EXHIBIT 10.42
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made and entered into as of
July 31, 1998 by and among EQUALNET COMMUNICATIONS CORP., a Texas corporation
(individually, "Parent"), USE TELECOM, INC., a Delaware corporation, NETCO
ACQUISITION CORP., a Delaware corporation, and EQUALNET CORPORATION, a Delaware
corporation (collectively "Debtors"), each with its principal place of business
located at 0000 Xxxx Xxxxxx Xxxx Xxxxx, Xxxxxxx, XX 00000, and each of XXXXXX
GROUP, LLC (herein "Willis"), a Texas limited liability company, with its
principal place of business located at 0000 Xxxxxxx, Xxxxx 000, Xxxxxxx, XX
00000, GENESEE FUND LIMITED - PORTFOLIO B (herein "Genesee" and, together with
Xxxxxx, the "Creditors"), a British Virgin Islands corporation, with its
principal place of business located at 00000 X.X. 0xx Xxxxxx, Xxxxx 0000,
Xxxxxxxx, Xxxxxxxxxx 00000-0000.
WHEREAS, pursuant to that Master Purchase Agreement (the "Master
Purchase Agreement") of even date herewith, by and among, among others, Parent
and the Creditors, the Creditors have agreed to make certain advances to Parent;
and
WHEREAS, the Creditors are willing to make such advances but only upon
the condition, among others, that each of the Debtors shall have executed and
delivered to the Creditors this Security Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Debtors hereby sell, assign, transfer and grant a security
interest to secure the Obligations (as herein defined) of Parent in the
following described collateral, and all products and proceeds thereof (the
"Collateral") to the Creditors:
(a) Debtors' existing and hereafter acquired equipment, furniture,
contract rights and customer contracts;
(b) all general intangibles (as defined in the Texas Uniform
Commercial Code) relating to the Collateral;
(c) all insurance policies relating to the Collateral;
(d) all liens, guaranties and other rights and privileges relating
to any of the Collateral; and
(e) all books, ledgers, books of account, records, writings, data
bases, information and other property relating to, used or useful in
connection with, evidencing, embodying, incorporating or referring to any
of the foregoing.
Debtors represent and warrant to Creditors that the Collateral is free
and clear of any claims, encumbrances, restrictions or security interests except
for the security interests held by RFC Capital Corporation, (fka Receivable
Funding Corporation), Greyrock Business Credit, Finova Capital Corporation,
Netco, LLC, Frontier Communications of the West, Inc. and Xxxxxx Group, LLC.
2. This security interest is granted to Creditors as security for the
following obligations (the "Obligations"):
(a) The full and prompt payment when due of all obligations and
liabilities of the Parent pursuant to the Transaction Agreements (as
defined in the Master Purchase Agreement) and the due performance and
compliance with the terms contained therein;
(b) any and all other indebtedness, obligations, and liabilities
of any kind of the Debtors to the Creditors, now or hereafter existing,
absolute or contingent, joint and/or several, secured or unsecured, due or
not due, arising by operation of law or otherwise; and
(c) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations or liabilities of the Parent
referred to in clause (a) or (b) after an Event of Default (as defined in
the Transaction Agreements) shall have occurred and be continuing, the
reasonable expenses of re-taking, holding, preparing for sale, selling or
otherwise disposing of or realizing on the Collateral, or of any exercise
by the Creditors of their rights hereunder, together with reasonable
attorneys' fees and court costs.
3. Each Debtor represents that the office where it keeps its records
concerning its customer accounts is at its address specified in the preamble to
this Agreement. Each Debtor will immediately advise the Creditors in writing of
any change in location of the place where its records concerning its accounts
are kept.
4. Upon the occurrence of an Event of Default (as defined in the
Transaction Agreements), or if Parent shall default under any of the Obligations
or any Debtor shall fail to observe or perform any of the provisions of this
Agreement, or upon institution of bankruptcy, insolvency, liquidation or
receivership proceedings or the filing of a petition for reorganization under
the Bankruptcy Code by any Debtor or against any Debtor, or upon an assignment
by any Debtor for the benefit of its creditors or the performance of Obligations
secured hereby impaired, all such Obligations shall become immediately due and
payable without demand or notice, and the Creditors shall have the rights and
remedies of a secured
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party under the Texas Uniform Commercial Code, in addition to any other rights
and remedies provided hereunder or at law or in equity, including, but not
limited to, the right to retain the Collateral in full satisfaction of the
Obligations secured hereby and the right to directly contact any of any Debtors'
billing entities, banking facilities or financial institutions requiring
redirection of funds to the Creditors. The requirements of reasonable notice of
disposition of Collateral by the Creditors shall be met if such notice is
mailed, postage prepaid, to the respective Debtor's address specified in the
preamble to this Agreement at least five (5) days before the time of the sale or
disposition.
5. Any and all proceeds of collection or sale of the Collateral other
than the sale of accounts receivable to RFC Capital Corporation, after payment
of all outstanding senior indebtedness secured by the Collateral and all
reasonable expenses incurred by the Creditors in so doing, including reasonable
attorneys' fees and other expenses, shall be applied to the satisfaction of the
Obligations and other of Parent's liabilities to Creditors on a pro rata basis
determined according to the outstanding amounts of the 6% Senior Secured
Convertible Notes Due 2001 held by each of the Creditors. Each Debtor shall
remain liable for any deficiency. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of the
Debtors, and the Debtors hereby waive and release to the fullest extent
permitted by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshaling the Collateral and any other security for the Obligations or
otherwise, and all rights, if any, of stay and/or appraisal which it now has or
may at any time in the future have under rule of law or statute now existing or
hereinafter enacted. At any such sale, unless prohibited by applicable law, the
Creditors may bid for and purchase all or any part of the Collateral so sold
free from any such right or equity of redemption.
6. Each Debtor agrees to execute such financing statements and
continuations thereof, and such other assignments or other instruments as are
requested by the Creditors to perfect and maintain Creditors' security interest
in the Collateral.
7. Each of the Debtors, as applicable, represents and warrants that
(a) it is the legal, record and beneficial owner of, and has good and marketable
title to, the Collateral described in Section 1 hereof, subject to no pledge,
lien, mortgage, hypothecation, security interest, charge, option or other
encumbrance whatsoever, except the liens and security interests credited by this
Agreement and as stated in Section 1; (b) it has full power, authority and legal
right to pledge all the Collateral pursuant to this Agreement; (c) this
Agreement has been duly executed and delivered by the Debtor and constitutes a
legal, valid and binding obligation of the Debtor enforceable in accordance with
its terms; (d) the execution, delivery and performance of this Agreement will
not violate any provision of any applicable law or regulation or of any order,
judgment, writ, award or decree of any court, arbitrator or governmental
authority, domestic or foreign, or of any securities issued by the Debtor, or of
any mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Debtor is a party or which purports to be binding upon
the Debtor or upon any of its assets and will not result in the creation or
imposition of any lien or encumbrance on any of
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the assets of the Debtor except as contemplated by this Agreement; (e) this
Agreement and the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Debtor; (f) this Agreement
creates, as security for the Obligations, a valid and enforceable lien on and
security interest in all of the Collateral in favor of the Creditors for the
benefit of the Holders (as defined in the Transaction Agreements), subject to no
lien in favor of any other person except as noted in Section 1; and (g) no
consent, filing, approval, registration, recording, or other action is required
(x) for the grant of the security interest by the Debtor in the Collateral
pursuant to this Agreement or for the execution, delivery or performance of this
Agreement by the Debtor, or (y) to perfect the lien purported to be created by
this Agreement, in each case except as has been accomplished. Each Debtor
covenants and agrees that it will defend the Creditors' right, title and
security interest in and to the Collateral and the proceeds thereof against the
claims and demands of all persons whomsoever; and each Debtor covenants and
agrees that it will have like title to and right to pledge any other funds, or
property at any time hereafter pledged to the Creditors as Collateral hereunder
and will likewise defend the right thereto and security interest therein of the
Creditors and the Holders.
8. The laws of the State of Texas shall govern the construction of
this Agreement and the rights, remedies and duties of the parties hereto.
9. The transfer, assignment, conveyance, lease, loss or damage or
other disposition of the Collateral, or any part thereof, whether permitted or
unauthorized under the terms of this Agreement shall not release either Debtor
from any obligation created by this Agreement or the Obligations.
10. Each Debtor hereby irrevocably authorizes and appoints the
Creditors as such Debtor's attorney-in-fact to do any act which such Debtor is
obligated to do under this Agreement, or which is necessary to carry out the
intent of this Agreement. As attorney-in-fact, Creditor may, among other things,
execute, endorse or approve any and all documents, agreements, and/or
instruments pursuant to any applicable law. The parties understand and agree
that this authorization and appointment of the Creditors is solely to enable
Creditors to protect and preserve its rights under this Agreement and the
Transaction Agreements. Each right, power and remedy of the Creditors provided
for in this Agreement or the Transaction Agreements or now or hereafter existing
at law or in equity or by statute shall be cumulative and concurrent and shall
be in addition to every other such right, power or remedy. The exercise or
commencement of the exercise by the Creditors of any one or more of the rights,
powers or remedies provided for in this Agreement or the Transaction Agreements
or now or hereafter existing at law or in equity or by statute or otherwise
shall not preclude the simultaneous or later exercise by the Creditors or any
Holder of all such other rights, powers or remedies, and no failure or delay on
the party of the Creditors or any Holder to exercise any such right, power or
remedy shall operate as a waiver thereof.
11. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the prevailing party shall be entitled
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to recover reasonable attorney's fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
12. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original and, taken together, shall constitute one
and the same instrument.
13. The parties agree to do any and all things and to perform any
and all acts reasonably necessary order to carry out the intent of this
Agreement.
14. This Agreement shall be binding upon and shall inure to the
benefit of the parties and their successors and assigns. This Agreement,
together with the instruments referred to herein, contains the entire
understanding of the parties with respect to the subject matter hereof and may
be amended only by a written instrument executed by the parties or their
respective successors and assigns.
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IN WITNESS WHEREOF, the parties have executed this Security Agreement
as of the date set forth above.
EQUALNET COMMUNICATIONS CORP.
By: /s/ Xxxxxxxx Xxxxxx
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Name: Xxxxxxxx Xxxxxx
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Title: President
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USC TELECOM, INC.
By: /s/ Xxxxxxxx Xxxxxx
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Name: Xxxxxxxx Xxxxxx
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Title: President
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NETCO ACQUISITION CORP.
By: /s/ Xxxxxxxx Xxxxxx
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Name: Xxxxxxxx Xxxxxx
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Title: President
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EQUALNET CORPORATION
By: /s/ Xxxxxxxx Xxxxxx
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Name: Xxxxxxxx Xxxxxx
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Title: President
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XXXXXX GROUP, LLC
By: /s/ Xxxx Xxxxxx
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Name: Xxxx Xxxxxx
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Title: President
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GENESEE FUND LIMITED - PORTFOLIO B
By: /s/ X. X. Xxxxx
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Name: X. X. Xxxxx
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Title: President
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