SECURITY AGREEMENT
(All Assets of Debtor)
Agreement made this 1st day of April, 2002, by and between VIDEOLOCITY
INTERNATIONAL, INC. and its wholly owned subsidiary, VIDEOLOCITY TECHNOLOGIES,
INC., collectively, herein referred to as Debtor, and that group of holders of
promissory notes executed by VIDEOLOCITY INTERNATIONAL, INC., as set forth in
Exhibit "B" hereto and incorporated herein by this reference, herein
collectively referred to as a "Lender". The security interest in the subject
collateral as to each said Lender shall be an undivided percentage interest set
forth in Exhibit "B".
In consideration of the mutual covenants and promises set forth herein,
Debtor and Lender agree:
SECTION ONE
CREATION OF SECURITY INTEREST
Debtor hereby grants to Lender a security interest in the collateral
described in Section Two to induce Lender to extend the due date on the subject
loans evidenced by the Promissory Notes identified in Exhibit "B" hereto by
amount and date, and to secure the performance and payment of all loans or
credit between Debtor, and Lender, in such sums and amounts as loans or credit
may be extended by Lender, and to be payable as may be directed under any
agreement extending credit, and to assure the prompt payment by Debtor, to
Lender of all indebtedness owing by Debtor to Lender, whether now existing or
hereafter incurred.
SECTION TWO
DESCRIPTION OF COLLATERAL
The collateral of this security agreement, herein referred to as
collateral, consists of the following described property:
All assets of Debtor however designated or classified as identified on
Exhibit "A" attached hereto and incorporated herein by this reference, and the
proceeds from disposition or licensing of said patents and or products created
or manufactured through the use of said patents by debtor, its agents or
contractors.
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SECTION THREE
DEBTOR'S OBLIGATIONS, GENERALLY
(a) Payment. Debtor shall pay to Lender all obligations and credit
extensions when due under existing agreements or subsequent agreements,
including all loans made or credit extended or any renewals or extensions
thereof in accordance with the terms of such agreements or notes including the
subject Promissory Notes executed by Debtor identified in Exhibit "B" hereto.
(b) Warranties and Representations. Debtor warrants and covenants that:
(1) Except for the security interest hereby granted, Debtor has, or on
acquisition will have, title to the subject collateral free from any lien,
security interest, encumbrance or claim, and Debtor will, at Debtor's expense,
defend any action that may affect the Lender's security interest in or Debtor's
title to collateral.
(2) Collateral is used or is to be used primarily for business
purposes.
(3) Debtor is a corporation and it is duly organized and existing under
the laws of the State of Nevada and is duly qualified and in good standing in
every state in which it is doing business.
(4) The execution, delivery and performance of this agreement are
within the Debtor's corporate powers, have been duly authorized, are not in
contravention of law or the terms of Debtor's charter, bylaws or other
incorporation papers, or of any indenture, agreement or undertaking to which
Debtor is a party or by which it is bound.
(5) Debtor shall give Lender written notice of each location in which
collateral is or will be kept other than for temporary processing, storage or
similar purposes. Except as such notice is given, all collateral is and shall be
kept at Debtor's address as it appears at the beginning of this agreement.
(6) Debtor shall give Lender written notice of each office of Debtor at
which records of Debtor pertaining to collateral are kept. Except as such notice
is given, all records of Debtor pertaining to the collateral are and shall be
kept at Debtor's address as it appears at the beginning of this agreement.
(7) Subject to any limitations stated therein or in connection
therewith, all balance sheets, earning statements and other financial data which
have been or may hereafter be furnished Lender to induce it to enter into this
agreement or any other agreement or otherwise in connection herewith, do or
shall fairly represent the financial condition of Debtor as of the dates and the
results of its operations for the periods for which the same are furnished, and
all other information, reports and other papers and data furnished to Lender
are, or shall be at the time
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they are so furnished, accurate and correct in all material respects and
complete insofar as completeness may be necessary to give Lender a true and
accurate knowledge of the subject matter.
(c) Performance of Agreement. Debtor shall perform all covenants and
agreements set forth in this security agreement.
SECTION FOUR
LENDER'S OBLIGATION
Lender shall extend the due date of the Notes identified in Exhibit "B"
to September 1, 2002 in consideration for Debtor granting this security
interest, but Lender shall not be under any obligation to grant additional
extensions of credit to Debtor and may terminate grants of credit (other than
the subject loan) to Debtor at any time without cause. Debtor shall remain
liable and the security agreement shall be in force as long as Debtor has any
outstanding obligation to Lender whether arising under the identified Notes or
other extension of credit now existing or hereafter incurred.
SECTION FIVE
PROCEEDS OF COLLATERAL
Debtor hereby grants to Lender a security interest in and to all
proceeds of collateral as defined by Utah Code Annotated. This provision shall
not be construed to mean that Debtor is authorized to sell, lease, or dispose of
collateral without the prior consent of Lender, except in the ordinary course of
Debtor's business.
SECTION SIX
DECREASE IN VALUE OF COLLATERAL
If in the reasonable judgment of Lender, collateral materially
decreases in value, (which shall not be exercised unless there is at least a 20%
diminution in value of the collateral), Debtor shall within 10 days after
written request either provide additional security reasonably sufficient to
satisfy Lender or arrange to reduce the total indebtedness by an amount
sufficient to satisfy Lender.
SECTION SEVEN
FINANCING STATEMENT
At the request of Lender, Debtor will join in executing or will
execute, as appropriate, all necessary financing statements in all states and
provinces as the Lender, in its sole discretion deem appropriate, in a form
satisfactory to Lender, and Debtor will pay the cost of filing such statements.
Debtor will further execute all other instruments deemed, under prudent business
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standards, to be necessary by Lender to perfect its security interest as granted
herein and pay the cost of filing such instruments. Debtor warrants that no
financing statement covering the collateral or any part thereof or any proceeds
thereof is presently on file in any public office in conflict with Lender's
security interest in the collateral.
SECTION EIGHT
LOCATION AND IDENTIFICATION OF COLLATERAL
As to all collateral that is tangible personal property, Debtor will
keep such collateral separate and identifiable and at Debtor's address showing
in this agreement, and will not remove collateral from such address without the
prior written consent of Lender except in the ordinary course of business of
Debtor.
SECTION NINE
INSURANCE
As to all collateral that is tangible personal property, Debtor shall
insure collateral with companies acceptable to Lender against casualties and in
such amounts as Lender shall require. Such insurance shall be for the benefit of
Debtor and Lender as their interests may appear. Lender is hereby authorized to
collect sums that may become due that is insuring the collateral under any such
insurance policies and apply the sums to the obligations hereby secured.
SECTION TEN
TAXES AND ASSESSMENTS
Debtor shall promptly pay when due all taxes and assessments on
collateral or for its use and operation.
SECTION ELEVEN
PROTECTION OF COLLATERAL
Debtor shall keep collateral in good order and repair ordinary wear and
tear excepted and shall not waste or destroy collateral or any part thereof.
Further, Debtor shall not use collateral in violation of any statute or
ordinance. Lender shall have the right, by or through any of its officers,
agents, attorneys or accountants, to examine and inspect collateral at any
reasonable time, including the right to make extracts from Debtor's books and
records and to arrange for verification of depreciation accounts and transfers,
under reasonable procedures, directly with account Debtors or by other methods.
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SECTION TWELVE
REIMBURSEMENT OF EXPENSES
At the option of Lender and at any time, Lender may discharge taxes,
liens, or other encumbrances on collateral which non-discharge would endanger or
impair Lender's security interest and, perform or cause to be performed for and
on behalf of Debtor any action, condition, obligation, or covenant that Debtor
fails or refuses to perform, or pay for the repair, maintenance and preservation
of collateral which non-discharge would endanger or impair Lender's security
interest. All sums so expended by Lender shall bear interest from the date of
payment at the default rate specified in the Notes, whether or not said Notes
shall have been discharged, and shall be payable at the place designated in the
above-mentioned Notes, and shall be secured by this Security Agreement.
SECTION THIRTEEN
TIME SHALL BE OF THE ESSENCE
In performing any act under this agreement and the obligations and note
secured hereby, TIME SHALL BE OF THE ESSENCE.
SECTION FOURTEEN
WAIVER
The failure of Lender to exercise any right or remedy, including
acceptance by Lender of partial or delinquent payments, shall not constitute a
waiver of any obligation of Debtor or right of Lender or constitute a waiver of
any other similar default subsequently occurring.
SECTION FIFTEEN
DEFAULT
If Debtor fails to pay any amount payable on the above mentioned Notes
or on any other indebtedness secured hereby, or shall fail to observe or perform
any of the provisions of this agreement, or of any other agreements as herein
mentioned, Debtor shall be in default. In addition, any or all of the
liabilities of Debtor to Lender shall, at the option of Lender but subject to
any time allowed by any instrument evidencing a liability, including the notice
provisions in the Notes the subject of this security interest, be immediately
due and payable without notice or demand on the occurrence of any of the
following events:
(a) The making by Debtor of any misrepresentation to Lender for the
purpose of obtaining credit or an extension of credit;
(b) The failure of Debtor after request by Lender to furnish financial
information or to permit the inspection of books or records;
(c) The issuance of an injunction or attachment against property of
Debtor;
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(d) The insolvency of Debtor or of any endorser, guarantor, or surety
on any liability of Debtor to Lender;
(e) A change in the condition or affairs, financial or otherwise, of
Debtor as in the opinion of Lender impairs Lender's security or increases its
risk;
(f) Default of Debtor under any loan, credit or other agreement to
which Lender is also a party.
SECTION SIXTEEN
REMEDIES
On any such default or election by Lender under Section Fifteen of this
Agreement, and at any time thereafter:
(a) Lender may declare all obligations secured hereby immediately due
and payable and may proceed to enforce payment and exercise any and all other
rights and remedies provided by the Utah Commercial Code, as well as any and all
other rights and remedies possessed by Lender.
(b) Lender shall have the right to remove collateral from Debtor's
premises. Lender may require Debtor to assemble collateral and make it available
to Lender at any place to be designated by Lender that is reasonably convenient
to both parties. For purposes of removal and possession of collateral, Lender or
its representatives may enter any premises of Debtor without legal process, and
Debtor hereby waives and releases Lender of and from any and all claims in
connection therewith or arising therefrom.
(c) Unless collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, Lender shall give
Debtor reasonable notice of the time and place of any public sale thereof, or of
the time after which any private sale or any other intended disposition thereof
is to be made. The requirement of reasonable notice shall be met if such notice
is mailed, postage prepaid, to the address of Debtor shown herein, or such
address as Debtor may hereafter establish for conducting its business and shall
notify Lender thereof, in writing, at least ten (10) days before the time of
sale or disposition. Expenses of retaking, holding, preparing for sale, selling,
or the like shall include reasonable attorney's fees and legal expenses of
Lender.
SECTION SEVENTEEN
GOVERNING LAW
The validity of this security agreement and any provision thereof shall
be determined under and be construed according to the laws of the State of Utah,
and all obligations of the parties created hereunder are to be performed in the
State of Utah.
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IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
Debtor:
VIDEOLOCITY INTERNATIONAL, INC. VIDEOLOCITY TECHNOLOGIES, INC.
by__________________________________ by________________________________
its C.E.O. its C.E.O.
Attest: Attest:
____________________________________ __________________________________
Secretary Secretary
Lender: CROWN JEWELS, LLC
_______________________________________ by________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Its Member/Manager
_______________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇, ▇.▇.
_______________________________________ by________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Its Member/Manager
_______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇ Trust 12/19/91
TO BE NAMED:___________________________ by________________________________
Its Trustee
by_____________________________________ W.A.J. ENTERPRISES, LLC
by________________________________
Member/Manager
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EXHIBIT "A"
DESCRIPTION OF COLLATERAL
All patents issued or to be issued on those items as identified in the following
Provisional Patent Applications made by Videolocity Technologies, Inc.
"Videolocity Digital Entertainment Solution"
Application No. 60/297,791;
"Videolocity Video Encoding & Compression Process"
Application No. 60/336,703;
"Videolocity Graphical User Interface"
Application No. 60/336,701;
"Videolocity Embedded Software Image"
Application No. 60/336,702;
"Videolocity Proprietary PCI Video Card"
Application No. 60/338/772.
"Videolocity Digital Entertainment System - Linux Version"
Application Filed.
These patents embrace the proprietary technology and intellectual property
presently owned and held by Videolocity Technologies, Inc., a wholly owned
subsidiary of Videolocity International, Inc.
VIDEOLOCITY INTERNATIONAL, INC
Attest:
by___________________________ ________________________________
its C.E.O. Secretary
VIDEOLOCITY TECHNOLOGIES, INC
Attest:
by___________________________ ________________________________
its C.E.O. Secretary
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EXHIBIT "B"
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PROMISSORY NOTES TO BE COLLATERALIZED BY PATENTED TECHNOLOGY
OWNED BY VIDEOLOCITY INTERNATIONAL, INC.
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% Ownership in
LENDER NOTE DATE AMOUNT Sec Agreement
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, JTTEN July 30, 2001 $100,000.00 6.67%
------------------------------------------------------------------------------------------------------
Crown Jewels, LLC August 24, 2001 $100,000.00 6.67%
------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ August 24, 2001 $100,000.00 6.67%
------------------------------------------------------------------------------------------------------
▇▇▇▇, ▇▇. July 31, 2001 $215,000.00 14.32%
------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ July 31, 2001 $135,000.00 9.00%
------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ Trust 12/19/91 July 30, 2001 $100,000.00 6.67%
------------------------------------------------------------------------------------------------------
W.A.J. Enterprises, LLC December 6, 2001 $300,000.00 20.00%
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TO BE NAMED $450,000.00 30.00%
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TOTAL $1,500,000.00 100%
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VIDEOLOCITY INTERNATIONAL, INC
Attest:
by___________________________ ________________________________
its C.E.O. Secretary
VIDEOLOCITY TECHNOLOGIES, INC
Attest:
by___________________________ ________________________________
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