SECURITY AGREEMENT
This Security Agreement
(“Agreement”) is between Eberhard Schonburg
(“Secured Party”) and Artificial Life, Inc.
(“Debtor”).
1.1 Capitalized
Terms. Unless defined elsewhere
in this Agreement, capitalized terms used in this Agreement will
have the meanings ascribed to them in the attached Appendix
A.
1.2 UCC Terms.
Unless the
context clearly indicates otherwise, terms used in this Agreement
that are defined in the Uniform Commercial Code will have the
meanings ascribed to them in the Uniform Commercial
Code.
SECTION
2. SECURITY
INTEREST
2.1 Grant.
As security
for the full and prompt payment and performance of the Obligations,
Debtor grants Secured Party a security interest in the
Collateral.
2.2.1. Debtor authorizes
Secured Party to file all financing statements and other documents
evidencing the security interests granted hereby under applicable
law a the location of the Collateral that Secured Party deems
reasonably necessary to perfect and continue Secured Party’s
security interest in the Collateral. Debtor authorizes Secured
Party to indicate on each financing statement that the financing
statement covers all assets or all personal property of
Debtor.
2.2.2. If any Collateral
other than certificated securities and goods covered by a document
is in the possession of a person other than Debtor, Secured Party,
or a lessee of the Collateral from Debtor in the ordinary course of
Debtor’s business, Debtor will assist Secured Party in
obtaining from the person a bailee acknowledgment of security
interest, in form and substance reasonably satisfactory to Secured
Party.
2.2.3. Upon Secured
Party’s request, Debtor will take any other actions that
Secured Party deems reasonably necessary to perfect and continue
Secured Party’s security interest in the
Collateral.
2.3 Termination.
Upon
Debtor’s request after the full payment and performance of
the Obligations, Secured Party will take all actions that Debtor
deems reasonably necessary to terminate Secured Party’s
security interest in the Collateral.
SECTION
3. REPRESENTATIONS
AND WARRANTIES OF DEBTOR
Debtor represents and warrants to Secured Party
as follows:
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3.1 Authority.
Debtor has
full power and authority to sign and deliver this Agreement and to
perform all of Debtor’s obligations under this
Agreement.
3.2 Binding
Obligation. This Agreement is the
legal, valid, and binding obligation of Debtor, enforceable against
Debtor in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, or other similar laws of
general application or by general principles of equity.
3.3 No
Conflicts. The signing and delivery
of this Agreement by Debtor and the performance by Debtor of all of
Debtor’s obligations under this Agreement will
not:
3.3.1. breach any
agreement to which Debtor is a party, or give any person the right
to accelerate any obligation of Debtor;
3.3.2. violate any law,
judgment, or order to which Debtor is subject; or
3.3.3. require the
consent, authorization, or approval of any person, including but
not limited to any governmental body.
3.4 Ownership.
Debtor has good title to the
Collateral, free from all Encumbrances except Permitted
Encumbrances. Debtor has the right and power to transfer and assign
the Collateral to Secured Party, free from any restriction or
condition.
3.5 Names of
Debtor. The exact full legal
name of Debtor is Artificial Life, Inc.
3.6 Location of
Debtor. Debtor is a corporation
duly organized and validly existing under the laws of the state of
Delaware. Debtor presently maintains offices in Los Angeles,
California, USA; Hong Kong, PRC; Berlin, Germany; and Tokyo,
Japan.
SECTION
4. COVENANTS
OF DEBTOR
Debtor covenants to Secured Party that Debtor
will perform the following obligations and observe the following
conditions until the Obligations are fully paid and
performed:
4.1 Ownership.
Debtor will
keep the Collateral free from all Encumbrances except Permitted
Encumbrances. Debtor will not permit any person to restrict or
condition Debtor’s right and power to transfer and assign the
Collateral to Secured Party.
4.2 Name of
Debtor. Debtor will not change
Debtor’s legal name.
4.3 Location of
Debtor. Debtor will maintain its
existence as a corporation and will not change the State of its
organization.
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4.4 No Disposition of
Collateral. Debtor will not sell,
lease, license, distribute, or otherwise dispose of any Collateral,
except in connection with:
4.4.1. the disposition of
inventory in the ordinary course of Debtor’s business;
and
4.4.2. the replacement of
equipment in the ordinary course of Debtor’s
business.
4.5 Condition of
Collateral. Debtor will keep the
tangible Collateral in good repair and operating condition,
reasonable wear and tear excepted.
4.6 Personal
Property. Debtor will not attach
any Collateral to any real property in a manner that would cause
the Collateral to become real property or a fixture.
4.7 Notification.
Debtor will
promptly notify Secured Party if any of the following
occurs:
4.7.1. any material
change in the business of Debtor;
4.7.2. any material loss
or damage with respect to any Collateral, whether or not the loss
or damage is covered by insurance;
4.7.3. any material
adverse change in the financial condition of Debtor; or
4.7.4. an Event of
Default.
4.8 Future Commercial
Tort Claims. Debtor will promptly
notify Secured Party if Debtor obtains any rights to any commercial
tort claim. Debtor will ensure that the notice includes the adverse
parties to the claim and the specific facts out of which the claim
arose.
4.9.1. Debtor will
promptly notify Secured Party if:
(a) the United States
Copyright Office issues a registration for any work of Debtor for
which an application for copyright registration was made;
or
(b) Debtor acquires a
work that has been registered with the United States Copyright
Office.
4.9.2. Debtor will ensure
that the notice includes the title, registration number, and
effective date of registration of the work.
4.9.3. Debtor will enter
into a copyright security agreement in form and substance
reasonably satisfactory to Secured Party, and will take any other
actions that Secured Party deems reasonably necessary to perfect
and continue Secured Party’s security interest in
Debtor’s works that have been registered with United States
Copyright Office.
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4.10.1. Debtor will promptly
notify Secured Party if:
(a) the United States
Patent and Trademark Office issues a patent for any invention of
Debtor for which an application for patent was made; or
(b) Debtor acquires an
invention for which a patent has been issued by the United States
Patent and Trademarks Office.
4.10.2. Debtor will ensure that
the notice includes the title, patent number, and effective date of
issuance of the patent.
4.10.3. Debtor will enter
into a patent security agreement in form and substance reasonably
satisfactory to Secured Party, and will take any other actions that
Secured Party deems reasonably necessary to perfect and continue
Secured Party’s security interest in Debtor’s
inventions for which a patent has been issued by the United States
Patent and Trademark Office.
SECTION
5. PAYMENT OF TAXES AND OTHER CHARGES BY
SECURED PARTY
Whenever Debtor fails to pay when due any taxes,
assessments, or other charges necessary to be paid for the
protection of Secured Party’s rights under this Agreement,
Secured Party may pay the same. Such payments will be added to the
Obligations, and will bear interest at an annual rate of
5%.
SECTION
6. SECURED PARTY’S WARNING TO
DEBTOR
6.1 Unless you, Debtor,
provide me, Secured Party, with evidence of the insurance coverage
as required by our contract or loan agreement, we may purchase
insurance at your expense to protect our interest. This insurance
may, but need not, also protect your interest. If the collateral
becomes damaged, the coverage we purchase may not pay any claim you
make or any claim made against you. You may later cancel this
coverage by providing evidence that you have obtained property
coverage elsewhere.
6.2 You are responsible for
the cost of any insurance purchased by the Secured Party. The cost
of this insurance may be added to your contract or loan balance. If
the cost is added to your contract or loan balance, the interest
rate on the underlying contract or loan will apply to this added
amount. The effective date of coverage may be the date your prior
coverage lapsed or the date you failed to provide proof of
coverage.
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6.3 The coverage the Secured
Party purchases may be considerably more expensive than insurance
you can obtain on your own and may not satisfy any need for
property damage coverage or any mandatory liability insurance
requirements imposed by applicable law.
SECTION
7. RIGHTS AND OBLIGATIONS CONCERNING
COLLATERAL
7.1.1. Upon Secured
Party’s request, Debtor will:
(a) permit Secured Party
to inspect any Collateral in the possession of Debtor;
(b) assist Secured Party
in inspecting any Collateral in the possession of a person other
than Debtor or Secured Party; and
(c) permit Secured Party
to inspect and copy Debtor’s books of account and records
related to the Collateral.
