SECURITY AGREEMENT
This Security Agreement is made as of November 20, 2003 by and between
LAURUS MASTER FUND, LTD., a Delaware corporation ("Laurus") and LMIC, INC., a
Delaware corporation (the "Company").
BACKGROUND
The Company has requested that Laurus make investments and advances
available to the Company; and
Laurus has agreed to make such investments and advances to the Company on
the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
1. (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) Other Terms. All other terms used in this Agreement and defined
in the UCC, shall have the meaning given therein unless otherwise defined
herein.
(d) 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 hereto, 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 the 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
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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.
2. Credit Advances.
(a) (i) Subject to the terms and conditions set forth herein and in
the Ancillary Agreements, Laurus may make loans (the "Loans") to Company from
time to time during the Term which, in the aggregate at any time outstanding,
will not exceed the lesser of (x) (I) the Capital Availability Amount minus (II)
such reserves as Laurus may reasonably in its good faith judgment deem proper
and necessary from time to time (the "Reserves") or (y) an amount equal to (I)
the Accounts Availability plus the Pledged Amount minus (II) the Reserves. The
amount derived at any time from Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall
be referred to as the "Formula Amount". Company shall execute and deliver to
Laurus on the Closing Date a Note evidencing the Loans funded on the Closing
Date. From time to time thereafter, Company shall execute and deliver to Laurus
immediately prior to the final funding of each additional $1,000,000 tranche of
Loans (calculated on a cumulative basis for each such tranche) an additional
Notes evidencing such tranche, in the form of Notes delivered by Company to
Laurus on the Closing Date.
(ii) Notwithstanding the limitations set forth above, Laurus
retains the right, if requested by the Company, to lend to the Company from time
to time such amounts in excess of such limitations as Laurus may determine in
its sole discretion.
(iii) 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 Accounts
Availability and the Company hereby consents to any such increases or decreases
which may limit or restrict advances requested by the Company.
(iv) If the Company does not pay any interest, fees, costs or
charges set forth herein to Laurus 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 Revolving Credit Advance to the Company as of
such date in an amount equal to such unpaid interest, fees, costs or charges,.
(v) If the Company at any time fails to perform or observe any
of the covenants contained in this Agreement or any Ancillary Agreement, which
are not cured during any applicable grace period, Laurus may, on 10 days' prior
written notice to the Company, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Company (or, at Laurus' option,
in Laurus' name) and may, but need not, take any and all other actions which
Laurus may deem necessary to cure or correct such failure (including the payment
of taxes, the satisfaction of Liens, the performance of obligations owed to
Account
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Debtors, lessors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments). The amount of all monies
expended and all costs and expenses (including reasonable 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 Revolving Credit Advance
and added to the Obligations. Solely to facilitate Laurus' performance or
observance of such covenants of the Company pursuant to this subsection, the
Company hereby irrevocably appoints Laurus, or Laurus' delegate, acting alone,
as the Company's attorney in fact (which appointment is coupled with an
interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Company any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed delivered or endorsed
by the Company.
(vi) 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 forty five (45) days of the date each account was rendered
specifying the item or items to which objection is made.
(vii) During the Term, the Company may borrow, prepay without
penalty and reborrow Revolving Credit Advances, all in accordance with the terms
and conditions hereof and of the Notes.
(viii) If any Eligible Account is not paid by the Account
Debtor within ninety (90) days after the date that such Eligible Account was
invoiced or if any Account Debtor asserts a deduction, dispute, contingency,
set-off, or counterclaim with respect to any Eligible Account (a "Delinquent
Account"), the Company shall (i) reimburse Laurus for the amount of the
Revolving Credit Advance made with respect to such Eligible Account plus an
adjustment fee in an amount equal to one-half of one percent (0.50%) of the
gross face amount of such Eligible Account, or (ii) immediately replace such
Delinquent Account with an otherwise Eligible Account .
(b) Following the occurrence of an Event of Default and any
applicable grace periods, Laurus may, at its option, elect to convert the credit
facility contemplated hereby to an accounts receivable purchase facility. Upon
such election by Laurus (contemporaneous written notice of which Laurus shall
provide to the Company), the Company shall be deemed to hereby have sold,
assigned, transferred, conveyed and delivered to Laurus, and Laurus shall be
deemed to have purchased and received from the Company, all right, title and
interest of the Company in and to all Accounts which shall at any time
constitute Eligible Accounts (the "Receivables Purchase"). All outstanding Loans
hereunder shall be deemed obligations under such accounts receivable purchase
facility. The conversion to an accounts receivable purchase facility in
accordance with the terms hereof shall not be deemed an exercise by Laurus of
its secured creditor rights under Article 9 of the UCC. Immediately following
Laurus' request, the Company shall execute all such further documentation as may
be required
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by Laurus to more fully set forth the accounts receivable purchase facility
herein contemplated, including, without limitation, Laurus' standard form of
accounts receivable purchase agreement and account debtor notification letters
which are in customary form for such purpose, but the Company's failure to enter
into any such documentation shall not impair or affect the Receivables Purchase
in any manner whatsoever.
3. Repayment of the Loans. Company (a) may prepay the Obligations from
time to time in accordance with the terms and provisions of the Notes and
Section 17 hereof; and (b) shall repay on the expiration of the Term (i) the
then aggregate outstanding principal balance of the Loans made by Laurus to
Company hereunder together with accrued and unpaid interest, fees and charges
and (ii) all other amounts owed Laurus under this Agreement and the Ancillary
Agreements. 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.
4. (a) Conditions to Funding Revolving Credit Advances. Laurus shall not
be obligated to fund any Revolving Credit Advance, if, as of the date thereof:
(i) any representation or warranty by Borrower contained
herein or in any of the other Ancillary Agreements shall be untrue or incorrect
as of such date in any material respect, except to the extent that any such
representation or warranty is expressly stated to relate to a specific earlier
date, in which case, such representation and warranty shall be true and correct
in all material respects as of such earlier date; or
(ii) any Event of Default shall have occurred and be
continuing or would result after giving effect to such Revolving Credit Advance;
or
(iii) after giving effect to such Revolving Credit Advance the
aggregate amount of Revolving Credit Advances then outstanding would exceed the
Formula Amount.
The request and acceptance by Borrower of the proceeds of any Revolving Credit
Advance shall be deemed to constitute, as of the date of such request and the
date of such acceptance, (i) a representation and warranty by Borrower that the
conditions in this Section 4(a) have been satisfied and (ii) a restatement by
Borrower of each of the representations and warranties made by it in this
Agreement and any Ancillary Agreement to the extent not expressly related to or
stated as of a specific earlier date and a reaffirmation by Borrower of the
granting and continuance of Laurus' Liens pursuant to this Agreement or any
Ancillary Agreement.
(b) Procedure for Revolving Credit Advances. Company may by written
notice request a Loan prior to 12:00 noon (New York time) on any Business Day.
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 A, which shall be certified as true and correct by the President
or Chief Operating 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 Company's
account on Laurus' books. The proceeds of each Loan made by Laurus shall be made
available to Company on the Business Day following the Business Day so requested
in accordance with the terms of this Section 4 by way of credit to Company's
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operating account maintained with such bank as Company designated to Laurus. Any
and all Obligations due and owing hereunder may be charged to Company's account
and shall constitute Loans.
5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(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. Interest for the any month, shall be due and
payable on the first business day of the successive calendar month.
(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 account for said interest.
(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 to one and one-half percent (1.5%) per month
(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 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) Payments.
(i) Closing/Annual Payments. Upon execution of this Agreement
by the Company and Laurus, the Company shall pay to Laurus a closing payment in
an amount equal to one percent (1%) of the Capital Availability Amount. On each
of the first and second anniversary of the Closing Date, the Company shall pay
to Laurus an annual payment equal to one percent (1%) of the Capital
Availability Amount. Such payments shall be deemed fully earned on the Closing
Date but shall not become payable until the occurrence of the execution of this
Agreement or the anniversary of the Closing Date, as the case may be.
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(ii) Collateral Management Payment. For underwriting,
processing and supervising the Company's Accounts, the Company shall pay to
Laurus a monthly amount equal to 0.7% (the "Specified Percentage") of the
aggregate amount of all Eligible Accounts created during such month in excess of
the Pledged Amount and against which Revolving Credit Advances have been made
during such month. Notwithstanding the foregoing, in the event the Effective
Advance Rate during any month is less than 90% (based on the Company's voluntary
requests for Revolving Credit Advances during such month and without giving
effect to Laurus' right to modify the advance percentage used in determining
Accounts Availability in accordance with the terms of this Agreement), then the
Specified Percentage shall be reduced for such month in accordance with the
following grid:
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Reduced Effective Advance Rate
Specified Percentage
--------------------------------------------------------------------------------
.65% 80% to 89.99%
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.60 70% to 79.99%
--------------------------------------------------------------------------------
.55 60% to 69.99%
--------------------------------------------------------------------------------
.50 50% to 59.99%
--------------------------------------------------------------------------------
.45 40% to 49.99%
--------------------------------------------------------------------------------
.40 30% to 39.99%
--------------------------------------------------------------------------------
.35 20% to 29.99%
--------------------------------------------------------------------------------
.30 10% or less
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(iii) Unused Line Payment. If, for any month, the average
outstanding Revolving Credit Advances (the "Average Revolving Amount") do not
equal the Capital Availability Amount, the Company shall pay to Laurus at the
end of such month a payment (calculated on a per annum basis) in an amount equal
to 0.50% of the amount by which the Capital Availability Amount exceeds the
Average Revolving Amount.
(iv) Overadvance Payment. Without affecting the Company's
obligation to immediately repay any Loans which exceed the amounts permitted by
Section 2 ("Overadvances"), in the event an Overadvance occurs, all such
Overadvances shall bear interest at a monthly rate equal to 2% of the amount of
such Overadvances for each month or portion thereof as such amounts shall be
outstanding.
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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 11 on or before the date required by
this Agreement, the Company shall pay Laurus a fee in the amount of $250.00 per
week (or portion thereof) for each such failure, , until such failure is cured
to Laurus' reasonable 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) Remittance Processing Fee. For collecting the Company's
Accounts and providing lockbox services on the Company's behalf, laser scanning
and optically storing invoices, checks and check jacket information, providing
copies of related remittances and establishing a remittance processing
arrangement, Companies shall pay Laurus a remittance processing fee in the
amount of $175 per month plus forty-two cents ($0.42) for each check received by
Laurus and a remittance processing arrangement establishment fee in the amount
of $1,500, together with such other costs for such additional services as may be
required hereunder, in accordance with the regular practices of Laurus and in
accordance with its regular service charge rate schedule.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations, the
Company hereby assigns, pledges and grants to Laurus a continuing security
interest in and Lien upon all of the Collateral. All of the Company's Books and
Records relating to the Collateral shall, until delivered to or removed by
Laurus, be kept by the Company in trust for Laurus until all Obligations have
been paid in full. Each confirmatory assignment schedule or other form of
assignment hereafter executed by the Company shall be deemed to include the
foregoing grant, whether or not the same appears therein.
(b) The Company hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral as such assets of the Company covered by the defined term
"Collateral" (or any portion of such assets), regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the UCC of such jurisdiction and (y) contain any other information required
by Part 5 of Article 9 of the UCC for the sufficiency or filing office
acceptance of any financing statement, continuation statement or amendment and
(ii) ratifies its authorization for Laurus to have filed any initial financial
statements, or amendments thereto if filed prior to the date hereof. The Company
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
without the prior written consent of Laurus which consent shall not be
unreasonably withheld, delayed or conditioned, and agrees that it will not do so
without the prior written consent of Laurus, subject to the Company's rights
under Section 9-509(d)(2) of the UCC.
(c) The Company hereby grants to Laurus an irrevocable,
non-exclusive license, exercisable only upon the 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, and wherever the same may be located, and including in such license
Laurus to all
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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 earlier to occur of the termination of the precipitating Event
of Default, termination of this agreement and the payment in full of all
Obligations.
7. Representations, Warranties and Covenants Concerning the Collateral.
Except as set forth in the schedule of exceptions attached hereto, the Company
represents, warrants (each of which such representations and warranties shall be
deemed repeated upon the making of each request for a Revolving Credit Advance
and made as of the time of each and every Revolving Credit Advance hereunder)
and covenants as follows:
(a) All of the Collateral (i) is owned by the Company free and clear
of all Liens (including any claims of infringement) except those in Laurus'
favor and Permitted Liens and (ii) is not subject to any agreement prohibiting
the granting of a Lien or requiring notice of or consent to the granting of a
Lien.
(b) The Company shall not encumber, mortgage, pledge, assign or
grant any Lien in any Collateral of the Company or any of the Company's 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 Exhibit 7(c) (which, in the case of all
filings and other documents referred to in said Exhibit, have been delivered to
Laurus in duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all creditors of and any purchasers from the
Company, 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, 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) The Company shall not dispose of any of the Collateral whether
by sale, lease or otherwise except for (i) the sale of Inventory in the ordinary
course of business, (ii) the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment or (iii)
otherwise in the ordinary course of business.
(f) The Company shall use commercially reasonable efforts to defend
the right, title and interest of Laurus in and to the Collateral against the
claims and demands of all Persons whomsoever, and take such actions, including
(i) all actions necessary to grant Laurus "control" of any Investment Property,
Deposit Accounts, Letter-of-Credit Rights or electronic Chattel Paper owned by
the Company, with any agreements establishing control to be in form and
substance satisfactory to Laurus which such action shall be taken by the Company
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within five Business Days of Laurus' request therefor, (ii) the prompt (but in
no event later than five Business Days following Laurus' request therefor)
delivery to Laurus of all original Instruments, Chattel Paper, negotiable
Documents and certificated Stock owned by the Company (in each case, accompanied
by stock powers, allonges or other instruments of transfer executed in blank),
(iii) notification of Laurus' interest in Collateral at Laurus' request within
five Business Days following Laurus' request therefor, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect and
preserve the Company's and Laurus' respective and several interests in the
Collateral; provided, however, in the event Laurus requests that the Company
institutes any such litigation, such litigation shall be instituted within 10
Business Days following Laurus' request therefor.
(g) The Company shall promptly, and in any event within seven (7)
Business Days after the same is acquired by it, notify Laurus of any judgment
the Company receives under any commercial tort claim (as defined in the UCC)
acquired by it and unless otherwise consented by Laurus, the Company shall enter
into a supplement to this Agreement granting to Laurus a Lien in such judgment.
(h) The Company shall place notations upon its Books and Records to
disclose Laurus' Lien in the Collateral.
(i) If the Company retains possession of any Chattel Paper or
Instrument with Laurus' consent, 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."
(j) The Company shall perform in a reasonable time all other steps
requested by Laurus to create and maintain in Laurus' favor a valid perfected
first Lien in all Collateral subject only to Permitted Liens.
(k) The Company shall notify Laurus promptly and in any event within
ten (10) Business Days after obtaining knowledge thereof (i) of any event or
circumstance that to the Company's knowledge would cause Laurus to consider any
then existing Account as no longer constituting an Eligible Account; (ii) of any
material delay in the Company's 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 the Company to any Account Debtor (A) in excess of $10,000 with
respect to any individual Account Debtor and (B) in excess of $25,000 in the
aggregate with respect to all Account Debtors; (v) of any 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.
(l) All Eligible Accounts (i) represent complete bona fide
transactions which require no further act under any circumstances on the
Company's part to make such Accounts payable by the Account Debtors, (ii) are
not subject to any present, contingent or, to the Company's knowledge, future
offsets or counterclaims, and (iii) do not represent consignment sales,
guaranteed sales, sale or return or other similar understandings or
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obligations of any Affiliate or Subsidiary of the Company. The Company has not
made, and will not make except in the ordinary course of business consistent
with past practice, 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 the Company in the ordinary course of its business
consistent with historical practice and as previously disclosed to Laurus in
writing.
(m) The Company shall keep and maintain the Equipment in good
operating condition, except for ordinary wear and tear, and shall make all
necessary repairs and replacements thereof so that the value and operating
efficiency shall at all times be maintained and preserved. The Company shall not
permit any such items to become a Fixture to real estate or accessions to other
personal property.
(n) The Company shall maintain and keep copies of all of its Books
and Records concerning the Collateral at the Company's executive offices listed
in Exhibit 12(d).
(o) The Company shall maintain and keep the Collateral at the
addresses listed in Exhibit 12(d), provided, that the Company may change such
locations or open a new location, provided that the Company provides Laurus at
least twenty (20) days prior written notice of such changes or new location and
(ii) prior to such change or opening of a new location it executes and delivers
to Laurus such agreements as Laurus may reasonably request, including landlord
agreements, mortgagee agreements and warehouse agreements, each in form and
substance reasonably satisfactory to Laurus.
(p) Exhibit 7(p) lists all banks and other financial institutions at
which the Company maintains deposits and/or other accounts, and such Exhibit
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. The Company shall establish any
depository or other bank account of any with any financial institution (other
than the accounts set forth on Exhibit 7(p) without Laurus' prior written
consent.
8. Payment of Accounts.
(a) The Company will direct all present and future Account Debtors
and other Persons obligated to make payments constituting Collateral to make
such payments directly to the lockbox maintained by the Company (the "Lockbox")
with Commerce Bank pursuant to the terms of the Lockbox Agreement dated [to be
established as per agreement with Laurus Master Funds] or such other financial
institution accepted by Laurus in writing as may be selected by the Company (the
"Lockbox Bank"). , Within thirty (30) days after the date hereof, 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 invoices, account statements and other
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written or oral communications directing, instructing, demanding or requesting
payment of any Account of the Company or any other amount constituting
Collateral shall conspicuously direct that all payments be made to the Lockbox
or such other address as Laurus may direct in writing. If, notwithstanding the
instructions to Account Debtors, the Company receives any payments, the Company
shall immediately remit such payments to Laurus in their original form with all
necessary endorsements. Until so remitted, the Company shall hold all such
payments in trust for and as the property of Laurus and shall not commingle such
payments with any of its other funds or property. The Company shall pay Laurus
the greater of five percent (5%) of the amount of any payment so received by the
Company and not delivered in kind to Laurus within five (5) Business Days
following the Company's receipt thereof and $1000 such amount to be paid in
consideration of Laurus' administration expenses relating thereto
(b) At Laurus' election, if an Event of Default has occurred and is
continuing following any applicable notice and grace periods, Laurus may notify
the Company's Account Debtors of Laurus' security interest in the Accounts,
collect them directly and charge the collection costs and expenses thereof to
the Company's account.
9. Collection and Maintenance of Collateral.
(a) Laurus may at any time verify the Company's Accounts utilizing
an audit control company or any other agent of Laurus may verify the Company's
Accounts utilizing an audit control company or any other agent of Laurus at the
sole expense of the Company . So long as no Event of Default shall have occurred
and be continuing and/or Laurus does not believe such verifications are
necessary to preserve or protect the Collateral or its rights and remedies under
this Agreement and applicable law, Laurus shall not verify the Company's
Accounts more than two (2) times during any calendar year and not more than one
(1) time during any consecutive six (6) month period. If, during any audit, a
Material Error is discovered, Laurus may double the number of verifications
required by the Company for the succeeding twelve (12) month period. A Material
Error shall be defined as actual auditable Collateral being lower than reported
Collateral by five percent (5%) or more..
(b) Laurus will credit (conditional upon final collection) all
proceeds of Accounts, minus any accrued and unpaid interest and fees, to the
Company's account after receipt by Laurus of good funds in dollars of the United
States of America in Laurus' account. 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. Laurus shall remit all such proceeds (net of interest, fees and
other amounts then due and owing to Laurus hereunder) to Company within two (2)
Business Days. Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default, Laurus, at its option, may (a)
apply such proceeds to the Obligations in such order as Laurus shall elect, (b)
hold such proceeds as cash collateral for the Obligations and Company hereby
grants to Laurus a security interest in such cash collateral amounts as security
for the Obligations and/or (c) do any combination of the foregoing.
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10. Inspections and Appraisals. At all times during normal business hours
upon reasonable notice (except that such notice shall not be required in the
event an Event of Default shall have occurred and be continuing), Laurus and/or
any agent of Laurus shall have the right to (a) have Laurus to, visit, inspect,
review, evaluate and make physical verification and appraisals of the Company's
properties and the Collateral, (b) inspect, audit and copy (or take originals if
necessary) and make extracts from the Company's Books and Records, including
management letters prepared by independent accountants, and (c) discuss with the
Company's principal officers, and independent accountants, the Company's
business, assets, liabilities, financial condition, results of operations and
business prospects. The Company will deliver to Laurus any instrument necessary
for Laurus to obtain records from any service bureau maintaining records for the
Company. If any internally prepared financial information, including that
required under this paragraph is unsatisfactory in any manner to Laurus, Laurus
may request that independent certified public accountants of recognized standing
selected by Company and acceptable to Laurus (the "Accountants") review the
same.
11. Financial Reporting. Except due to reasonable delays, 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 unaudited
financial statements reviewed by independent certified public accountants of
recognized standing selected by the Company and acceptable to Laurus (the
"Accountants"), which annual financial statements 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, if Laurus so requests, on a consolidating and consolidated
basis to include any Affiliates, all in reasonable detail and prepared in
accordance with GAAP accepting only that they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete consolidated financial statements,
together with (i) copies of any management letters prepared by such accountants;
(ii) a report signed by the Accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default; and (iii) a certificate
of the Company's Chief Executive Officer or Chief Financial Officer stating that
such financial statements have been prepared in accordance with GAAP and whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(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, if Laurus so requests, on a consolidating and consolidated basis to
include any Affiliates, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all
prepared in accordance with generally accepted
12
accounting principles in the United States of America for interim financial
information and subject to year-end adjustments. And accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete consolidated
financial statements,; and accompanied by a certificate of the Company'
President 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; and
(c) Within twenty (20) days after the end of each month, agings of
the Company's Accounts, unaudited trial balances and its accounts payable and a
calculation of the Company's Accounts and Eligible Accounts as at the end of
such month or shorter time period.
12. Additional Representations and Warranties. Except as set forth on the
disclosure schedules annexed hereto, the Company represents and warrants (each
of which such representations and warranties shall be deemed repeated upon the
making of a request for a Revolving Credit Advance and made as of the time of
each Revolving Credit Advance made hereunder), as follows:
(a) The Company is a corporation duly incorporated and validly
existing under the laws of the jurisdiction of its incorporation and duly
qualified and in good standing in every other state or jurisdiction in which the
nature of the Company's business requires such qualification, except where the
failure to be so qualified could not reasonably be expected to have a Material
Adverse Effect.
(b) The execution, delivery and performance of this Agreement and
the Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of the Company's certificate of incorporation, by-laws or of any
indenture, agreement or undertaking to which the Company is a party or by which
the Company is bound and (iii) are within the Company's corporate powers.
(c) This Agreement and the Ancillary Agreements executed and
delivered by the Company are the Company's legal, valid and binding obligations,
enforceable in accordance with their terms, except as limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights and (b) general
principles of equity that restrict the availability of equitable and legal
remedies.
(d) Exhibit 12(d) sets forth the Company's name as it appears in
official filing in the state of its incorporation, the type of entity of the
Company, the organizational identification number issued by the Company's state
of incorporation or a statement that no such number has been issued, the
Company's state of incorporation, and the location of the Company's chief
executive office, corporate offices, warehouses, other locations of Collateral
and locations where records with respect to Collateral are kept (including in
each case the county of such locations) and, except as set forth in such Exhibit
12(d), 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 Exhibit
12(d), the Company has not been known as or conducted
13
business in any other name (including trade names). The Company has only one
state of incorporation.
(e) Based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i) the
Company has not engaged in any Prohibited Transactions as defined in Section 406
of ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii) the
Company has met all applicable minimum funding requirements under Section 302 of
ERISA in respect of its plans; (iii) the Company has no knowledge of any event
or occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) the Company has no fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than the Company's
employees; and (v) the Company has not withdrawn, completely or partially, from
any multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980.
(f) The Company is able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which the Company
engages or plans to engage.
(g) There is no pending or threatened litigation, action or
proceeding which involves the possibility of having a Material Adverse Effect.
(h) All balance sheets and income statements which have been
delivered to Laurus fairly state the Company's financial condition on a basis
consistent with that of previous financial statements, if any, and there has
been no material adverse change in the Company's financial condition as
reflected in such statements since the balance sheet date of the statements last
delivered to Laurus and such statements do not fail to disclose any fact or
facts which might have a Material Adverse Effect.
(i) The Company possesses all of the Intellectual Property necessary
to conduct its business. There has been no assertion or claim of violation or
infringement with respect to any Intellectual Property. Exhibit 12(i) sets forth
all Intellectual Property of the Company.
(j) Neither this Agreement, the exhibits and schedules hereto, the
Ancillary Agreements nor any other document delivered by the Company 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 the Company were based on the Company's experience in the
industry and on assumptions of fact and opinion as to future events which the
Company, at the date of the issuance of such projections or estimates, believed
to be reasonable. As of the date hereof no facts have come to the attention of
the Company that would, in its opinion, require the Company to revise or amplify
in any material respect the assumptions underlying such projections and other
estimates or the conclusions derived therefrom.
14
13. Covenants. The Company covenants as follows:
(a) The Company will not, without the prior written consent of
Laurus which consent shall not be unreasonably withheld, delayed or conditioned,
change (i) its name as it appears in the official filings in the state of its
incorporation or formation, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws or other organizational document; provided, however, the
Company may, without such consent, amend its certificate of incorporation
(subject to Section 13(a)(i)-(iv) above), by-laws or other organization document
in connection with an equity investment in the Company or a stock split or other
combination of the Company's shares of Common Stock, and the Company shall
provide Laurus with a copy of such amendment documentation not later than three
Business Days prior to the effectiveness thereof.
(b) The operation of the Company's business is and will continue to
be in compliance in all material respects with all applicable federal, state and
local laws, rules and ordinances, including to all laws, rules, regulations and
orders relating to taxes, payment and withholding of payroll taxes, employer and
employee contributions and similar items, securities, employee retirement and
welfare benefits, employee health safety and environmental matters.
(c) The Company will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon the Company or any
of the Collateral unless such amounts are being contested in good faith by
appropriate proceedings provided that (i) adequate reserves with respect thereto
are maintained on the books of the Company in conformity with GAAP and (ii) the
related Lien shall have no effect on the priority of the Liens in favor of
Laurus or the value of the assets in which Laurus has a Lien.
(d) The Company will 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 might singly or in the aggregate, have a Material
Adverse Effect; (ii) any amendment of the Company's certificate of
incorporation, by-laws or other organizational document; (iii) any change which
has had or might have a Material Adverse Effect; (iv) any Event of Default or
Default; (v) 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 the Company is a party or by which the Company or any of the
Company's properties may be bound which would have a Material Adverse Effect and
(vi) any change in the Company's name or any other name used in its business.
(e) The Company will not (i) create, incur, assume or suffer to
exist any indebtedness for borrowed money whether secured or unsecured other
than (A) the Company's indebtedness to Laurus, (B) as set forth on Exhibit
13(e)(i) attached hereto and made a part hereof and (C) any other indebtedness
in an amount not to exceed $4,000,000 in the aggregate so long as such
indebtedness is subordinated to the Company's indebtedness to Laurus on terms
and conditions acceptable to Laurus in its reasonable discretion and pursuant to
a
15
subordination agreement in form and substance acceptable to Laurus in its
reasonable discretion; (ii) cancel any debt incurred after the date hereof owing
to it in excess of $75,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently liable
in an amount greater than $1,000,000, connection with any obligations of any
other Person, except the endorsement of negotiable instruments by the Company
for deposit or collection or similar transactions in the ordinary course of
business; (iv) directly or indirectly declare, pay or make any dividend or
distribution on any class of its Stock or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any Stock of the
Company; (v) purchase or hold beneficially any Stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including any partnership or joint venture, except travel advances or loans to
the Company's officers and employees not exceeding at any one time an aggregate
of $50,000; (vi) create or permit to exist any Subsidiary, other than any
Subsidiary in existence on the date hereof and listed in Exhibit 13(e)(ii)
unless such new Subsidiary is designated by Laurus as either a co-borrower or
guarantor hereunder; (vii) directly or indirectly, prepay any indebtedness
(other than to Laurus), or repurchase, redeem, retire or otherwise acquire any
indebtedness; (viii) without Laurus' prior written consent, which shall not be
unreasonably withheld, 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; (ix) materially adversely change the nature of the business in
which it is presently engaged; (x) 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; (xi) enter into any transaction with any employee, director or
Affiliate, except in the ordinary course on arms-length terms; or (xii) xxxx
Accounts under any name except the present name of the Company.
(f) None of the proceeds of the Loans hereunder will be used
directly or indirectly to "purchase" or "carry" "margin stock" or to repay
indebtedness incurred to "purchase" or "carry" "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.
(g) The Company will bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral. At the Company's own cost and
expense in amounts and with carriers acceptable to Laurus, the Company shall (i)
keep all its insurable properties and properties in which it has 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 the Company's including business interruption insurance; (ii) maintain a bond
in such amounts as is customary in the case of companies engaged in businesses
similar to the Company's 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 Laurus to the assets or funds of
the Company 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
16
others; (iv) maintain all such worker's compensation or similar insurance as may
be required under the laws of any state or jurisdiction in which the Company 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) 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 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 the insurer will provide
Laurus with at least thirty (30) days notice prior to cancellation. So long as
the Obligations shall not have been paid in full in cash and this Agreement
shall not have been irrevocably terminated, the Company 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 Laurus jointly.
If any insurance losses are paid by check, draft or other instrument payable to
the Company and Laurus jointly, Laurus may endorse the Company's name thereon
and do such other things as Laurus may deem advisable to reduce the same to
cash. During the existence and continuance of an Event of Default, 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. Any surplus shall be
promptly paid by Laurus to the Company or applied as the Company may direct or
as may be otherwise required by law. Any deficiency thereon shall be paid by the
Company to Laurus, on demand.
(h) The Company shall not at any time permit any accounts payable to
remain unpaid more than ninety (90) days from the due date thereof unless there
exists an agreement in writing between the Company and any Person with respect
to such payable permitting extended payment terms or a bona fide dispute exists
with respect to such accounts payable, such amounts are being diligently
contested in good faith and adequate reserves with respect thereto are
maintained on the books of the Company in conformity with GAAP.
(i) The Company will at all times have authorized and reserved a
sufficient number of shares of common stock to provide for the conversion of the
Notes and exercise of the Warrant.
(j) The Company shall use the proceeds of all Revolving Credit
Advances solely for general corporate and working capital purposes.
14. Representations and Warranties of Laurus.
Laurus hereby represents and warrants 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. Upon their execution and delivery, this Agreement
and the Ancillary Agreements will be valid and binding obligations of Laurus,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy,
17
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. Laurus understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Laurus' representations
contained in the Agreement, including, without limitation, that Laurus is an
"accredited investor" within the meaning of Regulation D under the Securities
Act. Laurus has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Notes and the Warrant to be purchased by it under this Agreement
and the Securities acquired by it upon the conversion of the Notes and the
exercise of the Warrant, respectively.
(c) Laurus Bears Economic Risk. 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 pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available.
(d) Acquisition for Own Account. Laurus is acquiring the Securities
for its own account for investment only, and not as a nominee or agent and not
with a view towards or for resale in connection with their distribution.
(e) Laurus Can Protect Its Interest. Laurus represents that by
reason of its, or of its management's, business and financial experience, Laurus
has the capacity to evaluate the merits and risks of its investment in the
Notes, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement, and the
Ancillary Agreements. Further, Laurus is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Ancillary Agreements.
(f) Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(g) Laurus, together with its Affiliates, successors and assigns,
hereby represent, warrant and agree, severally and not jointly, that they will
not directly or indirectly enter into, or otherwise support, endorse or
encourage and other third party to engage in, any short sales of the Company's
Common Stock from the period commencing on the date hereof and ending on the
later of (i) termination of this agreement and (ii) the date that Laurus or its
Affiliates, successors or assigns own no Securities.
15. Further Assurances. At any time and from time to time, upon the
written request of Laurus and at the sole expense of the Company, the Company
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as Laurus may reasonably 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
18
under this Agreement or any Ancillary Agreement, or (c) to enable Laurus to
exercise all or any of the rights and powers herein granted or any Ancillary
Agreement.
16. Power of Attorney. The Company, following an Event of Default and any
applicable notice and grace periods and only so long as such Event of Default
shall be continuing, hereby appoints Laurus, or any other Person whom Laurus may
designate as the Company's attorney, with power to: (i) endorse the Company's
name on any checks, notess, acceptances, money orders, drafts or other forms of
payment or security that may come into Laurus' possession; (ii) sign the
Company's name on any invoice or xxxx of lading relating to any Accounts, drafts
against Account Debtors, schedules and assignments of Accounts, notices of
assignment, financing statements and other public records, verifications of
Account and notices to or from Account Debtors; (iii) verify the validity,
amount or any other matter relating to any Account by mail, telephone, telegraph
or otherwise with Account Debtors; (iv) do all things necessary to carry out
this Agreement, any Ancillary Agreement and all related documents; and (v) on or
after the occurrence but only during the continuation of an Event of Default,
notify the post office authorities to change the address for delivery of the
Company's mail to an address designated by Laurus, and to receive, open and
dispose of all mail addressed to the Company.
17. Term of Agreement. Laurus' agreement to make Loans and extend
financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Initial Term. At the expiration of the Initial Term,
this Agreement shall be deemed to be automatically renewed for an additional
period equal to the Initial Term and thereafter to be automatically renewed by
succeeding terms of equal length at the end of the first and each succeeding
renewal term (each, a "Renewal Term"), unless the Company or Laurus shall
deliver written notice of cancellation to the other not earlier than 90 days and
not later than 30 days prior to the expiration date of the Initial Term or any
succeeding Renewal Term. At Laurus' election following the occurrence of an
Event of Default, Laurus may terminate this Agreement. The termination of the
Agreement shall not affect any of Laurus' rights hereunder or any Ancillary
Agreement and the provisions hereof and thereof shall continue to be fully
operative until all transactions entered into, rights or interests created and
the Obligations have been disposed of, concluded or liquidated. Notwithstanding
the foregoing, Laurus shall release its security interests at any time after
thirty (30) days notice upon payment to it of all Obligations if the Company
shall have paid to Laurus an early termination fee in an amount equal to two
percent (2%) of the Capital Availability Amount on or before the first
anniversary of the date hereof; one percent (1%) of such amount following the
first anniversary hereof but before the second anniversary hereof; and zero
percent of such amount thereafter; such fee being intended to compensate Laurus
for its costs and expenses in connection with this Agreement. Such early
termination fee shall also be due and payable to Laurus upon termination of this
Agreement by Laurus after the occurrence and continuance of an Event of Default.
18. Termination of Lien. The Liens and rights granted to Laurus hereunder
and any Ancillary Agreements and the financing statements filed in connection
herewith or therewith shall continue in full force and effect, notwithstanding
the termination of this Agreement or the fact that the Company's account may
from time to time be temporarily in a
19
zero or credit position, until all of the Obligations of the Company have been
paid or performed in full.
19. 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 following five (5) Business Days opportunity to cure;
(b) failure to pay any taxes when due unless such taxes are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been provided on the Company's books;
(c) failure to perform under and/or committing any material breach
of this Agreement or any Ancillary Agreement or any other agreement between the
Company and Laurus following prior written notice thereof and five (5) Business
Days' opportunity to cure;
(d) the occurrence of a default under any agreement to which the
Company is a party with third parties which has a Material Adverse Effect;
(e) any representation, warranty or statement made by the Company
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 at any time be false or misleading in any
material respect; provided, however, that in the event that such breach shall be
curable, the Company shall have 7 Business Days from the notice thereof to cure
such breach;
(f) an attachment or levy is made upon the Company's assets having
an aggregate value in excess of $75,000 or a judgment is rendered against the
Company or the Company's property involving a liability of more than $75,000
which shall not have been vacated, discharged, stayed or bonded pending appeal
within thirty (30) days from the entry thereof;
(g) any change in the Company's condition or affairs (financial or
otherwise)which has 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, other than Permitted Liens;
(i) if the Company shall (i) apply for, consent to or suffer to
exist the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed,
20
within sixty (60) 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 shall admit in writing its inability, or be
generally unable to pay its debts as they become due or permanently cease
operations of its present business;
(k) any Subsidiary representing at least 5% of the Company's
consolidated revenue, shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii) admit
in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii) make a general
assignment for the benefit of creditors, (iv) commence a voluntary case under
the federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated
a bankrupt or insolvent, (vi) file a petition seeking to take advantage of any
other law providing for the relief of debtors, (vii) acquiesce to, or fail to
have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws or (viii) take any action for the
purpose of effecting any of the foregoing;
(l) the Company directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any Collateral or any interest therein, except in the ordinary
course of business or as otherwise permitted herein;
(m) a default by the Company in the payment, when due, of any
principal of or interest on any other indebtedness for money borrowed in an
amount greater than $ 50,000, which is not cured within any applicable cure or
grace period, unless the obligation to make any such payment is being contested
in good faith;
(n) the occurrence of a change in controlling ownership of the
Company;
(o) the indictment or threatened indictment of the Company, any
officer of the Company under any criminal statute, or commencement or threatened
commencement of criminal proceeding against the Company or any officer of the
Company pursuant to which statute or proceeding penalties or remedies sought or
available include forfeiture of any of the property of the Company constituting
Collateral;
(p) if an Event of Default shall occur under the Notes, which is not
cured during any applicable cure or grace period;
(q) the Company shall fail to (i) cause its common stock to continue
to be registered under Sections 12(b) or 12(g) of the Exchange Act, (ii) comply
in all material respects with its reporting and filing obligations under the
Exchange Act, (iii) comply with all reporting requirements that is applicable to
an issuer with a class of shares registered pursuant to Section 12(g) of the
Exchange Act, and/or (iv) comply with all material requirements related to any
registration statement filed pursuant to this Agreement or any Ancillary
Agreement; or
21
(r) the Company takes any action or files any document (whether or
not permitted by the Securities Act or the Exchange Act or the rules thereunder)
to terminate or suspend its reporting and filing obligations under said Acts
prior to the sale by Laurus of all the Securities issuable by the Company
pursuant to this Agreement or any Ancillary Agreement.
20. Remedies. If an Event of Default has occurred and 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 satisfied,
Laurus shall retain its Lien in all Collateral. Laurus shall have, in addition
to all other rights provided herein, the rights and remedies of a secured party
under the UCC, and under other applicable law, all other legal and equitable
rights to which Laurus may be entitled, including the right to take immediate
possession of the Collateral, to require the Company to assemble the Collateral,
at the Company's expense, and to make it available to Laurus at a place
designated by Laurus which is reasonably convenient to both parties and to enter
any of the premises of the Company or wherever the Collateral shall be located,
with or without force or process of law, and to keep and store the same on said
premises until sold (and if said premises be the property of the Company, the
Company agrees not to charge Laurus for storage thereof), and the right to apply
for the appointment of a receiver for the Company's property. Further, Laurus
may, at any time or times after the occurrence of an Event of Default, sell and
deliver all Collateral held by or for Laurus at public or private sale for cash,
upon credit or otherwise, at commercially reasonable prices and upon
commercially reasonable terms as Laurus, in Laurus' sole discretion, deems
advisable or Laurus may otherwise recover upon the Collateral in any
commercially reasonable manner as Laurus, in its sole discretion, deems
advisable. The requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to the Company at the Company's address as shown in
Laurus' records, at least ten (10) days before the time of the event of which
notice is being given. Laurus may be the purchaser at any sale, if it is public.
In connection with the exercise of the foregoing remedies, Laurus is granted
permission to use all of the Company's trademarks, tradenames, tradestyles,
patents, patent applications, licenses, franchises and other proprietary rights.
The proceeds of sale shall be applied first to all costs and expenses of sale,
including reasonable attorneys' fees, and second to the payment of all
Obligations, in whatever order Laurus shall elect. After the indefeasible
payment and satisfaction in full in cash of all of the Obligations, and after
the payment by Laurus of any other amount required by any provision of law,
including Section 608(a)(1) of the Code (but only after Laurus has received what
Laurus considers reasonable proof of a subordinate party's security interest),
the surplus, if any, shall be paid to the Company or its representatives or to
whosoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct. The Company shall remain liable to Laurus for
any deficiency. In addition, Companies shall pay Laurus a liquidation fee
("Liquidation Fee") in the amount of ten percent (10%) of the face amount of
each Account outstanding at any time during a "liquidation period". For purposes
hereof, "liquidation period" means a period: (i) beginning on the earliest date
of (x) an event referred to in Section 18(i) or 18(j), or (y) the cessation of
any Company's business; and (ii) ending on the date on which Laurus has actually
received all Obligations due and owing it under this Agreement and the Ancillary
Agreements. The Liquidation Fee shall be paid on the earlier to occur of: (i)
the date on which Laurus collects the applicable Account; and (ii) the 90th day
from the invoice of such Account by deduction from any amount otherwise due from
Laurus to the Company directly, at the option of Laurus. The Company and Laurus
acknowledge that the actual damages that would be incurred by Laurus
22
after the occurrence of an Event of Default would be difficult to quantity and
that the Company and Laurus have agreed that the fees and obligations set forth
in this Section and in this Agreement would constitute fair and appropriate
liquidated damages in the event of any such termination.
21. Waivers. To the full extent permitted by applicable law, the Company
waives presentment, demand and protest, and notice of presentment, dishonor,
intent to accelerate, acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all of this
Agreement and the Ancillary Agreements or any other notes, commercial paper,
Accounts, contracts, Documents, Instruments, Chattel Paper and guaranties at any
time held by Laurus on which the Company may in any way be liable, and hereby
ratifies and confirms whatever Laurus may do in this regard. The Company
acknowledges that it has been advised by counsel of its choices and decisions
with respect to this Agreement, the Ancillary Agreements and the transactions
evidenced hereby and thereby.
22. Expenses. The Company shall pay all of Laurus' reasonable
out-of-pocket costs and expenses, including 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 without regard to the
final disposition of any such dispute. 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 re-appraisals of any
property (real or personal) pledged to Laurus by the Company as Collateral for,
or any other Person as security for, the Company's Obligations hereunder and (e)
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 which Laurus is or may be required to withhold or pay, the Company
agrees to indemnify and hold 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 Xxxxxxxxxx.
00
00. Assignment By Laurus. Laurus may assign any or all of the Obligations
together with any or all of the security therefor and any transferee shall
succeed to all of Laurus' rights with respect thereto; provided, however, that
in the event that such assignee or transferee is not an Affiliate of Laurus,
Laurus shall request the approval of the Company prior to any such assignment or
transfer, which such approval shall not be unreasonably withheld. Upon such
transfer, Laurus shall be released from all responsibility for the Collateral to
the extent same is assigned to and expressly assumed by 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, provided that any such assignee execute and
deliver such documents as reasonably requested by the Company in connection with
any such assignment. 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.
24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise any
right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between 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.
25. 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 manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus' books and records.
26. Indemnity. The Company agrees to indemnify and hold Laurus and its
respective affiliates, employees, attorneys and agents (each, an "Indemnified
Person"), harmless from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses of any kind or nature
whatsoever (including attorneys' fees and disbursements and other costs of
investigation or defense, including those incurred upon any appeal) which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended, suspended or terminated under this
Agreement or any of the Ancillary Agreements or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement, the Ancillary Agreements or any
other documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing, except
to the extent that any such indemnified liability is finally determined by a
court of competent jurisdiction to have resulted from such Indemnified Person's
or any other Indemnified Person's gross negligence or willful misconduct. NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO THE COMPANY OR TO ANY OTHER
PARTY OR TO ANY SUCCESSOR,
24
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
27. Revival. The 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 or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
28. 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, deemed to have been given five (5)
days following the date when deposited in the mail or one (1) day following the
date that such notice or request is deposited with a nationally recognized
overnight courier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Grin
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
With a copy to: Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to the Company: LMIC, Inc.
0000 Xxxxxxxx Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx, President
Xxxx-Xxxxx Xxxxx, Secretary
Telephone: 000-000-0000
Telecopier: 000 000-0000
25
With a copy to:
Attention:
Telephone:
Telecopier:
29. 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.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY
AND LAURUS 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 ACKNOWLEDGE THAT ANY APPEALS
FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY
OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS,
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS. THE COMPANY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION
WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN SECTION
27 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE
COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
26
(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 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
THE 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 THERETO.
30. Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
31. Entire Understanding. This Agreement and the Ancillary Agreements
contain the entire understanding between the Company and Laurus 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 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.
32. 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.
33. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
34. 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.
35. 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.
27
36. Confidentiality. Laurus on behalf of itself and its successors,
assigns and Affiliates, agrees to use commercially reasonable best efforts
(equivalent to the efforts Laurus applies to maintain the confidentiality of its
own confidential information) to maintain as confidential all confidential
information provided to it by the Company, including, but not limited to,
financial statements, certificates, reports, agreements and information
(including all analyses, compilations and studies prepared by Laurus based on
any of the foregoing), financial results, information that may constitute
material non-public information and other information considered by the Company
to be confidential and proprietary ("Confidential Information") and to use such
information in compliance with all applicable laws, solely for the purpose of
and as necessary to fulfill its obligations under this Agreement and will not
reveal it to any third party without the express written consent of the Company.
For purposes hereof, Confidential Information does not include: (i) information
about the Company which is or becomes known publicly or (ii) information which
must be permitted to be disclosed in order to ensure that the transactions
contemplated hereby do not constitute a "tax shelter" as defined by the Internal
Revenue Service. Laurus will take appropriate measures to prevent its agents,
employees and subcontractors from using or disclosing any Confidential
Information, except as is expressly permitted under this Agreement.
Notwithstanding the foregoing, Laurus may disclose such information (a) to
Persons employed or engaged by Laurus in evaluating, approving, structuring or
administering the Revolving Credit Advances, provided such Person is subject to
a confidentiality agreement acceptable to the Company; (b) to any bona fide
assignee or participant or potential assignee or participant that has agreed to
comply with the covenant contained in this Section 36 (and any such bona fide
assignee or participant or potential assignee or participant may disclose such
information to Persons employed or engaged by them as described in clause (a)
above); (c) as required by any Governmental Authority; (d) as, on the advise of
Laurus' counsel, is required by law; or (e) that ceases to be confidential
through no fault of Laurus. In the case of clause (d) above, Laurus, to the
extent not prohibited by law, shall promptly notify Company so that Company, at
its expense, may seek a protective order.
37. Publicity. The Company hereby authorize Laurus to make appropriate
announcements of the financial arrangement entered into by and between 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, provided
that Laurus shall first provide the Company with a copy of such announcement and
an opportunity to provide comments thereon, subject to the parties' obligations
under applicable securities laws and regulations.
28
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
LMIC, INC.
By: /s/ Xxxx X. Xxxxxxx
------------------------------------
Name: Xxxx X. Xxxxxxx
Title: CEO
LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx Grin
------------------------------------
Name: Xxxxx Grin
Title: Managing Partner
29
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated with respect
to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section 11(a).
"Accounts" means all "accounts", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including: (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) (including
any such obligations that may be characterized as an account or contract right
under the UCC); (b) all of such Person's rights in, to and under all purchase
orders or receipts for goods or services; (c) all of such Person's rights to any
goods represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
"Accounts Availability" means the amount of Revolving Credit Advances
against Eligible Accounts Laurus may from time to time make available to the
Company ninety percent (90%) of the net face amount of the Company's Eligible
Accounts.
"Affiliate" of any Person means (a) any 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 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 purposes of this definition, control of a
Person shall mean the power, direct or indirect, (i) to vote five percent
(5.00%) or more of the securities having ordinary voting power for the election
of directors of such Person, or (ii) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Ancillary Agreements" means, the Notes, Warrant, Registration Rights
Agreement, 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 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
the Company and Laurus.
30
"Books and Records" means all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records, financial statements (actual and pro
forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.
"Business Day" means a day that is not a Saturday, a Sunday or other day
on which banks are required or permitted to be closed in the State of New York.
"Capital Availability Amount" means $4,000,000.
"Chattel Paper" means all "chattel paper," as such term is defined in the
UCC, including electronic chattel paper, now owned or hereafter acquired by any
Person.
"Closing Date" means the date on which the Company shall first receive
proceeds of the initial Loans.
"Collateral" means all of the Company's following 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 General Intangibles;
(c) all Accounts;
(d) all Deposit Accounts, other bank accounts and all funds on
deposit therein;
(e) all Investment Property;
(f) all Stock;
(g) all Chattel Paper;
(h) all Letter-of-Credit Rights;
(i) all Instruments;
(j) all commercial tort claims set forth on Exhibit 1(A);
(k) all Books and Records;
(l) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
31
(m) (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 Company (whether for safekeeping, custody, pledge, transmission or
otherwise); and
(n) all products and Proceeds of all or any of the foregoing, tort
claims and all claims and other rights to payment including insurance claims
against third parties for loss of, damage to, or destruction of, 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.
"Contract Rate" means an interest rate per annum equal to the Prime Rate
plus one half percent (0.50%).
"Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Rate" has the meaning given to such term in Section 5(a)(iii).
"Deposit Accounts" means all "deposit accounts" as such term is defined in
the UCC, now or hereafter held in the name of any Person, including, without
limitation, Deposit Account number _________ maintained by Borrower with [North
Fork Bank] and all replacements and substitutions thereof.
"Documents" means all "documents", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all bills
of lading, dock warrants, dock receipts, warehouse receipts, and other documents
of title, whether negotiable or non-negotiable.
"Effective Advance Rate" means, for any applicable month, the percentage
obtained when dividing (a) the average outstanding Revolving Credit Advances
during such month by (b) the average net face amount of all Eligible Accounts
created during such month.
"Eligible Accounts" means and includes each Account which conforms to the
following criteria: (a) shipment of the merchandise or the rendition of services
has been completed; (b) no return, rejection or repossession of the merchandise
has occurred; (c) merchandise or services shall not have been rejected or
disputed by the Account Debtor and there shall not have been asserted any
offset, defense or counterclaim; (d) continues to be in full conformity with the
representations and warranties made by the Company to Laurus with respect
thereto; (e) Laurus is, and continues to be, reasonably satisfied with the
credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any material adverse change in an Account Debtor's financial
condition; (g) is documented by an invoice in a form reasonably acceptable to
Laurus and shall not be unpaid more than ninety (90) days from invoice date; (h)
not more than twenty-five percent (25%) of the unpaid amount of invoices due
from such Account Debtor remains unpaid more than ninety (90) days from invoice
date; (i) is not evidenced by chattel paper or an instrument of any kind with
respect to or in payment of the Account unless such instrument is
32
duly endorsed to and in possession of Laurus or represents a check in payment of
a Account; (j) the Account Debtor is located in the United States or is
otherwise reasonably acceptable to Laurus; (k) Laurus has a first priority
perfected Lien in such Account and such Account is not subject to any Lien other
than Permitted Liens; (l) does not arise out of transactions with any employee,
officer, director or agent, stockholder or Affiliate of the Company; (m) is
payable to the Company; (n) does not arise out of a xxxx and hold sale prior to
shipment and does not arise out of a sale to any Person to which the Company is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between the Company and the United
States, any state, or any department, agency or instrumentality of any of them,
the Company has so notified Laurus, in writing, prior to the creation of such
Account, and there has been compliance with any governmental notice or approval
requirements, including compliance with the Federal Assignment of Claims Act;
(q) is a good and valid account representing an undisputed bona fide
indebtedness incurred by the Account Debtor therein named, for a fixed sum as
set forth in the invoice relating thereto with respect to an unconditional sale
and delivery upon the stated terms of goods sold by the Company, or work, labor
and/or services rendered by the Company; (r) does not arise out of progress
xxxxxxxx prior to completion of the order; (s) the Company's right to payment is
absolute and not contingent upon the fulfillment of any condition whatsoever;
(t) such Company is able to bring suit and enforce its remedies against the
Account Debtor through judicial process; (u) does not represent interest
payments, late or finance charges or service charges owing to the Company and
(v) is not an account of Sensytech, Inc..
"Equipment" means all "equipment" as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including any and
all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description that may be now or hereafter used in such Person's
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall have the meaning given to such term in Section 12(g).
"Event of Default" means the occurrence of any of the events set forth in
Section 18.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"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 set forth in Section 2(a).
"GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time in the United States of America.
"General Intangibles" means all "general intangibles" as such term is
defined in the UCC, now owned or hereafter acquired by any Person including all
right, title and interest that such Person may now or hereafter have in or under
any contract, all Payment Intangibles, customer lists, Licenses, Intellectual
Property, interests in partnerships, joint ventures and other
33
business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, Software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials, Books and
Records, Goodwill (including the Goodwill associated with any Intellectual
Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss, and casualty, whether covering personal
property, real property, tangible rights or intangible rights, all liability,
life, key-person, and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now owned
or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.
"Goodwill" means all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Indemnified Person" shall have the meaning given to such term in Section
25.
"Initial Term" means the Closing Date through the close of business on the
third anniversary of the Closing Date, subject to acceleration at the option of
Laurus upon the occurrence of an Event of Default hereunder or other termination
hereunder.
"Instruments" means all "instruments", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including all
certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
"Intellectual Property" means any and all Licenses, patents, patent
registrations, copyrights, copyright registrations, trademarks, trademark
registrations, trade secrets and customer lists.
"Inventory" means all "inventory", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property that are held by or on
behalf of such Person for sale or lease or are furnished or are to be furnished
under a contract of service or that constitute raw materials, work in process,
finished goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person's
34
business or in the processing, production, packaging, promotion, delivery or
shipping of the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such term is
defined in the UCC, now owned or hereafter acquired by any Person, wherever
located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including
rights to payment or performance under a letter of credit, whether or not such
Person, as beneficiary, has demanded or is entitled to demand payment or
performance.
"License" means any rights under any written agreement now or hereafter
acquired by any Person to use any trademark, trademark registration, copyright,
copyright registration or invention for which a patent is in existence or other
license of rights or interests now held or hereafter acquired by any Person.
"Lien" means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" shall have the meaning set forth in Section 2(a)(i) and shall
include all other extensions of credit hereunder and under any Ancillary
Agreement.
"Material Adverse Effect" means a material adverse effect (other than any
effect that arises out of failure to perform any term or condition of this
Agreement as a result of conditions beyond the Company's control such as, but
not limited to, war, strikes, fires, floods, acts of God, governmental
restrictions, power failures) on (a) the condition, operations, assets, business
or prospects of the Company, (b) the Company's ability to pay or perform the
Obligations in accordance with the terms hereof or any Ancillary Agreement or
(c) the value of the Collateral, the Liens on the Collateral or the priority of
any such Lien.
"Maximum Legal Rate" shall have the meaning given to such term in Section
5(a)(iv).
"Notes" means each of the Convertible Notes made by the Company in favor
of Laurus in connection with the transactions contemplated hereby, as the same
may be amended, modified and supplemented from time to time.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by the Company 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 notes or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
35
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 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 and the Ancillary Agreements, together
with all reasonable expenses and reasonable attorneys' fees chargeable to the
Company's account or incurred by Laurus in connection with the Company's account
whether provided for herein or in any Ancillary Agreement.
"Payment Intangibles" means all "payment intangibles" as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including, a
General Intangible under which the Account Debtor's principal obligation is a
monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with workmen's compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums (i)
not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
applicable Company in conformity with GAAP; (c) Liens in favor of Laurus; (d)
Liens for taxes (i) not yet due or (ii) being diligently contested in good faith
by appropriate proceedings, provided that adequate reserves with respect thereto
are maintained on the books of the applicable Company in conformity with GAAP
provided, that, the Lien shall have no effect on the priority of Liens in favor
of Laurus or the value of the assets in which Laurus has a Lien; (e) Purchase
Money Liens securing Purchase Money Indebtedness to the extent permitted in this
Agreement; (f) Liens specified on Exhibit 2 hereto; (g) any other Liens arising
out of operation of law; (h) any other Liens which are expressly subordinate to
the Liens in favor of Laurus pursuant to an intercreditor agreement in form and
substance reasonably satisfactory to Laurus in its sole discretion; and (i) the
existing Lien in favor of Branch Bank & Trust.
"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.
"Pledged Amount" means the principal amount on deposit from time to time
in one or more deposit accounts pledged by Xxxx Xx to Laurus pursuant to such
documentation acceptable to Laurus, in its sole discretion, and with respect to
which Laurus has a first priority perfected Lien. The parties hereto agree that
as of the date hereof, the Pledge Amount is $2,000,000.
36
"Prime Rate" means the "base rate" or "prime rate" published in the Wall
Street Journal from time to time. The Prime Rate shall be increased or decreased
as the case may be for each increase or decrease in the Prime Rate in an amount
equal to such increase or decrease in the Prime Rate; each change to be
effective as of the day of the change in such rate.
"Proceeds" means "proceeds", as such term is defined in the UCC and, in
any event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to the Company or any other Person from time to
time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to the Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of the Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) any recoveries by the
Company against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts , rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness incurred for the
payment of all or any part of the purchase price of any fixed asset, (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).
"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.
"Renewal Term" has the meaning set forth in Section 16.
"Revolving Credit Advances" shall have the meaning given to such term in
Section 2(a)(i).
"Securities" means the Notes, Warrant and the shares of the Company's
common stock underlying the Notes and Warrant.
"Securities Act" shall mean the Securities Act of 1934.
37
"Software" means all "software" as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including all computer programs and
all supporting information provided in connection with a transaction related to
any program.
"Stock" means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934).
"Subsidiary" of any Person means a corporation or other entity 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 of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Supporting Obligations" means all "supporting obligations" as such term
is defined in the UCC.
"Term" means, as applicable, the Initial Term and any Renewal Term.
"UCC" means the Uniform Commercial Code as the same may, from time be in
effect in the State of New York; provided, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or
priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
"Warrant" shall mean that certain warrant dated as of the date hereof,
issued by the Company to Laurus for the purchase of up to 200,000 shares of the
Common Stock of the Company .
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