SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made as of the ___ day of January,
1999, by and between ALTRIS SOFTWARE, INC., a California corporation
("Borrower"), and SIRROM CAPITAL CORPORATION d/b/a Tandem Capital, a Tennessee
corporation ("Lender").
RECITALS:
WHEREAS, Lender has made a loan (the "Loan") in the amount of $3,000,000 to
Borrower, pursuant to that certain Debenture Purchase Agreement dated as of June
27, 1997 by and between Borrower and Lender, as it may be amended, modified or
extended from time to time (the "Loan Agreement"); and
WHEREAS, Lender desires to obtain from Borrower and Borrower desires to
grant to Lender a security interest in certain collateral more particularly
described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ab ACKNOWLEDGMENT OF SUBORDINATION UNDERTAKING. LENDER ACKNOWLEDGES AND
AGREES THAT ITS RIGHTS UNDER THIS AGREEMENT ARE SUBJECT TO THE PROVISIONS
OF THAT COLLATERAL SUBORDINATION AGREEMENT DATED AS OF SEPTEMBER 15, 1998,
BETWEEN LENDER AND MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC. ("SENIOR
LENDER"), WHICH PROVIDES FOR THE ORDERING OF COLLATERAL INTERESTS BETWEEN
LENDER AND SENIOR LENDER. BORROWER IS NOT A BENEFICIARY OF THE COLLATERAL
SUBORDINATION AGREEMENT AND IT MAY BE AMENDED OR WAIVED BY THE ACTION OF
LENDER AND SENIOR LENDER WITHOUT THE JOINDER OF BORROWER.
As is provided in the letter agreement of Borrower dated September 15,
1998 and counter-signed by Lender on September 18, 1998, the liens of Lender are
expressly subordinate to all liens now or hereafter granted securing Senior
Indebtedness (as defined in the Loan Agreement). Lender acknowledges its
obligation under Section 7.1 of the Loan Agreement to execute
any subordination or inter-creditor agreement requested by any existing or
future lenders providing such Senior Indebtedness and reasonably acceptable
to Lender effectuating the subordination provisions of the Loan Agreement and
the subordination of liens granted to Lender hereunder and containing such
additional customary provisions as such lenders may request.
2. ab GRANT OF SECURITY INTEREST. Borrower hereby grants to Lender a
security interest in Collateral. For purposes hereof, "Collateral" shall
mean all Accounts, Chattel Paper, Contract Rights, Inventory, Equipment,
Fixtures, General Intangibles, Deposit Accounts, Documents and Instruments
of Borrower, however arising, whether now owned or existing or hereafter
acquired or arising and wherever located; together with all books and
records related thereto and all proceeds of the foregoing (including,
without limitation, proceeds in the form of Accounts and insurance
proceeds). For purposes hereof, capitalized terms used in the preceding
sentence which are defined in the Uniform Commercial Code shall have the
respective meanings set forth therein.
3. ab SECURED INDEBTEDNESS. The security interest granted hereby shall
secure the prompt payment of all obligations of Borrower arising under the
Loan Agreement and under the "Debenture," as defined therein (collectively
the "Obligations") and the prompt performance of each of the covenants and
duties under the Loan Agreement, the Debenture, this Agreement and any
other present or future written agreement evidencing or securing the
Obligations (such documents are referred to collectively as the "Loan
Documents").
4. ab REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents,
warrants and agrees as follows:
(a) ab Except as set forth on Schedule 3(a) hereto (the "Permitted
Encumbrances"), Borrower is the owner of the Collateral free and clear
of any liens and security interests. Borrower will defend the
Collateral against the claims and demands of all persons other than
the holders of the Permitted Encumbrances.
(b) ab The address set forth on Schedule 3(b) hereto is Borrower's
principal place(s) of business and the location of all tangible
Collateral and the place where the records concerning all intangible
Collateral are kept and/or maintained.
(c) ab Borrower will pay all costs of filing of financing, continuation
and termination statements with respect to the security interests
created hereby, and Lender is authorized to do all things that it
deems necessary to perfect and continue perfection of the security
interests created hereby and to protect the Collateral.
5. ab AGREEMENTS WITH RESPECT TO THE COLLATERAL. Borrower covenants and
agrees with Lender as follows:
(a) ab Borrower will not permit any of the tangible Collateral to be
removed from the location specified herein, except for temporary
periods in the normal and customary use thereof and, in the absence of
an Event of Default, sales of inventory in the ordinary course of
business and dispositions of obsolete Equipment or Inventory, without
the prior written consent of Lender.
(b) ab Borrower shall notify Lender in writing of any change in the
location of Borrower's principal place of business or the location of
any tangible Collateral or the place(s) where the records concerning
all intangible Collateral are kept or maintained.
(c) ab Borrower will keep the Collateral in good condition and repair,
normal wear and tear excepted, and will pay and discharge all taxes,
levies and other impositions levied thereon as well as the cost of
repairs to or maintenance of same, and will not permit anything to be
done that may impair the value of any of the Collateral. If Borrower
fails to pay such sums, Lender may do so for Borrower's account and
add the amount thereof to the Obligations.
(d) ab Until the occurrence of an Event of Default, Borrower shall be
entitled to possession of the Collateral and to use the same in any
lawful manner, provided that such use does not cause excessive wear
and tear to the Collateral, cause it to decline in value at an
excessive rate, or violate the terms of any policy of insurance
thereon.
(e) ab Borrower will not sell, exchange, lease or otherwise dispose of
any of the Collateral or any interest therein without the prior
written consent of Lender, other than the processing and sale of
Borrower's inventory in the ordinary course of business and the
licensing of its General Intangibles in the ordinary course of
business under (i) nonexclusive licenses and (ii) exclusive licenses
for value added resellers to issue sublicenses thereof, which licenses
(x) are exclusive on a geographic basis only for territories that do
not include any of the United States, (y) are for a term not exceeding
one year in the absence of the value added reseller's meeting
reasonable performance standards, and (z) are necessary
in the good faith view of Borrower's management because of the
small size, remoteness, or other characteristics of the affected
market area that make it impractical for Borrower to cover that
area with a nonexclusive agreement with one or more value added
resellers. Lender's security interest hereunder shall attach to all
proceeds of all sales or other dispositions of the Collateral. If
at any time any such proceeds shall be represented by any
instruments, chattel paper or documents of title, then such
instruments, chattel paper or documents of title shall be promptly
delivered to Lender and subject to the security interest granted
hereby. If at any time any of Borrower's inventory is represented
by any document of title, such document of title will be delivered
promptly to Lender and subject to the security interest granted
hereby.
(f) ab Borrower will not allow the Collateral to be attached to real
estate in such manner as to become a fixture or a part of any real
estate.
(g) ab Borrower will at all times keep the Collateral insured against
all insurable hazards in amounts equal to the full cash value of the
Collateral subject to customary deductibles. Such insurance shall be
in such companies as may be reasonably acceptable to Lender, with
provisions satisfactory to Lender for payment of all losses thereunder
to Lender as its interests may appear. If required by Lender,
Borrower shall deposit the policies with Lender or the holder of any
Senior Indebtedness. Any money received by Lender under said policies
may be applied to the payment of the Obligations, whether or not due
and payable, or at Lender's option may be delivered by Lender to
Borrower for the purpose of repairing or restoring the Collateral.
Subject in all cases to the rights of any holder of Senior
Indebtedness, Borrower assigns to Lender all right to receive proceeds
of insurance not exceeding the amounts secured hereby, directs any
insurer to pay all proceeds directly to Lender, and appoints Lender
Borrower's attorney-in-fact to endorse any draft or check made payable
to Borrower in order to collect the benefits of such insurance. If
Borrower fails to keep the Collateral insured as required by Lender,
Lender shall have the right to obtain such insurance at Borrower's
expense and add the cost thereof to the Obligations.
(h) ab Borrower will not permit any liens or security interests other
than those created by this Agreement and the Permitted Encumbrances to
attach to any of the Collateral, nor permit any of the Collateral to
be levied upon under any legal process, nor permit
anything to be done that may impair the security intended to be
afforded by this Agreement, nor permit any tangible Collateral to
become attached to or commingled with other goods without the prior
written consent of Lender.
6. ab REMEDIES UPON DEFAULT. Upon an Event of Default under and as defined
in the Loan Agreement and during the continuance of an Event of Default,
Lender may pursue any or all of the following remedies, without any notice
to Borrower except as required below and as required by the Loan Agreement,
subject to any then existing agreements under the Collateral Subordination
Agreement described in Section 1 above and to any other subordination or
intercreditor agreement under Section 1 above:
(a) ab [This Section is intentionally left blank].
(b) ab Lender may take possession of any or all of the Collateral.
(c) ab Lender may dispose of the Collateral at private or public sale.
Any required notice of sale shall be deemed commercially reasonable if
given at least five (5) days prior to sale. Lender may adjourn any
public or private sale to a different time or place without notice or
publication of such adjournment, and may adjourn any sale either
before or after offers are received. The Collateral may be sold in
such lots as Lender may elect, in its sole discretion so long as such
sale is commercially reasonable. Lender may take such action as it
may deem necessary to repair, protect, or maintain the Collateral
pending its disposition.
(d) ab Lender may recover any or all proceeds of accounts from any bank
or other custodian who may have possession thereof. Borrower hereby
authorizes and directs all custodians of Borrower's assets to comply
with any demand for payment made by Lender pursuant to this Agreement,
without the need of confirmation from Borrower and without making any
inquiry as to the existence of an Event of Default or any other
matter. Lender may engage a collection agent to collect accounts for
a reasonable percentage commission or for any other reasonable
compensation arrangement.
(e) ab Lender may notify any or all account debtors that subsequent
payments must be made directly to Lender or its designated agent.
Such notice may be made over Lender's signature or over Borrower's
name with no signature or both, in Lender's discretion. Borrower
hereby authorizes and directs all existing or future account debtors
to comply with any such notice
given by Lender, without the need of confirmation from Borrower and
without making any inquiry as to the existence of an Event of
Default or as to any other matter.
(f) ab Lender may, but shall not be obligated to, take such measures as
Lender may deem necessary in order to collect any or all of the
accounts. Without limiting the foregoing, Lender may institute any
administrative or judicial action that it may deem necessary in the
course of collecting and enforcing any or all of the accounts. Any
administrative or judicial action or other action taken by Lender in
the course of collecting the accounts may be taken by Lender in its
own name or in Borrower's name. Lender may compromise any disputed
claims and may otherwise enter into settlements with account debtors
or obligors under the accounts, which compromises or settlements shall
be binding upon Borrower. Lender shall have no duty to pursue
collection of any account, and may abandon efforts to collect any
account after such efforts are initiated.
(g) ab Lender may, with respect to any account involving uncompleted
performance by Borrower, and with respect to any general intangible or
other Collateral whose value may be preserved by additional
performance on Borrower's part, take such action as Lender may deem
appropriate including, but not limited, to performing or causing the
performance of any obligation of Borrower thereunder, the making of
payments to prevent defaults thereunder, and the granting of adequate
assurances to other parties thereto with respect to future
performance. Lender's action with respect to any such accounts or
general intangibles shall not render Lender liable for further
performance thereunder unless Lender so agrees in writing.
(h) ab Lender may exercise its lien upon and right of setoff against any
monies, items, credits, deposits or instruments that Lender may have
in its possession and that belong to Borrower or to any other person
or entity liable for the payment of any or all of the Obligations.
(i) ab Lender may exercise any right that it may have under any other
document evidencing or securing the Obligations or otherwise available
to Lender at law or equity.
7. ab AUDITS AND EXAMINATIONS. Lender shall have the right, at any time, by
its own auditors, accountants or other agents, to examine or audit any of
the books and records of Borrower, or the Collateral, all of which will be
made available upon request. Such accountants or other representatives of
Lender will be permitted to make any verification of the existence of the
Collateral or accuracy of the records that Lender deems necessary or
proper. .
8. ab TERMINATION STATEMENT. Upon receipt of proper written demand
following the payment in full of the Obligations and termination of any
commitment of Lender to make any future advances to Borrower, Lender at its
option, shall send a termination statement with respect to any financing
statement filed to perfect Lender's security interests in any of the
Collateral to Borrower or cause such termination statement to be filed with
the appropriate filing officer(s).
9. ab POWER OF ATTORNEY. Borrower hereby constitutes Lender or its
designee, as Borrower's attorney-in-fact with power, upon the occurrence
and during the continuance of an Event of Default, to endorse Borrower's
name upon any notes, acceptances, checks, drafts, money orders, or other
evidences of payment or Collateral that may come into either its or
Lender's possession; to sign the name of Borrower on any invoice or bill of
lading relating to any of the accounts receivable, drafts against
customers, assignments and verifications of accounts receivable and notices
to customers; to send verifications of accounts receivable; to notify the
Post Office authorities to change the address for delivery of mail
addressed to Borrower to such address as Lender may designate; to execute
any of the documents referred to in Section 3(c) hereof in order to perfect
and/or maintain the security interests and liens granted herein by Borrower
to Lender; to cause the conveyance of any software copyrights or other
property in the course of the exercise of remedies provided under this
Agreement and to otherwise do all other acts and things necessary to carry
out the purposes of and remedies provided under this Agreement. All acts
of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of commission or
omission (other than acts of gross negligence or willful misconduct), nor
for any error of judgment or mistake of fact or law. This power being
coupled with an interest is irrevocable until all of the Obligations are
paid in full and any and all promissory notes executed in connection
therewith are terminated and satisfied.
10. ab BINDING EFFECT. This Agreement shall inure to the benefit of Lender's
successors and assigns and shall bind Borrower's heirs, representatives,
successors and assigns.
11. ab SEVERABILITY. If any provision of this Agreement is held invalid,
such invalidity shall not affect the validity or enforceability of the
remaining provisions of this Agreement.
12. ab GOVERNING LAW AND AMENDMENTS. This Agreement shall be construed and
enforced under the laws of the State of California applicable to contracts
to be wholly performed in such State. No amendment or modification hereof
shall be effective except in a writing executed by each of the parties
hereto.
13. ab SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made by or furnished on behalf of Borrower
in connection herewith shall survive the execution and delivery of this
Agreement.
14. ab COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
15. ab CONSTRUCTION AND INTERPRETATION. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that
the court interpreting or construing the same shall not apply a presumption
that the terms hereof shall be more strictly construed against one party by
reason of the rule of construction that a document is to be more strictly
construed against the party that itself or through its agent prepared the
same, it being agreed that Borrower, Lender and their respective agents
have participated in the preparation hereof.
16. ab CONSENT TO JURISDICTION; EXCLUSIVE VENUE. Borrower hereby irrevocably
consents to the Jurisdiction of the United States District Court for the
Middle District of Tennessee and of all Tennessee state courts sitting in
Davidson County, Tennessee, for the purpose of any litigation to which
Lender may be a party and which concerns this Agreement or the Obligations.
It is further agreed that venue for any such action shall lie exclusively
with courts sitting in Davidson County, Tennessee, unless Lender agrees to
the contrary in writing.
17. ab WAIVER OF TRIAL BY JURY. LENDER AND BORROWER HEREBY KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COUNSEL WAIVE TRIAL BY JURY IN ANY ACTIONS,
PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT OR
OTHERWISE, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT OR THE LOAN DOCUMENTS.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement, or
have caused this Agreement to be executed as of the date first above
written.
BORROWER:
ALTRIS SOFTWARE, INC.,
a California corporation
By:
Title:
LENDER:
SIRROM CAPITAL CORPORATION
d/b/a Tandem Capital,
a Tennessee corporation
By:
Title:
SCHEDULE 3(a)
PERMITTED ENCUMBRANCES
Security Interest in favor of Senior Lender as described in the Collateral
Subordination Agreement dated as of September 15, 1998.
SCHEDULE 3(b)
PRINCIPAL PLACE(s) OF BUSINESS
AND LOCATION(s) OF COLLATERAL