SECURITY AND PURCHASE AGREEMENT
LAURUS MASTER FUND, LTD.
RELIANT HOME WARRANTY CORPORATION
Dated as of June 8, 2006
TABLE OF CONTENTS
Page
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1. General Definitions and Terms; Rules of Construction.....................................................1
2. Agreement to Sell and Purchase...........................................................................2
3. Closing, Delivery and Payment............................................................................3
4. Secured Revolving Loan Facility..........................................................................3
5. Repayment of the Loans...................................................................................5
6. Procedure for Loans......................................................................................5
7. Interest and Payments....................................................................................5
8. Security Interest........................................................................................8
9. Conditions Precedent to All Advances.....................................................................8
10. Conditions Precedent to First Advance....................................................................9
11. Representations and Warranties of Company and Eligible Subsidiary......................................10
12. Representations, Warranties and Covenants Concerning the Collateral.....................................14
13. Payment of Accounts.....................................................................................16
14. Letter of Credit........................................................................................17
15. Collection and Maintenance of Collateral................................................................17
16. Inspections and Appraisals..............................................................................18
17. Financial Reporting.....................................................................................18
18. Additional Representations and Warranties...............................................................19
19. Company's Representations and Warranties................................................................28
20. Covenants...............................................................................................29
21. Company's Covenants.....................................................................................33
22. Further Assurances......................................................................................35
23. Representations, Warranties and Covenants of Laurus.....................................................35
24. Power of Attorney.......................................................................................38
25. Term of Agreement.......................................................................................39
26. Termination of Lien.....................................................................................39
27. Discharge...............................................................................................39
28. Events of Default.......................................................................................39
29. Remedies................................................................................................42
30. Waivers.................................................................................................42
31. Expenses................................................................................................42
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32. Assignment By Laurus....................................................................................43
33. No Waiver; Cumulative Remedies..........................................................................43
34. Application of Payments.................................................................................43
35. Indemnity...............................................................................................43
36. Revival.................................................................................................44
37. Notices.................................................................................................44
38. Governing Law, Jurisdiction and Waiver of Jury Trial....................................................45
39. Judgment Currency.......................................................................................46
40. Limitation of Liability.................................................................................47
41. Entire Understanding; Maximum Interest..................................................................47
42. Severability............................................................................................47
43. Survival................................................................................................47
44. Captions................................................................................................48
45. Counterparts; Telecopier Signatures.....................................................................48
46. Construction............................................................................................48
47. Publicity...............................................................................................48
48. Joinder.................................................................................................48
49. Legends.................................................................................................48
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SECURITY AND PURCHASE AGREEMENT
This Security and Purchase Agreement is made as of June 8, 2006 by and
among Laurus Master Fund, Ltd., a Cayman Islands corporation ("Laurus"), and
Reliant Home Warranty Corporation, a corporation incorporated under the laws of
the State of Florida (the "Company"), as borrower, and Reliant Home Mortgage
Canada Inc., a corporation incorporated under the laws of Canada, as guarantor
("Reliant Canada").
BACKGROUND
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The Company has authorized the sale to Laurus of a Secured Revolving
Note in the aggregate principal amount of Twenty Five Million Dollars in lawful
money of the United States (US$ 25,000,000) (as amended, modified or
supplemented from time to time, the "Secured Revolving Note").
The Company wishes to issue a warrant to Laurus to purchase up to
36,128,286 shares of the Company's Common Stock (subject to adjustment as set
forth therein) (the "Warrant") in connection with the Purchaser's purchase of
the Secured Revolving Note;
The Company desires to issue and sell the Secured Revolving Note and
the Warrant.
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.
(a) General Definitions. Capitalized terms used in this Agreement
shall have the meanings assigned to them in Annex A.
(b) 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.
(c) 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.
(d) Currency. All principal, interest and other amounts owing under
this Agreement and any Ancillary Agreements, that, in accordance
with their terms, are to be paid in cash shall be paid in US
dollars. All amounts denominated in other currencies shall be
converted in the US dollar equivalent amount in accordance with
the Exchange Rate on the date of calculation. "Exchange Rate"
means, in relation to any amount of currency to be converted into
US dollars pursuant to this Agreement and any Ancillary
Agreements, the US dollar exchange rate as published in the Wall
Street Journal on the relevant date of calculation.
2. Agreement to Sell and Purchase.
-------------------------------
(a) Pursuant to the terms and conditions set forth in this Agreement,
on the Closing Date the Company agrees to sell to Laurus, and
Laurus hereby agrees to purchase from the Company, (i) a note in
the aggregate principal amount of US$25,000,000 evidencing a
revolving facility in accordance with the terms of the Secured
Revolving Note and this Agreement. The purchase of the Secured
Revolving Note on the Closing Date shall be known as the
"Offering". A form of the Secured Revolving Note is annexed hereto
as Exhibit "A". The Secured Revolving Note will mature on the
Maturity Date (as defined in each Secured Revolving Note).
Collectively, (a) the Warrant, (b) the Common Stock issuable upon
exercise of the Warrant and (c) the Secured Revolving Note are
referred to collectively as the "Securities".
(b) The Company hereby acknowledges and agrees that the advance and
availability of the revolving loan of US$25,000,000 by Laurus to
the Company pursuant to the Secured Revolving Note shall be
subject to the conditions precedent set forth in the Secured
Revolving Note and herein having been met to the satisfaction of
Laurus in its sole discretion.
(c) On the Closing Date, the Company will also issue and deliver to
Laurus a warrant to purchase up to 36,128,286 shares of Common
Stock in connection with the Offering (as amended, modified or
supplemented from time to time, the "Warrant") pursuant to Section
2 hereof. A form of Warrant is annexed hereto as Exhibit "B". All
the representations, covenants, warranties, undertakings,
indemnification and other rights made or granted to or for the
benefit of Laurus by the Company are hereby also made and granted
in respect of the Warrant and shares of the Company's Common Stock
issuable upon exercise of the Warrant (the "Warrant Shares").
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3. Closing, Delivery and Payment.
------------------------------
(a) Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall
take place on the date hereof, at such time or place as the
Company and Laurus may mutually agree (such date is hereinafter
referred to as the "Closing Date").
(b) Delivery. On the Closing Date, the Company will deliver to Laurus,
among other things, a Secured Revolving Note in the form attached
as Exhibit "A" representing a maximum aggregate principal amount
of US$25,000,000 and a Warrant in the form attached as Exhibit "B"
in Laurus' name representing the right to acquire the Warrant
Shares. Pursuant to the Escrow Agreement, on the Closing Date,
Laurus will deliver to the Company an overadvance set forth in the
Disbursement Letter by certified funds or wire transfer in a
principal amount not to exceed US$1,056,767.61 (the "Initial
Overadvance"). On the First Advance Date, Laurus will deliver to
the Company the amount set forth in the First Advance Disbursement
Letter by certified funds or wire transfer.
4. Secured Revolving Loan Facility.
(a) Loans.
(i) In connection with the Secured Revolving Note and subject
to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus may make loans (the "Loans")
to the Company from time to time during the period from
the First Advance Date up to the Maturity Date (as defined
in the Secured Revolving Note)(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 in its commercially
reasonable good faith judgment deem proper and necessary
from time to time, including, without limitation, a
reserve in an amount determined by Laurus in its sole
discretion, to insure against the pending litigation
against the Company (formerly, Dialex Minerals, Inc.)
with, among others Boardwalk Creation Ltd., Xxxxxxx
Xxxxxx, Xxxxxx Xxxxxxxx, Better North and Xxxxx Xxxxxx
(the "Reserves") and (y) an amount equal to (I) the
Mortgage Availability minus (II) the Reserves. The amount
derived at any time from Section 4(a)(i)(y)(I) minus
4(a)(i)(y)(II) shall be referred to as the "Formula
Amount". The Company shall execute and deliver to Laurus
on the Closing Date, the Secured Revolving Note evidencing
the aggregate principal amount of the Capital Availability
Amount.
(ii) Notwithstanding the foregoing, the Company acknowledges
that with the exception of the Initial Overadvance, the
Loans described above shall not be made available by
Laurus to the Company until such time as the Company has
satisfied the conditions precedent set out in Section 9
hereto and in the Secured Revolving Note.
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(iii) Notwithstanding the limitations set forth above, if
requested by the Company, Laurus retains the right to lend
to the Company from time to time such amounts in excess of
such limitations as Laurus may determine in its sole
discretion.
(iv) The Company acknowledges 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 Mortgage Availability and
the Company hereby consents to any such increases or
decreases which may limit or restrict advances requested
by the Company.
(v) Subject to applicable laws, if any interest, fees, costs
or charges payable to Laurus hereunder are not paid when
due, the Company shall thereby be deemed to have
requested, and Laurus is hereby authorized at its
discretion to make and charge to the Company's account, a
Loan as of such date in an amount equal to such unpaid
interest, fees, costs or charges.
(vi) If the Company and/or any of the Eligible Subsidiaries 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 the Company
and/or any of the Eligible Subsidiaries (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 Consumer Borrowers, 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
Company's account as a Loan and added to the Obligations.
To facilitate Laurus' performance or observance of such
covenants by the Company and/or any of the Eligible
Subsidiaries, the Company and each Eligible Subsidiary
hereby irrevocably appoints Laurus, or Laurus' delegate,
acting alone, as the Company's and each Eligible
Subsidiary'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 the Company and/or each Eligible Subsidiary 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 the Company
and/or each Eligible Subsidiary.
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(vii) Laurus will account to the Company 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 the Company 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.
(viii) During the Term, the Company may borrow and prepay Loans
in accordance with the terms and conditions hereof and the
Secured Revolving Note. The Initial Overadvance may be
prepaid but may not be re-borrowed.
5. Repayment of the Loans.
-----------------------
The Company (a) may prepay the Obligations from time to time in
accordance with the terms and provisions of the Secured Revolving Note (and
Section 25 hereof if such prepayment is due to a termination of this Agreement);
(b) shall repay the principal amount of the Initial Overadvance in accordance
with the Amortization Schedule attached as Schedule "A", (c) shall repay on the
Maturity Date (as defined in the Secured Revolving Note) (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 to Laurus under this
Agreement and the Ancillary Agreements; and (d) subject to Section 4(a)(iii),
shall repay on any day on which the then aggregate outstanding principle balance
of the Loans is 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.
6. Procedure for Loans.
--------------------
The Company 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 shall deliver to Laurus a
Borrowing Base Certificate in the form of Exhibit "C" attached hereto, which
shall be certified as true and correct by the Chief Executive Officer or Chief
Financial Officer of Company together with all supporting documentation relating
thereto. All Loans shall be disbursed from whichever office or other place
Laurus may designate from time to time and shall be charged to the Company's
account on Laurus' books. The proceeds of each Loan made by Laurus shall be made
available to the Company on the Business Day following the Business Day so
requested in accordance with the terms of this Section 6 by way of credit to the
applicable Company's operating account maintained with such bank as the Company
designated to Laurus. Any and all Obligations due and owing hereunder may be
charged to the Company's account and shall constitute Loans.
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7. Interest and Payments.
----------------------
(a) Interest.
(i) Except as modified by Section 7(a)(iii) below, the Company
shall 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.
(ii) 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 Company's account for said
interest in accordance with the Secured Revolving Note.
(iii) 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 Secured Revolving Note (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.
(iv) 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).
(v) The Company shall 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.
(b) Taxes
-----
(i) Any and all payments by the Company hereunder, including
any amounts received on redemption of the Secured
Revolving Note and any amounts on account of interest or
deemed interest, shall be made free and clear of and
without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding taxes
imposed on net income or franchise taxes of Laurus by the
jurisdiction in which such person is organized or has its
principal office (all such non-excluded taxes, levies,
imposts, deductions, charges withholdings and liabilities,
collectively or individually, "Taxes"). If the Company
shall be required to deduct any Taxes from or in respect
of any sum payable hereunder to Laurus, (i) the sum
payable shall be increased by the amount (an "additional
amount") necessary so that after making all required
deductions (including deductions applicable to additional
sums payable under this Section 7) Laurus shall receive an
amount equal to the sum it would have received had no such
deductions been made, (ii) the Company shall make such
deductions and (iii) the Company shall pay the full amount
deducted to the relevant governmental authority in
accordance with applicable law.
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(ii) In addition, the Company agrees to pay to the relevant
governmental authority in accordance with applicable law
any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies
that arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with
respect to, this Loan ("Other Taxes"). The Company shall
deliver to Laurus official receipts, if any, in respect of
any Taxes or Other Taxes payable hereunder promptly after
payment of such Taxes or Other Taxes or other evidence of
payment reasonably acceptable to Laurus.
(iii) The obligations of the Company under this Section 7(b)
shall survive the termination of this Agreement and the
payment of the Secured Revolving Note and all other
amounts payable hereunder.
(c) Payments; Certain Closing Conditions.
-------------------------------------
(i) Subject to the terms of Section 7(c)(ii) below, the
Company shall pay to Laurus Capital Management, LLC, the
investment manager of the Purchaser ("LCM"), a
non-refundable servicing payment in an amount equal to
3.6% of the aggregate principal amount of the Secured
Revolving Note. The foregoing payment is referred to
herein as the "Servicing Payment." The parties acknowledge
that the Servicing Payment is a reasonable estimate of the
expenses that LCM will incur in monitoring and servicing
the Secured Revolving Note, and the Servicing Payment is
intended to enable LCM to defray such expenses.
(ii) The Company shall reimburse the Purchaser for its
reasonable expenses (including legal fees and expenses)
incurred in connection with the entering into of this
Agreement and the Ancillary Agreements, and expenses
incurred in connection with the Purchaser's due diligence
review of the Company and its Subsidiaries and all related
matters. Amounts required to be paid under this Section
7(c) will be paid on the Closing Date and shall be
[$_________] for such expenses referred to in this Section
7(c).
(iii) The Servicing Payment and the expenses referred to in the
preceding clause (ii) (net of deposits previously paid by
the Company) shall be paid at closing out of funds held
pursuant to the Escrow Agreement and the Disbursement
Letter.
(iv) Overadvance Payment. Without affecting Laurus' rights
hereunder in the event the Loans exceed the Formula Amount
(each such event, an "Overadvance"), all such
Overadvances, including the Initial Overadvance, shall
bear interest at an annual rate equal to two percent (2%)
of the amount of such Overadvances for each month or
portion thereof such amounts shall be outstanding and in
excess of the Formula Amount.
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(v) Financial Information Default. Without affecting Laurus'
other rights and remedies, in the event the Company fails
to deliver the financial information required by Section
17 on or before the date required by this Agreement, the
Company shall pay Laurus an aggregate fee in the amount of
US$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. Such fee
shall be charged to the Company's account upon the
occurrence of each such failure.
(vi) The Company shall pay all costs and expenses (including
legal fees and expenses) incurred in connection with the
preparation and delivery of (x) the Closing Certificate
and (y) the Risk Management Certificate.
8. Security Interest.
------------------
(a) To secure the prompt payment to Laurus of the Obligations
relating to the Secured Revolving Note, each of the Company
and the Eligible Subsidiaries promises to assign, pledge,
hypothecate and grant to Laurus a continuing security interest
in and Lien upon all of the Collateral. All of each of the
Company's and the Eligible Subsidiaries' Books and Records
relating to the Collateral shall, until delivered to or
removed by Laurus, be kept by each of the Company and the
Eligible Subsidiaries in trust for Laurus until all
Obligations relating to the Secured Revolving Note have been
paid in full. Each confirmatory assignment schedule or other
form of assignment hereafter executed by the Company and the
Eligible Subsidiaries, or any one of them, shall be deemed to
include the foregoing grant, whether or not the same appears
therein.
(b) Each of the Company and the Eligible Subsidiaries hereby (i)
authorizes Laurus to file any financing statements,
continuation statements or amendments thereto and any other
documents necessary to perfect the security.
(c) Each of the Company and the Eligible Subsidiaries 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 the
Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter
acquired by the Company or by an Eligible Subsidiary, as the
case may be, 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 under the Secured Revolving Note.
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9. Conditions Precedent to All Advances.
------------------------------------
The following conditions precedent shall be met by the Company in form
and substance satisfactory to Laurus, in its sole discretion, prior to any and
all Advances:
(a) The Company shall post a letter of credit in favour of Laurus
in an amount equal to 3% of the amount of such Advance to be
drawn upon by Laurus in accordance with Section 14 hereof.
(b) receipt by Laurus of the closing certificate in the form
attached hereto as Exhibit "E" (the "Closing Certificate");
(c) receipt by Laurus of the risk management certificate in the
form attached hereto as Exhibit "F" (the "Risk Management
Certificate");
(d) receipt by Laurus of the bring down certificate in the form
attached hereto as Exhibit "G" (the "Bring Down Certificate");
(e) evidence of mortgage insurance for each Mortgage showing
Laurus as first loss payee from Brit Insurance Holdings, Plc
(or such other insurer accepted by Laurus in writing as may be
selected by the Company) in the form of Exhibit "H" (the
"Mortgage Insurance").
(f) Reliant Canada shall deliver the following to Laurus in
connection with each Mortgage Loan:
(i) a beneficial assignment of Mortgage and Mortgage Loan
Documents given by the Reliant Canada to Laurus in the
form attached as Exhibit "I" (the "Beneficial
Assignment"); and
(ii) an acknowledgment and direction re: Beneficial
Assignment executed by the Trustee and Reliant Canada
in the form attached hereto as Exhibit "J" (the
"Acknowledgement and Direction")
and upon delivery or confirmation thereof, as the case may be, Laurus shall make
the First Advance available to the Company.
10. Conditions Precedent to First Advance.
--------------------------------------
The following conditions precedent shall be met by the Company in form and
substance satisfactory to Laurus, in its sole discretion, prior to the First
Advance Date:
(a) Laurus shall have received in form and substance satisfactory
to Laurus, confirmation that Laurus has a first priority
security interest over all of the personal property and assets
of the Company and each of the Eligible Subsidiaries in
respect of which Laurus shall take a security interest
pursuant to Section 8 hereof;
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(b) All Ancillary Agreements shall have been executed and
delivered by the Company, the Eligible Subsidiaries and Xxxxx
Xxxxxxxx to Laurus dated as of the date hereof;
(c) Laurus shall have received confirmation that there has been no
Material Adverse Effect in respect of the Company and the
Eligible Subsidiaries as of the date hereof;
(d) Laurus shall have received confirmation that any other
conditions of advance set forth herein have been satisfied by
the Company and the Eligible Subsidiaries;
(e) Laurus shall have received confirmation that no Event of
Default has occurred or is continuing.
11. Representations and Warranties of Company and Eligible Subsidiary
-----------------------------------------------------------------
Each of the Company and each of the Eligible Subsidiaries represents
and 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 Advance hereunder). On the date of each Advance and, upon the
date of each Advance, the Company and Eligible Subsidiaries shall provide Laurus
with a Bring Down Certificate confirming the truth and accuracy as at the date
of such Advance of such representations and warranties:
(a) All representations and warranties in Sections 12 and 18
continue to be true and correct and the conditions precedent
in Sections 10(a) through (d) continue to be met.
(b) Ownership of Mortgage Loan. Reliant Canada has good and
marketable beneficial title to, and is the sole beneficial
owner of, the Mortgage Loan. The Trustee has good and
marketable registered title to and is the sole registered
owner of the Mortgage Loan. Reliant Canada has full right,
power and authority to assign its beneficial interest in the
Mortgage Loan to Laurus free and clear of any and all
Encumbrances. Upon completion of the Beneficial Assignment
contemplated herein, Reliant Canada will have validly and
effectively conveyed, transferred and assigned to Laurus all
of its beneficial interest in and to the Mortgage Loan free
and clear of any Encumbrance. The Beneficial Assignment (i) is
not prohibited by either the Mortgage or the Mortgage Loan
Documents and (ii) does not require Reliant Canada to obtain
any approval or consent from a Governmental Authority that has
not been obtained.
(c) Lien; Valid Assignment. The Mortgage constitutes a valid,
binding and, subject to the exceptions set forth in paragraph
(e) below, enforceable first priority lien upon the related
Mortgaged Property, prior to all other Encumbrances, except
for: (i) liens for real property taxes only if same are not
yet due or payable; (ii) registered easements, rights of way,
restrictive covenants and servitudes and other similar rights
in land granted to, reserved or taken by any Governmental
Authority or public utility, or any registered subdivision or
development, servicing, site plan or other similar agreement
with any Governmental Authority or public utility, none of
which materially interferes with the security intended to be
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provided by the Mortgage, the current principal use of the
related Mortgaged Property or the value of the Mortgaged
Property; (iii) any minor title defects or irregularities,
none of which materially interferes with the security intended
to be provided by the Mortgage, the current principal use of
the related Mortgaged Property or the value of the Mortgaged
Property; (iv) any subsisting reservations, limitations,
provisos, conditions or exceptions, including royalties,
contained in the original grant of the lands from the Crown,
none of which materially interferes with the security intended
to be provided by such Mortgage, the current principal use of
the related Mortgaged Property or the value of the Mortgaged
Property; (v) such other Encumbrances (general and specific)
permitted by the related Mortgage Loan documents or identified
as exceptions and exclusions in the applicable title insurance
policy (or, if not yet issued, referred to in a pro forma
title policy or commitment, none of which materially
interferes with the security intended to be provided by such
Mortgage, the current principal use of the related Mortgaged
Property or the value of the Mortgaged Property (the foregoing
terms (i) through (v) being herein referred to as the
"Permitted Encumbrances". The Beneficial Assignment is a
valid, binding and, subject to the exceptions set forth in
paragraph (e) below, enforceable assignment thereof from
Reliant Canada and the beneficial acknowledgement by the
Trustee of such assignment is a valid, binding and, subject to
the exceptions set forth in paragraph (e) below, enforceable
beneficial acknowledgement.
(d) Title Insurance. The Mortgaged Property is covered by a
lender's title insurance policy substantially in the form
attached hereto as Exhibit "D" (the "Title Policy") in the
original principal amount of the Mortgage insuring that the
Mortgage is a valid first priority lien on such Mortgaged
Property, subject only to Permitted Encumbrances (or a pro
forma title policy or commitment on which the required premium
has been paid which evidences that such Title Policy will be
issued). Such Title Policy (or, if it has yet to be issued,
the coverage to be provided thereby) is in full force and
effect and all premiums thereon have been paid. The Trustee is
named as the insured on the Title Policy. No holder of the
related Mortgage has done, by act or omission, anything that
would materially impair the coverage under such Title Policy.
The Title Policy contains no exclusion for, or it
affirmatively insures, (i) access to a public road, (ii) that
there are no material encroachments of any part of the
improvements on the Mortgaged Property over easements, which
encroachments could reasonably be expected to materially
interfere with the use of the Mortgaged Property or materially
impair the value of the Mortgaged Property (unless the related
Mortgaged Property is located in a jurisdiction where such
affirmative insurance is not available), and (iii) that the
Mortgaged Property complies with applicable zoning by-laws and
ordinances or constitutes a legal non-conforming use or
structure. The Title Insurance Policy materially complies with
the form of title insurance policy attached to the Security
and Purchase Agreement as Exhibit "D".
(e) Loan Document Status. The Mortgage and the Mortgage Loan
Documents executed by or on behalf of the Consumer Borrower,
Reliant Canada and/or the Trustee are legal, valid and binding
obligations of the maker thereof, enforceable in accordance
-11-
with its terms, subject to the following qualifications and
reservations: (i) the enforceability of the Mortgage and
Mortgage Loan Documents may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally, and by general
principles of equity, and there is no valid defense,
counterclaim or right of offset or recission available to the
related Reliant Canada with respect to such Mortgage or other
agreements; and (ii) no representation or warranty is made as
to the validity or enforceability of any provision of any
document requiring payment of a prepayment premium in any
circumstances where the mortgagee has taken any steps to
accelerate payment of a Mortgage Loan or has otherwise
resorted to its security.
(f) Taxes and Assessments. There are no delinquent taxes or
assessments or other outstanding charges affecting the
Mortgaged Property.
(g) Bankruptcy. The Consumer Borrower is not, to Reliant Canada's
knowledge, a debtor in any bankruptcy or insolvency
proceeding.
(h) Equity Interest. No Mortgage Loan is automatically convertible
into an equity ownership interest in the related Mortgaged
Property or the related Consumer Borrower.
(i) No Equity Participation or Contingent Interest. No Mortgage
Loan contains any equity participation.
(j) Legal Proceedings. To Reliant Canada's knowledge, there are no
pending actions, suits or proceedings by or before any court
or Governmental Authority against or affecting the Consumer
Borrower under the Mortgage Loan or the Mortgaged Property. To
Reliant Canada's knowledge, neither Reliant Canada nor the
Trustee has received any notice from any Governmental
Authority of any material violation of any Applicable Laws,
licenses or permits which would have a material adverse effect
on the Mortgaged Property.
(k) Other Mortgage Liens. No Mortgage Loan permits the related
Mortgaged Property to be encumbered by any subordinate secured
financing. As of origination of the Mortgage Loan, the
Mortgaged Property was not encumbered by any liens or
financing that were subordinate to the liens of the Mortgage.
(l) No Mechanic's Liens. As of the date of origination of the
Mortgage Loan, (i) the Mortgaged Property was free and clear
of any and all construction, mechanic's and/or materialmen's
liens registered on title to the related Mortgaged Property,
and (ii) to Reliant Canada's knowledge, no rights are
outstanding that under law could give rise to any such lien.
(m) Compliance with Usury Laws. The Mortgage Loan complies with
all Applicable Laws and other requirements pertaining to usury
in effect at its date of origination. To Reliant Canada's
knowledge, the Mortgage Loan is in material compliance with
all other Applicable Laws in effect at its date of
origination.
-12-
(n) Licenses and Permits. The Consumer Borrower is in possession
of all material licenses, permits and authorizations required
by Applicable Laws for the ownership and operation of the
related Mortgaged Property.
(o) Cross-collateralization. The Mortgage Loan is not
cross-collateralized or cross-defaulted.
(p) Fixed Rate Loans. The Mortgage Loan bears interest at a rate
that remains fixed throughout the remaining term of the
Mortgage Loan and is repayable in blended instalments of
principal and interest based on the amortization described in
the Mortgage Loan Documents.
(q) Default. Pursuant to the terms of the Mortgage, no party other
than the Trustee may declare any event of default or
accelerate the related indebtedness under such Mortgage.
(r) Delivery of Mortgage File. Reliant Canada has delivered or
shall deliver within 2 Business Days of the Advance the
registered Mortgage and all of the Mortgage Loan Documents to
the Trustee.
(s) Insurance. As at the origination of the Mortgage Loan, all
improvements upon the Mortgaged Property ---------- were
insured by a fire and extended perils insurance policy
containing either a stated amount co-insurance endorsement or
a waiver of any co-insurance provisions, so as to avoid the
application of co-insurance. At origination, the policy named
the Trustee as first loss payee, and contained a mortgagee
endorsement in the form approved by the Insurance Bureau of
Canada. At origination of the Mortgage Loan, Reliant Canada
had the policy of insurance placed by the Consumer Borrower
reviewed by an experienced, independent third party insurance
consultant, whose report confirmed that insurance was in place
to meet all material requirements of the Mortgage. The
Consumer Borrower has covenanted in the Mortgage and in the
Mortgage Loan Documents that it will, during the continuance
of the Mortgage, keep the Mortgaged Property so insured. Under
the terms of the Mortgage, any related insurance proceeds will
be applied either (i) to the repair or restoration of all or
part of the related Mortgaged Property, with the Trustee
appointed by it having the right to hold and disburse such
proceeds as the repair or restoration progresses, or (ii) to
the payment of the outstanding principal balance of the
Mortgage Loan together with any accrued interest thereon.
(t) No Fraud in Origination. To Reliant Canada's knowledge, in the
origination of the Mortgage Loan, neither Reliant Canada nor
any employee of Reliant Canada or any parent or subsidiary of
Reliant Canada or entity related to Reliant Canada, engaged in
any fraud or intentional material misrepresentation with
respect to the Mortgage Loan or the Mortgaged Property or any
guarantor of a Mortgage Loan.
(u) Compliance with Underwriting Guidelines. With respect to the
Mortgage Loan, the underwriting practices and guidelines
utilized by Reliant Canada comply in all material respects
-13-
with the underwriting guidelines of Brit Insurance Holdings,
PLC and Servicer in effect at the time of the origination of
the Mortgage Loan.
(v) Compliance with Sample Closing Documents. The Mortgage shall
be for a term of no greater than 5 years and the Mortgage and
the Mortgage Loan Documents are in all material respects
identical to the sample closing documents attached to the
Security and Purchase Agreements as Exhibit "K" (as may be
amended from time to time by Laurus in its sole discretion
upon notice to the Company, the "Sample Closing Documents").
12. Representations, Warranties and Covenants Concerning the Collateral.
--------------------------------------------------------------------
Each of the Company and each of the Eligible Subsidiaries 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 Advance hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by it free and clear of all
Liens (including any claims of infringement) except those in
Laurus' favour 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.
(b) 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.
(c) the Liens granted pursuant to this Agreement, upon completion
of the filings and other actions listed on Schedule 12(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 favour 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.
(d) no effective security agreement, mortgage, deed of trust,
financing statement, hypothec, prior claim, 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.
(e) 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 US$25,000 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.
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(f) it shall not transfer any of the Collateral to Reliant Home
Mortgage Solutions (Canada) Inc. ("Reliant Solutions") and it
shall not allow Reliant Solutions to conduct any active
business or possess any material assets or property.
(g) it shall place notations upon its Books and Records and any of
its financial statements to disclose Laurus' Lien in the
Collateral.
(h) 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.
(i) it shall perform in a reasonable time all other steps
requested by Laurus to create and maintain in Laurus' favour a
valid perfected first Lien in all Collateral subject only to
Permitted Liens.
(j) 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 Mortgage as no longer
constituting an Eligible Mortgage; (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 material loss,
damage or destruction of any of the Collateral.
(k) all Eligible Mortgages (i) represent complete bona fide
transactions which require no further act under any
circumstances on its part to make such Mortgages 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 the Company or
of the Eligible Subsidiaries, as the case may be. If the then
aggregate outstanding principle balance of the Loans is in
excess of the Formula Amount it will not 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.
(l) 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
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value and operating efficiency shall at all times be
maintained and preserved. It shall, using commercially
reasonable efforts, not permit any such items to become a
Fixture to real estate or accessions to other personal.
(m) it shall maintain and keep all of its Books and Records
concerning the Collateral at its executive offices listed in
Schedule "M".
(n) it shall maintain and keep the tangible Collateral at the
addresses listed in Schedule "M", provided, that 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 US$50,000 will be located, it executes and
delivers to Laurus such agreements deemed reasonably necessary
or prudent by Laurus, including mortgagee agreements and
warehouse agreements, each in form and substance satisfactory
to Laurus, to adequately protect and maintain Laurus' security
interest in such Collateral.
(o) Schedule "B" 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 "B") without Laurus'
prior written consent.
(p) Upon a default or event of default pursuant to the Mortgage or
any of the Mortgage Loan Documents which continues for a
period of 5 calendar days, it shall enforce such Mortgage (the
"Delinquent Mortgage") and such Mortgage Loan Documents and
proceed with all remedies thereunder and under all Applicable
Laws as would a prudent mortgagee.
(q) It shall not transfer any of its assets to Reliant Insurance
SCC.
(r) The aggregate value of the Mortgaged Properties shall not be
less than 95% of the aggregate amount of the Mortgage Loans
outstanding.
(s) The aggregate amount of the monthly payments due under the
outstanding Mortgage Loans shall be equal to or greater than
the monthly interest payments due to Laurus pursuant to the
Secured Revolving Note.
13. Payment of Accounts.
--------------------
(a) The Company and each Eligible Subsidiary will irrevocably
direct all of its present and future Consumer Borrowers and
other Persons obligated to make payments constituting
Collateral to make such payments directly to the lockboxes
maintained by the Company and the Eligible Subsidiaries (the
"Lockboxes") with The Bank of Nova Scotia or such other
financial institution accepted by Laurus in writing as may be
selected by the Company (the "Lockbox Bank") pursuant to the
-16-
terms of the certain agreements among one or more of the
Company, the Eligible Subsidiaries, Laurus and/or the Lockbox
Bank dated as of May 31, 2006 (or on such later date as may be
determined by Laurus in its sole discretion). Any proceeds
obtained in connection with the enforcement of any Mortgage
Loan and any proceeds payable pursuant to the Mortgage
Insurance shall be deposited in the Lockbox. On or prior to
the Closing Date, the 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
the Company's and the Eligible Subsidiaries' invoices, account
statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account of
the Company or an Eligible Subsidiary 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 Consumer Borrowers,, the Company or an
Eligible Subsidiary receives any payments, the Company or an
Eligible Subsidiary shall immediately remit such payments to
Laurus in their original form with all necessary endorsements.
Until so remitted, the Company or an Eligible Subsidiary 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.
(b) On or prior to the Closing Date, the Company and each Eligible
Subsidiary shall and shall cause the Lockbox Bank to enter
into a blocked account agreement in form and substance
satisfactory to Laurus, with respect to each operating bank
account set out on Schedule B hereto.
(c) At Laurus' election, following the occurrence of an Event of
Default which is continuing, Laurus may notify the Company's
and/or the Eligible Subsidiaries' Consumer Borrowers of
Laurus' security interest in the Mortgages, collect them
directly and charge the collection costs and expenses thereof
to Company's account.
14. Letter of Credit.
-----------------
The Company shall post a letter of credit in an amount equal to three
percent (3%) of the face value of each Mortgage in favour of Laurus (the "Letter
of Credit"). In the event that Servicer fails to securitize one or more
Mortgages at less than 100% of the face value of the Mortgages on an aggregate
basis, Laurus shall be entitled to draw on the Letter of Credit in an amount
equal to the difference between 100% of the face value of the Mortgages and the
dollar value received by Servicer upon the sale of such Mortgages.
15. Collection and Maintenance of Collateral.
-----------------------------------------
(a) Laurus may verify the Company's and the Eligible Subsidiaries'
Mortgage Loans from time to time, but not more often than once
every three (3) months, unless an Event of Default has
-17-
occurred and is continuing, utilizing an audit control company
or any other agent of Laurus.
(b) Payment pursuant to the Mortgage Loans 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.
(c) As Laurus receives the proceeds of such Mortgage Loans of the
Company and the Eligible Subsidiaries, it shall (i) apply such
proceeds, as required, to amounts outstanding under the
Secured Revolving Note, and (ii) remit all such remaining
proceeds (net of interest, fees and other amounts then due and
owing to Laurus hereunder) to the Company (for the benefit of
the Company) 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, may
apply such proceeds to the Obligations in such order as Laurus
shall elect.
16. Inspections and Appraisals.
---------------------------
At all times during normal business hours, Laurus, and/or any agent of
Laurus shall have the right at the Company's expense and accompanied by a
representative of the Company to (a) have access to, visit, inspect, review,
evaluate and make physical verification and appraisals of the Company's and the
Eligible Subsidiaries' properties and the Collateral, (b) inspect, audit and
copy (or take originals if necessary) and make extracts from the Company's and
the Eligible Subsidiaries' Books and Records, including management letters
prepared by the Accountants, and (c) discuss with the Company's and the Eligible
Subsidiaries' directors, principal officers, and independent accountants, the
Company's business, assets, liabilities, financial condition, results of
operations and business prospects. The Company and the Eligible Subsidiaries
will deliver to Laurus any instrument necessary for Laurus to obtain records
from any service bureau maintaining records for the Company and the Eligible
Subsidiaries. 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.
17. Financial Reporting.
--------------------
The Company will deliver, or cause to be delivered, to Laurus each of
the following, which shall be in form and detail acceptable to Laurus:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company, the
Company's audited financial statements with a report of its
auditors, SF Partnership, LLP or such other independent
certified public accountants of recognized standing selected
by the Company and acceptable to Laurus (the "Accountants"),
which annual financial statements shall be without
qualification, except as set out in Schedule "C", and shall
include the Company's balance sheet as at the end of such
fiscal year and the related statements of the Company's
income, retained earnings and cash flows for the fiscal year
then ended, prepared, on a consolidating and consolidated
-18-
basis to include all Affiliates and Subsidiaries of the
Company including, without limitation, the Eligible
Subsidiaries, 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 Company'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 to the best of his
knowledge or belief of the occurrence of any Default or Event
of Default hereunder and, if so, stating in reasonable detail
the facts with respect thereto;
(b) As soon as available and in any event within forty five (45)
days after the end of each quarter, an unaudited/internal
balance sheet and statements of income, retained earnings and
cash flows of the Company 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 all
Affiliates and Subsidiaries of the Company, including without
limitation, the Eligible Subsidiaries, 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 Company'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;
(c) Within thirty (30) days after the end of each month (or more
frequently if Laurus so requests), agings of the Company's and
the Eligible Subsidiaries' Mortgages Loans, unaudited trial
balances and their accounts payable and a calculation of the
Company's and the Eligible Subsidiaries' Accounts, and
Eligible Mortgages provided, however, that if Laurus shall
request the foregoing information more often than as set forth
in the immediately preceding clause, the Company shall have
thirty (30) days from each such request to comply with Laurus'
demand; and
(d) Promptly after (i) the filing thereof, copies of the Company's
quarterly and annual filings with the SEC, and (ii) the
issuance thereof, copies of such financial statements, reports
and proxy statements as the Company shall send to its
stockholders.
18. Additional Representations and Warranties.
------------------------------------------
Each of the Company and the Eligible Subsidiaries hereby represents and
warrants to Laurus as follows:
(a) Organization, Good Standing and Qualification. It and each of
its Subsidiaries 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
-19-
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 Secured Revolving
Note (with respect to the Company only), (iii) to issue the
Warrant and the Warrant Shares (with respect to the Company
only), 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.
(b) Subsidiaries. Each of its direct and indirect Subsidiaries,
the direct owner of such Subsidiary and its percentage
ownership thereof, is set forth in Schedule "D".
(c) Capitalization; Voting Rights.
(i) The authorized capital of the Company, as of the date
hereof, consists of 100,000,000 Common Shares, of which
86,019,782 are issued and outstanding. The authorized
capital of Reliant Canada, as of the date hereof,
consists of an unlimited number common shares, of which
76,000,000 are issued and outstanding.
(ii) Except as disclosed on Schedule "E", other than: (i)
the shares reserved for issuance under its 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 pre-emptive rights and rights of first
refusal), proxy or stockholder agreements, or
arrangements or agreements of any kind for the purchase
or acquisition from it of any of its securities. Except
as disclosed on Schedule "E", the offer or issuance of
the Warrant, or the issuance of any of 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 Company
outstanding, under anti-dilution or other similar
provisions contained in or affecting any such
securities.
(iii) All of its issued and outstanding shares: (i) have been
duly authorized and validly issued and are fully paid
and non-assessable; and (ii) were issued in compliance
with all applicable state and federal laws concerning
the issuance of securities.
(iv) The rights, preferences, privileges and restrictions of
its shares are as stated in its Articles of
Incorporation (the "Articles"). The Warrant Shares have
been duly and validly reserved for issuance. When
issued in compliance with the provisions of this
Agreement and the Company's Articles, the Securities
-20-
will be validly issued, fully paid and non-assessable,
and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject
to restrictions on transfer under applicable securities
laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
(d) Authorization; Binding Obligations. All corporate action
(including their respective officers and directors) necessary
for the authorization of this Agreement and the Ancillary
Agreements, the performance of all of its obligations
hereunder and under the Ancillary Agreements on the Closing
Date and, the authorization, issuance and delivery of the
Secured Revolving Note 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 valid and binding
obligations enforceable against each such Person in accordance
with their terms, except:
(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights;
and
(ii) general principles of equity that restrict the
availability of equitable or legal remedies.
The issuance of the Secured Revolving Note is not and will not
be subject to any pre-emptive rights or rights of first
refusal that have not been properly waived or complied with.
The issuance of the Warrant and the subsequent exercise of the
Warrant for Warrant Shares are not and will not be subject to
any pre-emptive rights or rights of first refusal that have
not been properly waived or complied with.
(e) Liabilities. It does not have any liabilities, except current
liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings.
(f) Agreements; Action. Except as set forth on Schedule "F", or as
disclosed in any Exchange Act Filings:
(i) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders,
writs or decrees to which it 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 in excess of US$50,000 (other than
obligations of, or payments to, it arising from
purchase or sale agreements entered into in the
ordinary course of business, or payments by it to its
employees, lawyers, officers, and accountants); 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
-21-
distribution of its products or services; or (iv)
indemnification by it with respect to infringements of
proprietary rights.
(ii) Since March 31, 2006 (the "Balance Sheet Date"), it has
not: (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 US$50,000 or, in the case of
indebtedness and/or liabilities individually less than
US$50,000, in excess of US$100,000 in the aggregate;
(iii) made any loans or advances to any Person not in
excess, individually or in the aggregate, of
US$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.
(iii) For the purposes of subsections (i) and (ii) of this
Section 18(f), all indebtedness, liabilities,
agreements, understandings, instruments, contracts and
proposed transactions involving the same Person
(including Persons it has reason to believe are
affiliated therewith thereof) shall be aggregated for
the purpose of meeting the individual minimum dollar
amounts of such subsections.
(iv) It 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:
(1) transactions are executed in accordance with
management's general or specific authorization;
(2) unauthorized acquisition, use, or disposition of
the its assets that could have a material effect
on the financial statements are prevented or
timely detected;
(3) 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 its management and
board of directors;
(4) transactions are recorded as necessary to
maintain accountability for assets; and
-22-
(5) the recorded accountability for assets is
compared with the existing assets at reasonable
intervals, and appropriate action is taken with
respect to any differences.
(g) Obligations to Related Parties. Except as set forth on
Schedule "G", it has no obligations to its officers,
directors, stockholders or employees other than:
(i) for payment of salary for services rendered and
for bonus payments;
(ii) reimbursement for reasonable expenses incurred
on its behalf;
(iii) for other standard employee benefits made
generally available to all employees (including
stock option agreements outstanding under any
stock option plan approved by its Board of
Directors); and
(iv) obligations listed in its financial statements
or disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule "G", none of its
officers, directors or, to the best of its knowledge, key employees or
stockholders or any members of their immediate families, are indebted
to it, individually or in the aggregate, in excess of US$50,000 or have
any direct or indirect ownership interest in any Person with which it
is affiliated or with which it or any has a business relationship, or
any Person which competes with it, other than passive investments in
publicly traded companies (representing less than one percent (1%) of
such company) which may compete with it. 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 and no agreements, understandings or proposed
transactions are contemplated between it and any such Person. Except as
set forth on Schedule "G", it is not a guarantor or indemnitor of any
indebtedness of any other Person.
(h) Changes. Since the Balance Sheet Date, except as disclosed in
any Schedule to this Agreement or to any of the Ancillary
Agreements, there has not been:
(i) any change in its 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;
(ii) any resignation or termination of any of its
officers, key employees or groups of employees;
(iii) any material change, except in the ordinary
course of business, in its contingent
obligations by way of guaranty, endorsement,
indemnity, warranty or otherwise;
-23-
(iv) 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;
(v) any waiver by it of a valuable right or of a
material debt owed to it;
(vi) any direct or indirect material loans made by it
to any of its stockholders, employees, officers
or directors, other than advances made in the
ordinary course of business;
(vii) any material change in any compensation
arrangement or agreement with any employee,
officer, director or stockholder;
(viii) any declaration or payment of any dividend or
other distribution of its assets;
(ix) any labour organization activity related to it;
(x) any debt, obligation or liability incurred,
assumed or guaranteed by it, except those for
immaterial amounts and for current liabilities
incurred in the ordinary course of business;
(xi) any sale, assignment or transfer of any
Intellectual Property or other intangible
assets;
(xii) any change in any material agreement to which it
is a party or by which either it 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;
(xiii) 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
(xiv) any arrangement or commitment by it to do any of
the acts described in subsection (i) through
(xiii) of this Section 18(h).
(i) Title to Properties and Assets; Liens, Etc. Except as
set forth on Schedule "H", it has good and marketable
title to its 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, vehicles and other properties owned, leased
or used by it 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 "H", it is in compliance with all
material terms of each lease to which it is a party or
is otherwise bound.
-24-
(j) Intellectual Property.
(i) It 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 Intellectual Property, nor is it
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.
(ii) It has not received any communications alleging
that it has violated any of the Intellectual
Property or other proprietary rights of any
other Person, nor is it aware of any basis
therefor.
(iii) It does not believe 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, except for
inventions, trade secrets or proprietary
information that have been rightfully assigned
to it.
(k) Compliance with Other Instruments. It is not in
violation or default of (x) any term of its Articles 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 Secured Revolving Note and the other Securities
each pursuant hereto and thereto (with respect to the
Company only), 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 properties or
assets or the suspension, revocation, impairment,
forfeiture or non-renewal of any permit, license,
authorization or approval applicable to it, its
businesses or operations or any of their assets or
properties.
(l) Litigation. Except as set forth on Schedule "I", there
is no action, suit, proceeding or investigation pending
or, to its knowledge, currently threatened against it
that prevents it 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
current equity ownership, nor is it aware that there is
any basis to assert any of the foregoing. It is not 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
currently pending or which it intends to initiate.
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(m) Tax Returns and Payments. It has timely filed all tax
returns (federal, provincial, state and local) required
to be filed by it. All taxes shown to be due and
payable on such returns, any assessments imposed, and
all other taxes due and payable by it 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 "J", it has not been advised:
(i) that any of its returns, federal, provincial,
state, provincial or other, have been or are
being audited as of the date hereof; or
(ii) of any adjustment, deficiency, assessment or
court decision in respect of its federal,
provincial, state or other taxes.
It has no 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.
(n) Employees. Except as set forth on Schedule "K" it has
not any collective bargaining agreements with any of
its employees. There is no labour union organizing
activity pending or, to its knowledge, threatened with
respect to it. Except as disclosed on Schedule "K" it
is a not 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
employees, nor any consultant with whom it 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 because of the nature of the business to be
conducted by it; and to its knowledge the continued
employment by it of its present employees, and the
performance of its contracts with its independent
contractors, will not result in any such violation. It
is not aware that any of its 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. It has not received any notice
alleging that any such violation has occurred. Except
for employees who have a current effective employment
agreement with it, none of its employees has been
granted the right to continued employment by it or to
any material compensation following termination of
employment with it. Except as set forth on Schedule "K"
it is not aware that any officer, key employee or group
of employees intends to terminate his, her or their
employment with it, nor does it have a present
intention to terminate the employment of any officer,
key employee or group of employees.
(o) Compliance with Laws; Permits. It is not in violation
of any applicable corporate governance law or any -
other regulatory guidance of the SEC or any by-law or
rule of the Principal Market or any other applicable
statute, rule, regulation, order or restriction of any
-26-
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
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.
(p) Environmental and Safety Laws. It is not 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 "L", no Hazardous Materials (as
defined below) are used or have been used, stored, or
disposed of by it or, to its knowledge, by any other
Person on any property owned, leased or used by it. For
the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(i) materials which are listed or otherwise defined
as "hazardous" or "toxic" under any applicable
local, provincial, 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
(ii) any petroleum products (other than in the
ordinary course of business) or nuclear
materials.
(q) Full Disclosure. It has provided Laurus with all
information requested by Laurus in connection with
Laurus' decision to enter into this Agreement. Neither
this Agreement, the Ancillary Agreements nor the
exhibits and schedules hereto and thereto nor any other
document delivered by it 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 were based on its experience in the
industry and on assumptions of fact and opinion as to
future events which it, at the date of the issuance of
such projections or estimates, believed to be
reasonable.
(r) Insurance. It has general commercial, product
liability, fire and casualty insurance policies with
coverages which it believes are customary for companies
similarly situated to it in the same or similar
business.
-27-
(s) Patriot Act. It certifies that, to the best of its
knowledge, it has not 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 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 to Laurus, to the extent that they are
within its 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, or the Canadian Proceeds of Crime (Money
Laundering) and Terrorist Financing Act. It shall
promptly notify Laurus if any of these representations,
warranties and covenants ceases to be true and accurate
regarding it. It shall provide Laurus with any
additional information regarding it 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, 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.
(t) Company Name; Locations of Offices, Records and
Collateral. Schedule "M" sets forth its complete name
as it appears in official filings in the state or
province of its organization, as the case may be, the
type of entity it is, the organizational identification
number issued by its state or province of organization,
as the case may be, or a statement that no such number
has been issued, its state or province of organization,
and the location of its 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 "M", 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 "M", it has not been known as or conducted
business in any other name (including trade names). It
has only one province or state of organization, as
applicable.
(u) It does not maintain or contribute to any Canadian
Pension Plan.
19. Company's Representations and Warranties
The Company hereby represents and warrants to Laurus as follows:
-28-
(a) Registration Rights and Voting Rights. Except as set
forth on Schedule "N" as disclosed in any Exchange Act
Filing and as contemplated under the Registration
Rights Agreement, it is not presently under any
obligation, and it has not granted any rights, to
register or otherwise qualify for distribution to the
public any of its presently outstanding securities or
any of its securities that may hereafter be issued.
Except as set forth on Schedule "N" and except as
disclosed in Exchange Act Filings, to its knowledge,
none of its stockholders has entered into any agreement
with respect to its voting of equity securities.
(b) Valid Offering. Upon the applicable registration being
declared effective by the SEC, 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 prospectus and
registration requirements of the Securities Act of
1933, as amended (the "U.S. Securities Act"), and 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.
(c) SEC Reports and Financial Statements. Except as set
forth on Schedule "O", it has filed all proxy
statements, reports and other documents required to be
filed by it under the Exchange Act. The Company has
furnished Laurus with copies of: (i) its annual report
for its fiscal year ended December 31, 2006, (ii) its
interim financial statements for the quarter ended
March 31, 2006 and (iii) the material change reports
which it has filed during its fiscal year to date
(collectively, the "SEC Reports"). Except as set forth
on Schedule "O", 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 Company, on a consolidated basis, as
of, and for, the periods presented in each such SEC
Report.
(d) Quotation. The Company's Common Stock is quoted on the
Principal Market and satisfies all requirements for the
continuation of such listing, and the Company shall do
all things necessary for the continuation of such
listing. The Company has not received any notice that
its Common Stock will be delisted from the Principal
Market or that its Common Stock does not meet all
requirements for such listing.
-29-
(e) Stop Transfer. The Securities are subject to
restrictions on transfer as of the date of this
Agreement. It will not issue any stop transfer order or
other order impeding the sale and delivery of any of
the Securities at such time as the Securities become
freely tradeable or an exemption from the prospectus
registration or equivalent requirements of applicable
securities laws in respect of such sale or delivery is
available, except as required by applicable securities
laws.
(f) Dilution. Subject to any maximum conversion or
restrictions contained in this Agreement or in any
Ancillary Agreement specifically acknowledges that the
Company's obligation to issue the shares of Common
Stock upon exercise of the Warrant is binding upon the
Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other
shareholders of the Company.
20. Covenants.
The Company and each Eligible Subsidiary (where applicable) covenants
and agrees with Laurus as follows:
(a) Use of Funds. It shall use the proceeds of the Loans
solely for the purpose of funding the Eligible
Mortgages.
(b) Taxes. It shall 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 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
shall have set aside on its books adequate reserves
with respect thereto in accordance with GAAP; and
provided, further, that it shall 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.
(c) Insurance. It shall bear the full risk of loss from any
loss of any nature whatsoever with respect to the
Collateral. It 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; it 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 thereof reasonably
believes is customary for companies in similar business
similarly situated as it and to the extent available on
commercially reasonable terms. The Company and the
Eligible Subsidiaries will cause Laurus to be named as
first loss payee or additional insured on all of the
policies of insurance relating to the assets pledged to
Laurus as security for its obligations hereunder and
under the Ancillary Agreements, other than policies of
insurance directly related to real property. At its own
cost and expense in amounts and with carriers
-30-
reasonably acceptable to Laurus, it 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 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 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 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 province or
jurisdiction in which it 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 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 the Company and/or any Eligible
Subsidiary 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 the Company and/or
the Eligible Subsidiaries, as applicable, and Laurus
jointly. If any insurance losses are paid by check,
draft or other instrument payable to the Company
and/and Laurus jointly, Laurus may endorse, as
applicable, the Company's and/or the Eligible
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
and/or the Eligible Subsidiaries, as applicable, for
the benefit of the Company and/or the Eligible
Subsidiaries, as applicable. Any surplus shall be paid
by Laurus to Company and/or the Eligible Subsidiaries,
as applicable, for the benefit of the Company and/or
the Eligible Subsidiaries, as applicable, or applied as
may be otherwise required by law. Any deficiency
thereon shall be paid by Company and to Laurus, on
demand.
(d) Intellectual Property. It shall 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.
(e) Properties. It shall 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 at all
times comply with each provision of all leases to which
-31-
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.
(f) Confidentiality. It shall not 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, the Company
may disclose Laurus' identity and the terms of this
Agreement to its current and prospective debt and
equity financing sources.
(g) Required Approvals. It shall not without the prior
written consent of Laurus, which consent shall not be
unreasonably withheld (i) sell or assign any of the
Mortgages; (ii) create, incur, assume or suffer to
exist any indebtedness (exclusive of trade debt)
whether secured or unsecured other than the Company's
indebtedness to Laurus and as set forth on Schedule "P"
attached hereto and made a part hereof; (iii) cancel
any debt owing to it in excess of US$50,000 in the
aggregate during any 12 month period; (iv) 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 for deposit or collection
or similar transactions in the ordinary course of
business; (v) 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 Stock outstanding on the date hereof, or
issue any preferred stock; (vi) 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, and (y) loans to its officers and employees
not exceeding at any one time an aggregate of
US$10,000; (vii) create or permit to exist any
Subsidiary, 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;
(viii) 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;
(ix) 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) the Company or any of the Eligible
Subsidiaries 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) the Company and/or the
Eligible Subsidiaries shall have provided Laurus copies
of all documentation relating to such merger or
consolidation and (4) the Company and/or the Eligible
Subsidiaries shall have provided Laurus with at least
thirty (30) days' prior written notice of such merger
or consolidation; (x) materially change the nature of
-32-
the business in which it is presently engaged; (xi)
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 right to perform the
provisions of this Agreement or any of the Ancillary
Agreements; (xii) 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; (xiii) enter into any
transaction with any employee, director or Affiliate,
except in the ordinary course on arms-length terms; or
(xiv) xxxx Accounts under any name except the present
name of the Company and the Eligible Subsidiaries, (xv)
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 the Company to any
Eligible Subsidiary, (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.
(h) Opinion. On the Closing Date, it shall deliver to
Laurus an opinion with respect to, inter alia (i)
corporate authority, execution and delivery (ii)
enforceability of this Agreement and the Ancillary
Agreements and (iii) enforceability of the Sample
Closing Documents, the Beneficial Assignment and the
Acknowledgement and Direction, acceptable to Laurus
from the Company's legal counsel. The Company will
provide, at the Company's expense, such other legal
opinions in the future as are reasonably necessary for
the exercise of the Warrant.
(i) 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
jurisdiction of its organization, (ii) the type of
legal entity it is, (iii) its organization
identification number, if any, issued by its province
of organization, (iv) its jurisdiction of organization,
or (v) amend its certificate of incorporation, by-laws
or other organizational document.
(j) Compliance with Laws. The operation of its business is
and shall continue to be in compliance in all material
respects with all applicable federal, provincial, 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.
(k) Notices. It 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
-33-
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 which is continuing, or any 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 is a party or by which it
or any of its properties may be bound the breach of
which would have a Material Adverse Effect.
21. Company's Covenants
The Company hereby covenants to Laurus as follows:
(a) Cease Trade Orders. It shall advise Laurus promptly
after it receives notice of issuance by the SEC or any
other regulatory authority of any cease trade order or
of any order preventing or suspending any offering of
any securities of the Company, or of the suspension of
the qualification of the Common Stock of the Company
for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
(b) Listing. It shall promptly secure, but no later than
one hundred and twenty calendar days immediately
following the Filing Date (as defined in the
Registration Rights Agreement) the listing or
quotation, as applicable, of the shares of Common Stock
issuable upon exercise of the Warrants on the Principal
Market upon which shares of Common Stock are listed or
quoted, as applicable (subject to 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. The Company shall
maintain the quotation of its Common Stock on the
Principal Market, and will comply in all material
respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") of such
exchange.
(c) Market Regulations. It shall notify the SEC, the
Principal Market 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 and promptly provide copies
thereof to Laurus. (d) Reporting Requirements. It shall
timely file with the SEC all reports required to be
filed pursuant to the US Securities Act and refrain
from terminating its status as an issuer required by
the US Securities Act to file reports thereunder even
if the US Securities Act or the rules or regulations
thereunder would permit such termination.
(e) Reissuance of Securities. The Company shall reissue
certificates representing the Securities without the
legends set forth in Section 49 below at such time as
the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(d) or 144(k) of the
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U.S. Securities Act, as applicable. The Company agrees
to cooperate with Laurus in connection with all resales
pursuant to Rule 144(d) or Rule 144(k) and provide
legal opinions necessary to allow such resales
provided, the Company and its counsel receive
reasonably requested representations from Laurus and
broker, if any.
(f) Offering Restrictions. Except as previously disclosed
in the SEC Reports or in the Exchange Act Filings or
pursuant to stock or stock options granted to employees
or directors of the Company, neither the Company nor
any of its Subsidiaries will, prior to the full
repayment of the Secured Revolving Note (together with
all accrued and unpaid interest thereon and other
amounts accrued, deemed payable or owing thereunder),
(i) issue or enter into any agreement to issue any
freely tradeable securities with exercise or conversion
rates or pricing terms subject to downward adjustment
from time to time following issuance upon a decline in
the market price of the Company's Common Shares; and
(ii) issue or enter into any agreement to issue any
freely tradeable securities with exercise or conversion
rates or pricing terms corresponding or otherwise
determined with reference to the market price of the
Company's Common Shares from time to time following
issuance, (it being understood and agreed that a
security which could, by exercise or conversion, by
prospectus qualification or otherwise, become freely
tradeable will be considered a freely tradeable
security for the purposes hereof).
(g) Authorization and Reservation of Shares. The Company
shall at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide
for the exercise of the Warrant in full.
(h) Financing Right of First Refusal.
(i) It hereby grants to Laurus a right of first
refusal to provide any Additional Financing (as
defined below) to be issued by the Company (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 shall notify Laurus of such
Additional Financing. In connection therewith,
Company 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 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 favourable to the Additional
Financing Parties than those outlined in
Proposed Term Sheet. Laurus shall deliver to
Company the Laurus Term Sheet within ten
Business Days of receipt of each such Proposed
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Term Sheet. If the provisions of the Laurus Term
Sheet are at least as favourable 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.
(ii) It shall not agree, directly or indirectly, to
any restriction with any Person which limits the
ability of Laurus to consummate an Additional
Financing with it.
22. Further Assurances.
-------------------
At any time and from time to time, upon the written request of Laurus
and at the sole expense of Company, each of the Company and the Eligible
Subsidiaries 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.
23. Representations, Warranties and Covenants of Laurus.
----------------------------------------------------
Laurus hereby represents, warrants and covenants to the Company as
follows:
(a) 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.
(b) Investment Representations and Covenants.
-----------------------------------------
(i) Laurus is resident in the jurisdiction of the
Cayman Islands.
(ii) Laurus is acquiring the Securities for
investment only and not with a view to resale or
distribution in violation of any securities
laws.
(iii) Laurus is not a party to, and is not acting in
concert with a person who is party to: (A) an
agreement to transfer Laurus' legal or
beneficial interest in the Securities; or (B) an
agreement to grant a participating interest in
the Securities.
-36-
(iv) As the Securities purchased hereunder are
subject to resale restrictions under the US
Securities Act, Laurus shall comply with all
securities laws concerning any resale of the
Securities purchased hereunder and shall consult
with his, her or its own legal advisors with
respect to such compliance.
(v) If required by applicable securities laws,
Laurus will execute, deliver, file and otherwise
assist the Company in filing such reports,
undertakings and other documents with respect to
the issuance of the Securities as may be
required.
(vi) Laurus is purchasing the Securities as principal
for its own account and not as a nominee or
agent.
(vii) Laurus is an accredited investor within the
meaning of Regulation D under the US Securities
Act.
(viii) Laurus understands that the Securities are being
offered and sold pursuant to an exemption from
registration contained in the US 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 US Securities Act.
(ix) Laurus confirms that it 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 Secured
Revolving Note and the Warrant to be purchased
by it under this Agreement and the Warrant
Shares acquired by it upon the exercise of the
Warrant. Laurus further confirms that it has had
an opportunity to ask questions and receive
answers from the Company regarding the Company's
and its Subsidiaries' business, management and
financial affairs and the terms and conditions
of this Agreement, the Secured Revolving Note,
the Warrant and the Securities and to obtain
additional information (to the extent the
Company possessed such information or could
acquire it without unreasonable effort or
expense) necessary to verify any information
furnished to Laurus or to which Laurus had
access.
(x) Laurus understands that the Securities have not
been and will not be registered under the US
Securities Act or any applicable state
securities laws and that the sale contemplated
hereby is being made in reliance on an exemption
from registration therefrom.
(xi) Laurus acknowledges that Laurus has not
purchased the Securities as a result of any
general solicitation or general advertising (as
those terms are used in Regulation D), including
advertisements, articles, notices or other
-37-
communications published in any newspaper,
magazine or similar media, or broadcast over
radio, television or other forms of
telecommunication, including electronic display
(such as the Internet), or any seminar or
meeting whose attendees have been invited by
general solicitation or general advertising.
(xii) Laurus has substantial experience in evaluating
and investing in private placement transactions
of securities in companies similar to the
Company so that it is capable of evaluating the
merits and risks of its investment in the
Company and has the capacity to protect its own
interests. Laurus must bear the economic risk of
this investment until the Securities are sold.
(xiii) 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 Secured Revolving Note,
the Warrant, and the Securities and to protect
its own interests in connection with the
transactions contemplated in this Agreement and
the Related Agreements.
(xiv) In the event that Laurus becomes an "insider" or
"control person" of the Company (within the
meaning of applicable securities laws) or in the
event that a nominee of Laurus becomes a
director or officer of the Company or any of its
Subsidiaries, Laurus shall notify the Principal
Market thereof and shall file with the Principal
Market any personal information forms required
by reason thereof.
(c) 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
Company's Common Stock as long as the Secured Revolving
Note shall be outstanding.
(d) 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. 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 the 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 or the Canadian Proceeds of Crime (Money
Laundering and Terrorist Financing Act. Laurus shall
promptly notify the Company 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
-38-
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 Company. Laurus further understands
that the Company may release information about Laurus
and, if applicable, any underlying beneficial owners,
to proper authorities if the Company, in its sole
discretion, determines that it is in the best interests
of the Company in light of relevant rules and
regulations under the laws set forth in subsection (ii)
above.
24. Power of Attorney.
------------------
In the event of an Event of Default which is continuing, each of the
Company and the Eligible Subsidiaries hereby appoints Laurus, or any other
Person whom Laurus may designate as the Company's and the Eligible Subsidiary's
attorney, with power to: (i) endorse the Company's and/or the Eligible
Subsidiary'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 the Company's and/or the Eligible Subsidiary's name on any invoice or
statement of account relating to any Eligible Mortgage, schedules and
assignments of Eligible Mortgages, notices of assignment, financing statements
and other public records, and notices to or from Consumer Borrowers; (iii)
verify the validity, amount or any other matter relating to any Account by mail,
telephone, telegraph or otherwise with Consumer Borrowers; (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 the Company's and/or the Eligible Subsidiary's mail to an address
designated by Laurus, and to receive, open and dispose of all mail addressed to
the Company and/or the Eligible Subsidiary. The Company and the Eligible
Subsidiary 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
wilful 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.
25. 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 which
is continuing, 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 the Company shall have provided Laurus with an executed release
of any and all claims which the Company may have or thereafter have under this
Agreement and all Ancillary Agreements.
26. 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
-39-
termination of this Agreement or the fact that the Company's account may from
time to time be temporarily in a zero or credit position, until all of the
Obligations have been paid or performed in full after the termination of this
Agreement. Laurus shall not be required to send termination statements to the
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.
27. Discharge
---------
Upon the entire repayment of an Advance and the satisfaction of all
Obligations of the Borrower and the Eligible Subsidiaries in connection with
such Advance, Laurus shall execute and deliver a re-assignment of the Beneficial
Assignment to the party so directed by Reliant Canada in the form attached
hereto as Exhibit "L" (the "Re-Assignment").
28. Events of Default.
------------------
The occurrence of any of the following shall constitute an "Event of
Default":
(a) 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;
(b) failure by the Company or any of the Eligible
Subsidiaries to pay any Material Taxes when due unless
such Material Taxes are being contested in good faith
by appropriate proceedings and with respect to which
adequate reserves have been provided on the Company's
or the Eligible Subsidiaries' books;
(c) failure to perform under, and/or committing any breach
of, in any material respect, this Agreement, which
failure or breach shall continue without remedy for a
period of fifteen (15) days after the occurrence
thereof;
(d) any representation, warranty or statement made by the
Company and/or the Eligible Subsidiary 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;
(e) the occurrence of any default (or similar term) under
any indebtedness in the aggregate of US$50,000 beyond
the period of grace, if any, provided in any instrument
or agreement under which such indebtedness was created
of the Company;
(f) attachments or levies in excess of US$100,000 in the
aggregate are made upon the Company's and/or the
Eligible Subsidiaries' assets or a judgment is rendered
against the Company's and/or the Eligible Subsidiaries'
property involving a liability of more than US$100,000
which shall not have been vacated, discharged, stayed
or bonded within thirty (30) days from the entry
thereof;
-40-
(g) any change in the Company's and/or the Eligible
Subsidiaries' condition or affairs (financial or
otherwise) which in Laurus' reasonable, good faith
opinion, could reasonably be expected to have a
Material Adverse Effect;
(h) 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, as
long as such invalidity or imperfection has not been
caused by Laurus;
(i) the 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 Canadian federal bankruptcy
laws (as now or hereafter in effect) or the US 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;
(j) the Company and/or any of the Eligible 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;
(k) the Company and/or any of the Eligible Subsidiaries
directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale,
assignment, transfer or conveyance of any assets of the
Company and/or the Eligible Subsidiary or any interest
therein, except as permitted herein;
(l) the occurrence of a Change of Control with respect to
the Company, unless Laurus has expressly consented to
such Change of Control in writing.
(m) the indictment or threatened indictment of the Company
and/or the Eligible Subsidiary or any executive officer
of the Company and/or the Eligible Subsidiary under any
criminal statute, or commencement or threatened
commencement of criminal or civil proceeding against
the Company and/or the Eligible Subsidiary or any
executive officer of the Company and/or the Eligible
Subsidiary pursuant to which statute or proceeding
penalties or remedies sought or available include
forfeiture of any of the property of the Company;
(n) an Event of Default shall occur under and as defined in
the Secured Revolving Note or in any other Ancillary
Agreement;
(o) the Company and/or the Eligible Subsidiary shall breach
any term or provision of any Ancillary Agreement to
which it is a party, in any material respect which is
not cured within any applicable cure or grace period
provided in respect thereof (if any);
-41-
(p) the Company and/or the Eligible Subsidiary attempts to
terminate or challenge the validity of 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 the Company and/or the Eligible
Subsidiary (to the extent such Persons are a party
thereto);
(q) an SEC cease 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 Company 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; or
(r) Servicer fails to securitize any Mortgage for an amount
less than ninety-seven percent (97%) of the face value
of the Mortgage;
(s) Servicer fails to securitize any Mortgage within three
(3) calendar months from the First Advance Date;
(t) 5% of the Mortgages are Delinquent Mortgages; or
(u) The Delinquent Mortgages total $500,000 or more.
29. Remedies.
---------
Following the occurrence of an Event of Default which is continuing,
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, all of the rights and remedies of a secured creditor under
the PPSA and the UCC, and any remedies as a secured creditor under any other
applicable law, and all other legal and equitable rights to which Laurus may be
entitled.
30. Waivers.
--------
To the full extent permitted by applicable law, the Company and each
Eligible Subsidiary hereby waives (a) presentment, demand and protest, and
notice of presentment, dishonour, intent to accelerate, acceleration, protest,
default, non-payment, 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 and guaranties at
any time held by Laurus on which the Company and/or the Eligible Subsidiary 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. The Company and the Eligible Subsidiary
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acknowledge 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.
31. Expenses.
---------
The Company shall pay all of Laurus' reasonable and documented
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and 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 Company shall also
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 reappraisals of any
property (real or personal) pledged to Laurus by the Company as Collateral for,
or any other Person as security for, the Obligations hereunder, (e) all costs
associated with the Re-assignment and anything in relation to the Re-assignment,
and (f) any consultations in connection with any of the foregoing. The Company
shall also pay Laurus' customary bank charges for all bank services (including
wire transfers) performed or caused to be performed by Laurus for the Company at
the Company's request or in connection with the 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 Company 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 the Company and Laurus on the other hand, which Laurus is or may be
required to withhold or pay, the Company indemnifies and holds Laurus harmless
in respect of such taxes, and the Company will repay to Laurus the amount of any
such taxes which shall be charged to the Company's account; and until the
Company 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 the Company's
credit and Laurus shall retain its Liens in any and all Collateral.
32. Assignment By Laurus.
---------------------
Laurus may assign any or all of the Obligations together with any or
all of the security therefor to any Person, without restriction, and any such
transferee shall succeed to all of Laurus' rights with respect thereto. Upon
such transfer, 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. The 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 the Company were directly
indebted to such holder in the amount of such participation.
-43-
33. 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 the 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.
34. Application of Payments.
------------------------
The Company irrevocably waives the right to direct the application of
any and all payments at any time or times hereafter received by Laurus from or
on the Company's behalf and the 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 reasonably appropriate manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus' books and records.
35. Indemnity.
----------
The Company hereby 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 legal 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 wilful 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.
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36. Revival.
--------
The Company further agrees that to the extent the 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, provincial 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.
37. Notices.
--------
Any notice or request hereunder may be given to the Company 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.
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
With a copy to: Xxxx X. Xxxxxx, Esq.
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
If to the Company: Reliant Home Warranty Corporation
000 Xxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx
X0X 0X0
Attention: Xxxxx Xxxxxxxx
or such other address as may be designated in writing hereafter in accordance
with this Section 37 by such Person.
-45-
38. Governing Law, Jurisdiction and Waiver of Jury Trial.
-----------------------------------------------------
(a) 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.
(b) THE COMPANY AND EACH ELIGIBLE SUBSIDIARY 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 THE COMPANY AND/OR THE
ELIGIBLE SUBSIDIARIES, 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 THE COMPANY AND
EACH ELIGIBLE SUBSIDIARY 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 FAVOUR OF LAURUS. THE COMPANY AND EACH
ELIGIBLE SUBSIDIARY EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND THE COMPANY AND EACH
ELIGIBLE SUBSIDIARY HEREBY WAIVES ANY OBJECTION WHICH
IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY AND
EACH ELIGIBLE SUBSIDIARY 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 AT
THE ADDRESS SET FORTH IN SECTION 37 AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.
(c) 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
-46-
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.
39. Judgment Currency.
------------------
If, for the purpose of obtaining or enforcing judgment against the
Company in any court in any jurisdiction, it becomes necessary to convert into
any other currency (such other currency being hereinafter in this section
referred to as the "Judgment Currency") an amount due under this Security
Agreement in any currency (the "Obligation Currency") other than the Judgment
Currency, the conversion shall be made at the rate of exchange prevailing on the
business day immediately preceding (a) the date of actual payment of the amount
due, in the case of any proceeding in the courts of New York or in the courts of
any other jurisdiction that will give effect to such conversion being made on
such date, or (b) the date on which the foreign court determines, in the case of
any proceeding in the courts of any other jurisdiction (the applicable date as
of which such conversion is made pursuant to this section being hereinafter in
this section referred to as the "Judgment Conversion Date").
If, in the case of any proceeding in the court of any jurisdiction
referred to in the preceding paragraph, there is a change in the rate of
exchange prevailing between the Judgment Conversion Date and the date of actual
receipt of the amount due in immediately available funds, the Company shall pay
such additional amount (if any, but in any event not a lesser amount) as may be
necessary to ensure that the amount actually received in the Judgment Currency,
when converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of the Judgment Currency stipulated in the judgment or judicial
order at the rate of exchange prevailing on the Judgment Conversion Date. Any
amount due from the Company under this section shall be due as a separate debt
and shall not be affected by judgment being obtained for any other amounts due
under or in respect of this Security Agreement.
40. Limitation of Liability.
------------------------
The 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, gross negligence or wilful misconduct.
41. Entire Understanding; Maximum Interest.
---------------------------------------
This Agreement and the Ancillary Agreements contain the entire
understanding among the 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 the
Company's and Laurus' respective officers. Neither this Agreement, the Ancillary
-47-
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 Company to Laurus and thus refunded to the Company.
42. 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.
43. 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 Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company 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.
44. Captions.
---------
All captions are and shall be without substantive meaning or content of
any kind whatsoever.
45. 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.
46. 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.
-48-
47. Publicity.
----------
The Company hereby authorizes Laurus to make appropriate announcements
of the financial arrangement entered into by and among the 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.
48. Joinder.
--------
It is understood and agreed that any Person that desires to become a
party 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 party 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 the Company and the Eligible Subsidiaries
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.
49. Legends.
--------
(a) The Secured Revolving Note shall bear substantially the
following legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO RELIANT HOME
WARRANTY CORPORATION.
(b) The Warrants shall bear substantially the following
legend:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THIS WARRANT AND THE COMMON STOCK 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 UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO RELIANT HOME WARRANTY CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
[Balance of page intentionally left blank; signature page
follows.]
-49-
IN WITNESS WHEREOF, the parties have executed this Security and
Purchase Agreement as of the date first written above.
RELIANT HOME WARRANTY CORPORATION
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
RELIANT HOME MORTGAGE CANADA INC.
By:
-----------------------------------------
Name:
Title:
LAURUS MASTER FUND, LTD
By:
-----------------------------------------
Name:
Title:
-50-
Annex A
Definitions
-----------
"Accountants" has the meaning given to such term in Section 17(a).
"Acknowledgement and Direction" has the meaning given to such term in Section
9(f).
"Advance" means a Loan made available to the Company by Laurus in accordance
with Section 4 hereof and upon satisfaction of the conditions precedent set
forth in Section 9 hereof;
"Advance Date" means a date upon which an Advance is made.
"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 Secured Revolving Note, the Warrant, the
Subsidiary Guarantee, the Xxxxxxxx Guarantee, the Security Documents, the
Registration Rights Agreement, the Escrow Agreement, the First Advance Escrow
Agreement, the Overadvance Side Letter, the Re-assignment, the Sample Closing
Documents 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 the Company and/or the Eligible Subsidiary
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 the Company and Laurus, as each of the same may be
amended, supplemented, restated or otherwise modified from time to time.
"Applicable Laws" means all applicable federal, provincial and municipal laws,
statutes, regulations, rules, by-laws (including zoning by-laws), policies and
guidelines, and all applicable common law or equitable principles whether now or
hereafter in force and effect.
"Articles" has the meaning given to such term in Section 18(c)(iv).
"Balance Sheet Date" has the meaning given to such term in Section 18(f)(ii).
"Beneficial Assignment" has the meaning given to such term in Section 9(f).
"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
-1-
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.
"Bring Down Certificate" has the meaning given to such term in Section 9(d).
"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.
"Canadian Pension Plan" means any plan, program or arrangement (other than the
Canada Pension Plan or the Quebec Pension Plan) that is a pension plan for the
purposes of any applicable pension benefits legislation or any tax laws of
Canada or a province thereof, whether or not registered under any such laws,
which is maintained or contributed to by, or to which there is or may be an
obligation to contribute by, the Company in respect of any Person's employment
in Canada with the Company.
"Capital Availability Amount" means US$25,000,000.
"Change of Control" means any event or circumstance as a result of which (i)
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 Laurus, 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 Company (other than
a "Person" or "group" that beneficially owns 35% or more of such outstanding
voting equity interests of the Company on the date hereof), (ii) the board of
directors of the Company shall cease to consist of a majority of the Company's
board of directors 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 Company or any of its Subsidiaries merges or consolidates with, or
sells all or substantially all of its assets to, any other Person or entity.
"Closing Certificate" has the meaning given to such term in Section 9(b).
"Closing Date" means the date hereof on which the Company shall first receive
proceeds of the Initial Overadvance.
"Collateral" means all of the Company's and each of its Subsidiaries' 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 General Intangibles;
-2-
(d) all Accounts;
(e) all Deposit Accounts, other bank accounts and all funds
on deposit therein;
(f) all Stock;
(g) all Letter-of-Credit Rights;
(h) all Books and Records;
(i) all Intellectual Property;
(j) (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 the Company (whether for
safekeeping, custody, pledge, transmission or
otherwise);
(k) all products and Proceeds of all or any of the
foregoing, tort claims and all claims, rights of
action, 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;
(l) all Mortgages; and
(m) all Mortgage Loan Documents.
"Common Stock" means the shares of stock representing the Company common equity
interests.
"Contract Rate" has the meaning given to such term in the Secured Revolving
Note.
"Consumer Borrower" means the borrower under the Mortgage Loan and the owner of
the Mortgage Property against which the Mortgage is registered.
"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 now or hereafter held in the name
of any Person, including, without limitation, the Lockboxes.
"Disbursement Letter" means the disbursement letter dated as of the Closing Date
among the Company and Laurus.
"Documents" means all documents of title, whether negotiable or non-negotiable,
including, without limitation, all promissory notes, bills of exchange, drafts,
cheques, warehouse receipts and bills of lading which now are or which may at
-3-
any time in the future be owned by the Company and each of its Subsidiaries and
all of the right, title and interest in any of the foregoing which the Company
now or at any time in the future has or may have.
"Eligible Mortgage" means each Mortgage Loan granted by the Company or an
Eligible Subsidiary which conforms to the following criteria: (a) the Mortgage
Loan Documents are substantially in accordance with the Sample Closing
Documents; (b) the Mortgage has been registered on title to the relevant
Mortgage Property; (c) a Bring Down Certificate relating to the Mortgage Loan
shall have been issued and delivered to Laurus; (d) a Closing Certificate in
relation to the Mortgage Loan shall have been issued and delivered to Laurus;
and (e) a Risk Management Certificate in relation to the Mortgage Loan shall
have been issued and delivered to Laurus.
"Eligible Subsidiary" means Reliant Canada
"Encumbrances" means any security interest, mortgage, charge, debenture, pledge,
hypothec, lien, assignment by way of security, hypothecation, statutory right of
set-off or other encumbrance or adverse claim, including, without limitation,
any agreement to give any of the foregoing and any conditional sale or other
title retention agreement or similar financing arrangement.
"Equipment" means all corporeal movable property now owned or hereafter acquired
by any Person, wherever located, including any and all machinery, apparatus,
equipment, fittings, furniture, leasehold improvements, motor vehicles, fixed
assets and other tangible movable 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 substitutions and replacements
therefor.
"Escrow Agent" means Loeb & Loeb LLP;
"Event of Default" means the occurrence of any of the events set forth in
Section 28.
"Escrow Agreement" means the escrow agreement dated as of the Closing Date among
the Company, Laurus and the escrow agent referred to therein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended;
"Exchange Act Filings" means the Company filings under the Securities Exchange
Act of 1934;
"Financial Reporting Controls" has the meaning given to such term in Section
18(f)(iv).
"First Advance Date" means the date upon which all conditions precedent in
Section 9 and Section 10 hereof and in the Secured Revolving Note have been
satisfied by the Company and the loans pursuant to the Secured Revolving Note
have been advanced by Laurus to the Company.
"First Advance Disbursement Letter" means the disbursement letter dated as of
the First Advance Date among the Company and Laurus
"First Advance Escrow Agreement" means the escrow agreement dated as of the
First Advance Date among the Company, Laurus and the escrow agent referred to
therein.
"Fixtures" means all "fixtures" as such term is defined in the UCC, now owned
or hereafter acquired by any Person.
"Formula Amount" has the meaning given such term in Section 4(a)(i).
"GAAP" means generally accepted accounting principles, practices and procedures
in effect from time to time in the GAAP.
"General Intangibles" means all incorporeal movable property now owned or
hereafter acquired by any Person including all right, title and interest that
such Person may now or hereafter have therein (other than Accounts), including
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 rights of indemnification.
"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 federal, provincial, municipal or other form
of government or agency thereof and any body or authority exercising
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including any courts.
"Xxxxxxxx Guarantee" means that certain personal guarantee dated as of the
Closing Date made by Xxxxx Xxxxxxxx in favour of Laurus, as the same may be
amended, restated, modified and/or supplemented from time to time.
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"Intellectual Property" means any and all patents, trademarks, service marks,
trade names, copyrights, trade secrets, industrial designs, Licenses,
information and other proprietary rights and processes.
"Inventory" means all goods, wares and merchandise, property in stock and
inventory now owned or hereafter acquired by any Person, wherever located,
including all inventory, merchandise, goods and other movable 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.
"Letter-of-Credit Rights" means letter-of-credit rights 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, hypothec,
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 law of any jurisdiction in which the Collateral is located.
"Loans" has the meaning given to such term in Section 4(a)(i) and shall include
all other extensions of credit hereunder and under any Ancillary Agreement.
"Lockboxes" has the meaning given to such term in Section 13(a).
"Material Adverse Effect" means a material adverse effect on (a) the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of the Company and the Eligible Subsidiary (taken individually and
as a whole), (b) the Company'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.
"Material Taxes" means taxes in excess of US$25,000 unless such amount is being
bone fide disputed and a reserve is being held in regard to that amount.
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"Mortgage" means the mortgage in the form attached hereto as Exhibit "M" given
by the Consumer Borrower in favour of the Trustee securing the amount specified
thereunder and registered against the Mortgaged Property of the Consumer
Borrower.
"Mortgage Availability" means the amount of Loans against Eligible Mortgages
that Laurus may from time to time make available to the Company to a maximum of
ninety-eight percent (98%) of the net face amount of Eligible Mortgages.
"Mortgage Loan" means a loan given by Reliant Canada to the Consumer Borrower
and includes the Mortgage and Mortgage Loan Documents and the indebtedness of
the Consumer Borrower thereunder.
"Mortgage Loan Documents" means all documentation (other than the Mortgage) in
connection with the Mortgage Loan and which are included in the Sample Closing
Documents.
"Mortgaged Property" means the real property owned by the Consumer Borrower
secured by the Mortgage.
"Obligations" means all Loans, Advances, Overadvances, all advances, debts,
liabilities, obligations, covenants and duties owing by the Company and Reliant
Canada 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 the Company 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 the
Company 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 Company's
accounts or incurred by Laurus in connection therewith.
"Overadvance Side Letter" means the overadvance side letter entered into as of
the date hereof between the Company and Laurus evidencing the Initial
Overadvance.
"Permitted Encumbrances" has the meaning given to in Section 11(c).
"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
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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 Company in
conformity with GAAP; (c) Liens in favour 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 Company in conformity with GAAP; and which have no effect on
the priority of Liens in favour 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 on any research and
development tax credits;
"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.
"Principal Market" means the NASD Over the Counter Bulletin Board, NASDAQ
Capital Market, the NASDAQ National Market, the American Stock Exchange or the
New York Stock Exchange;
"Proceeds" means the proceeds of sale, lease or disposition of any of the
Collateral, including, without limitation: (a) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to the Company or to an
Eligible Subsidiary from time to time with respect to any Collateral; (b) any
and all payments (in any form whatsoever) made or due and payable to the Company
or to an Eligible Subsidiary 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 the
Company or an Eligible Subsidiary 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 the
Company or by an Eligible Subsidiary 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 (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).
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"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.
"Re-Assignment" has the meaning given to such term in Section 27.
"Risk Management Certificate" has the meaning given to such term in Section
9(c).
"Sample Closing Documents" has the meaning given to such term in Section 11(v);
"SEC" means the Securities and Exchange Commission.
"Secured Revolving Note" means the Secured Revolving Note issued by the Company
in favour of Laurus in connection with the transactions contemplated hereby, as
the same may be amended, supplemented, restated and/or otherwise modified from
time to time.
"Securities" means the Warrant and the shares of Common Stock which may be
issued upon exercise of such Warrant.
"Security Documents" means all security agreements, mortgages, cash collateral
deposit letters, pledges and other agreements which are executed by the Company,
the Eligible Subsidiary and/or their respective its Subsidiaries in favour of
Laurus including, without limitation, the Security and Purchase Agreement, the
Share Pledge Agreement and Beneficial Assignment.
"Servicer" means with respect to the securitization of the Mortgage Loans which
servicer shall be Dundee Securities Company or such other servicer as consented
to by Laurus in its sole discretion.
"Share Pledge Agreement" means that certain Share Pledge Agreement dated as of
the Closing Date made by the Company in favour of Laurus, as the same may be
amended, restated, modified and/or supplemented from time to time;
"Software" means all software 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 OSC under the Securities Exchange Act of 1934)."
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"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.
"Subsidiary Guaranty" means that certain Subsidiary Guaranty dated as of the
Closing Date made by the Eligible Subsidiaries in favour of Laurus, as the same
may be amended, restated, modified and/or supplemented from time to time.
"Title Policy" has the meaning given to in Section 11(d).
"Trustee" means Computershare Trust Company of Canada
"Warrant" means that certain Common Stock Purchase Warrant dated as of the
Closing Date made by the Company in favour of Laurus and each other warrant made
by the Company in favour Laurus, as each of the same may be amended, restated,
modified and/or supplemented from time to time.
"Warrant Shares" has the meaning given such term in Section 2(c).
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