Exhibit 10.3
eLEC COMMUNICATIONS CORP. AND CERTAIN OF ITS SUBSIDIARIES
MASTER SECURITY AGREEMENT
To: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx House
South Church Street
Xxxxxx Town
Grand Cayman, Cayman Islands
Date: February 8, 2005
To Whom It May Concern:
1. To secure the payment of all Obligations (as hereafter defined), eLEC
COMMUNICATIONS CORP., a New York corporation (the "Company"), each of the other
undersigned parties (other than Laurus Master Fund, Ltd, "Laurus")) and each
other entity that is required to enter into this Master Security Agreement (each
an "Assignor" and, collectively, the "Assignors") hereby assigns and grants to
Laurus a continuing security interest in all of the following property now owned
or at any time hereafter acquired by any Assignor, or in which any Assignor now
have or at any time in the future may acquire any right, title or interest (the
"Collateral"): all cash, cash equivalents, accounts, accounts receivable,
deposit accounts (including, without limitation, the Lockbox Deposit Account (as
hereinafter defined)), inventory, equipment, goods, documents, instruments
(including, without limitation, promissory notes), contract rights, general
intangibles (including, without limitation, payment intangibles and an absolute
right to license on terms no less favorable than those current in effect among
our affiliates), chattel paper, supporting obligations, investment property
(including, without limitation, all equity interests owned by any Assignor),
letter-of-credit rights, trademarks, trademark applications, tradestyles,
patents, patent applications, copyrights, copyright applications and other
intellectual property in which any Assignor now have or hereafter may acquire
any right, title or interest, all proceeds and products thereof (including,
without limitation, proceeds of insurance) and all additions, accessions and
substitutions thereto or therefore. In the event any Assignor wishes to finance
the acquisition in the ordinary course of business of any hereafter acquired
equipment and have obtained a commitment from a financing source to finance such
equipment from an unrelated third party, Laurus agrees to release its security
interest on such hereafter acquired equipment so financed by such third party
financing source. Except as otherwise defined herein, all capitalized terms used
herein shall have the meaning provided such terms in the Securities Purchase
Agreement referred to below.
2. The term "Obligations" as used herein shall mean and include all debts,
liabilities and obligations owing by each Assignor to Laurus arising under, out
of, or in connection with: (i) that certain Securities Purchase Agreement dated
as of the date hereof by and between the Company and Laurus (the "Securities
Purchase Agreement") and (ii) the Related Agreements referred to in the
Securities Purchase Agreement (the Securities Purchase Agreement and each
Related Agreement, as each may be amended, modified, restated or supplemented
from time to time, are collectively referred to herein as the "Documents"), and
in connection with any documents, instruments or agreements relating to or
executed in connection with the Documents or any documents, instruments or
agreements referred to therein or otherwise, and in connection with any other
indebtedness, obligations or liabilities of any Assignor to Laurus, whether now
existing or hereafter arising, direct or indirect, liquidated or unliquidated,
absolute or contingent, due or not due and whether under, pursuant to or
evidenced by a note, agreement, guaranty, instrument or otherwise, in each case,
irrespective of the genuineness, validity, regularity or enforceability of such
Obligations, or of any instrument evidencing any of the Obligations or of any
collateral therefor or of the existence or extent of such collateral, and
irrespective of the allowability, allowance or disallowance of any or all of the
Obligations in any case commenced by or against any Assignor under Xxxxx 00,
Xxxxxx Xxxxxx Code, including, without limitation, obligations or indebtedness
of each Assignor for post-petition interest, fees, costs and charges that would
have accrued or been added to the Obligations but for the commencement of such
case.
3. Each Assignor hereby jointly and severally represents, warrants and
covenants to Laurus that:
(a) it is a corporation, partnership or limited liability company,
as the case may be, validly existing, in good standing and organized under
the respective laws of its jurisdiction of organization set forth on
Schedule A, and each Assignor will provide Laurus thirty (30) days' prior
written notice of any change in its jurisdiction of organization;
(b) its legal name is as set forth in its Certificate of
Incorporation or other organizational document (as applicable) as amended
through the date hereof and as set forth on Schedule A, and it will
provide Laurus thirty (30) days' prior written notice of any change in its
legal name;
(c) its organizational identification number (if applicable) is as
set forth on Schedule A hereto, and it will provide Laurus thirty (30)
days' prior written notice of any change in any of its organizational
identification number;
(d) it is the lawful owner of its respective Collateral and it has
the sole right to grant a security interest therein and will defend the
Collateral against all claims and demands of all persons and entities;
(e) it will keep its respective Collateral free and clear of all
attachments, levies, taxes, liens, security interests and encumbrances of
every kind and nature ("Encumbrances"), except (i) Encumbrances securing
the Obligations, (ii) Encumbrances for taxes, assessments or governmental
charges or levies not yet due and payable or Encumbrances for taxes,
assessments or governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established to the extent required by generally accepted accounting
principles, (iii) Encumbrances in respect of property or assets of Company
or any of its Subsidiaries imposed by law, which were incurred in the
ordinary course of business and do not secure indebtedness, such as
carriers', warehousemen's, materialmen's and mechanics'
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liens and other similar Liens arising in the ordinary course of business,
(iv) statutory and common law landlords' Encumbrances under leases to
which the Company or any of its Subsidiaries is a party, and (v) to the
extent said Encumbrance does not secure indebtedness in excess of $50,000
and such Encumbrance is removed or otherwise released within ten (10) days
of the creation thereof;
(f) it will, at its and the other Assignors joint and several cost
and expense, keep the Collateral in good state of repair (ordinary wear
and tear excepted) and will not waste or destroy the same or any part
thereof other than ordinary course discarding of items no longer used or
useful in its or such other Assignors' business;
(g) it will not without Laurus' prior written consent, sell,
exchange, lease or otherwise dispose of the Collateral, whether by sale,
lease or otherwise, except for the sale of inventory in the ordinary
course of business and except for the disposition or transfer in the
ordinary course of business during any fiscal year of obsolete and
worn-out equipment or equipment no longer necessary for its ongoing needs,
having an aggregate fair market value of not more than $100,000 and only
to the extent that:
(i) the proceeds of any such disposition are used to acquire
replacement Collateral which is subject to Laurus' first priority
perfected security interest, or are used to repay Obligations or to
pay general corporate expenses; and
(ii) following the occurrence of an Event of Default which
continues to exist the proceeds of which are remitted to Laurus to
be held as cash collateral for the Obligations;
(h) it will insure or cause the Collateral to be insured in Laurus'
name against loss or damage by fire, theft, burglary, pilferage, loss in
transit and such other hazards in amounts and coverage consistent and in
accordance with industry practice under policies by insurers reasonably
acceptable to Laurus and all premiums thereon shall be paid by such
Assignor and the policies delivered to Laurus. If any such Assignor fails
to do so, Laurus may procure such insurance and the cost thereof shall be
promptly reimbursed by the Assignors, jointly and severally, and shall
constitute Obligations;
(i) it will at all reasonable times and upon at least one (1) days'
prior notice allow Laurus or Laurus' representatives free access to and
the right of inspection of the Collateral;
(j) such Assignor (jointly and severally with each other Assignor)
hereby indemnifies and saves Laurus harmless from all loss, costs, damage,
liability and/or expense, including reasonable attorneys' fees, that
Laurus may sustain or incur to enforce payment, performance or fulfillment
of any of the Obligations and/or in the enforcement of this Master
Security Agreement or in the prosecution or defense of any action or
proceeding either against Laurus or any Assignor concerning any matter
growing out of or in connection with this Master Security Agreement,
and/or any of the Obligations and/or any of the Collateral except to the
extent caused by Laurus' own gross negligence
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or willful misconduct (as determined by a court of competent jurisdiction
in a final and nonappealable decision); and
(k) On or prior to the 30th day following the Closing Date, each
Assignor will (x) irrevocably direct all of its present (to the extent not
already directed) and future Account Debtors (as defined below) and other
persons obligated to make payments constituting Collateral to make such
payments directly to the lockboxes maintained by such Assignor (the
"Lockboxes") and managed by Klik Technologies, Corp. or such other person
or service accepted by Laurus in writing as may be selected by the Company
(the "Lockbox Service Provider") (each such direction pursuant to this
clause (x), a "Direction Notice") and (y) provide Laurus with copies of
each Direction Notice to the extent requested by Laurus. Upon receipt of
such payments, the Lockbox Service Provider has agreed to deposit the
proceeds of such payments in certain deposit accounts maintained at the
JPMorgan Chase Bank and evidenced by the account name of New Xxxxxxxx
Telephone Corp. with the account number of 590361414 or the account name
or Telecarrier Services Inc. with the account number of 590361503, or such
other deposit account accepted by Laurus in writing (the "Lockbox Deposit
Account"). On or prior to the Closing Date, the Company shall and shall
cause the Lockbox Service Provider to enter into all such documentation
acceptable to Laurus pursuant to which, among other things, the Lockbox
Service Provider agrees to, following notification by Laurus (which
notification Laurus shall only give following the occurrence and during
the continuance of an Event of Default), comply only with the instructions
or other directions of Laurus concerning the Lockbox. All of each
Assignor's invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of
any Account of any such Assignor or any other amount constituting
Collateral shall conspicuously direct that all payments be made to the
Lockbox or such other address as Laurus may direct in writing. If,
notwithstanding the instructions to Account Debtors, any Assignor receives
any payments, such Assignor shall immediately remit such payments to the
Lockbox Service Provider in their original form with all necessary
endorsements. Until so remitted, the Assignors shall hold all such
payments in trust for and as the property of Laurus and shall not
commingle such payments with any of its other funds or property. For the
purpose of this Master Security Agreement, (x) "Accounts" shall mean all
"accounts", as such term is defined in the Uniform Commercial Code as in
effect in the State of New York on the date hereof, now owned or hereafter
acquired by any Assignor and (y) "Account Debtor" shall mean any person or
entity who is or may be obligated with respect to, or on account of, an
Account.
4. The occurrence of any of the following events or conditions shall
constitute an "Event of Default" under this Master Security Agreement:
(a) an Event of Default (as defined in any Document) shall have
occurred and be continuing; and
(b) the loss, theft, substantial damage, destruction, sale or
encumbrance to or of any of the Collateral or the making of any levy,
seizure or attachment thereof or thereon except to the extent:
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(i) such loss is covered by insurance proceeds which are used
to replace the item or repay Laurus; or
(ii) said levy, seizure or attachment does not secure
indebtedness in excess of $100,000 and such levy, seizure or
attachment has been removed or otherwise released within ten (10)
days of the creation or the assertion thereof.
5. Upon the occurrence of any Event of Default and at any time thereafter,
Laurus may declare all Obligations immediately due and payable and Laurus shall
have the remedies of a secured party provided in the Uniform Commercial Code as
in effect in the State of New York, this Agreement and other applicable law.
Upon the occurrence of any Event of Default and at any time thereafter, Laurus
will have the right to take possession of the Collateral and to maintain such
possession on its premises or to remove the Collateral or any part thereof to
such other premises as Laurus may desire. Upon Laurus' request, each of the
Assignors shall assemble or cause the Collateral to be assembled and make it
available to Laurus at a place reasonably designated by Laurus. If any
notification of intended disposition of any Collateral is required by law, such
notification, if mailed, shall be deemed properly and reasonably given if mailed
at least ten (10) business days before such disposition, postage prepaid,
addressed to any Assignor either at such Assignor's address shown herein or at
any address appearing on Laurus' records for such Assignor. Any proceeds of any
disposition of any of the Collateral shall be applied by Laurus to the payment
of all expenses in connection with the sale of the Collateral, including
reasonable attorneys' fees and other legal expenses and disbursements and the
reasonable expense of retaking, holding, preparing for sale, selling, and the
like, and any balance of such proceeds may be applied by Laurus toward the
payment of the Obligations in such order of application as Laurus may elect, and
each Assignor shall be liable for any deficiency. For the avoidance of doubt,
following the occurrence and during the continuance of an Event of Default,
Laurus shall have the immediate right to withdraw any and all monies contained
in any deposit accounts in the name of the Assignor and controlled by Laurus and
apply same to the repayment of the Obligations (in such order of application as
Laurus may elect).
6. If any Assignor defaults in the performance or fulfillment of any of
the terms, conditions, promises, covenants, provisions or warranties on such
Assignor's part to be performed or fulfilled under or pursuant to this Master
Security Agreement, Laurus may, at its option without waiving its right to
enforce this Master Security Agreement according to its terms, immediately or at
any time thereafter and without notice to any Assignor, perform or fulfill the
same or cause the performance or fulfillment of the same for each Assignor's
joint and several account and at each Assignor's joint and several cost and
expense, and the cost and expense thereof (including reasonable attorneys' fees)
shall be added to the Obligations and shall be payable on demand with interest
thereon at the highest rate permitted by law, or, at Laurus' option during the
continuance of an Event of Default, debited by Laurus from any deposit accounts
in the name of the Assignor and controlled by Laurus.
7. Each Assignor appoints Laurus, any of Laurus' officers, employees or
any other person or entity whom Laurus may designate as its attorney, with power
to execute such documents on such Assignor's behalf and to supply any omitted
information and correct patent errors in any documents executed by such Assignor
or on such Assignor's behalf; to file financing statements against such Assignor
covering the Collateral (and, in connection with the filing of any such
financing statements, describe the Collateral as "all assets and all personal
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property, whether now owned and/or hereafter acquired" (or any substantially
similar variation thereof)); to sign such Assignor's name on public records; and
to do all other things Laurus deem necessary to carry out this Master Security
Agreement. Each Assignor hereby ratifies and approves all acts of the attorney
and neither Laurus nor the attorney will be liable for any acts of commission or
omission, nor for any error of judgment or mistake of fact or law other than
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final and non-appealable decision). This power being coupled
with an interest, is irrevocable so long as any Obligations remains unpaid.
8. No delay or failure on Laurus' part in exercising any right, privilege
or option hereunder shall operate as a waiver of such or of any other right,
privilege, remedy or option, and no waiver whatever shall be valid unless in
writing, signed by Laurus and then only to the extent therein set forth, and no
waiver by Laurus of any default shall operate as a waiver of any other default
or of the same default on a future occasion. Laurus' books and records
containing entries with respect to the Obligations shall be admissible in
evidence in any action or proceeding, shall be binding upon each Assignor for
the purpose of establishing the items therein set forth (absent manifest error)
and shall constitute prima facie proof thereof. Laurus shall have the right to
enforce any one or more of the remedies available to Laurus, successively,
alternately or concurrently. Each Assignor agrees to join with Laurus in
executing financing statements or other instruments to the extent required by
the Uniform Commercial Code in form satisfactory to Laurus and in executing such
other documents or instruments as may be required or reasonably deemed necessary
by Laurus for purposes of affecting or continuing Laurus' security interest in
the Collateral.
9. This Master Security Agreement shall be governed by and construed in
accordance with the laws of the State of New York and cannot be terminated
orally. All of the rights, remedies, options, privileges and elections given to
Laurus hereunder shall inure to the benefit of Laurus' successors and assigns.
All of the terms, conditions, promises, covenants, provisions and warranties of
this Agreement shall inure to the benefit of Laurus, any parent of Laurus', any
of Laurus' subsidiaries and any co-subsidiaries of Laurus' parent, whether now
existing or hereafter created or acquired, and shall bind the representatives,
successors and assigns of each Assignor. Laurus and each Assignor hereby (a)
waive any and all right to trial by jury in litigation relating to this
Agreement and the transactions contemplated hereby and each Assignor agrees not
to assert any counterclaim in such litigation, (b) submit to the nonexclusive
jurisdiction of any New York State court sitting in the borough of Manhattan,
the city of New York and (c) waive any objection Laurus or each Assignor may
have as to the bringing or maintaining of such action with any such court.
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10. It is understood and agreed that any person or entity that desires to
become an Assignor hereunder, or is required to execute a counterpart of this
Master Security Agreement after the date hereof pursuant to the requirements of
any Document, shall become an Assignor hereunder by (x) executing a Joinder
Agreement in form and substance reasonably satisfactory to Laurus, (y)
delivering supplements to such exhibits and annexes to such Documents as Laurus
shall reasonably request and (z) taking all actions as specified in this
Agreement as would have been taken by such Assignor had it been an original
party to this Agreement, in each case with all documents required above to be
delivered to Laurus and with all documents and actions required above to be
taken to the reasonable satisfaction of Laurus.
11. All notices from Laurus to any Assignor shall be sufficiently given if
mailed or delivered to such Assignor's address set forth below, with a copy to
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Xxxx X. Xxxxxxx, Esq.
Very truly yours,
eLEC COMMUNICATIONS CORP.
By: /s/ Xxxx X. Xxxx
----------------------------------
Name: Xxxx X. Xxxx
Title: Chief Executive Officer
Address: 00 Xxxxx Xxxxxxxx, Xxxxx 000,
Xxxxx Xxxxxx, XX 00000
Facsimile: 000-000-0000
NEW XXXXXXXX TELEPHONE CORP.
By: /s/ Xxxx X. Xxxx
----------------------------------
Name: Xxxx X. Xxxx
Title: President
Address: 00 Xxxxx Xxxxxxxx, Xxxxx 000,
Xxxxx Xxxxxx, XX 00000
Facsimile: 000-000-0000
TELECARRIER SERVICES, INC.
By: /s/ Xxxx X. Xxxx
----------------------------------
Name: Xxxx X. Xxxx
Title: President
Address: 00 Xxxxx Xxxxxxxx, Xxxxx 000,
Xxxxx Xxxxxx, XX 00000
Facsimile: 000-000-0000
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VOX COMMUNICATIONS CORP.
By: /s/ Xxxx X. Xxxx
----------------------------------
Name: Xxxx X. Xxxx
Title:Chief Executive Officer
Address: 00 Xxxxx Xxxxxxxx, Xxxxx 000,
Xxxxx Xxxxxx, XX 00000
Facsimile: 000-000-0000
AVI HOLDING CORP.
By: /s/ Xxxx X. Xxxx
----------------------------------
Name: Xxxx X. Xxxx
Title: President
Address: 00 Xxxxx Xxxxxxxx, Xxxxx 000,
Xxxxx Xxxxxx, XX 00000
Facsimile: 000-000-0000
XXXXXXXXXXXXX.XXX CORP.
By: /s/ Xxxx X. Xxxx
----------------------------------
Name: Xxxx X. Xxxx
Title:President
Address: 00 Xxxxx Xxxxxxxx, Xxxxx 000,
Xxxxx Xxxxxx, XX 00000
Facsimile: 000-000-0000
LINE ONE, INC.
By: /s/ Xxxx X. Xxxx
----------------------------------
Name: Xxxx X. Xxxx
Title: President
Address: 00 Xxxxx Xxxxxxxx, Xxxxx 000,
Xxxxx Xxxxxx, XX 00000
Facsimile: 000-000-0000
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ACKNOWLEDGED:
LAURUS MASTER FUND, LTD.
By:/s/ Xxxxxx Grin
-----------------------------------
Name: Xxxxxx Grin
Title: Director
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SCHEDULE A
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Jurisdiction of Organization
Entity Organization Identification Number
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[Assignors]
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[COMPANY TO COMPLETE]
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