Exhibit 10.5
 
THIS SECURITY AGREEMENT AND THE RIGHTS PROVIDED HEREIN ARE SUBJECT IN ALL
RESPECTS TO THE TERMS OF A THIRD AMENDED AND RESTATED SUBORDINATION AGREEMENT OF
EVEN DATE HEREWITH AMONG THE AGENT OF THE SECURED PARTIES, THE AGENT OF THE
HOLDERS OF THE SERIES A 6% SECURED CONVERTIBLE PROMISSORY NOTES, THE SERIES B 6%
SECURED CONVERTIBLE PROMISSORY NOTES, THE SERIES C 6% SECURED CONVERTIBLE
PROMISSORY NOTES, THE SERIES D 6% SECURED CONVERTIBLE PROMISSORY NOTES AND THE
SERIES E 6% SECURED CONVERTIBLE PROMISSORY NOTES AND SAND HILL FINANCE, LLC.

SECURITY AGREEMENT

This SECURITY AGREEMENT is made as of June 26, 2009 among BlueLine Capital
Partners, LP, a Delaware limited partnership with an office located at 4115
Blackhawk Plaza Circle, Suite 100, Danville, CA  94596, as agent (hereinafter,
in such capacity, the “Agent”) for itself and the other lenders listed on the
signature page hereto (hereinafter, collectively, the “Secured Parties”), and
AXS-One Inc., a Delaware corporation with its chief executive office located at
301 Route 17 North, Rutherford, NJ  07070 (the “Debtor”).

W I T N E S S E T H:

WHEREAS, on the date hereof, the Debtor has issued in favor of each of the
Secured Parties, Series 2009 5% Secured Convertible Promissory Notes (each a
“Note” and collectively the “Notes”), in the aggregate principal amount of up to
Two Hundred and Fifty Thousand Dollars ($250,000); such Notes have been issued
pursuant to the terms of a Standby Convertible Note Purchase Agreement (the
“Purchase Agreement”) of even date herewith among the Debtor and the Secured
Parties; and

WHEREAS, it is a condition precedent to the Secured Parties’ making any loans
under the Purchase Agreement and the Notes that the Debtor execute and deliver
to the Secured Parties this Security Agreement;

NOW, THEREFORE, in consideration of the premises and to induce the Secured
Parties to extend the loans to the Debtor pursuant to the Notes, the Debtor
hereby agrees with the Secured Parties as follows:

1.           Defined Terms.

(a)           Unless otherwise defined herein, (i) terms which are defined in
the Notes and used herein shall have the meanings ascribed to such terms in the
Notes, and (ii) terms which are defined in the Purchase Agreement and used
herein shall have the meanings ascribed to such terms in the Purchase Agreement.

(b)           The following terms which are defined in Article 9 are used herein
as so defined:  Accessions, Accounts, Chattel Paper, Commercial Tort Claims,
Deposit Accounts, Documents, Equipment, General Intangibles, Goods, Instruments,
Inventory, Investment Property, Letters of Credit, Letter-of-Credit Rights,
Payment Intangibles, Proceeds, Promissory Notes, Software and Supporting
Obligations.

(c)           The following terms shall have the following meanings:

“Article 9” means Article 9 of the Code as in effect from time to time.

“Code” means the Uniform Commercial Code as from time to time in effect in the
State of New York, including, specifically, Article 9.

 
“Collateral” shall have the meaning assigned to it in Section 2(a) of this
Security Agreement.

“Contracts” means the separate contracts between the Debtor and third parties
(including without limitation its customers), as the same may from time to time
be amended, supplemented or otherwise modified, including, without limitation,
(a) all rights of the Debtor to receive moneys due and to become due to it
thereunder or in connection therewith, (b) all rights of the Debtor to damages
arising out of, or for, breach or default in respect thereof and (c) all rights
of the Debtor to perform and to exercise all remedies thereunder; but excluding
any contracts, the assignment or hypothecation of which, for collateral
purposes, would result in a default or require, or cause, a forfeiture or permit
a revocation of material rights under such contract.
 
 
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“Copyrights” means (a) all copyrights of the United States or any other country,
(b) all copyright registrations filed in the United States or in any other
country and (c) all Proceeds thereof.

 
“Copyright License” means any Contract providing for the grant by Debtor of any
right to use any Copyright.

 
“Encumbrance” or “Encumbrances” means any security interest, mortgage, pledge,
lien, claim, charge, encumbrance, title retention agreement, lessor’s interest
under a financing lease or any analogous arrangements in any of properties or
assets of Debtor, intended as, or having the effect of, security.

 
“Event of Default” shall have the meaning assigned to it in each Note.

 
“Governmental Authority” means any federal, state, local or foreign court,
commission or tribunal, or governmental, administrative or regulatory agency,
department, authority, instrumentality or other body.

 
“Material Adverse Effect” means a material adverse effect on the condition
(financial or otherwise), assets, liabilities, business, results of operations
or prospects of the Debtor and its subsidiaries, taken as a whole.

 
“Obligations” means all principal, interest, fees, charges, collateral
protection expenses, enforcement costs and other sums (in each case whether
pre-or-post petition) due or to become due and payable by Debtor to any of the
Secured Parties under the Notes, this Security Agreement or the Purchase
Agreement.

 
“Patents” means (a) all patents of the United States and all reissues and
extensions thereof, (b) all applications for patents of the United States and
all divisions, continuations and continuations-in-part thereof or any other
country and (c) all Proceeds thereof.

 
“Patent License” means any Contract providing for the grant to Debtor of any
right to manufacture, use or sell any invention covered by a Patent.

 
“Permitted Encumbrances” means any of the following Encumbrances that exist or
that the Debtor may create or incur or suffer to be created or incurred or to
exist:  (a) liens to secure taxes, assessments and other government charges in
respect of obligations not overdue or liens on properties to secure claims for
labor, material or supplies in respect of obligations not overdue; (b)  deposits
or pledges made in connection with, or to secure payment of, workmen’s
compensation, unemployment insurance, old age pensions or other social security
obligations; (c)  liens of carriers, warehousemen, mechanics and materialmen,
and other like liens on properties in existence less than 180 days from the date
of creation thereof in respect of obligations not overdue; (d) encumbrances on
real estate consisting of easements, rights of way, zoning restrictions,
restrictions on the use of real property and defects and irregularities in the
title thereto, landlord’s or lessor’s liens under leases to which the Debtor is
a party, and other minor liens or encumbrances none of which in the opinion of
the Debtor interferes materially with the use of the property affected in the
ordinary conduct of business of the Debtor, which defects do not individually or
in the aggregate have a Material Adverse Effect; (e)  purchase money security
interests in or purchase money mortgages on real or personal property to secure
purchase money indebtedness, incurred in connection with the acquisition of such
property, which security interests or mortgages cover only the real or personal
property so acquired; (f) security interests in the sale and lease back of real
and personal property, the aggregate value of which does not exceed $500,000
during the term of the Notes; (g) the security interests of Sand Hill Finance,
LLC (“SHF”) as set forth in that certain Financing Agreement dated as of May 22,
2008 between Borrower and SHF, as amended from time to time; or (h) the security
interests of the holders of the Prior Notes (such note holders, the “PIPE
Creditors”) as set forth in that certain Security Agreement dated as of May 29,
2007 among the Company and the PIPE Creditors, as amended from time to time.

 
“Person” means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or other entity of whatever nature, whether public or private.

 
“Required Secured Parties” shall have the meaning assigned to it in Section 12
of this Security Agreement.

 
“Requirement of Law” means any requirement of law, rule, regulation or guideline
of any Governmental Authority.

 
“Security Agreement” means this Security Agreement, as amended, supplemented,
restated or otherwise modified from time to time.

 
“Software License” means any agreement, written or oral, providing for the grant
to Debtor of any right to use any Software.

“Source Code” means all source code and all updates, releases and/or new
versions of the Software.
 
 
“Trademarks” means (a) all trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles, service marks,
logos and other source or business identifiers and the goodwill associated
therewith, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, whether
registered 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 or
any political subdivision thereof or otherwise, (b) all renewals thereof and (c)
all Proceeds thereof, including the goodwill of the business connected with the
use of and symbolized by the Trademarks.

 
“Trademark License” means any Contract providing for the grant to Debtor of any
right to use any Trademark.

 
 
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2.           Grant of Security Interest.

(a)           As collateral security for the prompt and complete payment and
performance when due of the Obligations, the Debtor hereby grants to the Agent,
for the benefit of each of the Secured Parties, a security interest in all
properties, assets and rights of the Debtor now owned or at any time hereafter
acquired by the Debtor or in which the Debtor now has or at any time in the
future may acquire any right, title or interest, wherever located or situated
and however defined or classified under Article 9, including, without
limitation, all of the property described in clause (b) below (collectively, the
“Collateral”).

(b)           Without limitation of the foregoing, the Collateral includes all
of Debtor’s right, title and interest in the following at all times:

(i)
all Accounts;
   
(ii)
all Chattel Paper;
   
(iii)
all Commercial Tort Claims;
   
(iv)
all Contracts;
   
(v)
all Copyrights;
   
(vi)
all Copyright Licenses;
   
(vii)
all Deposit Accounts;
   
(viii)
all Documents;
   
(ix)
all Equipment;
   
(x)
all General Intangibles;
   
(xi)
all Goods;
   
(xii)
all Instruments;
   
(xiii)
all Inventory;
   
(xiv)
all Investment Property;
   
(xv)
all Letter-of-Credit Rights;
   
(xvi)
all Letters of Credit;
   
(xvii)
all Patents;
   
(xviii)
all Patent Licenses;
   
(xix)
all Payment Intangibles;
   
(xx)
all Promissory Notes;
   
(xxi)
all Software (including, without limitation, any Source Code thereto, all
Software Licenses and any Patents or Copyrights associated therewith);
   
(xxii)
all Supporting Obligations;
   
(xxiii)
all Trademarks;
   
(xxiv)
all Trademark Licenses;
   
(xxv)
all Proceeds, all Accessions and additions thereto and all substitutions and
replacements therefor and products of any and all of the foregoing.

 
 
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3.           Rights of Agent; Limitations on Agent’s Obligations.

(a)
Debtor Remains Liable under Accounts and Contracts.  Anything herein to the
contrary notwithstanding, the Debtor shall remain liable under each of the
Accounts and Contracts to observe and perform all the conditions and obligations
to be observed and performed by it thereunder, all in accordance with the terms
of any agreement giving rise to each such Account and in accordance with and
pursuant to the terms and provisions of each such Contract.  The Agent shall not
shall have any obligation or liability under any Account (or any agreement
giving rise thereto) or under any Contract by reason of or arising out of this
Security Agreement or the receipt by the Agent of any payment relating to such
Account or Contract pursuant hereto, nor shall the Agent be obligated in any
manner to perform any of the obligations of the Debtor under or pursuant to any
Account (or any agreement giving rise thereto) or under or pursuant to any
Contract to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto) or under any Contract, to present or file any claim, to take any action
to enforce any performance or to collect 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)
Notice to Account Debtors and Contracting Parties.  At any time after the
occurrence of an Event of Default, upon the request of the Agent acting upon the
written instruction of the Required Secured Parties, the Debtor shall notify
account debtors on the Accounts and parties to the Contracts that the Accounts
and the Contracts have been assigned to the Agent for the benefit of the Secured
Parties, and that payments in respect thereof shall be made directly to the
Agent.  Upon the occurrence of an Event of Default, the Agent, may in its own
name or in the name of others communicate with account debtors on the Accounts
and parties to the Contracts to verify with them to the Agent’s reasonable
satisfaction the existence, amount and terms of any Accounts or Contracts and to
give notice to them of the Agent’s lien against any Accounts or Contracts.

           4.           Representations and Warranties.  The Debtor hereby
represents and warrants to the Secured Parties that (a) it is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (b) it has the corporate power and authority to own or hold under
lease the Collateral, to transact the business it transacts and proposes to
transact, to execute and deliver this Security Agreement and to perform the
provisions hereof, (c) this Security Agreement has been duly authorized by all
necessary corporate action on the part of the Debtor and constitutes a legal,
valid and binding obligation of the Debtor enforceable against the Debtor in
accordance with its terms, except as such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws affecting the enforcement of creditors’ rights
generally and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), (d) the
execution, delivery and performance by the Debtor of this Security Agreement
will not (i) contravene, result in any breach of or constitute a default under,
or result in the creation of any lien (other than those provided for in this
Security Agreement) in respect of any property of the Debtor under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease,
the Debtor’s certificate of incorporation or bylaws or any other material
agreement or instrument to which the Debtor is a party or by which the Debtor or
any of its properties may be bound or affected; (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree or ruling of any court, arbitrator or Governmental Authority applicable
to the Debtor or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Debtor, (e) except
for the Encumbrances granted pursuant to this Security Agreement and Permitted
Encumbrances, the Debtor owns each item of the Collateral free and clear of any
and all Encumbrances or claims of others and (f) except in connection with
Permitted Encumbrances, no security agreement, financing statement or other
public notice with respect to all or any part of the Collateral is on file or of
record in any public office, except such as may have been filed in favor of the
Secured Parties.

5.           Covenants.  The Debtor covenants and agrees with the Secured
Parties that, from and after the date of this Security Agreement until the
Obligations are paid in full:

(a)           Further Documentation; Pledge of Instruments and Chattel
Paper.  Upon the written request of the Secured Parties, and at the sole expense
of the Debtor, the Debtor shall promptly and duly execute and deliver such
further instruments and documents and take such further action as the Secured
Parties 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 Uniform Commercial Code in effect in any
jurisdiction with respect to the Encumbrances created hereby.  The Debtor also
hereby authorizes the Secured Parties to file any such financing or continuation
statement.  A carbon, photographic or other reproduction of this Security
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.  If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument or Chattel Paper, such
Instrument or Chattel Paper shall be delivered to the Secured Parties, duly
endorsed in a manner satisfactory to the Secured Parties to be held as
Collateral pursuant to this Security Agreement.

(b)
Indemnification.  Following the occurrence of any Event of Default, in any suit,
proceeding or action brought by any Secured Party under any Account or Contract
for any sum owing thereunder, or to enforce any provisions of any Account or
Contract, the Debtor shall save, indemnify and keep the Secured Parties harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaim, recoupment or reduction or liability whatsoever of the
account debtor or obligor thereunder, arising out of a breach by the Debtor of
any obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Debtor.

(c)
Maintenance of Records.  The Debtor shall keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with
respect to the Accounts.  The Debtor shall mark its books and records pertaining
to the Collateral to evidence this Security Agreement and the security interests
granted hereby.  The Secured Parties shall have a security interest in all of
the Debtor’s books and records pertaining to the Collateral, and the Debtor
shall make any such books and records available to the Secured Parties or to
their representatives during normal business hours for their review at the
request of the Secured Parties upon reasonable prior notice.

 
 
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(d)
Right of Inspection.  The Secured Parties shall at all times but no more than
once every six (6) months and upon reasonable prior notice have full and free
access during normal business hours to all the books, correspondence and records
of the Debtor, and the Secured Parties or their respective representatives may
examine the same, take extracts therefrom and make photocopies thereof, and the
Debtor agrees to render to the Secured Parties, at the Debtor’s cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto; provided, however, that during the occurrence of an Event of
Default, the Secured Parties and their respective representatives may conduct
such examinations at any time.  The Secured Parties and their representatives
shall at any reasonable time, but no more than once every six (6) months, and
upon reasonable prior notice also have the right to enter into and upon any
premises where any of the Inventory or Equipment is located for the purpose of
inspecting the same, observing its use or otherwise protecting its
interests-therein; provided, however, that during the occurrence of an Event of
Default, the Secured Parties and their respective representatives may enter any
such premises at any time.

(e)
Compliance with Laws.  The Debtor shall comply in all material respects with all
Requirements of Law applicable to the Collateral or any part thereof or to the
operation of the Debtor’s business; provided, however, that the Debtor may
contest any Requirement of Law in any reasonable manner which shall not, in the
opinion of the Secured Parties, adversely affect the Secured Parties’ rights or
the priority of its Encumbrances on the Collateral.

(f)
Compliance with Terms of Contracts.  The Debtor shall perform and comply in all
material respects with all its obligations under the Contracts and all its other
contractual obligations relating to the Collateral except where such
nonperformance and noncompliance could not reasonably be expected to have a
Material Adverse Effect.

(g)
Payment of Obligations.  The Debtor shall pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the Collateral or in
respect of its income or profits therefrom, as well as all claims of any kind
(including, without limitation, claims for labor, materials and supplies)
against or with respect to the Collateral, except that no such charge need be
paid if (i) the validity thereof is being contested in good faith by appropriate
proceedings, (ii) such proceedings do not involve any material danger of the
sale, forfeiture or loss of any of the Collateral or any interest therein and
(iii) such charge is adequately reserved against on the Debtor’s books in
accordance with generally accepted accounting principles.

(h)
Limitation on Encumbrances on Collateral.  The Debtor shall not create, incur or
permit to exist, shall defend the Collateral against and shall take such other
action as is necessary to remove any Encumbrance or claim on or to the
Collateral, other than the Encumbrances created hereby or Permitted
Encumbrances, and shall defend the right, title and interest of the Secured
Parties in and to any of the Collateral against other claims and demands of all
Persons whomsoever.

(i)
Limitations on Dispositions of Collateral.  The Debtor shall not sell, transfer,
lease or otherwise dispose of any of the Collateral, or attempt, offer or
contract to do so except for (i) sales of Inventory in the ordinary course of
its business, (ii) licenses of Software in the ordinary course of its business
and (iii) so long as no Event of Default has occurred, the disposition in the
ordinary course of business of property not material to the conduct of its
business.

(j)
Limitations on Modifications, Waivers, Extensions of Contracts and Agreements
Giving Rise to Accounts.  The Debtor shall not (i) amend, modify, terminate or
waive any provision of any Contract or any agreement giving rise to an Account
in any manner which could reasonably be expected to materially adversely affect
the value of all Contracts and Accounts as Collateral when examined in the
aggregate or (ii) fail to exercise promptly and diligently each and every
material right which it may have under each Contract and each agreement giving
rise to an Account where such failure could reasonably be expected to have a
Material Adverse Effect on the value of all Contracts and Accounts when examined
in the aggregate.

(k)
Maintenance of Equipment.  The Debtor shall maintain each item of Equipment in
good operating condition, ordinary wear and tear and immaterial impairments of
value and damage by the elements excepted, and shall provide all maintenance,
service and repairs necessary for such purpose except where the failure to
maintain such Equipment could not reasonably be expected to have a Material
Adverse Effect.

(l)
Further Identification of Collateral.  The Debtor shall furnish to the Agent
from time to time upon request, but no more than once per year, statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Agent may reasonably request,
all in reasonable detail.

(m)
Notices.  The Debtor shall advise the Secured Parties promptly, in reasonable
detail, (i) of any Encumbrance (other than Encumbrances created hereby or
Permitted Encumbrances) on, or claim asserted against, any of the Collateral,
(ii) of any notice sent by a Secured Party of the occurrence of an Event of
Default under such Secured Party’s Note and (iii) of the occurrence of any other
event which could reasonably be expected to have a Material Adverse Effect on
the aggregate value of the Collateral or on the Encumbrances created hereunder.

(o)
Changes in Locations, Name.  The Debtor shall provide Secured Parties with at
least thirty (30) days prior written notice in the event of either (i) a change
the location of its chief executive office/chief place of business or
jurisdiction of incorporation or removal of its books and records from such
location, or (ii) a change in its name, identity or corporate structure to such
an extent that any financing statement filed by the Secured Parties in
connection with this Security Agreement would become seriously misleading.

 
 
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(p)           Patents, Copyrights, Software, Trademarks and General Intangibles.

(i)           Whenever Debtor shall file an application for the registration of
any Patent, Software or Trademark with the United States Patent and Trademark
Office or any Copyright or Software with the United States Copyright Office or
any similar office or agency in any other country or any political subdivision
thereof, Debtor shall report such filing to the Secured Parties within five (5)
business days after the last day of the fiscal quarter in which such filing
occurs.

(ii)           The Debtor shall execute and deliver any and all agreements,
instruments, documents and papers as the Secured Parties may reasonably request
to evidence the Secured Parties’ security interest in any Patent, Copyright,
Software, General Intangible or Trademark and the goodwill of Debtor relating
thereto or represented thereby, and Debtor hereby constitutes the Agent as its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations are
paid in full.

(iii)           The Debtor shall take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of any
registered Patents, Copyrights, Software, General Intangibles or Trademarks,
including, without limitation, filing of applications for renewal, affidavits of
use and affidavits of incontestability.

(iv)           In the event that any material Patent, Copyright, Software,
General Intangible or Trademark included in the Collateral is infringed,
misappropriated or diluted by a third party, Debtor shall promptly notify the
Agent after it learns thereof and shall, unless Debtor shall reasonably
determine that such Patent, Copyright, Software, General Intangible or Trademark
is of negligible economic value to Debtor, promptly sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution,
or take such other actions as Debtor shall reasonably deem appropriate under the
circumstances to protect such Patent, Copyright, Software, General Intangible or
Trademark.

(q)           Insurance.  Debtor, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks, and in such amounts as are reasonable given the nature
of Debtor’s business and the type and use of Collateral.  Debtor shall also
maintain insurance relating to Debtor’s business, ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Debtor’s.  All such policies of insurance shall be in such form, with such
companies and in such amounts as are reasonably satisfactory to the Agent.  All
such policies of property insurance shall contain a lender’s loss payable
endorsement, in a form satisfactory to the Agent, showing the Agent as an
additional loss payee thereof, and all liability insurance policies shall show
the Agent as an additional insured and shall specify that the insurer must give
at least twenty (20) days notice to the Agent before canceling its policy for
any reason.  Upon the Agent’s request, Debtor shall deliver to the Agent
certified copies of such policies of insurance and evidence of the payments of
all premiums therefor.  All proceeds payable under any such policy shall, at the
option of the Agent, be payable to the Agent to be applied on account of the
Obligations in such order as the Agent shall elect.

(r)           Commercial Tort Claims.  The Debtor shall promptly notify the
Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim
against any third party, and upon request of the Secured Parties, promptly enter
into an amendment to this Security Agreement and do such other acts or things
deemed appropriate by the Secured Parties to give the Secured Parties a security
interest in any such Commercial Tort Claim.
 
 
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6.           Agent’s Appointment as Attorney-in-Fact.

(a)           Powers.  During the existence of an Event of Default, the Debtor
hereby irrevocably constitutes and appoints the Agent 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 in the Agent’s discretion upon instruction
from the Required Secured Parties, 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 necessary or desirable to
accomplish the purposes of this Security Agreement, and, without limiting the
generality of the foregoing, Debtor hereby gives the Agent the power and right,
on behalf of Debtor, without notice to or assent by Debtor, to do the
following:  to pay or discharge taxes and Encumbrances (other than Permitted
Encumbrances) levied or placed on the Collateral (upon written instruction of
the Required Secured Parties); to effect any repairs or any insurance called for
by the terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof (upon written instruction of the
Required Secured Parties); and during the existence of an Event of Default and
only upon written instruction of the Required Secured Parties, (A) to direct any
party liable for any payment under any of the Collateral to make payment of any
and all moneys due or to become due thereunder directly to the Secured Party or
as the Secured Party 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 receipts, 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 thereof and to enforce any other right in respect of any
Collateral; (E) to defend any suit, action or proceeding brought against Debtor
with respect to any Collateral; (F) to settle, compromise or adjust any suit,
action or proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Agent may deem appropriate; (G) to
assign any Patent, Copyright, Software, General Intangible or Trademark (along
with the goodwill of the business to which any such Trademark pertains),
throughout the world for such term or terms, on such conditions, and in such
manner, as the Agent shall determine; and (H) generally, to sell, transfer,
pledge and make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Agent were the absolute owner
thereof for all purposes, and to do, at the Agent’s option and Debtor’s expense,
at any time, or from time to time, all acts and things which the Agent, with the
consent and instruction of the Required Secured Parties, deems necessary to
protect, preserve or realize upon the Collateral and the Agent’s Encumbrances
thereon and to effect the intent of this Security Agreement, all as fully and
effectively as Debtor might do.  In addition, the Debtor hereby irrevocably
constitutes and appoints the Agent 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 in the Agent’s discretion, for the purpose of perfecting the
Agent’s lien against the Collateral, to take any and all appropriate action and
to execute any and all documents and instruments which may be necessary or
desirable to accomplish such purpose.  The Debtor hereby ratifies all that said
attorneys shall lawfully do or cause to be done by virtue hereof. The powers of
attorney in this subsection are powers coupled with an interest and shall be
irrevocable.

(b)           Other Powers.  The Debtor also authorizes the Agent, at any time
and from time to time, to execute, in connection with the sale provided for in
Section 9 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.

(c)           No Duty on Agent’s Part.  The powers conferred on the Agent
hereunder are solely to protect Agent’s interests in the Collateral and shall
not impose any duty upon the Agent to exercise any such powers.  The Agent shall
be accountable only for amounts that it or the Secured Parties actually receive
as a result of the exercise of such powers, and none of them nor any of their
officers, directors or employees shall be responsible to Debtor for any act or
failure to act hereunder, except for its own gross negligence or willful
misconduct.

7.           Performance by Agent of Debtor’s Obligations.  If Debtor fails to
perform or comply with any of its agreements contained herein and the Agent,
upon written instruction of the Required Secured Parties, shall itself perform
or comply, or otherwise cause performance or compliance, with such agreement,
the reasonable expenses of the Agent incurred in connection with such
performance or compliance, together with interest thereon at a rate per annum
equal to 15%, shall be payable by Debtor to the Agent on demand and shall
constitute Obligations secured hereby.

8.           Proceeds.  In addition to the rights of the Agent specified in
Section 3 with respect to payments of Accounts, it is agreed that during the
existence of an Event of Default (a) all Proceeds received by the Debtor
consisting of cash, checks and other near-cash items shall be held by the Debtor
in trust for the Secured Parties, segregated from other funds of the Debtor, and
shall, forthwith upon receipt by the Debtor, be turned over to the Agent in the
exact form received by the Debtor (duly endorsed by the Debtor to the Agent),
and (b) any and all such Proceeds received by the Agent (whether from the Debtor
or otherwise) may, in the sole discretion of the Agent upon written instruction
of the Required Secured Parties, be held by the Agent as collateral security
for, and/or then or at any time thereafter may be applied by the Agent, pro
ratably against, the Obligations or in such order as the Required Secured
Parties may elect.  Any balance of such Proceeds remaining after the Obligations
shall have been paid in full shall be paid over to the Debtor or to whomsoever
may be lawfully entitled to receive the same.
 
 
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9.           Remedies.  Upon the occurrence and during the continuance of an
Event of Default, the Agent, at the written direction of the Required Secured
Parties, may exercise, in addition to all other rights and remedies granted to
it in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code.  Without limiting the generality of the foregoing, the
Agent at written direction of the Required Secured Parties, during the existence
of an Event of Default and without further 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 Debtor 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
exchange, broker’s board or office of the Agent 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 for future delivery without assumption of any credit
risk.  Each purchaser at any such sale shall hold the Collateral sold absolutely
free from any claim or right on the part of the Debtor, and Debtor hereby waives
(to the extent permitted by law) all rights of redemption, stay or appraisal
that it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted.  Each of the Secured Parties shall
have the right upon any such public sale or sales and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in Debtor,
which right or equity is hereby waived or released, and in connection herewith
to credit bid the Obligations with the proceeds that would otherwise be payable
to such Secured Party.  The  Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. To the extent permitted by law,
Debtor hereby waives any claims against Agent arising because the price at which
any Collateral may have been sold at a private sale was less than the price that
might have been obtained at a public sale.  The Debtor further agrees, at the
Agent’s request upon instruction from the Required Secured Parties, to assemble
the Collateral and make it available to the Agent at places, which the Agent
shall reasonably select, whether at Debtor’s premises or elsewhere.  The Agent
shall apply the net proceeds of any such 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 the Agent hereunder, including, without limitation, reasonable attorneys’
fees and disbursements, to the payment in whole or in part of the Obligations,
in such order as the Required Secured Parties may elect, and only after such
application and after the payment by Agent of any other amount required by any
provision of law, including, without limitation, any provision of the Code, need
the Agent account for the surplus, if any, to Debtor.  To the extent permitted
by applicable law, Debtor waives all claims, damages and demands it may acquire
against the Agent or any Secured Party arising out of the exercise by Agent of
any of its 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 ten (10) days before such sale or other
disposition.  The Debtor 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 Agent to
collect such deficiency.  Debtor hereby agrees that any sale or other
disposition of the Collateral conducted in conformity with reasonable commercial
practices of banks, insurance companies or other financial institutions in the
city and state where Agent is located in disposing of property similar to the
Collateral shall be deemed to be commercially reasonable.

10.           Limitation on Duties Regarding Preservation of Collateral.  The
Agent’s sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Article 9 or otherwise,
shall be to deal with it in the same manner as any Secured Party deals with
similar property for its own account.  Neither the Agent nor any of its
directors, officers, agents or employees 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 Debtor or otherwise.

11.           Powers Coupled with an Interest.  All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
 
 
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12.           Agent.  Each Secured Party hereby designates and appoints the
Agent to serve in accordance with the terms and conditions of this Security
Agreement, and the Agent hereby agrees to act as such, upon the terms and
conditions provided in this Security Agreement.  The Agent may execute any of
its duties under this Security Agreement by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties.  The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent or other document or conversation believed by it to be genuine and
correct.  The Agent shall be fully justified in failing or refusing to take any
action unless it first receives such advice or concurrence from the Required
Secured Parties.  The Agent shall be under no obligation to take any action to
protect, preserve or enforce any rights or interests in the Collateral or to
take any action toward the execution or enforcement of the rights and remedies
hereunder, whether on its own motion or on the request of any other Person,
which in the opinion of the Agent may involve loss, liability or expense to it,
unless the Debtor and/or one or more Secured Parties shall offer and furnish
security or indemnity, reasonably satisfactory to the Agent, against loss,
liability and expense to the Agent.  As used herein, “Required Secured Parties”
means, as of any date, the Secured Parties holding at least a majority of the
outstanding principal amount of the Notes on such date.  The Agent shall in all
cases be fully protected in acting or refraining from acting in accordance with
a request or consent of the Required Secured Parties and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Secured Parties.  The Agent shall not be deemed to have knowledge or notice of
the occurrence of any Event of Default except with respect to payment default
required to be paid to the Agent in its individual capacity, unless the Agent
shall have received written notice from a Secured Party or the Debtor describing
such default.  The Agent shall use its best efforts to notify all Secured
Parties and the Debtor of any such notice.  The Agent shall take such action
with respect to such default as may be reasonably and lawfully requested by the
Required Secured Parties in accordance with the terms of this Security Agreement
subject to the requirements set forth above for indemnification and further
subject to its right to resign under Section 13 below.  In addition to any other
indemnification provided for hereunder or otherwise in favor of the Agent, each
of the Secured Parties shall indemnify upon demand the Agent and its agents, pro
rata, from and against any and all actions, causes of actions, suits, losses,
liabilities, damages and expenses, including reasonable attorney’s fees, other
than those resulting from the Agent or its agents gross negligence or willful
misconduct.  The Agent shall not be required to advance, expend or risk its own
funds or otherwise incur personal liability in the performance of its duties or
in the exercise of any rights or remedies hereunder.  All funds expended by the
Agent hereunder (including, without limitation, funds expended for reasonable
attorney’s fees) shall be promptly reimbursed by the Debtor and/or the Secured
Parties upon demand from the Agent (together with interest thereon at a rate per
annum equal to 8% from ten days following the date of demand).  Nothing shall
limit or restrict the right of the Agent in its individual capacity to be a
holder of Notes and to exercise its rights thereunder, including, without
limitation, its right to vote as a Secured Party as part of the Required Secured
Parties.  The Agent shall not be liable or responsible in any way for any
diminution in the value of the Collateral or any act or default of any
warehouseman, carrier, forwarding agency or other Person whomsoever, but the
same shall be at the sole risk of the Debtor and/or the Secured Parties.  Unless
instructed in writing by the Required Secured Parties and indemnified by the
Secured Parties, the Agent shall not be responsible for effecting any filings
with the United States Patent and Trademark Office or the United States
Copyright Office with respect to any of the Collateral.  The Agent makes no
representation or warranty as to the validity, sufficiency or enforceability
hereof or of the Collateral or as to the value, title, condition or adequacy of
insurance on, or otherwise with respect to, the Collateral.  The Agent shall not
be accountable to anyone for the use or application of the proceeds of the
Notes.  The Agent makes no representation or warranty as to the attachment,
perfection or priority of the security interests and liens contemplated hereby.
 
13.           Resignation of Agent.   The Agent may resign at any time by giving
twenty (20) days prior written notice thereof to the Secured Parties and the
Debtor.  Upon any such resignation, the Required Secured Parties shall have the
right to appoint a successor Agent.  Unless an Event of Default shall have
occurred and be continuing, such successor Agent shall be reasonably acceptable
to the Debtor.  If no successor Agent shall have been so appointed by the
Required Secured Parties and shall have accepted such appointment within fifteen
(15) days after the retiring Agent’s giving of notice of resignation, then the
retiring Agent may, on behalf of the Secured Parties, appoint a successor
Agent.  If no such successor can be found or appointed, a successor Agent may be
appointed, upon application of the retiring Agent or any Secured Party, by any
court of competent jurisdiction.  Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder.

14.           Severability.  Any provision of this Security Agreement that 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.  All covenants and other
agreements contained in this Security Agreement by or on behalf of any of the
parties hereto bind and inure to the benefit of their respective successors and
assigns whether so expressed or not.

15.           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 be taken into consideration in the interpretation
hereof.  This Security Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument.  Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.

16.           No Waiver; Cumulative Remedies.  The Agent shall not, by any act
(except by a written instrument), delay, indulgence, omission or otherwise, be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
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 the Agent, of any
right, power or privilege hereunder shall operate as a waiver thereof.  No
single or partial exercise of 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 the Agent or any Secured Party of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy that the Agent 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.  THIS SECURITY AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH
STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER
THAN SUCH STATE.

17.           Notices.  Notices hereunder shall be given to the Debtor, the
Agent and each Secured Party in the manner set forth in the Purchase Agreement
of even date herewith between the Debtor and each of the Secured Parties and at
the addresses set forth therein.
 
18.           Termination.  Upon the repayment in full of all Obligations, this
Security Agreement shall terminate, the Secured Parties shall deliver any
release of the Encumbrances created under this Security Agreement that Debtor
may reasonably request (at the cost of the Debtor) and the Secured Parties shall
return to the Debtor all Collateral then in its possession, custody or control,
and this Security Agreement shall terminate without further action by the
parties hereto and be of no further force and effect.
 

 
[Signature pages follow.]
 
 
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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.

AXS-ONE INC.

By:  /s/ William P.
Lyons                                                                           
Name:  William P. Lyons
Title:   CEO

BLUELINE CAPITAL PARTNERS, LP, as Agent

 
By:  BlueLine Partners, LLC,

 
                    its General Partner

By:  /s/ Scott A.
Shuda                                                                           
Name:  Scott A. Shuda
 
Title:  Managing Director

 
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OMNIBUS SIGNATURE PAGE TO
AXS-ONE, INC.
SECURITY AGREEMENT

The undersigned, as a Secured Party, hereby executes and delivers the Security
Agreement to which this signature page is attached, which, together with all
counterparts of the Security Agreement and signature pages of the other parties
named in said Security Agreement, shall constitute one and the same document in
accordance with the terms of the Security Agreement.
 
Print Name:     BlueLine Capital Partners III, LP

By:                   BlueLine Partners II, LP,
Its General Partner

By:                   /s/ Scott A.
Shuda                                                       
Name:              Scott A.
Shuda                                                       
Title:                Managing
Director                                                       

 
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OMNIBUS SIGNATURE PAGE TO
AXS-ONE, INC.
SECURITY AGREEMENT

The undersigned, as a Secured Party, hereby executes and delivers the Security
Agreement to which this signature page is attached, which, together with all
counterparts of the Security Agreement and signature pages of the other parties
named in said Security Agreement, shall constitute one and the same document in
accordance with the terms of the Security Agreement.
 

Print Name:     Harold D. Copperman

By:                   /s/ Harold D.
Copperman                                                       
Name:              Harold D.
Copperman                                                       
Title:                   

 
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OMNIBUS SIGNATURE PAGE TO
AXS-ONE, INC.
SECURITY AGREEMENT

The undersigned, as a Secured Party, hereby executes and delivers the Security
Agreement to which this signature page is attached, which, together with all
counterparts of the Security Agreement and signature pages of the other parties
named in said Security Agreement, shall constitute one and the same document in
accordance with the terms of the Security Agreement.
 
Print Name:    Jurika Family Trust U/A 1989

By:                   /s/ William K.
Jurika                                                       
Name:              William K.
Jurika                                                       
Title:                Trustee                                                       

 
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OMNIBUS SIGNATURE PAGE TO
AXS-ONE, INC.
SECURITY AGREEMENT

The undersigned, as a Secured Party, hereby executes and delivers the Security
Agreement to which this signature page is attached, which, together with all
counterparts of the Security Agreement and signature pages of the other parties
named in said Security Agreement, shall constitute one and the same document in
accordance with the terms of the Security Agreement.
 

 
Print Name:
Primafides (Suisse) S.A. as Trustees of Sirius Trust

By:                   /s/ N. Mijsud      /s/ P. DeSalis
Name:              Primafides (Suisse) S.A. as Trustees of Sirius Trust
Title:                Directors                                                       

 
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