EXECUTION VERSION

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this “Agreement”), dated as of December 7, 2012, is
made between Grandparents.com, Inc., a New York corporation (“Debtor”) and John
Thomas Financial, Inc., a New York corporation (in its individual capacity,
“Agent”), as collateral agent for the Lenders referred to below (in such
capacity, “Secured Party”).

 

Debtor and Secured Party hereby agree as follows:

 

SECTION 1       Definitions; Interpretation.

 

(a)          All capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings assigned to them in the Notes or Purchase
Agreement.

 

(b)          As used in this Agreement, the following terms shall have the
following meanings:

 

“Collateral” has the meaning set forth in Section 2.

 

“Contracts” means all contracts (including any customer, vendor, supplier,
service or maintenance contract), leases, licenses, undertakings, purchase
orders, permits, franchise agreements or other agreements (other than any right
evidenced by Chattel Paper, Documents or Instruments), whether in written or
electronic form, in or under which Debtor now holds or hereafter acquires any
right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof.

 

“Copyright License” means any agreement, whether in written or electronic form,
in which Debtor now holds or hereafter acquires any interest, granting any right
in or to any Copyright or Copyright registration (whether Debtor is the licensee
or the licensor thereunder) including, without limitation, licenses pursuant to
which Debtor has obtained the exclusive right to use a copyright owned by a
third party.

 

“Copyrights” means all of the following now owned or hereafter acquired or
created (as a work for hire for the benefit of Debtor) by Debtor or in which
Debtor now holds or hereafter acquires or receives any right or interest, in
whole or in part: (a) all copyrights, whether registered or unregistered, held
pursuant to the laws of the United States, any State thereof or any other
country; (b) registrations, applications, recordings and proceedings in the
United States Copyright Office or in any similar office or agency of the United
States, any State thereof or any other country; (c) any continuations, renewals
or extensions thereof; (d) any registrations to be issued in any pending
applications, and shall include any right or interest in and to work protectable
by any of the foregoing which are presently or in the future owned, created or
authorized (as a work for hire for the benefit of Debtor) or acquired by Debtor,
in whole or in part; (e) prior versions of works covered by copyright and all
works based upon, derived from or incorporating such works; (f) income,
royalties, damages, claims and payments now and hereafter due and/or payable
with respect to copyrights, including, without limitation, damages, claims and
recoveries for past, present or future infringement; (g) rights to sue for past,
present and future infringements of any copyright; and (h) any other rights
corresponding to any of the foregoing rights throughout the world.

 

 

 

 

“Directing Lenders” means at any time the Majority Investors.

 

“Event of Default” has the meaning set forth in Section 9.

 

“Intellectual Property” means any intellectual property, in any medium, of any
kind or nature whatsoever, now or hereafter owned or acquired or received by
Debtor or in which Debtor now holds or hereafter acquires or receives any right
or interest, and shall include, in any event, any Copyright, Trademark, Patent,
License, trade secret, customer list, marketing plan, internet domain name
(including any right related to the registration thereof), proprietary or
confidential information, mask work, source, object or other programming code,
invention (whether or not patented or patentable), technical information,
procedure, design, knowledge, know-how, software, data base, data, skill,
expertise, recipe, experience, process, model, drawing, material or record.

 

“Lenders” means the Investors set forth in the Purchase Agreement.

 

“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests, whether in-bound or out-bound, whether in
written or electronic form, now or hereafter owned or acquired or received by
Debtor or in which Debtor now holds or hereafter acquires or receives any right
or interest, and shall include any renewals or extensions of any of the
foregoing thereof.

 

“Money” means a medium of exchange authorized or adopted by a domestic or
foreign government and includes a monetary unit of account established by an
intergovernmental organization or by agreement between two or more nations.

 

“Note” means the Secured Convertible Promissory Notes made by Debtor in favor of
Lenders pursuant to the Purchase Agreement, as amended, modified, renewed,
extended or replaced from time to time.

 

“Obligations” means the indebtedness, liabilities and other obligations of
Debtor to Secured Party, as collateral agent, and Lenders under or in connection
with this Agreement and the Notes, including, without limitation, all unpaid
principal of the Notes, all interest accrued thereon, all fees and all other
amounts payable by Debtor to Secured Party, as collateral agent, and Lenders
thereunder or in connection therewith, whether now existing or hereafter
arising, and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and including interest that accrues
after the commencement by or against Debtor of any bankruptcy or insolvency
proceeding naming such Person as the debtor in such proceeding.

 

“Patent License” means any agreement, whether in written or electronic form, in
which Debtor now holds or hereafter acquires any interest, granting any right
with respect to any invention on which a Patent is in existence (whether Debtor
is the licensee or the licensor thereunder).

 

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“Patents” means all of the following in which Debtor now holds or hereafter
acquires any interest: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof and all applications for
letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country; (b) all reissues, divisions,
continuations, renewals, continuations-inpart or extensions thereof; (c) all
petty patents, divisionals and patents of addition; (d) all patents to issue in
any such applications specified in (a), (b) or (c) above; (e) income, royalties,
damages, claims and payments now and hereafter due and/or payable with respect
to patents, including, without limitation, damages, claims and recoveries for
past, present or future infringement; and (f) rights to sue for past, present
and future infringements of any patent.

 

“Pledged Collateral” means Debtor’s investment property, including any ownership
interests in any subsidiaries of Debtor.

 

“Purchase Agreement” means the Note Purchase Agreement, dated as of December 7,
2012, by and among the Debtor and the Lenders.

 

“Trademark License” means any agreement, whether in written or electronic form,
in which Debtor now holds or hereafter acquires any interest, granting any right
in and to any Trademark or Trademark registration (whether Debtor is the
licensee or the licensor thereunder).

 

“Trademarks” means any of the following in which Debtor now holds or hereafter
acquires any interest: (a) any trademarks, tradenames, domain names, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, in each case, whether registered or not, prints
and labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted, created
or acquired, all registrations and recordings thereof and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country (collectively, the “Marks”); (b) any reissues, extensions or renewals
thereof; (c) the goodwill of the business symbolized by or associated with the
Marks; (d) income, royalties, damages, claims and payments now and hereafter due
and/or payable with respect to the Marks, including, without limitation,
damages, claims and recoveries for past, present or future infringement; and (e)
rights to sue for past, present and future infringements of the Marks.

 

“Transactional Documents” means this Agreement, the Notes, the Warrants and the
Purchase Agreement.

 

“UCC” means the Uniform Commercial Code as the same may, from time to time, be
in effect in the State of New York.

 

“Warrants” means the Warrants issued by Debtor in favor of Lenders pursuant to
the Purchase Agreement, as amended, modified, renewed, extended or replaced from
time to time.

 

(c)          Where applicable and except as otherwise defined herein, terms used
in this Agreement shall have the meanings assigned to them in the UCC.

 

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(d)          In this Agreement, (i) the meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms defined;
and (ii) the captions and headings are for convenience of reference only and
shall not affect the construction of this Agreement.

 

SECTION 2       Security Interest.

 

(a)          As security for the payment and performance of the Obligations,
Debtor hereby grants to Secured Party as collateral agent, for itself and for
the ratable benefit of Lenders, a security interest in all of Debtor’s right,
title and interest in, to and under all of its personal property, including all
of the following, in each case, wherever located and whether now existing or
owned or hereafter acquired or arising (collectively, the “Collateral”):

 

(i)          All Accounts (including, without limitation, all accounts
receivable) of Debtor;

 

(ii)         All Chattel Paper of Debtor;

 

(iii)        All Commercial Tort Claims of Debtor;

 

(iv)        All Commodity Accounts of Debtor;

 

(v)         All Contracts (and all rights under such Contracts) of Debtor;

 

(vi)        All Deposit Accounts of Debtor;

 

(vii)       All Documents of Debtor;

 

(viii)      All Goods of Debtor, including, without limitation, Equipment,
Inventory, and Fixtures;

 

(ix)         All Instruments of Debtor, including, without limitation,
Promissory Notes;

 

(x)          All Investment Property of Debtor;

 

(xi)         All Letter-of Credit Rights of Debtor;

 

(xii)        All Money of Debtor;

 

(xiii)       All Securities Accounts of Debtor;

 

(xiv)      All Supporting Obligations of Debtor;

 

(xv)       All Intellectual Property of Debtor;

 

(xvi)      All property of Debtor held by any Lender, or any other party for
whom any Lender is acting as agent, including, without limitation, all property
of every description now or hereafter in the possession or custody of or in
transit to any Lender or such other party for any purpose, including, without
limitation, safekeeping, collection or pledge, for the account of Debtor, or as
to which Debtor may have any right or power;

 

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(xvii)     All other goods and personal property of Debtor, wherever located,
whether tangible or intangible, and whether now owned or hereafter acquired,
existing, leased or consigned by or to Debtor; and

 

(xviii)    To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for and rents,
profits and products of each of the foregoing.

 

The interest of any Lender in the Collateral shall be on a parity with the
interests of all other Lenders, and the interest of each Lender in the
Collateral shall be ratable in the proportion that the aggregate indebtedness
then outstanding and unpaid under the Note(s) held by such Lender bears to the
aggregate indebtedness then outstanding and unpaid under the Notes held by all
Lenders (except to the extent the Lenders agree to any other ratable interest
therein). Any Lender holding any instruments, certificated Pledged Collateral or
other Collateral hereunder shall do so as agent for Secured Party and for the
ratable benefit of all Lenders.

 

(b)          This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 20 hereof.

 

SECTION 3       Financing Statements and Other Action.

 

(a)          Debtor hereby authorizes Secured Party to file at any time and from
time to time any financing statements describing the Collateral, and Debtor
hereby authorizes Secured Party to file (with or without Debtor’s signature), at
any time and from time to time, all amendments to financing statements,
assignments, continuation financing statements, termination statements, and
other documents and instruments, in form reasonably satisfactory to Secured
Party, as Secured Party may reasonably request, to perfect and continue
perfected, maintain the priority of or provide notice of the security interest
of Secured Party in the Collateral and to accomplish the purposes of this
Agreement. Without limiting the generality of the foregoing, Debtor ratifies and
authorizes the filing by Secured Party of any financing statements filed prior
to the date hereof.

 

(b)          Upon request of Secured Party, Debtor will cooperate with Secured
Party in obtaining control (as defined in the UCC) of Collateral consisting of
deposit accounts (with deposits in excess of $50,000), investment property,
letter of credit rights and electronic chatter paper.

 

(c)          Upon request of Secured Party, Debtor will join with Secured Party
in notifying any third party who has possession of any Collateral of Secured
Party’s security interest therein.

 

(d)          Upon request of Secured Party, Debtor (i) shall cause certificates
to be issued in respect of any uncertificated Pledged Collateral, (ii) shall
exchange certificated Pledged Collateral for certificates of larger or smaller
denominations, and (iii) shall cause any securities intermediaries to show on
their books that Secured Party is the entitlement holder with respect to any
Pledged Collateral.

 

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(e)          Debtor will not create any chattel paper without placing a legend
on the chattel paper acceptable to Secured Party indicating that Secured Party
has a security interest in the chattel paper.

 

SECTION 4       Rights of Lenders; Collection of Accounts.

 

(a)          Notwithstanding anything contained in this Agreement to the
contrary, Debtor expressly agrees that it shall remain liable under each of its
Contracts, Chattel Paper, Documents and Instruments to observe and perform all
the conditions and obligations to be observed and performed by it thereunder and
that it shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract,
Chattel Paper, Document and Instrument. The Secured Party and the Lenders shall
not have any obligation or liability under any such Contract, Chattel Paper,
Document or Instrument by reason of or arising out of this Agreement or the
granting to the Lenders or Secured Party of a lien therein or the receipt by any
Lender of any payment relating to any such Contract, Chattel Paper, Document or
Instrument pursuant hereto, nor shall any Lender or the Secured Party be
required or obligated in any manner to perform or fulfill any of the obligations
of Debtor under or pursuant to any such Contract, Chattel Paper, Document or
Instrument, or to make any payment, or to make any inquiry as to the nature or
the sufficiency of any payment received by it or the sufficiency of any
performance by any party under any such Contract, Chattel Paper, Document or
Instrument, or to present or file any claim, or to take any action to collect or
enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.

 

(b)          The Secured Party, on behalf of the Lenders, authorizes Debtor to
collect its Accounts. Upon the occurrence and during the continuance of any
Event of Default, at the request of the Secured Party, Debtor shall deliver all
original and other documents evidencing and relating to the performance of labor
or service which created such Accounts, including, without limitation, all
original orders, invoices and shipping receipts.

 

(c)          The Secured Party may at any time, upon the occurrence and during
the continuance of any Event of Default, after providing Debtor with written
notice 10 days prior to taking any of the following actions, notify Account
Debtors of Debtor, parties to the Contracts of Debtor, and obligors in respect
of Instruments of Debtor and obligors in respect of Chattel Paper of Debtor that
the Accounts and the right, title and interest of Debtor in and under such
Contracts, Instruments and Chattel Paper have been assigned to the Lenders and
that payments shall be made directly to the Secured Party for distribution to
the Lenders. Upon the occurrence and during the continuance of any Event of
Default, upon the request of the Secured Party, Debtor shall so notify such
Account Debtors, parties to such Contracts, obligors in respect of such
Instruments and obligors in respect of such Chattel Paper. The Secured Party
may, in its name or in the name of other Lenders, communicate with such Account
Debtors, parties to such Contracts, obligors in respect of such Instruments and
obligors in respect of such Chattel Paper to verify with such parties, to
Secured Party’s satisfaction, the existence, amount and terms of any such
Accounts, Contracts, Instruments or Chattel Paper.

 

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(d)          The Secured Party may make all appropriate filings in the United
States Patent and Trademark Office to perfect the Secured Party’s security
interest granted herein in the Patents.

 

SECTION 5       Representations and Warranties. Debtor represents and warrants
to Secured Party and each Lender that:

 

(a)          Debtor is duly organized, validly existing and in good standing
under the law of the jurisdiction of its organization and has all requisite
power and authority to execute, deliver and perform its obligations under this
Agreement.

 

(b)          The execution, delivery and performance by Debtor of this Agreement
have been duly authorized by all necessary actions of Debtor, and this Agreement
constitutes the legal, valid and binding obligations of Debtor, enforceable
against Debtor in accordance with its terms.

 

(c)          No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or approval
or consent of any other Person, is required for the due execution, delivery or
performance by Debtor of this Agreement, except for any filings necessary to
perfect any Liens on any Collateral.

 

(d)          Debtor’s chief executive office and principal place of business (as
of the date of this Agreement) are located at the address set forth on Schedule
A; Debtor’s jurisdiction of organization and organizational identification
number are set forth on Schedule A; Debtor’s exact legal name is as set forth in
the first paragraph of this Agreement; the Collateral consisting of goods, other
than motor vehicles and other mobile goods, is presently located at the address
set forth on Schedule A.

 

(e)          All Collateral of Debtor consisting of Chattel Paper, Instruments
or Investment Property is set forth on Schedule B attached hereto.

 

(f)          The name and address of each depository institution at which Debtor
maintains any Deposit Account and the account number and account name of each
such Deposit Account is listed on Schedule C attached hereto. The name and
address of each securities intermediary or commodity intermediary at which
Debtor maintains any Securities Account or Commodity Account and the account
number and account name is listed on Schedule C attached hereto. Debtor agrees
to amend Schedule C upon the Secured Party’s request to reflect the opening of
any additional Deposit Account, Securities Account or Commodity Account, or
closing or changing the account name or number on any existing Deposit Account,
Securities Account, or Commodity Account.

 

(g)          Debtor has rights in or the power to transfer the Collateral.

 

(h)          Debtor possesses all Intellectual Property, including all Licenses,
Patents, Trademarks, Copyrights, and other intellectual property rights, free
from burdensome restrictions necessary to enable it to conduct its business as
presently conducted, except for those the lack of which could not reasonably be
expected to have a Material Adverse Effect.

 

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(i)           Debtor is not and will not become a lessee under any real property
lease or other agreement governing the location of Collateral at the premises of
another Person pursuant to which the lessor or such other Person may obtain any
rights in any of the Collateral, and no such lease or other such agreement now
prohibits, restrains, impairs or will prohibit, restrain or impair such Debtor’s
right to remove any Collateral from the premises at which such Collateral is
situated, except for the usual and customary restrictions contained in such
leases of real property.

 

(j)           No control agreements exist with respect to any Collateral other
than control agreements in favor of Secured Party.

 

(k)          Debtor does not have or hold any chattel paper, letter-of-credit
rights or commercial tort claims except as disclosed to Secured Party.

 

(l)           Debtor does not have any subsidiaries except as disclosed to
Secured Party.

 

(m)         Debtor is and will be the legal record and beneficial owner of all
Pledged Collateral, and has and will have good and marketable title thereto.

 

SECTION 6       Covenants. So long as any of the Obligations remain unsatisfied,
Debtor agrees that:

 

(a)          Debtor shall appear in and defend any action, suit or proceeding
which may affect to a material extent its title to, or right or interest in, or
Secured Party’s right or interest in, the Collateral, and shall do and perform
all reasonable acts that may be necessary and appropriate to maintain, preserve
and protect the Collateral. Debtor shall use commercially reasonable efforts to
(i) protect, defend and maintain the validity and enforceability of its
Copyrights, Patents and Trademarks material to Debtor’s business and (ii) detect
and stop infringements of all Copyrights, Patents and Trademarks material to
Debtor’s business.

 

(b)          Debtor shall comply in all material respects with all laws,
regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.

 

(c)          Debtor shall give prompt written notice to Secured Party (and in
any event not later than thirty (30) days following any change described below
in this subsection) of: (i) any change in the location of Debtor’s chief
executive office or principal place of business; (ii) any change in its name;
(iii) any changes in its identity or structure in any manner which might make
any financing statement filed hereunder incorrect or misleading; (iv) any change
in its registration as an organization (or any new such registration); or
(v) any change in its jurisdiction of organization; provided that Debtor shall
not locate any Collateral outside of the United States nor shall Debtor change
its jurisdiction of organization to a jurisdiction outside of the United States.

 

(d)          Debtor shall carry and maintain in full force and effect, at its
own expense and with financially sound and reputable insurance companies,
insurance with respect to the Collateral in such amounts, with such deductibles
and covering such risks as is customarily carried by companies engaged in the
same or similar businesses and owning similar properties in the localities where
Debtor operates.

 

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(e)          Debtor shall keep separate, accurate and complete books and records
with respect to the Collateral, disclosing Secured Party’s security interest
hereunder.

 

(f)           Debtor shall not surrender or lose possession of (other than to
Secured Party), sell, lease, rent, or otherwise dispose of or transfer any of
the Collateral or any right or interest therein, except in the ordinary course
of business or unless such Collateral is replaced by comparable Collateral of
similar value; provided that no such disposition or transfer of Collateral
consisting of Pledged Collateral or instruments shall be permitted while any
Event of Default exists.

 

(g)          Debtor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral
prior to the date on which penalties attach thereto, except to the extent such
taxes, fees, assessments or governmental charges or levies are being contested
in good faith by appropriate proceedings.

 

(h)          Debtor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral
prior to the date on which penalties attach thereto, except to the extent such
taxes, fees, assessments or governmental charges or levies are being contested
in good faith by appropriate proceedings.

 

(i)           Debtor shall maintain and preserve its legal existence, its rights
to transact business and all other rights, franchises and privileges necessary
or desirable in the normal course of its business and operations and the
ownership of the Collateral, except in connection with any transactions
expressly permitted by the Notes or Purchase Agreement.

 

(j)           Debtor shall not change its jurisdiction of organization or
relocate its chief executive office, principal place of business or its records
from such address(es) provided to the Secured Party without the providing notice
to the Secured Party at least ten (10) days prior to taking any such action.

 

(k)          Upon the request of Secured Party, Debtor shall (i) immediately
deliver to Secured Party, or an agent designated by it, appropriately endorsed
or accompanied by appropriate instruments of transfer or assignment, all
documents and instruments, all certificated securities with respect to any
Pledged Collateral, all letters of credit and all accounts and other rights to
payment at any time evidenced by promissory notes, trade acceptances or other
instruments, in each case, that has a value in excess of $50,000, and
(ii) provide such notice, obtain such acknowledgments and take all such other
action, with respect to any chattel paper, documents and letter-of credit
rights, as Secured Party shall reasonably specify.

 

(l)           Debtor shall at any reasonable time and from time to time (but not
more than twice per year, unless an Event of Default exists) permit Secured
Party or any of its agents or representatives to visit the premises of Debtor
and inspect the Collateral and to examine and make copies of and abstracts from
the records and books of account of Debtor.

 

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(m)         Debtor shall: (i) with such frequency as Secured Party may require,
furnish to Secured Party such lists of customers and other information relating
to the accounts and other rights to payment as Secured Party shall reasonably
request; (ii) give only normal discounts, allowances and credits as to accounts
and other rights to payment, in the ordinary course of business, according to
normal trade practices utilized by Debtor, and enforce all accounts and other
rights to payment strictly in accordance with their terms, except that Debtor
may grant any extension of the time for payment or enter into any agreement to
make a rebate or otherwise to reduce the amount owing on or with respect to, or
compromise or settle for less than the full amount thereof, any account or other
right to payment, in the ordinary course of business, according to normal and
prudent trade practices utilized by Debtor; and (iii) upon the request of
Secured Party (A) at any time, notify all or any designated portion of the
account debtors and other obligors on the accounts and other rights to payment
of the security interest hereunder, and (B) upon the occurrence and during the
continuance of an Event of Default, notify the account debtors and other
obligors on the accounts and other rights to payment or any designated portion
thereof that payment shall be made directly to Secured Party or to such other
Person or location as Secured Party shall specify.

 

(n)          Debtor shall, at such times as Secured Party shall reasonably
request, prepare and deliver to Secured Party a report of all Inventory, in form
and substance satisfactory to Secured Party.

 

(o)          Debtor shall (i) notify Secured Party of any material claim made or
asserted against the Collateral by any Person and of any change in the
composition of the Collateral or other event which could materially adversely
affect the value of the Collateral or Secured Party’s Lien thereon; (ii) furnish
to Secured Party such statements and schedules further identifying and
describing the Collateral and such other reports and other information in
connection with the Collateral as Secured Party may reasonably request, all in
reasonable detail; and (iii) upon reasonable request of Secured Party make such
demands and requests for information and reports as Debtor is entitled to make
in respect of the Collateral.

 

(p)          If and when Debtor shall obtain rights to any new Patents,
Trademarks, or Copyrights, or otherwise acquire or become entitled to the
benefit of, or apply for registration of, any of the foregoing, Debtor shall
promptly notify Secured Party thereof.

 

(q)         Debtor shall give Secured Party prompt notice of the acquisition of
any instruments or securities, or the establishment of any new deposit account,
commodity account or securities account.

 

(r)          Debtor shall promptly notify Secured Party if Debtor holds or
acquires (i) any commercial tort claims, (ii) any chattel paper, including any
interest in any electronic chattel paper, (iii) any letter-of-credit rights,
(iv) any instruments or (v) any investment property.

 

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SECTION 7       Rights of Secured Party.

 

(a)          At the request of Secured Party, upon the occurrence and during the
continuance of any Event of Default, all remittances received by Debtor in
respect of its accounts and other rights to payment shall be held in trust for
Secured Party and, in accordance with Secured Party’s instructions, remitted to
Secured Party or deposited to an account of Secured Party in the form received
(with any necessary endorsements or instruments of assignment or transfer).

 

(b)          At the request of Secured Party, upon the occurrence and during the
continuance of any Event of Default, Secured Party shall be entitled to receive
all distributions and payments of any nature with respect to any Pledged
Collateral or instrument Collateral, and all such distributions or payments
received by the Debtor shall be held in trust for Secured Party and, in
accordance with Secured Party’s instructions, remitted to Secured Party or
deposited to an account designated by Secured Party in the form received (with
any necessary endorsements or instruments of assignment or transfer). Further,
upon the occurrence and during the continuance of any Event of Default any such
distributions and payments with respect to any Pledged Collateral held in any
securities account shall be held and retained in such securities account, in
each case as part of the Collateral hereunder, and Secured Party shall have the
right, following prior written notice to the Debtor, to vote and to give
consents, ratifications and waivers with respect to any Pledged Collateral and
instruments, and to exercise all rights of conversion, exchange, subscription or
any other rights, privileges or options pertaining thereto, as if Secured Party
were the absolute owner thereof; provided that Secured Party shall have no duty
to exercise any of the foregoing rights afforded to it and shall not be
responsible to the Debtor or any other Person for any failure to do so or delay
in doing so.

 

SECTION 8       Authorization; Secured Party Appointed Attorney-in-Fact.

 

Secured Party shall have the right to, in the name of Debtor, or in the name of
Secured Party or otherwise, upon notice to but without the requirement of assent
by Debtor, and Debtor hereby constitutes and appoints Secured Party (and any of
Secured Party’s officers, employees or agents designated by Secured Party) as
Debtor’s true and lawful attorney-in-fact, with full power and authority to:
(i) sign and file any of the financing statements and other documents and
instruments which must be executed or filed to perfect or continue perfected,
maintain the priority of or provide notice of Secured Party’s security interest
in the Collateral (including any notices to or agreements with any securities
intermediary); (ii) assert, adjust, sue for, compromise or release any claims
under any policies of insurance; and (iii) execute any and all such other
documents and instruments, and do any and all acts and things for and on behalf
of Debtor, which Secured Party may deem reasonably necessary or advisable to
maintain, protect, realize upon and preserve the Collateral and Secured Party’s
security interest therein and to accomplish the purposes of this Agreement.
Secured Party agrees that, except upon and during the continuance of an Event of
Default, it shall not exercise the power of attorney, or any rights granted to
Secured Party, pursuant to clauses (ii) and (iii). The foregoing power of
attorney is coupled with an interest and irrevocable so long as the Obligations
have not been paid and performed in full. Debtor hereby ratifies, to the extent
permitted by law, all that Secured Party shall lawfully and in good faith do or
cause to be done by virtue of and in compliance with this Section 8.

 

SECTION 9       Events of Default. Any Event of Default under the Notes shall
constitute an “Event of Default” hereunder.

 

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SECTION 10       Remedies.

 

(a)          Upon the occurrence and during the continuance of any Event of
Default, Secured Party may declare any of the Obligations to be immediately due
and payable and shall have, in addition to all other rights and remedies granted
to it in this Agreement or the Notes, all rights and remedies of a secured party
under the UCC and other applicable laws. Without limiting the generality of the
foregoing, (i) Secured Party may peaceably and without notice enter any premises
of Debtor, take possession of any the Collateral, remove or dispose of all or
part of the Collateral on any premises of such Debtor or elsewhere, or, in the
case of equipment, render it nonfunctional, and otherwise collect, receive,
appropriate and realize upon all or any part of the Collateral, and demand, give
receipt for, settle, renew, extend, exchange, compromise, adjust, or sue for all
or any part of the Collateral, as Secured Party may determine; (ii) Secured
Party may require any Debtor to assemble all or any part of the Collateral and
make it available to Secured Party at any place and time designated by Secured
Party; (iii) Secured Party may secure the appointment of a receiver of the
Collateral or any part thereof (to the extent and in the manner provided by
applicable law); (iv) Secured Party may sell, resell, lease, use, assign,
license, sublicense, transfer or otherwise dispose of any or all of the
Collateral in its then condition or following any commercially reasonable
preparation or processing (utilizing in connection therewith any of Debtor’s
assets, without charge or liability to Secured Party therefor) at public or
private sale, by one or more contracts, in one or more parcels, at the same or
different times, for cash or credit, or for future delivery without assumption
of any credit risk, all as Secured Party deems advisable; provided, however,
that Debtor shall be credited with the net proceeds of sale only when such
proceeds are finally collected by Secured Party. Debtor recognizes that Secured
Party may be unable to make a public sale of any or all of the Pledged
Collateral, by reason of prohibitions contained in applicable securities laws or
otherwise, and expressly agrees that a private sale to a restricted group of
purchasers for investment and not with a view to any distribution thereof shall
be considered a commercially reasonable sale. Secured Party and each Lender
shall have the right upon any such public sale, and, to the extent permitted by
law, upon any such private sale, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption, which right or
equity of redemption Debtor hereby releases, to the extent permitted by law.
Secured Party shall give Debtor such notice of any private or public sales as
may be required by the UCC or other applicable law.

 

(b)          For the purpose of enabling Secured Party to exercise its rights
and remedies under this Section 10 or otherwise in connection with this
Agreement, Debtor hereby grants to Secured Party an irrevocable, non-exclusive
and assignable license (exercisable without payment or royalty or other
compensation to Debtor) to use, license or sublicense any Intellectual Property
Collateral.

 

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(c)          Neither Secured Party nor any Lender shall have any obligation to
clean up or otherwise prepare the Collateral for sale. Secured Party has no
obligation to attempt to satisfy the Obligations by collecting them from any
other Person liable for them, and Secured Party and Lenders may release, modify
or waive any Collateral provided by any other Person to secure any of the
Obligations, all without affecting Secured Party’s or any Lender’s rights
against Debtor. Debtor waives any right it may have to require Secured Party or
any Lender to pursue any third Person for any of the Obligations. Secured Party
and Lenders may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral. Secured Party may sell the Collateral without giving any warranties
as to the Collateral. Secured Party may specifically disclaim any warranties of
title or the like. This procedure will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. If Secured Party sells
any of the Collateral upon credit, Debtor will be credited only with payments
actually made by the purchaser, received by Secured Party and applied to the
indebtedness of the purchaser. In the event the purchaser fails to pay for the
Collateral, Secured Party may resell the Collateral and Debtor shall be credited
with the proceeds of the sale.

 

(d)          To the extent Debtor uses the proceeds of any of the Obligations to
purchase Collateral, Debtor’s repayment of the Obligations shall apply on a
“first-in, first-out” basis so that the portion of the Obligations used to
purchase a particular item of Collateral shall be paid in the chronological
order the Debtor purchased the Collateral.

 

(e)          The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise provided for
herein, shall be applied first, to the payment of the reasonable costs and
expenses of Secured Party in exercising or enforcing its rights hereunder and in
collecting or attempting to collect any of the Collateral; and second, to the
payment of the Obligations. Any surplus thereof which exists after payment and
performance in full of the Obligations shall be promptly paid over to Debtor or
otherwise disposed of in accordance with the UCC or other applicable law. Debtor
shall remain liable to Secured Party, as collateral agent, and each Lender, for
any deficiency which exists after any sale or other disposition or collection of
Collateral.

 

(f)          In taking any action under this Section 10 or otherwise taking
action as collateral agent on behalf of Lenders and exercising such powers and
performing such duties under this Agreement as are granted to Secured Party
hereunder, except to the extent otherwise provided under the Transactional
Documents, Secured Party shall act in each case in accordance with the
instructions of the Directing Lenders; provided, however, that, without the
consent of all Lenders, Secured Party shall not, and may not be directed to,
release any of the Collateral or terminate this Agreement, except in connection
with a sale or other disposition of Pledged Collateral under this Section 10, as
otherwise contemplated or permitted hereunder or under the Transactional
Documents or as contemplated by Section 20.

 

SECTION 11       Certain Waivers. Debtor waives, to the fullest extent permitted
by law, (a) any right of redemption with respect to the Collateral, whether
before or after sale hereunder, and all rights, if any, of marshalling of the
Collateral or other collateral or security for the Obligations; (b) any right to
require Secured Party (i) to proceed against any Person, (ii) to exhaust any
other collateral or security for any of the Obligations, (iii) to pursue any
remedy in Secured Party’s power, or (iv) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Collateral; and
(c) all claims, damages, and demands against Secured Party or any Lender arising
out of the repossession, retention, sale or application of the proceeds of any
sale of the Collateral.

 

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SECTION 12       Notices. All notices or other communications hereunder shall be
effected in the manner provided for in Section 5.6 of the Purchase Agreement.

 

SECTION 13       No Waiver; Cumulative Remedies. No failure on the part of
Secured Party or any Lender to exercise, and no delay in exercising, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, remedy, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights and remedies under this
Agreement are cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to Secured Party and the Lenders.

 

SECTION 14       Indemnification.

 

(a)          Debtor hereby agrees to indemnify Secured Party and each Lender
(each an “Indemnified Person”) against, and hold each of them harmless from, any
and all liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including the reasonable fees and disbursements of counsel to an
Indemnified Person, which may be imposed on or incurred by any Indemnified
Person, or asserted against any Indemnified Person by any third party or by
Debtor, in any way relating to or arising out of, in connection with, or as a
result of (i) the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or thereunder, the transactions contemplated
hereby or the Collateral, or (ii) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory, whether brought by a third party or by
Debtor (the “Indemnified Liabilities”); provided that Debtor shall not be liable
to any Indemnified Person for any portion of such Indemnified Liabilities to the
extent they are found by a final decision of a court of competent jurisdiction
to have resulted from such Indemnified Person’s gross negligence or willful
misconduct.

 

(b)          Any amounts payable to Secured Party and the Lenders under this
Section 14 or otherwise under this Agreement if not paid upon demand shall bear
interest from the date of such demand until paid in full, at the Applicable
Rate.

 

SECTION 15       Secured Party’s Appointment as Attorney-In-Fact; Performance by
Secured Party.

 

(a)          Subject to Section 15(b) below, Debtor hereby irrevocably
constitutes and appoints the Secured Party, and any officer or agent of the
Secured Party, 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 Debtor and in the name of Debtor or in its own name, from time to time
at the Secured Party’s discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, hereby gives the Secured Party the power and right,
on behalf of Debtor, without notice to or assent by Debtor to do the following:

 

14

 

 

(i)           to ask, demand, collect, receive and give acquittances and
receipts for any and all monies due or to become due under any Collateral and,
in the name of Debtor, in its own name or otherwise to take possession of,
endorse and collect any checks, drafts, notes, acceptances or other Instruments
for the payment of monies due under any Collateral and to file any claim or take
or commence any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Secured Party for the purpose of collecting
any and all such monies due under any Collateral whenever payable;

 

(ii)          to pay or discharge any Liens, including, without limitation, any
tax lien, levied or placed on or threatened against the Collateral, to effect
any repairs or any insurance called for by the terms of this Agreement and to
pay all or any part of the premiums therefor and the costs thereof, which
actions shall be for the benefit of Secured Party and not Debtor;

 

(iii)         to (1) direct any person liable for any payment under or in
respect of any of the Collateral to make payment of any and all monies due or to
become due thereunder directly to the Secured Party or as the Secured Party
shall direct, (2) receive payment of any and all monies, claims and other
amounts due or to become due at any time arising out of or in respect of any
Collateral, (3) sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other Instruments and
Documents constituting or relating to the Collateral, (4) 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 part thereof and to enforce any
other right in respect of any Collateral, (5) defend any suit, action or
proceeding brought against Debtor with respect to any Collateral, (6) settle,
compromise or adjust any suit, action or proceeding described above, and in
connection therewith, give such discharges or releases as the Secured Party may
deem appropriate and (7) sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though the Secured Party were the absolute owner thereof for all purposes; and

 

(iv)         to do, at the Secured Party’s option and Debtor’s expense, at any
time, or from time to time, all acts and things which the Secured Party may
reasonably deem necessary to protect, preserve or realize upon the Collateral
and the Secured Party’s security interest therein in order to effect the intent
of this Agreement, all as fully and effectively as Debtor might do.

 

(b)          The Secured Party agrees that, except upon the occurrence and
during the continuation of an Event of Default, it shall not exercise the power
of attorney or any rights granted to the Secured Party pursuant to this Section
15. Debtor hereby ratifies, to the extent permitted by law, all that said
attorney shall lawfully do or cause to be done by virtue hereof. The power of
attorney granted pursuant to this Section 15 is a power coupled with an interest
and shall be irrevocable until this Agreement is terminated in accordance with
Section 22 hereof.

 

(c)          If Debtor fails to perform or comply with any of its agreements
contained herein and the Secured Party, as provided for by the terms of this
Agreement, shall perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses, including reasonable
attorneys’ fees and costs, of the Secured Party incurred in connection with such
performance or compliance, together with interest thereon at the Applicable
Rate, shall be payable by Debtor to the Secured Party within five (5) business
days of demand and shall constitute Obligations secured hereby.

 

15

 

 

SECTION 16        [Intentionally Omitted].

 

SECTION 17       Binding Effect. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by Debtor, Secured Party, each Lender and
their respective successors and assigns and shall bind any Person who becomes
bound as a debtor to this Agreement. Debtor may not assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder without the prior express written consent of Secured Party, as
collateral agent, and Lenders. Any such purported assignment, transfer,
hypothecation or other conveyance by Debtor without the prior express written
consent of Secured Party, as collateral agent, and Lenders shall be void.

 

SECTION 18       Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Collateral are governed by the law of a jurisdiction other than
New York.

 

SECTION 19       Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof. No amendment
or waiver of any provision of this Agreement nor consent to any departure
therefrom by Debtor shall in any event be effective unless the same shall be in
writing and signed by Secured Party (with the consent of the Directing Lenders),
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that without
the consent of all Lenders, no amendment, waiver or consent shall do any of the
following: (i) subject the Lenders to any additional obligations; (ii) reduce
any amount payable to the Lenders hereunder; (iii) postpone any date fixed for
any payment in respect of any amount payable to any Lender hereunder;
(iv) change the definition of “Directing Lenders” or any definition or provision
of this Agreement requiring the approval of the Directing Lenders or some other
specified amount of Lenders; (v) amend the provisions of the proviso in
Section 10(f); or (vi) amend the provisions of this Section 19; and provided,
further, that no amendment, waiver or consent shall, unless in writing and
signed by Secured Party, affect the rights, duties or obligations of Secured
Party under or in respect of this Agreement.

 

SECTION 20       Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.

 

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SECTION 21       Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.

 

SECTION 22       Termination. Upon payment and performance in full of all
Obligations, the security interest created under this Agreement shall terminate
and Secured Party shall promptly execute and deliver to Debtor such documents
and instruments reasonably requested by Debtor as shall be necessary to evidence
termination of all security interests given by Debtor to Secured Party
hereunder. In addition, the Secured Party agrees that if the Company receives a
term sheet for an equity financing that would result in the Company receiving at
least $10 million in proceeds (including through the conversion of the Notes),
then the Secured Party shall take such actions as may be necessary to release
the Secured Party’s security interest in the Collateral that constitutes the
Company’s Intellectual Property.

 

SECTION 23       Joint and Several Liability. If Debtor consists of more than
one Person, the liability of each Person comprising Debtor shall be joint and
several, and each reference herein to “Debtor” shall mean and be a reference to
each such Person comprising Debtor. The Debtors agree that any and all of their
obligations hereunder shall be the joint and several responsibility of each of
them notwithstanding any absence herein of a reference such as “jointly and
severally” with respect to any such obligation. The compromise of any claim
with, or the release of, any Debtor shall not constitute a compromise with, or a
release of, any other Debtor.

 

SECTION 24       Conflicts. In the event of any conflict or inconsistency
between this Agreement and the Notes or the Purchase Agreement, the terms of
this Agreement shall control.

 

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of
the date first above written.

 

  GRANDPARENTS.COM, INC.         By /s/ Joseph Bernstein     Name: Joseph
Bernstein     Title: Co-Chief Executive Officer         JOHN THOMAS FINANCIAL,
INC.,   as Agent         By /a/ Avi Mirman     Name: Avi Mirman     Title: Head
of Investment Banking

 

[Signature Page to Security Agreement]