Security Agreement - Net2Phone Inc. and Wachovia Bank NA
SECURITY AGREEMENT
May 5, 2003
Net2Phone, Inc.
520 Broad Street, 8th Floor
Newark, NJ 07102
(Individually and collectively "Debtor")
Wachovia Bank, National Association
190 River Road
Summit, New Jersey 07901
(Hereinafter referred to as "Bank")
For value received and to secure payment and performance of any and all
obligations of Debtor (also referred to herein as "Borrower") to Bank however
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now existing or hereafter arising or acquired, and whether or not
evidenced by a Loan Document, including, without limitation, obligations of
Debtor under the Application and Agreement for Irrevocable Standby Letter of
Credit dated the date hereof (pursuant to which Bank has issued one or more
letters of credit in an aggregate face amount of $21,754,890.99), swap
agreements (as defined in 11 U.S.C. ss.101), future advances, and all costs and
expenses incurred by Bank to obtain, preserve, perfect and enforce the security
interest granted herein and to maintain, preserve and collect the property
subject to the security interest (collectively, "Obligations"), Debtor hereby
grants to Bank a continuing security interest in and lien upon, and for security
purposes assigns and transfers to Bank until all of the Obligations are repaid
in full, the following described property, whether now owned or hereafter
acquired, and any additions, replacements, accessions, or substitutions thereof
and all cash and non-cash proceeds and products thereof (collectively,
"Collateral"):
All of Debtor's rights in and to deposit account number 2000010228922 maintained
at Bank and all amounts at any time on deposit therein ("Assigned Deposits").
Debtor hereby represents and agrees that:
OWNERSHIP. Debtor owns the Collateral. The Collateral is free and clear of all
liens, security interests, and claims except those previously reported in
writing to and approved by Bank, and Debtor will keep the Collateral free and
clear from all liens, security interests and claims, other than those granted to
or approved by Bank. Until all of the Obligations are repaid in full, Bank shall
have the entire right and interest in and to the Assigned Deposits. By executing
this Security Agreement, Debtor has divested itself of all control over the
Assigned Deposits and Bank is entitled to and does possess sole dominion and
control over the Assigned Deposits and is entitled to receive the benefits
accruing with respect thereto. Debtor surrenders all authority or right to
withdraw, collect, receive the benefits of, or otherwise assign or encumber the
Assigned Deposits, and authorizes Bank (and each affiliate and branch office of
Bank or such affiliate) to treat Bank as the sole and exclusive owner of the
Assigned Deposits. Upon the maturity of the Assigned Deposits, other than
Assigned Deposits at Bank that automatically roll over at maturity, Bank shall
reinvest the Assigned Deposits in an investment of Bank's choice. Bank shall
have no liability to Debtor for any loss incurred in connection with or arising
out of any such reinvestment except for loss resulting from Bank's gross
negligence or willful misconduct. The assignment evidenced by this Security
Agreement is a continuing one and is irrevocable so long as any of the
Obligations are outstanding or the Bank shall have any obligations under the
Loan Documents and shall terminate only upon payment or other satisfaction in
full of all Obligations or Bank's acknowledgment in writing that this Security
Agreement has been terminated. Upon termination of this Security Agreement, and
to the extent the Assigned Deposits have not been applied in satisfaction of the
Obligations, Bank shall reassign the Assigned Deposits to Debtor and return any
passbooks, certificates, and other documents in Bank's possession at Debtor's
request. All securities and security entitlements pledged as Collateral are
fully paid and non-assessable. All income, dividends, earnings and profits with
respect to the Collateral shall be reported for state and federal income tax
purposes as attributable to the Debtor and not Bank and Third Party (as defined
herein), and Bank or any other person authorized to report income distributions,
is authorized to issue IRS Forms 1099 indicating Debtor as the recipient of such
income, earnings and profits.
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NAME AND OFFICES; JURISDICTION OF ORGANIZATION. The name and address of Debtor
appearing at the beginning of this Agreement are Debtor's exact legal name and
the address of its chief executive office. There has been no change in the name
of Debtor, or the name under which Debtor conducts business, within the five
years preceding the date hereof except as previously reported in writing to
Bank. Except for a relocation from Hackensack, New Jersey to Newark, New Jersey,
Debtor has not moved its chief executive office within the five years preceding
the date hereof except as previously reported in writing to Bank. Debtor is
organized under the laws of the State of Delaware and has not changed the
jurisdiction of its organization within the five years preceding the date hereof
except as previously reported in writing to Bank.
TITLE/TAXES. Debtor has good and marketable title to Collateral and will warrant
and defend same against all claims. Debtor will not transfer, sell, or lease
Collateral (except as permitted herein). Debtor agrees to pay promptly all taxes
and assessments upon or for the use of Collateral and on this Security
Agreement. At its option, Bank may discharge taxes, liens, security interests or
other encumbrances at any time levied or placed on Collateral. Debtor agrees to
reimburse Bank, on demand, for any such payment made by Bank. Any amounts so
paid shall be added to the Obligations.
WAIVERS. Debtor agrees not to assert against Bank as a defense (legal or
equitable), as a set-off, as a counterclaim, or otherwise, any claims Debtor may
have against any seller or lessor that provided personal property or services
relating to any part of the Collateral. Debtor waives all exemptions and
homestead rights with regard to the Collateral. Debtor waives any and all rights
to any bond or security which might be required by applicable law prior to the
exercise of any of Bank's remedies against any Collateral. All rights of Bank
and security interests hereunder, and all obligations of Debtor hereunder, shall
be absolute and unconditional, not discharged or impaired irrespective of (and
regardless of whether Debtor receives any notice of): (i) any lack of validity
or enforceability of any Loan Document; (ii) any change in the time, manner or
place of payment or performance, or in any term, of all or any of the
Obligations or the Loan Documents or any other amendment or waiver of or any
consent to any departure from any Loan Document; (iii) any exchange, release or
non-perfection of any collateral, or any release of or modifications of the
obligations of any guarantor or other obligor; (iv) any amendment or waiver of
or consent to departure from any Loan Document or other agreement. To the extent
permitted by law, Debtor hereby waives any rights under any valuation, stay,
appraisement, extension or redemption laws now existing or which may hereafter
exist and which, but for this provision, might be applicable to any sale or
disposition of the Collateral by Bank; and any other circumstance which might
otherwise constitute a defense available to, or a discharge of any party with
respect to the Obligations.
NOTIFICATIONS; LOCATION OF COLLATERAL. Debtor will notify Bank in writing at
least 30 days prior to any change in: (i) Debtor's chief place of business
and/or residence; (ii) Debtor's name or identity; (iii) Debtor's
corporate/organizational structure; or (iv) the jurisdiction in which Debtor is
organized. In addition, Debtor shall promptly notify Bank of any claims or
alleged claims of any other person or entity to the Collateral or the
institution of any litigation, arbitration, governmental investigation or
administrative proceedings against or affecting the Collateral. Debtor will keep
Collateral at the location(s) previously provided to Bank until such time as
Bank provides written advance consent to a change of location. Debtor will bear
the cost of preparing and filing any documents necessary to protect Bank's
liens.
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FINANCING STATEMENTS, POWER OF ATTORNEY. No financing statement (other than any
filed or approved by Bank) covering any Collateral is on file in any public
filing office. On request of Bank, Debtor will execute one or more financing
statements in form satisfactory to Bank and will pay all costs and expenses of
filing the same or of filing this Security Agreement in all public filing
offices, where filing is deemed by Bank to be desirable. Bank is authorized to
file financing statements relating to Collateral without Debtor's signature
where authorized by law. Debtor hereby constitutes and appoints Bank the true
and lawful attorney of Debtor with full power of substitution to take any and
all appropriate action and to execute any and all documents or instruments that
may be necessary or desirable to accomplish the purpose and carry out the terms
of this Security Agreement, including, without limitation, to ask, demand,
collect, receive, receipt for, sue for, compound and give acquittance for any
and all amounts which may be or become due and payable under the Assigned
Deposits; to execute any and all withdrawal requests, receipts or other orders
for the payment of money drawn on the Assigned Deposits and to endorse the name
of Bank on all instruments given in payment or in partial payment therefor; and
to complete, execute, and deliver Control Agreement(s) by Bank, Debtor and Third
Party(ies) required in connection herewith (individually and collectively the
"Control Agreement"), instructions to Third Party(ies) regarding, among other
things, control and disposition of any Collateral, and endorsements desirable
for transfer or delivery of any Collateral, registration of any Collateral under
applicable laws, retitling any Collateral, receipt, endorsement and/or
collection of all checks and other orders for payment of money payable to Debtor
with respect to Collateral. The foregoing power of attorney is coupled with an
interest and shall be irrevocable until all of the Obligations have been paid in
full. Neither Bank nor anyone acting on its behalf shall be liable for acts,
omissions, errors in judgment, or mistakes in fact in such capacity as
attorney-in-fact. Debtor ratifies all acts of Bank as attorney-in-fact. Debtor
agrees to take such other actions, at Debtor's expense, as might be requested
for the perfection, continuation and assignment, in whole or in part, of the
security interests granted herein and to assure Bank's intended priority
position. If certificates, passbooks, or other documentation or evidence is/are
issued or outstanding as to any of the Collateral, Debtor will cause the
security interests of Bank to be properly protected, including perfection by
notation thereon or delivery thereof to Bank. Upon Bank's request, Debtor will,
at its own expense: (i) do all things determined by Bank to be desirable to
register such Collateral or qualify for an exemption from registration, under
the provisions of all applicable securities laws, and (ii) otherwise do or cause
to be done all other acts and things as may be necessary to make the sale of the
Collateral valid, binding and in compliance with applicable law.
VALUE REQUIREMENT. The amount of the Assigned Deposits shall at all times exceed
102.5% (the "Minimum Deposit Value") of the amount available for drawing under
all outstanding letters of credit issued by Bank for the account of Debtor. If
at any time the Minimum Deposit Value falls below this amount, Debtor shall
within 3 business days, deliver additional cash Collateral to Bank in an amount
sufficient to restore the Minimum Deposit Value to the required amount.
INSTRUMENTS, CHATTEL PAPER, DOCUMENTS. Any Collateral that is instruments,
chattel paper and negotiable documents will be properly assigned to, the
originals of any such Collateral in tangible form deposited with and held by
Bank, unless Bank shall hereafter otherwise direct or consent in writing. Bank
may, without notice, before or after maturity of the Obligations, exercise any
or all rights of collection, conversion, or exchange and other similar rights,
privileges and options pertaining to Collateral, but shall have no duty to do
so.
WITHDRAWAL OF ASSIGNED DEPOSITS. Debtor shall not be permitted to withdraw funds
from or exercise any authority of any kind with respect to the Assigned
Deposits. Bank shall have the exclusive authority to withdraw, or direct the
withdrawal of, funds from the Assigned Deposits. Upon any payment by Bank under
any letter of credit, Bank is hereby authorized to reimburse such payment by
withdrawal of the necessary amount from the Assigned Deposits. Notwithstanding
the foregoing, Debtor's obligation to reimburse Bank for any payment made by
Bank under any letter of credit shall be absolute and unconditional whether or
not there are sufficient funds available in the Assigned Deposits to reimburse
Bank for any such payment and whether or not Bank is able, for any reason, to be
so reimbursed. So long as this Agreement remains in effect, the Assigned
Deposits will be titled as directed by Bank.
COLLATERAL DUTIES. Bank shall have no custodial or ministerial duties to perform
with respect to Collateral pledged except as set forth herein; and by way of
explanation and not by way of limitation, Bank shall incur no liability for any
of the following: (i) loss or depreciation of Collateral (unless caused by its
willful misconduct or gross negligence), (ii) failure to present any paper for
payment or protest, to protest or give notice of nonpayment, or any other notice
with respect to any paper or Collateral, (iii) failure to ascertain, notify
Debtor of, or take any action in connection with any conversion, call,
redemption, retirement or any other event relating to any of the Collateral, or
failure to notify any party hereto that Collateral should be presented or
surrendered for any such reason. Debtor acknowledges that Bank is not an
investment advisor or insurer with respect to the Collateral; and Bank has no
duty to advise Debtor of any actual or anticipated changes in the value of the
Collateral. Bank's sole duty with respect to the custody, safekeeping and
physical preservation of any certificate, passbook, or other documentation
evidencing the Assigned Deposits in its possession shall be to deal with it in
the same manner as it deals with similar property for its own account. Neither
Bank, nor any of its employees or agents shall be liable for failure to demand,
collect, or realize upon any of the Assigned Deposits or for any delay in doing
so.
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TRANSFER OF COLLATERAL. Bank may assign its rights in Collateral or any part
thereof to any assignee who shall thereupon become vested with all the powers
and rights herein given to Bank with respect to the property so transferred and
delivered, and Bank shall thereafter be forever relieved and fully discharged
from any liability with respect to such property so transferred, but with
respect to any property not so transferred, Bank shall retain all rights and
powers hereby given.
INSPECTION, BOOKS AND RECORDS. Debtor will at all times keep accurate and
complete records covering each item of Collateral, including the proceeds
therefrom. Bank, or any of its agents, shall have the right, at intervals to be
determined by Bank and without hindrance or delay, at Debtor's expense, to
inspect, audit, and examine the Collateral and to make copies of and extracts
from the books, records, journals, orders, receipts, correspondence and other
data relating to Collateral, Debtor's business or any other transaction between
the parties hereto. Debtor will at its expense furnish Bank copies thereof upon
request.
ATTORNEYS' FEES AND OTHER COSTS OF COLLECTION. Debtor shall pay all of Bank's
reasonable expenses incurred in enforcing this Security Agreement and in
preserving and liquidating Collateral, including but not limited to, reasonable
arbitration, paralegals', attorneys' and experts' fees and expenses, whether
incurred with or without the commencement of a suit, trial, arbitration, or
administrative proceeding, or in any appellate or bankruptcy proceeding.
DEFAULT. If any of the following occurs, a default ("Default") under this
Security Agreement shall exist: Loan Document Default. A default or event of
default (or similarly denominated term) shall occur under any Loan Document.
Collateral Sale, Lease or Encumbrance. Any sale, lease, or encumbrance of any
Collateral not specifically permitted herein without prior written consent of
Bank. Levy, Seizure or Attachment. The making of any levy, seizure, or
attachment on or of Collateral. Unauthorized Collection of Collateral. Any
attempt to collect, cash in or otherwise recover deposits that are Collateral.
Third Party Breach. Any default or breach by a Third Party of any provision
contained in any Control Agreement executed in connection with any of the
Collateral. Unauthorized Termination. Any attempt to terminate, revoke, rescind,
modify, or violate the terms of this Security Agreement or any Control Agreement
without the prior written consent of Bank.
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REMEDIES ON DEFAULT (INCLUDING POWER OF SALE). If a Default occurs, all of the
Obligations shall be immediately due and payable, without notice, other than
Obligations under any swap agreements (as defined in 11 U.S.C. ss. 101) with
Bank, which shall be governed by the default and termination provisions of said
swap agreements, and Bank shall have all the rights and remedies of a secured
party under the Uniform Commercial Code. Without limitation thereto, Bank shall
have the following rights and remedies: (i) to take immediate possession of
Collateral, without notice or resort to legal process; (ii) to exercise its
right of set-off or bank lien as to any monies of Debtor deposited in accounts
of any nature maintained by Debtor with Bank or affiliates of Bank, without
advance notice, regardless of whether such accounts are general or special;
(iii) to dispose of Collateral, as a unit in any county or place to be selected
by Bank, at either private or public sale (at which public sale Bank may be the
purchaser) with or without having the Collateral physically present at said
sale; (iv) to apply toward and set-off against and apply to the then unpaid
balance of the Obligations the Assigned Deposits (accelerated to maturity if
necessary), even if effecting such set-off results in a loss or reduction of
interest or the imposition of a penalty applicable to the early withdrawal of
time deposits; and (v) to receive any interest or payments in respect of the
Assigned Deposits and apply such amounts and the Assigned Deposits to the
Obligations in such manner as Bank, in its sole discretion, may determine. In
addition to the foregoing, Bank shall be authorized to: notify Third Party to
terminate immediately any trading, other rights or entitlements of Debtor with
respect to the Collateral and any distributions to Debtor from the Collateral;
if not previously done, transfer into Bank's name or the name of its nominee,
all or any part of the Collateral; receive all interest, dividends, and other
proceeds of the Collateral; notify any person obligated on any Collateral of the
security interest of Bank therein and require such person to make payment
directly to Bank; demand, sue for, collect or receive the Collateral and any
proceeds thereof, and/or make any settlement or compromise as Bank deems
desirable with respect to any Collateral; and exercise any voting, conversion,
registration, purchase or other rights of an owner, holder or entitlement holder
of the Collateral. Debtor agrees that Bank may exercise its rights under this
Security Agreement without regard for the actual or potential tax consequences
to Debtor under federal or state law and without regard to any instructions or
directives given Bank by Debtor.
Any notice of sale, disposition or other action by Bank required by law and sent
to Debtor at Debtor's address shown above, or at such other address of Debtor as
may from time to time be shown on the records of Bank, at least 5 days prior to
such action, shall constitute reasonable notice to Debtor. Notice shall be
deemed given or sent when mailed postage prepaid to Debtor's address as provided
herein. Bank shall be entitled to apply the proceeds of any sale or other
disposition of the Collateral, and the payments received by Bank with respect to
any of the Collateral, to Obligations in such order and manner as Bank may
determine. Collateral that is subject to rapid declines in value and is
customarily sold in recognized markets may be disposed of by Bank in a
recognized market for such collateral without providing notice of sale. Debtor
waives any and all requirements that the Bank sell or dispose of all or any part
of the Collateral at any particular time, regardless of whether Debtor has
requested such sale or disposition.
REMEDIES ARE CUMULATIVE. No failure on the part of Bank to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by Bank or any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any right, power or remedy. The remedies herein provided are
cumulative and are not exclusive of any remedies provided by law, in equity, or
in other Loan Documents.
MISCELLANEOUS. (i) Amendments and Waivers. No waiver, amendment or modification
of any provision of this Security Agreement shall be valid unless in writing and
signed by Debtor and an officer of Bank. No waiver by Bank of any Default shall
operate as a waiver of any other Default or of the same Default on a future
occasion. (ii) Assignment. All rights of Bank hereunder are freely assignable,
in whole or in part, and shall inure to the benefit of and be enforceable by
Bank, its successors, assigns and affiliates. Debtor shall not assign its rights
and interest hereunder without the prior written consent of Bank, and any
attempt by Debtor to assign without Bank's prior written consent is null and
void. Any assignment shall not release Debtor from the Obligations. This
Security Agreement shall be binding upon Debtor, and the heirs, personal
representatives, successors, and assigns of Debtor. (iii) Applicable Law;
Conflict Between Documents. This Security Agreement shall be governed by and
construed under the law of the jurisdiction named in the address of the Bank
first shown above (the "Jurisdiction") without regard to that Jurisdiction's
conflict of laws principles, except to the extent that the UCC requires the
application of the law of a different jurisdiction. If any terms of this
Security Agreement conflict with the terms of any commitment letter or loan
proposal, the terms of this Security Agreement shall control. (iv) Jurisdiction.
Debtor irrevocably agrees to non-exclusive personal jurisdiction in the
Jurisdiction in which the office of Bank as stated above is located. (v)
Severability. If any provision of this Security Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective but only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Security Agreement. (vi)
Notices. Any notices to Debtor shall be sufficiently given, if in writing and
mailed or delivered to the address of Debtor shown above or such other address
as provided hereunder; and to Bank, if in writing and mailed or delivered to
Bank's office address shown above or such other address as Bank may specify in
writing from time to time. In the event that Debtor changes Debtor's mailing
address at any time prior to the date the Obligations are paid in full, Debtor
agrees to promptly give written notice of said change of address by registered
or certified mail, return receipt requested, all charges prepaid. (vii)
Captions. The captions contained herein are inserted for convenience only and
shall not affect the meaning or interpretation of this Security Agreement or any
provision hereof. The use of the plural shall also mean the singular, and vice
versa. (viii) Joint and Several Liability. If more than one party has signed
this Security Agreement, such parties are jointly and severally obligated
hereunder. (ix) Binding Contract. Debtor by execution and Bank by acceptance of
this Security Agreement, agree that each party is bound by all terms and
provisions of this Security Agreement.
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DEFINITIONS. Loan Documents. The term "Loan Documents" refers to all documents,
including this Agreement, whether now or hereafter existing, executed in
connection with or related to the Obligations, and may include, without
limitation and whether executed by Debtor or others, commitment letters that
survive closing, loan agreements, promissory notes, guaranty agreements, deposit
or other similar agreements, other security agreements, letters of credit and
applications and agreements for letters of credit, security instruments,
financing statements, mortgage instruments, any renewals or modifications,
whenever any of the foregoing are executed, but does not include swap agreements
(as defined in 11 U.S.C. ss. 101). Third Party. The term "Third Party" means
each and every Broker, Collateral Agent or Securities Intermediary maintaining a
securities account, and acting in such capacity, for Debtor with respect to some
or all of the Collateral. UCC. "UCC" means the Uniform Commercial Code as
presently and hereafter enacted in the Jurisdiction. Terms defined in the UCC.
Any term used in this Agreement and in any financing statement filed in
connection herewith which is defined in the UCC and not otherwise defined in
this Agreement or any other Loan Document has the meaning given to the term in
the UCC.
IN WITNESS WHEREOF, Debtor, on the day and year first written above, has caused
this Security Agreement to be executed under seal.
NET2PHONE, INC.
Taxpayer Identification Number: _____________________
By: ____________________________________________(SEAL)
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Schedule A to UCC
Schedule A to UCC from Net2Phone, Inc. ("Debtor") and for the benefit of
Wachovia Bank, National Association ("Secured Party").
The following described property whether now owned or hereafter acquired, and
any additions, replacements, accessions, or substitutions thereof and all cash
and non-cash proceeds and products thereof.
Description of Collateral:
All of Debtor's rights in and to deposit account number 2000010228922 maintained
at Bank and all amounts at any time deposit therein ("Assigned Deposits").
Any term which is defined in the Uniform Commercial Code (UCC) has the meaning
given to the term in the UCC.
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Payer's Request for Taxpayers Identification Number and Certification
Account Name Net2Phone, Inc.
Address 520 Broad Street, 8th Floor
Newark, New Jersey 07102
W-9 Substitute
Taxpayer Identification Number ________________________
Check this box if you are not subject to backup withholding
under the provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code -----------------------------------------------> [ ]
Check this box if you qualify as a Non-Resident Alien --------------> [ ]
Date__________
Certification- Under penalties of perjury, I certify that the information
provided on this form is true, correct and complete.
Signature: __________________________
Print name: _________________________
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