LAURUS MASTER FUND, LTD.
and
COMVERGE TECHNOLOGIES, INC.
Dated: December 4, 2002
TABLE OF CONTENTS
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Page
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1. (a) General Definitions. . . . . . . . . . . . . . . .. . . . .. . 1
(b) Accounting Terms. . . . . . . . . . . . . . . .. . . . .. . 1
(c) Other Terms. . . . . . . . . . . . . . . .. . . . .. . . . .1
(d) Rules of Construction. . . . . . . . . . . . . . . .. . . .1
2. Credit Advances.. . . . . . . . . . . . . . . .. . . . .. . . . . . 2
3. Repayment of the Loans. . . . . . . . . . . . . . . .. . . . .. . 3
4. Procedure for Revolving Credit Advances. . . . . . . . . . . . . 4
5. Interest and Fees.. . . . . . . . . . . . . . . .. . . . .. . .. . 4
(a) Interest.. . . . . . . . . . . . . . . .. . . . .. . .. . . .4
(b) Fees.. . . . . . . . . . . . . . . .. . . . .. . . . . . . . 4
(i) Closing Fee. . . . . . . . . . . . . . . .. . . . ..5
(ii) Collateral Management Fee. . . . . . . . . . . . . 5
(iii) Unused Line Fee. . . . . . . . . . . . . . . .. . .5
(iv) Overadvance Fee. . . . . . . . . . . . . . . .. . . 5
(v) Financial Information Default. . . . . . . . . . . 5
(vi) Remittance Processing Fee. . . . . . . . . . . . . 5
6. Security Interest.. . . . . . . . . . . . . . . .. . . . .. . . . . 5
7. Representations, Warranties and Covenants Concerning the Collateral. 6
8. Payment of Accounts.. . . . . . . . . . . . . . . .. . . . .. . . .9
9. Collection and Maintenance of Collateral.. . . . . . . . . . . . 10
10. Inspections and Appraisals. . . . . . . . . . . . . . . .. . . . ..10
11. Financial Reporting. . . . . . . . . . . . . . . .. . . . .. . .. . 11
12. Additional Representations, Warranties and Covenants. . . . . .. 11
13. Financial Covenants.. . . . . . . . . . . . . . . .. . . . .. . .. .13
14. Further Assurances. . . . . . . . . . . . . . . .. . . . .. . .. . .16
15. Power of Attorney. . . . . . . . . . . . . . . .. . . . .. . .. . .16
16. Term of Agreement. . . . . . . . . . . . . . . .. . . . .. . .. . .16
17. Termination of Lien. . . . . . . . . . . . . . . .. . . . .. . .. .17
18. Events of Default. . . . . . . . . . . . . . . .. . . . .. . . . . 17
19. Remedies. . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . .19
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20. Waivers. . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . . 19
21. Expenses. . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . .20
22. Assignment By Laurus. . . . . . . . . . . . . . . .. . . . .. . . .20
23. No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . .. . .21
24. Application of Payments. . . . . . . . . . . . . . . .. . . . .. . 21
25. Indemnity. . . . . . . . . . . . . . . .. . . . .. . .. . . . . . . .21
26. Revival. . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . . 21
27. Notices. . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . . 22
28. Governing Law, Jurisdiction and Waiver of Jury Trial. . . .. .23
29. Attorney Fees.. . . . . . . . . . . . . . . .. . . . .. . . . . . . 23
30. Limitation of Liability. . . . . . . . . . . . . . . .. . . . .. . 24
31. Entire Understanding. . . . . . . . . . . . . . . .. . . . .. . . . 24
32. Severability. . . . . . . . . . . . . . . .. . . . .. . . . . . . . 24
33. Captions. . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . .24
34. Counterparts; Telecopier Signatures. . . . . . . . . . . . . . . . 24
35. Construction. . . . . . . . . . . . . . . .. . . . .. . . . . . . . .24
36. Publicity. . . . . . . . . . . . . . . .. . . . .. . . . . . . . . . 24
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PURCHASE AND SECURITY AGREEMENT
This Purchase and Security Agreement is made as of December 4, 2002 by and
among LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus") and
COMVERGE TECHNOLOGIES, INC., a Delaware corporation (the "Company").
BACKGROUND
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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
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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 thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
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related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All references to any instruments or agreements, including
references to any of this Agreement or the Ancillary Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
2. CREDIT ADVANCES.
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(a) (i) Subject to the terms and conditions set forth herein and in
the Ancillary Agreements, Laurus shall make revolving credit advances (the
"Revolving Credit Advances") to the 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 Borrowing Availability
minus (II) the Reserves. The amount derived at any time from Section
2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall be referred to as the "Formula Amount".
(ii) Notwithstanding the limitations set forth above, Laurus
retains the right to lend to the Company from time to time such amounts in
excess of such limitations as Laurus may determine in its sole discretion.
(iii) If the Company does not pay any interest, fees, costs
or charges 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.
(iv) If the Company at any time fails to perform or observe
any of the covenants contained in this Agreement or any Ancillary Agreement,
Laurus may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of 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 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); PROVIDED, HOWEVER, unless Laurus determines in the
exercise of its reasonable discretion that the taking of any such action by
Laurus is necessary to preserve or protect the Collateral or Laurus' rights and
remedies under this Agreement and/or applicable law, the Company shall have a
period of not more than ten (10) Business Days to cure or correct such failure
prior to Laurus' taking any such action. The amount of all monies expended and
all costs and expenses (including attorneys' fees and legal expenses) incurred
by Laurus in connection with or as a result of the performance or observance of
such agreements or the taking of such action by Laurus shall be charged to the
Company's account as a Revolving Credit Advance and added to the Obligations. To
facilitate Laurus' performance or observance of such covenants of the Company,
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
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agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed delivered or endorsed
by the Company.
(v) 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 fifteen (15) days of the date each account was rendered
specifying the item or items to which objection is made.
(vi) During the Term, the Company may borrow, prepay and
reborrow Revolving Credit Advances, all in accordance with the terms and
conditions hereof.
(vii) 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, such Account
shall cease to be an Eligible Account and shall reduce Accounts Availability by
the net face amount of such Account.
(b) Following the occurrence of an Event of Default, Laurus may, at
its option, elect to convert the credit facility contemplated hereby to an
accounts receivable purchase facility. Upon such election by Laurus (subsequent
notice of which Laurus shall provide to 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 by Laurus to more fully set forth
the accounts receivable purchase facility herein contemplated, including,
without limitation, Laurus' standard form of accounts receivable purchase
agreement and account debtor notification letters, but 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. The Company shall be required to (a) make a
mandatory prepayment hereunder at any time that the aggregate outstanding
principal balance of the Revolving Credit Advances made by Laurus to the Company
hereunder is in excess of the Formula Amount, in an amount equal to such excess;
and (b) repay on the expiration of the Term (i) the then aggregate outstanding
principal balance of the Loans made by Laurus to the 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.
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4. PROCEDURE FOR REVOLVING CREDIT ADVANCES. The Company may by written
notice request a borrowing of Revolving Credit Advances prior to 12:00 noon (New
York time) on the Business Day of its request to incur, on that day, a Revolving
Credit Advance. Together with each request for a Revolving Credit Advance (or at
such other intervals as Laurus may request), the 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 Chief Executive Officer or Chief Financial Officer of
the Company together with all supporting documentation relating thereto. All
Revolving Credit Advances shall be disbursed from whichever office or other
place Laurus may designate from time to time and shall be charged to the
Company's account on Laurus' books. The proceeds of each Revolving Credit
Advance made by Laurus shall be made available to the Company on the Business
Day following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to the Company's operating account maintained with
such bank as the Company designated to Laurus. Any and all Obligations due and
owing hereunder may be charged to the Company's account and shall constitute
Revolving Credit Advances.
5. INTEREST AND FEES.
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(a) Interest.
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(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.
(ii) Interest and fees 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 five percent (5%) per annum above the
Contract Rate (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) FEES.
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(i) CLOSING/ANNUAL FEE. Upon execution of this Agreement by
the Company and Laurus, the Company shall pay to Laurus a closing fee in an
amount equal to two percent (2%) 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 fee equal to one percent (1%) of the Capital Availability
Amount. Such fees 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.
(ii) COLLATERAL MANAGEMENT PAYMENT. For underwriting,
processing and supervising the Company's Accounts, the Company shall pay a
monthly collateral management payment of 0.65% of all Accounts created during
each month to the extent that at the time such Account is created it is an
Eligible Account and for which there are outstanding Revolving Credit Advances
against such Account or against which a Revolving Credit Advance is made during
such month. ("Collateral Accounts"). This payment shall be payable monthly in
arrears by a charge by Laurus to the Company's account, and shall be paid as
follows: (A) 0.50% of Collateral Accounts to Laurus, and (B) 0.15% of Collateral
Accounts to Laurus Capital Management, LLC.
(iii) UNUSED LINE FEE. If, for any month, the average
outstanding Revolving 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 fee (calculated on a per annum basis) in an amount equal to 0.5% of the
amount by which the Capital Availability Amount exceeds the Average Revolving
Amount.
(iv) OVERADVANCE FEE. 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; PROVIDED, HOWEVER, that an Overadvance Fee, or a portion thereof,
payable pursuant to this section attributable solely to a Reserve established by
Laurus shall not be payable by the Company if the Company has repaid to Laurus
such Overadvance or portion thereof within three Business Days after Laurus has
notified the Company in writing that such Overadvance has occurred as a result
of the Reserve which notice shall also include in reasonable detail the
calculation of such Xxxxxxxxxxx.XXXXXXXXX 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 $750.00 per
week (or portion thereof) for each such failure until such failure is cured to
Laurus' satisfaction or waived in writing by Laurus. Such fee shall be charged
to the Company's account upon the occurrence of each such failure.
6. SECURITY INTEREST.
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(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
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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) As additional security for the payment and performance of the
Obligations, the Company hereby assigns to Laurus any and all monies (including
proceeds of insurance and refunds of unearned premiums) due or to become due
under, and all other rights of the Company with respect to, any and all policies
of insurance now or at any time hereafter covering the Collateral or any
evidence thereof or any business records or valuable papers pertaining thereto,
and the Company hereby directs the issuer of any such policy to pay all such
monies directly to Laurus. At any time, whether or not a Default or Event of
Default then exists, Laurus may (but need not), in Laurus' name or in the
Company's names, execute and deliver proof of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.
(c) The Company hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral (1) as all assets of the Company (or any portion of the Company's
assets) or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the UCC of
such jurisdiction, or (2) as being of an equal or lesser scope or with greater
detail, and (y) contain any other information required by Part 5 of Article 9 of
the UCC for the sufficiency or filing office acceptance of any financing
statement, continuation statement or amendment and (ii) ratifies its
authorization for Laurus to have filed any initial financial statements, or
amendments thereto if filed prior to the date hereof. 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 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.
(d) The Company hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to 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
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this agreement and the payment in
full of all Obligations.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING THE
COLLATERAL. The Company represents, warrants (each of which such representations
and warranties shall be deemed repeated upon the making of each request for a
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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, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, and (b) general principles of equity that
restrict the availability of equitable or legal remedies, 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 the sale of Inventory in the ordinary course
of business and for the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment having an
aggregate fair market value of not more than $25,000 and only to the extent that
(i) the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to Laurus' first priority security interest or (ii)
the proceeds of which are remitted to Laurus in reduction of the Obligations.
(f) The Company shall defend the right, title and interest of Laurus
in and to the Collateral against the claims and demands of all Persons
whomsoever, and take such actions, including (i) all actions necessary to grant
Laurus "control" of any Investment Property, Deposit Accounts, Letter-of-Credit
Rights or electronic Chattel Paper owned by 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 within two Business Days of Laurus'
request therefor, (ii) the prompt (but in no event later than two Business Days
following Laurus' request therefor) delivery to Laurus of all original
Instruments, Chattel Paper, negotiable Documents and certificated Stock owned by
a Company (in each case, accompanied by stock powers, allonges or other
instruments of transfer executed in blank), (iii) notification of Laurus'
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interest in Collateral at Laurus' request within two 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 5 Business Days following Laurus'
request therefor.
(g) The Company shall promptly, and in any event within three (3)
Business Days after the same is acquired by it, notify Laurus of any commercial
tort claim (as defined in the UCC) acquired by it and unless otherwise consented
by Laurus, the Company shall enter into a supplement to this Agreement granting
to Laurus a Lien in such commercial tort claim.
(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
four (4) 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 and/or any
then existing Inventory as no longer constituting Eligible Inventory; (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; (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 loss, damage or destruction of
any of the Collateral.
(l) All 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 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.
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(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 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 request, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus.
(p) EXHIBIT 7(N)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(N)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
North Fork Bank pursuant to the terms of the Lockbox Agreement dated December
__, 2002 or such other financial institution accepted by Laurus in writing as
may be selected by the Company (the "Lockbox Bank"). On or prior to the Closing
Date, the Company shall and shall cause the Lockbox Bank to enter into all such
documentation acceptable to Laurus (i) to perfect Laurus' first priority
security interest in the Blocked Account and (ii) pursuant to which the Lockbox
Bank agrees to: (a) sweep the Lockbox on a daily basis and deposit all checks
received therein to deposit account number ___________ maintained by Borrower
with North Fork Bank (the "Blocked Account") and (b) comply only with the
instructions or other directions of Laurus concerning the Lockbox and the
Blocked Account. All of the Company's invoices, account statements and other
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 the Blocked Account 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
9
shall pay Laurus five percent (5%) of the amount of any payment so received by
the Company and not delivered in kind to the Blocked Account within five (5)
Business Days following the Company's receipt thereof.
(b) At Laurus' election, if an Event of Default has occurred and is
continuing, 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 verify the Company's Accounts utilizing an audit control
company or any other agent of Laurus. So long as no Default or 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 four (4) times during any calendar year and not
more than two (2) times during any consecutive six (6) month period.
(b) Laurus will credit (conditional upon final collection) all
proceeds of Accounts to the Company's account three (3) Business Days 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. Eligible
Accounts for which proceeds thereof have been received by Laurus shall remain
Eligible Accounts until such proceeds are credited to the Company's account.
(c) As Laurus receives the proceeds of Accounts, it shall apply such
proceeds to (A) Revolving Credit Advances including Overadvances made by Laurus,
if any, (B) the interest and fees earned by Laurus with respect to such
Accounts, and (C) any amounts otherwise due Laurus including, without
limitation, pursuant to Sections 2, 5(b), 21 and 25 hereof which have
theretofore not been paid, and if no Revolving Credit Advances are then
outstanding, pay to the Company in weekly intervals the aggregate amount so
collected. Following the occurrence and during the continuance of an Event of
Default, Laurus shall have the right to apply all proceeds of Accounts to the
Obligations in such order as Laurus shall elect.
10. INSPECTIONS AND APPRAISALS. At all times during normal business
hours, Laurus, and/or any agent of Laurus shall have the right to (a) have
access to, visit, inspect, review, evaluate and make physical verification and
appraisals of 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 the Accountants
review the same.
10
11. FINANCIAL REPORTING. The Company will deliver, or cause to be
delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Company, the Company's unaudited
financial statements reviewed by independent certified public accountants of
recognized standing selected by 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 thirty (30) 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 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 fifteen (15) 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, Eligible Accounts, Inventory and Eligible
Inventory as at the end of such month or shorter time period.
12. ADDITIONAL REPRESENTATIONS AND WARRANTIES. 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:
11
(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.
(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.
(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 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 solvent, able to pay its debts as they mature,
has capital sufficient to carry on its business and all businesses in which the
Company is about to engage and the fair saleable value of its assets (calculated
on a going concern basis) is in excess of the amount of its liabilities.
(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 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 on the Company's financial condition.
(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.
13. COVENANTS. The Company covenants as follows:
(a) The Company will not, without the prior written consent of Laurus,
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, and the Company shall
provid 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 diligently contested in good faith by
appropriate proceedings provided that (i) adequate reserves with respect thereto
13
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 (exclusive of trade debt and intercompany indebtedness with
Data Systems & Software Inc.) whether secured or unsecured other than the
Company's indebtedness to Laurus and as set forth on EXHIBIT 13(E)(I)attached
hereto and made a part hereof; (ii) cancel any debt owing to it in excess of
$50,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of negotiable
instruments by a 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 a 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 (x) travel
advances, (y) loans to the Company's officers and employees not exceeding at any
one time an aggregate of $10,000 or (z) the Existing Loans; (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 other than such
indebtedness owed to Data Systems & Software Inc. or Bank Leumi USA; (viii)
enter into any merger, consolidation or other reorganization with or into any
other Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to consolidate with or merge with it; (ix) materially
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.
14
(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 access 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 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. 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. 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 paid by
Laurus to the Company or applied 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 sixty (60) 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) Xxxxxx Xxxxxxxxxxx, or another person acceptable to Laurus, shall
serve as Chief Executive Officer or Chairman of the Board of Xxxxxxxxx.
00
00. 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 request (a) to obtain
the full benefits of this Agreement and the Ancillary Agreements, (b) to
protect, preserve and maintain Laurus' rights in the Collateral and under this
Agreement or any Ancillary Agreement, or (c) to enable Laurus to exercise all or
any of the rights and powers herein granted or any Ancillary Agreement.
15. POWER OF ATTORNEY. The Company 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, notes, 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 and 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. The Company hereby ratifies
and approves all acts of the attorney. Neither Laurus, nor the attorney will be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law. This power, being coupled with an interest, is irrevocable so long as
Laurus has a security interest and until the Obligations have been fully
satisfied.
16. 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. If an Event of Default has occurred
and is continuing, Laurus may terminate this Agreement. The termination of the
Agreement shall not affect any of Laurus' rights hereunder or any Ancillary
Agreement and the provisions hereof and thereof shall continue to be fully
operative until all transactions entered into, rights or interests created and
the Obligations have been 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 (i) provided Laurus with an executed release of any and all claims
which the Company may have or thereafter have under this Agreement and all
Ancillary Agreements and (ii) paid to Laurus an early payment fee in an amount
equal to five percent (5%) of the Capital Availability Amount if such payment
occurs prior to the end of the first year of the Initial Term, four percent (4%)
if such payment occurs after the first year but prior to the end of second year
of the Initial Term and three percent (3%) thereafter if such early payment fee
occurs prior to the end of the Initial Term; such early payment fee being
intended to compensate Laurus for its costs and expenses incurred in initially
approving this Agreement. Such early payment fee shall also be due and payable
by the Company to Laurus upon termination of this Agreement by Laurus after the
occurrence of an Event of Default.
16
17. 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'
account may from time to time be temporarily in a zero or credit position, until
(a) all of the Obligations of the Company have been paid or performed in full
after the termination of this Agreement and (b) the Company has an executed
release of any and all claims which the Company may have or thereafter have
under this Agreement and all Ancillary Agreements. Accordingly, the Company
waives any rights which it may have under the UCC to demand the filing of
termination statements with respect to the Collateral, and Laurus shall not be
required to send such termination statements to the Company, or to file them
with any filing office, unless and until this Agreement and the Ancillary
Agreements shall have been terminated in accordance with their terms and all
Obligations paid in full in immediately available funds.
18. 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; provided, however, that in the event such failure to pay arises from
the occurrence of an Overadvance, then the Company shall have 2 Business Days
from the notice thereof to cure such failure;
(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; provided, however,
that in the event that such failure is curable, the Company shall have 7
Business Days from the notice thereof to cure such failure;
(c) failure to perform under and/or committing any material (as
determined by Laurus in the exercise of its good faith discretion) breach of
this Agreement or any Ancillary Agreement or any other agreement between the
Company and Laurus; provided, however, that in the event that such failure is
curable, the Company shall have 7 Business Days from the notice thereof to cure
such failure, except that with respect to Section 13(i) hereof, the Company
shall have 6 months to cure such failure;
(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 material (as determined by Laurus in the exercise of its
good faith discretion) 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 $100,000 or a judgment is rendered
against the Company or the Company's property involving a liability of more than
17
$100,000 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 in Laurus' reasonable, good faith opinion, impairs the
Collateral or the ability of the Company to perform its Obligations; provided,
however, that the Company shall have 7 Business Days from the notice thereof to
cure such breach;
(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;
(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, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
(j) the Company shall admit in writing its inability, or be
generally unable to pay its debts as they become due or cease operations of its
present business;
(k) any any Subsidiary, Guarantor or any significant subsidiary
of Guarantor 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 assets of the Company or any interest therein, except as
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 $25,000, which is not cured within any applicable cure or
grace period;
(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 or civil proceeding against the Company or any officer
18
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;
(p) if any Guarantor attempts to terminate, challenges the
validity of, or its liability under any Guaranty Agreement; or
(q) if an Event of Default shall occur under the Note and the
Default Notice Period (as defined in the Note) has expired.
19. 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 a 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 a 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 such prices and upon such
terms as Laurus, in Laurus' sole discretion, deems advisable or Laurus may
otherwise recover upon the Collateral in any commercially reasonable manner as
Laurus, in its sole discretion, deems advisable. The requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to 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 attorneys' fees, and second
to the payment (in whatever order Laurus elects) of all Obligations. 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.
20. WAIVERS. To the full extent permitted by applicable law, the
Company waives (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all of
this Agreement and the Ancillary Agreements or any other notes, commercial
19
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; (b) all
rights to notice and a hearing prior to Laurus' taking possession or control of,
or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. The Company 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.
21. EXPENSES. The Company shall pay all of Laurus' out-of-pocket
costs and expenses, including reasonable fees and disbursements of in-house or
outside counsel and appraisers, in connection with the preparation, execution
and delivery of this Agreement and the Ancillary Agreements (which such amount
shall not exceed $20,000), and in connection with the prosecution or defense of
any action, contest, dispute, suit or proceeding concerning any matter in any
way arising out of, related to or connected with this Agreement or any Ancillary
Agreement. The Company shall also pay all of Laurus' fees, charges,
out-of-pocket costs and expenses, including reasonable 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 Collateral.
22. 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. Upon such transfer,
Laurus shall be released from all responsibility for the Collateral to the
extent same is assigned to any transferee. Laurus may from time to time sell or
otherwise grant participations in any of the Obligations and the holder of any
20
such participation shall, subject to the terms of any agreement between Laurus
and such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant. The Company
agrees that each such holder may exercise any and all rights of banker's lien,
set-off and counterclaim with respect to its participation in the Obligations as
fully as though the Company were directly indebted to such holder in the amount
of such participation.
23. 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.
24. 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.
25. 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 solely from such 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,
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.
26. REVIVAL. The Company further agrees that to the extent the
Company makes a payment or payments to Laurus, which payment or payments or any
21
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.
27. NOTICES. Any notice or request hereunder may be given to the
Company or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given when deposited in the mail or with the overnight
mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
Laurus Master Fund, Ltd.
If to Laurus: C/o Laurus Capital Management, LLC
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: Comverge Technologies, Inc.
0000 Xxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
Attention: Xxxxx Xxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
With a copy to: Xxxxxxxxxx Xxxxxxxxx & Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx, 00000
Attention: Xxxxxxx Xxxxxx, Esq.
Telephone: 000-000-0000
Telecopier: 000-000-0000
22
28. 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.
(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.
29. 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
23
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.
30. LIMITATION OF LIABILITY. The Company acknowledges and
understands that in order to assure repayment of the Obligations hereunder
Laurus may be required to exercise any and all of Laurus' rights and remedies
hereunder and agrees that neither Laurus nor any of Laurus' agents shall be
liable for acts taken or omissions made in connection herewith or therewith
except for actual bad faith.
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.
36. 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.
24
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first above written.
COMVERGE TECHNOLOGIES, INC.
By:
---------------------------------
Name:
Title:
LAURUS MASTER FUND, LTD.
By:
----------------------------------
Name:
Title:
25
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 up to 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 Note, 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.
26
"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.
"BORROWING AVAILABILITY" means Accounts Availability plus
Inventory availability.
"BUSINESS DAY" means a day on which Laurus is open for business
and that is not a Saturday, a Sunday or other day on which banks are required or
permitted to be closed in the State of New York.
"CAPITAL AVAILABILITY AMOUNT" means $2,000,000.
"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 property and assets,
whether real or personal, tangible or intangible, and whether now owned or
hereafter acquired, or in which it now has or at any time in the future may
acquire any right, title or interests including all of the following property in
which it now has or at any time in the future may acquire any right, title or
interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
(f) all Deposit Accounts, other bank accounts and all funds on
deposit therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
27
(k) all Instruments;
(l) all commercial tort claims set forth on Exhibit 1(A);
(m) all Books and Records;
(n) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
(o) (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 Access Capital for
the account of Company (whether for safekeeping, custody, pledge, transmission
or otherwise); and
(p) 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 and three-quarters percent (1.75%).
"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.
"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) there are no facts existing or threatened, to
the knowledge of the Company, which are likely to result in any adverse change
in an Account Debtor's financial condition; (f) is documented by an invoice in a
form approved by Laurus and shall not be unpaid more than ninety (90) days from
28
invoice date; (g) 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; (h) is not evidenced by chattel paper or an instrument
of any kind with respect to or in payment of the Account unless such instrument
is duly endorsed to and in possession of Laurus or represents a check in payment
of a Account; (i) the Account Debtor is located in the United States; (j) Laurus
has a first priority perfected Lien in such Account and such Account is not
subject to any Lien other than Permitted Liens; (k) does not arise out of
transactions with any employee, officer, agent, director, stockholder or
Affiliate of the Company; (l) is payable to the Company; (m) 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; provided, however, that and
Eligible Account may arise out of a xxxx and hold sale if (i) the Account Debtor
has manifested its approval (in a writing acceptable in all respects to Laurus)
to such sale and to the acceptable quality of the goods to be delivered in
connection therewith, (ii) the Account Debtor has agreed in a writing acceptable
in all respects to Laurus that once delivered the Account Debtor may not return
such xxxx and hold goods to the Company, (iii) Laurus shall have received
evidence that such goods are covered by insurance in amounts acceptable to
Laurus, which such insurance shall name Laurus as loss payee and additional
insured, and (iv) and the Account Debtor shall have delivered to the Company an
estoppel certificate acceptable in all respects to Laurus pursuant to which the
Account Debtor agrees to pay for such goods in accordance with the express terms
of the applicable invoice; (n) is net of any returns, discounts, claims, credits
and allowances; (o) if the Account arises out of contracts between a 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; (p) 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 a
Company, or work, labor and/or services rendered by a Company; (q) does not
arise out of progress xxxxxxxx prior to completion of the order; (r) the
Company's right to payment is absolute and not contingent upon the fulfillment
of any condition whatsoever; (s) the Company is able to bring suit and enforce
its remedies against the Account Debtor through judicial process; (t) does not
represent interest payments, late or finance charges or service charges owing to
a Company; and (u) is otherwise satisfactory to Laurus as determined by Laurus
in the exercise of its reasonable, good faith judgment.
"ELIGIBLE INVENTORY" means Inventory which Laurus, in its
reasonable discretion, determines: (a) is subject to the security interest of
Laurus and is subject to no other liens or encumbrances whatsoever (other than
Permitted Liens); (b) is in good condition and meets all standards imposed by
any governmental agency, or department or division thereof having regulatory
authority over such Inventory, its use or sale including but not limited to the
Federal Fair Labor Standards Act of 1938 as amended, and all rules, regulations
and orders thereunder, (c) is currently either usable or salable in the normal
course of Company's business; and (d) not to be ineligible for any other reason.
"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,
29
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.
"EXISTING LOANS" means loans from the Company to Xxxxxx
Xxxxxxxxxxx, Xxxxxx Xxxxxxxxxxx and Xxxxx Xxxxxxx, each in the amount of
$9,925.20, and a loan from the Company to Xxxxxx X. Xxxxxxx in the amount of
$14,000.
"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 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
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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.
"GUARANTOR" means, individually, Data Systems & Software Inc. and
any other Person who may guarantee payment or performance of the whole or any
part of the Obligations and "GUARANTORS" means, collectively, all such Persons.
"GUARANTY AGREEMENTS" means each Guaranty which is executed by a
Guarantor in favor of Laurus.
"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 business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"INVENTORY AVAILABILITY" means the amount of Revolving Credit
Advances against Eligible Inventory Laurus may from time to time during the Term
make available to the Company up to the lesser of (a) $800,000, (b) up to fifty
percent (50%) of the value of Eligible Inventory (calculated at its orderly
liquidation value) and (c) fifty percent (50%) of the Accounts Availability;
PROVIDED, HOWEVER, until such time as Laurus shall have completed an appraisal
of the Inventory, which appraisal shall be completed no later than December 31,
2002, the Inventory Availability shall be zero ($0).
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"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" means the Revolving Credit Advances and all extensions of
credit hereunder or under any Ancillary Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect 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, (c) the value of the Collateral, the Liens on
the Collateral or the priority of any such Lien or (d) the practical realization
of the benefits of Laurus' rights and remedies under this Agreement and the
Ancillary Agreements.
"MAXIMUM LEGAL RATE" shall have the meaning given to such term in
Section 5(a)(iv).
"NOTE" means the Convertible Note in the original principal
amount of $2,000,000 made by the Company in favor of Laurus dated as of the
Closing Date, 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 note or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including any debt, liability or obligation
owing from the Company to others which Laurus may have obtained by assignment or
otherwise and further including all interest (including interest accruing at the
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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 and (f) Liens specified on EXHIBIT 2 hereto.
"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.
"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
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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.
"REVOLVING CREDIT ADVANCES" shall have the meaning given to such
term in Section 2(a)(i).
"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.
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"SUPPORTING OBLIGATIONS" means all "supporting obligations" as
such term is defined in the UCC.
"TERM" means the Initial 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.
EXHIBITS
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Exhibit 1(A) - Commercial Tort Claims
Exhibit 2 - Permitted Liens
Exhibit 7(c) - Actions for Perfection
Exhibit 7(n) - Bank Accounts
Exhibit 12(d) - Corporate Information and Locations of Collateral
Exhibit 12(i) - Licenses, Patents, Trademarks and Copyrights
Exhibit 13(e)(i) - Permitted Indebtedness
Exhibit 13(e)(ii) - Existing Subsidiaries
Exhibit A - Form of Borrowing Base Certificate
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