreement.
IN WITNESS WHEREOF, intending to be legally bound, each of the Debtor and
the Secured Party has caused this Agreement to be duly executed as of the date
first above written.
KARLNET, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President
YDI WIRELESS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
13
