SECURITY AGREEMENT
This
SECURITY AGREEMENT (the
“Agreement” )
is entered into as of July 7, 2008 by and among Driftwood Ventures,
Inc., a Delaware corporation (the
“Company” ),
and the persons and entities named on the Schedule of Purchasers
attached hereto (each individually
a
“Purchaser” and
collectively, the
“Purchasers” ).
WHEREAS,
on or about the date hereof the Purchasers have purchased from
the Company certain convertible secured term promissory notes
issued by the Company (together with any replacements thereof
or substitutions therefor, the
“Notes” );
and
WHEREAS,
it is a condition to the obligation of the Purchasers to
purchase the Notes that the Company shall have executed and
delivered this Agreement to the Purchasers.
NOW,
THEREFORE, in consideration of the premises and to induce the
Purchasers to purchase the Notes and for other good and
valuable consideration, the Company hereby agrees with the
Purchasers as follows:
1.
Defined Terms .
The following terms shall have the following meanings:
“Accounts”, “Chattel Paper”,
“Documents”, “Equipment”,
“Fixtures”, “General Intangibles”,
“Goods”, “Instruments”,
“Inventory”, “Proceeds” and
“Securities” shall
have the respective meanings as defined in the Code.
“Code” shall
mean the Uniform Commercial Code as from time to time in effect in
the State of New York.
“Collateral” shall
have the meaning assigned to such term in Section 2(a) of this
Agreement.
“
Copyrights ”
mean all copyrights (registered or otherwise) and registrations and
applications for registration thereof, and all rights therein
provided by multinational treaties or conventions.
“Event of Default”
shall mean the Company’s failure to pay or discharge the
Obligations in full in accordance with the terms of the Notes and
this Agreement, the occurrence of an Event of Default (as defined
in the Notes) or the Company’s breach of any provision of
this Agreement.
“Intellectual Property”
shall
mean, without limitation, any
and all Patents ,
trade secrets, confidential business information, formula,
Copyrights, mask works, claims of infringement against third
parties, licenses, permits, license rights to or of technologies,
contract rights with employees, consultants or third parties,
Trademarks, databases, computer programs and other computer
software interfaces, know-how, customer lists, inventions and
discoveries, and other such rights generally classified as
intangible, intellectual property assets in accordance with GAAP
possessed or owned by Company, or which the Company now or
hereafter has a right to use or in which the Company now or
hereafter has an interest.
“
Patents ”
mean all national (including the United States) and multinational
statutory invention registrations, patents, patent registrations
and patent applications, including all reissues, divisions,
continuations, continuations-in-part, extensions and
reexaminations, and all rights therein provided by multinational
treaties or conventions and all improvements to the inventions
disclosed in each such registration, patent or
application.
“Requisite Holders”
shall
mean the holders of Notes representing at least seventy-five
percent (75%) of the outstanding principal amount of all Notes then
outstanding.
“Obligations” shall
mean the unpaid principal amount of, and interest on, the
Notes.
“Ratably” shall
mean in the ratio that the outstanding principal amount of the Note
held by each Purchaser bears to the aggregate outstanding principal
of all Notes held by all Purchasers.
“
Trademarks ”
mean all trademarks, service marks, trade dress, logos, trade names
and corporate names, whether or not registered, including all
common law rights, and registrations and applications for
registration thereof, including, but not limited to, all marks
registered in the United States Patent and Trademark Office, the
Trademark Offices of the States and Territories of the United
States of America, and the Trademark Offices of other nations
throughout the world, and all rights therein provided by
multinational treaties or conventions.
2.
Grant of Security Interest; Action by Requisite Holders
.
(a)
To
secure the Company’s prompt, punctual, and faithful
performance of all and each of the Obligations (whether at the
stated maturity, by acceleration or otherwise), the Company
hereby grants to the Purchasers a continuing security interest
in and to and assigns to the Purchasers all of the
Company’s right, title and interest in and to all of the
Company’s property, assets and rights of every kind and
nature, wherever located and whether now owned or hereafter
acquired or arising, including, without limitation the
following, and all products, Proceeds, substitutions, and
accessions of or to the same, (collectively, the
“Collateral” ):
(1)
All
Accounts and accounts receivable;
(2)
All
Inventory;
(3)
All
contract rights;
(4)
All
General Intangibles;
(5)
All
Goods;
(6)
All
Chattel Paper;
(7)
All
Fixtures;
(8)
All
Intellectual Property;
(9)
All
Equipment;
(10)
All
books, records, and information relating to the Collateral
and/or to the operation of the Company’s business, and
all rights of access to such books, records, and information,
and all property in which such books, records, and information
are stored, recorded, and maintained;
(11)
All
Instruments, documents of title, Documents, policies and
certificates of insurance, Securities, deposits, deposit
accounts, money, cash, or other property;
(12)
All
federal, state and local tax refunds and/or abatements to
which the Company is, or becomes entitled, no matter how or
when arising, including, but not limited to any loss carry
back tax refund;
(13)
All
insurance proceeds, refunds, and premium rebates, including,
without limitation, proceeds of fire and credit insurance,
whether any of such proceeds, refunds and premium rebates
arise out of any of the foregoing, or otherwise;
(14)
All
liens, guaranties, rights, remedies, and privileges pertaining
to any of the foregoing, including the right of stoppage in
transit; and
(15)
All
other assets of every nature and description, whether they be
now existing or hereafter arising and whether now or hereafter
belonging to the Company.
(b)
Notwithstanding
anything to the contrary contained elsewhere in this Agreement
or the Notes, each Purchaser by its execution and delivery of
this Agreement hereby: (i) irrevocably authorizes and appoints
each other Purchaser, acting with the consent or authorization
of the Requisite Holders, to take on behalf of all Purchasers,
any and all actions required or permitted to be taken by the
Purchasers under this Agreement and (ii) agrees with each
other Purchaser that any and all actions required or permitted
to be taken by the Purchasers or any of them under this
Agreement may be taken only upon the written consent or
authorization of the Requisite Holders and that such Purchaser
will not take any action required or permitted to be taken by
the Purchasers under this Agreement, or otherwise take any
action to enforce any of the terms of this Agreement, in the
absence of such written consent or authorization. The Company
may rely on any such written consent or authorization given to
it and signed by the Requisite Holders until such consent or
authorization is withdrawn or replaced by another such consent
or authorization signed by the Requisite Holders.
(c)
Notwithstanding
anything to the contrary contained elsewhere in this
Agreement, the Purchasers shall share Ratably all proceeds
from or distributions of or with respect to the
Collateral.
Notwithstanding
the foregoing provisions of this Section 2, the grant,
assignment and transfer of a security interest as provided
herein shall not extend to, and the term
“Collateral” shall not include any Contract,
Instrument or Chattel Paper in which the Company has any
right, title or interest if and to the extent such Contract,
Instrument or Chattel Paper includes a provision containing a
restriction on assignment such that the creation of a security
interest in the right, title or interest of the Company
therein would be prohibited and would, in and of itself, cause
or result in a default thereunder enabling another person
party to such Contract, Instrument or Chattel Paper to enforce
any remedy with respect thereto; provided that the foregoing
exclusion shall not apply if (i) such prohibition has been
waived or such other person has otherwise consented to the
creation hereunder of a security interest in such Contract,
Instrument or Chattel Paper or (ii) such prohibition would be
rendered ineffective pursuant to Sections 9-408(a) or 9-409(a)
of the Code, as applicable and as then in effect in any
relevant jurisdiction, or any other applicable law (including
the Bankruptcy Code) or principles of equity); provided
further that immediately upon the ineffectiveness, lapse or
termination of any such provision, the Collateral shall
include, and the Company shall be deemed to have granted a
security interest in, all its rights, title and interests in
and to such Contract, Instrument or Chattel Paper as if such
provision had never been in effect; and provided further that
the foregoing exclusion shall in no way be construed so as to
limit, impair or otherwise affect any Purchasers unconditional
continuing security interest in and to all rights, title and
interests of the Company in or to any payment obligations or
other rights to receive monies due or to become due under any
such Contract, Instrument or Chattel Paper and in any such
monies and other proceeds of such Contract, Instrument or
Chattel Paper.
3.
Rights of Purchasers; Limitations on Purchasers’
Obligations .
(a)
Company Remains Liable under Accounts .
Anything herein to the contrary notwithstanding, the Company shall
remain liable under each of the Accounts to observe and perform all
the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement
giving rise to each such Account. The Purchasers shall not have any
obligations or liability under any Account (or any agreement giving
rise thereto) by reason of or arising out of this Agreement or the
receipt by the Purchasers of any payment relating to such Account
pursuant hereto, nor shall the Purchasers be obligated in any
manner to perform any of the obligations of the Company under or
pursuant to any Account (or any agreement giving rise thereto), to
make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by them or as to sufficiency of
any performance by any party under any Account (or any agreement
giving rise thereto), to present or file any claim, to take any
action to enforce any performance or to collect the payment of any
amounts which may have been assigned to them or to which they may
be entitled at any time or times.
(b)
Notice to Account Debtors .
Upon the request of the Purchasers at any time after the occurrence
and during the continuance of an Event of Default, the Company
shall notify account debtors on the Accounts that the Accounts have
been assigned to the Purchasers and that payments in respect
thereof shall be made directly to the Purchasers. The Purchasers
may in their own name or in the name of others communicate with
account debtors on the Accounts to verify with them to their
satisfaction the existence, amount and terms of any
Accounts.
(c)
Collection on Accounts .
The Purchasers hereby authorize the Company to collect the
Accounts, subject to the Purchasers’ rights to curtail or
terminate said authority at any time after the occurrence and
during the continuance of an Event of Default.
4.
Covenants of the Company .
The Company covenants and agrees with the Purchasers that from and
after the date of this Agreement until the Obligations are paid or
otherwise discharged in full:
(a)
Location of Collateral; Other Liens .
The Company will notify the Purchasers, at least twenty (20) days
prior to any such event, of any change in the Company’s exact
legal name, any change in its place of business or location of the
Collateral or its establishment of any new place of business or
location of Collateral or office where its records concerning
Accounts and other assets are kept. The Company is the owner of the
Collateral and will be the owner of the Collateral hereafter
acquired free from any adverse lien, security interest or
encumbrance (other than is permitted pursuant to Section 4(f)
hereof), and the Company will defend the Collateral against the
claims and demands of all persons at any time claiming the same or
any interest therein. Except those in respect of Senior
Indebtedness, no financing statements covering any Collateral or
any proceeds thereof are on file in any public office.
(b)
Further Documentation; Pledge of Instruments and Chattel
Paper .
At any time and from time to time, upon the written request of the
Purchasers, and at the sole expense of the Company, the Company
will promptly and duly execute and deliver such further instruments
and documents and take such further action as the Purchasers may
reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing
or continuation statements under the Code in effect in any
jurisdiction with respect to the liens created hereby. The Company
also hereby authorizes the Purchasers to file any such financing or
continuation statement without the signature of the Company to the
extent permitted by applicable law. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction if so permitted by
applicable law. If any amount payable under or in connection with
any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instruments or Chattel Paper
shall be immediately delivered to the Purchasers or their duly
appointed agent, duly endorsed in a manner satisfactory to the
Purchasers, to be held as Collateral pursuant to this
Agreement.
(c)
Maintenance of Records; Inspection of Collateral
.
The Company will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, including
without limitation, a record of all payments received and all
credits granted with respect to the Accounts. The Company will
permit the Purchasers to inspect the Collateral at any reasonable
time.
(d)
Compliance with Laws, Etc. The
Company will comply in all material respects with all laws, rules,
regulations and orders of any governmental authority applicable to
the C
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