EXHIBIT 99.1
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SECURITY AGREEMENT
This Security Agreement is made as of October 31, 2005 by and among LAURUS
MASTER FUND, LTD., a Cayman Islands company ("Laurus"), RG AMERICA, INC., a
Nevada corporation (the "Parent"), and each party listed on Exhibit A attached
hereto (each an "Eligible Subsidiary" and collectively, the "Eligible
Subsidiaries") the Parent and each Eligible Subsidiary, each a "Company" and
collectively, the "Companies").
BACKGROUND
The Companies have requested that Laurus make advances available to the
Companies; and
Laurus has agreed to make such advances on the terms and conditions set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
1. General Definitions and Terms; Rules of Construction.
1.1 General Definitions. Capitalized terms used in this Agreement shall
have the meanings assigned to them in Annex A.
1.2 Accounting Terms. Any accounting terms used in this Agreement which
are not specifically defined shall have the meanings customarily given them in
accordance with GAAP and all financial computations shall be computed, unless
specifically provided herein, in accordance with GAAP consistently applied.
1.3 Other Terms. All other terms used in this Agreement and defined in the
UCC, shall have the meaning given therein unless otherwise defined herein.
1.4 Rules of Construction. All Schedules, Addenda, Annexes and Exhibits
hereto or expressly identified to this Agreement are incorporated herein by
reference and taken together with this Agreement constitute but a single
agreement. The words "herein", "hereof" and "hereunder" or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All references to any instruments or agreements, including
references to any of this Agreement or the Ancillary Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
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2. Loan Facility.
2.1 Loans.
(a) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus may make loans (the "Loans") to Companies from time
to time during the Term which, in the aggregate at any time outstanding, will
not exceed the lesser of (x) (I) the Capital Availability Amount minus (II) such
reserves as Laurus may reasonably in its good faith reasonable judgment deem
proper and necessary from time to time (the "Reserves") and (y) an amount equal
to (I) the Accounts Availability minus (II) the Reserves. The amount derived at
any time from Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall be referred to as
the "Formula Amount"; provided however, that, the Formula Amount shall at no
time be greater than $5,000,000 prior to the date upon which the Companies shall
have paid the Post-Closing Payment to Laurus in full. The Companies shall,
jointly and severally, execute and deliver to Laurus on the Closing Date the
Revolving Note and a Minimum Borrowing Note evidencing the Loans funded on the
Closing Date.
(b) Notwithstanding the limitations set forth above, if requested by
any Company, Laurus retains the right to lend to such Company from time to time
such amounts in excess of such limitations as Laurus may determine in its sole
discretion.
(c) The Companies acknowledge that the exercise of Laurus'
discretionary rights hereunder may result during the Term in one or more
increases or decreases in the advance percentages used in determining Accounts
Availability and each of the Companies hereby consent to any such increases or
decreases which may limit or restrict advances requested by the Companies.
(d) If any interest, fees, costs or charges payable to Laurus
hereunder are not paid when due, each of the Companies shall thereby be deemed
to have requested, and Laurus is hereby authorized at its discretion to make and
charge to the Companies' account, a Loan as of such date in an amount equal to
such unpaid interest, fees, costs or charges.
(e) If any Company at any time fails to perform or observe any of
the covenants contained in this Agreement or any Ancillary Agreement, Laurus
may, but need not, perform or observe such covenant on behalf and in the name,
place and stead of such Company (or, at Laurus' option, in Laurus' name) and
may, but need not, take any and all other actions which Laurus may deem
necessary to cure or correct such failure (including the payment of taxes, the
satisfaction of Liens, the performance of obligations owed to Account Debtors,
lessors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments). The amount of all monies expended and all costs and
expenses (including attorneys' fees and legal expenses) incurred by Laurus in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by Laurus shall be charged to the
Companies' account as a Loan and added to the Obligations. To facilitate Laurus'
performance or observance of such covenants by each Company, for so long as
Laurus has a security interest in the Collateral or any Obligations remain
outstanding, each Company hereby irrevocably appoints Laurus, or Laurus'
delegate, acting alone, as such Company's attorney in fact (which appointment is
coupled with an interest) 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 such Company any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by such Company.
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(f) Laurus will account to Company Agent monthly with a statement of
all Loans and other advances, charges and payments made pursuant to this
Agreement, and such account rendered by Laurus shall be deemed final, binding
and conclusive unless Laurus is notified by Company Agent in writing to the
contrary within thirty (30) days of the date each account was rendered
specifying the item or items to which objection is made.
(g) During the Term, the Companies may borrow and prepay Loans in
accordance with the terms and conditions hereof.
(h) If any Eligible Account is not paid by the Account Debtor within
two hundred ten days (210) days after the date that such Eligible Account was
invoiced or if any Account Debtor asserts a deduction, dispute, contingency,
set-off, or counterclaim with respect to any Eligible Account, (a "Delinquent
Account"), the Companies shall jointly and severally (i) reimburse Laurus for
the amount of the Loans made with respect to such Delinquent Account plus an
adjustment fee in an amount equal to one-half of one percent (0.50%) of the
gross face amount of such Eligible Account or (ii) immediately replace such
Delinquent Account with an otherwise Eligible Account.
2.2 Receivables Purchase. Following the occurrence and during the
continuance of an Event of Default, Laurus may, at its option, elect to convert
the credit facility contemplated hereby to an accounts receivable purchase
facility. Upon such election by Laurus (subsequent notice of which Laurus shall
provide to Company Agent), the Companies shall be deemed to hereby have sold,
assigned, transferred, conveyed and delivered to Laurus, and Laurus shall be
deemed to have purchased and received from the Companies, all right, title and
interest of the Companies in and to all Accounts which shall at any time
constitute Eligible Accounts (the "Receivables Purchase"). All outstanding Loans
hereunder shall be deemed obligations under such accounts receivable purchase
facility. The conversion to an accounts receivable purchase facility in
accordance with the terms hereof shall not be deemed an exercise by Laurus of
its secured creditor rights under Article 9 of the UCC. Immediately following
Laurus' request, the Companies shall execute all such further documentation as
may be required by Laurus to more fully set forth the accounts receivable
purchase facility herein contemplated, including, without limitation, Laurus'
standard form of accounts receivable purchase agreement and account debtor
notification letters, but any Company's failure to enter into any such
documentation shall not impair or affect the Receivables Purchase in any manner
whatsoever.
2.3 Minimum Borrowing Amount. After a registration statement registering
the resale of the Registrable Securities (as defined in the Registration Rights
Agreement) has been declared effective by the SEC, conversions of the Minimum
Borrowing Amount into the Common Stock may be initiated as set forth in the
Minimum Borrowing Note.
3. Repayment of the Loans. The Companies (a) may prepay the Obligations
from time to time in accordance with the terms and provisions of the Notes (and
Section 17 hereof if such prepayment is due to a termination of this Agreement);
(b) shall repay on the expiration of the Term (i) the then aggregate outstanding
principal balance of the Loans together with accrued and unpaid interest, fees
and charges and; (ii) all other amounts owed Laurus under this Agreement and the
Ancillary Agreements; and (c) subject to Section 2(a)(ii), shall repay on any
day on which the then aggregate outstanding principal balance of the Loans are
in excess of the Formula Amount at such time, Loans in an amount equal to such
excess. Any payments of principal, interest, fees or any other amounts payable
hereunder or under any Ancillary Agreement shall be made prior to 12:00 noon
(New York time) on the due date thereof in immediately available funds.
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4. Procedure for Loans. Company Agent may by written notice request a
borrowing of Loans prior to 12:00 noon (New York time) on the Business Day of
its request to incur, on the next Business Day, a Loan. Together with each
request for a Loan (or at such other intervals as Laurus may request), Company
Agent shall deliver to Laurus a Borrowing Base Certificate in the form of
Exhibit B attached hereto, which shall be certified as true and correct by the
Chief Executive Officer or Chief Financial Officer of Company Agent together
with all supporting documentation relating thereto. Notwithstanding anything
herein to the contrary, upon receipt by Laurus of the Borrowing Base Certificate
with respect to a request of borrowing of Loans, such determination of
availability of such Loan to the Company shall be determined at Laurus' sole
discretion within fifteen (15) days of receipt of the respective Borrowing Base
Certificate and such other information as may be required by Laurus in
connection therewith. All Loans shall be disbursed from whichever office or
other place Laurus may designate from time to time and shall be charged to the
Companies' account on Laurus' books. The proceeds of each Loan made by Laurus
shall be made available to Company Agent on the Business Day following the
Business Day so requested in accordance with the terms of this Section 4 by way
of credit to the applicable Company's operating account maintained with such
bank as Company Agent designated to Laurus. Any and all Obligations due and
owing hereunder may be charged to the Companies' account and shall constitute
Loans.
5. Interest and Payments.
5.1 Interest.
(a) Except as modified by Section 5(a)(iii) below, the Companies
shall jointly and severally pay interest at the Contract Rate on the unpaid
principal balance of each Loan until such time as such Loan is collected in full
in good funds in dollars of the United States of America.
(b) Interest and payments shall be computed on the basis of actual
days elapsed in a year of 360 days. At Laurus' option, Laurus may charge the
Companies' account for said interest.
(c) Effective upon the occurrence of any Event of Default and for so
long as any Event of Default shall be continuing, the Contract Rate shall
automatically be increased as set forth in the Notes (such increased rate, the
"Default Rate"), and all outstanding Obligations, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
(d) In no event shall the aggregate interest payable hereunder
exceed the maximum rate permitted under any applicable law or regulation, as in
effect from time to time (the "Maximum Legal Rate"), and if any provision of
this Agreement or any Ancillary Agreement is in contravention of any such law or
regulation, interest payable under this Agreement and each Ancillary Agreement
shall be computed on the basis of the Maximum Legal Rate (so that such interest
will not exceed the Maximum Legal Rate).
(e) The Companies shall jointly and severally pay principal,
interest and all other amounts payable hereunder, or under any Ancillary
Agreement, without any deduction whatsoever, including any deduction for any
set-off or counterclaim.
5.2 Payments; Certain Closing Conditions.
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(a) Closing/Annual Payments. Upon execution of this Agreement by
each Company and Laurus, the Companies shall jointly and severally pay to Laurus
Capital Management, LLC a closing payment in an amount equal to $195,000. Such
closing payment shall be deemed fully earned on the Closing Date and shall not
be subject to rebate or proration for any reason. Prior to the drawing by any
Company of any Loan, which when added to all other Loans outstanding hereunder,
is in excess of $5,000,000, the Companies shall jointly and severally pay to
Laurus Capital Management, LLC a post-closing payment (the "Post-Closing
Payment") in an amount equal to $195,000. The Post-Closing Payment shall be
deemed fully earned on the date of such payment and shall not be subject to
rebate or proration for any reason.
(b) Overadvance Payment. Without affecting Laurus' rights hereunder
in the event the Loans exceed the Formula Amount (each such event, an
"Overadvance"), all such Overadvances shall bear additional interest at a rate
equal to two percent (2%) per month of the amount of such Overadvances for all
times such amounts shall be in excess of the Formula Amount. All amounts that
are incurred pursuant to this Section 5(b)(ii) shall be due and payable by the
Companies monthly, in arrears, on the first business day of each calendar month
and upon expiration of the Term.
(c) Financial Information Default. Without affecting Laurus' other
rights and remedies, in the event any Company fails to deliver the financial
information required by Section 11 on or before the date required by this
Agreement, the Companies shall jointly and severally pay Laurus an aggregate fee
in the amount of $500.00 per week (or portion thereof) for each such failure
until such failure is cured to Laurus' satisfaction or waived in writing by
Laurus. All amounts that are incurred pursuant to this Section 5(b)(iii) shall
be due and payable by the Companies monthly, in arrears, on the first business
day of each calendar month and upon expiration of the Term.
(d) Expenses. The Companies shall jointly and severally reimburse
Laurus for its expenses (including reasonable legal fees and expenses) incurred
in connection with the preparation and negotiation of this Agreement and the
Ancillary Agreements, and expenses incurred in connection with Laurus' due
diligence review of each Company and its Subsidiaries and all related matters.
Amounts required to be paid under this Section 5(b)(iv) will be paid on the
Closing Date and shall be $40,000 for such expenses referred to in this Section
5(b)(iv); provided that such amount shall not include expenses relating to any
third-party appraisals, extraordinary diligence or the retention of outside
legal counsel, to the extent deemed prudent or necessary by Laurus in its sole
discretion. Notwithstanding anything to the contrary set forth herein, the
consent of the Company shall be required in connection with expenses relating to
extraordinary diligence to the extent in addition to those otherwise set forth
in this Section 5(b)(iv).
(e) Repayment of Xxxxxxx Xxxxxx Obligations. On or prior to the
Closing date, the Companies shall have delivered to Laurus evidence satisfactory
to Laurus, as determined by Laurus in its sole discretion, that all obligations
owed by the Companies and their respective subsidiaries to the holders (the
"Debenture Holders") of the Secured Convertible Debentures, dated as of ________
(the "Debentures") between the Parent, the Debenture Holders and Xxxxxxx Xxxxxx
LLC, as Placement Agent shall have been indefeasibly satisfied in full, the
documentation relating to the Debentures terminated in full and that all liens
related thereto shall have been released in full.
6. Security Interest.
6.1 To secure the prompt payment to Laurus of the Obligations, each
Company hereby assigns, pledges and grants to Laurus a continuing security
interest in and Lien upon all of the Collateral. All of each Company's Books and
Records relating to the Collateral shall, until delivered to or removed by
Laurus, be kept by such Company in trust for Laurus until all Obligations have
been paid in full. Each confirmatory assignment schedule or other form of
assignment hereafter executed by each Company shall be deemed to include the
foregoing grant, whether or not the same appears therein.
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6.2 Each Company hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral (1) as all assets and personal property of such Company or words of
similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC of such jurisdiction,
or (2) as being of an equal or lesser scope or with greater detail, and (y)
contain any other information required by Part 5 of Article 9 of the UCC for the
sufficiency or filing office acceptance of any financing statement, continuation
statement or amendment and (ii) ratifies its authorization for Laurus to have
filed any initial financial statements, or amendments thereto if filed prior to
the date hereof. Each Company acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement without the prior written consent of Laurus and agrees that
it will not do so without the prior written consent of Laurus, subject to such
Company's rights under Section 9-509(d)(2) of the UCC.
6.3 Each Company hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to such Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by such
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this Agreement and the payment in
full of all Obligations.
7. Representations, Warranties and Covenants Concerning the Collateral.
Each Company represents, warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each request for a Loan
and made as of the time of each and every Loan hereunder) and covenants as
follows:
7.1 all of the Collateral (i) is owned by it free and clear of all Liens
(including any claims of infringement) except those in Laurus' favor and
Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a Lien.
7.2 it shall not encumber, mortgage, pledge, assign or grant any Lien in
any Collateral or any other assets to anyone other than Laurus and except for
Permitted Liens.
7.3 the Liens granted pursuant to this Agreement, upon completion of the
filings and other actions listed on Schedule 7(c) (which, in the case of all
filings and other documents referred to in said Schedule, have been delivered to
Laurus in duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all of its creditors and purchasers and such
security interest is prior to all other Liens in existence on the date hereof.
7.4 no effective security agreement, mortgage, deed of trust, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those relating to Permitted Liens.
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7.5 it shall not dispose of any of the Collateral whether by sale, lease
or otherwise except for the sale of Inventory in the ordinary course of business
and for the disposition or transfer in the ordinary course of business during
any fiscal year of obsolete and worn-out Equipment having an aggregate fair
market value of not more than $50,000 and only to the extent that (i) the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Laurus' first priority security interest or are used to repay
Loans or to pay general corporate expenses, or (ii) following the occurrence of
an Event of Default which continues to exist the proceeds of which are remitted
to Laurus to be held as cash collateral for the Obligations.
7.6 it shall defend the right, title and interest of Laurus in and to the
Collateral against the claims and demands of all Persons whomsoever, and take
such actions, including (i) all actions necessary to grant Laurus "control" of
any Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper owned by it, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus' request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank), (iii) notification
of Laurus' interest in Collateral at Laurus' request, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect and
preserve its and/or Laurus' respective and several interests in the Collateral.
7.7 it shall promptly, and in any event within five (5) Business Days
after the same is acquired by it, notify Laurus of any commercial tort claim (as
defined in the UCC) acquired by it and unless otherwise consented by Laurus, it
shall enter into a supplement to this Agreement granting to Laurus a Lien in
such commercial tort claim.
7.8 it shall place notations upon its Books and Records and any of its
financial statements to disclose Laurus' Lien in the Collateral.
7.9 if it retains possession of any Chattel Paper or Instrument with
Laurus' consent, upon Laurus' request such Chattel Paper and Instruments shall
be marked with the following legend: "This writing and obligations evidenced or
secured hereby are subject to the security interest of Laurus Master Fund, Ltd."
Notwithstanding the foregoing, upon the reasonable request of Laurus, such
Chattel Paper and Instruments shall be delivered to Laurus.
7.10 it shall perform in a reasonable time all other steps requested by
Laurus to create and maintain in Laurus' favor a valid perfected first Lien in
all Collateral subject only to Permitted Liens.
7.11 it shall notify Laurus promptly and in any event within three (3)
Business Days after obtaining knowledge thereof (i) of any event or circumstance
that, to its knowledge, would cause Laurus to consider any then existing Account
as no longer constituting an Eligible Account; (ii) of any material delay in its
performance of any of its obligations to any Account Debtor; (iii) of any
assertion by any Account Debtor of any material claims, offsets or
counterclaims; (iv) of any allowances, credits and/or monies granted by it to
any Account Debtor; (v) of all material adverse information relating to the
financial condition of an Account Debtor; (vi) of any material return of goods;
and (vii) of any loss, damage or destruction of any of the Collateral to the
extent that the fair market value of all such Collateral is no less than $5,000
in the aggregate.
7.12 all Eligible Accounts (i) represent complete bona fide transactions
which require no further act under any circumstances on its part to make such
Accounts payable by the Account Debtors, (ii) are not subject to any present,
future contingent offsets or counterclaims, and (iii) do not represent xxxx and
hold sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of such Company. It
has not made, nor will it make, any agreement with any Account Debtor for any
extension of time for the payment of any Account, any compromise or settlement
for less than the full amount thereof, any release of any Account Debtor from
liability therefor, or any deduction therefrom except a discount or allowance
for prompt or early payment allowed by it in the ordinary course of its business
consistent with historical practice and as previously disclosed to Laurus in
writing.
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7.13 it shall keep and maintain its Equipment in good operating condition,
except for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall at all
times be maintained and preserved. It shall not permit any such items to become
a Fixture to real estate or accessions to other personal property.
7.14 it shall maintain and keep all of its Books and Records concerning
the Collateral at its executive offices listed in Schedule 12(aa).
7.15 it shall maintain and keep the tangible Collateral at (x) the
addresses listed in Schedule 12(bb) and (y) such other third party locations to
the extent that (I) such third party locations are promptly identified to Laurus
upon Laurus' request, (II) the maintenance of Collateral at each such third
party location is reasonably required in connection with the ordinary course
business operations of the Companies and (III) the aggregate fair market value
of Collateral maintained at any third party location shall not exceed $100,000
in the aggregate, provided, that, in the case of clause (x) above it may change
such locations or open a new location, provided that it provides Laurus at least
thirty (30) days prior written notice of such changes or new location and (ii)
prior to such change or opening of a new location where Collateral having a
value of more than $50,000 will be located, it executes and delivers to Laurus
such agreements deemed reasonably necessary or prudent by Laurus, including
landlord agreements, mortgagee agreements and warehouse agreements, each in form
and substance satisfactory to Laurus, to adequately protect and maintain Laurus'
security interest in such Collateral.
7.16 Schedule 7(p) lists all banks and other financial institutions at
which it maintains deposits and/or other accounts, and such Schedule correctly
identifies the name, address and telephone number of each such depository, the
name in which the account is held, a description of the purpose of the account,
and the complete account number. It shall not establish any depository or other
bank account with any financial institution (other than the accounts set forth
on Schedule 7(p)) without Laurus' prior written consent. Notwithstanding the
forgoing, the Companies shall be permitted to open and maintain deposit accounts
in connection with the ordinary course business operations of the Companies,
provided that, (i) amounts held in any such deposit account shall not exceed
$250,000 at any time and (ii) the aggregate amount held in all such deposit
accounts shall not exceed $500,000.
7.17 All Inventory manufactured by it in the United States of America
shall be produced in accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto or promulgated thereunder.
8. Payment of Accounts.
8.1 Each Company will irrevocably direct all of its present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the lockboxes maintained by such
Company (the "Lockboxes") with Gateway National Bank or such other financial
institution accepted by Laurus in writing as may be selected by such Company
(the "Lockbox Bank") pursuant to the terms of the certain agreements among one
or more Companies, Laurus and/or the Lockbox Bank dated as of October 31, 2005.
On or prior to the Closing Date, each Company shall and shall cause the Lockbox
Bank to enter into all such documentation acceptable to Laurus pursuant to
which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox on
a daily basis and deposit all checks received therein to an account designated
by Laurus in writing and (b) comply only with the instructions or other
directions of Laurus concerning the Lockbox. All of each Company's invoices,
account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account of any Company or
any other amount constituting Collateral shall conspicuously direct that all
payments be made to the Lockbox or such other address as Laurus may direct in
writing. If, notwithstanding the instructions to Account Debtors, any Company
receives any payments, such Company shall immediately remit such payments to
Laurus in their original form with all necessary endorsements. Until so
remitted, such Company shall hold all such payments in trust for and as the
property of Laurus and shall not commingle such payments with any of its other
funds or property.
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8.2 At Laurus' election, following the occurrence of an Event of Default
which is continuing, Laurus may notify each Company's Account Debtors of Laurus'
security interest in the Accounts, collect them directly and charge the
collection costs and expenses thereof to Company's and the Eligible Subsidiaries
joint and several account.
9. Collection and Maintenance of Collateral.
9.1 Laurus may verify each Company's Accounts from time to time, but not
more often than once every three (3) months, unless an Event of Default has
occurred and is continuing, utilizing an audit control company or any other
agent of Laurus.
9.2 Proceeds of Accounts received by Laurus will be deemed received on the
Business Day after Laurus' receipt of such proceeds in good funds in dollars of
the United States of America to an account designated by Laurus. Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall be
deemed received on the next Business Day.
9.3 As Laurus receives the proceeds of Accounts of any Company, it shall
(i) apply such proceeds, as required, to amounts outstanding under the Notes,
and (ii) remit all such remaining proceeds (net of interest, fees and other
amounts then due and owing to Laurus hereunder) to Company Agent (for the
benefit of the applicable Companies) upon request (but no more often than twice
a week). Notwithstanding the foregoing, following the occurrence and during the
continuance of an Event of Default, Laurus, at its option, may (a) apply such
proceeds to the Obligations in such order as Laurus shall elect, (b) hold all
such proceeds as cash collateral for the Obligations and each Company hereby
grants to Laurus a security interest in such cash collateral amounts as security
for the Obligations and/or (c) do any combination of the foregoing.
10. Inspections and Appraisals. At all times during normal business hours,
but not more often than once per fiscal quarter of the Parent to the extent no
Event of Default has occurred, Laurus, and/or any agent of Laurus shall have the
right to (a) have access to, visit, inspect, review, evaluate and make physical
verification and appraisals of each Company's properties and the Collateral, (b)
inspect, audit and copy and make extracts from each Company's Books and Records,
including management letters prepared by independent certified public
accountants of recognized standing selected by the Parent and acceptable to
Laurus (the "Accountants"), and (c) discuss with each Company's directors,
principal officers, and independent accountants, each Company's business,
assets, liabilities, financial condition, results of operations and business
prospects. Each Company will deliver to Laurus any instrument necessary for
Laurus to obtain records from any service bureau maintaining records for such
Company. If any internally prepared financial information, including that
required under this Section is unsatisfactory in any manner to Laurus, Laurus
may request that the Accountants review the same. Notwithstanding the foregoing,
neither it nor any of its Subsidiaries shall be required to provide to Laurus
any material, non-public information relating to it or any of its Subsidiaries
unless the Parent and Laurus have entered into a confidentiality agreement
sufficient in scope to permit the Parent to maintain its compliance with
Regulation FD.
12
11. Financial Reporting. Company Agent will deliver, or cause to be
delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
11.1 As soon as available, and in any event within ninety (90) days after
the end of each fiscal year of the Parent, each Company's audited financial
statements with a report of the Accountants, which annual financial statements
shall be without qualification and shall include each of the Parent's and each
of its Subsidiaries' balance sheet as at the end of such fiscal year and the
related statements of each of the Parent's and each of its Subsidiaries' income,
retained earnings and cash flows for the fiscal year then ended, prepared on a
consolidated basis to include the Parent, each Subsidiary of the Parent and each
of their respective affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) if and when available, copies of any
management letters prepared by the Accountants; and (ii) a certificate of the
Parent's President, Chief Executive Officer or Chief Financial Officer stating
that such financial statements have been prepared in accordance with GAAP and
whether or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
11.2 As soon as available and in any event within forty five (45) days
after the end of each fiscal quarter of the Parent, an unaudited/internal
balance sheet and statements of income, retained earnings and cash flows of each
of the Parent's and each of its Subsidiaries' as at the end of and for such
quarter and for the year to date period then ended, prepared on a consolidating
and consolidated basis to include the Parent, each Subsidiary of the Parent and
each of their respective affiliates, in reasonable detail and, in the case of
such consolidated statements only, stating in comparative form the figures for
the corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end adjustments and accompanied by a
certificate of the Parent's President, Chief Executive Officer or Chief
Financial Officer, stating (i) that such financial statements have been prepared
in accordance with GAAP, subject to year-end audit adjustments, and (ii) whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
11.3 As soon as available and in any event within fifteen (15) days after
the end of each calendar month, to the extent prepared on behalf of the Parent
or any of its Subsidiaries, an unaudited/internal balance sheet and statements
of income, retained earnings and cash flows of each of the Parent and its
Subsidiaries as at the end of and for such month and for the year to date period
then ended, prepared on a consolidated basis to include the Parent, each
Subsidiary of the Parent and each of their respective affiliates, in reasonable
detail and stating in comparative form the figures for the corresponding date
and periods in the previous year, all prepared in accordance with GAAP, subject
to year-end adjustments and accompanied by a certificate of the Parent's
President, Chief Executive Officer or Chief Financial Officer, stating (i) that
such financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and (ii) whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the facts with
respect thereto;
11.4 As soon as available and in any event within fifteen (15) days after
the end of each month (or more frequently if Laurus so requests), to the extent
prepared on behalf of the Parent or any Subsidiaries, agings of each Company's
Accounts, unaudited trial balances and their accounts payable and a calculation
of each Company's Accounts and/or Eligible Accounts, provided, however, that if
Laurus shall request the foregoing information more often than as set forth in
the immediately preceding clause, each Company shall have fifteen (15) days from
each such request to comply with Laurus' demand;
13
11.5 Promptly after (i) the filing thereof, copies of the Parent's most
recent registration statements and annual, quarterly, monthly or other regular
reports which the Parent files with the Securities and Exchange Commission (the
"SEC"), and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as the Parent shall send to its stockholders.
11.6 The Parent shall deliver, or cause the applicable Subsidiary of the
Parent to deliver, such other information as the Purchaser shall reasonably
request.
12. Additional Representations and Warranties. Each Company hereby
represents and warrants to Laurus as follows:
12.1 Organization, Good Standing and Qualification. It and each of its
Subsidiaries (other than in respect of any Inactive Subsidiary) is a
corporation, partnership or limited liability company, as the case may be, duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. It and each of its Subsidiaries has the corporate,
limited liability company or partnership, as the case may be, power and
authority to own and operate its properties and assets and, insofar as it is or
shall be a party thereto, to (i) execute and deliver this Agreement and the
Ancillary Agreements, (ii) to issue the Notes and the shares of Common Stock
issuable upon conversion of the Notes (the "Note Shares"), (iii) to issue the
Warrants and the shares of Common Stock issuable upon conversion of the Warrants
(the "Warrant Shares"), and to (iv) carry out the provisions of this Agreement
and the Ancillary Agreements and to carry on its business as presently
conducted. It and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not had, or could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
12.2 Subsidiaries. Each of its direct and indirect Subsidiaries, the
direct owner of each such Subsidiary and its percentage ownership thereof, is
set forth on Schedule 12(b).
12.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Parent, as of the date
hereof consists of [335,000,000] shares, of which [300,000,000] are shares of
Common Stock, par value $0.001 per share, [20,558,931] shares of which are
issued and outstanding, and [35,000,000] are shares of preferred stock, par
value $0.001 per share of which no shares of preferred stock are issued and
outstanding. The authorized, issued and outstanding capital stock of each
Subsidiary of each Company is set forth on Schedule 12(c).
(b) Except as disclosed on Schedule 12(c), other than: (i) the
shares reserved for issuance under the Parent's stock option plans; and (ii)
shares which may be issued pursuant to this Agreement and the Ancillary
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Parent of any of its securities. Except as
disclosed on Schedule 12(c), neither the offer or issuance of any of the Notes
or the Warrants, or the issuance of any of the Note Shares or the Warrant
Shares, nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of the Parent outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
14
(c) All issued and outstanding shares of the Parent's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Parent's Articles of
Incorporation (the "Charter"). The Note Shares and the Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Parent's Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
12.4 Authorization; Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on its and its
Subsidiaries' part (including their respective officers and directors) necessary
for the authorization of this Agreement and the Ancillary Agreements, the
performance of all of its and its Subsidiaries' obligations hereunder and under
the Ancillary Agreements on the Closing Date and, the authorization, issuance
and delivery of the Notes and the Warrant has been taken or will be taken prior
to the Closing Date. This Agreement and the Ancillary Agreements, when executed
and delivered and to the extent it is a party thereto, will be its and its
Subsidiaries' valid and binding obligations enforceable against each such Person
in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The issuance of the Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
12.5 Liabilities. Neither it nor any of its Subsidiaries has any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
12.6 Agreements; Action. Except as set forth on Schedule 12(f) or as
disclosed in any Exchange Act Filings:
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which it or any of
its Subsidiaries is a party or to its knowledge by which it is bound which may
involve: (i) obligations (contingent or otherwise) of, or payments to, it or any
of its Subsidiaries in excess of $50,000 (other than obligations of, or payments
to, it or any of its Subsidiaries arising from purchase or sale agreements
entered into in the ordinary course of business); or (ii) the transfer or
license of any patent, copyright, trade secret or other proprietary right to or
from it (other than licenses arising from the purchase of "off the shelf" or
other standard products); or (iii) provisions restricting the development,
manufacture or distribution of its or any of its Subsidiaries' products or
services; or (iv) indemnification by it or any of its Subsidiaries with respect
to infringements of proprietary rights.
15
(b) Since December 31, 2004 (the "Balance Sheet Date") neither it
nor any of its Subsidiaries has: (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than ordinary course obligations) individually in
excess of $50,000 or, in the case of indebtedness and/or liabilities
individually less than $50,000, in excess of $100,000 in the aggregate; (iii)
made any loans or advances to any Person not in excess, individually or in the
aggregate, of $100,000, other than ordinary advances for travel expenses; or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its Inventory in the ordinary course of business.
(c) For the purposes of subsections (i) and (ii) of this Section
12(f), all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same Person (including Persons
it or any of its applicable Subsidiaries has reason to believe are affiliated
therewith or with any Subsidiary thereof) shall be aggregated for the purpose of
meeting the individual minimum dollar amounts of such subsections.
(d) the Parent maintains disclosure controls and procedures
("Disclosure Controls") designed to ensure that information required to be
disclosed by the Parent in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported, within the time
periods specified in the rules and forms of the SEC.
(e) The Parent makes and keeps books, records, and accounts, that,
in reasonable detail, accurately and fairly reflect the transactions and
dispositions of its assets. It maintains internal control over financial
reporting ("Financial Reporting Controls") designed by, or under the supervision
of, its principal executive and principal financial officers, and effected by
its board of directors, management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP, including
that:
i transactions are executed in accordance with management's
general or specific authorization;
ii unauthorized acquisition, use, or disposition of the
Parent's assets that could have a material effect on the financial statements
are prevented or timely detected;
iii transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that its
receipts and expenditures are being made only in accordance with authorizations
of the Parent's management and board of directors;
iv transactions are recorded as necessary to maintain
accountability for assets; and
v the recorded accountability for assets is compared with the
existing assets at reasonable intervals, and appropriate action is taken with
respect to any differences.
16
(f) There is no weakness in any of its Disclosure Controls or
Financial Reporting Controls that is required to be disclosed in any of the
Exchange Act Filings, except as so disclosed.
12.7 Obligations to Related Parties. Except as set forth on Schedule
12(g), neither it nor any of its Subsidiaries has any obligations to their
respective officers, directors, stockholders or employees other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on its or its
Subsidiaries' behalf;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any stock
option plan approved by its and its Subsidiaries' Board of Directors, as
applicable); and
(d) obligations listed in its and each of its Subsidiary's financial
statements or disclosed in any of the Parent's Exchange Act Filings.
Except as described above or set forth on Schedule 12(g), none of its officers,
directors or, to the best of its knowledge, key employees or stockholders, any
of its Subsidiaries or any members of their immediate families, are indebted to
it or any of its Subsidiaries, individually or in the aggregate, in excess of
$50,000 or have any direct or indirect ownership interest in any Person with
which it or any of its Subsidiaries is affiliated or with which it or any of its
Subsidiaries has a business relationship, or any Person which competes with it
or any of its Subsidiaries, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company) which may
compete with it or any of its Subsidiaries. Except as described above, none of
its officers, directors or stockholders, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
it or any of its Subsidiaries and no agreements, understandings or proposed
transactions are contemplated between it or any of its Subsidiaries and any such
Person. Except as set forth on Schedule 12(g), neither it nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person.
12.8 Changes. Since the Balance Sheet Date, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Ancillary Agreements, there has not been:
(a) any change in its or any of its Subsidiaries' business, assets,
liabilities, condition (financial or otherwise), properties, operations or
prospects, which, individually or in the aggregate, has had, or could reasonably
be expected to have, a Material Adverse Effect;
(b) any resignation or termination of any of its or its
Subsidiaries' officers, key employees or groups of employees;
(c) any material change, except in the ordinary course of business,
in its or any of its Subsidiaries' contingent obligations by way of guaranty,
endorsement, indemnity, warranty or otherwise;
17
(d) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(e) any waiver by it or any of its Subsidiaries of a valuable right
or of a material debt owed to it;
(f) any direct or indirect material loans made by it or any of its
Subsidiaries to any of its or any of its Subsidiaries' stockholders, employees,
officers or directors, other than advances made in the ordinary course of
business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) any declaration or payment of any dividend or other distribution
of its or any of its Subsidiaries' assets;
(i) any labor organization activity related to it or any of its
Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by it or any of its Subsidiaries, except those for immaterial amounts
and for current liabilities incurred in the ordinary course of business;
(k) any sale, assignment or transfer of any Intellectual Property or
other intangible assets;
(l) any change in any material agreement to which it or any of its
Subsidiaries is a party or by which either it or any of its Subsidiaries is
bound which, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by it or any of its Subsidiaries
to do any of the acts described in subsection (i) through (xiii) of this Section
12(h).
12.9 Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 12(i), it and each of its Subsidiaries has good and marketable title to
their respective properties and assets, and good title to its leasehold
interests, in each case subject to no Lien, other than Permitted Liens.
All facilities, Equipment, Fixtures, vehicles and other properties owned, leased
or used by it or any of its Subsidiaries are in good operating condition and
repair and are reasonably fit and usable for the purposes for which they are
being used. Except as set forth on Schedule 12(i), it and each of its
Subsidiaries is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.
12.10 Intellectual Property.
(a) It and each of its Subsidiaries owns or possesses sufficient
legal rights to all Intellectual Property necessary for their respective
businesses as now conducted and, to its knowledge as presently proposed to be
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to its or any
of its Subsidiary's Intellectual Property, nor is it or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the Intellectual Property of any other Person other than such
licenses or agreements arising from the purchase of "off the shelf" or standard
products.
18
(b) Neither it nor any of its Subsidiaries has received any
communications alleging that it or any of its Subsidiaries has violated any of
the Intellectual Property or other proprietary rights of any other Person, nor
is it or any of its Subsidiaries aware of any basis therefor.
(c) Neither it nor any of its Subsidiaries believes it is or will be
necessary to utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by it or any of its
Subsidiaries, except for inventions, trade secrets or proprietary information
that have been rightfully assigned to it or any of its Subsidiaries.
12.11 Compliance with Other Instruments. Neither it nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) any provision of any indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (y), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Ancillary
Agreements to which it is a party, and the issuance of the Notes and the other
Securities each pursuant hereto and thereto, will not, with or without the
passage of time or giving of notice, result in any such material violation, or
be in conflict with or constitute a default under any such term or provision, or
result in the creation of any Lien upon any of its or any of its Subsidiary's
properties or assets or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to it or
any of its Subsidiaries, their businesses or operations or any of their assets
or properties.
12.12 Litigation. Except as set forth on Schedule 12(l), there is no
action, suit, proceeding or investigation pending or, to its knowledge,
currently threatened against it or any of its Subsidiaries that prevents it or
any of its Subsidiaries from entering into this Agreement or the Ancillary
Agreements, or from consummating the transactions contemplated hereby or
thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, or could result in
any change in its or any of its Subsidiaries' current equity ownership, nor is
it aware that there is any basis to assert any of the foregoing. Neither it nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by it or
any of its Subsidiaries currently pending or which it or any of its Subsidiaries
intends to initiate.
12.13 Tax Returns and Payments. It and each of its Subsidiaries has timely
filed all tax returns (federal, state and local) required to be filed by it to
the extent the failure to file such tax returns shall not result in an adverse
impact on it or its Subsidiaries. Except as set forth on Schedule 12(m), all
taxes shown to be due and payable on such returns, any assessments imposed, and
all other taxes due and payable by it and each of its Subsidiaries on or before
the Closing Date, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 12(m), neither it nor any of its
Subsidiaries has been advised:
(a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof; or
19
(b) of any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
12.14 Employees. Except as set forth on Schedule 12(n), neither it nor any
of its Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to its
knowledge, threatened with respect to it or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule 12(n), neither it nor any
of its Subsidiaries is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To its knowledge, none of its or any of its Subsidiaries' employees,
nor any consultant with whom it or any of its Subsidiaries has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, it or any of its Subsidiaries because of
the nature of the business to be conducted by it or any of its Subsidiaries; and
to its knowledge the continued employment by it and its Subsidiaries of their
present employees, and the performance of its and its Subsidiaries contracts
with its independent contractors, will not result in any such violation. Neither
it nor any of its Subsidiaries is aware that any of its or any of its
Subsidiaries' employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that would
interfere with their duties to it or any of its Subsidiaries. Neither it nor any
of its Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment agreement
with it or any of its Subsidiaries, none of its or any of its Subsidiaries'
employees has been granted the right to continued employment by it or any of its
Subsidiaries or to any material compensation following termination of employment
with it or any of its Subsidiaries. Except as set forth on Schedule 12(n),
neither it nor any of its Subsidiaries is aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with it
or any of its Subsidiaries, as applicable, nor does it or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
12.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 12(o) and except as disclosed in Exchange Act Filings, neither it nor
any of its Subsidiaries is presently under any obligation, and neither it nor
any of its Subsidiaries has granted any rights, to register any of its or any of
its Subsidiaries' presently outstanding securities or any of its securities that
may hereafter be issued. Except as set forth on Schedule 12(o) and except as
disclosed in Exchange Act Filings, to its knowledge, none of its or any of its
Subsidiaries' stockholders has entered into any agreement with respect to its or
any of its Subsidiaries' voting of equity securities.
12.16 Compliance with Laws; Permits. Neither it nor any of its
Subsidiaries is in violation of the Xxxxxxxx-Xxxxx Act of 2002 or any SEC
related regulation or rule or any rule of the Principal Market promulgated
thereunder or any other applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any Ancillary
Agreement and the issuance of any of the Securities, except such as have been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing Date, as will be filed in a timely manner. It and each of
its Subsidiaries has all material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could, either individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
20
12.17 Environmental and Safety Laws. Neither it nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 12(q), no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by it or any of its Subsidiaries or, to its
knowledge, by any other Person on any property owned, leased or used by it or
any of its Subsidiaries. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous"
or "toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; and
(b) any petroleum products or nuclear materials.
12.18 Valid Offering. Assuming the accuracy of the representations and
warranties of Laurus contained in this Agreement, the offer and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the resale of securities
will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.
12.19 Full Disclosure. It and each of its Subsidiaries has provided Laurus
with all information requested by Laurus in connection with Laurus' decision to
enter into this Agreement, including all information each Company and its
Subsidiaries believe is reasonably necessary to make such investment decision.
Neither this Agreement, the Ancillary Agreements nor the exhibits and schedules
hereto and thereto nor any other document delivered by it or any of its
Subsidiaries to Laurus or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to Laurus by it or any of its Subsidiaries were
based on its and its Subsidiaries' experience in the industry and on assumptions
of fact and opinion as to future events which it or any of its Subsidiaries, at
the date of the issuance of such projections or estimates, believed to be
reasonable.
12.20 Insurance. It and each of its Subsidiaries has general commercial,
product liability, fire and casualty insurance policies with coverages which it
believes are customary for companies similarly situated to it and its
Subsidiaries in the same or similar business.
12.21 SEC Reports and Financial Statements. Except as set forth on
Schedule 12(u), it and each of its Subsidiaries has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act.
The Parent has furnished Laurus with copies of: (i) its Annual Report on Form
10-KSB for its fiscal years ended December 31, 2004; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarters ended March 31, 2005 and June 30,
2005, and the Form 8-K filings which it has made during its fiscal year 2005 to
date (collectively, the "SEC Reports"). Except as set forth on Schedule 12(u),
each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and cash
flows of the Parent and its Subsidiaries, on a consolidated basis, as of, and
for, the periods presented in each such SEC Report.
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12.22 Listing. The Parent's Common Stock is listed or quoted, as
applicable, on the Principal Market and satisfies all requirements for the
continuation of such listing or quotation, as applicable, and the Parent shall
do all things necessary for the continuation of such listing or quotation, as
applicable. The Parent has not received any notice that its Common Stock will be
delisted from, or no longer quoted on, as applicable, the Principal Market or
that its Common Stock does not meet all requirements for such listing or
quotation, as applicable.
12.23 No Integrated Offering. Neither it, nor any of its Subsidiaries nor
any of its Affiliates, nor any Person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement or any Ancillary Agreement to be
integrated with prior offerings by it for purposes of the Securities Act which
would prevent it from issuing the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will it or any of its Affiliates or Subsidiaries take any action
or steps that would cause the offering of the Securities to be integrated with
other offerings.
12.24 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. Neither it nor any of its Subsidiaries will issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.
12.25 Dilution. It specifically acknowledges that the Parent's obligation
to issue the shares of Common Stock upon conversion of the Notes and exercise of
the Warrants is binding upon the Parent and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Parent.
12.26 Patriot Act. It certifies that, to the best of its knowledge,
neither it nor any of its Subsidiaries has been designated, nor is or shall be
owned or controlled, by a "suspected terrorist" as defined in Executive Order
13224. It hereby acknowledges that Laurus seeks to comply with all applicable
laws concerning money laundering and related activities. In furtherance of those
efforts, it hereby represents, warrants and covenants that: (i) none of the cash
or property that it or any of its Subsidiaries will pay or will contribute to
Laurus has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or payment by
it or any of its Subsidiaries to Laurus, to the extent that they are within its
or any such Subsidiary's control shall cause Laurus to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly notify
Laurus if any of these representations, warranties and covenants ceases to be
true and accurate regarding it or any of its Subsidiaries. It shall provide
Laurus with any additional information regarding it and each Subsidiary thereof
that Laurus deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. It
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties and covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in it. It further
understands that Laurus may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
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12.27 Company Name; Locations of Offices, Records and Collateral. Schedule
12(aa) sets forth each Company's name as it appears in official filings in the
state of its organization, the type of entity of each Company, the
organizational identification number issued by each Company's state of
organization or a statement that no such number has been issued, each Company's
state of organization, and the location of each Company's chief executive
office, corporate offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept (including in each
case the county of such locations) and, except as set forth in such Schedule
12(aa), such locations have not changed during the preceding twelve months. As
of the Closing Date, during the prior five years, except as set forth in
Schedule 12(aa), no Company has been known as or conducted business in any other
name (including trade names). Each Company has only one state of organization.
12.28 ERISA. Based upon the Employee Retirement Income Security Act of
1974 ("ERISA"), and the regulations and published interpretations thereunder:
(i) neither it nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the Code);
(ii) it and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
it nor any of its Subsidiaries has any knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any employee benefit plan(s);
(iv) neither it nor any of its Subsidiaries has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than its or such Subsidiary's employees; and (v) neither it nor any of its
Subsidiaries has withdrawn, completely or partially, from any multi-employer
pension plan so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980.
12.29 Inactive Subsidiaries. No Inactive Subsidiary owns or holds any
assets or liabilities (other than in respect of Practical Building Solutions
2000, Inc., a federal tax lien not to exceed $50,000 to the extent such tax
liability is not at anytime the liability of the Parent or any other Subsidiary
of the Parent) or engages in any business operations.
13. Covenants. Each Company, as applicable, covenants and agrees with
Laurus as follows:
13.1 Stop-Orders. It shall advise Laurus, promptly after it receives
notice of issuance by the SEC, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Parent, or of the suspension of the
qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
13.2 Listing. It shall promptly secure the listing or quotation, as
applicable, of the shares of Common Stock issuable upon conversion of the Notes
and exercise of the Warrants on the Principal Market upon which shares of Common
Stock are listed or quoted, as applicable, (subject to official notice of
issuance) and shall maintain such listing or quotation, as applicable, so long
as any other shares of Common Stock shall be so listed or quoted, as applicable.
The Parent shall maintain the listing or quotation, as applicable, of its Common
Stock on the Principal Market, and will comply in all material respects with the
Parent's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
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13.3 Market Regulations. It shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Laurus.
13.4 Reporting Requirements. For as long as any Obligation remains
outstanding, it shall timely file with the SEC all reports required to be filed
pursuant to the Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination.
13.5 Use of Funds. It shall use the proceeds of the Loans for general
working capital purposes only.
13.6 Access to Facilities. It shall, and shall cause each of its
Subsidiaries to, permit any representatives designated by Laurus (or any
successor of Laurus), upon reasonable notice and during normal business hours,
but not more often than once per fiscal quarter of the Parent so long as no
Event of Default has occurred, at Company's expense and accompanied by a
representative of Company Agent (provided that no such prior notice shall be
required to be given and no such representative shall be required to accompany
Laurus in the event Laurus believes such access is necessary to preserve or
protect the Collateral or following the occurrence and during the continuance of
an Event of Default), to:
(a) visit and inspect any of its or any such Subsidiary's
properties;
(b) examine its or any such Subsidiary's corporate and financial
records (unless such examination is not permitted by federal, state or local law
or by contract) and make copies thereof or extracts therefrom; and
(c) discuss its or any such Subsidiary's affairs, finances and
accounts with its or any such Subsidiary's directors, officers and Accountants.
Notwithstanding the foregoing, neither it nor any of its Subsidiaries shall
provide any material, non-public information to Laurus unless Laurus signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
13.7 Taxes. It shall, and shall cause each of its Subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon it and its Subsidiaries' income, profits, property or business, as
the case may be; provided, however, that any such tax, assessment, charge or
levy need not be paid currently if (i) the validity thereof shall currently and
diligently be contested in good faith by appropriate proceedings, (ii) such tax,
assessment, charge or levy shall have no effect on the Lien priority of Laurus
in the Collateral, and (iii) if it and/or such Subsidiary, as applicable, shall
have set aside on its and/or such Subsidiary's books adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that it shall,
and shall cause each of its Subsidiaries to, pay all such taxes, assessments,
charges or levies forthwith upon the commencement of proceedings to foreclose
any lien which may have attached as security therefor.
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13.8 Insurance. It shall bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral. It and each of its
Subsidiaries shall keep its assets which are of an insurable character insured
by financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in similar
business similarly situated as it and its Subsidiaries; and it and its
Subsidiaries shall maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner which it and/or such Subsidiary thereof
reasonably believes is customary for companies in similar business similarly
situated as it and its Subsidiaries and to the extent available on commercially
reasonable terms. It and each of its Subsidiaries will jointly and severally
bear the full risk of loss from any loss of any nature whatsoever with respect
to the assets pledged to Laurus as security for its obligations hereunder and
under the Ancillary Agreements. At its own cost and expense in amounts and with
carriers reasonably acceptable to Laurus, it and each of its Subsidiaries shall
(i) keep all their insurable properties and properties in which they have an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to it or the respective Subsidiary's including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to it and its Subsidiaries' insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to its or any of its Subsidiaries assets or funds either directly or
through governmental authority to draw upon such funds or to direct generally
the disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which it or any
of its Subsidiaries is engaged in business; and (v) furnish Laurus with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting its and its
Subsidiaries' workers' compensation policy, endorsements to such policies naming
Laurus as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Laurus, naming Laurus as
lenders loss payee, and (z) evidence that as to Laurus the insurance coverage
shall not be impaired or invalidated by any act or neglect of any Company or any
of its Subsidiaries and the insurer will provide Laurus with at least thirty
(30) days notice prior to cancellation. It shall instruct the insurance carriers
that in the event of any loss thereunder, the carriers shall make payment for
such loss to Laurus and not to any Company or any of its Subsidiaries and Laurus
jointly. If any insurance losses are paid by check, draft or other instrument
payable to any Company and/or any of its Subsidiaries and Laurus jointly, Laurus
may endorse, as applicable, such Company's and/or any of its Subsidiaries' name
thereon and do such other things as Laurus may deem advisable to reduce the same
to cash. Laurus is hereby authorized to adjust and compromise claims. All loss
recoveries received by Laurus upon any such insurance may be applied to the
Obligations, in such order as Laurus in its sole discretion shall determine or
shall otherwise be delivered to Company Agent for the benefit of the applicable
Company and/or its Subsidiaries. Any surplus shall be paid by Laurus to Company
Agent for the benefit of the applicable Company and/or its Subsidiaries, or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid, as applicable, by Companies and their Subsidiaries to Laurus, on demand.
13.9 Intellectual Property. It shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
13.10 Properties. It shall, and shall cause each of its Subsidiaries to,
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and it shall, and
shall cause each of its Subsidiaries to, at all times comply with each provision
of all leases to which it is a party or under which it occupies property if the
breach of such provision could reasonably be expected to have a Material Adverse
Effect.
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13.11 Confidentiality. Subject to Section 38 of this Agreement, it shall
not, and shall not permit any of its Subsidiaries to, disclose, and will not
include in any public announcement, the name of Laurus, unless expressly agreed
to by Laurus or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, each Company and its Subsidiaries may disclose
Laurus' identity and the terms of this Agreement to its current and prospective
debt and equity financing sources.
13.12 Required Approvals. It shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Laurus, (i) create, incur,
assume or suffer to exist any indebtedness (exclusive of trade debt) whether
secured or unsecured other than each Company's indebtedness to Laurus and as set
forth on Schedule 13(l)(i) attached hereto and made a part hereof; (ii) cancel
any debt owing to it in excess of $50,000 in the aggregate during any 12 month
period; (iii) assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except the endorsement of negotiable instruments by it or its Subsidiaries for
deposit or collection or similar transactions in the ordinary course of
business; (iv) directly or indirectly declare, pay or make any dividend or
distribution on any class of its Stock or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any of its or its
Subsidiaries' Stock outstanding on the date hereof, or issue any preferred
stock; (v) purchase or hold beneficially any Stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including any partnership or joint venture, except (x) travel advances, (y)
loans to its and its Subsidiaries' officers and employees not exceeding at any
one time an aggregate of $10,000, and (z) loans to its existing Subsidiaries so
long as such Subsidiaries are designated as either a co-borrower hereunder or
has entered into such guaranty and security documentation required by Laurus,
including, without limitation, to grant to Laurus a first priority perfected
security interest in substantially all of such Subsidiary's assets to secure the
Obligations; (vi) create or permit to exist any Subsidiary, other than any
Subsidiary in existence on the date hereof and listed in Schedule 12(b) unless
such new Subsidiary is a wholly-owned Subsidiary and is designated by Laurus as
either a co-borrower or guarantor hereunder and such Subsidiary shall have
entered into all such documentation required by Laurus, including, without
limitation, to grant to Laurus a first priority perfected security interest in
substantially all of such Subsidiary's assets to secure the Obligations; (vii)
directly or indirectly, prepay any indebtedness (other than to Laurus and in the
ordinary course of business), or repurchase, redeem, retire or otherwise acquire
any indebtedness (other than to Laurus and in the ordinary course of business)
except to make scheduled payments of principal and interest thereof; (viii)
enter into any merger, consolidation or other reorganization with or into any
other Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to consolidate with or merge with it, unless (1) such
Company is the surviving entity of such merger or consolidation, (2) no Event of
Default shall exist immediately prior to and after giving effect to such merger
or consolidation, (3) such Company shall have provided Laurus copies of all
documentation relating to such merger or consolidation and (4) such Company
shall have provided Laurus with at least thirty (30) days' prior written notice
of such merger or consolidation; (ix) materially change the nature of the
business in which it is presently engaged; (x) become subject to (including,
without limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict its or
any of its Subsidiaries' right to perform the provisions of this Agreement or
any of the Ancillary Agreements; (xi) change its fiscal year or make any changes
in accounting treatment and reporting practices without prior written notice to
Laurus except as required by GAAP or in the tax reporting treatment or except as
required by law; (xii) enter into any transaction with any employee, director or
Affiliate, except in the ordinary course on arms-length terms; (xiii) xxxx
Accounts under any name except the present name of such Company; or (xiv) sell,
lease, transfer or otherwise dispose of any of its properties or assets, or any
of the properties or assets of its Subsidiaries, except for (1) sales, leases,
transfer or dispositions by any Company to any other Company, (2) the sale of
Inventory in the ordinary course of business and (3) the disposition or transfer
in the ordinary course of business during any fiscal year of obsolete and
worn-out Equipment and only to the extent that (x) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus' first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (y) following the occurrence of an Event of
Default which continues to exist, the proceeds of which are remitted to Laurus
to be held as cash collateral for the Obligations.
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13.13 Reissuance of Securities. The Parent shall reissue certificates
representing the Securities without the legends set forth in Section 39 below at
such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Parent agrees to cooperate with Laurus in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Parent and its counsel receive reasonably
requested representations from Laurus and broker, if any.
13.14 Opinion. On the Closing Date, it shall deliver to Laurus an opinion
acceptable to Laurus from each Company's legal counsel. Each Company will
provide, at the Companies' joint and several expense, such other legal opinions
in the future as are reasonably necessary for the conversion of the Notes and
the exercise of the Warrants.
13.15 Legal Name, etc. It shall not, without providing Laurus with 30 days
prior written notice, change (i) its name as it appears in the official filings
in the state of its organization, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of organization,
(iv) its state of organization or (v) amend its certificate of incorporation,
by-laws or other organizational document.
13.16 Compliance with Laws. The operation of each of its and each of its
Subsidiaries' business is and shall continue to be in compliance in all material
respects with all applicable federal, state and local laws, rules and
ordinances, including to all laws, rules, regulations and orders relating to
taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health and safety and environmental matters.
13.17 Notices. It and each of its Subsidiaries shall promptly inform
Laurus in writing of: (i) the commencement of all proceedings and investigations
by or before and/or the receipt of any notices from, any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any way concerning any event which could reasonably be
expected to have singly or in the aggregate, a Material Adverse Effect; (ii) any
change which has had, or could reasonably be expected to have, a Material
Adverse Effect; (iii) any Event of Default or Default; and (iv) any default or
any event which with the passage of time or giving of notice or both would
constitute a default under any agreement for the payment of money to which it or
any of its Subsidiaries is a party or by which it or any of its Subsidiaries or
any of its or any such Subsidiary's properties may be bound the breach of which
would have a Material Adverse Effect.
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13.18 Margin Stock. It shall not permit any of the proceeds of the Loans
made hereunder to be used directly or indirectly to "purchase" or "carry"
"margin stock" or to repay indebtedness incurred to "purchase" or "carry"
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
13.19 Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to its
employees or directors, neither it nor any of its Subsidiaries shall, prior to
the full repayment or conversion of the Notes (together with all accrued and
unpaid interest and fees related thereto), (x) enter into any equity line of
credit agreement or similar agreement or (y) issue, or enter into any agreement
to issue, any securities with a variable/floating conversion and/or pricing
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement).
13.20 Authorization and Reservation of Shares. The Parent shall at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of the Notes and exercise of the Warrants.
13.21 Financing Right of First Refusal.
(a) Each Company hereby grants to Laurus a right of first refusal to
provide any Additional Financing (as defined below) to be issued by any Company
and/or any of its Subsidiaries (the "Additional Financing Parties"), subject to
the following terms and conditions. From and after the date hereof, prior to the
incurrence of any additional indebtedness and/or the sale or issuance of any
equity interests of the Additional Financing Parties (an "Additional
Financing"), Company Agent shall notify Laurus of such Additional Financing. In
connection therewith, Company Agent shall submit a fully executed term sheet (a
"Proposed Term Sheet") to Laurus setting forth the terms, conditions and pricing
of any such Additional Financing (such financing to be negotiated on "arm's
length" terms and the terms thereof to be negotiated in good faith) proposed to
be entered into by the Additional Financing Parties. Laurus shall have the
right, but not the obligation, to deliver to Company Agent its own proposed term
sheet (the "Laurus Term Sheet") setting forth the terms and conditions upon
which Laurus would be willing to provide such Additional Financing to the
Additional Financing Parties. The Laurus Term Sheet shall contain terms no less
favorable to the Additional Financing Parties than those outlined in Proposed
Term Sheet. Laurus shall deliver to Company Agent the Laurus Term Sheet within
ten Business Days of receipt of each such Proposed Term Sheet. If the provisions
of the Laurus Term Sheet are at least as favorable to the Additional Financing
Parties as the provisions of the Proposed Term Sheet, the Additional Financing
Parties shall enter into and consummate the Additional Financing transaction
outlined in the Laurus Term Sheet.
(b) It shall not, and shall not permit its Subsidiaries to, agree,
directly or indirectly, to any restriction with any Person which limits the
ability of Laurus to consummate an Additional Financing with it or any of its
Subsidiaries.
13.22 Inactive Subsidiaries. It shall prevent each Inactive Subsidiary
from owning or holding any assets or liabilities (other than in respect of
Practical Building Solutions 2000, Inc., a federal tax lien not to exceed
$50,000 to the extent such tax liability is not at anytime the liability of the
Parent or any other Subsidiary of the Parent (other than Practical Building
Solutions 2000, Inc.)) or engaging in any business operations; provided however,
that, upon no less than fifteen (15) day's prior written notice to Laurus, any
Inactive Subsidiary may commence business operations to the extent such Inactive
Subsidiary takes all actions as may be reasonably requested by Laurus,
including, without limitation the provision of evidence of good standing in the
jurisdiction of organization of such Inactive Subsidiary at the time such
business operations commence and the granting of a first priority perfected
security interest in substantially all of such Inactive Subsidiary's assets to
secure the Obligations.
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14. Further Assurances. At any time and from time to time, upon the
written request of Laurus and at the sole expense of Companies, each Company
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as Laurus may request (a) to obtain
the full benefits of this Agreement and the Ancillary Agreements, (b) to
protect, preserve and maintain Laurus' rights in the Collateral and under this
Agreement or any Ancillary Agreement, and/or (c) to enable Laurus to exercise
all or any of the rights and powers herein granted or any Ancillary Agreement.
15. Representations, Warranties and Covenants of Laurus. Laurus hereby
represents, warrants and covenants to each Company as follows:
15.1 Requisite Power and Authority. Laurus has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Ancillary Agreements and to carry out their provisions. All
corporate action on Laurus' part required for the lawful execution and delivery
of this Agreement and the Ancillary Agreements have been or will be effectively
taken prior to the Closing Date. Upon their execution and delivery, this
Agreement and the Ancillary Agreements shall be valid and binding obligations of
Laurus, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
15.2 Investment Representations. Laurus understands that the Securities
are being offered pursuant to an exemption from registration contained in the
Securities Act based in part upon Laurus' representations contained in this
Agreement, including, without limitation, that Laurus is an "accredited
investor" within the meaning of Regulation D under the Securities Act. Laurus
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Notes to be issued to it under this Agreement and the Securities acquired by
it upon the conversion of the Notes.
15.3 Laurus Bears Economic Risk. Laurus has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Parent so that it is capable of evaluating the merits
and risks of its investment in the Parent and has the capacity to protect its
own interests. Laurus must bear the economic risk of this investment until the
Securities are sold pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available.
15.4 Investment for Own Account. The Securities are being issued to Laurus
for its own account for investment only, and not as a nominee or agent and not
with a view towards or for resale in connection with their distribution.
15.5 Laurus Can Protect Its Interest. Laurus represents that by reason of
its, or of its management's, business and financial experience, Laurus has the
capacity to evaluate the merits and risks of its investment in the Notes, and
the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Ancillary Agreements.
Further, Laurus is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Ancillary Agreements.
29
15.6 Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
15.7 Shorting. Neither Laurus nor any of its Affiliates or investment
partners has, will, or will cause any Person, to directly engage in "short
sales" of the Parent's Common Stock as long as any Minimum Borrowing Note shall
be outstanding.
15.8 Patriot Act. Laurus certifies that, to the best of Laurus' knowledge,
Laurus has not been designated, and is not owned or controlled, by a "suspected
terrorist" as defined in Executive Order 13224, nor is it listed on the master
list of Specially Designated Nationals or Blocked Persons maintained by the
Office of Foreign Assets Control. Laurus seeks to comply with all applicable
laws concerning money laundering and related activities. In furtherance of those
efforts, Laurus hereby represents, warrants and covenants that: (i) none of the
cash or property that Laurus will use to make the Loans has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no disbursement by Laurus to any Company to the extent
within Laurus' control, shall cause Laurus to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. Laurus shall promptly notify
the Company Agent if any of these representations ceases to be true and accurate
regarding Laurus. Laurus agrees to provide the Company any additional
information regarding Laurus that the Company deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities. Laurus understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in the Parent. Laurus
further understands that the Parent may release information about Laurus and, if
applicable, any underlying beneficial owners, to proper authorities if the
Parent, in its sole discretion, determines that it is in the best interests of
the Parent in light of relevant rules and regulations under the laws set forth
in subsection (ii) above.
15.9 Limitation on Acquisition of Common Stock. Notwithstanding anything
to the contrary contained in this Agreement, any Ancillary Agreement, or any
document, instrument or agreement entered into in connection with any other
transaction entered into by and between Laurus and any Company (and/or
Subsidiaries or Affiliates of any Company), Laurus shall not acquire stock in
the Parent (including, without limitation, pursuant to a contract to purchase,
by exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Parent, or
otherwise, and such options, warrants, conversion or other rights shall not be
exercisable) to the extent such stock acquisition would cause any interest
(including any original issue discount) payable by any Company to Laurus not to
qualify as portfolio interest, within the meaning of Section 881(c)(2) of the
Internal Revenue Code of 1986, as amended (the "Code") by reason of Section
881(c)(3) of the Code, taking into account the constructive ownership rules
under Section 871(h)(3)(C) of the Code (the "Stock Acquisition Limitation"). The
Stock Acquisition Limitation shall automatically become null and void without
any notice to any Company upon the earlier to occur of either (a) the Parent's
delivery to Laurus of a Notice of Redemption (as defined in the Notes) or (b)
the existence of an Event of Default at a time when the average closing price of
the Common Stock as reported by Bloomberg, L.P. on the Principal Market for the
immediately preceding five trading days is greater than or equal to 150% of the
Fixed Conversion Price (as defined in the Notes).
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15.10 Compliance with Securities Laws. Laurus hereto represents that it is
aware that the United States securities laws restrict persons with material
non-public information about a company obtained directly or indirectly from that
company from purchasing or selling securities of such company, or from
communicating such information to any other person under circumstances in which
it is reasonably foreseeable that such person is likely to purchase or sell such
securities on the basis of such information. Laurus hereto further represents
that it will comply with all applicable laws regarding the foregoing and
otherwise applicable to the handling of material non-public information of the
Parent and its Subsidiaries.
15.11 Section 881(c)(3)(A) Representation. Laurus hereto represents that
it is not a "bank" as such term is used in Section 881(c)(3)(A) of the Code.
16. Power of Attorney. Each Company hereby appoints Laurus, or any other
Person whom Laurus may designate as such Company's attorney, with power to: (i)
endorse such Company's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Laurus'
possession; (ii) sign such Company's name on any invoice or xxxx of lading
relating to any Accounts, drafts against Account Debtors, schedules and
assignments of Accounts, notices of assignment, financing statements and other
public records, verifications of Account and notices to or from Account Debtors;
(iii) verify the validity, amount or any other matter relating to any Account by
mail, telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) on or after the occurrence and during the continuation of an
Event of Default, notify the post office authorities to change the address for
delivery of such Company's mail to an address designated by Laurus, and to
receive, open and dispose of all mail addressed to such Company. Each Company
hereby ratifies and approves all acts of the attorney. Neither Laurus, nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law, except for gross negligence or willful misconduct.
This power, being coupled with an interest, is irrevocable so long as Laurus has
a security interest and until the Obligations have been fully satisfied.
17. Term of Agreement. Laurus' agreement to make Loans and extend
financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Term. At Laurus' election following the occurrence
of an Event of Default, Laurus may terminate this Agreement. The termination of
the Agreement shall not affect any of Laurus' rights hereunder or any Ancillary
Agreement and the provisions hereof and thereof shall continue to be fully
operative until all transactions entered into, rights or interests created and
the Obligations have been irrevocably disposed of, concluded or liquidated.
Notwithstanding the foregoing, Laurus shall release its security interests at
any time after thirty (30) days notice upon irrevocable payment to it of all
Obligations if each Company shall have (i) provided Laurus with an executed
release of any and all claims which such Company may have or thereafter have
under this Agreement and all Ancillary Agreements and (ii) paid to Laurus an
early payment fee in an amount equal to (1) five percent (5%) of the Capital
Availability Amount if such payment occurs prior to the first anniversary of the
Closing Date, (2) four percent (4%) of the Capital Availability Amount if such
payment occurs on or after the first anniversary of the Closing Date and prior
to the second anniversary of the Closing Date and (3) three percent (3%) of the
Capital Availability Amount if such termination occurs thereafter during the
Term; such fee being intended to compensate Laurus for its costs and expenses
incurred in initially approving this Agreement or extending same. Such early
payment fee shall be due and payable jointly and severally by the Companies to
Laurus upon termination by acceleration of this Agreement by Laurus due to the
occurrence and continuance of an Event of Default.
18. Termination of Lien. The Liens and rights granted to Laurus hereunder
and any Ancillary Agreements and the financing statements filed in connection
herewith or therewith shall continue in full force and effect, notwithstanding
the termination of this Agreement or the fact that any Company's account may
from time to time be temporarily in a zero or credit position, until all of the
Obligations have been indefeasibly paid or performed in full after the
termination of this Agreement. Laurus shall not be required to send termination
statements to any Company, or to file them with any filing office, unless and
until this Agreement and the Ancillary Agreements shall have been terminated in
accordance with their terms and all Obligations indefeasibly paid in full in
immediately available funds.
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19. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default":
19.1 failure to make payment of any of the Obligations when required
hereunder, and, in any such case, such failure shall continue for a period of
three (3) days following the date upon which any such payment was due;
19.2 failure by any Company or any of its Subsidiaries to pay any taxes
when due unless such taxes are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been provided on
such Company's and/or such Subsidiary's books;
19.3 failure to perform under, and/or committing any breach of, in any
material respect, this Agreement or any covenant contained herein, which failure
or breach shall continue without remedy for a period of fifteen (15) days after
the occurrence thereof;
19.4 any representation, warranty or statement made by any Company or any
of its Subsidiaries hereunder, in any Ancillary Agreement, any certificate,
statement or document delivered pursuant to the terms hereof, or in connection
with the transactions contemplated by this Agreement should prove to be false or
misleading in any material respect on the date as of which made or deemed made;
19.5 the occurrence of any default (or similar term) in the observance or
performance of any other agreement or condition relating to any indebtedness or
contingent obligation of any Company or any of its Subsidiaries beyond the
period of grace (if any), the effect of which default is to cause, or permit the
holder or holders of such indebtedness or beneficiary or beneficiaries of such
contingent obligation to cause, such indebtedness to become due prior to its
stated maturity or such contingent obligation to become payable;
19.6 attachments or levies in excess of $50,000 in the aggregate are made
upon any Company's assets or a judgment is rendered against any Company's
property involving a liability of more than $50,000 which shall not have been
vacated, discharged, stayed or bonded within thirty (30) days from the entry
thereof;
19.7 any change in any Company's or any of its Subsidiary's condition or
affairs (financial or otherwise) which in Laurus' reasonable, good faith
opinion, could reasonably be expected to have a Material Adverse Effect;
19.8 any Lien created hereunder or under any Ancillary Agreement for any
reason ceases to be or is not a valid and perfected Lien having a first priority
interest;
19.9 any Company or any of its Subsidiaries shall (i) apply for, consent
to or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to without challenge within ten (10) days of
the filing thereof, or failure to have dismissed within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
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19.10 any Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business;
19.11 any Company or any of its Subsidiaries directly or indirectly sells,
assigns, transfers, conveys, or suffers or permits to occur any sale,
assignment, transfer or conveyance of any assets of such Company or any interest
therein, except as permitted herein;
19.12 any "Person" or "group" (as such terms are defined in Sections 13(d)
and 14(d) of the Exchange Act, as in effect on the date hereof), other than the
Holder, is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and
13(d)-5 under the Exchange Act), directly or indirectly, of 35% or more on a
fully diluted basis of the then outstanding voting equity interest of the Parent
(other than a "Person" or "group" that beneficially owns 35% or more of such
outstanding voting equity interests of the Parent on the date hereof), (ii) the
Board of Directors of the Parent shall cease to consist of a majority of the
Board of Directors of the Parent on the date hereof (or directors appointed by a
majority of the board of directors in effect immediately prior to such
appointment) or (iii) the Parent or any of its Subsidiaries merges or
consolidates with, or sells all or substantially all of its assets to, any other
person or entity;
19.13 the indictment or threatened indictment of any Company or any of its
Subsidiaries or any executive officer of any Company or any of its Subsidiaries
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceeding against any Company or any of its Subsidiaries or
any executive officer of any Company or any of its Subsidiaries pursuant to
which statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of any Company or any of its Subsidiaries;
19.14 an Event of Default shall occur under and as defined in any Note or
in any other Ancillary Agreement;
19.15 any Company or any of its Subsidiaries shall breach any term or
provision of any Ancillary Agreement to which it is a party, in any material
respect which breach is not cured within any applicable cure or grace period
provided in respect thereof (if any);
19.16 any Company or any of its Subsidiaries attempts to terminate,
challenges the validity of, or its liability under this Agreement or any
Ancillary Agreement, or any proceeding shall be brought to challenge the
validity, binding effect of any Ancillary Agreement or any Ancillary Agreement
ceases to be a valid, binding and enforceable obligation of such Company or any
of its Subsidiaries (to the extent such Persons are a party thereto);
19.17 an SEC stop trade order or Principal Market trading suspension of
the Common Stock shall be in effect for five (5) consecutive days or five (5)
days during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Parent shall
not have been able to cure such trading suspension within thirty (30) days of
the notice thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice;
19.18 The Parent's failure to deliver Common Stock to Laurus pursuant to
and in the form required by the Notes and this Agreement, if such failure to
deliver Common Stock shall not be cured within two (2) Business Days or any
Company is required to issue a replacement Note to Laurus and such Company shall
fail to deliver such replacement Note within seven (7) Business Days.
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20. Remedies. Following the occurrence of an Event of Default, Laurus
shall have the right to demand repayment in full of all Obligations, whether or
not otherwise due. Until all Obligations have been fully and indefeasibly
satisfied, Laurus shall retain its Lien in all Collateral. Laurus shall have, in
addition to all other rights provided herein and in each Ancillary Agreement,
the rights and remedies of a secured party under the UCC, and under other
applicable law, all other legal and equitable rights to which Laurus may be
entitled, including the right to take immediate possession of the Collateral, to
require each Company to assemble the Collateral, at Companies' joint and several
expense, and to make it available to Laurus at a place designated by Laurus
which is reasonably convenient to both parties and to enter any of the premises
of any Company or wherever the Collateral shall be located, with or without
force or process of law, and to keep and store the same on said premises until
sold (and if said premises be the property of any Company, such Company agrees
not to charge Laurus for storage thereof), and the right to apply for the
appointment of a receiver for such Company's property. Further, Laurus may, at
any time or times after the occurrence of an Event of Default, sell and deliver
all Collateral held by or for Laurus at public or private sale for cash, upon
credit or otherwise, at such prices and upon such terms as Laurus, in Laurus'
sole discretion, deems advisable or Laurus may otherwise recover upon the
Collateral in any commercially reasonable manner as Laurus, in its sole
discretion, deems advisable. The requirement of reasonable notice shall be met
if such notice is mailed postage prepaid to Company Agent at Company Agent's
address as shown in Laurus' records, at least ten (10) days before the time of
the event of which notice is being given. Laurus may be the purchaser at any
sale, if it is public. In connection with the exercise of the foregoing
remedies, Laurus is granted permission to use all of each Company's Intellectual
Property. The proceeds of sale shall be applied first to all costs and expenses
of sale, including attorneys' fees, and second to the payment (in whatever order
Laurus elects) of all Obligations. After the indefeasible payment and
satisfaction in full of all of the Obligations, and after the payment by Laurus
of any other amount required by any provision of law, including Section
9-608(a)(1) of the UCC (but only after Laurus has received what Laurus considers
reasonable proof of a subordinate party's security interest), the surplus, if
any, shall be paid to Company Agent (for the benefit of the applicable
Companies) or its representatives or to whosoever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may direct. The
Companies shall remain jointly and severally liable to Laurus for any
deficiency. In addition, the Companies shall jointly and severally pay Laurus a
liquidation fee ("Liquidation Fee") in the amount of five percent (5%) of the
actual amount collected in respect of each Account outstanding at any time
during a Liquidation Period". For purposes hereof, "Liquidation Period" means a
period: (i) beginning on the earliest date of (x) an event referred to in
Section 19(i) or 19(j), or (y) the cessation of any Company's business; and (ii)
ending on the date on which Laurus has actually received all Obligations due and
owing it under this Agreement and the Ancillary Agreements. The Liquidation Fee
shall be paid on the date on which Laurus collects the applicable Account by
deduction from the proceeds thereof. Each Company and Laurus acknowledge that
the actual damages that would be incurred by Laurus after the occurrence of an
Event of Default would be difficult to quantify and that such Company and Laurus
have agreed that the fees and obligations set forth in this Section and in this
Agreement would constitute fair and appropriate liquidated damages in the event
of any such termination.
21. Waivers. To the full extent permitted by applicable law, each Company
hereby waives (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all of
this Agreement and the Ancillary Agreements or any other notes, commercial
paper, Accounts, contracts, Documents, Instruments, Chattel Paper and guaranties
at any time held by Laurus on which such Company may in any way be liable, and
hereby ratifies and confirms whatever Laurus may do in this regard; (b) all
rights to notice and a hearing prior to Laurus' taking possession or control of,
or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Each Company acknowledges that it has been advised by
counsel of its choices and decisions with respect to this Agreement, the
Ancillary Agreements and the transactions evidenced hereby and thereby.
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22. Expenses. The Companies shall jointly and severally pay all of Laurus'
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, (i) in connection with the
preparation, execution and delivery of this Agreement and the Ancillary
Agreements subject to Section 5(b)(iv) hereof, and (ii) in connection with the
prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matter in any way arising out of, related to or connected with
this Agreement or any Ancillary Agreement. The Companies shall also jointly and
severally pay all of Laurus' reasonable fees, charges, out-of-pocket costs and
expenses, including fees and disbursements of counsel and appraisers, in
connection with (a) the preparation, execution and delivery of any waiver, any
amendment thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements, (b)
Laurus' obtaining performance of the Obligations under this Agreement and any
Ancillary Agreements, including, but not limited to, the enforcement or defense
of Laurus' security interests, assignments of rights and Liens hereunder as
valid perfected security interests, (c) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any Collateral, (d) any
appraisals or re-appraisals of any property (real or personal) pledged to Laurus
by any Company or any of its Subsidiaries as Collateral for, or any other Person
as security for, the Obligations hereunder and (e) any consultations in
connection with any of the foregoing. The Companies shall also jointly and
severally pay Laurus' customary bank charges for all bank services (including
wire transfers) performed or caused to be performed by Laurus for any Company or
any of its Subsidiaries at any Company's or such Subsidiary's request or in
connection with any Company's loan account with Laurus. All such costs and
expenses together with all filing, recording and search fees, taxes and interest
payable by the Companies to Laurus shall be payable on demand and shall be
secured by the Collateral. If any tax by any Governmental Authority is or may be
imposed on or as a result of any transaction between any Company and/or any
Subsidiary thereof, on the one hand, and Laurus on the other hand, which Laurus
is or may be required to withhold or pay, the Companies hereby jointly and
severally indemnifies and holds Laurus harmless in respect of such taxes, and
the Companies will repay to Laurus the amount of any such taxes which shall be
charged to the Companies' account; and until the Companies shall furnish Laurus
with indemnity therefor (or supply Laurus with evidence satisfactory to it that
due provision for the payment thereof has been made), Laurus may hold without
interest any balance standing to each Company's credit and Laurus shall retain
its Liens in any and all Collateral.
23. Assignment By Laurus. Laurus may assign any or all of the Obligations
together with any or all of the security therefor to any Person and any such
assignee shall succeed to all of Laurus' rights with respect thereto; provided
that Laurus shall not be permitted to effect any such assignment to a competitor
of any Company unless an Event of Default has occurred and is continuing. Upon
such assignment, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. Each Company agrees that each such holder may exercise any and
all rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though such Company were directly
indebted to such holder in the amount of such participation.
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24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise any
right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between or among any Company
and Laurus or delay by Laurus in exercising the same, will not operate as a
waiver; no waiver by Laurus will be effective unless it is in writing and then
only to the extent specifically stated. Laurus' rights and remedies under this
Agreement and the Ancillary Agreements will be cumulative and not exclusive of
any other right or remedy which Laurus may have.
25. Application of Payments. Each Company irrevocably waive the right to
direct the application of any and all payments at any time or times hereafter
received by Laurus from or on such Company's behalf and each Company hereby
irrevocably agrees that Laurus shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
against the Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus' books and records.
26. Indemnity. Each Company hereby jointly and severally indemnifies and
holds Laurus, and its respective affiliates, employees, attorneys and agents
(each, an "Indemnified Person"), harmless from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses of any
kind or nature whatsoever (including attorneys' fees and disbursements and other
costs of investigation or defense, including those incurred upon any appeal)
which may be instituted or asserted against or incurred by any such Indemnified
Person as the result of credit having been extended, suspended or terminated
under this Agreement or any of the Ancillary Agreements or with respect to the
execution, delivery, enforcement, performance and administration of, or in any
other way arising out of or relating to, this Agreement, the Ancillary
Agreements or any other documents or transactions contemplated by or referred to
herein or therein and any actions or failures to act with respect to any of the
foregoing, except to the extent that any such indemnified liability is finally
determined by a court of competent jurisdiction to have resulted solely from
such Indemnified Person's gross negligence or willful misconduct. NO INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY COMPANY OR TO ANY OTHER PARTY OR TO
ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING
CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
27. Revival. The Companies further agree that to the extent any Company
makes a payment or payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
28. Borrowing Agency Provisions.
28.1 For the term of this Agreement and the Ancillary Agreements, each
Company hereby irrevocably designates Company Agent to be its attorney and agent
and in such capacity to borrow, sign and endorse notes, and execute and deliver
all instruments, documents, writings and further assurances now or hereafter
required hereunder, on behalf of such Company, and hereby authorizes Laurus to
pay over or credit all loan proceeds hereunder in accordance with the request of
Company Agent.
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28.2 The handling of this credit facility as a co-borrowing facility with
a borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to the Companies and at their request. Laurus shall not incur any
liability to any Company as a result thereof. To induce Laurus to do so and in
consideration thereof, each Company hereby indemnifies Laurus and holds Laurus
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Laurus by any Person arising from or
incurred by reason of the handling of the financing arrangements of the
Companies as provided herein, reliance by Laurus on any request or instruction
from Company Agent or any other action taken by Laurus with respect to this
Paragraph 28.
28.3 All Obligations shall be joint and several, and the Companies shall
make payment upon the maturity of the Obligations by acceleration or otherwise,
and such obligation and liability on the part of the Companies shall in no way
be affected by any extensions, renewals and forbearance granted by Laurus to any
Company, failure of Laurus to give any Company notice of borrowing or any other
notice, any failure of Laurus to pursue to preserve its rights against any
Company, the release by Laurus of any Collateral now or thereafter acquired from
any Company, and such agreement by any Company to pay upon any notice issued
pursuant thereto is unconditional and unaffected by prior recourse by Laurus to
any Company or any Collateral for such Company's Obligations or the lack
thereof.
28.4 Each Company expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Company may now or hereafter have against the other or other Person
directly or contingently liable for the Obligations, or against or with respect
to any other's property (including, without limitation, any property which is
Collateral for the Obligations), arising from the existence or performance of
this Agreement, until all Obligations have been indefeasibly paid in full and
this Agreement has been irrevocably terminated.
28.5 Each Company represents and warrants to Laurus that (i) Companies
have one or more common shareholders, directors and officers, (ii) the
businesses and corporate activities of Companies are closely related to, and
substantially benefit, the business and corporate activities of Companies, (iii)
the financial and other operations of Companies are performed on a combined
basis as if Companies constituted a consolidated corporate group, (iv) Companies
will receive a substantial economic benefit from entering into this Agreement
and will receive a substantial economic benefit from the application of each
Loan hereunder, in each case, whether or not such amount is used directly by any
Company and (v) all requests for Loans hereunder by the Company Agent are for
the exclusive and indivisible benefit of the Companies as though, for purposes
of this Agreement, the Companies constituted a single entity.
29. Notices. Any notice or request hereunder may be given to any Company,
Company Agent or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given three (3) Business Days after the date when
deposited in the mail or with the overnight mail carrier, and, in the case of a
telecopy, when confirmed.
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Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
000 Xxxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to any Company,
or Company Agent: RG America, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxx, Xxxxx 00000
Attention: Chief Financial Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy (which
shall not constitute
notice) to: Xxxxxx & Xxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000 XXX
Attention: I. Xxxxx Xxxxxxxx
Telephone: 000-000-0000
Facsimile: 214-939-5849
or such other address as may be designated in writing hereafter in accordance
with this Section 29 by such Person.
30. Governing Law, Jurisdiction and Waiver of Jury Trial.
30.1 THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
30.2 EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY,
ON THE ONE HAND, AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR
ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND
EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF LAURUS. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO COMPANY AGENT AT THE ADDRESS SET FORTH IN SECTION 29 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY AGENT'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
38
30.3 THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS,
AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
31. Limitation of Liability. Each Company acknowledges and understands
that in order to assure repayment of the Obligations hereunder Laurus may be
required to exercise any and all of Laurus' rights and remedies hereunder and
agrees that, except as limited by applicable law, neither Laurus nor any of
Laurus' agents shall be liable for acts taken or omissions made in connection
herewith or therewith except for actual bad faith.
32. Entire Understanding; Maximum Interest. This Agreement and the
Ancillary Agreements contain the entire understanding among each Company and
Laurus as to the subject matter hereof and thereof and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by each Company's and Laurus'
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged. Nothing contained in this Agreement, any Ancillary
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Companies to Laurus and thus refunded to the Companies.
33. Severability. Wherever possible each provision of this Agreement or
the Ancillary Agreements shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.
39
34. Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Laurus and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Companies pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Companies hereunder solely as of the date
of such certificate or instrument. All indemnities set forth herein shall
survive the execution, delivery and termination of this Agreement and the
Ancillary Agreements and the making and repaying of the Obligations.
35. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
36. Counterparts; Telecopier Signatures. This Agreement may be executed in
one or more counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement. Any signature
delivered by a party via telecopier transmission shall be deemed to be any
original signature hereto.
37. Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
38. Publicity. Each Company hereby authorizes Laurus to make appropriate
announcements of the financial arrangement entered into by and among each
Company and Laurus, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Laurus shall in its sole and absolute discretion deem appropriate, or as
required by applicable law.
39. Joinder. It is understood and agreed that any Person that desires to
become a Company hereunder, or is required to execute a counterpart of this
Agreement after the date hereof pursuant to the requirements of this Agreement
or any Ancillary Agreement, shall become a Company hereunder by (a) executing a
Joinder Agreement in form and substance satisfactory to Laurus, (b) delivering
supplements to such exhibits and annexes to this Agreement and the Ancillary
Agreements as Laurus shall reasonably request and (c) taking all actions as
specified in this Agreement as would have been taken by such Company had it been
an original party to this Agreement, in each case with all documents required
above to be delivered to Laurus and with all documents and actions required
above to be taken to the reasonable satisfaction of Laurus.
40. Legends. The Securities shall bear legends as follows;
40.1 The Notes shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO RG AMERICA, INC.
THAT SUCH REGISTRATION IS NOT REQUIRED."
40
40.2 Any shares of Common Stock issued pursuant to conversion of the Notes
or exercise of the Warrants, shall bear a legend which shall be in substantially
the following form until such shares are covered by an effective registration
statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO RG AMERICA, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
40.3 The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO RG AMERICA, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
41
IN WITNESS WHEREOF, the parties have executed this Security Agreement as
of the date first written above.
RG AMERICA, INC.
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
RG RESTORATION, INC. (d/b/a The Restoration Group)
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
RG RISK MANAGEMENT, INC. (d/b/a The Recovery Group)
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
RG ROOFING, INC. (d/b/a The Roofing Group)
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
LAURUS MASTER FUND, LTD.
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
42
Annex A - Definitions
---------------------
"Account Debtor" means any Person who is or may be obligated with respect
to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section 10.
"Accounts" means all "accounts", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including: (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) (including
any such obligations that may be characterized as an account or contract right
under the UCC); (b) all of such Person's rights in, to and under all purchase
orders or receipts for goods or services; (c) all of such Person's rights to any
goods represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
"Accounts Availability" means up to ninety percent (90%) of the net face
amount of Eligible Accounts; provided that, notwithstanding the foregoing, (x)
during the first 180 days immediately following the Closing Date (the "Initial
Six Month Period"), with respect to Eligible Accounts from any Accounts Debtor,
the aggregate of whose Accounts equal or exceed 20% of all Accounts from all
Account Debtors (each, a "20% Account Debtor"), (y) during the 180 day period
immediately following the expiration of the Initial Six Month Period (the
"Subsequent Six Month Period"), with respect to Eligible Accounts from any
Accounts Debtor, the aggregate of whose Accounts equal or exceed 25% of all
Accounts from all Account Debtors (each, a "25% Account Debtor") and (z) upon
expiration of the Subsequent Six Month Period, with respect to Eligible Accounts
from any Accounts Debtor, the aggregate of whose Accounts equal or exceed 30% of
all Accounts from all Account Debtors (each, a "30% Account Debtor" and,
together with the 20% Account Debtors and the 25% Account Debtors, the
"Significant Account Debtors" and, each a "Significant Account Debtor"), in each
of the cases set forth in clauses (x), (y) and (z) above, to the extent any such
Eligible Accounts of such Significant Account Debtor remain unpaid passed the
90th day from the date of initial invoice, the "Accounts Availability" with
respect to such Eligible Accounts shall be sixty percent (60%) of the net face
amount thereof; provided that, to the extent such Eligible Accounts of such
Significant Account Debtors remain unpaid passed the 120th day from the date of
initial invoice, the "Accounts Availability" with respect to such Eligible
Accounts shall be forty percent (40%); provided further that, to the extent such
Eligible Accounts of such Significant Account Debtors remain unpaid passed the
150th day from the date of initial invoice, the "Accounts Availability" with
respect to such Eligible Accounts shall be twenty percent (20%); provided
further that, to the extent such Eligible Accounts of such Significant Account
Debtors remain unpaid passed the 180th day from the date of initial invoice, the
"Accounts Availability" with respect to such Eligible Accounts shall be zero
percent (0%).
"Affiliate" means, with respect to any Person, (a) any other Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person or (b) any other
Person who is a director or officer (i) of such Person, (ii) of any Subsidiary
of such Person or (iii) of any Person described in clause (a) above. For the
purposes of this definition, control of a Person shall mean the power (direct or
indirect) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Ancillary Agreements" means the Notes, the Warrants, the Registration
Rights Agreements, each Security Document and all other agreements, instruments,
documents, mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, trust agreements and guarantees whether
heretofore, concurrently, or hereafter executed by or on behalf of any Company,
any of its Subsidiaries or any other Person or delivered to Laurus, relating to
this Agreement or to the transactions contemplated by this Agreement or
otherwise relating to the relationship between or among any Company and Laurus,
as each of the same may be amended, supplemented, restated or otherwise modified
from time to time.
"Available Minimum Borrowing" has the meaning given such term in Section
2(a)(i).
"Balance Sheet Date" has the meaning given such term in Section 12(f)(ii).
"Books and Records" means all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records, financial statements (actual and pro
forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.
"Business Day" means a day on which Laurus is open for business and that
is not a Saturday, a Sunday or other day on which banks are required or
permitted to be closed in the State of New York.
"Capital Availability Amount" means $10,000,000.
"Charter" has the meaning given such term in Section 12(c)(iv).
"Chattel Paper" means all "chattel paper," as such term is defined in the
UCC, including electronic chattel paper, now owned or hereafter acquired by any
Person.
"Closing Date" means the date on which any Company shall first receive
proceeds of the initial Loans or the date hereof, if no Loan is made under the
facility on the date hereof.
2
"Code" has the meaning given such term in Section 15(i).
"Collateral" means all of each Company's property and assets, whether real
or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now has or at any time in the future may acquire any
right, title or interests including all of the following property in which it
now has or at any time in the future may acquire any right, title or interest:
a. all Inventory;
b. all Equipment;
c. all Fixtures;
d. all Goods;
e. all General Intangibles;
f. all Accounts;
g. all Deposit Accounts, other bank accounts and all funds on deposit
therein;
h. all Investment Property;
i. all Stock;
j. all Chattel Paper;
k. all Letter-of-Credit Rights;
l. all Instruments;
m. all commercial tort claims set forth on Schedule 1(A);
n. all Books and Records;
o. all Intellectual Property;
p. all Supporting Obligations including letters of credit and guarantees
issued in support of Accounts, Chattel Paper, General Intangibles and Investment
Property;
q. (i) all money, cash and cash equivalents and (ii) all cash held as cash
collateral to the extent not otherwise constituting Collateral, all other cash
or property at any time on deposit with or held by Laurus for the account of any
Company (whether for safekeeping, custody, pledge, transmission or otherwise);
and
r. all products and Proceeds of all or any of the foregoing, tort claims
and all claims and other rights to payment including (i) insurance claims
against third parties for loss of, damage to, or destruction of, the foregoing
Collateral and (ii) payments due or to become due under leases, rentals and
hires of any or all of the foregoing and Proceeds payable under, or unearned
premiums with respect to policies of insurance in whatever form.
3
"Common Stock" means the shares of stock representing the Parent's common
equity interests.
"Company Agent" means RG America, Inc.
"Contract Rate" has the meaning given such term in the respective Note.
"Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"Deposit Accounts" means all "deposit accounts" as such term is defined in
the UCC, now or hereafter held in the name of any Person, including, without
limitation, the Lockboxes.
"Disclosure Controls" has the meaning given such term in Section
12(f)(iv).
"Documents" means all "documents", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all bills
of lading, dock warrants, dock receipts, warehouse receipts, and other documents
of title, whether negotiable or non-negotiable.
"Eligible Accounts" means each Account of each Company which conforms to
the following criteria: (a) shipment of the merchandise or the rendition of
services has been completed; (b) no return, rejection or repossession of the
merchandise has occurred; (c) merchandise or services shall not have been
rejected or disputed by the Account Debtor and there shall not have been
asserted any offset, defense or counterclaim; (d) continues to be in full
conformity with the representations and warranties made by such Company to
Laurus with respect thereto; (e) Laurus is, and continues to be, satisfied with
the credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than two hundred ten (210) days from invoice date; (h) not more than
twenty-five percent (25%) of the unpaid amount of invoices due from such Account
Debtor remains unpaid more than two hundred ten (210) days from invoice date;
(i) is not evidenced by chattel paper or an instrument of any kind with respect
to or in payment of the Account unless such instrument is duly endorsed to and
in possession of Laurus or represents a check in payment of an Account; (j) the
Account Debtor is located in the United States; provided, however, Laurus may,
from time to time, in the exercise of its sole discretion and based upon
satisfaction of certain conditions to be determined at such time by Laurus, deem
certain Accounts as Eligible Accounts notwithstanding that such Account is due
from an Account Debtor located outside of the United States; (k) Laurus has a
first priority perfected Lien in such Account and such Account is not subject to
any Lien other than Permitted Liens; (l) does not arise out of transactions with
any employee, officer, director, stockholder or Affiliate of any Company; (m) is
payable to such Company; (n) does not arise out of a xxxx and hold sale prior to
shipment and does not arise out of a sale to any Person to which such Company is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between such Company, on the one
hand, and the United States, on the other hand, any state, or any department,
agency or instrumentality of any of them, such Company has so notified Laurus,
in writing, prior to the creation of such Account, and there has been compliance
with any governmental notice or approval requirements, including compliance with
the Federal Assignment of Claims Act; (q) is a good and valid account
representing an undisputed bona fide indebtedness incurred by the Account Debtor
therein named, for a fixed sum as set forth in the invoice relating thereto with
respect to an unconditional sale and delivery upon the stated terms of goods
sold by such Company or work, labor and/or services rendered by such Company;
(r) does not arise out of progress xxxxxxxx prior to completion of the order;
(s) the total unpaid Accounts from such Account Debtor does not exceed
twenty-five percent (25%) of all Eligible Accounts; (t) such Company's right to
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever; (u) such Company is able to bring suit and enforce its remedies
against the Account Debtor through judicial process; (v) does not represent
interest payments, late or finance charges owing to such Company, and (w) is
otherwise satisfactory to Laurus as determined by Laurus in the exercise of its
sole discretion. In the event any Company requests that Laurus include within
Eligible Accounts certain Accounts of one or more of such Company's acquisition
targets, Laurus shall at the time of such request consider such inclusion, but
any such inclusion shall be at the sole option of Laurus and shall at all times
be subject to the execution and delivery to Laurus of all such documentation
(including, without limitation, guaranty and security documentation) as Laurus
may require in its sole discretion.
4
"Eligible Subsidiary" means each Subsidiary of the Parent set forth on
Exhibit A hereto, as the same may be updated from time to time with Laurus'
written consent.
"Equipment" means all "equipment" as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including any and
all machinery, apparatus, equipment, fittings, furniture, Fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description that may be now or hereafter used in such Person's
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitute ons
and replacements therefor.
"ERISA" has the meaning given such term in Section 12(bb).
"Event of Default" means the occurrence of any of the events set forth in
Section 19.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Act Filings" means the Parent's filings under the Exchange Act
made prior to the date of this Agreement.
"Financial Reporting Controls" has the meaning given such term in Section
12(f)(v).
"Fixtures" means all "fixtures" as such term is defined in the UCC, now
owned or hereafter acquired by any Person.
5
"Formula Amount" has the meaning given such term in Section 2(a)(i).
"GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time in the United States of America.
"General Intangibles" means all "general intangibles" as such term is
defined in the UCC, now owned or hereafter acquired by any Person including all
right, title and interest that such Person may now or hereafter have in or under
any contract, all Payment Intangibles, customer lists, Licenses, Intellectual
Property, interests in partnerships, joint ventures and other business
associations, permits, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, Software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials, Books and Records, Goodwill
(including the Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key-person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now owned
or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC, manufactured
homes, fixtures, standing timber that is cut and removed for sale and unborn
young of animals.
"Goodwill" means all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Inactive Subsidiary" means each of RG Industries, Inc., a Texas
corporation, Invision Funding, Inc., a Texas corporation, Practical Building
Solutions 2000, Inc., a Texas corporation, PBS 2000, Inc., a Texas corporation,
Urban Logic, Inc., a Texas corporation, PBS Civil Services, Inc., a Texas
corporation and Invision MC, Inc., a Texas corporation, to the extent, in each
case, such corporation holds no assets or liabilities (other than in respect of
Practical Building Solutions 2000, Inc., a federal tax lien not to exceed
$50,000 to the extent such tax liability is not at anytime the liability of the
Parent or any other Subsidiary of the Parent) and does not engage in any
business activities.
"Instruments" means all "instruments", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
6
"Intellectual Property" means any and all patents, trademarks, service
marks, trade names, copyrights, trade secrets, Licenses, information and other
proprietary rights and processes.
"Inventory" means all "inventory", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property that are held by or on
behalf of such Person for sale or lease or are furnished or are to be furnished
under a contract of service or that constitute raw materials, work in process,
finished goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person's business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such term is
defined in the UCC, now owned or hereafter acquired by any Person, wherever
located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including
rights to payment or performance under a letter of credit, whether or not such
Person, as beneficiary, has demanded or is entitled to demand payment or
performance.
"License" means any rights under any written agreement now or hereafter
acquired by any Person to use any trademark, trademark registration, copyright,
copyright registration or invention for which a patent is in existence or other
license of rights or interests now held or hereafter acquired by any Person.
"Lien" means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" has the meaning given such term in Section 2(a)(i) and shall
include all other extensions of credit hereunder and under any Ancillary
Agreement.
"Lockboxes" has the meaning given such term in Section 8(a).
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of any Company or any of its Subsidiaries (taken
individually and as a whole), (b) any Company's or any of its Subsidiary's
ability to pay or perform the Obligations in accordance with the terms hereof or
any Ancillary Agreement, (c) the value of the Collateral, the Liens on the
Collateral or the priority of any such Lien or (d) the practical realization of
the benefits of Laurus' rights and remedies under this Agreement and the
Ancillary Agreements.
7
"Minimum Borrowing Amount" means $1,400,000.
"Minimum Borrowing Note" means that certain Secured Convertible Minimum
Borrowing Note dated as of the Closing Date made by the Companies in favor of
Laurus evidencing the Minimum Borrowing Amount, as same may be amended,
supplemented, restated and/or otherwise modified from time to time.
"NASD" has the meaning given such term in Section 13(b).
"Note Shares" has the meaning given such term in Section 12(a).
"Notes" means the Minimum Borrowing Note and the Revolving Note made by
Companies in favor of Laurus in connection with the transactions contemplated
hereby, as each of the same may be amended, supplemented, restated and/or
otherwise modified from time to time.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by each Company and each of its
Subsidiaries to Laurus (or any corporation that directly or indirectly controls
or is controlled by or is under common control with Laurus) of every kind and
description (whether or not evidenced by any note or other instrument and
whether or not for the payment of money or the performance or non-performance of
any act), direct or indirect, absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, whether existing by
operation of law or otherwise now existing or hereafter arising including any
debt, liability or obligation owing from any Company and/or each of its
Subsidiaries to others which Laurus may have obtained by assignment or otherwise
and further including all interest (including interest accruing at the then
applicable rate provided in this Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in this Agreement after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, whether or not a claim for post-filing or
post-petition interest is allowed or allowable in such proceeding), charges or
any other payments each Company and each of its Subsidiaries is required to make
by law or otherwise arising under or as a result of this Agreement, the
Ancillary Agreements or otherwise, together with all reasonable expenses and
reasonable attorneys' fees chargeable to the Companies' or any of their
Subsidiaries' accounts or incurred by Laurus in connection therewith.
"Payment Intangibles" means all "payment intangibles" as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including, a
General Intangible under which the Account Debtor's principal obligation is a
monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with worker's compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums (i)
not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
Companies and their Subsidiaries, as applicable, in conformity with GAAP; (c)
Liens in favor of Laurus; (d) Liens for taxes (i) not yet due or (ii) being
diligently contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of the
Companies and their Subsidiaries, as applicable, in conformity with GAAP; and
which have no effect on the priority of Liens in favor of Laurus or the value of
the assets in which Laurus has a Lien; (e) Purchase Money Liens securing
Purchase Money Indebtedness to the extent permitted in this Agreement and (f)
Liens specified on Schedule 2 hereto.
8
"Person" means any individual, sole proprietorship, partnership, limited
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof), and shall include such Person's successors and assigns.
"Post-Closing Payment" has the meaning given such term in Section 5(b)(i).
"Principal Market" means the NASD Over The Counter Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market System, American Stock Exchange or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).
"Proceeds" means "proceeds", as such term is defined in the UCC and, in
any event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Company or any other Person from time to
time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to any Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of any Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) any recoveries by any
Company against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness incurred for the
payment of all or any part of the purchase price of any fixed asset, including
indebtedness under capitalized leases, (b) any indebtedness incurred for the
sole purpose of financing or refinancing all or any part of the purchase price
of any fixed asset, and (c) any renewals, extensions or refinancings thereof
(but not any increases in the principal amounts thereof outstanding at that
time).
9
"Purchase Money Lien" means any Lien upon any fixed assets that secures
the Purchase Money Indebtedness related thereto but only if such Lien shall at
all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money Indebtedness
secured by such Lien and only if such Lien secures only such Purchase Money
Indebtedness.
"Registration Rights Agreements" means that certain Minimum Borrowing Note
Registration Rights Agreement dated as of the Closing Date by and between the
Parent and Laurus and each other registration rights agreement by and between
the Parent and Laurus, as each of the same may be amended, modified and
supplemented from time to time.
"Revolving Note" means that certain Secured Revolving Note dated as of the
Closing Date made by the Companies in favor of Laurus in the original principal
amount of $10,000,000, as the same may be amended, supplemented, restated and/or
otherwise modified from time to time.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning given such term in Section 12(u).
"Securities" means the Notes and the Warrants and the shares of Common
Stock which may be issued pursuant to conversion of such Notes in whole or in
part or exercise of such Warrants.
"Securities Act" has the meaning given such term in Section 12(r).
"Security Documents" means all security agreements, mortgages, cash
collateral deposit letters, pledges and other agreements which are executed by
any Company or any of its Subsidiaries in favor of Laurus.
"Software" means all "software" as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including all computer programs and
all supporting information provided in connection with a transaction related to
any program.
"Stock" means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Securities Exchange Act of
1934); provided, however, that "Stock" shall not include shares in the Parent.
"Subsidiary" means, with respect to any Person, (i) any other Person whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors or other
governing body of such other Person, are owned, directly or indirectly, by such
Person or (ii) any other Person in which such Person owns, directly or
indirectly, more than 50% of the equity interests at such time.
10
"Supporting Obligations" means all "supporting obligations" as such term
is defined in the UCC.
"Term" means the Closing Date through the close of business on the day
immediately preceding the third anniversary of the Closing Date, subject to
acceleration at the option of Laurus upon the occurrence of an Event of Default
hereunder or other termination hereunder.
"UCC" means the Uniform Commercial Code as the same may, from time to time
be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
"Warrant Shares" has the meaning given such term in Section 12(a).
"Warrants" means that certain Common Stock Purchase Warrant dated as of
the Closing Date made by the Parent in favor of Laurus and each other warrant
made by the Parent in favor Laurus, as each of the same may be amended,
restated, modified and/or supplemented from time to time.
11
Exhibit A
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Eligible Subsidiaries
---------------------
RG RESTORATION INC. (d/b/a The Restoration Group)
RG RISK MANAGEMENT, INC. (d/b/a The Recovery Group)
RG ROOFING, INC. (d/b/a The Roofing Group)
Exhibit B
---------
Borrowing Base Certificate
--------------------------
[To be inserted]
SECURITY AGREEMENT
------------------
LAURUS MASTER FUND, LTD.
RG AMERICA, INC.
AND
EACH ELIGIBLE SUBSIDIARY SET FORTH ON EXHIBIT A HERETO
Dated: October 31, 2005
1. General Definitions and Terms; Rules of Construction.
2. Loan Facility
3. Repayment of the Loans
4. Procedure for Loans
5. Interest and Payments.
6. Security Interest.
7. Representations, Warranties and Covenants Concerning the Collateral
8. Payment of Accounts.
9. Collection and Maintenance of Collateral.
10. Inspections and Appraisals
11. Financial Reporting
12. Additional Representations and Warranties
13. Covenants
14. Further Assurances
15. Representations, Warranties and Covenants of Laurus.
16. Power of Attorney
17. Term of Agreement
18. Termination of Lien
19. Events of Default
20. Remedies
21. Waivers
22. Expenses
23. Assignment By Laurus
24. No Waiver; Cumulative Remedies
25. Application of Payments
26. Indemnity
27. Revival
28. Borrowing Agency Provisions
29. Notices
30. Governing Law, Jurisdiction and Waiver of Jury Trial
31. Limitation of Liability
32. Entire Understanding
33. Severability
34. Captions
35. Counterparts; Telecopier Signatures
36. Construction
37. Publicity
38. Joinder
39. Legends
