INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

Exhibit 4.3

 

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

      INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement" dated as of

February 25, 2005, by and between, CGM Applied Security Technologies, Inc., a

Delaware corporation (the "Company"), and CGM Security Solutions, Inc., a

Florida corporation (the "Secured Party").

 

                              W I T N E S S E T H :

 

      WHEREAS, pursuant to a Asset Purchase Agreement, dated the date hereof

(the "Asset Purchase Agreement"), among the Company, Digital Descriptor Systems,

Inc. and the Secured Party, Company has agreed to execute and deliver to the

Secured Party and the Secured Party has agreed to accept, as partial payment for

the "Assets" defined in the Asset Purchase Agreement, a 2.86% Secured

Convertible Promissory Note (the "Note); and

 

      WHEREAS, the Secured Party agrees and acknowledges that its rights under

this Agreement are subordinate to the rights of AJW Partners, LLC, AJW Offshore,

Ltd., AJW Qualified Partners, LLC and New Millennium Capital Partners II, LLC

(together, the "Original Secured Parties"), pursuant to an Intellectual Property

Security Agreement between Digital Descriptor Systems, Inc. (the "Parent") and

the Original Secured Parties, dated November 30, 2004 (the "NIR IP Security

Agreement");

 

      Whereas, the Parent and the Original Secured Parties have entered into a

letter agreement dated as of January 31, 2005, (the "NIR Letter") which amends

certain provisions of the NIR Security Agreement and the agreements related

thereto, all of which are incorporated in this Agreement as if set forth in

their entirety herein; and

 

      WHEREAS, in order to induce the Secured Party to execute and deliver the

Asset Purchase Agreement and accept the Note as partial payment thereunder,

Company has agreed to execute and deliver to the Secured Party this Agreement

for the benefit of the Secured Party and to grant to it a security interest

secondary to the interests of the Original Secured Parties in certain

Intellectual Property (defined below) of Company to secure the prompt payment,

performance and discharge in full of all of Company's obligations under the

Note.

 

      NOW, THEREFORE, in consideration of the agreements herein contained and

for other good and valuable consideration, the receipt and sufficiency of which

is hereby acknowledged, the parties hereto hereby agree as follows:

 

            1.    Defined Terms. Unless otherwise defined herein, terms which

are defined in the Purchase Agreement and used herein are so used as so defined;

and the following terms shall have the following meanings:

 

                  "Software Intellectual Property" shall mean:

 

 

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                  (a)   all software programs (including all source code, object

code and all related applications and data files), whether now owned, upgraded,

enhanced, licensed or leased or hereafter acquired by the Company, above;

 

                  (b)   all computers and electronic data processing hardware

and firmware associated therewith;

 

                  (c)   all documentation (including flow charts, logic

diagrams, manuals, guides and specifications) with respect to such software,

hardware and firmware described in the preceding clauses (a) and (b); and

 

                  (d)   all rights with respect to all of the foregoing,

including, without limitation, any and all upgrades, modifications, copyrights,

licenses, options, warranties, service contracts, program services, test rights,

maintenance rights, support rights, improvement rights, renewal rights and

indemnifications and substitutions, replacements, additions, or model

conversions of any of the foregoing.

 

                  "Copyrights" shall mean (a) all copyrights, registrations and

applications for registration, issued or filed, including any reissues,

extensions or renewals thereof, by or with the United States Copyright Office or

any similar office or agency of the United States, any state thereof, or any

other country or political subdivision thereof, or otherwise, including, all

rights in and to the material constituting the subject matter thereof,

including, without limitation, any referred to in Schedule B hereto, and (b) any

rights in any material which is copyrightable or which is protected by common

law, United States copyright laws or similar laws or any law of any State,

including, without limitation, any thereof referred to in Schedule B hereto.

 

                  "Copyright License" shall mean any agreement, written or oral,

providing for a grant by the Company of any right in any Copyright, including,

without limitation, any thereof referred to in Schedule B hereto.

 

                  "Intellectual Property" shall means, collectively, the

Software Intellectual Property, Copyrights, Copyright Licenses, Patents, Patent

Licenses, Trademarks, Trademark Licenses and Trade Secrets.

 

                  "Obligations" means all of the Company's obligations under

this Agreement, the Asset Purchase Agreement and the Note, in each case, whether

now or hereafter existing, voluntary or involuntary, direct or indirect,

absolute or contingent, liquidated or unliquidated, whether or not jointly owed

with others, and whether or not from time to time decreased or extinguished and

later decreased, created or incurred, and all or any portion of such obligations

or liabilities that are paid, to the extent all or any part of such payment is

avoided or recovered directly or indirectly from the Secured Party as a

preference, fraudulent transfer or otherwise as such obligations may be amended,

supplemented, converted, extended or modified from time to time.

 

                  "Patents" shall mean (a) all letters patent of the United

States or any other country or any political subdivision thereof, and all

reissues and extensions thereof, including, without limitation, any thereof

referred to in Schedule B hereto, and (b) all applications for letters patent of

the United States and all divisions, continuations and continuations-in-part

 

 

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thereof or any other country or any political subdivision, including, without

limitation, any thereof referred to in Schedule B hereto.

 

                  "Patent License" shall mean all agreements, whether written or

oral, providing for the grant by the Company of any right to manufacture, use or

sell any invention covered by a Patent, including, without limitation, any

thereof referred to in Schedule B hereto.

 

                  "Security Agreement" shall mean the a Security Agreement,

dated the date hereof between Company and the Secured Party.

 

                  "Trademarks" shall mean (a) all trademarks, trade names,

corporate names, company names, business names, fictitious business names, trade

styles, service marks, logos and other source or business identifiers, and the

goodwill associated therewith, now existing or hereafter adopted or acquired,

all registrations and recordings thereof, and all applications in connection

therewith, whether in the United States Patent and Trademark Office or in any

similar office or agency of the United States, any state thereof or any other

country or any political subdivision thereof, or otherwise, including, without

limitation, any thereof referred to in Schedule B hereto, and (b) all reissues,

extensions or renewals thereof.

 

                  "Trademark License" shall mean any agreement, written or oral,

providing for the grant by the Company of any right to use any Trademark,

including, without limitation, any thereof referred to in Schedule B hereto.

 

                  "Trade Secrets" shall mean common law and statutory trade

secrets and all other confidential or proprietary or useful information and all

know-how obtained by or used in or contemplated at any time for use in the

business of the Company (all of the foregoing being collectively called a "Trade

Secret"), whether or not such Trade Secret has been reduced to a writing or

other tangible form, including all documents and things embodying, incorporating

or referring in any way to such Trade Secret, all Trade Secret licenses,

including each Trade Secret license referred to in Schedule B hereto, and

including the right to sue for and to enjoin and to collect damages for the

actual or threatened misappropriation of any Trade Secret and for the breach or

enforcement of any such Trade Secret license.

 

            2.    Grant of Security Interest. In accordance with Section 3(m) of

the Security Agreement, to secure the complete and timely payment, performance

and discharge in full, as the case may be, of all of the Obligations, the

Company hereby, unconditionally and irrevocably, pledges, grants and

hypothecates to the Secured Party, a continuing security interest in, a

continuing lien upon secondary to the interests of the Original Secured Parties

an unqualified right to possession and disposition of and a right of set-off

against, in each case to the fullest extent permitted by law, all of the

Company's right, title and interest of whatsoever kind and nature in and to the

Intellectual Property (the "Security Interest").

 

            3.    Representations and Warranties. The Company hereby represents

and warrants, and covenants and agrees with, the Secured Party as follows:

 

                  (a)   The Company has the requisite corporate power and

authority to enter into this Agreement and otherwise to carry out its

obligations thereunder. The execution, delivery and performance by the Company

of this Agreement and the filings contemplated

 

 

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therein have been duly authorized by all necessary action on the part of the

Company and no further action is required by the Company. This Agreement

constitutes a legal, valid and binding obligation of the Company enforceable in

accordance with its terms, except as enforceability may be limited by

bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the

enforcement of creditor's rights generally.

 

                  (b)   The Company represents and warrants that it has no place

of business or offices where its respective books of account and records are

kept (other than temporarily at the offices of its attorneys or accountants) or

places where the Intellectual Property is stored or located, except as set forth

on Schedule A attached hereto;

 

                  (c)   The Company is the sole owner of the Intellectual

Property (except for non-exclusive licenses granted by the Company in the

ordinary course of business), free and clear of any liens, security interests,

encumbrances, rights or claims, and is fully authorized to grant the Security

Interest in and to pledge the Intellectual Property. There is not on file in any

governmental or regulatory authority, agency or recording office an effective

financing statement, security agreement, license or transfer or any notice of

any of the foregoing (other than those that have been filed in favor of the

Secured Party pursuant to this Agreement) covering or affecting any of the

Intellectual Property. So long as this Agreement shall be in effect, the Company

shall not execute and shall not knowingly permit to be on file in any such

office or agency any such financing statement or other document or instrument

(except to the extent filed or recorded in favor of the Secured Party pursuant

to the terms of this Agreement), except for a financing statement covering

assets acquired by the Company after the date hereof, provided that the value of

the Intellectual Property covered by this Agreement along with the Collateral

(as defined in the Security Agreement) is equal to at least 150% of the

Obligations.

 

                  (d)   The Company shall at all times maintain its books of

account and records relating to the Intellectual Property at its principal place

of business and its Intellectual Property at the locations set forth on Schedule

A attached hereto and may not relocate such books of account and records unless

it delivers to the Secured Party at least 30 days prior to such relocation (i)

written notice of such relocation and the new location thereof (which must be

within the United States) and (ii) evidence that the necessary documents have

been filed and recorded and other steps have been taken to perfect the Security

Interest to create in favor of the Secured Party valid, perfected and continuing

first priority liens in the Intellectual Property to the extent they can be

perfected through such filings.

 

                  (e)   This Agreement creates in favor of the Secured Party a

valid security interest in the Intellectual Property securing the payment and

performance of the Obligations and, upon making the filings required hereunder,

a perfected first priority security interest in such Intellectual Property to

the extent that it can be perfected through such filings.

 

                  (f)   Upon request of the Secured Party, the Company shall

execute and deliver any and all agreements, instruments, documents, and papers

as the Secured Party may request to evidence the Secured Party's security

interest in the Intellectual Property and the goodwill and general intangibles

of the Company relating thereto or represented thereby, and the Company hereby

appoints the Secured Party its attorney-in-fact to execute and file all such

writings for the foregoing purposes, all acts of such attorney being hereby

ratified and

 

 

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confirmed; such power being coupled with an interest is irrevocable until the

Obligations have been fully satisfied and are paid in full.

 

                  (g)   The execution, delivery and performance of this

Agreement does not conflict with or cause a breach or default, or an event that

with or without the passage of time or notice, shall constitute a breach or

default, under any agreement to which the Company is a party or by which the

Company is bound. No consent (including, without limitation, from stock holders

or creditors of the Company) is required for the Company to enter into and

perform its obligations hereunder.

 

                  (h)   The Company shall at all times maintain the liens and

Security Interest provided for hereunder as valid and perfected first priority

liens and security interests in the Intellectual Property to the extent they can

be perfected by filing in favor of the Secured Party until this Agreement and

the Security Interest hereunder shall terminate pursuant to Section 11. The

Company hereby agrees to defend the same against any and all persons. The

Company shall safeguard and protect all Intellectual Property for the account of

the Secured Party. Without limiting the generality of the foregoing, the Company

shall pay all fees, taxes and other amounts necessary to maintain the

Intellectual Property and the Security Interest hereunder, and the Company shall

obtain and furnish to the Secured Party from time to time, upon demand, such

releases and/or subordinations of claims and liens which may be required to

maintain the priority of the Security Interest hereunder.

 

                  (i)   The Company will not transfer, pledge, hypothecate,

encumber, license (except for non-exclusive licenses granted by the Company in

the ordinary course of business), sell or otherwise dispose of any of the

Intellectual Property without the prior written consent of the Secured Party.

 

                  (j)   The Company shall, within ten (10) days of obtaining

knowledge thereof, advise the Secured Party promptly, in sufficient detail, of

any substantial change in the Intellectual Property, and of the occurrence of

any event which would have a material adverse effect on the value of the

Intellectual Property or on the Secured Party's security interest therein.

 

                  (k)   The Company shall permit the Secured Party and its

representatives and agents to inspect the Intellectual Property at any time, and

to make copies of records pertaining to the Intellectual Property as may be

requested by the Secured Party from time to time.

 

                  (l)   The Company will take all steps reasonably necessary to

diligently pursue and seek to preserve, enforce and collect any rights, claims,

causes of action and accounts receivable in respect of the Intellectual

Property.

 

                  (m)   The Company shall promptly notify the Secured Party in

sufficient detail upon becoming aware of any attachment, garnishment, execution

or other legal process levied against any Intellectual Property and of any other

information received by the Company that may materially affect the value of the

Intellectual Property, the Security Interest or the rights and remedies of the

Secured Party hereunder.

 

 

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                  (n)   All information heretofore, herein or hereafter supplied

to the Secured Party by or on behalf of the Company with respect to the

Intellectual Property is accurate and complete in all material respects as of

the date furnished. (o) Schedule A attached hereto contains a list of all of the

subsidiaries of Company.

 

                  (p)   Schedule B attached hereto includes all Licenses, and

all Patents and Patent Licenses, if any, owned by the Company in its own name as

of the date hereof. Schedule B hereto also includes all Trademarks and Trademark

Licenses, if any, owned by the Company in its own name as of the date hereof.

Schedule B hereto includes all Copyrights and Copyright Licenses, if any, owned

by the Company in its own name as of the date hereof. To the best of the

Company's knowledge, each License, Patent, Trademark and Copyright is valid,

subsisting, unexpired, enforceable and has not been abandoned. Except as set

forth in Schedule B, none of such Licenses, Patents, Trademarks and Copyrights

is the subject of any licensing or franchise agreement. To the best of the

Company's knowledge, no holding, decision or judgment has been rendered by any

Governmental Body which would limit, cancel or question the validity of any

License, Patent, Trademark or Copyright. No action or proceeding is pending (i)

seeking to limit, cancel or question the validity of any License, Patent,

Trademark or Copyright, or (ii) which, if adversely determined, would have a

material adverse effect on the value of any License, Patent, Trademark or

Copyright. The Company has used and will continue to use for the duration of

this Agreement, proper statutory notice in connection with its use of the

Patents, Trademarks and Copyrights and consistent standards of quality in

products leased or sold under the Patents, Trademarks and Copyrights.

 

                  (q)   With respect to any Intellectual Property:

 

                        (i)   such Intellectual Property is subsisting and has

                              no