SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of January 29,
2003, is made between COMMTOUCH INC., a California corporation ("Grantor") and
XDL Capital Corp., an Ontario corporation, as collateral agent for the Lenders
referred to below ("Secured Party").
Grantor and Secured Party hereby agree as follows:
SECTION 1 Definitions; Interpretation.
(a) All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Convertible Loan
Agreement.
(b) As used in this Agreement, the following terms shall have the
following meanings:
"Collateral" has the meaning set forth in Section 2.
"Company" means Commtouch Software Ltd., an Israeli corporation.
"Convertible Loan Agreement" means the Convertible Loan Agreement
dated as of January 29, 2003 among Company, Secured Party and the Lenders (as
amended, modified, renewed or extended from time to time).
"Documents" means this Agreement, the Convertible Loan Agreement,
the Promissory Notes, the Guaranty , the Company Security Agreement, the Patent
and Trademark Security Agreement and all other certificates, documents,
agreements and instruments delivered to Secured Party or the Lenders under the
Promissory Notes or in connection with the Obligations.
"Event of Default" has the meaning set forth in the Promissory Notes
between Company and the Lenders.
"Guaranty" means the Guaranty, dated as of January 29, 2003, made by
Grantor in favor of Secured Party, as collateral agent, and Lenders, as amended,
modified, renewed, extended or replaced from time to time.
"Lenders" means the several lending institutions named in Annex 1.
"Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, deposit arrangement, charge or encumbrance, lien, or other type of
preferential arrangement.
"Obligations" means the indebtedness, liabilities and other
obligations of Grantor and Company to Secured Party, as collateral agent, and
Lenders under or in connection with the Guaranty, all interest accrued thereon,
all fees and all other amounts payable by Grantor and
Company to Secured Party, as collateral agent, and Lenders thereunder or in
connection therewith, whether now existing or hereafter arising, and whether due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined, and including interest that accrues after the commencement by
or against Grantor of any bankruptcy or insolvency proceeding naming such Person
as the debtor in such proceeding.
"Permitted Lien" means (i) any Lien in favor of Secured Party or
Lenders; (ii) Liens on assets of Persons which become subsidiaries of Grantor
after the date hereof, provided that such Liens existed at the time the
respective Persons became subsidiaries of Grantor and were not created in
anticipation thereof; and (iii) other Liens which arise in the ordinary course
of business (not securing debt for borrowed money) and do not materially impair
Grantor's ownership or use of the Collateral or the value thereof.
"Person" means an individual, corporation, partnership, joint
venture, trust, unincorporated organization, governmental agency or authority,
or any other entity of whatever nature.
"UCC" means the Uniform Commercial Code as the same may, from time
to time, be in effect in the State of California.
(c) Where applicable and except as otherwise defined herein, terms
used in this Agreement shall have the meanings assigned to them in the UCC.
(d) In this Agreement, (i) the meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms defined;
and (ii) the captions and headings are for convenience of reference only and
shall not affect the construction of this Agreement.
SECTION 2 Security Interest.
(a) As security for the payment and performance of the Obligations,
Grantor hereby grants to Secured Party as collateral agent, for itself and for
the ratable benefit of Lenders, a security interest (ranking in first priority,
subject only to the rights of the Office of the Chief Scientist of Israel, set
out in Sections 9.7 and 11.13 of the Convertible Loan Agreement), in all of
Grantor's right, title and interest in, to and under all of its personal
property, wherever located and whether now existing or owned or hereafter
acquired or arising, including all accounts, chattel paper, commercial tort
claims, deposit accounts, documents, equipment (including all fixtures), general
intangibles, instruments, inventory, investment property, letter-of-credit
rights, money and all products, proceeds and supporting obligations of any and
all of the foregoing (collectively, the "Collateral"). Notwithstanding the
foregoing, except for fixtures (to the extent covered by Article 9 of the UCC),
such grant of a security interest shall not extend to, and the term "Collateral"
shall not include, any asset which would be real property under the law of the
jurisdiction in which it is located. The interest of any Lender in the
Collateral shall be on a parity with the interests of all other Lenders, and the
interest of each Lender in the Collateral shall be ratable in the proportion
that the aggregate indebtedness then outstanding and unpaid under the Promissory
Note(s) held by such Lender bears to the aggregate indebtedness then outstanding
and unpaid under the Promissory Notes held by all Lenders (except to the
2.
extent the Lenders agree to any other ratable interest therein). Any Lender
holding any instruments, certificated investment property or other Collateral
hereunder shall do so as agent for Secured Party and for the ratable benefit of
all Lenders.
Notwithstanding anything to the contrary contained in this Agreement, with
respect to provisions contained herein relating to control of Grantor's deposit
accounts or other liquid assets, the Secured Party agrees as follows:
1. Not to make use of any control agreements or rights in the deposit accounts
granted hereunder unless and until an Event of Default has occurred that has not
been cured within the applicable timeframe.
2. Not to make use of any control agreements or rights in the deposit accounts
granted hereunder to the extent that such usage exceeds the Obligations.
(b) Anything herein to the contrary notwithstanding, (i) Grantor
shall remain liable under any contracts, agreements and other documents included
in the Collateral, to the extent set forth therein, to perform all of its duties
and obligations thereunder to the same extent as if this Agreement had not been
executed, (ii) the exercise by Secured Party of any of the rights hereunder
shall not release Grantor from any of its duties or obligations under such
contracts, agreements and other documents included in the Collateral, and (iii)
Secured Party shall not have any obligation or liability under any contracts,
agreements and other documents included in the Collateral by reason of this
Agreement, nor shall Secured Party be obligated to perform any of the
obligations or duties of Grantor thereunder or to take any action to collect or
enforce any such contract, agreement or other document included in the
Collateral hereunder.
(c) This Agreement shall create a continuing security interest in
the Collateral which shall remain in effect until terminated in accordance with
Section 20 hereof.
SECTION 3 Financing Statements, Etc. Grantor shall execute and
deliver to Secured Party concurrently with the execution of this Agreement, and
Grantor hereby authorizes Secured Party to file (with or without Grantor's
signature), at any time and from time to time thereafter, all financing
statements, assignments, continuation financing statements, termination
statements, account control agreements, and other documents and instruments, in
form reasonably satisfactory to Secured Party, and take all other action, as
Secured Party may reasonably request, to perfect and continue perfected,
maintain the priority of or provide notice of the security interest of Secured
Party in the Collateral and to accomplish the purposes of this Agreement.
Without limiting the generality of the foregoing, Grantor ratifies and
authorizes the filing by Secured Party of any financing statements filed prior
to the date hereof. Grantor will cooperate with Secured Party in obtaining
control (as defined in the UCC) of Collateral consisting of deposit accounts,
investment property, letter-of-credit rights and electronic chatter paper.
Grantor will join with Secured Party in notifying any third party who has
possession of any Collateral of Secured Party's security interest therein and
obtaining an acknowledgment from the third party that it is holding the
Collateral for the benefit of Secured Party. Grantor will not create any chattel
paper without placing a legend on the chattel paper acceptable to Secured Party
indicating that Secured Party has a security interest in the chattel paper.
3.
SECTION 4 Representations and Warranties. Grantor represents and
warrants to Secured Party and each Lender that:
(a) Grantor is duly organized, validly existing and in good standing
under the law of the jurisdiction of its organization and has all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement.
(b) The execution, delivery and performance by Grantor of this
Agreement have been duly authorized by all necessary action of Grantor, and this
Agreement constitutes the legal, valid and binding obligation of Grantor,
enforceable against Grantor in accordance with its terms.
(c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or approval
or consent of any other Person, is required for the due execution, delivery or
performance by Grantor of this Agreement, except for any filings necessary to
perfect any Liens on any Collateral.
(d) (i) Grantor's chief executive office and principal place of
business (as of the date of this Agreement) is located at the address set forth
in Schedule 1; (ii) Grantor's jurisdiction of organization is set forth in
Schedule 1; Grantor's exact legal name is as set forth in the first paragraph of
this Agreement; and (iii) all other locations where Grantor conducts business or
Collateral is kept (as of the date of this Agreement) are set forth in Schedule
1.
(e) Grantor has rights in or the power to transfer the Collateral,
and Grantor is the sole and complete owner of the Collateral, free from any Lien
other than Permitted Liens.
(f) All of Grantor's U.S. and foreign patents and patent
applications, copyrights (whether or not registered), applications for
copyright, trademarks, service marks and trade names (whether registered or
unregistered), and applications for registration of such trademarks, service
marks and trade names, are set forth in Schedule 2.
(g) Grantor is not and will not become a lessee under any real
property lease or other agreement governing the location of Collateral at the
premises of another Person pursuant to which the lessor or such other Person may
obtain any rights in any of the Collateral, and no such lease or other such
agreement now prohibits, restrains, impairs or will prohibit, restrain or impair
such Grantor's right to remove any Collateral from the premises at which such
Collateral is situated, except for the usual and customary restrictions
contained in such leases of real property.
(h) No control agreements exist with respect to any Collateral other
than control agreements in favor of Secured Party.
(i) Grantor does not have or hold any chattel paper,
letter-of-credit rights or commercial tort claims except as disclosed to Secured
Party.
(j) The names and addresses of all financial institutions and other
Persons at which Grantor maintains its deposit and securities accounts, and the
account numbers and account names of such accounts, are set forth in Schedule 1.
4.
SECTION 5 Covenants. So long as any of the Obligations remain
unsatisfied, Grantor agrees that:
(a) Grantor shall appear in and defend any action, suit or
proceeding which may affect to a material extent its title to, or right or
interest in, or Secured Party's right or interest in, the Collateral, and shall
do and perform all reasonable acts that may be necessary and appropriate to
maintain, preserve and protect the Collateral.
(b) Grantor shall comply in all material respects with all laws,
regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.
(c) Grantor shall give prompt written notice to Secured Party (and
in any event not later than 30 days following any change described below in this
subsection) of: (i) any change in the location of Grantor's chief executive
office or principal place of business; (ii) any change in the locations set
forth in Schedule 1; (iii) any change in its name; (iv) any changes in its
identity or structure in any manner which might make any financing statement
filed hereunder incorrect or misleading; (v) any change in its registration as
an organization (or any new such registration); or (vi) any change in its
jurisdiction of organization; provided that Grantor shall not locate any
Collateral outside of the United States nor shall Grantor change its
jurisdiction of organization to a jurisdiction outside of the United States.
(d) Grantor shall carry and maintain in full force and effect, at
its own expense and with financially sound and reputable insurance companies,
insurance with respect to the Collateral in such amounts, with such deductibles
and covering such risks as is customarily carried by companies engaged in the
same or similar businesses and owning similar properties in the localities where
Grantor operates. Upon the request of Secured Party, Grantor shall furnish
Secured Party from time to time with full information as to the insurance
carried by it and, if so requested, copies of all such insurance policies.
Grantor shall also furnish to Secured Party from time to time upon the request
of Secured Party a certificate of Grantor's insurance broker or other insurance
specialist stating that all premiums then due on the policies relating to
insurance on the Collateral have been paid and that such policies are in full
force and effect. All insurance policies required under this subsection (d)
shall provide that they shall not be terminated or cancelled nor shall any such
policy be materially changed without at least 30 days' prior written notice to
Grantor and Secured Party. Receipt of notice of termination or cancellation of
any such insurance policies or reduction of coverages or amounts thereunder
shall entitle Secured Party to renew any such policies, cause the coverages and
amounts thereof to be maintained at levels required pursuant to the first
sentence of this subsection (d) or otherwise to obtain similar insurance in
place of such policies, in each case at the expense of Grantor.
(e) If the Collateral shall be materially damaged or destroyed, in
whole or in part, by fire or other casualty, Grantor shall give prompt notice
thereof to Secured Party. Additionally, Grantor shall in any event promptly give
Secured Party notice of all reports made to insurance companies in respect of
any claim in excess of $100,000. No settlement on account of any loss covered by
insurance shall be made for less than insured value without the consent of
Secured Party. If an Event of Default has occurred that has not been cured in
accordance with the applicable timeframe, in its sole discretion Secured Party
may apply all or any portion of
5.
such insurance proceeds to the payment of Obligations or may release all or any
portion thereof to Grantor.
(f) Grantor shall keep separate, accurate and complete books and
records with respect to the Collateral, disclosing Secured Party's security
interest hereunder.
(g) Grantor shall not surrender or lose possession of (other than to
Secured Party), sell, lease, rent, or otherwise dispose of or transfer any of
the Collateral or any right or interest therein, except in the ordinary course
of business or unless such Collateral is replaced by comparable Collateral of
similar value; provided that no such disposition or transfer of Collateral
consisting of investment property or instruments shall be permitted while any
Event of Default exists.
(h) Grantor shall keep the Collateral free of all Liens except
Permitted Liens.
(i) Grantor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral
prior to the date on which penalties attach thereto, except to the extent such
taxes, fees, assessments or governmental charges or levies are being contested
in good faith by appropriate proceedings.
(j) Grantor shall maintain and preserve its legal existence, its
rights to transact business and all other rights, franchises and privileges
necessary or desirable in the normal course of its business and operations and
the ownership of the Collateral, except in connection with any transactions
expressly permitted by the Guaranty or any other Document.
(k) Upon the request of Secured Party, Grantor shall (i) immediately
deliver to Secured Party, or an agent designated by it, appropriately endorsed
or accompanied by appropriate instruments of transfer or assignment, all
documents and instruments, all certificated securities with respect to any
investment property, all letters of credit and, upon an Event of Default that
has not been cured within the applicable timeframe, all accounts and other
rights to payment at any time evidenced by promissory notes, trade acceptances
or other instruments, (ii) cause any securities intermediaries to show on their
books that Secured Party is a first priority secured party with respect to any
investment property, and/or obtain account control agreements in favor of
Secured Party from such securities intermediaries, in form and substance
satisfactory to Secured Party, with respect to any investment property, as
requested by Secured Party, and (iii) provide such notice, obtain such
acknowledgments and take all such other action, with respect to any chattel
paper, documents and letter-of credit rights, as Secured Party shall reasonably
specify.
(l) Grantor shall at any reasonable time and from time to time
permit Secured Party or any of its agents or representatives to visit the
premises of Grantor and inspect the Collateral and to examine and make copies of
and abstracts from the records and books of account of Grantor.
(m) Grantor shall: (i) with such frequency and in such scope as
Secured Party may reasonably require, furnish to Secured Party such lists of
customers and other information relating to the accounts and other rights to
payment; (ii) give only normal discounts, allowances and credits as to accounts
and other rights to payment, in the ordinary course of business,
6.
according to normal trade practices utilized by Grantor, and enforce all
accounts and other rights to payment strictly in accordance with their terms,
except that Grantor may grant any extension of the time for payment or enter
into any agreement to make a rebate or otherwise to reduce the amount owing on
or with respect to, or compromise or settle for less than the full amount
thereof, any account or other right to payment, in the ordinary course of
business, according to normal and prudent trade practices utilized by Grantor;
and (iii) upon the request of Secured Party (A) at any time, notify all or any
designated portion of the account debtors and other obligors on the accounts and
other rights to payment of the security interest hereunder, and (B) upon the
occurrence and during the continuance of an Event of Default, notify the account
debtors and other obligors on the accounts and other rights to payment or any
designated portion thereof that payment shall be made directly to Secured Party
or to such other Person or location as Secured Party shall specify.
(n) Grantor shall (i) notify Secured Party of any material claim
made or asserted against the Collateral by any Person and of any change in the
composition of the Collateral or other event which could materially adversely
affect the value of the Collateral or Secured Party's Lien thereon; (ii) furnish
to Secured Party such statements and schedules further identifying and
describing the Collateral and such other reports and other information in
connection with the Collateral as Secured Party may reasonably request, all in
reasonable detail; and (iii) upon reasonable request of Secured Party make such
demands and requests for information and reports as Grantor is entitled to make
in respect of the Collateral.
(o) If and when Grantor shall obtain rights to any new patents,
trademarks, service marks, trade names or copyrights, or otherwise acquire or
become entitled to the benefit of, or apply for registration of, any of the
foregoing, Grantor (i) shall promptly notify Secured Party thereof and (ii)
hereby authorizes Secured Party to modify, amend, or supplement Schedule 2 and
from time to time to include any of the foregoing and make all necessary or
appropriate filings with respect thereto.
(p) Grantor shall not enter into any agreement (including any
license or royalty agreement) pertaining to any of its patents, copyrights,
trademarks, service marks and trade names, except for non-exclusive licenses in
the ordinary course of business.
(q) At Secured Party's request, Grantor will attempt to obtain from
each Person from whom Grantor leases any premises at which any Collateral is at
any time present such collateral access, subordination, waiver, consent and
estoppel agreements as Secured Party may require, in form and substance
satisfactory to Secured Party.
(r) Grantor shall give Secured Party immediate notice of the
acquisition of any instruments or securities, or the establishment of any new
deposit account or any new securities account with respect to any investment
property.
(s) Grantor shall immediately notify Secured Party if Grantor holds
or acquires (i) any commercial tort claims, (ii) any chattel paper, including
any interest in any electronic chattel paper, or (iii) any letter-of-credit
rights.
7.
SECTION 6 Collection of Accounts. Until Secured Party exercises its
rights hereunder to collect the accounts and other rights to payment, Grantor
shall endeavor in the first instance diligently to collect all amounts due or to
become due on or with respect to the accounts and other rights to payment. At
the request of Secured Party, upon the occurrence and during the continuance of
any Event of Default, all remittances received by Grantor shall be held in trust
for Secured Party and, in accordance with Secured Party's instructions, remitted
to Secured Party or deposited to an account of Secured Party in the form
received (with any necessary endorsements or instruments of assignment or
transfer). At the request of Secured Party, upon and after the occurrence of any
Event of Default, Secured Party shall be entitled to receive all distributions
and payments of any nature with respect to any investment property or
instruments, and all such distributions or payments received by the Grantor
shall be held in trust for Secured Party and, in accordance with Secured Party's
instructions, remitted to Secured Party or deposited to an account with Secured
Party in the form received (with any necessary endorsements or instruments of
assignment or transfer). Following the occurrence of an Event of Default any
such distributions and payments with respect to any investment property held in
any securities account shall be held and retained in such securities account, in
each case as part of the Collateral hereunder. Additionally, Secured Party shall
have the right, upon the occurrence of an Event of Default, following prior
written notice to the Grantor, to vote and to give consents, ratifications and
waivers with respect to any investment property and instruments, and to exercise
all rights of conversion, exchange, subscription or any other rights, privileges
or options pertaining thereto, as if Secured Party were the absolute owner
thereof; provided that Secured Party shall have no duty to exercise any of the
foregoing rights afforded to it and shall not be responsible to the Grantor or
any other Person for any failure to do so or delay in doing so.
SECTION 7 Authorization; Secured Party Appointed Attorney-in-Fact.
Secured Party shall have the right to, in the name of Grantor, or in the name of
Secured Party or otherwise, upon notice to but without the requirement of assent
by Grantor, and Grantor hereby constitutes and appoints Secured Party (and any
of Secured Party's officers, employees or agents designated by Secured Party) as
Grantor's true and lawful attorney-in-fact, with full power and authority to:
(i) sign and file any of the financing statements and other documents and
instruments which must be executed or filed to perfect or continue perfected,
maintain the priority of or provide notice of Secured Party's security interest
in the Collateral (including any notices to or agreements with any securities
intermediary); (ii) upon an Event of Default that has not been cured within the
applicable timeframe, assert, adjust, ▇▇▇ for, compromise or release any claims
under any policies of insurance; (iii) give notices of control, default or
exclusivity (or similar notices) under any account control agreement or similar
agreement with respect to exercising control over deposit accounts or securities
accounts; and (iv) execute any and all such other documents and instruments, and
do any and all acts and things for and on behalf of Grantor, which Secured Party
may deem reasonably necessary or advisable to maintain, protect, realize upon
and preserve the Collateral and Secured Party's security interest therein and to
accomplish the purposes of this Agreement. Secured Party agrees that, except
upon and during the continuance of an Event of Default, it shall not exercise
the power of attorney, or any rights granted to Secured Party, pursuant to
clauses (ii), (iii) and (iv). The foregoing power of attorney is coupled with an
interest and irrevocable so long as the Obligations have not been paid and
performed in full. Grantor hereby ratifies, to the extent permitted by law, all
that Secured Party shall lawfully and in good faith do or cause to be done by
virtue of and in compliance with this Section 7.
8.
SECTION 8 Remedies.
(a) Upon the occurrence and continuance of any Event of Default,
Secured Party shall have, in addition to all other rights and remedies granted
to it in this Agreement, the Promissory Notes, the Guaranty or any other
Document, all rights and remedies of a secured party under the UCC and other
applicable laws. Without limiting the generality of the foregoing, (i) Secured
Party may peaceably and without notice enter any premises of Grantor, take
possession of any the Collateral, remove or dispose of all or part of the
Collateral on any premises of such Grantor or elsewhere, or, in the case of
equipment, render it nonfunctional, and otherwise collect, receive, appropriate
and realize upon all or any part of the Collateral, and demand, give receipt
for, settle, renew, extend, exchange, compromise, adjust, or ▇▇▇ for all or any
part of the Collateral, as Secured Party may determine; (ii) Secured Party may
require any Grantor to assemble all or any part of the Collateral and make it
available to Secured Party at any place and time designated by Secured Party;
(iii) Secured Party may secure the appointment of a receiver of the Collateral
or any part thereof (to the extent and in the manner provided by applicable
law); (iv) Secured Party may sell, resell, lease, use, assign, license,
sublicense, transfer or otherwise dispose of any or all of the Collateral in its
then condition or following any commercially reasonable preparation or
processing (utilizing in connection therewith any of Grantor's assets, without
charge or liability to Secured Party therefor) at public or private sale, by one
or more contracts, in one or more parcels, at the same or different times, for
cash or credit, or for future delivery without assumption of any credit risk,
all as Secured Party deems advisable; provided, however, that Grantor shall be
credited with the net proceeds of sale only when such proceeds are finally
collected by Secured Party. Secured Party and each Lender shall have the right
upon any such public sale, and, to the extent permitted by law, upon any such
private sale, to purchase the whole or any part of the Collateral so sold, free
of any right or equity of redemption, which right or equity of redemption
Grantor hereby releases, to the extent permitted by law. Secured Party shall
give Grantor such notice of any private or public sales as may be required by
the UCC or other applicable law.
(b) For the purpose of enabling Secured Party to exercise its rights
and remedies under this Section 8 or otherwise in connection with this Agreement
in the Event of Default, Grantor hereby grants to Secured Party an irrevocable,
non-exclusive and assignable license (exercisable without payment or royalty or
other compensation to Grantor) to use, license or sublicense any intellectual
property Collateral, subject to compliance with obligations of the Company
towards the Chief Scientist of the State of Israel. Nothing herein derogates
from any rights the Secured Party may have under any separate security document
relating to intellectual party.
(c) Neither Secured Party nor any Lender shall have any obligation
to clean up or otherwise prepare the Collateral for sale. Secured Party has no
obligation to attempt to satisfy the Obligations by collecting them from any
other Person liable for them, and Secured Party and Lenders may release, modify
or waive any Collateral provided by any other Person to secure any of the
Obligations, all without affecting Secured Party's or any Lender's rights
against Grantor. Grantor waives any right it may have to require Secured Party
or any Lender to pursue any third Person for any of the Obligations. Secured
Party and Lenders will comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral and compliance
will not be considered adversely to affect the commercial reasonableness of any
9.
sale of the Collateral. Secured Party may sell the Collateral without giving any
warranties as to the Collateral. Secured Party may specifically disclaim any
warranties of title or the like. This procedure will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral. If
Secured Party sells any of the Collateral upon credit, Grantor will be credited
only with payments actually made by the purchaser, received by Secured Party and
applied to the indebtedness of the purchaser. In the event the purchaser fails
to pay for the Collateral, Secured Party shall act in a commercially reasonable
fashion and either proceed against the purchaser for collection of the unpaid
amounts and/or may resell the Collateral and in either event Grantor's
obligation to Secured Party shall be reduced by an amount equal to the net
proceeds of the sale.
(d) To the extent Grantor uses the proceeds of any of the
Obligations to purchase Collateral, Grantor's repayment of the Obligations shall
apply on a "first-in, first-out" basis so that the portion of the Obligations
used to purchase a particular item of Collateral shall be paid in the
chronological order the Grantor purchased the Collateral.
(e) The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise provided for
herein, shall be applied first, to the payment of the reasonable costs and
expenses of Secured Party in exercising or enforcing its rights hereunder and in
collecting or attempting to collect any of the Collateral, and to the payment of
all other amounts payable to Secured Party pursuant to Section 13 hereof; and
second, to the payment of the Obligations. Any surplus thereof which exists
after payment and performance in full of the Obligations shall be promptly paid
over to Grantor or otherwise disposed of in accordance with the UCC or other
applicable law. Grantor shall remain liable to Secured Party, as collateral
agent, and each Lender, for any deficiency which exists after any sale or other
disposition or collection of Collateral.
(f) In taking any action under this Section 8 or otherwise taking
action as collateral agent on behalf of Lenders and exercising such powers and
performing such duties under this Agreement as are granted to Secured Party
hereunder, except to the extent otherwise provided under the Documents, Secured
Party shall act in each case in accordance with the instructions of the Lender
Majority.
SECTION 9 Consents and Waivers.
(a) Grantor agrees that at any time and from time to time, without
notice to or the consent of Grantor, without incurring responsibility to
Grantor, and without impairing or releasing the security interests provided for
herein or otherwise impairing the rights of Secured Party or Lenders hereunder,
all as Secured Party or Lenders may deem advisable: (i) the principal amount of
the Obligations may be increased or decreased and additional indebtedness or
obligations of Company under the Promissory Notes may be incurred, by one or
more amendments, modifications, renewals or extensions or otherwise; (ii) the
time, manner, place or terms of any payment under the Promissory Notes may be
extended or changed, including by an increase or decrease in the interest rate
on the Promissory Notes or any fee or other amount payable under the Promissory
Notes or any other Document, by an amendment, modification or renewal of the
Promissory Notes or any other Document or otherwise; (iii) the time for
10.
Company's performance of or compliance with any term, covenant or agreement on
its part to be performed or observed under the Promissory Notes or any other
Document may be extended, or such performance or compliance waived, or failure
in or departure from such performance or compliance consented to, all in such
manner and upon such terms as Secured Party may deem proper; (iv) Secured Party
or Lenders may discharge or release, in whole or in part, any guarantor or any
other Person liable for the payment and performance of all or any part of the
Obligations, and may permit or consent to any such action or any result of such
action, and shall not be obligated to demand or enforce payment upon any of the
Obligations, nor shall Secured Party or Lenders be liable to Grantor for any
failure to collect or enforce payment of the Obligations or to realize on any
other collateral therefor; (v) in addition to the Collateral, Secured Party or
Lenders may take and hold other security (legal or equitable) of any kind, at
any time, as collateral for the Obligations, and may, from time to time, in
whole or in part, exchange, sell, surrender, release, subordinate, modify,
waive, rescind, compromise or extend such security and may permit or consent to
any such action or the result of any such action, and may apply such security
and direct the order or manner of sale thereof; (vi) Secured Party or Lenders
may request and accept any guaranties of the Obligations and may, from time to
time, in whole or in part, surrender, release, subordinate, modify, waive,
rescind, compromise or extend any such guaranty and may permit or consent to any
such action or the result of any such action; and (vii) Secured Party or Lenders
may exercise, or waive or otherwise refrain from exercising, any other right,
remedy, power or privilege (including the right to accelerate the maturity of
the Promissory Notes and any power of sale) granted by the Promissory Notes or
any other Document or other security document or agreement, or otherwise
available to Secured Party or Lenders, with respect to the Obligations, any of
the Collateral or other security for any or all of the Obligations, even if the
exercise of such right, remedy, power or privilege affects or eliminates any
right of subrogation or any other right of Grantor against Company.
(b) Grantor waives, to the fullest extent permitted by law, (i) any
right of redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshalling of the Collateral or other
collateral or security for the Obligations; and (ii) all claims, damages, and
demands against Secured Party or any Lender arising out of the repossession,
retention, sale or application of the proceeds of any sale of the Collateral, to
the extent that Secured Party has acted in a commercially reasonable manner
vis-a-vis the Collateral. However, nothing herein requires Secured Party to act
in a fiduciary manner vis a vis the Grantor or its shareholders..
(c) Additionally, Grantor waives and agrees not to assert: (i) any
right to require Secured Party or any Lender to proceed against Company, any
guarantor or any other Person, to proceed against or exhaust any other security
held for the Obligations or to pursue any other right, remedy, power or
privilege of Secured Party or any Lender whatsoever; (ii) any defense arising by
reason of any lack of corporate or other authority; (iii) any defense based upon
an election of remedies (including, if available, an election to proceed by
nonjudicial foreclosure) which destroys or impairs the subrogation rights of
Grantor or the right of Grantor to proceed against Company or any other obligor
of the Obligations for reimbursement; (iv) without limiting the generality of
the foregoing, to the fullest extent permitted by law, any defenses or benefits
that may be derived from or afforded by applicable law limiting the liability of
or exonerating guarantors or sureties or which conflict with the terms of this
Agreement.
11.
(d) All rights of Secured Party and Lenders hereunder, and the
obligations of Grantor hereunder and the Lien created hereby, shall remain in
full force and effect without regard to, and shall not be impaired or affected
by, (i) any insolvency or bankruptcy, liquidation, winding up or dissolution of
Company, Grantor any other Person; (ii) any limitation, discharge, or cessation
of the liability of Company, Grantor or any other Person for any Obligations due
to any statute, regulation or rule of law, or any invalidity or unenforceability
in whole or in part of any of the Obligations, the Promissory Notes or any other
Document; (iii) any assignment or other transfer, in whole or in part, of
Secured Party's or Lenders' interests in and rights hereunder or in respect of
the Promissory Notes or any other Document; (iv) any claim, defense,
counterclaim or setoff, other than that of prior performance, that Company,
Grantor, or any other Person may have or assert; or (v) Secured Party's or any
Lender's vote, claim, distribution, election, acceptance, action or inaction in
any bankruptcy or insolvency case related to the Obligations.
(e) Grantor waives any and all notice of the creation, renewal,
modification, extension or accrual of the Obligations. The Obligations shall
conclusively be deemed to have been created, contracted, incurred and permitted
to exist in reliance upon this Agreement. Grantor waives promptness, diligence,
presentment, protest, demand for payment, notice of default, dishonor or
nonpayment and all other notices to or upon Company, Grantor or any other Person
with respect to the Obligations.
(f) Grantor shall not have any right to require Secured Party or
Lenders to obtain or disclose any information with respect to: (i) the financial
condition or character of Company or the ability of Company to pay and perform
the Obligations; (ii) the Obligations; (iii) other security for any or all of
the Obligations; (iv) the existence or nonexistence of any other guarantees of
all or any part of the Obligations; (v) any action or inaction on the part of
Secured Party, Lenders or any other Person; or (vi) any other matter, fact or
occurrence whatsoever.
(g) Until the Obligations shall be satisfied in full, Grantor shall
not have, and shall not directly or indirectly exercise, (i) any rights that it
may acquire by way of subrogation under or in respect of this Agreement or
otherwise, or (ii) any rights of contribution, indemnification, reimbursement or
similar suretyship claims arising out of this Agreement.
SECTION 10 Knowing and Explicit Consents and Waivers. Grantor
acknowledges that it has either obtained the advice of legal counsel or has had
the opportunity to obtain such advice in connection with the terms and
provisions of this Agreement. Grantor acknowledges and agrees that each of the
waivers and consents set forth herein, including those contained in Section 9,
are made with full knowledge of their significance and consequences.
Additionally, Grantor acknowledges and agrees that by executing this Agreement,
it is waiving certain rights, benefits, protections and defenses to which it may
otherwise be entitled under applicable law, and that all such waivers herein are
explicit, knowing waivers. Grantor further acknowledges and agrees that Secured
Party and Lenders are relying on such waivers in creating the Obligations, and
that such waivers are a material part of the consideration which Secured Party
and Lenders are receiving for creating the Obligations.
12.
SECTION 11 Notices. All notices or other communications hereunder
shall be in writing (including by facsimile transmission or by email) and
mailed, sent or delivered to the respective parties hereto at or to their
respective addresses or facsimile numbers or email addresses set forth below
their names on the signature pages hereof, or at or to such other address,
facsimile number or email address as shall be designated by any party in a
written notice to the other parties hereto. All such notices and other
communications shall be deemed to be delivered when a record (within the meaning
of the UCC) has been (i) delivered by hand; (ii) sent by mail upon the earlier
of the date of receipt or five business days after deposit in the mail, first
class (or air mail as to communications sent to or from the United States);
(iii) sent by facsimile transmission; or (iv) sent by email.
SECTION 12 No Waiver; Cumulative Remedies. No failure on the part of
Secured Party or any Lender to exercise, and no delay in exercising, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, remedy, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights and remedies under this
Agreement are cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to Secured Party and the Lenders.
SECTION 13 Costs and Expenses.
(a) Grantor agrees to pay on demand all reasonable costs and
expenses of Secured Party and each Lender, and the fees and disbursements of
counsel, in connection with the enforcement or attempted enforcement of, and
preservation of any rights or interests under, this Agreement and the Promissory
Notes, including in any out-of-court workout or other refinancing or
restructuring or in any bankruptcy case, and the protection, sale or collection
of, or other realization upon, any of the Collateral, including all expenses of
taking, collecting, holding, sorting, handling, preparing for sale, selling, or
the like, and other such expenses of sales and collections of Collateral.
(b) Any amounts payable to Secured Party and the Lenders under this
Section 13 or otherwise under this Agreement if not paid upon demand shall bear
interest from the date of such demand until paid in full, at the rate of
interest set forth in the Promissory Notes. All computations of interest shall
be made on the basis of a year of 360 days, for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest is payable.
SECTION 14 Binding Effect. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by Grantor, Secured Party, each
Lender and their respective successors and assigns and shall bind any Person who
becomes bound as a Grantor to this Agreement. Grantor may not assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder without the prior express written consent of Secured Party, as
collateral agent, and Lenders. Any such purported assignment, transfer,
hypothecation or other conveyance by Grantor without the prior express written
consent of Secured Party, as collateral agent, and Lenders shall be void.
13.
SECTION 15 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of California, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Collateral are governed by the law of a jurisdiction other than
California.
SECTION 16 Entire Agreement; Amendment. This Agreement contains the
entire agreement of the parties with respect to the subject matter hereof. No
amendment or waiver of any provision of this Agreement nor consent to any
departure therefrom by Grantor shall in any event be effective unless the same
shall be in writing and signed by Secured Party (with the consent of the Lender
Majority), and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by Secured Party, affect the rights, duties or obligations of Secured
Party under or in respect of this Agreement.
SECTION 17 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 18 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
SECTION 19 Termination. Upon payment and performance in full of all
Obligations and / or full repayment and / or conversion by all Secured Parties
and/or (if a Secured Party declines to convert or be repaid upon an event as
described in section 4.4 of the Promissory Note), the expiry of 12 months from
the date of the request to convert or be repaid, by Debtor to the declining
Secured Party,, the security interest created under this Agreement shall
terminate and Secured Party shall promptly execute and deliver to Grantor such
documents and instruments reasonably requested by Grantor as shall be necessary
to evidence termination of all security interests given by Grantor to Secured
Party hereunder.
SECTION 20 Conflicts. In the event of any conflict or inconsistency
between this Agreement, on the one hand, the Convertible Loan Agreement and the
Promissory Notes, on the other hand, the terms of this Agreement shall control.
14.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
COMMTOUCH INC.
By
---------------------------------------
Title: ▇▇▇▇▇▇ ▇▇▇▇▇▇, CEO
------------------------------------------
------------------------------------------
------------------------------------------
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
XDL CAPITAL CORP., as Secured Party
By
---------------------------------------
Title:
▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇. West, ste. 901, Toronto,
------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇
------------------------------------------
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
15.
ANNEX 1
AxcessNet Resources LLC.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇▇▇ ▇▇▇▇), ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Compugen Systems Ltd.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Delta Capital Ltd.
▇▇▇-▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇
KKB Ventures LLC
Attn: ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇,▇▇. ▇▇▇▇▇
XDL Capital Corp.
▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇. ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇, ASO & ▇▇▇▇▇▇ ▇▇▇▇▇▇
16.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ Professor of the Management of Technology
MIT ▇▇▇▇▇ School of Management
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
LENE L.P.
c/o ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, General Partner
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
17.
SCHEDULE 1
to the Security Agreement
1. Jurisdiction of Organization: California
2. Chief Executive Office and Principal Place of Business: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
3. Other locations where Grantor conducts business or Collateral is kept:
4. Deposit Accounts and Security Accounts
S-1.
SCHEDULE 2
to the Security Agreement
1. Patents and Patent Applications: N/A
2. Copyrights (Registered and Unregistered) and Copyright Applications: N/A
3. Trademarks, Service Marks and Trade Names and Trademark, Service ▇▇▇▇ and
Trade Name Applications: N/A
S-2.