SECURITY AGREEMENT
This
Security Agreement (this “
Security Agreement ”),
dated as of May 6, 2008, is by and between
Compliance Systems Corporation ,
a Nevada corporation (the “
Debtor ”)
and
Agile Opportunity Fund, LLC ,
a Delaware limited liability company (the “
Secured Party ”).
Background
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1.
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The
Secured Party has purchased from the Debtor a Secured Convertible
Debenture (the “
Debenture ”)
in the principal amount of $300,000.00, pursuant to a Securities
Purchase Agreement between the Debtor and the Secured Party dated
as of the date hereof (the “
Securities Purchase Agreement ”)
and may purchase an Additional Debenture pursuant to the terms of
the Securities Purchase Agreement. Capitalized terms used herein
and not otherwise defined herein shall have the meanings specified
in the Securities Purchase Agreement.
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2.
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To
induce the Secured Party to purchase the Debentures, the Debtor has
agreed to provide the Secured Party with, except as otherwise noted
herein, a first priority security interest in the Collateral (as
hereinafter defined).
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NOW,
THEREFORE,
In
consideration of the promises and the mutual covenants and
agreements herein set forth, and in order to induce the
Secured Party to purchase the Debentures, the Debtor hereby
agrees with the Secured Party as follows:
Section
1.
Grant of Security Interest. The
Debtor hereby grants to the Secured Party, on the terms and
conditions hereinafter set forth, except as otherwise noted herein,
a first priority security interest in the collateral hereinafter
identified (the “
Collateral ”).
Notwithstanding the immediately preceding sentence, the security
interest being granted by Debtor to Secured Party pursuant to this
Agreement, shall, with respect to the
Nascap Collateral (as
such term is hereinafter defined), be subordinate and junior to
that certain first priority security interest granted by Call
Compliance, Inc., a wholly-owned subsidiary of Debtor
(“
Call Compliance
”), to
Nascap Corp. (“
Nascap ”)
pursuant to the Security Agreement, dated as of September 30, 2006
(the “
Nascap Security Agreement ”),
between Call Compliance and Nascap securing the obligations of Call
Compliance under the loan (the “
Senior Loan ”)
extended to Call Compliance by Nascap and evidenced by the
Promissory Note, dated September 30, 2006 (the “
Nascap Note ”)
of Call Compliance for the benefit of Nascap and in the principal
amount of $150,000. The obligations and performance of Call
Compliance under the Nascap Note have been guaranteed by Debtor.
For purposes of this Security Agreement, the term Nascap Collateral
shall mean all of the following property of Call Compliance,
whether now owned or existing or hereafter acquired or arising and
wheresoever located:
(a)
All
accounts receivable owing to the Call Compliance arising out
of goods sold or leased or for services rendered by Call
Compliance solely in connection with the VeriSign, Inc. and
Comtel Telcom Assets, LP (and each of their respective
affiliates, successors and/or assigns) accounts, with a value
of up to $150,000 plus all accrued interest under the Senior
Loan and Nascap Note; and
(b)
All
book and records relating to any of the collateral referred to
in subsection (a) (including, without limitation, customer
data, credit files, computer programs, printouts, and other
computer materials and records of Call Compliance pertaining
to any of the foregoing).
All
of the property and interests in property described in
subsections (a) and (b) are herein collectively referred to as
the “Nascap Loan Collateral.”
Section
2.
Collateral .
The Collateral is all tangible and intangible assets of the Debtor
of whatever kind and nature (including, without limitation, all
intellectual property of whatever kind or nature of the Debtor
including patents, trademarks, tradenames, copyrights and all other
intellectual property and any applications or registrations
therefore, accounts, chattel paper, commercial tort claims,
documents, equipment, farm products, general intangibles,
instruments, inventory, investment property, and the stock of all
of Debtor’s subsidiaries), in each case whether now owned or
hereafter acquired and wherever located, and all proceeds thereof,
together with all proceeds, products, replacements and renewals
thereof.
Section
3.
Representations and Warranties; Covenants
.
The Debtor hereby represents, warrants and covenants as
follows:
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(a)
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Except
in respect of the assets securing the Senior Loan and Nascap Note,
the Debtor has title to the Collateral free from any lien, security
interest, encumbrance or claim.
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(b)
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The
Debtor will maintain the Collateral so as to preserve its value
subject to wear and tear in the ordinary course.
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(c)
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The
Debtor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada.
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(d)
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The
Debtor will pay when due all existing or future charges, liens, or
encumbrances on the Collateral, and will pay when due all taxes and
assessments now or hereafter imposed or affecting the Collateral
unless such taxes or assessments are diligently contested by the
Debtor in good faith and reasonable reserves are established
therefor.
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(e)
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All
factual information with respect to the Debentures and the
Collateral and account debtors set forth in any schedule,
certificate or other writing at any time heretofore or hereafter
furnished by the Debtor to the Secured Party, and all other written
factual information heretofore or hereafter furnished by the Debtor
to the Secured Party, is or will be true and correct in all
material respects, as of the date furnished.
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(f)
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Within
five business days following execution of this Agreement, the
Secured Party will prepare, execute and file with the Secretary of
State in the State of Nevada, a UCC-1 Financing Statement covering
the Collateral, naming the Secured Party as Secured Party
thereunder.
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(g)
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The
Debtor will keep its records concerning the Collateral at its
address shown in Section 18 below. Such records will be of such
character as to enable the Secured Party or their representatives
to determine at any time the status thereof, and the Debtor will
not, unless the Secured Party shall otherwise consent in writing,
maintain any such record at any other address.
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(h)
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The
Debtor will furnish the Secured Party information on a quarterly
basis concerning the Debtor, the Debentures and the Collateral as
the Secured Party may at any time reasonably request.
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(i)
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The
Debtor will permit the Secured Party and its representatives at any
reasonable time on five days’ prior written notice to inspect
any and all of the Collateral, and to inspect, audit and make
copies of and extracts from all records and all other papers in
possession of the Debtor pertaining to the Debentures and the
Collateral.
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(j)
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The
Debtor will, at such times as the Secured Party may reasonably
request, deliver to the Secured Party a schedule identifying the
Collateral subject to the security interest of this Security
Agreement, and such additional schedules, certificates, and reports
respecting all or any of the Collateral at the time subject to the
security interest of this Security Agreement, and the items or
amounts received by the Debtor in full or partial payment or
otherwise as proceeds received in connection with any Collateral.
Any such schedule, certificate or report shall be executed by a
duly authorized officer of the Debtor on behalf of the Debtor and
shall be in such form and detail as the Secured Party may
reasonably specify. The Debtor shall immediately notify the Secured
Party of the occurrence of any event causing loss or depreciation
in the value of the Collateral, and the amount of such loss or
depreciation.
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(k) |
If
and when so requested by the Secured Party, the Debtor will stamp
on the records of
the Debtor concerning the Collateral a notation, in a form
satisfactory to the Secured Party, of the security interest of the
Secured Party under this Security Agreement.
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Section
4.
Disposition of Collateral in Ordinary Course
.
Debtor shall not sell, transfer, assign, convey, license, grant any
right to use or otherwise dispose of any Collateral except in the
ordinary course of business, without the prior written consent of
the Secured Party.
Section
5.
Secured Party May Perform. Upon
the occurrence and continuation of an “
Event of Default ”
under a Debenture, at the option of the Secured Party, the Secured
Party may discharge taxes, liens or security interests, or other
encumbrances at any time hereafter levied or placed on the
Collateral; may pay for insurance required to be maintained on the
Collateral pursuant to Section 3; and may pay for the maintenance
and preservation of the Collateral. The Debtor agrees to reimburse
the Secured Party on demand for any payment reasonably made, or any
expense reasonably incurred, by the Secured Party pursuant to the
foregoing authorization. Until the occurrence and continuation of
an Event of Default, the Debtor may have possession of the
Collateral and use the Collateral in any lawful manner not
inconsistent with this the Security Agreement.
Section
6.
Obligations Secured; Certain Remedies.
This
Security Agreement secures the payment and performance of all
obligations of the Debtor to the Secured Party under the
Debentures, whether now existing or hereafter arising and whether
for principal, interest, costs, fees or otherwise (collectively,
the “
Obligations ”).
Upon the occurrence and
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