Exhibit 10.7

 

EXECUTION VERSION

 

SECURITY AGREEMENT

 

DATE:

 

November 9, 2005

 

 

 

 

 

 

 

DEBTOR:

 

IT & E International Group

 

EIN: 77-0436157

 

(Collectively)

 

505 Lomas Sante Fe Drive

 

Organization I.D.           

 

 

 

Suite 200

 

 

 

 

Solana Beach, California 92075

 

 

 

 

 

 

 

 

 

 

 

 

SECURED PARTIES:

 

ComVest Investment Partners II LLC

 

 

 

 

One North Clematis Street

 

 

 

 

Suite 300

 

 

 

 

West Palm Beach, Florida 33324

 

 

 

 

 

 

 

 

 

And each of the Purchasers set forth on the signature page attached hereto.

 

1.                                       Security Interest and Collateral.  To
secure the payment of outstanding principal and interest on certain Secured
Convertible Promissory Notes in the aggregate principal amount of up to
$15,000,000 issued by Debtor from time to time in a private placement and
through an Option for an additional investment as described in the Securities
Purchase Agreement, of even date herewith between the Debtor and the Secured
Parties by Debtor to Secured Parties (each a “Note” and collectively the
“Notes”) and the performance of every liability and obligation of every type and
description that Debtor may now or at any time hereafter owe to Secured Parties
under the Notes, whether such debt, liability or obligation now exists or is
hereafter created or incurred, and whether it is absolute or contingent,
liquidated or unliquidated, or sole, joint, several or joint and several (all
such debts, liabilities and obligations and any amendments, extensions, renewals
or replacements thereof collectively referred to herein as the “Obligations”),
Debtor hereby grants Secured Parties a first priority security interest (the
“Security Interest”) in all of Debtor’s property (the “Collateral”), including
without limitation the following:

 

A.                                   Inventory.  All inventory of Debtor,
whether now owned or hereafter acquired and wherever located and other tangible
personal property held for sale or lease or furnished or to be furnished under
contracts of service or consumed in Debtor’s business, and all goods of Debtor,
whether now owned or hereafter acquired and wherever located, including without
limitation all computer programs embedded in goods, and all other Inventory and
Goods of the Debtor, as such terms may be defined in the Uniform Commercial Code
as may be in effect in the State of Nevada from time to time (the “UCC”);

 

B.                                     Equipment.  All equipment of Debtor,
whether now owned or hereafter acquired and wherever located, including but not
limited to all present and future equipment, machinery, tools, motor vehicles,
trade fixtures, furniture, furnishings,

 

--------------------------------------------------------------------------------

 

office and recordkeeping equipment and all goods for use in Debtor’s business
and all other Equipment of the Debtor, as such term may be defined in the UCC,
together with all parts, equipment and attachments relating to any of the
foregoing;

 

C.                                     Accounts, Contract Rights and Other
Rights to Payment:  Each and every right of Debtor to the payment of money,
whether such right to payment now exists or hereafter arises, whether such right
to payment arises out of a sale, lease, license, assignment or other disposition
of goods or other property by Debtor, out of a rendering of services by Debtor,
out of a loan by Debtor, out of the overpayment of taxes or other liabilities of
Debtor, or otherwise arises under any contract or agreement, whether such right
to payment is or is not already earned by performance, and howsoever such right
to payment may be evidenced, together with all other rights and interests
(including all liens and security interests) which Debtor may at any time have
by law or agreement against any account debtor or other obligor obligated to
make any such payment or against any of the property of such account debtor or
other obligor; all including but not limited to all present and future debt
instruments, chattel paper, accounts, license fees, contract rights, loans and
obligations receivable and tax refunds and all other Accounts of the Debtor, as
such term may be defined in the UCC;

 

D.                                    Instruments:  All instruments, chattel
paper, letters of credit or other documents of Debtor, whether now owned or
hereafter acquired, including but not limited to promissory notes, drafts, bills
of exchange and trade acceptances; all rights and interests of Debtor, whether
now existing or hereafter created or arising, under leases (where Debtor is the
lessor), licenses or other contracts, in each case where assignment for security
purposes is not expressly prohibited by the terms of such instruments and all
other Instruments of the Debtor, as such term may be defined in the UCC;

 

E.                                      Deposit Accounts and Investment
Property:  All right, title and interest of Debtor in all deposit and investment
accounts maintained with any bank, savings and loan association, broker,
brokerage, or any other financial institution, together with all monies and
other property deposited or held therein, including, without limitation, any
checking account, savings account, escrow account, savings certificate and
margin account, and all securities, whether certificated or uncertificated,
security entitlements, securities accounts, commodity contracts, and commodity
accounts and all other Deposit Accounts and Investment Property of the Debtor,
as such terms may be defined in the UCC;

 

F.                                      General Intangibles:  All general
intangibles of Debtor, whether now owned or hereafter acquired, including, but
not limited to, applications for patents, patents, copyrights, trademarks, trade
secrets, good will, tradenames, customer lists, permits and franchises,
software, all licenses of any of the foregoing and the right to use Debtor’s
name, and any and all membership interests, governance rights, and financial
rights in each and every limited liability company, and all payment

 

--------------------------------------------------------------------------------

 

intangibles and all other General Intangibles of the Debtor, as such term may be
defined in the UCC;

 

G.                                     Chattel Paper:  All Chattel Paper of the
Debtor, whether tangible or electronic, as such term may be defined in the UCC;
and

 

H.                                    Supporting Obligations, Embedded Software,
etc.:  All of Debtor’s rights, whether now existing or hereafter acquired, in
promissory notes, documents, embedded software, letter of credit rights and
supporting obligations (and security interests and liens securing them) as such
terms may be defined in the UCC.

 

together with all substitutions and replacements for and products of any of the
foregoing property and proceeds of any and all of the foregoing property
together with (i) all accessories, attachments, parts, equipment, accessions and
repairs and embedded software now or hereafter attached or affixed to or used in
connection with any such goods, (ii) all warehouse receipts, bills of lading and
other documents of title now or hereafter covering such goods, and (iii) all
books and records of Debtor related to the Collateral.

 

2.                                       Representations, Warranties and
Agreements.  Debtor jointly and severally represents, warrants and agrees that:

 

2.1.                              Debtor is a corporation duly organized,
validly existing and in good standing under the laws of the state of Nevada, and
the state of Nevada has been Debtor’s state of organization since the date of
Debtor’s organization.  Debtor has full power and authority to execute this
Agreement, to perform Debtor’s obligations hereunder and to subject the
Collateral to the Security Interest.  Debtor’s taxpayer identification number is
the number shown at the beginning of this Agreement.  Debtor’s organizational
identification number is the number shown at the beginning of this Agreement.

 

2.2.                              Debtor’s chief place of business is, located
at the address shown at the beginning of this Agreement.  Debtor’s records
concerning its accounts and contract rights are kept at such address.  The
Collateral is located at the address shown at the beginning of this Agreement,
and there are no other locations where any of the Collateral may be kept except
as set forth on Schedule 2.2 hereto.  All Collateral has been located at the
address shown at the beginning of this Agreement or at the locations set forth
on Schedule 2.2, prior to execution of this Agreement.  Debtor will give at
least 30 days’ advance written notice to Secured Parties of any change in
Debtor’s jurisdiction of organization or chief place of business and any change
in or addition of any Collateral location.  Debtor will take all such actions as
Secured Parties may reasonably request to permit Secured Parties to establish
and perfect the Security Interest in all jurisdictions Secured Parties deems
necessary, including but not limited to the execution, delivery or endorsement
of any and all instruments, documents, assignments, security agreements and
other agreements and writings that Secured Parties may at any time reasonably
request in order to secure, protect, perfect or enforce the Security Interest
and Secured Parties’ rights under this Agreement.

 

--------------------------------------------------------------------------------

 

2.3.                              Debtor has (or will have at the time Debtor
acquires rights in Collateral hereafter arising) absolute title to each item of
Collateral free and clear of all security interests, liens and encumbrances. 
Debtor will keep all Collateral free and clear of all security interests, liens
and encumbrances except the Security Interest, and will defend the Collateral
against all claims or demands of all persons other than Secured Parties.  Debtor
will promptly pay or properly and timely contest all taxes and other
governmental charges levied or assessed upon or against any Collateral or upon
or against the creation, perfection or continuance of the Security Interest.

 

2.4.                              Until the Obligations are satisfied in full,
Debtor will not, without the prior written consent of the Secured Parties, sell
any of the Collateral or enter into any agreement that is inconsistent with
Debtor’s obligations or Secured Parties’ rights under this Agreement, except
that Debtor may sell or discard the Collateral in the ordinary course of
business so long as such agreements are not inconsistent with Secured Parties’
rights or Debtor’s obligations under this Agreement.  Debtor further agrees that
it will not take any action, or permit any action to be taken by others under
its control, or fail to take any action, that would affect the validity of the
Collateral or enforcement of Secured Parties’ rights in the Collateral.  In
addition, Debtor agrees not to enter into any instruments, chattel paper,
letters of credit or other documents, including but not limited to promissory
notes, drafts, bills of exchange and trade acceptances, which expressly prohibit
assignment for security purposes.

 

2.5.                              This Agreement has been duly and validly
authorized by all necessary action by Debtor.

 

2.6.                              Debtor will keep all tangible Collateral in
good repair, working order and condition, normal depreciation excepted, and
will, from time to time, replace any worn, broken or defective parts thereof.

 

2.7.                              Debtor will at all reasonable times permit
Secured Parties or their respective representatives to examine or inspect any
Collateral, wherever located, and to examine, inspect and copy Debtor’s books
and records pertaining to the Collateral and its business and financial
condition.

 

2.8.                              If Secured Parties at any time so request
after the occurrence of an Event of Default, Debtor will promptly transfer to
Secured Parties any instrument, document, chattel paper, or investment
properties constituting the Collateral, duly endorsed or assigned by Debtor.

 

2.9.                              Debtor will keep accurate and complete records
pertaining to the Collateral and pertaining to Debtor’s business and financial
condition and submit to Secured Parties such periodic reports concerning the
Collateral and Debtor’s business and financial condition as Secured Parties may
from time to time reasonably request.

 

2.10.                        Debtor will at all times keep all tangible
Collateral insured against risks of fire (including so-called extended
coverage), theft, and such other risks and in such

 

--------------------------------------------------------------------------------

 

amounts as Secured Parties may reasonably request, with any loss payable to
Secured Parties to the extent of their respective interest.

 

2.11.                        Debtor will pay when due or reimburse Secured
Parties on demand for all costs of collection of any of the Obligations and all
other out-of-pocket expenses (including all reasonable attorneys’ fees) incurred
by Secured Parties in connection with the creation, perfection, satisfaction,
protection, defense or enforcement of the Security Interest or the creation,
continuance, protection, defense or enforcement of this Agreement or any or all
of the Obligations, including expenses incurred in any litigation or bankruptcy
or insolvency proceedings.

 

2.12.                        The Obligations have been incurred and the
Collateral will be used primarily for business purposes.

 

2.13.                        All rights to payment and all instruments,
documents, chattel papers and other agreements constituting or evidencing
Collateral are (or will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, set-off or counterclaim
(other than those arising in the ordinary course of business) of each account
debtor or other obligor named therein or in Debtor’s records pertaining thereto
as being obligated to pay such obligation.  Debtor will not agree to any
modification, amendment or cancellation of any such obligation without Secured
Parties’ prior written consent except discounts provided by Debtor in the
ordinary course of business, and will not subordinate any such right to payment
to claims of other creditors of such account debtor or other obligor.

 

2.14.                        Debtor will promptly notify Secured Parties of any
material loss of or damage to any Collateral or of any adverse change in the
prospect of payment of any material sums due on or under any instrument, chattel
paper, account or contract right constituting Collateral.

 

2.15.                        Debtor will from time to time execute such
financing statements or control agreements as Secured Parties may reasonably
deem necessary in order to perfect the Security Interest and, if any Collateral
is covered by a certificate of title, execute such documents as may be required
to have the Security Interest properly noted on a certificate of title.  In
addition, Debtor authorizes Secured Parties to file any financing statement any
Secured Party deems necessary, describing any liens held by such Secured Party.
 Such financing statements may describe the Collateral in the same manner as
described herein or may contain an indication or description of the Collateral
that describes such property in any other manner as the Secured Parties may
determine, in its reasonable discretion, is necessary to ensure the perfection
of the Security Interest, including, without limitation, describing such
property as “all assets” or “all personal property.”

 

2.16.                        Debtor will not use or keep any Collateral, or
permit it to be used or kept, for any unlawful purpose or in violation of any
federal, state or local law, statute or ordinance.

 

--------------------------------------------------------------------------------

 

2.17.                        If Debtor at any time fails to perform or observe
any agreement contained in this Section 2, and if such failure shall continue
for a period of 30 calendar days after Secured Parties give Debtor written
notice thereof, Secured Parties may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of Debtor (or, at Secured
Parties’ option, in such Secured Party’s own name) and may (but need not) take
any and all other actions that such Secured Party may reasonably deem necessary
to cure or correct such failure.  Debtor shall pay such Secured Party on demand
the amount of all monies expended and all costs and expenses (including
reasonable attorneys’ fees) incurred by such Secured Party in connection with or
as a result of such Secured Party’s performing or observing such agreements or
taking such actions, together with interest thereon from the date expended or
incurred by such Secured Party at the highest rate then applicable to any of the
Obligations.  To facilitate the performance or observance by such Secured Party
of such agreements of Debtor (in the event Debtor does not cure any such failure
during the above-described 30-day period), Debtor hereby irrevocably appoints
(which appointment is coupled with an interest) such Secured Party, or its
delegate, as the attorney-in-fact of Debtor with the right (but not the duty)
from time to time to create, prepare, complete, execute, deliver, endorse or
file, in the name and on behalf of Debtor, any and all instruments, documents,
financing statements, and other agreements and writings required to be obtained,
executed, delivered or endorsed by Debtor under this Section 2.

 

3.                                       Account Verification and Collection
Rights of Secured Parties.  Each Secured Party shall have the right to verify
any accounts in the name of Debtor or in any Secured Party’s own name; and
Debtor, whenever requested pursuant to the terms of this Section, shall furnish
such Secured Party with duplicate statements of the accounts, which statements
may be mailed or delivered by Secured Party for that purpose.  Each Secured
Party may at any time after the occurrence of an Event of Default notify any
account debtor, or any other person obligated to pay any amount due, that such
chattel paper, account, or other right to payment has been assigned or
transferred to a Secured Party for security and shall be paid directly to such
Secured Party.  If any Secured Party so requests at any time after the
occurrence of an Event of Default, Debtor will so notify such account debtors
and other obligors in writing and will indicate on all invoices to such account
debtors or other obligors that the amount due is payable directly to the Secured
Parties.  At any time after the Secured Parties or Debtor gives such notice to
an account debtor or other obligor, Secured Parties may (but need not), in
Secured Parties’ respective own names or in Debtor’s name, demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of, or securing, any such chattel paper, account, or other right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor.

 

4.                                       Events of Default.  The occurrence of
any of the following shall, at the sole option of the Secured Parties, be an
Event of Default:

 

A.                                   Any “Event of Default” (as defined in such
agreement) by Debtor under the Notes or any other agreement evidencing the
Obligations, which default is not cured within any grace period granted with
respect to such default or, if no specific grace period is granted with respect
to such default, where such default is not

 

--------------------------------------------------------------------------------

 

cured within five (5) business days after written notice thereof from any
Secured Party;

 

B.                                     Debtor’s failure to comply with any
representation, warranty or covenant hereunder if not cured within thirty (30)
days after written notice;

 

C.                                     Transfer or disposition of any of the
Collateral, except as permitted by this Agreement; or

 

D.                                    Attachment, execution or levy on any of
the Collateral.

 

5.                                       Remedies upon Event of Default.  Upon
the occurrence of an Event of Default and at any time thereafter, the Secured
Parties may exercise any one or more of the following rights and remedies:

 

5.1.                              declare all Obligations to be immediately due
and payable, which shall then be immediately due and payable, without
presentment or other notice or demand;

 

5.2.                              exercise and enforce any or all rights and
remedies available upon default to a secured party under the Uniform Commercial
Code, including but not limited to the right to take possession of any
Collateral, proceeding without judicial process if permitted by law or by
judicial process, and the right to use, sell, lease or otherwise dispose of any
or all of the Collateral, and in connection therewith, Secured Parties may
require Debtor to make the Collateral available to Secured Parties at a place to
be designated by Secured Parties that is reasonably convenient to all parties,
and if notice to Debtor of any intended disposition of Collateral or any other
intended action is required by law in a particular instance, such notice shall
be deemed commercially reasonable if given (in the manner specified in
Section 8.2) at least 10 business days prior to the date of intended disposition
or other action; or

 

5.3.                              exercise or enforce any or all other rights or
remedies available to Secured Parties by law or agreement against the
Collateral, including specifically the right to use the Collateral, against
Debtor or against any other person or property.

 

All rights and remedies of Secured Parties shall be cumulative and may be
exercised singularly or concurrently, at Secured Parties’ option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other.

 

6.                                       Other Personal Property.  Unless at the
time the Secured Parties take possession of any tangible Collateral, or within
seven days thereafter, Debtor gives written notice to Secured Parties of the
existence of any goods, papers or other property of Debtor, not affixed to or
constituting a part of such Collateral, but which are located or found upon or
within such Collateral, Secured Parties shall not be responsible or liable to
Debtor for any action taken or omitted by or on behalf of Secured Parties with
respect to such property without actual knowledge of the existence of any such
property or without actual knowledge that it was located or to be found upon or
within such Collateral.

 

--------------------------------------------------------------------------------

 

7.                                       Assignment of Insurance.  Debtor hereby
assigns to Secured Parties, as additional security for the payment of the
Obligations, any and all moneys (including but not limited to proceeds of
insurance and refunds of unearned premiums) due or to become due under, and all
other rights of Debtor under or with respect to, any and all policies of
insurance covering the Collateral, and Debtor hereby directs the issuer of any
such policy to pay any such moneys directly to Secured Parties.  Both before and
after the occurrence of an Event of Default, Secured Parties may (but need not),
in Secured Parties’ respective names or in Debtor’s name, execute and deliver
proofs of claim, receive all such moneys, endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.

 

8.                                       Miscellaneous.

 

8.1.                              This Agreement can be waived, modified,
amended, terminated or discharged, and the Security Interest can be released,
only explicitly in a writing signed by each Secured Party.  A waiver signed by
each Secured Party shall be effective only in the specific instance and for the
specific purpose given.  Mere delay or failure to act shall not preclude the
exercise or enforcement of any of such Secured Party’s rights or remedies.

 

8.2.                              All notices to be given to Debtor shall be
deemed sufficiently given if delivered or mailed by registered or certified
mail, postage prepaid, to Debtor at its address set forth above or at such other
address as Debtor may subsequently provide to each Secured Party.

 

8.3.                              Each Secured Party’s duty of care with respect
to Collateral in its possession (as imposed by law) shall be deemed fulfilled if
such Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and such secured Party need not otherwise
preserve, protect, insure or care for any Collateral.  Such Secured Party shall
not be obligated to preserve any rights Debtor may have against prior parties,
to realize on the Collateral at all or in any particular manner or order, or to
apply any cash proceeds of Collateral in any particular order of application.

 

8.4.                              This Agreement shall be binding upon and inure
to the benefit of Debtor and each Secured Party and their respective successors
and assigns and shall take effect when signed by Debtor and delivered to the
Secured Parties, and Debtor waives notice of Secured Parties’ acceptance hereof.

 

8.5.                              A carbon, photographic or other reproduction
of this Agreement or of any financing statement signed by Debtor shall have the
same force and effects as the original for all purposes of a financing
statement.

 

8.6.                              This Agreement shall be governed by the
internal laws of the State of New York.  If any provision or application of this
Agreement is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other

 

--------------------------------------------------------------------------------

 

provisions or applications which can be given effect and this Agreement shall be
construed as if the unlawful or unenforceable provision or application had never
been contained herein or prescribed hereby.  Any dispute arising out of or
relating to this Agreement, including the formation, interpretation or alleged
breach hereof, shall be brought in the state or federal courts located in
                   County, [Nevada], and the parties hereto consent to the
personal jurisdiction and venue of such courts.

 

8.7.                              All representations and warranties contained
in this Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.

 

(signature page on following page)

 

--------------------------------------------------------------------------------

 

ACCORDINGLY, this Agreement has been duly executed by the parties as of the date
first set forth above.

 

 

IT & E INTERNATIONAL GROUP

 

 

 

 

 

By:

/s/ Peter Sollenne

 

 

 

Name:  Peter Sollenne

 

 

Title:  CEO

 

 

 

 

 

COMVEST INVESTMENT PARTNERS II, LLC

 

 

 

 

 

By:

/s/ Michael Falk

 

 

 

Name:  Michael Falk

 

 

Title:  Managing Partner

 

--------------------------------------------------------------------------------

 

Schedule 2.2

 

Other Locations

 

 

1

--------------------------------------------------------------------------------