SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made and entered into as of April 14, 1998,
by and among I-LINK SYSTEMS, INC., a Utah corporation with its principal
place of business at 00000 Xxxxx Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000, Xxxxxx,
XX 00000 ("Systems"), I-LINK COMMUNICATIONS, INC., a Utah corporation, with
its principal place of business at 00000 Xxxxx Xxxxxxxxx Xxxx Xxxxx, Xxxxx
000, Xxxxxx, XX 00000 ("Communications"), MIBRIDGE, INC., a Utah
corporation, with its principal place of business at 00000 Xxxxx Xxxxxxxxx
Xxxx Xxxxx, Xxxxx 000, Xxxxxx, XX 00000 ("MiBridge"), I-LINK WORLDWIDE,
L.L.C., a Delaware limited liability company, with its principal place of
business at 00000 Xxxxx Xxxxxxxxx Xxxx Xxxxx, Xxxxx 000, Xxxxxx, XX 00000
("Worldwide" and together with Systems, Communications and MiBridge,
collectively, the "Debtors" and individually, a "Debtor"), and WINTER
HARBOR, L.L.C., a Delaware limited liability company with its principal
place of business at 00000 Xxxxxxxx Xxxx, Xxxxxxx, Xxxxxxxx 00000 (the
"Secured Party").
RECITALS
A. I-Link Incorporated, a Florida corporation (the "Company"), owns
all of the issued and outstanding shares of the capital stock of each of
Systems, Communications and MiBridge and all of the issued and outstanding
limited liability company interests of Worldwide. The Secured Party has
lent to the Company $5,768,000 in four installments on a demand loan basis
(three of which are evidenced by demand promissory notes (the "Notes")),
which installments were made on January 26, 1998, February 23, 1998, March
3, 1998, and March 24, 1998 (collectively, the "Loans"). The Company has
requested that the Secured Party not demand payment on the Loans before the
earlier of May 15, 1998, and the date on which the Company consummates a
loan transaction with another lender or consummates the sale of any debt or
equity securities, in either case in an amount yielding net cash proceeds
to the Company of not less than $6,000,000 (the earlier of such dates being
referred to hereinafter as the "Demand Date"). The Company and the Secured
Party have entered into an Agreement dated as of even date herewith (as the
same may be extended, amended, restated or modified from time to time, the
"Agreement"), which is hereby incorporated herein by this reference,
pursuant to which the Secured Party has agreed to such request. All
capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to such terms in the Agreement. The proceeds of the
Loans have been provided to the Guarantors for the acquisition of assets,
for capital expenditures and for working capital purposes.
B. The Debtors have guaranteed the Loans and the obligations of the
Company under the Agreement pursuant to the terms of a Subsidiary Guaranty
dated as of even date herewith (the "Guaranty").
C. The Company and the Debtors share an identity of interests as
members of a consolidated group of companies engaged in substantially
similar businesses. The Company provides certain centralized financial,
accounting and management services to the Debtors, and the Lender's
extensions of credit to the Borrower have facilitated the expansion and
will enhance the overall financial strength and stability of the Company's
consolidated group, including the Debtors. Accordingly, the
Debtors will derive substantial benefits as a result of the Lender's
extensions of credit to the Company, which benefits are hereby acknowledged
by the Debtors, and the Debtors, therefore, desire to enter into this
Security Agreement.
AGREEMENTS
In consideration of the foregoing Recitals, and of the Lender's
agreement not to make demand on the Loans until the Demand Date, which will
be of material economic benefit to the Debtors, the Debtors and the Secured
Party agree as follows:
1. GRANT OF SECURITY INTEREST. In order to secure the payment and
performance of all of the obligations of the Debtors under the Guaranty and
the payment and performance of the Loans and of all of the obligations of
the Company to the Secured Party under the Agreement, plus interest accrued
thereon (being hereinafter collectively referred to as the "Obligations"),
the Debtors hereby grant to the Secured Party a first priority perfected
security interest in all of their respective right, title and interest in
and to all of their personal property, both tangible and intangible and of
every kind and description, whether now or hereafter existing, or now owned
or hereafter acquired, and wherever located, and all proceeds, products,
replacements, additions, accessions and/or substitutes therefor, including,
without limitation, all goods, machinery, equipment, furniture,
furnishings, fixtures, inventory, accounts, chattel paper, instruments and
general intangibles, as such terms may be defined in the Uniform Commercial
Code in the jurisdiction in which such assets are located (other than
equipment leased to any Debtor and any leases which by their terms prohibit
the grant of security interests in, or assignments of, such Debtor's
leasehold interest therein), and the proceeds and products of any and all
of the foregoing assets and properties described in this Section 1,
including proceeds of insurance policies relating to any and all of the
foregoing assets and properties. All of the foregoing shall be hereinafter
referred to as the "Collateral."
2. WARRANTIES AND COVENANTS OF THE DEBTORS. Each of the Debtors
represents, warrants and covenants that:
(a) the Collateral (and all records pertaining thereto) will at
all times be kept in their current locations and no Debtor will change the
location at which any of the Collateral is usually kept or the location of
its chief executive office or principal place of business without giving
thirty days prior written notice to the Secured Party;
(b) The Debtors own and have possession of the Collateral;
(c) all the Collateral is genuine and enforceable and free from
material liens, adverse claims, charges, encumbrances, taxes or
assessments, other than the liens created hereby, and the Debtors shall
defend the same against all claims and demands of all persons at any time
claiming against the same or any interests therein adverse to the Secured
Party;
(d) all items of the Collateral comply with applicable laws,
including, where applicable, Federal Reserve Regulations and any state
consumer credit and usury laws;
(e) no financing statement covering any of the Collateral, and
naming any secured party other than the Secured Party, is on file in any
public office;
(f) The Debtors will, at their sole cost and expense, maintain,
replace, repair, service and take other action as may be necessary from
time to time to keep and preserve their inventory, machinery and equipment
in general repair and good working order and any inventory, machinery or
equipment which wears out or is destroyed will be replaced or restored if
necessary for the operation of the businesses of any of the Debtors in the
ordinary course. The Debtors will within 10 days notify the Secured Party
of any event comprising significant loss or decrease in the value of the
Collateral in excess of $5,000;
(g) The Debtors will comply with all laws, rules and regulations
relating to, and shall pay prior to delinquency, all license fees,
registration fees, taxes and assessments and all other charges, which may
be levied upon or assessed against, or which may become security interests,
liens or other encumbrances upon the ownership, operation, possession or
maintenance of the Collateral; provided that no Debtor shall be required to
comply with any such law, rule or regulation or to pay any such tax or
assessment or other such charge, the validity of which is being contested
by any Debtor in good faith by appropriate proceedings commenced and
prosecuted with due diligence and with respect to which adequate reserves
have been established and are being maintained in accordance with generally
accepted accounting principles;
(h) The Debtors will execute and at their expense file and
refile such financing statements, continuation statements and other
documents in such offices as the Secured Party may deem necessary or
appropriate in order to protect or preserve the Secured Party's security
interest in the Collateral;
(i) No Debtor will sell, offer to sell, hypothecate or otherwise
dispose of any material part of the Collateral (including proceeds) subject
hereto, or any part thereof or interest therein at any time other than in
the ordinary course of business and in exchange for Collateral of like
value in which the Secured Party shall have a security interest;
(j) The Debtors will at all times keep accurate records with
respect to the Collateral which are as complete and comprehensive as those
which are customarily maintained by those engaged in similar businesses,
and the Secured Party will have the right to inspect such records at such
times and from time to time as the Secured Party may reasonably request;
(k) The Debtors will provide any service and do any other acts
or things necessary to keep the Collateral free and clear of all defenses,
rights of offset and counterclaims; the Secured Party may, at any time
prior to termination hereof, require the Debtors from time to time to
deliver to the Secured Party (i) schedules describing all the Collateral
subject hereto and (ii) instruments and chattel paper included in the
Collateral, appropriately assigned and endorsed to the Secured Party;
(l) The Debtors will maintain insurance on the Collateral in
accordance with sound business practice. In the event of failure to
provide and maintain insurance as herein provided, the Secured Party may,
at its option, provide such insurance and the Debtors hereby promise to pay
the Secured Party on demand the amount of any disbursements made by the
Secured Party for such purpose. Risk of loss or damage shall accrue to the
Debtors to the extent of any deficiency in any effective insurance. The
Debtors shall furnish to the Secured Party certificates or other evidence
satisfactory to the Secured Party of compliance with the foregoing
insurance provisions. The Debtors shall give immediate written notice to
the Secured Party and to the insurers of any loss or damage to the
Collateral or any part thereof in excess of $5,000 and shall promptly file
all necessary or appropriate proof of loss with the insurers. Any amounts
collected or received under any such insurance policies may be applied by
the Debtors either to the replacement or restoration of the Collateral or
to any of the Obligations secured hereby in the manner provided in Section
7 hereof; and
(m) The Debtors shall not change their respective names,
identity or corporate or limited liability company structure, voluntarily
or involuntarily.
3. AUTHORITY TO COLLECT. Except as otherwise hereinafter set forth,
unless and until the Company fails to pay the outstanding principal amount
and accrued interest under the Loans in full in cash on the Demand Date
("Event of Default"), the Debtors shall continue to collect, and upon the
occurrence of such an event, the Debtors may, at the direction of the
Lender, continue to collect, at their own expense, all amounts due and to
become due under any accounts, chattel paper, instruments or general
intangibles and in connection therewith may take such action as they may
deem necessary, advisable, convenient or proper for the enforcement,
collection, adjustment, settlement or compromise thereof.
4. REMEDIES. Upon the occurrence of an Event of Default, the
Secured Party shall have the right to declare immediately due and payable
all of the Obligations, without other notice or demand. The Secured Party
shall have all the rights and remedies of a secured party under the
Uniform Commercial Code and all other rights, privileges, powers and
remedies provided by law or equity.
Without limiting the generality of the foregoing, after the occurrence
of an Event of Default:
(a) the Secured Party shall have the power to notify the account
debtor or debtors obligated under any accounts, chattel paper, instruments
and general intangibles of the assignment of such accounts, chattel paper,
and general intangibles to the Secured Party and of its security interest
therein and to direct such account debtor or debtors to make payment of all
amounts due or to become due to any Debtor thereunder directly to the
Secured Party and, upon such notification to the account debtor or debtors,
to enforce collection of any thereof in the same manner and to the same
extent as any Debtor might have done. The funds so collected shall be held
as security for the payment of the Obligations secured hereby and applied
in the manner provided in Section 7 hereof.
The Debtors hereby constitute and appoint the Secured Party as their
true and lawful attorney, in the place and stead of the Debtors and with
full power of substitution, either in the Secured Party's own name or in
the name of any Debtor, to ask for, demand, collect, receive and give
acquittance for any and all monies due or to become due under and by virtue
of any account, chattel paper, instruments and general intangibles, to
endorse checks, drafts, orders and other instruments for the repayment of
monies payable to any Debtor on account thereof, and to settle, compromise,
prosecute or defend any action, claim or proceeding with respect thereto
and to sell, assign, pledge, transfer and make any agreement respecting, or
otherwise deal with, the same; provided, however, that nothing herein
contained shall be construed as requiring or obligating the Secured Party
to make any demand, or to make any inquiry as to the nature or sufficiency
of any payment received by it, or to present or file any claim or notice or
to take any action with respect to any account, chattel paper, instruments
or general intangible or the monies due or to become due thereunder or the
property covered thereby, and no action taken or omitted to be taken by the
Secured Party with respect to any account, chattel paper, instruments or
general intangible shall give rise to any defense, counterclaim or set off
in favor of any Debtor or to any claim or action against the Secured Party;
(b) The Debtors will deliver to the Secured Party from time to
time, as requested by the Secured Party, current lists of the Collateral;
(c) No Debtor will dispose of the Collateral, except on terms
approved in writing by the Secured Party;
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(d) The Debtors will collect, assemble and deliver all of the
Collateral and books and records pertaining thereto, to the Secured Party
at a reasonably convenient place designated by the Secured Party; and
(e) the Secured Party may, to the extent permitted by law, enter
onto any Debtor's premises and take possession of the Collateral, and
assign, sell, lease or otherwise dispose of any Debtor's interests in the
Collateral for the account of any Debtor and the Debtors shall then be
liable for the difference between the payments and other amounts due under
the Agreement and amounts received pursuant to such assignment or contract
of sale or lease or other disposition of any Debtor's interests in the
Collateral and the amount of such difference shall then be immediately due
and payable. The Secured Party may, in its sole discretion, designate a
custodian or agent to take physical possession of the Collateral. The
Secured Party shall give the Debtors reasonable notice of the time and
place of any public sale of the Collateral or the time after which any
private sale or other intended disposition thereof is to be made. The
requirement of reasonable notice shall be met if notice of the sale or
other intended disposition is mailed, by first class mail, postage prepaid,
to the Debtors at their respective addresses set forth in Section 15 hereof
or such other address as the Debtors may by notice have furnished the
Secured Party in writing for such purpose, at least fifteen days prior to
the time of such sale or other intended disposition.
Each purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of any Debtor, and the
Debtors hereby waive (to the extent permitted by law) all rights of
redemption, stay and/or appraisal which they now have or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted.
5. POWERS OF THE SECURED PARTY. The Debtors appoint the Secured
Party their true attorney in fact to perform any of the following powers,
which are coupled with an interest, and are irrevocable until termination
of this Security Agreement and may be exercised by the Secured Party's
officers and employees, or any of them, upon the occurrence of an Event of
Default hereunder:
(a) to perform any obligation of any Debtor hereunder in such
Debtor's respective name or otherwise;
(b) to give notice of the Secured Party's rights in the
Collateral, to enforce the same, and make extension agreements with respect
thereto;
(c) to release persons liable on the Collateral and to give
receipts and acquittance and compromise disputes in connection
therewith;
(d) to release security;
(e) to resort to security in any order;
(f) to prepare, execute, file, record or deliver notes,
assignments, schedules, designation statements, financing statements,
continuation statements, termination statements, statements of assignment
and applications or registration or like papers to perfect, preserve or
release the Secured Party's interest in the Collateral;
(g) to verify facts concerning the Collateral by inquiry of
obligors thereon, or otherwise;
(h) to endorse, collect, deliver and receive payment under
instruments for the payment of money constituting or relating to
Collateral;
(i) to prepare, adjust, execute, deliver and receive payment
under insurance claims;
(j) to exercise all rights, powers and remedies which any Debtor
would have, but for this Security Agreement, under all of the Collateral
subject to this Security Agreement; and
(k) to do all acts and things and execute all documents in the
names of any Debtor or otherwise, deemed by the Secured Party as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
6. REMITTANCES. The Debtors agree that upon the occurrence and
during the continuance of an Event of Default all cash or proceeds received
by any Debtor as a result of the sale, lease or other disposition of any
Collateral, whether received by any Debtor in the exercise of its
collection rights hereunder or otherwise, shall be, at Secured Party's
discretion, remitted to the Secured Party or deposited to an account for
the beneit of the Secured Party (according to its instructions) in the
form received (properly endorsed to the order of the Secured Party or for
collection in accordance with the Secured Party's instructions) not later
than the banking business day following the day of receipt, to be held as
security for the payment of the Obligations secured hereby and applied by
the Secured Party as provided in Section 7 hereof. The Debtors agree not
to commingle any such collections or proceeds with any of its other funds
or property and agree to hold the same upon an express trust for the
Secured Party until remitted to the Secured Party.
7. APPLICATION OF PROCEEDS. Except as expressly provided elsewhere
in this Security Agreement, all proceeds of the sale of the Collateral by
the Secured Party hereunder, and all other monies received by the Secured
Party pursuant to the terms of this Security Agreement (whether through
the exercise by the Secured Party of its rights of collection or
otherwise), including, but not limited to, any awards or other amounts
payable upon any condemnation or taking by eminent domain, shall be
applied, as promptly as is practicable after the receipt thereof by the
Secured Party as follows:
FIRST: to the payment of all fees and expenses incurred by the Secured
Party or any custodian appointed hereunder, if not previously paid by any
Debtor, and all expenses incurred by the Secured Party in connection with
any sale of the Collateral, including, but not limited to, the expenses of
taking, advertising, processing, preparing and storing the Collateral to be
sold, all court costs and fees and expenses of counsel to the Secured Party
in connection therewith, to the payment of all expenses to be paid by any
Debtor pursuant to Section 16 of this Security Agreement, and to the
payment of all amounts for which the Secured Party is entitled to
indemnification hereunder and all advances made by the Secured Party
hereunder to the account of any Debtor and the payment of all costs and
expenses paid or incurred by the Secured Party in connection with the
exercise of any right or remedy hereunder, to the extent that such
advances, costs and expenses shall not theretofore have been reimbursed to
the Secured Party by any Debtor;
SECOND: to the payment to the Secured Party of the interest then due
and payable on the Loans;
THIRD: to the payment to the Secured Party of the principal then due
and payable on the Loans;
FOURTH: to the payment to the Secured Party of any other amount owing
to the Secured Party under the Agreement and any other documents related
thereto or under any other agreement of the Company or any Debtor with the
Secured Party; and
FIFTH: only if all of the foregoing have been paid in full, to the
Debtors.
Notwithstanding the sale or other disposition of any Collateral by the
Secured Party hereunder, the Debtors, jointly and severally, shall remain
liable for any deficiency.
8. RIGHTS CUMULATIVE. The rights, privileges, powers and remedies
of the Secured Party shall be cumulative and no single or partial exercise
of any of them shall preclude the further or other exercise of the same or
any other of them. No delay or failure of the Secured Party in exercising
any right, power, privilege or remedy hereunder shall affect such right,
power, privilege or remedy. No single or partial exercise of any right,
power, privilege or remedy or any abandonment or discontinuance of steps to
enforce such right, power, privilege or remedy shall affect such right,
power, privilege or remedy. Any waiver, permit, consent or approval of any
kind by the Secured Party of any default hereunder, or any such waiver of
any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing and shall not constitute
a waiver of any subsequent or other default. Failure of the Secured Party
to insist upon strict performance or compliance by any Debtor of any
covenants, warranties or agreements in this Security Agreement shall not
constitute a waiver of any subsequent or other failure to perform or comply
with any covenants, warranties or agreements.
9. CONTINUING AGREEMENT. This is a continuing agreement and shall
remain in full force and effect and be binding upon the Debtors and the
successors and assigns of the Debtors until all of the Obligations shall
have been fully satisfied and discharged.
10. REINSTATEMENT OF AGREEMENT. If the Secured Party shall have
proceeded to enforce its rights under this Security Agreement and such
proceedings shall have been discontinued or abandoned for any reason prior
to the issuance of any judgment or award, then the Debtors and the Secured
Party shall be restored respectively to their positions and rights
hereunder, and all rights, remedies and powers of the Debtors and the
Secured Party shall continue as though no such proceeding had been
initiated. In the event of litigation arising under this Security
Agreement, the prevailing party shall be entitled to, in addition to all
other damages and remedies, reasonable attorneys' fees.
11. ASSIGNMENT. The Secured Party may assign and transfer any of the
Obligations of the Debtors and may deliver the Collateral, or any part
thereof, to the assignee or transferee of any such obligation, who shall
become vested with all the rights, remedies, powers, security interests and
liens herein granted to the Secured Party in respect thereto; and the
Secured Party shall thereafter be relieved and fully discharged from any
liability or obligation under this Security Agreement. No Debtor shall
have the right to assign this Security Agreement without the prior written
consent of the Secured Party.
12. DUTIES WITH RESPECT TO COLLATERAL. With respect to the
Collateral, the Secured Party shall be under no duty to send notices,
perform services, pay for insurance, taxes or other charges or take any
action of any kind in connection with the management thereof and its only
duty with respect thereto shall be to use reasonable care in its custody
and preservation while in its possession, which shall not include any steps
necessary to preserve rights against prior parties.
13. PERFORMANCE OF OBLIGATIONS BY THE SECURED PARTY. If any Debtor
shall fail to do any act or thing which it has covenanted to do hereunder,
or if any representation or warranty of any Debtor shall be breached, the
Secured Party may (but shall not be obligated to) perform such act or
thing on behalf of any Debtor or cause it to be done or remedy any such
breach, and there shall be added to the liabilities of the Debtors
hereunder the cost or expense incurred by the Secured Party in so doing,
and any and all amounts expended by the Secured Party in taking any such
action shall be repayable to it upon demand being made to the Debtors
therefore and shall bear interest at the rate provided for in the Notes,
from and including the date advanced to the date of repayment.
14. MISCELLANEOUS. After due consideration and consultation with
their attorneys, the Debtors voluntarily and knowingly, to the extent
permitted by law, agree as follows: (a) the Debtors waive presentment,
protest, notice of protest, notice of dishonor and notice of nonpayment
with respect to the Collateral to which the Secured Party is entitled
hereunder; (b) the Debtors waive any right to direct the application of
payments or security for the Obligations of the Debtors hereunder, or the
indebtedness of customers of any Debtor, and any right to require
proceedings against others or to require exhaustion of the security; (c)
the Debtors consent to the extension or forbearance of the terms of the
Obligations or indebtedness of customers, the release or substitution of
security, and the release of guarantors, if any; and (d) the Debtors waive
notice or a judicial hearing prior to the exercise by the Secured Party of
any right or remedy provided by this Security Agreement and also waive
their rights, if any, to set aside or invalidate any sale duly consummated
in accordance with the provisions of this Security Agreement on the grounds
that the sale was consummated without a prior judicial hearing.
15. NOTICES. All notices or demands of any kind which may be
required or which the Secured Party desires to serve upon any Debtor under
the terms of this Security Agreement shall be served upon such Debtor by
personal service or by mailing a copy thereof by first class mail, postage
prepaid, addressed to such Debtor, at the respective addresses set forth in
Section 11.1 of the Agreement with the respective addresses of the Debtors
being the address of the Company in the Agreement. Service by mail shall
be determined to be effective when deposited in the mails.
16. EXPENSES. The Debtors agree to pay on demand all fees, costs and
expenses of the Secured Party, or of any custodian or agent designated by
the Secured Party, including the fees and out-of-pocket expenses of legal
counsel, independent public accountants and other outside experts retained
by the Secured Party in connection with the negotiation, administration or
enforcement of this Security Agreement or any other instrument or document
delivered pursuant hereto.
17. LAW APPLICABLE. This Security Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware other than
the conflicts of law provisions thereof.
18. SEVERABILITY OF PROVISIONS. If any provision of this Security
Agreement shall be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or any remaining provisions of this Security Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed as of the day and year first written above.
WINTER HARBOR, L.L.C.
By: First Media, L.P.
its General Manager/Member
By: First Media Corporation
its sole General Partner
By: /s Xxxxx X. Xxxxx
Name: Xxxxx X. Xxxxx
Title: Secretary
I-LINK COMMUNICATIONS, INC.
By: /s Xxxx Xxxxxxx
Xxxx Xxxxxxx, President
I-LINK SYSTEMS, INC.
By: /s Xxxx Xxxxxxx
Xxxx Xxxxxxx, President
MIBRIDGE, INC.
By: /s Xxxx Xxxxxxx
Xxxx Xxxxxxx, President
I-LINK WORLDWIDE, L.L.C.
By: I-Link Incorporated, its member
By: /s Xxxx Xxxxxxx
Xxxx Xxxxxxx, President
