Exhibit 4.3
SECURITY AGREEMENT
1. Identification.
This Security Agreement (the "Agreement"), dated for identification
purposes only July ___, 2001, is entered into by and between iDial Networks,
Inc., a Nevada corporation ("Debtor"), ______________, ______________ (the
"Shareholders") and Laurus Master Fund Ltd. (the "Lender").
2. Recitals.
2.1 The Lender has made a loan to Debtor (the "Loan").
2.2 The Loan is evidenced by a certain Secured Convertible Note in the
principal amount of $750,000 ("Note") and executed by Debtor as the "Borrower"
thereof, for the benefit of Lender as the "Holder" thereof.
2.3 In order to induce Lender to make the Loan, and as security for
Debtor's performance of its obligations under the Note and as security for the
repayment of the Loan and any and all other sums due from Debtor to Lender
whether arising under the Note issued pursuant to a Convertible Note Purchase
Agreement entered into between Debtor and the signatories thereto relating to
the Note (the "Purchase Agreement"), or pursuant to other written instruments
and agreements entered into by the Debtor and Lender, whether before or after
the date hereof, and further specifically including all of the Debtor's
obligations arising under the Note and the Purchase Agreement relating thereto
(collectively, the "Obligations"), Shareholders for good and valuable
consideration, receipt of which is acknowledged, have agreed to grant to the
Lender, a security interest in the Collateral (as such term is hereinafter
defined), on the terms and conditions hereinafter set forth. Such Loans are
specifically made with recourse as to Debtor.
Defined Terms. The following defined terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Inventory and Proceeds.
3. Grant of General Security Interest in Collateral.
3.1 As security for the Obligations, Shareholders hereby grant the Lender a
security interest in the Collateral.
3.2 "Collateral" shall mean all of the following property of the
Shareholders: the common stock of the Debtor as set forth on Schedule A hereto,
together with medallion signature guaranteed stock powers ("Security Shares").
Such additional Collateral shall include, but not be limited to, all the
Shareholders right, title and interest in and to the Security Shares, together
with the proceeds of any sale, exchange, liquidation or other disposition,
whether voluntary or involuntary, and including but not limited to any
securities, Instruments, and all benefits and entitlements evidenced by or
arising out of the Security Shares and all other securities, Instruments and
other property (whether real or personal, tangible or intangible) issued or
accepted in substitution for, or in addition to, the foregoing, and all
dividends, interest, cash, instruments, distributions, income, securities and
any other property (whether real or personal, tangible or intangible) at any
time received, receivable or otherwise distributed in respect of, or in exchange
for, the foregoing, whether now owned or hereafter acquired, and any and all
improvements, additions, replacements, substitutions and any and all Proceeds
arising out of or derived from the foregoing.
3.3 The Lender is hereby specifically authorized to transfer any Collateral
into the name of the Lender and to take any and all action deemed advisable to
the Lender to remove any transfer restrictions affecting the Collateral.
4. Perfection of Security Interest.
The Collateral shall be delivered to the Lender. The Lender shall have
a perfected security interest in the Collateral.
5. Distribution on Liquidation.
5.1 If any sum is paid as a liquidating distribution on or with respect to
the Collateral, Shareholders shall accept same in trust for the Lender and shall
deliver same to the Lender to be applied to the Obligations then due, in
accordance with the terms of the Note.
5.2 Prior to any Event of Default (as defined herein), Shareholders shall
be entitled to exercise all voting power pertaining to any of the Collateral,
provided such exercise is not contrary to the interests of the Lender and does
not impair the Collateral.
6. Further Action By Debtor; Covenants and Warranties.
6.1 Lender at all times shall have a perfected security interest in the
Collateral which shall be prior to any other unperfected interest therein.
Subject to the security interest described herein, Shareholders have and will
continue to have full title to the Collateral free from any liens, leases,
encumbrances, judgments or other claims. Lender's security interest in the
Collateral constitutes and will continue to constitute a first, prior and
indefeasible security interest in favor of Lender. Shareholders will do all acts
and things, and will execute and file all instruments (including, but not
limited to, security agreements, financing statements, continuation statements,
etc.) reasonably requested by Lender to establish, maintain and continue the
perfected security interest of Lender in the Collateral, and will promptly on
demand, pay all costs and expenses of filing and recording, including the costs
of any searches deemed necessary by Lender from time to time to establish and
determine the validity and the continuing priority of the security interest of
Lender, and also pay all other claims and charges that in the opinion of Lender
might prejudice, imperil or otherwise affect the Collateral or its security
interest therein.
6.2 Shareholders will not sell, transfer, assign or pledge those items of
Collateral and Debtor and Shareholders will not allow any such items to be sold,
transferred, assigned or pledged, without the prior written consent of Lender.
Although Proceeds of Collateral are covered by this Security Agreement, this
shall not be construed to mean that Lender consents to any sale of the
Collateral.
6.3 Debtor and Shareholders will, at all reasonable times, allow Lender or
its representatives free and complete access to all of Debtor 's and
Shareholders' records which in any way relate to the Collateral, for such
inspection and examination as Lender deems necessary.
6.4 Debtor and Shareholders, at their sole cost and expense, will protect
and defend this Security Agreement, all of the rights of Lender hereunder, and
the Collateral against the claims and demands of all other parties.
6.5 Debtor and Shareholders will promptly notify Lender of any levy,
distraint or other seizure by legal process or otherwise of any part of the
Collateral, and of any threatened or filed claims or proceedings that might in
any way affect or impair any of the rights of Lender under this Security
Agreement.
6.6 Shareholders, at their own expense, will obtain and maintain in force
insurance policies covering losses or damage to those items of Collateral which
constitute physical personal property, if any. The insurance policies to be
obtained by Shareholders shall be in form and amounts reasonably acceptable to
Lender. Shareholders shall make the Lender a loss payee thereon. Lender is
hereby irrevocably appointed Debtor's and Shareholders' attorney-in-fact to
endorse any check or draft that may be payable to Shareholders, so that Lender
may collect the proceeds payable for any loss under such insurance. The proceeds
of such insurance, less any costs and expenses incurred or paid by Lender in the
collection thereof, shall be applied either toward the cost of the repair or
replacement of the items damaged or destroyed, or on account of any sums secured
hereby, whether or not then due or payable.
6.7 Lender may, at its option, and without any obligation to do so, pay,
perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Debtor, and all amounts expended by
Lender in so doing shall become part of the Obligations secured hereby, and
shall be immediately due and payable by Debtor and Shareholders to Lender upon
demand and shall bear interest at 18% per annum from the dates of such
expenditures until paid.
6.8 Upon the request of Lender, Debtor will furnish within five (5) days
thereafter to Lender, or to any proposed assignee of this Security Agreement, a
written statement in form satisfactory to Lender, duly acknowledged, certifying
the amount of the principal and interest then owing under the Obligations,
whether any claims, offsets or defenses exist against the Obligations or against
this Security Agreement, or any of the terms and provisions of any other
agreement of Debtor securing the Obligations. In connection with any assignment
by Lender of this Security Agreement, Shareholders hereby agree to cause the
insurance policies required hereby to be carried by Shareholders, if any, to be
endorsed in form satisfactory to Lender or to such assignee, with loss payable
clauses in favor of such assignee, and to cause such endorsements to be
delivered to Lender within ten (10) calendar days after request therefore by
Lender.
6.9 The Debtor and Shareholders will, at Debtor's expense, make, execute,
endorse, acknowledge, file and/or deliver to the Lender from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take further steps relating to the
Collateral and other property or rights covered by the security interest hereby
granted, as the Lender may reasonable require.
6.10 Shareholders, each as to himself, represents and warrants that he is
the true and lawful exclusive owner of the Collateral, free and clear of any
liens and encumbrances and acquired the Security Shares for purposes of
calculating the holding period for purposes of Rule 144 under the Securities Act
of 1933 ("Rule 144") on the dates set forth on Schedule A. Shareholders make the
foregoing representation to the Lender and any transfer agent of the Company's
common stock as if originally made to such transfer agent.
6.11 Shareholders hereby agree not to divest themselves of any right under
the Collateral absent prior written approval of the Lender.
6.12 Debtor and Shareholders will cooperate and provide such certificate,
resolutions, representations, legal opinions and all other matters necessary to
facilitate a transfer or sale of any part of the Collateral pursuant to Rule
144. Debtor and Shareholders are unaware of any impediment to the resale of the
security by the Lender pursuant to Rule 144. Debtor and Shareholders will take
no action that would impede or limit the Lender's ability to resell all the
Security Shares pursuant to Rule 144. For so long as any Security Shares are
subject to this Security Agreement, the Shareholders will not sell any security
of the Debtor which sale would be aggregated with sales by the Lender pursuant
to Rule 144. Debtor shall issue written instructions to its transfer agent to
comply with the foregoing sentence. Debtor will not permit the transfer of any
security of the Debtor if such transfer would aggregate for purposes of Rule 144
with sales of the Security Shares by the Lender or any sales of the Security
Shares. Shareholders represent and warrant that they have not sold any security
of the Debtor during the thirty (30) days prior to the date of this Agreement.
7. Power of Attorney.
Shareholders hereby irrevocably constitute and appoint the Lender as
the true and lawful attorney of Debtor and Shareholders, with full power of
substitution, in the place and stead of Debtor and Shareholders and in the name
of Debtor and Shareholders or otherwise, at any time or times, in the discretion
of the Lender, to take any action and to execute any instrument or document
which the Lender may deem necessary or advisable to accomplish the purposes of
this Agreement which Debtor or Shareholders fail to take or fail to execute
within five (5) business days of the Lender's reasonable request therefor. This
power of attorney is coupled with an interest, is irrevocable and shall not be
affected by any subsequent disability or incapacity of Debtor or Shareholders.
8. Performance By The Lender.
If Debtor or Shareholders fail to perform any material covenant,
agreement, duty or obligation of Debtor or Shareholders under this Agreement,
the Lender may, at any time or times in its discretion, take action to effect
performance of such obligation. All reasonable expenses of the Lender incurred
in connection with the foregoing authorization shall be payable by Debtor and
Shareholders as provided in Paragraph 12.1 hereof. No discretionary right,
remedy or power granted to the Lender under any part of this Agreement shall be
deemed to impose any obligation whatsoever on the Lender with respect thereto,
such rights, remedies and powers being solely for the protection of the Lender.
9. Event of Default.
An event of default ("Event of Default") shall be deemed to have
occurred hereunder upon the occurrence of any event of default as defined in the
Note or Purchase Agreement. Upon and after any Event of Default, after the
applicable cure period, if any, any or all of the Obligations shall become
immediately due and payable at the option of the Lender, for the benefit of the
Lender, and the Lender may dispose of Collateral as provided below. A default by
Debtor or Shareholders of any of their obligations pursuant to this Agreement
including but not limited to the obligations set forth in Section 6 of this
Agreement, or a misrepresentation by Debtor or Shareholders of a material fact
stated herein, shall be deemed an Event of Default hereunder and an event of
default as defined in the Obligations.
10. Disposition of Collateral.
10.1 Upon and after any Event of Default which is then continuing,
(a) The Lender may exercise its rights with respect to each and
every component of the Collateral, without regard to the
existence of any other security or source of payment for the
Obligations or any other component of the Collateral. In
addition to other rights and remedies provided for herein or
otherwise available to it, the Lender shall have all of the
rights and remedies of a lender on default under the Uniform
Commercial Code then in effect in the State of New York.
(b) If any notice to Shareholders of the sale or other disposition
of Collateral is required by then applicable law, five (5)
days' prior notice (or, if longer, the shortest period of time
permitted by then applicable law) to Shareholders of the time
and place of any public sale of Collateral or of the time
after which any private sale or any other intended disposition
is to be made, shall constitute reasonable notification.
(c) The Lender is authorized, at any such sale, if the Lender
deems it advisable to do so, in order to comply with any
applicable securities laws, to restrict the prospective
bidders or purchasers to persons who will represent and agree,
among other things, that they are purchasing the Collateral
for their own account for investment, and not with a view to
the distribution or resale thereof, or otherwise to restrict
such sale in such other manner as the Lender deems advisable
to ensure such compliance. Sales made subject to such
restrictions shall be deemed to have been made in a
commercially reasonable manner.
(d) All cash proceeds received by the Lender in respect of any
sale, collection or other enforcement or disposition of Collateral, shall be
applied (after deduction of any amounts payable to the Lender pursuant to
Paragraph 12.1 hereof) against the Obligations. Upon payment in full of all
Obligations, Shareholders shall be entitled to the return of all Collateral,
including cash, which has not been used or applied toward the payment of
Obligations or used or applied to any and all costs or expenses of the Lender
incurred in connection with the liquidation of the Collateral (unless another
person is legally entitled thereto). Any assignment of Collateral by the Lender
to Shareholders shall be without representation or warranty of any nature
whatsoever and wholly without recourse. The Lender may purchase the Collateral
and pay for such purchase by offsetting any sums owed to such Lender by Debtor
or Shareholders arising under the Obligations or any other source.
(e) No exercise by the Lender of any right hereby given it, no
dealing by the Lender with Debtor, Shareholders or any other person, and no
change, impairment or suspension of any right or remedy of the Lender shall in
any way affect any of the obligations of Debtor or Shareholders hereunder or any
Collateral furnished by Shareholders or give Debtor or Shareholders any recourse
against the Lender.
10.2 The Security Shares shall be released to the Shareholders upon the
sooner of (i) complete satisfaction of the Obligations, or (ii) the timely
compliance by the Debtor of its registration obligations set forth in Section
9.1(d) of the Purchase Agreement. Notwithstanding anything contained in this
Security Agreement, or in the Purchase Agreement to the contrary, the Security
Shares that have not been released pursuant to this Security Agreement shall be
released and returned promptly to the Shareholders upon the effectiveness of the
SB-2 registration statement required to be filed by the Company pursuant to
Section 9.1(d) of the Purchase Agreement, provided that no Event of Default has
occurred, otherwise the Security Shares shall remain subject to this Agreement
until the complete satisfaction of the Obligations.
10.3 The Shareholders collectively may substitute with the Lender prior to
the occurrence of an Event of Default a sum of money equal to the greater of (i)
the Mandatory Payment as defined in Section 8.2 of the Purchase Agreement, or
(ii) all sums due, payable or accruing on the Obligations through the Maturity
Date of the Note as substitute Collateral and receive the Security Shares in
lieu thereof. Said sum of money will be held as Collateral pursuant to this
Security Agreement, and shall be deposited in an interest bearing account for
the benefit of the Shareholders provided each of the Shareholders provide to the
Lender a taxpayer identification number and other documents reasonably requested
by Lender.
11. Waiver of Automatic Stay. The Debtor and Shareholders acknowledge and agree
that should a proceeding under any bankruptcy or insolvency law be commenced by
or against the Debtor or Shareholders, or if any of the Collateral (as defined
in the Security Agreement) should become the subject of any bankruptcy or
insolvency proceeding, then the Lender should be entitled to, among other relief
to which the Lender may be entitled under the Note, Security Agreement, Purchase
Agreement and any other agreement to which the Debtor, Shareholders, or Lender
are parties, (collectively "Loan Documents") and/or applicable law, an order
from the court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Lender to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. THE DEBTOR AND
SHAREHOLDERS EXPRESSLY WAIVE THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11
U.S.C. SECTION 362. FURTHERMORE, THE DEBTOR AND SHAREHOLDERS EXPRESSLY
ACKNOWLEDGE AND AGREE THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION
OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION,
11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN
ANY WAY THE ABILITY OF THE LENDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES
UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Debtor and Shareholders
hereby consent to any motion for relief from stay which may be filed by the
Lender in any bankruptcy or insolvency proceeding initiated by or against the
Debtor and Shareholders, and further agree not to file any opposition to any
motion for relief from stay filed by the Lender. The Debtor and Shareholders
represent, acknowledge and agree that this provision is a specific and material
aspect of this Agreement, and that the Lender would not agree to the terms of
this Agreement if this waiver were not a part of this Agreement. The Debtor and
Shareholders further represent, acknowledge and agree that this waiver is
knowingly, intelligently and voluntarily made, that neither the Lender nor any
person acting on behalf of the Lender has made any representations to induce
this waiver, that the Debtor and Shareholders have been represented (or has had
the opportunity to be represented) in the signing of this Agreement and in the
making of this waiver by independent legal counsel selected by the Debtor and
Shareholders and that the Debtor and Shareholders have had the opportunity to
discuss this waiver with counsel. The Debtor and Shareholders further agree that
any bankruptcy or insolvency proceeding initiated by the Debtor or Shareholders
will only be brought in courts within the geographic boundaries of New York
State.
12. Miscellaneous.
12.1 Expenses. Debtor and Shareholders shall severally pay to the Lender,
on demand, the amount of any and all reasonable expenses, including, without
limitation, attorneys' fees, legal expenses and brokers' fees, which the Lender
may incur in connection with (a) sale, collection or other enforcement or
disposition of Collateral; (b) exercise or enforcement of any the rights,
remedies or powers of the Lender hereunder or with respect to any or all of the
Obligations; or (c) failure by Debtor or Shareholders to perform and observe any
agreements of Debtor or Shareholders contained herein which are performed by the
Lender.
12.2 Waivers, Amendment and Remedies. No course of dealing by the Lender
and no failure by the Lender to exercise, or delay by the Lender in exercising,
any right, remedy or power hereunder shall operate as a waiver thereof, and no
single or partial exercise thereof shall preclude any other or further exercise
thereof or the exercise of any other right, remedy or power of the Lender. No
amendment, modification or waiver of any provision of this Agreement and no
consent to any departure by Debtor or Shareholders therefrom, shall, in any
event, be effective unless contained in a writing signed by the Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. The rights, remedies and powers of the
Lender, not only hereunder, but also under any instruments and agreements
evidencing or securing the Obligations and under applicable law are cumulative,
and may be exercised by the Lender from time to time in such order as the Lender
may elect.
12.3 Notices. Any notice or other communications under the provisions of
this Agreement shall be given in writing and delivered to the recipient in
person, by reputable overnight courier or delivery service, by facsimile machine
(receipt conformed) with a copy sent by first class mail on the date of
transmission, or by registered or certified mail, return receipt requested,
directed to its address set forth below (or to any new address of which a party
hereto shall have informed the other by the giving of notice in the manner
provided herein):
To Debtor: iDial Networks, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Sichenzia, Ross, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
Attorneys at Law
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▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Shareholders:
iDial Networks, Inc.
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Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Lender: LAURUS MASTER FUND, LTD.
A Cayman Island corporation
c/o Onshore Corporate Services Ltd.
▇.▇. ▇▇▇ ▇▇▇▇ G.T.
Queensgate House, South Church Street
Grand Cayman, Cayman Islands
Fax: ▇▇▇-▇▇▇-▇▇▇▇
And for Informational
Purposes Only, copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
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Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may change its address by written notice in accordance with this
paragraph.
12.4 Term: Binding Effect. This Agreement shall (a) remain in full force
and effect until payment and satisfaction in full of all of the Obligations; (b)
be binding upon Debtor and Shareholders, and their successors and assigns; and
(c) inure to the benefit of the Lender, for the benefit of the Lender and their
respective heirs, legal representatives, successors in title and permitted
assigns.
12.5 Captions. The captions of Paragraphs, Articles and Sections in this
Agreement have been included for convenience of reference only, and shall not
define or limit the provisions hereof and have no legal or other significance
whatsoever.
12.6 Governing Law; Venue; Severability. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts or choice of law, except to the extent that
the perfection of the security interest granted hereby in respect of any item of
Collateral may be governed by the law of another jurisdiction. Any legal action
or proceeding against the Debtor and Shareholders with respect to this Agreement
may be brought in the courts of the State of New York or of the United States
for the Southern District of New York, and, by execution and delivery of this
Agreement, each of the Debtor and Shareholders hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Debtor and Shareholders hereby
irrevocably waive any objection which they may now or hereafter have to the
laying of venue of any of the aforesaid actions or proceedings arising out of or
in connection with this Agreement brought in the aforesaid courts and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum. If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid, such invalidity shall
not affect any other provisions which can be given effect without the invalid
provision or application, and to this end the provisions hereof shall be
severable and the remaining, valid provisions shall remain of full force and
effect.
12.7 Counterparts/Execution. This Agreement may be executed in any number
of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Security Agreement, as of the date first written above.
"DEBTOR"
IDIAL NETWORKS, INC.
a Nevada corporation
By: _______________________
Its: ______________________
"SHAREHOLDERS"
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"THE LENDER"
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LAURUS MASTER FUND LTD.
This Security Agreement may be executed by facsimile signature and
delivered by confirmed facsimile transmission.
SCHEDULE A TO SECURITY AGREEMENT
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DEPOSITOR DEPOSITED SECURITY SHARES STOCK CERTIFICATE ACQUISITION DATE *
NUMBERS
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o Each of the deposited Security Shares was initially issued on the
Acquisition Date and fully paid for as of the Acquisition Date.