"Pursuant to our secured convertible debentures issued to YA Global, in the principal amounts of $7.5 million, $5.0 million, $2.5 million, $1.8 million, $2.4 million, $2.3 million and $0.5 million dated March 27, 2007, August 24, 2006, December 29, 2006, August 24, 2007, July 29, 2008, October 28, 2008 and April 6, 2009, respectively, we were required to secure repayment of the convertible debentures with SUBSTANTIALLY ALL OF OUR ASSETS."
Security Agreement dated 8-24-07:
SECTION 2. Grant of Security Interest. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, to secure the payment and performance of all of the Obligations of the Company, the Company does hereby mortgage, pledge and hypothecate to the Secured Party and grant to the Secured Party a security interest in all of the following property (the “Patent Collateral”), now owned and existing: (NOTE: NOW OWNED AND EXISTING, so this agreement does not apply to the new patent to be issued)
(a) all letters patent and applications for letters patent throughout the world, including all patent applications in preparation for filing anywhere in the world and including each patent and patent application referred to in Schedule “A” hereto;
(b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals and reexaminations of any of the items described in clause (a);
(c) all patent licenses and other agreements providing the Company with the right to use any of the items of the type referred to in clauses (a) and (b), including each patent license referred to in Schedule “A” hereto;
(d) the right to sue third parties for past, present or future infringements of any Patent Collateral described in clauses (a) and (b) and, to the extent applicable, clause (c); and
(e) all proceeds of, and rights associated with, the foregoing, (including license royalties and proceeds of infringement suits), and all rights corresponding thereto throughout the world.
To the extent legally possible, YA has in the 2008 SPA a security interests in all patents and patent applications where it does not have a perfected lien. The question then is can YA legally take possession of a patent in which it does not have a perfected security interest. Given that the pledged property is specifically stated on Schedules to the Security Agreements, it is most unlikely YA would be granted a security interest in the new patent to be issued where YA has not a perfected lien on the new patent.
In any event, I do not expect NeoMedia to default. All the debentures are due on 7-29-2010 and NeoMedia with a 20% premium penalty has the right to redeem all debentures before their maturity.
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