EXHIBIT 10.3
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SECURITY AGREEMENT
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THIS SECURITY AGREEMENT (the "Agreement"), is entered into and
made
effective as of June 20, 2008, by and between Small Cap Advisors,
Inc., a New
Jersey Corporation, with its principal office at 750 Route 34,
Matawan, NJ,
07747 (the "Company"), and iVoice , Inc., a New Jersey corporation,
with its
principal office at 750 Route 34, Matawan, NJ, 07747 (the "Secured
Party").
WHEREAS, the Company executed a Secured Convertible Promissory
Note
dated June 20, 2008 (the "Secured Convertible Promissory
Note");
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other good and valuable
consideration, the
adequacy and receipt of which are hereby acknowledged, the parties
hereto hereby
agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
Section 1.1. RECITALS.
The above recitals are true and correct and are incorporated
herein, in
their entirety, by this reference.
Section 1.2. INTERPRETATIONS.
Nothing herein expressed or implied is intended or shall be
construed
to confer upon any person other than the Secured Party any right,
remedy or
claim under or by reason hereof.
Section 1.3. OBLIGATIONS SECURED.
In exchange and the consideration for the Secured Party purchasing
the
Secured Convertible Promissory Note dated the date hereof and
thereby permitting
the Secured Party to enter into the Administrative Services
Agreement by and
between iVoice and Small Cap Advisors, Inc. on the date hereof, the
Company
hereby agrees to permit the Secured Party to secure the obligations
pursuant to:
(i) this Security Agreement and (ii) the Secured Convertible
Promissory Note
dated the date hereof and any future advances made under the
Secured Convertible
Promissory Note that may include Services Fees accrued pursuant to
the
Administrative Services Agreement (collectively, the
"Obligations").
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ARTICLE 2.
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
AND TERMINATION OF SECURITY INTEREST
Section 2.1. PLEDGED PROPERTY.
(a) Company hereby pledges to the Secured Party, and creates
in the Secured Party for its benefit, a security interest in and to
all of the
property of the Company as set forth in Exhibit A attached hereto
and the
products thereof and the proceeds of all such items (collectively,
the "Pledged
Property") for such time until the Obligations are paid in
full.
(b) Simultaneously with the execution and delivery of this
Agreement, the Company shall make, execute, acknowledge, file,
record and
deliver to the Secured Party any documents reasonably requested by
the Secured
Party to perfect its security interest in the Pledged Property.
Simultaneously
with the execution and delivery of this Agreement, the Company
shall make,
execute, acknowledge and deliver to the Secured Party such
documents and
instruments, including, without limitation, financing statements,
certificates,
affidavits and forms as may, in the Secured Party's reasonable
judgment, be
necessary to effectuate, complete or perfect, or to continue and
preserve, the
security interest of the Secured Party in the Pledged Property, and
the Secured
Party shall hold such documents and instruments as secured party,
subject to the
terms and conditions contained herein.
Section 2.2. RIGHTS; INTERESTS; ETC.
(a) So long as no Event of Default (as hereinafter defined)
shall have occurred and be continuing:
(i) the Company shall be entitled to exercise any and
all rights pertaining to the Pledged Property or any part thereof
for any
purpose not inconsistent with the terms hereof; and
(ii) the Company shall be entitled to receive and
retain any and all payments paid or made in respect of the Pledged
Property.
(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) All rights of the Company to exercise the rights
which it would otherwise be entitled to exercise pursuant to
Section 2.2(a)(i)
hereof and to receive payments which it would otherwise be
authorized to receive
and retain pursuant to Section 2.2(a)(ii) hereof shall be
suspended, and all
such rights shall thereupon become vested in the Secured Party who
shall
thereupon have the sole right to exercise such rights and to
receive and hold as
Pledged Property such payments; PROVIDED, HOWEVER, that if the
Secured Party
shall become entitled and shall elect to exercise its right to
realize on the
Pledged Property pursuant to Article 5 hereof, then all cash sums
received by
the Secured Party, or held by Company for the benefit of the
Secured Party and
paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied
against any
outstanding Obligations;
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(ii) All interest, dividends, income and other
payments and distributions which are received by the Company
contrary to the
provisions of Section 2.2(b)(i) hereof shall be received in trust
for the
benefit of the Secured Party, shall be segregated from other
property of the
Company and shall be forthwith paid over to the Secured Party;
and
(iii) The Secured Party in its sole discretion shall
be authorized to sell any or all of the Pledged Property at public
or private
sale in order to recoup all of the outstanding principal plus
accrued interest
owed pursuant to the Debenture as described herein
(c) Each of the following events shall constitute a default
under this Agreement (each an "Event of Default"):
(i) any default, whether in whole or in part, shall
occur in the payment to the Secured Party of principal, interest or
other item
comprising the Obligations as and when due or with respect to any
other debt or
obligation of the Company to a party other than the Secured
Party;
(ii) any default, whether in whole or in part, shall
occur in the due observance or performance of any obligations or
other
covenants, terms or provisions to be performed under the
Transaction Documents
(as defined in the Merger Agreement);
(iii) the Company shall: (1) make a general
assignment for the benefit of its creditors; (2) apply for or
consent to the
appointment of a receiver, trustee, assignee, custodian,
sequestrator,
liquidator or similar official for itself or any of its assets and
properties;
(3) commence a voluntary case for relief as a debtor under the
United States
Bankruptcy Code; (4) file with or otherwise submit to any
governmental authority
any petition, answer or other document seeking: (A) reorganization,
(B) an
arrangement with creditors or (C) to take advantage of any other
present or
future applicable law respecting bankruptcy, reorganization,
insolvency,
readjustment of debts, relief of debtors, dissolution or
liquidation; (5) file
or otherwise submit any answer or other document admitting or
failing to contest
the material allegations of a petition or other document filed or
otherwise
submitted against it in any proceeding under any such applicable
law; or (6) be
adjudicated a bankrupt or insolvent by a court of competent
jurisdiction; or
(iv) any case, proceeding or other action shall be
commenced against the Company for the purpose of effecting, or an
order,
judgment or decree shall be entered by any court of competent
jurisdiction
approving (in whole or in part) anything specified in Section
2.2(c)(iii)
hereof, or any receiver, trustee, assignee, custodian,
sequestrator, liquidator
or other official shall be appointed with respect to the Company,
or shall be
appointed to take or shall otherwise acquire possession or control
of all or a
substantial part of the assets and properties of the Company, and
any of the
foregoing shall continue unstayed and in effect for any period of
thirty (30)
days.
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ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
Section 3.1. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.
Upon the occurrence of an Event of Default, the Company hereby
appoints
the Secured Party as its attorney-in-fact, with full authority in
the place and
stead of the Company and in the name of the Company or otherwise,
from time to
time in the Secured Party's discretion to take any action and to
execute any
instrument which the Secured Party may reasonably deem necessary to
accomplish
the purposes of this Agreement, including, without limitation, to
receive and
collect all instruments made payable to the Company representing
any payments in
respect of the Pledged Property or any part thereof and to give
full discharge
for the same. The Secured Party may demand, collect, acknowledge,
receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the
Pledged
Property as and when the Secured Party may determine. To facilitate
collection,
upon the occurrence of an Event of Default, the Secured Party may
notify account
debtors and obligors on any Pledged Property to make payments
directly to the
Secured Party.
Section 3.2. SECURED PARTY MAY PERFORM.
If the Company fails to perform any agreement contained herein,
the
Secured Party, at its option, may itself perform, or cause
performance of, such
agreement, and the expenses of the Secured Party incurred in
connection
therewith shall be included in the Obligations secured hereby.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Section 4.1. AUTHORIZATION; ENFORCEABILITY.
Each of the parties hereto represents and warrants that it has
taken
all action necessary to authorize the execution, delivery and
performance of
this Agreement and the transactions contemplated hereby; and upon
execution and
delivery, this Agreement shall constitute a valid and binding
obligation of the
respective party, subject to applicable bankruptcy, insolvency,
reorganization,
moratorium and similar laws affecting creditors' rights or by the
principles
governing the availability of equitable remedies.
Section 4.2. OWNERSHIP OF PLEDGED PROPERTY.
The Company warrants and represents that it is the legal and
beneficial
owner of the Pledged Property.
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ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
Section 5.1. DEFAULT AND REMEDIES.
(a) If an Event of Default described in Section 2.2(c)(i) and
(ii) occurs, then in each such case the Secured Party may declare
the
Obligations to be due and payable immediately, by a notice in
writing to the
Company, and upon any such declaration, the Obligations shall
become immediately
due and payable. If an Event of Default described in Sections
2.2(c)(iii) or
(iv) occurs and is continuing for the period set forth therein,
then the
Obligations shall automatically become immediately due and payable
without
declaration or other act on the part of the Secured Party.
(b) Upon the occurrence of an Event of Default, the Secured
Party shall: (i) be entitled to receive all distributions with
respect to the
Pledged Property, (ii) to cause the Pledged Property to be
transferred into the
name of the Secured Party or its nominee, (iii) to dispose of the
Pledged
Property, and (iv) to realize upon any and all rights in the
Pledged Property
then held by the Secured Party.
Section 5.2. METHOD OF REALIZING UPON THE PLEDGED PROPERTY:
OTHER
REMEDIES.
Upon the occurrence of an Event of Default, in addition to any
rights
and remedies available at law or in equity, the following
provisions shall
govern the Secured Party's right to realize upon the Pledged
Property:
(a) Any item of the Pledged Property may be sold for cash or
other value in any number of lots at brokers board, public auction
or private
sale and may be sold without demand, advertisement or notice
(except that the
Secured Party shall give the Company ten (10) days' prior written
notice of the
time and place or of the time after which a private sale may be
made (the "Sale
Notice")), which notice period is hereby agreed to be commercially
reasonable.
At any sale or sales of the Pledged Property, the Company may bid
for and
purchase the whole or any part of the Pledged Property and, upon
compliance with
the terms of such sale, may hold, exploit and dispose of the same
without
further accountability to the Secured Party. The Company will
execute and
deliver, or cause to be executed and delivered, such instruments,
documents,
assignments, waivers, certificates, and affidavits and supply or
cause to be
supplied such further information and take such further action as
the Secured
Party reasonably shall require in connection with any such
sale.
(b) Any cash being held by the Secured Party as Pledged
Property and all cash proceeds received by the Secured Party in
respect of, sale
of, collection from, or other realization upon all or any part of
the Pledged
Property shall be applied as follows:
(i) first, to the payment of all amounts due the
Secured Party for the expenses reimbursable to it hereunder or owed
to it
pursuant to Section 8.3 hereof;
(ii) second, to the payment of the Obligations then
due and unpaid; and
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(iii) the balance, if any, to the person or persons
entitled thereto, including, without limitation, the Company.
(c) In addition to all of the rights and remedies which the
Secured Party may have pursuant to this Agreement, the Secured
Party shall have
all of the rights and remedies provided by law, including, without
limitation,
those under the Uniform Commercial Code.
(i) If the Company fails to pay such amounts due upon
the occurrence of an Event of Default which is continuing, then the
Secured
Party may institute a judicial proceeding for the collection of the
sums so due
and unpaid, may prosecute such proceeding to judgment or final
decree and may
enforce the same against the Company and collect the monies
adjudged or decreed
to be payable in the manner provided by law out of the property of
Company,
wherever situated.
(ii) The Company agrees that it shall be liable for
any reasonable fees, expenses and costs incurred by the Secured
Party in
connection with enforcement, collection and preservation of the
Transaction
Documents, including, without limitation, reasonable legal fees and
expenses,
and such amounts shall be deemed included as Obligations secured
hereby and
payable as set forth in Section 8.3 hereof.
Section 5.3. PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or
other judicial proceeding relating to the Company or the property
of the Company
or of such other obligor or its creditors, the Secured Party
(irrespective of
whether the Obligations shall then be due and payable as therein
expressed or by
declaration or otherwise and irrespective of whether the Secured
Party shall
have made any demand on the Company for the payment of the
Obligations) shall be
entitled and empowered, by intervention in such proceeding or
otherwise:
(i) to file and prove a claim for the whole amount of
the Obligations and to file such other papers or documents as may
be necessary
or advisable in order to have the claims of the Secured Party
(including any
claim for the reasonable legal fees and expenses and other expenses
paid or
incurred by the Secured Party permitted hereunder and of the
Secured Party
allowed in such judicial proceeding), and
(ii) to collect and receive any monies or other
property payable or deliverable on any such claims and to
distribute the same;
and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or
other similar official in any such judicial proceeding is hereby
authorized by
the Secured Party to make such payments to the Secured Party and,
in the event
that the Secured Party shall consent to the making of such payments
directed to
the Secured Party, to pay to the Secured Party any amounts for
expenses due it
hereunder.
Section 5.4. DUTIES REGARDING PLEDGED PROPERTY.
The Secured Party shall have no duty as to the collection or
protection
of the Pledged Property or any income thereon or as to the
preservation of any
rights pertaining thereto, beyond
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the safe custody and reasonable care of
