SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "SECURITY AGREEMENT") is dated as of
August 25, 1998 by and among COMMUNICATION TELESYSTEMS INTERNATIONAL, d.b.a.
WorldxChange Communications, a California corporation ("DEBTOR"), and GERARD
KLAUER MATTISON & Co., Inc. ("SECURED PARTY").
The parties hereto agree as follows:
1. DEFINITIONS.
1.1 For all purposes of this Security Agreement, except as otherwise expressly
provided or unless the context otherwise requires,
(a) the terms defined in this SECTION 1 have the meanings assigned to
them in this SECTION 1 and include the plural as well as the singular,
(b) the words "herein," "hereof," "hereto" and "hereunder" and other
words of similar import refer to this Security Agreement as a whole
and not to any particular Section, Subsection or other subdivision,
unless the context otherwise requires, and
(c) all accounting terms not otherwise defined herein have the
meanings assigned under generally accepted accounting principles.
1.2 As used in this Security Agreement, the following definitions shall apply.
"COLLATERAL" has the meaning set forth in EXHIBIT A.
"DEBTOR" means COMMUNICATIONS TELESYSTEMS INTERNATIONAL, d.b.a.
WorldxChange Communications, a California corporation.
"EVENT OF DEFAULT" has the meaning set forth in the Notes.
"FOOTHILL" means Foothill Capital Corporation, a California
corporation.
"NOTES" means those certain three Subordinated Promissory Notes,
each dated as of the date hereof, made by Debtor in favor of Secured Party in
the amount of $20,000,000, $20,000,000, and $15,000,000, respectively (for an
aggregate principal amount of $55,000,000).
"OBLIGATIONS" means (i) all obligations of Debtor to Secured Party
under the Notes, whether for principal, interest, fees, expenses or otherwise
and (ii) any obligation of Debtor to Secured Party which Debtor agrees in
writing to make subject to this Security Agreement.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization.
"PLEDGE AGREEMENTS" means, collectively, (i) that certain Stock Pledge
Agreement, dated as of the date hereof, by and among Secured Party, Roger B.
Abbott and Rosalind Abbott, and (ii) that certain Stock Pledge Agreement, dated
as of the date hereof, by and among Secured Party and Edward S. Soren.
"SECURED PARTY" means Gerard Klauer Mattison & Co., Inc.
"SECURITY AGREEMENT" means this Security Agreement by and among Debtor
and Secured Party as amended or supplemented together with all Schedules and
Exhibits attached hereto or incorporated by reference.
"SENIOR LENDER" means Foothill or such other single secured lender (or
indenture trustee) to Debtor, which may from time to time replace Foothill, in
the event that Foothill ceases to be a secured lender senior to Secured Party.
The syndication by Foothill or such other single secured lender of the secured
debt of Debtor to one or more financial institutions or investors shall not
affect such single secured lender's (or indenture trustee's) status as a Senior
Lender or the subordination of the Notes to such secured debt of Debtor to the
Senior Lender.
"SUBORDINATION AGREEMENT" means one or more subordination
agreements to be entered into from time to time and as may be modified from
time to time among Secured Party, Debtor and Senior Lender.
2. OBLIGATIONS SECURED; SECURITY INTEREST.
2.1 OBLIGATIONS SECURED. This Security Agreement secures the prompt payment
and performance of all Obligations.
2.2 SECURITY INTEREST. Debtor hereby grants to Secured Party a continuing
security interest in and to and a lien upon, the Collateral, with the
understanding that such security interest and lien is junior and subordinate
to the security interests or liens, if any, that may be perfected from time
to time by Senior Lender in the Collateral.
2.3 DEBTOR'S RIGHTS T0 THE COLLATERAL. Notwithstanding anything herein to
the contrary, (i) Debtor shall have all rights with respect to the Collateral
(including without limitation the right to sell, transfer or otherwise
dispose of the Collateral) as may be granted Debtor by Senior Lender, and
(ii) any restrictions herein on Debtor's rights to the Collateral shall only
apply herein to the extent that Debtor is also restricted in the exercise of
such rights pursuant to the then existing agreement between Debtor and Senior
Lender. Without limiting the generality of the foregoing, any waiver,
release, permission or consent whether previously or hereafter given by
Senior Lender shall also be deemed to have been given by Secured Party.
3. RIGHTS AND DUTIES OF SECURED PARTY.
3.1 REMEDIES OF SECURED PARTY IN THE EVENT OF DEFAULT. Upon the occurrence and
during the continuance of an Event of Default, and subject to the prior rights
of Senior Lender and subject to the Subordination Agreement, Secured Party shall
have the following rights and remedies:
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3.1.1 In addition to any other rights and remedies contained in this
Security Agreement, all of the rights and remedies of a secured party under
the Uniform Commercial Code or other similar applicable law, all of which
rights and remedies shall be cumulative and nonexclusive, to the extent
permitted by law;
3.1.2 The right to collect any and all amounts due Debtor from any account
debtor to the extent such account is included in the definition of
Collateral;
3.1.3 The right to require Debtor or assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party in
its reasonable discretion;
3.1.4 The right to: (i) do all acts and things necessary, in Secured
Party's sole discretion, to fulfill Debtor's obligations under this
Security Agreement; (ii) endorse the name of Debtor upon any chattel paper,
documents, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Collateral; and (iii) use the
information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Collateral to which Debtor
has access; and
3.1.5 The right to: (i) sell or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice
as may be required by law, in lots or in bulk, for cash or on credit, all
as Secured Party, in its sole discretion, may deem advisable; (ii) adjourn
such sales from time to time with or without notice; and (iii) conduct such
sales on Debtor's premises or elsewhere and use Debtor's premises without
charge for such sales for such time or times as Secured Party may see fit.
Secured Party is hereby granted a license or other right to use, without
charge, Debtor's labels, copyrights, right of use of any name, trade
secrets, patents, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling of Collateral and Debtor's rights under
all licenses and all franchise agreements shall inure to Secured
Party's benefit. Secured Party shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for cash, credit
or any combination thereof, and Secured Party may purchase all or any part
of the Collateral at public or, if permitted by law, private sale and, in
lieu of actual payment of such purchase price, may set off the amount of
such price against the Obligations. The proceeds realized from the sale
of any Collateral shall be applied first to the reasonable costs, expenses
and attorney's fees and expenses incurred by Secured Party for collection
and for acquisition, completion, protection, removal, storage, sale and
delivery of the Collateral; second to interest due upon any of the
Obligations; and third to the principal of the Obligations.
3.2 DISCRETIONARY RIGHTS OF SECURED PARTY. Exercise of or omission to exercise
any right of Secured Party shall not affect any other subsequent right of
Secured Party to exercise the same and the waiver of any Event of Default by
Secured Party shall not be deemed a waiver of any subsequent Event of Default.
Notwithstanding anything herein to the contrary, all rights granted in this
Security Agreement to Secured Party shall be subject to the limitations and
provisions in the Subordination Agreement, the Notes and to the rights of Senior
Lender.
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3.3 WAIVER BY SECURED PARTY. Upon the occurrence of an Event of Default,
Secured Party may waive in writing its right to receive the benefits of the
remedies to which Secured Party is entitled pursuant to this Security Agreement.
3.4 SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Subject to the limitations in
the Subordination Agreement, the Notes and this Security Agreement, Debtor
hereby irrevocably nominates and appoints Secured Party as its
attorney-in-fact for the following purposes: (a) to take such actions which
Secured Party may deem necessary to perfect the security interests created by
this Agreement and, upon the occurrence and during the continuance of an
Event of Default, to preserve, process, develop, maintain and protect the
Collateral; (b) upon the occurrence and during the continuance of an Event of
Default, to do any and every act which Debtor is obligated to do under this
Security Agreement, at the expense of Debtor so obligated and without any
obligation to do so; (c) to prepare, sign, file and/or record, for Debtor in
the name of Debtor, any financing statement, application for registration,
and like papers and to take any other action deemed by Secured Party
necessary in order to perfect the security interests granted hereby; and (d)
upon the occurrence and during the continuance of an Event of Default to
execute any and all papers and instruments and do all other things necessary
to preserve and protect the Collateral and to protect Secured Party's
security interests therein; provided, however, that Secured Party shall be
under no obligation whatsoever to take any of the foregoing actions. Secured
Party shall notify Debtor of any action taken pursuant to this SECTION 3.4.
3.4 DUTIES OF SECURED PARTY. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon Secured Party to exercise any such powers. Except for
the safe custody of any Collateral in Secured Party's possession and the
accounting for monies actually received by Secured Party hereunder, Secured
Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
4. MISCELLANEOUS.
4.1 FURTHER ASSURANCES.
4.1.1 Debtor agrees that from time to time, Debtor will promptly execute
and deliver all further instruments and documents, and take all further
action, that Secured Party may reasonably deem necessary in order to
perfect and protect any security interest granted or purported to be
granted hereby or to enable Secured Party to excercise and enforce its
rights and remedies hereunder with respect to any Collateral.
4.1.2 Debtor hereby authorizes Secured Party to file one or more financing
or continuation statements, and amendments thereto, relative to all or any
part of the Collateral.
4.1.3 Debtor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
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4.1.4 Debtor will make reasonable efforts to obtain such waivers and
consents to this Security Agreement from Debtor's landlords under Debtor's
material leases of real property as may be reasonably requested by Secured
Party.
4.1.5 Upon repayment of all outstanding Obligations or termination of this
Security Agreement, upon the request of Debtor, Secured Party shall
promptly execute any and all documents evidencing the termination of the
security interests created hereby and the release of any financing or
continuation statements.
4.1.6 In the event Senior Lender subordinates its security interest in any
Collateral, the terms and conditions of such subordination shall
automatically apply to the security interest of Secured Party in such
Collateral. Upon request of Debtor, Secured Party shall execute such
documents reasonably requested to effectuate the release or subordination
of the security interest of Secured Party as provided above.
4.2 FOOTHILL. As of the date of this Security Agreement, Foothill is the only
creditor to which Debtor has granted a blanket lien in substantially all of the
Collateral.
4.3 DESCRIPTIVE HEADINGS. The descriptive headings of this Security Agreement
are inserted for convenience only and do not affect the meaning of any
provisions herein.
4.4 GOVERNING LAW. This Security Agreement is being delivered in and shall be
construed in accordance with the laws of the State of New York, provided that to
the extent Collateral is located in another jurisdiction and the Uniform
Commercial Code so provides, the laws of said other jurisdiction shall govern
the perfection and enforcement of the security interests of Secured Party in
such Collateral.
4.5 NOTICES. Any notice, demand or other communication required or permitted
under the terms of this Agreement shall be in writing and shall be made by
telegram, telex or electronic transmitter or certified or registered mail,
return receipt requested, and shall be deemed to be received by the addressee
one (1) business day after sending, if sent by Federal Express, Express Mail, or
other similar overnight delivery service, the date of sending, if sent by
telegram, telex, telecopy or electronic transmitter, and three (3) business days
after mailing, if sent by certified or registered mail with postage prepaid,
and properly addressed notices shall be addressed as provided below:
If to Debtor: Communications TeleSystems International
9999 Willow Creek Road
San Diego, California 92131
Facsimile: (619) 452-3780
Attn: Legal Department
If to Secured Party: Gerard Klauer Mattison & Co., Inc.
529 5th Avenue, 3rd Floor
New York, New York 10017
Attn: David Skriloff
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4.6 LITIGATION COSTS. If any legal action or other proceeding is brought for
the enforcement of this Security Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Security Agreement, the successful or prevailing party or parties shall
be entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
4.7 FINAL AGREEMENT. This Security Agreement, the Notes and the Pledge
Agreements constitute the final agreement of the parties concerning the matters
herein and supersede all prior and contemporaneous agreements and
understandings.
4.8 AMENDMENT. This Security Agreement may be amended by an instrument in
writing by Debtor and Secured Party.
4.9 COUNTERPARTS. This Security Agreement may be executed in two counterparts,
either one of which need not contain the signatures of both parties, but both of
which counterparts when taken together shall constitute one and the same
Security Agreement.
4.10 ASSIGNMENT. This Security Agreement may not be assigned by Secured Party
except with the prior written consent of Debtor.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have executed this Security Agreement to be
effective as of the date first above written.
DEBTOR:
COMMUNICATIONS TELESYSTEMS
INTERNATIONAL, D.B.A.
WORLDXCHANGE
COMMUNICATIONS, a California
corporation
By: /s/ Rosalind Abbott
-----------------------
Name: Rosalind Abbott
Title: Secretary
SECURED PARTY:
GERARD KLAUER MATTISON & CO., INC.
By: /s/ Robert M. Bloom
------------------------
Name: Robert M. Bloom
------------------------
Title: Compliance
------------------------
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EXHIBIT A
DESCRIPTION OF COLLATERAL
"COLLATERAL" means all of the following property and interests in property of
Debtor, whether now owned or existing or hereafter acquired or arising and
wheresoever located:
(i) All agreements for use or purchase of the properties, assets and
rights described herein or any part thereof and all renewals and
extensions thereof, and all amounts, rents, issues, royalties,
profits and rights, and other sums of money due and to become due
under such other agreements for use or purchase of such properties,
assets, or rights and renewals and extensions;
(ii) All cash, bank deposits, deposit accounts, checks, certificates
of deposit, checking and savings accounts, bankers' acceptances,
letters of credit, United States obligations, state and municipal
obligations, obligations of foreign governments and subdivisions
thereof, commercial paper, notes, instruments (whether negotiable
or nonnegotiable), drafts, bonds, debentures (excluding debentures
convertible into shares of capital stock and other equity
securities) of and claims against any Person;
(iii) Any interest in any personal property, including, but not
limited to, repossessed and returned goods and goods covered by
chattel paper;
(iv) All general intangibles, choses in action, or causes of
action, including, particularly, any right of indemnity or other
right that Debtor may have or hereafter acquire against any Person
arising under or with respect to any judgement, statute, or rule and
all other properties, assets and rights of every kind and nature,
including, but not limited to, rights to refunds, tax refunds,
claims for tax refunds, rights of indemnification, books and
records (including, without limitation, corporate and other
business records, customer lists, credit files, computer programs,
printouts and other computer materials and records), inventions,
designs, patents, copyrights, trademarks, trade names, trade styles,
trade secrets, registrations, licenses, customer lists and computer
source and object codes;
(v) All equitable rights and interests of whatever kind or nature;
(vi) All rights and claims in or under any policy of insurance,
excluding business interruption insurance but including insurance
for fire, damage, loss and casualty, whether covering personal
property, real property, tangible rights, or intangible rights, and
all liability, life and key man insurance, together with the
proceeds, products, renewals and replacements thereof, including
prepaid and unearned premiums;
(vii) All equipment, machinery, tools, furnishings, fixtures,
vehicles and motor vehicles, and all other goods used or bought
primarily for use in Debtor's
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business, together with all products and proceeds of the foregoing
whether due or voluntary or involuntary disposition;
(viii) All present and future inventory and merchandise, including
without limitation, all present and future goods held for sale or
lease or to be furnished under a contract of service, all raw
materials, work in process and finished goods, all packing
materials, supplies and containers relating to or used in
connection with any of the foregoing, and all bills of lading,
warehouse receipts or documents of title relating to any of the
foregoing;
(ix) All present and future accounts, accounts receivable,
agreements, contracts, leases, contract rights, rights to payment,
instruments, documents, chattel paper, security agreements,
guaranties, undertakings, surety bonds, insurance policies, notes
and drafts, and all forms of obligations owing to Debtor or in which
Debtor may have any interest;
(x) Without in any way limiting the foregoing, the proceeds of any
of the foregoing, whether derived from voluntary or involuntary
disposition, products of the foregoing, and all renewals,
replacements, substitutions, additions, accessions, rents, issue,
royalties and profits of any of the foregoing, whether now owned,
existing or hereafter acquired or arising; and
(xi) All proceeds of and substitutions for any and all of the
Collateral and, to the extent not otherwise included, all payments
under insurance (excluding business interruption insurance), or any
indemnity, warranty or guaranty, payable to Debtor by reason of
loss or damage to or otherwise with respect to any of the foregoing
Collateral.
Provided, however, and notwithstanding any other provision contained herein,
the Collateral shall not include any property in which Senior Lender does not
have a security interest and lien including, without limiting the generality of
the foregoing, any property in which Senior Lender has waived or released its
security interest.
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