Exhibit 99.3 -- SECURITY AGREEMENT
IT&E INTERNATIONAL GROUP, INC.
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: October 18, 2004
To Whom It May Concern:
1. To secure the payment of all Obligations (as hereafter defined), IT&E
International Group, Inc., a Nevada corporation (the "Assignor"), 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 the
Assignor, or in which the 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, (x) the Restricted Account (the
"Restricted Account") maintained at North Fork Bank Account Name: IT&E
International Group Account Number: 000-000-0000 referred to in the
Restricted Account Agreement and (y) Lockbox Deposit Accounts, inventory,
equipment, goods, documents, instruments (including, without limitation,
promissory notes), contract rights, general intangibles (including,
without limitation, payment intangibles), chattel paper, supporting
obligations, investment property (including, without limitation, all
equity interests owned by the Assignor), letter-of-credit rights,
trademarks, trademark applications, tradestyles, patents, patent
applications, copyrights and copyright applications in which the Assignor
now has 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 the Assignor wishes to finance the acquisition of
any hereafter acquired equipment and has 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 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 the 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"), or 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, or any other indebtedness, obligations or liabilities of
the 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
existence or extent of collateral therefor, and irrespective of the
allowability, allowance or disallowance of any or all of the Obligations
in any case commenced by or against the Assignor under Xxxxx 00, Xxxxxx
Xxxxxx Code, including, without limitation, obligations or indebtedness
of the 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. The Assignor hereby 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 laws of the State of Nevada, and it will provide Laurus
thirty (30) days' prior written notice of any change in its
jurisdiction of organization;
(b) its legal name, as set forth in its Certificate of Incorporation
(or equivalent organizational document) as amended through the date
hereof, is IT&E International Group, Inc. 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 425-
2282-1, and it will provide Laurus thirty (30) days' prior written
notice of any change in its organizational identification number;
(d) it is the lawful owner of the 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 the Collateral owned by it 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 and (ii) 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 own 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
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 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 $25,000 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 the Collateral in Laurus' name against loss or
damage by fire, theft, burglary, pilferage, loss in transit and
such other hazards as Laurus shall specify in amounts and under
policies by insurers acceptable to Laurus and all premiums thereon
shall be paid by the Assignor and the policies delivered to Laurus.
If the Assignor fails to do so, Laurus may procure such insurance
and the cost thereof shall be promptly reimbursed by the Assignor
and shall constitute Obligations;
(i) it will at all reasonable times upon reasonable notice of at least
24 hours allow Laurus or Laurus' representatives free access to and
the right of inspection of the Collateral;
(j) the 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 Security Agreement or in the
prosecution or defense of any action or proceeding either against
the Assignor or Laurus concerning any matter growing out of or in
connection with this Security Agreement, and/or any of the
Obligations and/or any of the Collateral except to the extent
caused by Laurus' own gross negligence 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,
the Assignor will (x) irrevocably direct all of its present 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 the Assignor (the "Lockboxes") with [Insert
initial Lockbox Bank or such other financial institution accepted by
Laurus in writing as may be selected by the Company (the "Lockbox Bank")
(each such direction pursuant to this clause (x), a "Direction Notice")
and (y) provide Laurus with copies of each Direction Notice. Upon
receipt of such payments, the Lockbox Bank has agreed to deposit the
proceeds of such payments in that certain deposit account maintained at
the Lockbox Bank and evidenced by the account name of IT&E International
Group, Inc. and the account number of 000-000-0000, or such other deposit
accepted by Laurus in writing (the "Lockbox Deposit Account"). On or
prior to the Closing Date, the Company shall and shall cause the Lockbox
Bank to enter into all such documentation acceptable to Laurus pursuant
to which, among other things, the Lockbox Bank 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 and the Lockbox Deposit Account. All of the
Assignor's invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of
any Account of the 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, the Assignor receives any payments,
the Assignor shall immediately remit such payments to the Lockbox Deposit
Account in their original form with all necessary endorsements. Until so
remitted, the Assignor 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 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 the 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 Security Agreement:
(a) any covenant, warranty, representation or statement made or
furnished to Laurus by the Assignor or on the Assignor's behalf was
breached in any material respect or false in any material respect
when made or furnished, as the case may be, and, in the case of a
covenant, if subject to cure, shall not be cured for a period of
thirty (30) days;
(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:
(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 not been removed or otherwise released within ten (10)
days of the creation or the assertion thereof;
(c) the Assignor shall become insolvent, cease operations, dissolve,
terminate its business existence, make an assignment for the
benefit of creditors, suffer the appointment of a receiver,
trustee, liquidator or custodian of all or any part of the
Assignor's property;
(d) any proceedings under any bankruptcy or insolvency law shall be
commenced by the Assignor or if against the Assignor such
proceeding is not dismissed within thirty (30) days;
(e) the Assignor shall repudiate, purport to revoke or fail to perform
any of its obligations under the Note (after passage of applicable
cure period, if any); or
(f) an Event of Default (or similar term) shall have occurred under and
as defined in the Securities Purchase Agreement or any other
Document.
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 Security
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 the
Assignor's premises or to remove the Collateral or any part thereof to
such other premises as Laurus may desire. Upon Laurus' request, the
Assignor shall assemble the Collateral 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) days before such disposition, postage prepaid, addressed to the
Assignor at the Assignor's notice address pursuant to Section 10 hereof.
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 the
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 the Restricted Account or any other 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 the Assignor defaults in the performance or fulfillment of any of the
terms, conditions, promises, covenants, provisions or warranties on the
Assignor's part to be performed or fulfilled under or pursuant to this
Security Agreement, Laurus may, at its option without waiving its right
to enforce this Security Agreement according to its terms, immediately or
at any time thereafter and without notice to the Assignor, perform or
fulfill the same or cause the performance or fulfillment of the same for
the Assignor's account and at the Assignor's 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,
debited by Laurus from the Restricted Account or any other deposit
accounts in the name of any Assignor and controlled by Laurus.
7. The Assignor hereby appoints Laurus, any of Laurus' officers, employees or
any other person or entity whom Laurus may designate as our attorney,
with power to execute such documents in our behalf and to supply any
omitted information and correct patent errors in any documents executed
by the Assignor or on our behalf; to file financing statements against
the Assignor covering the Collateral (and, in connection with the filing
of any such financing statements, describe the Collateral as "all assets
and all personal property, whether now owned and/or hereafter acquired"
(or any substantially similar variation thereof)); and to do all other
things Laurus deems necessary to carry out this Security Agreement. The
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 their 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
shall have the right to enforce any one or more of the remedies available
to Laurus, successively, alternately or concurrently. The 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 deemed necessary by Laurus for purposes
of effecting or continuing Laurus' security interest in the Collateral.
9. This 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 Security Agreement shall inure to the benefit of
each of the foregoing, and shall bind the representatives, successors and
assigns of the Assignor. Each of Laurus and the Assignor hereby (a)
waives any and all right to trial by jury in litigation relating to this
Security Agreement and the transactions contemplated hereby, (b) submits
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 the Assignor or Laurus may have as to the bringing or
maintaining of such action with any such court.
10. All notices from Laurus to the Assignor shall be sufficiently given if
mailed or delivered to the Assignor at its address set forth in the
Securities Purchase Agreement.
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IN WITNESS WHEREOF, the parties have executed this Master Security
Agreement as of the date first written above.
IT&E INTERNATIONAL GROUP, INC. LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx X. Xxxxxxxx By:
-------------------------------- ---------------------------
Name: Xxxxx X. Xxxxxxxx Name:
Title: Chief Executive Officer Title:
Address for Notices:
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Grin
Facsimile: 000-000-0000
