Exhibit 10.4
 

SECURITY AGREEMENT
 
This Security Agreement (this “Agreement”) between Acceris Communications Inc.,
a Florida corporation (“ACI”) and Acceris Communications Corp. , a Delaware
corporation (the “Company”)(ACI and the Company are collectively, the
“Debtors”), and Acceris Management and Acquisition LLC, a Minnesota limited
liability company (the “Secured Party”) takes effect on the Execution Date.
Capitalized terms used but not otherwise defined in this Agreement shall have
the meanings ascribed to them in that certain Asset Purchase Agreement between
the Debtors, Counsel Corporation and the Secured Party (the “Purchase
Agreement”).
 
RECITALS
 

A.    
If the Purchase Agreement is terminated before the Closing, Section 5.11 of the
Purchase Agreement provides that the Secured Party is entitled to recover
certain advances and fees pursuant to any written agreements between the Secured
Party and the Debtors (collectively, the “Break Up Fee”).

 

B.    
As security for the Break Up Fee that is owed or will be owed to the Secured
Party upon the termination of the Purchase Agreement, the Debtors have delivered
to the Secured Party a Note whereby the principal amount will be equal to the
Break Up Fee (the “Note”).

 

C.    
As a condition to entering into the Purchase Agreement, the Secured Party has
required that the Debtors deliver this Agreement as security for their
obligations under the Note.

 
AGREEMENT
 
In consideration of the above recitals, and the promises set forth in this
Agreement, the parties agree as follows:
 

1.    
Obligations. For purposes of this Agreement, “Obligations” means collectively
the Note, this Agreement and the repayment or performance of any of the
foregoing if any such payment or performance is at any time avoided, rescinded,
set aside, or recovered from or repaid by Secured Party, in whole or in part, in
any bankruptcy, insolvency, or similar proceeding instituted by or against the
Debtors of any Obligation, or otherwise, including but not limited to all
principal, interest, fees, expenses and other charges.

 

2.    
Collateral. For purposes of this Agreement, “Collateral” means collectively all
of the assets and property of ACI and the Company and any of the assets upon
which Wells Fargo Foothills, Inc., a California corporation, has a first lien,
whether now owned or hereafter acquired and wherever located, including without
limitation the following types of assets and property: (a) accounts (including,
but not limited to, health-care-insurance receivables), documents, instruments,
investment property, letter-of-credit rights, letters of credit, chattel paper,
general intangibles, other rights to payment, deposit accounts, money, patents,
patent applications, trademarks, trademark applications, copyrights, copyright
applications, trade names, other names, software, payment intangibles,
inventory, equipment, and fixtures; (b) accessions, additions and improvements
to, replacements of, and substitutions for any of the foregoing; (c) all
products and proceeds of any of the foregoing; and (d) books, records and data
in any form relating to any of the foregoing.

 

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3.    
Security Interest and Subordination. The Debtors hereby grant to the Secured
Party a security interest (the “Security Interest”) in the Collateral to secure
the payment and performance of the Obligations. The Security Interest continues
in effect until this Agreement is terminated in writing by the Secured Party or
until the Note is terminated in accordance with its terms.

 

4.    
Representations, Warranties and Covenants. The Debtors represent, warrant and
agree to the following:

 

4.1    
Principal Office. The Company’s chief executive office is located at the address
specified on Schedule 1 attached to this Agreement. The Debtors will give the
Secured Party written notice prior to any change in the location of the
Company’s principal office. The Company’s organizational identification number
and Federal Tax Identification Number are as specified on Schedule 1.

 

4.2    
Organization; Authority. Each of the Debtors is duly organized, validly existing
and in good standing under the laws of its state or province of its organization
and has full power and authority to enter into this Agreement. ACI is a
corporation organized under the laws of the State of Florida and its exact legal
name is as set forth in this Agreement. The Company is a corporation organized
under the laws of the State of Delaware and its exact legal name is as set forth
in this Agreement. The Debtors will not change their state of organization, form
of organization or name without the Secured Party’s prior written consent.

 

4.3    
Perfection of Security Interest. Subject to the Permitted Liens, the Debtors
will execute and deliver and they irrevocably appoint the Secured Party (which
appointment is coupled with an interest) the Debtors’ attorney-in-fact to
execute, deliver and file in the Debtors’ name, all financing statements
(including, but not limited to, amendments, terminations and terminations of
other security interests in any of the Collateral), control agreements and other
agreements which the Secured Party may at any time reasonably request in order
to secure, protect, perfect, collect or enforce the Security Interest. Subject
to the Permitted Liens, the Debtors have delivered all of the Collateral
consisting of instruments, documents and chattel paper to the Secured Party or,
at the time the Debtors acquires an interest therein, will deliver all after
acquired Collateral consisting of instruments, documents and chattel paper to
the Secured Party. Subject to the Permitted Liens, the Debtors shall, at any
time and from time to time, take such steps as the Secured Party may reasonably
request for Secured Party (a) to obtain an acknowledgement, in form and
substance reasonably satisfactory to the Secured Party, of any bailee having
possession of any of the Collateral that such bailee holds such Collateral for
Secured Party, (b) to obtain “control” of any investment property, deposit
accounts, letter-of-credit rights or electronic chattel paper (as such terms are
defined in the UCC, as hereinafter defined), with any agreements establishing
control to be in form and substance reasonably satisfactory to Secured Party,
and (c) otherwise to insure the continued perfection and priority of the
Security Interest in any of the Collateral and the preservation of the rights of
the Secured Party therein.

 
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4.4    
Enforceability of Collateral. To the extent the Collateral consists of accounts,
instruments, documents, chattel paper, letter-of-credit rights, letters of
credit or general intangibles, the Collateral is enforceable in accordance with
its terms, is genuine, complies with applicable laws concerning form, content
and manner of preparation and execution, and all persons appearing to be
obligated on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral.

 

4.5    
Title to Collateral. The Company holds, or will hold at the time the Company
acquires an interest in after acquired Collateral, good and marketable title to
the Collateral free of all security interests and encumbrances except for the
Security Interest and the security interests and encumbrances specified on
Schedule 1 (the “Permitted Liens”). The Debtors will keep the Collateral free of
all security interests and encumbrances except for the Security Interest and the
Permitted Liens. The Debtors will defend the Secured Party’s rights in the
Collateral against the claims and demands of all other persons.

 

4.6    
Collateral Location. The Debtors will keep all tangible Collateral at the
principal office and at the locations specified on Schedule 1.

 

4.7    
Collateral Use. The Debtors will use the Collateral only for business purposes.
The Debtors will not use or keep any Collateral for any unlawful purpose or in
violation of any federal, state or local law, statute or ordinance.

 

4.8    
Maintenance of Collateral. The Debtors will maintain all tangible Collateral in
good condition and repair. The Debtors will not commit or permit damage to or
destruction of any of the Collateral. The Debtors will give the Secured Party
prompt written notice of any material loss of or damage to any tangible
Collateral and of any other happening or event that materially affects the
existence, value or amount of the Collateral.

 

4.9    
Disposition of Collateral. The Debtors will not sell or otherwise dispose of any
Collateral or any interest in any Collateral without the prior written consent
of the Secured Party, except that until the occurrence of an Event of Default
(as defined in Section 5 below), the Company may sell any inventory constituting
Collateral in the ordinary course of the Company’s business.

 

         4.10   
Taxes, Assessments and Liens. Other than the Assumed Liabilities, the Debtors
will promptly pay all taxes and other governmental charges levied or assessed
upon or against any Collateral.

 
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4.11   
Records; Access. The Debtors will keep accurate and complete records pertaining
to the Collateral and to the Company’s business and financial condition and will
submit to the Secured Party all reports regarding the Collateral and the
Debtor’s business and financial condition as and when the Secured Party may
reasonably request. During normal business hours, the Debtors will permit the
Secured Party and its representatives to examine or inspect any Collateral,
wherever located, and to examine, inspect and copy the Company’s books and
records relating to the Collateral and the Company’s business and financial
condition.

 

4.12   
Insurance. The Debtors will keep all tangible Collateral insured against risks
of fire (including so-called extended coverage), theft and other risks and in
such amounts as the Secured Party may reasonably request, with any loss payable
to the Secured Party to the extent of its interest. Subject to the Permitted
Liens, the Debtors assigns to the Secured Party all money due or to become due
with respect to, and all other rights of the Debtors with respect to, all
insurance concerning the Collateral and the Debtors direct the issuer of any
such insurance to pay all such money directly to the Secured Party.

 

4.13   
Collection Costs. The Debtors will reimburse the Secured Party on demand for all
costs of collection of any of the Obligations and all other expenses incurred by
the Secured Party in connection with the perfection, protection, defense or
enforcement of the Security Interest and this Agreement, including all
reasonable attorneys’ fees incurred by the Secured Party whether or not any
litigation or bankruptcy or insolvency proceeding is commenced.

 

4.14   
Financing Statements. The Debtors authorize the Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without Debtor’s signature where permitted by
law, in each case in such form and substance as the Secured Party may determine.
The Debtors shall pay all filing, registration and recording fees and any taxes,
duties, imports, assessments and charges arising out of or in connection with
the execution and delivery of this Agreement, any agreement supplemental hereto,
any financing statements, and any instruments of further assurance.

 

5.    
Events of Default. It shall be an “Event of Default” under this Agreement if any
of the Debtors fails to pay any of the Obligations when due and any applicable
grace period lapses without cure by the Debtors.

 

6.    
Remedies Upon Event of Default. Upon the occurrence of an Event of Default and
at any time thereafter, the Secured Party may exercise one or more of the
following rights and remedies, subject to the priority of the Permitted Liens:
(a) declare any or all unmatured Obligations to be immediately due and payable
without presentment or any other notice or demand and immediately enforce
payment of any or all of the Obligations; (b) require any of the Debtors to make
the Collateral available to the Secured Party at a place to be designated by the
Secured Party; (c) exercise and enforce any rights or remedies available upon
default to a secured party under the Uniform Commercial Code as amended from
time to time, enacted in any applicable jurisdiction (the “UCC”), and, if notice
to the Debtors of the intended disposition of Collateral or any other intended
action is required by law, such notice shall be commercially reasonable if given
at least ten calendar days prior to the intended disposition or other action;
and (d) exercise and enforce any other rights or remedies available to the
Secured Party by law or agreement against the Collateral, the Debtors, or any
other person or property. The Secured Party’s duty of care with respect to the
Collateral in its possession will be fulfilled if the Secured Party exercises
reasonable care in physically safekeeping the Collateral or, in the case of
Collateral in the possession of a bailee or other third person, exercises
reasonable care in the selection of the bailee or other third person. Mere delay
or failure to act will not preclude the exercise or enforcement of any of
Secured Party’s rights or remedies. All rights and remedies of the Secured Party
are cumulative and may be exercised singularly or concurrently, at the Secured
Party’s option.

 
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7.    
Miscellaneous. The following miscellaneous provisions are a part of this
Agreement:

 

7.1    
Definitions. Terms not otherwise defined in this Agreement shall have the
meanings ascribed to them, if any, under the UCC and such meanings shall
automatically change at the time that any amendment to the UCC, which changes
such meanings, shall become effective.

 

7.2    
Notices. All notices under this Agreement must be in writing and will be deemed
given when delivered or placed in the United States mail, registered or
certified, postage prepaid, addressed to the respective party at the address set
forth in the Management Agreement. Any party may change its address for notices
under this Agreement by giving written notice to the other parties.

 

7.3    
Amendments/Waivers. This Agreement may be waived, amended, modified or
terminated and the Security Interest may be released only in a writing signed by
the Secured Party. Any waiver signed by the Secured Party will be effective only
in the specific instance and for the specific purpose given.

 

7.4    
Applicable Law. This Agreement is governed by the laws of the State of Illinois
without regard to the conflict of law principles. If any provision of this
Agreement is held unlawful or unenforceable in any respect, such illegality or
unenforceability will not affect other provisions or applications that can be
given effect and this Agreement will be construed and enforced as if the
unlawful or unenforceable provision or application had never been contained in
or prescribed by this Agreement.

 

7.5    
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.

 

7.6    
Successors and Assigns. This Agreement is binding upon and will inure to the
benefit of the parties and their successors and assigns.

 

7.7    
Counterparts. This Agreement may be executed in several counterparts, each of
which will be an original, and all of which will constitute one and the same
instrument.

 
[REMAINDER OF THIS PAGE BLANK. SIGNATURE PAGE FOLLOWS.]
 
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The parties have executed this Agreement to be made effective as of the
Execution Date, as that term is used and defined in the Purchase Agreement.
 

        DEBTORS:       ACCERIS COMMUNICATIONS INC.  
   
   
  By:   /s/   

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Name:   Title:

 

      ACCERIS COMMUNICATIONS CORP.  
   
   
  By:   /s/   

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Name:   Title:

      SECURED PARTY:      
ACCERIS MANAGEMENT AND ACQUISITION LLC
 
   
   
  By:   /s/   

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Name:   Title:

[Signature Page to Security Agreement]
 
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SCHEDULE 1
TO
SECURITY AGREEMENT
 
DEBTOR’S CHIEF EXECUTIVE OFFICE:
SECURED PARTY’S ADDRESS:
   
1001 Brinton Road
60 South 6th Street, Suite 2535
Pittsburgh, PA 15221
Minneapolis, Minnesota 55402
Attn: Chief Operating Officer
Attn: Elam Baer/Drew Backstrand
Fax#: 412-244-6622
Fax#: 612-455-1022

 
The Company’s Delaware Organizational and Federal Tax Identification Numbers:
 
Delaware Organizational Number: 3234808
 
Federal Tax Identification Number:________
 
Permitted Liens:
 
Secured Party
Collateral
Wells Fargo Foothill, Inc.
All of the Collateral
Laurus
All of the collateral set forth in the Laurus Credit Documents, expressly
subordinated to Wells Fargo Foothills, Inc. by an Intercreditor Agreement

 
Collateral Locations in addition to the Company’s Principal Office:
 
611 Wilshire Blvd, LA, CA 90017

9775 Business Park Avenue, San Diego, CA 92131

1120 G Street, NW, Washington, D. C. 20005

2153 NW 22nd Street, Miami, Florida 33124

Printers Square, 600 S. Federal, Suite 250, Chicago, Illinois 60605

1 Main Street, Suite 411, Eatontown, NJ 07724

500 Atrium Drive, Somerset, NJ

60 Hudson Street, Suite 1508, NY, NY 10013

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Energy Center Fax Bay 145D, 4350 Northern Pike, Monroeville, PA 15146

Hill behind Brinton Road office, Microwave Tower, Pittsburg, PA 15221

Green Hills Corporate Center, 300 Grundy Road, Suite 4501, Reading, PA 19607

2323 Bryan Street, Suite 1500, Dallas, Texas 75201

1260 East Elgin Avenue, Salt Lake City , UT 84106

527 Fairview Avenue, Seattle, WA 98109

485 Ardmore, Braddock Hills, PA 15221

4351 Industrial Access Road, Douglasville, GA 30133
 
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