EXECUTION VERSION
SECURITY AGREEMENT
DATE: November __, 2005
DEBTOR: IT & E International Group EIN: 00-0000000
(Collectively) 000 Xxxxx Xxxxx Xx Xxxxx Organization I.D. ______
Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
SECURED PARTIES: ComVest Investment Partners II LLC
Xxx Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx Xxxxx, Xxxxxxx 00000
And each of the Purchasers set forth on the signature
page attached hereto.
1. Security Interest and Collateral. To secure the payment of
outstanding principal and interest on certain Secured Convertible Promissory
Notes in the aggregate principal amount of up to $15,000,000 issued by Debtor
from time to time in a private placement and through an Option for an additional
investment as described in the Securities Purchase Agreement, of even date
herewith between the Debtor and the Secured Parties by Debtor to Secured Parties
(each a "Note" and collectively the "Notes") and the performance of every
liability and obligation of every type and description that Debtor may now or at
any time hereafter owe to Secured Parties under the Notes, whether such debt,
liability or obligation now exists or is hereafter created or incurred, and
whether it is absolute or contingent, liquidated or unliquidated, or sole,
joint, several or joint and several (all such debts, liabilities and obligations
and any amendments, extensions, renewals or replacements thereof collectively
referred to herein as the "Obligations"), Debtor hereby grants Secured Parties a
first priority security interest (the "Security Interest") in all of Debtor's
property (the "Collateral"), including without limitation the following:
A. Inventory. All inventory of Debtor, whether now owned or
hereafter acquired and wherever located and other tangible
personal property held for sale or lease or furnished or to be
furnished under contracts of service or consumed in Debtor's
business, and all goods of Debtor, whether now owned or
hereafter acquired and wherever located, including without
limitation all computer programs embedded in goods, and all
other Inventory and Goods of the Debtor, as such terms may be
defined in the Uniform Commercial Code as may be in effect in
the State of Nevada from time to time (the "UCC");
B. Equipment. All equipment of Debtor, whether now owned or
hereafter acquired and wherever located, including but not
limited to all present and future equipment, machinery, tools,
motor vehicles, trade fixtures, furniture, furnishings,
office and recordkeeping equipment and all goods for use in
Debtor's business and all other Equipment of the Debtor, as
such term may be defined in the UCC, together with all parts,
equipment and attachments relating to any of the foregoing;
C. Accounts, Contract Rights and Other Rights to Payment: Each
and every right of Debtor to the payment of money, whether
such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease, license,
assignment or other disposition of goods or other property by
Debtor, out of a rendering of services by Debtor, out of a
loan by Debtor, out of the overpayment of taxes or other
liabilities of Debtor, or otherwise arises under any contract
or agreement, whether such right to payment is or is not
already earned by performance, and howsoever such right to
payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which
Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such
payment or against any of the property of such account debtor
or other obligor; all including but not limited to all present
and future debt instruments, chattel paper, accounts, license
fees, contract rights, loans and obligations receivable and
tax refunds and all other Accounts of the Debtor, as such term
may be defined in the UCC;
D. Instruments: All instruments, chattel paper, letters of credit
or other documents of Debtor, whether now owned or hereafter
acquired, including but not limited to promissory notes,
drafts, bills of exchange and trade acceptances; all rights
and interests of Debtor, whether now existing or hereafter
created or arising, under leases (where Debtor is the lessor),
licenses or other contracts, in each case where assignment for
security purposes is not expressly prohibited by the terms of
such instruments and all other Instruments of the Debtor, as
such term may be defined in the UCC;
E. Deposit Accounts and Investment Property: All right, title and
interest of Debtor in all deposit and investment accounts
maintained with any bank, savings and loan association,
broker, brokerage, or any other financial institution,
together with all monies and other property deposited or held
therein, including, without limitation, any checking account,
savings account, escrow account, savings certificate and
margin account, and all securities, whether certificated or
uncertificated, security entitlements, securities accounts,
commodity contracts, and commodity accounts and all other
Deposit Accounts and Investment Property of the Debtor, as
such terms may be defined in the UCC;
F. General Intangibles: All general intangibles of Debtor,
whether now owned or hereafter acquired, including, but not
limited to, applications for patents, patents, copyrights,
trademarks, trade secrets, good will, tradenames, customer
lists, permits and franchises, software, all licenses of any
of the foregoing and the right to use Debtor's name, and any
and all membership interests, governance rights, and financial
rights in each and every limited liability company, and all
payment
intangibles and all other General Intangibles of the Debtor,
as such term may be defined in the UCC;
G. Chattel Paper: All Chattel Paper of the Debtor, whether
tangible or electronic, as such term may be defined in the
UCC; and
H. Supporting Obligations, Embedded Software, etc.: All of
Debtor's rights, whether now existing or hereafter acquired,
in promissory notes, documents, embedded software, letter of
credit rights and supporting obligations (and security
interests and liens securing them) as such terms may be
defined in the UCC.
together with all substitutions and replacements for and products of any of the
foregoing property and proceeds of any and all of the foregoing property
together with (i) all accessories, attachments, parts, equipment, accessions and
repairs and embedded software now or hereafter attached or affixed to or used in
connection with any such goods, (ii) all warehouse receipts, bills of lading and
other documents of title now or hereafter covering such goods, and (iii) all
books and records of Debtor related to the Collateral.
2. Representations, Warranties and Agreements. Debtor jointly and
severally represents, warrants and agrees that:
2.1. Debtor is a corporation duly organized, validly existing and
in good standing under the laws of the state of Nevada, and the state of
Nevada has been Debtor's state of organization since the date of Debtor's
organization. Debtor has full power and authority to execute this
Agreement, to perform Debtor's obligations hereunder and to subject the
Collateral to the Security Interest. Debtor's taxpayer identification
number is the number shown at the beginning of this Agreement. Debtor's
organizational identification number is the number shown at the beginning
of this Agreement.
2.2. Debtor's chief place of business is, located at the address
shown at the beginning of this Agreement. Debtor's records concerning its
accounts and contract rights are kept at such address. The Collateral is
located at the address shown at the beginning of this Agreement, and there
are no other locations where any of the Collateral may be kept except as
set forth on Schedule 2.2 hereto. All Collateral has been located at the
address shown at the beginning of this Agreement or at the locations set
forth on Schedule 2.2, prior to execution of this Agreement. Debtor will
give at least 30 days' advance written notice to Secured Parties of any
change in Debtor's jurisdiction of organization or chief place of business
and any change in or addition of any Collateral location. Debtor will take
all such actions as Secured Parties may reasonably request to permit
Secured Parties to establish and perfect the Security Interest in all
jurisdictions Secured Parties deems necessary, including but not limited to
the execution, delivery or endorsement of any and all instruments,
documents, assignments, security agreements and other agreements and
writings that Secured Parties may at any time reasonably request in order
to secure, protect, perfect or enforce the Security Interest and Secured
Parties' rights under this Agreement.
2.3. Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of Collateral
free and clear of all security interests, liens and encumbrances. Debtor
will keep all Collateral free and clear of all security interests, liens
and encumbrances except the Security Interest, and will defend the
Collateral against all claims or demands of all persons other than Secured
Parties. Debtor will promptly pay or properly and timely contest all taxes
and other governmental charges levied or assessed upon or against any
Collateral or upon or against the creation, perfection or continuance of
the Security Interest.
2.4. Until the Obligations are satisfied in full, Debtor will not,
without the prior written consent of the Secured Parties, sell any of the
Collateral or enter into any agreement that is inconsistent with Debtor's
obligations or Secured Parties' rights under this Agreement, except that
Debtor may sell or discard the Collateral in the ordinary course of
business so long as such agreements are not inconsistent with Secured
Parties' rights or Debtor's obligations under this Agreement. Debtor
further agrees that it will not take any action, or permit any action to be
taken by others under its control, or fail to take any action, that would
affect the validity of the Collateral or enforcement of Secured Parties'
rights in the Collateral. In addition, Debtor agrees not to enter into any
instruments, chattel paper, letters of credit or other documents, including
but not limited to promissory notes, drafts, bills of exchange and trade
acceptances, which expressly prohibit assignment for security purposes.
2.5. This Agreement has been duly and validly authorized by all
necessary action by Debtor.
2.6. Debtor will keep all tangible Collateral in good repair,
working order and condition, normal depreciation excepted, and will, from
time to time, replace any worn, broken or defective parts thereof.
2.7. Debtor will at all reasonable times permit Secured Parties or
their respective representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy Debtor's books and
records pertaining to the Collateral and its business and financial
condition.
2.8. If Secured Parties at any time so request after the occurrence
of an Event of Default, Debtor will promptly transfer to Secured Parties
any instrument, document, chattel paper, or investment properties
constituting the Collateral, duly endorsed or assigned by Debtor.
2.9. Debtor will keep accurate and complete records pertaining to
the Collateral and pertaining to Debtor's business and financial condition
and submit to Secured Parties such periodic reports concerning the
Collateral and Debtor's business and financial condition as Secured Parties
may from time to time reasonably request.
2.10. Debtor will at all times keep all tangible Collateral insured
against risks of fire (including so-called extended coverage), theft, and
such other risks and in such
amounts as Secured Parties may reasonably request, with any loss payable to
Secured Parties to the extent of their respective interest.
2.11. Debtor will pay when due or reimburse Secured Parties on
demand for all costs of collection of any of the Obligations and all other
out-of-pocket expenses (including all reasonable attorneys' fees) incurred
by Secured Parties in connection with the creation, perfection,
satisfaction, protection, defense or enforcement of the Security Interest
or the creation, continuance, protection, defense or enforcement of this
Agreement or any or all of the Obligations, including expenses incurred in
any litigation or bankruptcy or insolvency proceedings.
2.12. The Obligations have been incurred and the Collateral will be
used primarily for business purposes.
2.13. All rights to payment and all instruments, documents, chattel
papers and other agreements constituting or evidencing Collateral are (or
will be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, set-off or counterclaim (other than
those arising in the ordinary course of business) of each account debtor or
other obligor named therein or in Debtor's records pertaining thereto as
being obligated to pay such obligation. Debtor will not agree to any
modification, amendment or cancellation of any such obligation without
Secured Parties' prior written consent except discounts provided by Debtor
in the ordinary course of business, and will not subordinate any such right
to payment to claims of other creditors of such account debtor or other
obligor.
2.14. Debtor will promptly notify Secured Parties of any material
loss of or damage to any Collateral or of any adverse change in the
prospect of payment of any material sums due on or under any instrument,
chattel paper, account or contract right constituting Collateral.
2.15. Debtor will from time to time execute such financing
statements or control agreements as Secured Parties may reasonably deem
necessary in order to perfect the Security Interest and, if any Collateral
is covered by a certificate of title, execute such documents as may be
required to have the Security Interest properly noted on a certificate of
title. In addition, Debtor authorizes Secured Parties to file any financing
statement any Secured Party deems necessary, describing any liens held by
such Secured Party. Such financing statements may describe the Collateral
in the same manner as described herein or may contain an indication or
description of the Collateral that describes such property in any other
manner as the Secured Parties may determine, in its reasonable discretion,
is necessary to ensure the perfection of the Security Interest, including,
without limitation, describing such property as "all assets" or "all
personal property."
2.16. Debtor will not use or keep any Collateral, or permit it to be
used or kept, for any unlawful purpose or in violation of any federal,
state or local law, statute or ordinance.
2.17. If Debtor at any time fails to perform or observe any
agreement contained in this Section 2, and if such failure shall continue
for a period of 30 calendar days after Secured Parties give Debtor written
notice thereof, Secured Parties may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of Debtor (or, at
Secured Parties' option, in such Secured Party's own name) and may (but
need not) take any and all other actions that such Secured Party may
reasonably deem necessary to cure or correct such failure. Debtor shall pay
such Secured Party on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees) incurred by such
Secured Party in connection with or as a result of such Secured Party's
performing or observing such agreements or taking such actions, together
with interest thereon from the date expended or incurred by such Secured
Party at the highest rate then applicable to any of the Obligations. To
facilitate the performance or observance by such Secured Party of such
agreements of Debtor (in the event Debtor does not cure any such failure
during the above-described 30-day period), Debtor hereby irrevocably
appoints (which appointment is coupled with an interest) such Secured
Party, or its delegate, as the attorney-in-fact of Debtor with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file, in the name and on behalf of Debtor, any and all
instruments, documents, financing statements, and other agreements and
writings required to be obtained, executed, delivered or endorsed by Debtor
under this Section 2.
3. Account Verification and Collection Rights of Secured Parties. Each
Secured Party shall have the right to verify any accounts in the name of Debtor
or in any Secured Party's own name; and Debtor, whenever requested pursuant to
the terms of this Section, shall furnish such Secured Party with duplicate
statements of the accounts, which statements may be mailed or delivered by
Secured Party for that purpose. Each Secured Party may at any time after the
occurrence of an Event of Default notify any account debtor, or any other person
obligated to pay any amount due, that such chattel paper, account, or other
right to payment has been assigned or transferred to a Secured Party for
security and shall be paid directly to such Secured Party. If any Secured Party
so requests at any time after the occurrence of an Event of Default, Debtor will
so notify such account debtors and other obligors in writing and will indicate
on all invoices to such account debtors or other obligors that the amount due is
payable directly to the Secured Parties. At any time after the Secured Parties
or Debtor gives such notice to an account debtor or other obligor, Secured
Parties may (but need not), in Secured Parties' respective own names or in
Debtor's name, demand, xxx for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any such chattel paper,
account, or other right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor.
4. Events of Default. The occurrence of any of the following shall, at
the sole option of the Secured Parties, be an Event of Default:
A. Any "Event of Default" (as defined in such agreement) by
Debtor under the Notes or any other agreement evidencing the
Obligations, which default is not cured within any grace
period granted with respect to such default or, if no specific
grace period is granted with respect to such default, where
such default is not
cured within five (5) business days after written notice
thereof from any Secured Party;
B. Debtor's failure to comply with any representation, warranty
or covenant hereunder if not cured within thirty (30) days
after written notice;
C. Transfer or disposition of any of the Collateral, except as
permitted by this Agreement; or
D. Attachment, execution or levy on any of the Collateral.
5. Remedies upon Event of Default. Upon the occurrence of an Event of
Default and at any time thereafter, the Secured Parties may exercise any one or
more of the following rights and remedies:
5.1. declare all Obligations to be immediately due and payable,
which shall then be immediately due and payable, without presentment or
other notice or demand;
5.2. exercise and enforce any or all rights and remedies available
upon default to a secured party under the Uniform Commercial Code,
including but not limited to the right to take possession of any
Collateral, proceeding without judicial process if permitted by law or by
judicial process, and the right to use, sell, lease or otherwise dispose of
any or all of the Collateral, and in connection therewith, Secured Parties
may require Debtor to make the Collateral available to Secured Parties at a
place to be designated by Secured Parties that is reasonably convenient to
all parties, and if notice to Debtor of any intended disposition of
Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given (in
the manner specified in Section 8.2) at least 10 business days prior to the
date of intended disposition or other action; or
5.3. exercise or enforce any or all other rights or remedies
available to Secured Parties by law or agreement against the Collateral,
including specifically the right to use the Collateral, against Debtor or
against any other person or property.
All rights and remedies of Secured Parties shall be cumulative and may be
exercised singularly or concurrently, at Secured Parties' option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other.
6. Other Personal Property. Unless at the time the Secured Parties take
possession of any tangible Collateral, or within seven days thereafter, Debtor
gives written notice to Secured Parties of the existence of any goods, papers or
other property of Debtor, not affixed to or constituting a part of such
Collateral, but which are located or found upon or within such Collateral,
Secured Parties shall not be responsible or liable to Debtor for any action
taken or omitted by or on behalf of Secured Parties with respect to such
property without actual knowledge of the existence of any such property or
without actual knowledge that it was located or to be found upon or within such
Collateral.
7. Assignment of Insurance. Debtor hereby assigns to Secured Parties,
as additional security for the payment of the Obligations, any and all moneys
(including but not limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of Debtor under or
with respect to, any and all policies of insurance covering the Collateral, and
Debtor hereby directs the issuer of any such policy to pay any such moneys
directly to Secured Parties. Both before and after the occurrence of an Event of
Default, Secured Parties may (but need not), in Secured Parties' respective
names or in Debtor's name, execute and deliver proofs of claim, receive all such
moneys, endorse checks and other instruments representing payment of such
moneys, and adjust, litigate, compromise or release any claim against the issuer
of any such policy.
8. Miscellaneous.
8.1. This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interest can be released, only explicitly in a
writing signed by each Secured Party. A waiver signed by each Secured Party
shall be effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude the exercise
or enforcement of any of such Secured Party's rights or remedies.
8.2. All notices to be given to Debtor shall be deemed sufficiently
given if delivered or mailed by registered or certified mail, postage
prepaid, to Debtor at its address set forth above or at such other address
as Debtor may subsequently provide to each Secured Party.
8.3. Each Secured Party's duty of care with respect to Collateral
in its possession (as imposed by law) shall be deemed fulfilled if such
Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of
the bailee or other third person, and such Secured Party need not otherwise
preserve, protect, insure or care for any Collateral. Such Secured Party
shall not be obligated to preserve any rights Debtor may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order, or to apply any cash proceeds of Collateral in any particular order
of application.
8.4. This Agreement shall be binding upon and inure to the benefit
of Debtor and each Secured Party and their respective successors and
assigns and shall take effect when signed by Debtor and delivered to the
Secured Parties, and Debtor waives notice of Secured Parties' acceptance
hereof.
8.5. A carbon, photographic or other reproduction of this Agreement
or of any financing statement signed by Debtor shall have the same force
and effects as the original for all purposes of a financing statement.
8.6. This Agreement shall be governed by the internal laws of the
State of New York. If any provision or application of this Agreement is
held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other
provisions or applications which can be given effect and this Agreement
shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. Any
dispute arising out of or relating to this Agreement, including the
formation, interpretation or alleged breach hereof, shall be brought in the
state or federal courts located in _________ County, [Nevada], and the
parties hereto consent to the personal jurisdiction and venue of such
courts.
8.7. All representations and warranties contained in this Agreement
shall survive the execution, delivery and performance of this Agreement and
the creation and payment of the Obligations.
(signature page on following page)
ACCORDINGLY, this Agreement has been duly executed by the parties as of
the date first set forth above.
IT & E INTERNATIONAL GROUP
By:
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Name:
Title:
COMVEST INVESTMENT PARTNERS II, LLC
By:
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Name:
Title:
By:
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Name:
Title:
Schedule 2.2
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