Exhibit 10.21
PATENT SECURITY AGREEMENT
ThIS PATENT SECURiTY AGREEMENT, dated as of ________, 2003 by and between,
COMPLIANCE SYSTEMS CORPORATION ("CSC"), a Delaware corporation, CALL
COMPLIANCEUCOM, INC., ("Grantor"), a Delaware corporation and wholly-owned
subsidiary of CSC, in favor of the several persons and/or entities identified on
Schedule A hereto (collectively, the "Lenders" and each a "Lender").
RECITALS
WHEREAS, CSC seeks to raise up to $1,500,000 in gross proceeds ("Loan")
through the sale of units consisting of $30,000 principal amount of 9% Secured
Promissory Notes ("Notes" and individually, each a "Note") and Warrants to
purchase an aggregate of 20,000 shares of non-voting Class B Common Stock, $.001
par value per share, of CSC ("Class B Common Stock"), in a non-public offering
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended ("Private Offering").
WHEREAS, it is intended that the proceeds of the Private Offering will be
applied, among other purposes, to fund the working capital requirements of CSC
and each of its wholly-owned subsidiaries, including the Grantor (collectively,
the "Subsidiaries"; hereinafter, CSC and all of the Subsidiaries shall
collectively be referred to as the "Company");
WHEREAS, the Lenders have required that the Grantor grant to Lenders a
first priority security interest in certain of its assets;
WHEREAS, the Grantor owns the patent and provisional patent application
listed on Schedule B hereto;
WHEREAS, the Grantor desires to mortgage, pledge and grant to Lenders, for
the benefit of Lenders, a security interest in all of its right, title and
interest in, to and under the Collateral (as hereinafter defined), including the
patent and provisional patent application listed on the attached Schedule B
together with any continuation, divisionals, renewal or extension thereof, to
secure the payment of the Obligations;
WHEREAS, it is a condition precedent to the obligation of the Lenders to
make the Loan to CSC, that Grantor execute this Agreement;
1. Defined Terms. Unless otherwise defined herein, terms which are used
herein are so used as so defined, and the following terms shall have the
following meanings:
"Collateral" has the meaning assigned to it in Section 2 of this
Security Agreement.
~Obligations" means obligations secured hereby and shall include:
(a) loans to be made in connection with the Private Offering as evidenced by one
or more promissory notes payable to the order of the Lenders that shall be due
and payable as set forth in such promissory notes, and any renewals or
extensions thereof, (b) all future advances made by Lender for taxes, levies,
insurance and preservation of the Collateral, if any, and all reasonable
attorney's fees, court costs and expenses of whatever kind incident to the
collection of any said indebtedness or other obligations and the enforcement and
protection of the security interest created hereby.
"Patents" means all types of exclusionary or protective rights
granted (or applications therefor) for inventions in any country of the world
(including, without limitation, letters patent, plant patents, utility models,
breeders' right certificates, inventor's certificates and the like), and all
reissues and extensions thereof and all divisions, continuations and
continuations-in-part thereof.
"Patent License" means all agreements material to the operation of
the Company's business, whether written or oral, providing for the grant by or
to 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.
"Patent Rights" means the Patents and Patent applications listed in
Schedule B and any continuations or divisionals thereof or improvements therein.
"Security Agreement" means this Patent Security Agreement, as
amended, supplemented or otherwise modified from time to time.
"UCC" means the Uniform Commercial Code as from time to time in
effect in the State of New York. 2. Grant of Security Interest. As collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration
and to the following property acquired by Grantor which Grantor now has any
right, title or interest (collectively, the "Collateral");
(I) The Patent Rights;
(ii) all Patent Licenses for the Patent Rights;
3. Representations and Warranties Concerning Trademarks. Grantor
represents and warrants that Schedule B hereto includes all of the Grantor's
registered Patents and Patent Licenses owned by Grantor in its own name that are
material to the businesses of the Company as of the date hereof. To the best of
the Grantor's knowledge, each Patent is valid, subsisting, unexpired,
enforceable and has not been abandoned. No holding, decision or judgment has
been rendered by any governmental authority which would limit, cancel or
question the validity of any material Patent. No action or proceeding is pending
(i) seeking to limit, cancel or question the validity of any Patent or the
Grantor's ownership thereof or (ii) which, if adversely determined, would
reasonably be likely to have a material adverse effect on the value of any
Patent.
4. Covenants. Grantor covenants and agrees with Lenders that, from and
after the date of this Security Agreement until the Obligations are paid in
full:
(a) Further Documentation. From time to `time, upon the written
request of Robert P. Reiner, as representative for and nominee of the
several Lenders, or any duly appointed successor thereof ("Lenders'
Representative"), and at the sole expense of Grantor, the Grantor will
promptly and duly execute and deliver such further instruments and
documents and take such further action as Lenders' Representative may
reasonably request for the purpose of obtaining or preserving the full
benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the UCC in effect in any jurisdiction with
respect to the liens created hereby. Grantor also hereby authorizes
Lenders' Representative to .file any such financing or continuation
statement without the signature of Grantor to the extent permitted by
applicable law. A carbon, photographic or other reproduction of this
Security Agreement shall be sufficient as a financing statement for filing
in any jurisdiction.
(b) Limitation on Lien on Collateral. Grantor will not create, incur
or permit to exist, will take all commercially reasonable actions to
defend the Collateral against, and will take such other commercially
reasonable action as is necessary to remove, any lien or claim on or to
the Collateral, other than (i) the liens created hereby, (ii) the liens
created pursuant to a certain Subordinated Security Agreement of even date
herewith by and among the Grantor, CSC and the several Subordinating
Lenders set forth therein and (iii) any liens that may be permitted
pursuant to the Notes and except as may be included in sale lease back
agreements relating to any now or acquired equipment and property or is
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subordinate to this Agreement, and will take all commercially reasonable actions
to defend the right, title and interest of Lenders in and to any of the
Collateral against the claims and demands of all persons whomsoever.
(C) Limitations on Dispositions of Collateral. Grantor will not
sell, transfer, or otherwise dispose of any of the Collateral, or attempt, offer
or contract to do so except as permitted in the Notes. Nothing in the above
shall be understood to prevent Grantor or CSC from licensing or otherwise using
the Patent rights or the inventions disclosed therein in the normal conduct of
their respective businesses.
(d) Notices. Grantor will advise Lenders' Representative promptly,
in reasonable detail, at its address set forth in this Agreement, of any lien
(other than liens created or permitted hereby or under the Notes on) or claim
asserted against the Patents.
(e) Patents.
(iii) Grantor knowingly will not, except with respect to any Patent
that Grantor shall reasonably determine is of immaterial economic value to
Grantor or otherwise reasonably determines so to do, do any act, or omit
to do any act, whereby any Patent may become abandoned or dedicated to the
public. Nothing in this paragraph will require CSC or Grantor to undertake
litigation to defend any part of the Patent Rights or to appeal a
determination by an examining attorney in any Patent Office.
(iv) Grantor will promptly notify Lender if it knows, or has reason
to know, that any application relating to any Patent may become abandoned
or dedicated, or of any adverse determination or material development
(including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States
Patent and Trademark office or any court or tribunal in any country)
regarding the Grantor's ownership of any Patent or its right to register
the same or to keep and maintain the same.
(v) Whenever CSC and Grantor either by themselves or through any
agent, employee, licensee or designee, shall file an application for any
Patent with the United States Patent and Trademark Office, or any similar
office of agency in any other country or any political subdivision thereof
for an invention falling within the Patent Rights, the Grantor shall
report such filing to Lenders' Representative within five business days
after the last day of the fiscal quarter in which such filing occurs. Upon
request of Lenders' Representative, the Grantor shall execute and deliver
any and all reasonably necessary agreements, instruments, documents, and
papers as Lenders' Representative may request to evidence Lender's
security interest in any newly filed Patent
LVI) UIDILWI, t~XCepI~ WIW I~Sp~U~ W DF1~ ~DW[1L LI1T~ UIDE1LUF
SLIDIL reasonably determine is of immaterial economic value to it or it
otherwise reasonably determines not to so do, will take all reasonable and
necessary steps, including, without limitation, in any proceedings before
any tribunal, office or agency in any other country or any political
subdivision thereof, to maintain and pursue each application (and, if
possible, to obtain the relevant registration or Patent) and to maintain
each Patent, including, without limitation, filing of applications for
renewal, affidavits of use and affidavits of incontestability when
appropriate. Nothing in this paragraph will require CSC or Grantor to
undertake litigation to defend any part of the Patent Rights or to appeal
a determination by an examining attorney in any Patent Office.
(vii) In the event Grantor knows or has reason to know that any
Patent included in the Collateral is infringed, misappropriated or diluted
by a third party, Grantor shall take such other actions as the Grantor
shall reasonably deem appropriate under the circumstances to protest the
unauthorized use of such Patent.
5. Lenders' Representative's Appointment as Attorney-in-Fact.
(a) Powers. Grantor hereby irrevocably constitute and appoint
Lenders' Representative, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Grantor and in the name of the Grantor or in its
own name, from time to time after the occurrence, and during the
continuation of, an Event of Default (as hereinafter defined), for the
purpose of carrying out the terms of this Security Agreement, to take any
and all appropriate action and to execute any and all documents and
instruments which may be reasonably necessary or desirable to accomplish
the purposes of this Security Agreement, and, without limiting the
generality of the foregoing, the Grantor hereby gives Lenders'
Representative, on behalf of Lenders the power and right, on behalf of the
Grantor without notice to or assent by the Grantor, to do the following:
(i) in the case of any Collateral, in the name of the Grantor or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of moneys
due under, or with respect to, any Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Lender for the purpose of collecting any
and all such moneys due with respect to such Collateral whenever payable;
(ii) to pay or discharge taxes and liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Security Agreement and to pay all or part
of the premiums therefor
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(iii) (a) to direct any party liable for any payment under any of
the Collateral to make payment of any and all monies due or to become due
thereunder directly to Lenders' Representative or as Lenders'
Representative shall direct, (b) to ask or demand for, collect, receive
payment of and receipt for, any and all moneys, claims and other amounts
due or to become due at any time in respect of or arising out of any
Collateral, (c) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipt, drafts against
debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral, (d) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any portion thereof
and to enforce any other right in respect of any Collateral, (e) to defend
any suit, action or proceeding brought against the Grantor with respect to
any Collateral, (f) to settle, compromise or adjust any suit, action or
proceeding described in the proceeding clause and, in connection
therewith, to give such discharges or releases as Lenders' Representative
may deem appropriate, and (g) generally, to sell, transfer, pledge and
makeany agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Lenders' Representative were
the absolute owner thereof for all purposes, and to do, at the Grantor's
expense, at any time, or from time to time, all acts and things which
Lenders' Representative deems necessary to protect, preserve or realize
upon the Collateral and the liens of Lenders thereon and to effect the
intent of this Security Agreement, all as fully and effectively as the
Grantor might do.
This power of attorney is a power coupled with an interest and shall be
irrevocable until the Obligations shall have been paid in full or this
Security Agreement shall have been terminated.
(b) Other Powers. Grantor also authorizes Lenders' Representative,
at any time and from time to time, to execute, in connection with any sale
provided for in Section 8 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) No Duty on the Part of Lender. The powers conferred on Lenders'
Representative hereunder are solely to protect the interests of the
Lenders in the Collateral and shall not impose any duty upon Lenders'
Representative to exercise any such powers. Lenders' Representative shall
be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its partners,
officers, directors, employees or agents shall be responsible to the
Grantor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct or failure to comply with mandatory
provisions of applicable law.
6. Performance by Lenders' Representative of Grantor's Obligations. If
Grantor fails to perform or comply with any of its agreements contained herein
and Lenders' Representative, as provided for by the terms of this Security
Agreement, shall
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itself perform or comply, or otherwise cause performance or compliance, with
such agreement, the expenses of Lenders' Representative incurred in connection
with such performance or compliance, together with interest thereon at the
highest default rate provided in the Note, shall be payable by the Grantor to
Lenders' Representative on demand and shall constitute Obligations secured
hereby.
7. Proceeds. It is agreed that if an event of default shall occur with
respect to the Loan, as defined in Section 6 of the Notes ("Event of Default")
and is continuing and is not cured during the applicable grace period under the
Notes (a) all Proceeds received by Grantor consisting of cash, checks and other
cash equivalents shall be held by the Grantor in trust for Lenders, segregated
from other funds of the Grantor, and shall, forthwith upon receipt by the
Grantor, be turned over to Lenders' Representative in the exact form received by
Grantor (duly endorsed by Grantor to Lenders' Representative, if required), and
(b) any and all such Proceeds received by Lenders (whether from Grantor or
otherwise) shall promptly be applied by Lenders' Representative against the
Obligations (whether matured or unmatured), such application to be in pro rata
among the Lenders. Any balance of such Proceeds remaining after the Obligations
shall have been paid in full shall be paid over to Grantor or to whomsoever may
be lawfully entitled to receive the same.
8. Remedies. If an Event of Default shall occur and be continuing and has
not been cured during the applicable grace period under the Notes, Lenders'
Representative, may exercise on behalf of the Lenders, in addition to all other
rights and remedies granted to it in this Security Agreement and in any other
instruments or agreement securing, evidencing or relating to the Obligations,
all rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, Lenders' Representative, on behalf of the Lenders,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon Grantor or any other person (all and each of which demands,
defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or, contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any office of Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or on future delivery without
assumption of any credit risk. Lenders' Representative's, on behalf of the
Lenders, shall have the right upon any such public sale or private sale, and, to
the extent permitted by law, to purchase the whole or any part of the Collateral
so sold, free of any rights or equity of redemption in the Grantor, which right
or equity is hereby waived or released. Grantor further agrees, at Lenders'
Representative's request, to assemble the Collateral and make it available to
Lenders' Representative (as applicable) at places which Lenders' Representative
shall reasonably select, whether at the Grantor's premises or elsewhere.
Lenders' Representative shall, on behalf of the Lenders, apply the net proceeds
of any such
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collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of Lenders hereunder, including,
without limitation, reasonably attorneys' fees and disbursements, to the payment
in whole or in part of the Obligations, pro rata among the Lenders, and only
after such application and after the payment by Lenders' Representative of any
other amount required by any provisions of law, including, without limitation,
Section 9-504(1)(c) of the UCC, need Lenders' Representative account for the
surplus, if any, to the Grantor To the extent permitted by applicable law,
Grantor waives all claims, damages and demands it may require against Lenders'
Representative on behalf of the Lenders, or any Lender, arising out of the
exercise by it/them of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition. Grantor shall remain liable for any deficiency if the proceeds of
any sale or other disposition of the Collateral are insufficient to pay the
Obligations and the fees and disbursements of any attorneys employed by Lenders'
Representative to collect such deficiency.
9. Limitation on Duties Regarding Preservation of Collateral. Lenders'
Representatives sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as Lenders'
Representative would deal with similar property for its own account. Neither
Lenders' Representative nor any of its partners, directors, officers, employees
or agents shall be liable for failure to demand, collect or realize upon all or
any part of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Grantor or otherwise.
10. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
11. Severability. Any provision of this Security Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
12. Paragraph Headings. The paragraph headings used in this Security
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.
13. No Waiver~ Cumulative Remedies. Lender shall not by any act (except by
a written instrument pursuant to Section 14 hereof), delay, indulgence, omission
or
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otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of Lender or Lenders' Representative, any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by Lender or
Lenders' Representative of any right or remedy hereunder on any occasion shall
not be construed as a bar to any right or remedy which Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
14. Waivers and Amendment; Successors and Assigns. None of the terms or
provisions of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Grantor and
Lenders or Lenders' Representative on behalf of the Lenders, provided that any
provision of this Security Agreement may be waived by Lender or Lenders'
Representative on behalf of the Lenders in a written letter or agreement
executed by Lender or by telex or facsimile transmission from Lenders'
Representative. This Security Agreement shall be binding upon the successors and
assigns of the Grantor and shall inure to the benefit of each of the Lenders and
their respective successors and assigns.
15. Notices. All notices, requests and demands to or upon the Grantor or
Lender or Lenders' Representative to be effective shall be in writing or by
telecopy or telex and unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or, in the case
of mail, five days after deposit in the postal system, first class postage
prepaid, or, in the case of telecopy notice, confirmation of receipt received,
or, in the case of telex notice, when sent, answer back received, addressed to a
party at the address provided for such party in the Subscription Agreement
executed and delivered in connection with the Private Placement.
16. Governing Law. This Security Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York
applicable to contracts to be wholly performed in such State.
`17. 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed and delivered as of the date first above written.
GRANTOR:
CALL COMPUANCE.COM, INC.
By:
Dean Garfinkel, Chairman
COMPLIANCE SYSTEMS CORPORATION
By:
Dean Garfinkel, Chairman
LENDERS:
Robert P. Reiner, Lenders' Representative
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