Exhibit 10.5

 

SECURITY AGREEMENT

 

THIS AGREEMENT is made as of March 26, 2008 between ASPYRA, INC., as debtor, a
California corporation (“Debtor”), and Jay Weil, as collateral agent
(“Collateral Agent”) for the secured parties (“Secured Parties”) pursuant to
that certain Securities Purchase Agreement (the “Purchase Agreement”) dated as
of the date hereof among Debtor, Collateral Agent and Secured Parties.

 

FOR VALUE RECEIVED, Debtor hereby represents, warrants, covenants and agrees as
follows:

 

1.             Security Interest.  (a) To secure its obligations under the Notes
(as defined in the Purchase Agreement), Debtor hereby grants to Secured Parties,
pari passu, a present and continuing security interest (the “Security
Interest”), which is junior to the security interest held by Western Commercial
Bank in all of Debtor’s right, title and interest in, to and under all its
property (the “Collateral”), whether now owned or existing or hereafter acquired
or arising and wheresoever located, including, without limitation:

 

(i) all of Debtor’s software, including all source code, object code and
documentation, and lexicon databases together, including all trade secrets,
copyrights and other property rights therein;

 

(ii) all of Debtor’s patents and patent applications, and all continuations,
divisions, re-issues and renewals thereof, in whole or in part, together with
any patents that may be issued with respect thereto;

 

(iii) all of Debtor’s trademarks, service marks and applications for trademarks
and service marks, including, but not limited to, the  trademarks and
applications to register trademarks listed on Exhibit A attached hereto and made
a part hereof, all common law rights in the trade marks, service marks and trade
names subject to such registrations, all statutory rights that may attach to any
registrations thereof and any related renewals, and all related good will;

 

(iv) all of Debtor’s copyrights and copyright applications,;

 

(v) the right to sue for past, present and future infringement or
misappropriation of trade secrets, copyrights, patents, trademarks and service
marks, and all rights corresponding thereto throughout the world;

 

(vi) all products and proceeds of the foregoing, including the right to receive
license fees, royalties and other payments in respect thereof, the proceeds of
any infringement suits, and so forth;

 

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(vii) all equipment (including all machinery, tools and furniture), all
inventory (including all merchandise, raw materials, work in process, finished
goods and supplies), motor vehicles and goods,  (the “Tangible Collateral”);

 

viii) all accounts, accounts receivable, rights to the payment of money, payment
intangibles, other receivables, contract rights, contracts, leases, chattel
paper, electronic chattel paper, commercial tort claims, insurance refund claims
and other insurance claims and proceeds, and general intangibles of Debtor,
including, without limitation, all tax refund claims, goodwill, going concern
value, blueprints, designs, computer programs, software, service marks,
inventions, trade names, customer lists, product lines and research and
development, all of Debtor’s rights under all present and further
authorizations, permits, licenses and franchises heretofore or hereafter granted
to Debtor for the operation of Debtor’s business (including, to the maximum
extent permitted by law, all rights incident to appurtenant to such licenses and
permits, including, without limitation, the right to receive all proceeds
derived from or in connection with the sale, assignment or transfer of such
licenses and permits;

 

(ix) all instruments, documents of title, letters of credit, rights to proceeds
of letters of credit, letter of credit rights, supporting obligations of every
kind and description, policies and certificates of insurance, securities,
securities entitlements, investment property, partnership interests, membership
interests in limited liability companies (including, without limitation, all of
Debtors’ right, title and interest in and to all limited liability companies and
partnerships and to any successor business entities, and the right to receive
all payments and distributions due or to become due under all related
partnership agreements, operation agreements, and other constituent documents
governing or establishing such business entities), bank deposits, deposit
accounts, checking accounts, certificates of deposit and cash;

 

(x) all accessions, additions or improvements to, and all proceeds and products
of, all of the foregoing, including proceeds of insurance; and

 

(x) all books, records, documents, computer tapes and discs relating to all of
the foregoing.

 

(b) All Collateral consisting of accounts, contract rights, chattel paper,
general intangibles and other Collateral described in subparagraph (viii) above
arising from the sale, delivery or provision of goods and/or services are
sometimes hereinafter collectively called the “Customer Receivables.”

 

(c) Debtor hereby acknowledges and agrees that the description of Collateral
contained in this Security Agreement covers, and is intended to cover, all
assets of Debtor.  For avoidance of doubt, it is expressly understood and agreed
that, to the extent that the Uniform Commercial Code (“UCC”) is revised
subsequent to the date hereof such that the definition of any of the foregoing
terms included in the description of Collateral is changed, the parties agree
that any property which is included in such changed definitions which would not
otherwise be included in the foregoing grant on the date hereof be included in
such grant immediately upon the effective date of such revision, it being the
intention of the parties hereto that the description of Collateral set forth
herein be construed to include the broadest possible range of property and
assets and all tangible and intangible personal property and fixtures of Debtor
of every kind and description.

 

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2.             Collateral Agent.  The rights of Secured Parties in the
Collateral will be exercisable by Collateral Agent as agent for Secured Parties
pursuant to the Purchase Agreement.  In such capacity, from time to time and at
any time, Collateral Agent may in its sole discretion take any and all actions,
exercise any and all rights and remedies, give any and all waivers and
forbearances, and make any and all determinations and elections that Secured
Parties are entitled to exercise under this Agreement and the Notes.  Debtor
will be entitled to rely solely on the actions of Collateral Agent as binding
all Secured Parties.

 

3.             Other Matters.

 

(a) Perfection.  From time to time and at any time, Debtor will execute such
financing statements, assignments, notices of assignments, registrations of the
collateral assignment of its patents, trademarks and copyrights, and such other
filings, notices and any other documents and do such other acts as Collateral
Agent may reasonably request for the purpose of perfecting, confirming,
continuing, enforcing and/or protecting the security interest of Secured Parties
in the Collateral.  Debtor will furnish to Collateral Agent promptly upon
request such information as may be necessary to complete such financing
statements, filings and other documents.  From time to time and at any time,
Collateral Agent may file any and all such documents with the appropriate
registries as necessary to perfect, confirm, continue, enforce or protect the
security interest of Secured Parties in the Collateral.  Debtor hereby appoints
Collateral Agent as its attorney in fact with the power and authority to execute
and deliver in Debtor’s name any of the foregoing financing statements,
assignments, notices of assignments and other documents that Debtor refuses or
is unable to so execute and deliver.  This power of attorney is coupled with an
interest and is irrevocable.

 

(b) Obligations of Collateral Agent.  In addition to those duties and powers of
Collateral Agent pursuant to the Purchase Agreement, upon payment in full of all
outstanding amounts due under the Notes, Collateral Agent will promptly
terminate all financing statements, filings and other documents referenced in
Section 3(a) hereof, and execute and deliver to Debtor such termination
statements, releases, re-assignments and other instruments as necessary to
re-vest in Debtor full title to the Collateral and to remove all liens and
security interests of Secured Parties therein.  Collateral Agent hereby appoints
Debtor as its attorney in fact with the power and authority to execute and
deliver in the name of Collateral Agent and/or Secured Parties any of the
foregoing termination statements, releases, re-assignments and other instruments
that Collateral Agent and/or Secured Parties refuse or are unable to so execute
and deliver.  This power of attorney is coupled with an interest and is
irrevocable.

 

(c) Rights and Remedies of Secured Parties.  The rights and remedies of Secured
Parties with respect to the security interest granted hereby are in addition to
those set forth in the Notes, and those which are now or hereafter available to
Secured Parties as a matter of law or equity.  Each right, power and remedy of
Secured Parties provided for herein or in the Notes, or now or hereafter
existing at law or in equity, will be cumulative and concurrent and will be in
addition to every right, power or remedy provided for herein and the exercise by
Secured Parties of any one or more of the rights, powers or remedies provided
for in this Agreement or the Notes, or now or hereafter existing at law or in
equity, will not preclude the simultaneous or later exercise by any person,
including Secured Parties, of any or all other rights, powers or remedies.

 

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4.             Use of Collateral.  Unless an Event of Default has occurred and
is continuing under any Note:

 

(a) Debtor may deal in the Collateral in the ordinary course of business,
including the payment of expenses incurred in the ordinary course of the
Debtor’s business and the repayment of any loans listed on Schedule 4.1, but in
no event may Debtor transfer or assign (i) all or substantially all of its
rights in the Collateral to any other person (including a subsidiary or
affiliate of Debtor) or (ii) any rights in all or any portion of the Collateral
to any subsidiary of affiliate of Debtor, in each case without the prior written
consent of Collateral Agent.  Debtor may grant licenses to third parties for the
use of, and/or sublicense of, all or any part of the Collateral, on a
non-exclusive basis or exclusive basis, but in no event shall any such exclusive
license have a term of more than one year unless Debtor first obtains the prior
written consent of Collateral Agent.  Licenses may be granted for up-front or
recurring license fees, or for other consideration, for such periods of time as
Debtor deems appropriate (including license terms that extend beyond the
maturity of any Note), and on such other terms and conditions as Debtor deems
appropriate, and all such licenses, sublicenses and other grants of rights will
survive any repossession of or foreclosure on the Collateral by Collateral
Agent;

 

(b) the proceeds of Debtor’s licensing and other dealings in the Collateral may
be used by Debtor for any proper corporate purposes; and

 

(c) Debtor may grant one or more third parties a security interest in some or
all of the Collateral in connection with a purchase money security interest
retained by a seller of goods or services.  Provided that it has first obtained
the written consent of Collateral Agent, Debtor may grant one or more third
parties other types of security interests in some or all of the Collateral to
third parties, however, all such interests must be junior and subordinated to
the security interest of Secured Parties and such junior secured parties may not
take any action with respect to the Collateral without the prior written consent
of Collateral Agent.

 

5.             EVENTS OF DEFAULT. (A) DEBTOR WILL BE IN DEFAULT UNDER THIS
AGREEMENT UPON THE OCCURRENCE OF ANY ONE OF THE FOLLOWING EVENTS (EACH, AN
“EVENT OF DEFAULT”):

 

(i) default by Debtor in the due observance or performance of any material
covenant or agreement contained herein or material breach by Debtor of any
material representation or warranty herein contained and Debtor fails to cure
such default within thirty (30) days following written demand by Collateral
Agent; or

 

(ii) any event of default under the Notes occurs; or

 

(iii) default by Debtor in the payment when due of the principal of, or interest
on, any other indebtedness of Debtor to any Secured Party and Debtor fails to
cure such default within thirty (30) days following written demand by Collateral
Agent.

 

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(b) If Debtor defaults under this Agreement or any Note and the commercial value
of the Collateral exceeds the outstanding amounts due to Secured Parties, then
Collateral Agent will act in good faith in a commercially reasonable manner in
disposing of or otherwise dealing in the Collateral in order not to prejudice
the interests of Debtor’s other secured creditors, unsecured creditors and
shareholders.

 

6.             Remedies Upon Event of Default.  If any Event of Default will
have occurred and be continuing, Collateral Agent may exercise all the rights
and remedies of a Secured Party under the Purchase Agreement and the UCC
(whether or not the UCC is in effect in the jurisdiction where such rights and
remedies are exercised) and, in addition, Collateral Agent may, without being
required to give any notice, except as herein provided or as may be required by
mandatory provisions of law, (i) apply the cash, if any, then held by it as
Collateral in the manner specified in Section 8, and (ii) if there will be no
such cash or if such cash will be insufficient to pay all the obligations in
full, sell the Collateral, or any part thereof, at public or private sale or at
any broker’s board or on any securities exchange, for cash, upon credit or for
future delivery, and at such price or prices as Collateral Agent may deem
satisfactory. Collateral Agent may require Debtor to assemble all or any part of
the Collateral and make it available to Collateral Agent at a place to be
designated by Collateral Agent which is reasonably convenient.  Collateral Agent
and any Secured Party may be the purchaser of any or all of the Collateral so
sold at any public sale (or, if the Collateral is of a type customarily sold in
a recognized market or is of a type which is the subject of widely distributed
standard price quotations, at any private sale) and thereafter hold the same,
absolutely, free from any right or claim of whatsoever kind. Upon any such sale
Collateral Agent will have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold.  Each purchaser at any such sale will
hold the Collateral so sold absolutely, free from any claim or right of
whatsoever kind, including any equity or right of redemption of Debtor.  Debtor,
to the extent permitted by law, hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any rule of law or
statute now existing or hereafter adopted.  At any such sale the Collateral may
be sold in one lot as an entirety or in separate parcels, as Collateral Agent
may determine.  Collateral Agent will not be obligated to make such sale
pursuant to any such notice.  Collateral Agent  may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be
adjourned.  In case of any sale of all or any part of the Collateral on credit
or for future delivery, the Collateral so sold may be retained by Collateral
Agent  until the selling price is paid by the purchaser thereof, but Collateral
Agent will not incur any liability in case of the failure of such purchaser to
take up and pay for the Collateral so sold and, in case of any such failure,
such Collateral may again be sold upon like notice.  Collateral Agent,  instead
of exercising the power of sale herein conferred upon it, may proceed by a suit
or suits at law or in equity to foreclose the security interests and sell the
Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.

 

7.             Right of Collateral Agent to Use and Operate Tangible Collateral,
Etc.  Upon the occurrence of an Event of Default, to the extent permitted by
law, Collateral Agent will have the right and power to take possession of all or
any part of the Tangible Collateral, and to exclude Debtor and all persons
claiming under Debtor wholly or partly therefrom, and thereafter to hold, store,
and/or use, operate, manage and control the same.  Upon any such taking of

 

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possession, Collateral Agent may, from time to time, at the expense of Debtor,
make all such repairs, replacements, alterations, additions and improvements to
and of the Tangible Collateral as Collateral Agent may deem proper.  In such
case, Collateral Agent will have the right to manage and control the Tangible
Collateral and to carry on the business and to exercise all rights and powers of
Debtor in respect thereto as Collateral Agent will deem best, including the
right to enter into any and all such agreements with respect to the leasing
and/or operation of the Tangible Collateral and any part thereof as Collateral
Agent may see fit; and the Secured Party will be entitled to collect and receive
all rents, issues, profits, fees, revenues and other income of the same and
every part thereof.  Such rents, issues, profits, fees, revenues and other
income will be applied to pay the expenses of holding and operating the Tangible
Collateral and of conducting the business thereof, and of all maintenance,
repairs, replacements, alterations, additions and improvements, and to make all
payments which Collateral Agent may be required or may elect to make, if any,
for taxes, assessments, insurance and other charges upon the Tangible Collateral
or any part thereof, and all other payments which Collateral Agent may be
required or authorized to make under any provision of this Security Agreement
(including legal costs and attorney’s fees).  The remainder of such rents,
issues, profits, fees, revenues and other income will be applied to the payment
of the obligations in such order or priority as Collateral Agent will determine
(subject to the provisions of Section 8 hereof) and, unless otherwise provided
by law or by a court of competent jurisdiction, any surplus will be paid over to
Debtor.

 

8.             Application of Collateral and Proceeds.  The proceeds of any sale
of, or other realization upon, all or any part of the Collateral will be applied
in the following order of priorities:

 

(i)            first, to pay the expenses of such sale or other realization,
including those reasonable expenses, liabilities and advances actually incurred
or made by Collateral Agent and its agent and counsel in connection therewith,
and any other unreimbursed expenses of which Collateral Agent is to be
reimbursed pursuant to Section 9 as determined in its sole discretion;

 

(ii)           second, to the payment of the obligations in such other manner as
Collateral Agent, in its sole discretion, will determine; and

 

(iii)          finally, to pay to Debtor, or its successors or assigns, or to a
court of competent jurisdiction, or as directed by a court of competent
jurisdiction, any surplus then remaining from such proceeds.

 

9.             Expenses; Secured Parties’ Lien.  Debtor will promptly upon
demand pay to Collateral Agent:

 

(a)           the amount of any taxes which the Secured Parties may have been
required to pay by reason of the security interests herein (including any
applicable transfer taxes) or to free any of the Collateral from any lien
thereon; and

 

(b)           the amount of any and all reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of Collateral Agent’s counsel
and of any agents not regularly in its employ, which Collateral Agent may
actually incur in connection with (x) the preparation and administration of this
Agreement, (y) the collection, sale or total disposition of any of the
Collateral, (z) the exercise by Collateral Agent of any of the powers conferred
upon it hereunder, or (aa) any default on Debtor’s part hereunder.

 

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10.          Covenants of Debtor.  Debtor hereby covenants and agrees that
Debtor will:

 

(a)           defend the Collateral against all claims and demands of all
persons at any time claiming any interest therein;

 

(b)           provide Collateral Agent with immediate written notice of (i) any
change in the chief executive officer of Debtor or the office where Debtor
maintains its books and records pertaining to the Customer Receivables, or
(ii) the movement or location of Collateral (outside the ordinary course of
business) to or at any address other than as set forth above;

 

(c)           promptly pay any and all taxes, assessments and governmental
charges upon the Collateral prior to the date penalties are attached thereto,
except to the extent that such taxes, assessments and charges shall be contested
in good faith by Debtor;

 

(d)           immediately notify Collateral Agent of any event causing a
substantial loss or diminution in the value of all or any material part of the
Collateral and the amount or an estimate of the amount of such loss or
diminution; and

 

(e)           keep its records concerning the Collateral, including the Customer
Receivables and all chattel paper included in the Customer Receivables, at its
principal office or at such other place or places of business as the Secured
Party may approve in writing, or if in electronic form will ensure that it is
available at its principal office.  Debtor will hold and preserve such records
and chattel paper and, provided reasonable notice has been given to Debtor, will
permit representatives of the Secured Party at any time during normal business
hours to examine and inspect the Collateral and to make abstracts from such
records and chattel paper and will furnish to the Secured Party such information
and reports regarding the Collateral as the Secured Party may from time to time
reasonably request.

 

11.          Collections with Respect to Customer Receivables.  Debtor will, at
its expense, and subject at all times to Collateral Agent’s right to give
directions and instructions:

 

(a)           endeavor to collect or cause to be collected from customers
indebted on Customer Receivables, as and when due, any and all amounts,
including interest, owing under or on account of each Customer Receivables; and

 

(b)           take or cause to be taken such appropriate action to repossess
goods, the sale or rental of which gave rise to any Customer Receivables, or to
enforce any rights or liens under Customer Receivables, as Debtor or Collateral
Agent may deem proper, and in the name of Debtor, or Collateral Agent , as
Collateral Agent  may deem proper;

 

provided that (x) Debtor will use its best judgment to protect the interests of
the Secured Parties and (y) Debtor shall not be required under this Section 11
to take any action which would be contrary to any applicable law or court
order.  Debtor shall, at the request of  Collateral Agent

 

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following the occurrence of any Event of Default (as defined in Section 5
above), notify the account debtors of the security interests of the Secured
Parties in any of the Customer Receivables and Collateral Agent may also notify
such account debtors of such security interests.  Collateral Agent will have
full power at any time after such notice to collect, compromise, endorse, sell
or otherwise deal with any or all outstanding Customer Receivables or the
proceeds thereof in the name of either Collateral Agent or Debtor.  In the event
that, after notice to any account debtors to pay Collateral Agent on behalf of
the Secured Parties, Debtor receives any payment on a Customer Receivable, any
such payments shall be held by Debtor in trust for Collateral Agent and
immediately turned over to Collateral Agent as aforesaid.

 

12.          Interpretation.  This Agreement will be interpreted in accordance
with, and subject to the provisions of, the Purchase Agreement applicable to all
Transaction Documents (as such term is defined therein).  Without limiting the
foregoing, this Agreement is governed by New York law.

 

13.          Termination of this Agreement.  This Agreement and the  Security
Interest shall terminate immediately on the satisfaction of 75% or more of the
Note (as defined in the Purchase Agreement, whether by conversion or repayment)
and the Collateral Agent shall immediately thereafter  return to the Company any
Collateral directly or indirectly in its possession or control.

 

[signatures on following page]

 

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[signature page for Security Agreement]

 

SIGNED AND DELIVERED as of the date first above written.

 

 

ASPYRA, INC.

 

 

 

 

 

 

By:

/s/ James Zierick

 

 

Name:

James Zierick

 

 

Title:

Chief Executive Officer

 

 

 

 

 

 

COLLATERAL AGENT:

 

 

 

 

 

 

By:

/s/ Jay Weil

 

 

Name:

Jay Weil

 

 

Title:

 

 

 

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EXHIBIT  A

 

TRADEMARKS AND TRADEMARK APPLICATIONS

 

 

 

Serial #

 

Reg. #

 

Mark

1

 

78763848

 

N/A

 

ASPYRA EXTENDING YOUR REACH

2

 

78666294

 

3245496

 

ASPYRA

3

 

76110418

 

2764775

 

CYBERPATH

4

 

75742707

 

2625559

 

XYMED.COM

5

 

75594808

 

2386421

 

IMAGEWEB

6

 

75463890

 

2390771

 

MEDVIEW

7

 

75101266

 

2063089

 

CYBERPRINT

8

 

75101264

 

2120960

 

CYBERRAD

9

 

75101263

 

2336956

 

CYBERMED

10

 

75084391

 

2177228

 

CYBERLINK

11

 

74672541

 

2036480

 

CYBERMATE

12

 

73469850

 

1320485

 

CYBERLAB

13

 

N/A

 

N/A

 

WEBGATEWAY

 

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