EXHIBIT 10.11
PURCHASE AND SECURITY AGREEMENT
This Purchase and Security Agreement is made as of March 21, 2003 by
and among LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"),
JMAR Technologies, Inc., a Delaware corporation ("JMAR" and as agent for the
Companies (as defined below), the "Company Agent") and each other company set
forth on Exhibit A hereto (JMAR and each such other company shall hereinafter be
referred to, individually, as a "Company" and jointly and severally,
"Companies").
BACKGROUND
The Companies have requested that Laurus make investments and advances
available to the Companies; and
Laurus has agreed to make such investments and advances to the
Companies on the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. (a) General Definitions. Capitalized terms used in this
Agreement shall have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined shall have the meanings customarily
given them in accordance with GAAP and all financial computations shall be
computed, unless specifically provided herein, in accordance with GAAP
consistently applied.
(c) Other Terms. All other terms used in this Agreement and
defined in the UCC, shall have the meaning given therein unless otherwise
defined herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and
Exhibits hereto or expressly identified to this Agreement are incorporated
herein by reference and taken together with this Agreement constitute but a
single agreement. The words "herein", hereof" and "hereunder" or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All
references to any instruments or agreements, including references to any of this
Agreement or the Ancillary Agreements shall include any and all modifications or
amendments thereto and any and all extensions or renewals thereof.
2. Credit Advances.
(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 Companies from time to time during the Term
which, in the aggregate at any time outstanding, will not exceed the lesser of
(x) (I) the Capital Availability Amount minus (II) such reserves as Laurus may
reasonably in its good faith judgment deem proper and necessary from time to
time (the "Reserves") or (y) an amount equal to (I) Accounts Availability minus
(II) the Reserves. The amount derived at any time from Section 2(a)(i)(y)(I)
minus 2(a)(i)(y)(II) shall be referred to as the "Formula Amount".
(ii) Notwithstanding the limitations set forth
above, Laurus retains the right to lend to Companies from time to time such
amounts in excess of such limitations as Laurus may determine in its sole
discretion.
(iii) If any Company does not pay any interest,
fees, costs or charges to Laurus when due, Companies shall thereby be deemed to
have requested, and Laurus is hereby authorized at its discretion to make and
charge to Companies' account, a Revolving Credit Advance to Companies as of such
date in an amount equal to such unpaid interest, fees, costs or charges.
(iv) If any Company at any time fails to perform
or observe any of the covenants contained in this Agreement or any Ancillary
Agreement, Laurus may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of such Company (or, at Laurus' option, in
Laurus' name) and may, but need not, take any and all other actions which Laurus
may deem necessary to cure or correct such failure (including the payment of
taxes, the satisfaction of Liens, the performance of obligations owed to Account
Debtors, lessors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); 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 Companies' account as a Revolving Credit Advance and
added to the Obligations. To facilitate Laurus' performance or observance of
such covenants of Companies, each Company hereby irrevocably appoints Laurus, or
Laurus' delegate, acting alone, as such Company's attorney in fact (which
appointment is coupled with an interest) with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file in
the name and on behalf of such Company any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained, executed
delivered or endorsed by such Company.
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(v) Laurus will account to Company Agent monthly
with a statement of all Loans and other advances, charges and payments made
pursuant to this Agreement, and such account rendered by Laurus shall be deemed
final, binding and conclusive unless Laurus is notified by Company Agent in
writing to the contrary within fifteen (15) days of the date each account was
rendered specifying the item or items to which objection is made.
(vi) During the Term, Companies 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, Companies shall
reimburse Laurus for the amount of the Revolving Credit Advance made with
respect to such Eligible Account plus an adjustment fee in an amount equal to
one-half of one percent (0.50%) of the gross face amount of such Eligible
Account; provided, however, that the Company shall have the right but not the
obligation to pay or otherwise set-off such unpaid Eligible Account within
fifteen (15) days of the event described above such that no adjustment fee shall
be imposed on such balance.
(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 Company Agent), Companies
shall be deemed to hereby have sold, assigned, transferred, conveyed and
delivered to Laurus, and Laurus shall be deemed to have purchased and received
from Companies, all right, title and interest of Companies in and to all
Accounts which shall at any time constitute Eligible Accounts (the "Receivables
Purchase"). All outstanding Loans hereunder shall be deemed obligations under
such accounts receivable purchase facility. The conversion to an accounts
receivable purchase facility in accordance with the terms hereof shall not be
deemed an exercise by Laurus of its secured creditor rights under Article 9 of
the UCC. Immediately following Laurus' request, each 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 any 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. Companies shall be required to (a)
make a mandatory prepayment hereunder within five (5) days of the date on which
the aggregate outstanding principal balance of the Revolving Credit Advances
made by Laurus to Companies 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
Companies 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. Company Agent on
behalf of any 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), Company Agent shall deliver to Laurus a Borrowing Base Certificate in
the form of Exhibit B, which shall be certified as true and correct by the
President or Chief Operating Officer of Companies 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 Companies' account on Laurus' books. The proceeds of each
Revolving Credit Advance made by Laurus shall be made available to Companies on
the Business Day following the Business Day so requested in accordance with the
terms of this Section 4 by way of credit to Companies' operating account
maintained with such bank as Companies designated to Laurus. Any and all
Obligations due and owing hereunder may be charged to Companies' account and
shall constitute Revolving Credit Advances.
5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(a)(iii)
below, Companies shall pay interest at the Contract Rate on the unpaid principal
balance of each Loan until such time as such Loan is collected in full in good
funds in dollars of the United States of America.
(ii) Interest and payments shall be computed on
the basis of actual days elapsed in a year of 360 days. At Laurus' option,
Laurus may charge Companies' account for said interest.
(iii) Effective upon the occurrence of any Event
of Default and for so long as any Event of Default shall be continuing, the
Contract Rate shall automatically be increased to one and one-half percent
(1.5%) per month (such increased rate, the "Default Rate"), and all outstanding
Obligations, including unpaid interest, shall continue to accrue interest from
the date of such Event of Default at the Default Rate applicable to such
Obligations.
(iv) In no event shall the aggregate interest
payable hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate") and if any
provision of this Agreement or Ancillary Agreement is in contravention of any
such law or regulation, interest payable under this Agreement and each Ancillary
Agreement shall be computed on the basis of the Maximum Legal Rate (so that such
interest will not exceed the Maximum Legal Rate).
(v) Companies shall pay principal, interest and
all other amounts payable hereunder, or under any Ancillary Agreement, without
any deduction whatsoever, including any deduction for any set-off or
counterclaim.
(b) Payments.
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(i) Closing/Annual Payments. Upon execution of
this Agreement by Companies and Laurus, Companies shall pay to Laurus Capital
Management, LLC a closing payment 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, Companies shall pay to Laurus Capital Management, LLC an annual
renewal fee equal to three quarters percent (0.75%) of the Capital Availability
Amount. Such payments shall be deemed fully earned on the Closing Date but shall
not become payable until the occurrence of the execution of this Agreement or
the anniversary of the Closing Date, as the case may be. In addition, Companies
shall pay to Laurus Capital Management, LLC a closing payment equal to 0.20% of
all Collateral Accounts (as defined below).
(ii) Collateral Management Payment. For
underwriting, processing and supervising the Companies' Accounts, the Companies
shall make a monthly payment of 0.25% 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.
(iii) Unused Line Payment. If, for any month, the
average outstanding Revolving Credit Advances (the "Average Revolving Amount")
do not equal the Capital Availability Amount, the Companies shall pay to Laurus
at the end of such month a payment (calculated on a per annum basis) in an
amount equal to 0.40% of the amount by which the Capital Availability Amount
exceeds the Average Revolving Amount.
(iv) Overadvance Payment. Without affecting the
Companies' 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.
(v) Financial Information Default. Without
affecting Laurus' other rights and remedies, in the event the Companies fail to
deliver the financial information required by Section 11 on or before the date
required by this Agreement, the Companies shall pay Laurus a fee in the amount
of $250.00 per week (or portion thereof) for each such failure until such
failure is cured to Laurus' satisfaction or waived in writing by Laurus. Such
fee shall be charged to the Companies' account upon the occurrence of each such
failure. Such fee shall not apply in the case where such failure of timely
delivery was due to reasonable cause.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations,
each Company hereby assigns, pledges and grants to Laurus a continuing security
interest in and Lien upon all of the Collateral. All of Companies' Books and
Records relating to the Collateral shall, until delivered to or removed by
Laurus, be kept by Companies in trust for Laurus until all Obligations have been
paid in full. Each confirmatory assignment schedule or other form of assignment
hereafter executed by Companies shall be deemed to include the foregoing grant,
whether or not the same appears therein.
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(b) Each Company hereby (i) authorizes Laurus to file any
financing statements, continuation statements or amendments thereto that (x)
indicate the Collateral (1) as all assets of such Company (or any portion of
such 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. Each Company acknowledges
that it is not authorized to file any financing statement or amendment or
termination statement with respect to any financing statement without the prior
written consent of Laurus and agrees that it will not do so without the prior
written consent of Laurus, subject to Companies' rights under Section
9-509(d)(2) of the UCC.
(c) Each Company hereby grants to Laurus an irrevocable,
non-exclusive license (exercisable upon the termination of this Agreement due to
an occurrence and during the continuance of an Event of Default without payment
of royalty or other compensation to the Companies) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by Companies, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof, and represents, promises
and agrees that any such license or sublicense is not and will not be in
conflict with the contractual or commercial rights of any third Person;
provided, that such license will terminate on the termination of this Agreement
and the payment in full of all Obligations.
7. Representations, Warranties and Covenants Concerning the
Collateral. Each Company represents, warrants (each of which such
representations and warranties shall be deemed repeated upon the making of each
request for a 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 Companies 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) No Company shall encumber, mortgage, pledge, assign or
grant any Lien in any Collateral of such Company or any of such 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 Companies except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, and
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(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) Except as set forth on Exhibit 7(e), no Company shall
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) Each 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 such Company, with any agreements
establishing control to be in form and substance satisfactory to Laurus which
such action shall be taken by a 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'
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 such Company's and
Laurus' respective and several interests in the Collateral; provided, however,
in the event Laurus requests that a Company institutes any such litigation, such
litigation shall be instituted within 5 Business Days following Laurus' request
therefor.
(g) Each 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, each Company shall enter into a supplement to
this Agreement granting to Laurus a Lien in such commercial tort claim.
(h) Each Company shall place notations upon such Company's
Books and Records and any financial statement of such Company to disclose
Laurus' Lien in the Collateral.
(i) If any 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) Each Company shall perform 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.
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(k) Each Company shall notify Laurus promptly and in any event
within two (2) Business Days after obtaining knowledge thereof (i) of any event
or circumstance that to such Company's knowledge would cause Laurus to consider
any then existing Account as no longer constituting an Eligible Account; (ii) of
any material delay in such 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 such Company to any Account Debtor; (v) of all material adverse
information relating to the financial condition of an Account Debtor; (vi) of
any material return of goods; and (vii) of any loss, damage or destruction of
any of the Collateral.
(l) All Accounts (i) represent complete bona fide transactions
which require no further act under any circumstances on any Company's part to
make such Accounts payable by the Account Debtors, (ii) are not subject to any
present, future or contingent offsets or counterclaims, and (iii) do not
represent xxxx and hold sales, consignment sales, guaranteed sales, sale or
return or other similar understandings or obligations of any Affiliate or
Subsidiary of any Company. Companies have not made, and will not make, any
agreement with any Account Debtor for any extension of time for the payment of
any Account, any compromise or settlement for less than the full amount thereof,
any release of any Account Debtor from liability therefor, or any deduction
therefrom except a discount or allowance for prompt or early payment allowed by
any Company in the ordinary course of its business consistent with historical
practice and as previously disclosed to Laurus in writing.
(m) Each 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. No Company shall
permit any such items to become a Fixture to real estate or accessions to other
personal property.
(n) Each Company shall maintain and keep all of such Company's
Books and Records concerning the Collateral at such Company's executive offices
listed in Exhibit 12(d).
(o) Each Company shall maintain and keep the Collateral at the
addresses listed in Exhibit 12(d), provided, that any Company may change such
locations or open a new location, provided that such Company provides Laurus
thirty (30) 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(p) lists all banks and other financial
institutions at which Companies maintain 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. No Company shall
establish any depository or other bank account of any with any financial
institution (other than the accounts set forth on Exhibit 7(p)) without Laurus'
prior written consent.
8. Payment of Accounts.
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(a) The Companies 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 March __, 2003 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 Companies 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 2704048186 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 Companies' 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, a Company receives any payments, such Company
shall immediately remit such payments to the Blocked Account in their original
form with all necessary endorsements. Until so remitted, such Company shall hold
all such payments in trust for and as the property of Laurus and shall not
commingle such payments with any of its other funds or property. The Companies
shall pay Laurus two and one half percent (2 1/2%) of the amount of any payment
so received by a Company and not delivered in kind to the Blocked Account within
five (5) Business Days following such Company's receipt thereof.
(b) At Laurus' election following the occurrence of an Event
of Default, Laurus may notify Companies' Account Debtors of Laurus' security
interest in the Accounts, collect them directly and charge the collection costs
and expenses thereof to Companies' account.
9. Collection and Maintenance of Collateral.
(a) Laurus may 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 Companies' account four (4) 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.
(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), 20 and 26 hereof which have
theretofore not been paid, and if no Revolving Credit Advances are then
outstanding, pay to
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the Company in weekly intervals, or sooner, as requested by the Company, 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 Companies' properties and the Collateral, (b) inspect,
audit and copy (or take originals if necessary) and make extracts from the
Companies' Books and Records, including management letters prepared by
independent accountants, and (c) discuss with the Company's principal officers,
and independent accountants, the Companies' business, assets, liabilities,
financial condition, results of operations and business prospects. The Companies
will deliver to Laurus any instrument necessary for Laurus to obtain records
from any service bureau maintaining records for the Companies. 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.
11. Financial Reporting. The Companies 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 each Company, the Company's financial
statements audited by independent certified public accountants of recognized
standing selected by the Company and acceptable to Laurus (the "Accountants"),
which annual financial statements shall include the Company's consolidated
balance sheet as at the end of such fiscal year and the related consolidated
statements of the Company's income, retained earnings and cash flows for the
fiscal year then ended, prepared, if Laurus so requests, also on a consolidating
basis to include any Affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; and (ii) a certificate of each Company's President
or Chief Financial Officer stating that such financial statements have been
prepared in accordance with GAAP and whether or not such officer has knowledge
of the occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) As soon as available and in any event within forty five
(45) days after the end of each quarter, an unaudited/internal consolidated
balance sheet and consolidated 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, also on a consolidating
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 GAAP, subject to year-end adjustments; and
accompanied by a certificate of Companies' 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
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(c) Within thirty (30) days after the end of each month,
agings of the Company's Accounts, unconsolidated, unaudited trial balances and
its accounts payable and a calculation of the Company's Accounts and Eligible
Accounts as at the end of such month or shorter time period.
12. Additional Representations, Warranties and Covenants. Each
Company represents, 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), and covenants as follows:
(a) Each 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 such 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 such Company's certificate of incorporation, by-laws or of any
indenture, agreement or undertaking to which such Company is a party or by which
such Company is bound and (iii) are within such Company's corporate powers.
(c) This Agreement and the Ancillary Agreements executed and
delivered by each Company are such Company's legal, valid and binding
obligations, enforceable in accordance with their terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
(d) Exhibit 12(d) sets forth each Company's name as it appears
in official filing in the state of its incorporation, the type of entity of each
Company, the organizational identification number issued by each Company's state
of incorporation or a statement that no such number has been issued, each
Company's state of incorporation, and the location of 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), no Company has been known as or conducted business in any other name
(including trade names). Each 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) no Company has engaged in any Prohibited Transactions as defined in Section
406 of ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii)
each Company has met all applicable minimum funding requirements under Section
302 of ERISA in respect of its plans; (iii) no Company has any knowledge of any
event or occurrence which would cause the Pension Benefit Guaranty Corporation
to institute proceedings under Title IV of ERISA to terminate any employee
benefit
11
plan(s); (iv) no Company has any fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than Companies'
employees; and (v) no Company has withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980.
(f) Each Company is solvent, able to pay its debts as they
mature, has capital sufficient to carry on its business and all businesses in
which such 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 is probable of having a Material Adverse Effect.
(h) All balance sheets and income statements which have been
delivered to Laurus fairly, accurately and properly state the applicable
Company's financial condition on a basis consistent with that of previous
financial statements and there has been no material adverse change in such
Company's financial condition as reflected in such statements since the date
thereof and such statements do not fail to disclose any fact or facts which
might have a Material Adverse Effect on such Company's financial condition.
(i) Each 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 Companies.
(j) Neither this Agreement, the exhibits and schedules hereto,
the Ancillary Agreements nor any other document delivered by the Companies 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 Companies were based on the Companies' experience in
the industry and on assumptions of fact and opinion as to future events which
the Companies, 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 Companies that would, in its opinion, require a Company to
revise or amplify in any material respect the assumptions underlying such
projections and other estimates or the conclusions derived therefrom.
(k) The offer, sale and issuance of the Note and the Warrant
will be exempt from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.
Neither Company nor any of its Affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of the Securities.
12
(l) The Common Stock of JMAR is registered pursuant to Section
12(b) or 12(g) of the Exchange Act and JMAR has timely filed all proxy
statements, reports, schedules, forms, statements and other documents required
to be filed by it under the Exchange Act. JMAR has furnished Laurus with copies
of (i) its Annual Report on Form 10-K for the fiscal year ended December 31,
2001 and (ii) its Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2002, June 30, 2002 and September 30, 2002 (collectively, the "SEC
Reports"). Each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Companies included in the SEC Reports comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed) and fairly present in
all material respects the financial position of the Companies as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(m) JMAR's Common Stock is listed for trading on the Nasdaq
National Market. Upon completion of the several financings with Laurus, JMAR's
Common Stock will satisfy all requirements for continuation of listing on the
Nasdaq SmallCap Market. The Company Agent has determined that the Common Stock
does not meet all requirements for the continuation of listing on the Nasdaq
National Market.
(n) Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions. Neither the Company or any of
its affiliates or subsidiaries will take any action or steps that would cause
the offering of the Securities to be integrated with other offerings.
(o) The Securities are restricted securities as of the date of
this Agreement. The Companies will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities at such time as
the Securities are registered for public sale or an exemption from registration
is available, except as required by federal securities laws.
(p) The Company understands the nature of the Securities being
sold hereby and recognizes that they may have a potential dilutive effect. JMAR
specifically acknowledges that its obligation to issue the shares of Common
Stock upon conversion of the Note and exercise of the Warrant is binding upon
JMAR and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of JMAR.
13
(q) There is no agreement that has not been filed with the SEC
as an exhibit to a registration statement or other applicable form the breach of
which could have a material and adverse effect as to the Company and its
subsidiaries, or would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement or
the Registration Rights Agreement in any material respect.
13. Covenants. The Companies covenant as follows:
(a) Each 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, a
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 such Company or a stock split or
other combination of such Company's shares of Common Stock, and the Company
shall provide Laurus with a copy of such amendment documentation not later than
three Business Days prior to the effectiveness thereof.
(b) The operation of the Companies' businesses are 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 Companies will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon the Companies 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 are maintained on the books of the Companies 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 Companies 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 a 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 Companies or any
Company's properties may be bound which would have a Material Adverse Effect and
(vi) any change in a Company's name or any other name used in its business.
(e) The Companies will not (i) create, incur, assume or suffer
to exist any indebtedness whether secured or unsecured other than the
Companies'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,
14
guarantee, endorse or otherwise become directly or contingently liable in and
connection with any obligations of any other Person, except for obligations of
its Subsidiaries 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) except for a Subsidiary, 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 or (y) loans to the Companies' officers and employees not
exceeding at any one time an aggregate of $10,000; (vi) create or permit to
exist any Subsidiary, other than any Subsidiary in existence on the date hereof
and listed in Exhibit 13(e)(ii) unless such new Subsidiary is designated by
Laurus as either a co-borrower or guarantor hereunder; (vii) directly or
indirectly, prepay any indebtedness (other than to Laurus), or repurchase,
redeem, retire or otherwise acquire any indebtedness; (viii) without Laurus'
prior written consent, which shall not be unreasonably withheld, enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or Stock of any Person or permit any
other Person to consolidate with or merge with it; (ix) materially 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 Companies.
(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 Companies will bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. At each Company's
own cost and expense in amounts and with carriers acceptable to Laurus, each
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 such 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 such 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 such 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 such 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
15
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 such Company and the
insurer will provide Laurus with at least thirty (30) days notice prior to
cancellation. Each 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 Companies and Laurus jointly. If any insurance losses are
paid by check, draft or other instrument payable to the Companies and Laurus
jointly, Laurus may endorse such 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 Companies to Laurus, on demand.
(h) Except as set forth on Exhibit 13(h), each Company shall
not at any time permit any accounts payable to remain unpaid more than ninety
(90) days from the due date thereof unless there exists an agreement in writing
between such 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
Companies in conformity with GAAP.
(i) The Companies will at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide for the
conversion of the Note and exercise of the Warrant.
(j) Financial Covenants.
Maintenance of Quick Ratio. The Companies shall not permit
the ratio of (i) cash, plus Accounts, marketable securities and Restricted Cash,
excluding net assets from Discontinued Operations to (ii) current liabilities
minus net liabilities from Discontinued Operations at any time during any period
to be less than 0.90 to 1.00. For purposes hereof, the terms "RESTRICTED CASH"
and "DISCONTINUED OPERATIONS" shall have the meanings customarily ascribed to
such terms under GAAP.
14. Further Assurances. At any time and from time to time, upon
the written request of Laurus and at the sole expense of Companies, each Company
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as Laurus may request (a) to obtain
the full benefits of this Agreement and the Ancillary Agreements, (b) to
protect, preserve and maintain Laurus' rights in the Collateral and under this
Agreement or any Ancillary Agreement, or (c) to enable Laurus to exercise all or
any of the rights and powers herein granted or any Ancillary Agreement.
15. Representations and Warranties of Laurus.
16
Laurus hereby represents and warrants to the Company as follows:
(a) Requisite Power and Authority. Laurus has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Ancillary Agreements and to carry out their
provisions. All corporate action on Laurus' part required for the lawful
execution and delivery of this Agreement and the Ancillary Agreements have been
or will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Ancillary Agreements will be valid and binding
obligations of Laurus, enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
(b) Investment Representations. Laurus understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Laurus' representations
contained in the Agreement, including, without limitation, that Laurus is an
"accredited investor" within the meaning of Regulation D under the Securities
Act. Laurus has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note and the Warrant to be purchased by it under this Agreement
and the Securities acquired by it upon the conversion of the Note and the
exercise of the Warrant, respectively.
(c) Laurus Bears Economic Risk. Laurus has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Laurus must bear the economic risk of
this investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
(d) Acquisition for Own Account. Laurus is acquiring the
Securities for its own account for investment only, and not as a nominee or
agent and not with a view towards or for resale in connection with their
distribution.
(e) Laurus Can Protect Its Interest. Laurus represents that by
reason of its, or of its management's, business and financial experience, Laurus
has the capacity to evaluate the merits and risks of its investment in the Note,
the Warrant and the Securities and to protect its own interests in connection
with the transactions contemplated in this Agreement, and the Ancillary
Agreements. Further, Laurus is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the Ancillary
Agreements.
(f) Accredited Investor. Laurus represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
16. Power of Attorney. Each Company hereby appoints Laurus, or any
other Person whom Laurus may designate as such Company's attorney, with power
to: (i) endorse each Company's name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into Laurus'
possession; (ii) sign such Company's name on any invoice or xxxx of lading
relating to any Accounts, drafts against Account Debtors, schedules
17
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 such Company's mail to an address designated by Laurus, and to
receive, open and dispose of all mail addressed to such Company. Each Company
hereby ratifies and approves all acts of the attorney. Neither Laurus nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law. This power, being coupled with an interest, is
irrevocable so long as Laurus has a security interest and until the Obligations
have been fully satisfied.
17. Term of Agreement. Laurus' agreement to make Loans and extend
financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the 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
seven (7) days notice upon payment to it of all Obligations if the Companies
shall have (i) provided Laurus with an executed release of any and all claims
which the Companies 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 two percent (2%) of the Capital Availability Amount if such payment
occurs prior to the end of the first year of the Initial Term and three percent
(3%) if such payment occurs after the first year but prior to the end of second
year 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.
18. Termination of Lien. The Liens and rights granted to Laurus
hereunder and any Ancillary Agreements and the financing statements filed in
connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that the
Companies' account may from time to time be temporarily in a zero or credit
position, until (a) all of the Obligations of Companies have been paid or
performed in full after the termination of this Agreement and (b) each Company
has executed a release of any and all claims which such Company may have or
thereafter have under this Agreement and all Ancillary Agreements. Accordingly,
each 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 Companies, 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.
19. Events of Default. The occurrence of any of the following
shall constitute an Event of Default:
18
(a) failure to make payment of any of the Obligations when
required hereunder when due and such failure continues for a period of three (3)
days after Laurus has provided notice (which may be in electronic format) to the
Company Agent of such failure;
(b) failure to pay any taxes of a material amount 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 applicable
Company's books; provided, however, that in the event that such failure is
curable, such 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 any
Company and Laurus; provided, however, that in the event that such failure is
curable, such Company shall have 7 Business Days from the notice thereof to cure
such failure;
(d) the occurrence of a default under any agreement to which
any 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 any
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, such Company shall have 7 Business Days from the
notice thereof to cure such breach;
(f) except for judgments related to obligations of JMAR
Semiconductor, Inc. for amounts which are already reflected on the Company's
balance sheet, an attachment or levy is made upon any Company's assets having an
aggregate value in excess of $100,000 or a judgment is rendered against any
Company or any Company's property involving a liability of more than $250,000
which shall not have been vacated, discharged, stayed or bonded pending appeal
within ninety (90) days from the entry thereof;
(g) any change in any Company's condition or affairs
(financial or otherwise) which in Laurus' reasonable, good faith opinion impairs
the Collateral or the ability of any Company to perform its Obligations;
provided, however, that such Company shall have 7 Business Days from the notice
thereof to cure such breach, or such other time period as may be agreed by the
parties hereto in writing;
(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 any 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
19
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) any 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) except for actions with respect to JMAR Semiconductor,
Inc., any Subsidiary 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) except as set forth on Exhibit 19(l), any Company directly
or indirectly sells, assigns, transfers, conveys, or suffers or permits to occur
any sale, assignment, transfer or conveyance of any assets of such Company or
any interest therein, except as permitted herein;
(m) a default by any 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 any
of the Companies;
(o) the indictment or threatened indictment of any Company,
any officer of any Company under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against any Company or
any officer of any Company pursuant to which statute or proceeding penalties or
remedies sought or available include forfeiture of any of the property of any
Company;
(p) Laurus shall in good xxxxx xxxx itself insecure or unsafe
or shall fear diminution in value, removal or waste of the Collateral;
(q) if an Event of Default shall occur under the Note and the
Default Notice Period (as defined in the Note) has expired.
20. Remedies. Upon the occurrence of an Event of Default, Laurus
shall have the right to demand repayment in full of all Obligations, whether or
not otherwise due. Until all Obligations have been fully 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
Companies' expense, and to make it available
20
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
such Company, such Company agrees not to charge Laurus for storage thereof), and
the right to apply for the appointment of a receiver for such Company's
property. Further, Laurus may, at any time or times after the occurrence of an
Event of Default, sell and deliver all Collateral held by or for Laurus at
public or private sale for cash, upon credit or otherwise, at such prices and
upon such terms as Laurus, in Laurus' sole discretion, deems advisable or Laurus
may otherwise recover upon the Collateral in any commercially reasonable manner
as Laurus, in its sole discretion, deems advisable. The requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to
Company Agent at Company Agent's address as shown in Laurus' records, at least
ten (10) days before the time of the event of which notice is being given.
Laurus may be the purchaser at any sale, if it is public. In connection with the
exercise of the foregoing remedies, Laurus is granted permission to use all of
Companies' 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 Company Agent or its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. Companies shall remain liable
to Laurus for any deficiency. In addition, Companies shall pay Laurus a
liquidation fee ("Liquidation Fee") in the amount of five percent (5%) of the
face amount of each Account outstanding at any time during a "liquidation
period". For purposes hereof, "liquidation period" means a period: (i) beginning
on the earliest date of (x) an event referred to in Section 19(i) or 19(j), or
(y) the cessation of any Company's business; and (ii) ending on the date on
which Laurus has actually received all Obligations due and owing it under this
Agreement and the Ancillary Agreements. The Liquidation Fee shall be paid on the
earlier to occur of: (i) the date on which Laurus collects the applicable
Account; and (ii) the 90th day from the invoice of such Account by deduction
from any amount otherwise due from Laurus to Companies directly, at the option
of Laurus. Each Company and Laurus acknowledge that the actual damages that
would be incurred by Laurus after the occurrence of an Event of Default would be
difficult to quantity and that Companies and Laurus have agreed that the fees
and obligations set forth in this Section and in this Agreement would constitute
fair and appropriate liquidated damages in the event of any such termination.
21. Waivers. To the full extent permitted by applicable law, each
Company waives (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all of
this Agreement and the Ancillary Agreements or any other notes, commercial
paper, Accounts, contracts, Documents, Instruments, Chattel Paper and guaranties
at any time held by Laurus on which any 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
21
allowing Laurus to exercise any of its remedies; and (c) the benefit of all
valuation, appraisal and exemption laws. Each Company acknowledges that it has
been advised by counsel of its choices and decisions with respect to this
Agreement, the Ancillary Agreements and the transactions evidenced hereby and
thereby.
22. Expenses. Each Company shall pay all of Laurus' reasonable
out-of-pocket costs and expenses, including fees and disbursements of in-house
or outside counsel and appraisers, in connection with the preparation, execution
and delivery of this Agreement and the Ancillary Agreements, and in connection
with the prosecution or defense of any action, contest, dispute, suit or
proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. Each Company shall
also pay all of Laurus' reasonable fees, charges, out-of-pocket costs and
expenses, including fees and disbursements of counsel and appraisers, in
connection with (a) the preparation, execution and delivery of any waiver, any
amendment thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements, (b)
Laurus' obtaining performance of the Obligations under this Agreement and any
Ancillary Agreements, including, but not limited to, the enforcement or defense
of Laurus' security interests, assignments of rights and Liens hereunder as
valid perfected security interests, (c) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any Collateral, (d) any
appraisals or re-appraisals of any property (real or personal) pledged to Laurus
by Companies as Collateral for, or any other Person as security for, Companies'
Obligations hereunder and (e) any consultations in connection with any of the
foregoing. Companies shall also pay Laurus' customary bank charges for all bank
services (including wire transfers) performed or caused to be performed by
Laurus for Companies at Companies' request or in connection with Companies' loan
account with Laurus. All such costs and expenses together with all filing,
recording and search fees, taxes and interest payable by any 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 such Company and Laurus which Laurus is or may be required
to withhold or pay, such Company agrees to indemnify and hold Laurus harmless in
respect of such taxes, and such Company will repay to Laurus the amount of any
such taxes which shall be charged to Companies' account; and until such 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 Companies' credit and
Laurus shall retain its Liens in any and all Collateral.
23. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor and any transferee
shall succeed to all of Laurus' rights with respect thereto; provided, however,
that in the event that such assignee or transferee is not an affiliate of
Laurus, Laurus shall request the approval of the Companies prior to any such
assignment or transfer, which such approval shall not be unreasonably withheld.
Upon such transfer, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. The Companies agree that each such holder may exercise any and
all rights of banker's lien, set-off and
22
counterclaim with respect to its participation in the Obligations as fully as
though the Companies were directly indebted to such holder in the amount of such
participation.
24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise
any right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between any Company and
Laurus or delay by Laurus in exercising the same, will not operate as a waiver;
no waiver by Laurus will be effective unless it is in writing and then only to
the extent specifically stated. Laurus' rights and remedies under this Agreement
and the Ancillary Agreements will be cumulative and not exclusive of any other
right or remedy which Laurus may have.
25. Application of Payments. Each Company irrevocably waives the
right to direct the application of any and all payments at any time or times
hereafter received by Laurus from or on any Company's behalf and each Company
hereby irrevocably agrees that Laurus shall have the continuing exclusive right
to apply and reapply any and all payments received at any time or times
hereafter against the Obligations hereunder in such manner as Laurus may deem
advisable notwithstanding any entry by Laurus upon any of Laurus' books and
records.
26. Indemnity. Each Company 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 ANY COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
27. Revival. Each Company further agrees that to the extent any
Company makes a payment or payments to Laurus, which payment or payments or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
23
28. Notices. Any notice or request hereunder may be given to
Company Agent or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given 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
If to Company Agent: JMAR Technologies, Inc.
0000 Xxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
Telephone: 000-000-0000
Telecopier: 000-000-0000
29. Governing Law, Jurisdiction and Waiver of Jury Trial. (a) THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
COMPANY 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 EACH COMPANY ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY
24
SUCH COURT, AND EACH COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO COMPANY AGENT AT THE ADDRESS SET FORTH IN SECTION 27 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY AGENT'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(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 EACH COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO.
30. Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
31. Borrowing Agency Provisions.
(a) Each Company hereby irrevocably designates Company Agent
to be its attorney and agent and in such capacity to borrow, sign and endorse
notes, and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of such Company or
Companies, and hereby authorizes Laurus to pay over or credit all loan proceeds
hereunder in accordance with the request of Company Agent.
(b) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement is
solely as an accommodation to Companies and at their request. Laurus shall not
incur liability to Companies as a result thereof. To induce Laurus to do so and
in consideration thereof, each Company hereby indemnifies Laurus and holds
Laurus harmless from and against any and all liabilities, expenses, losses,
damages and claims of damage or injury asserted against Laurus by any Person
arising from or incurred by reason of the handling of the financing arrangements
of Companies as provided herein, reliance by Laurus on any request or
instruction from Company Agent or any other action taken by Laurus with respect
to this paragraph 31.
25
(c) All Obligations shall be joint and several, and each
Company shall make payment upon the maturity of the Obligations by acceleration
or otherwise, and such obligation and liability on the part of each Company
shall in no way be affected by any extensions, renewals and forbearance granted
by Laurus to any Company, failure of Laurus to give any Company notice of
borrowing or any other notice, any failure of Laurus to pursue to preserve its
rights against any Company, the release by Laurus of any Collateral now or
thereafter acquired from any Company, and such agreement by each Company to pay
upon any notice issued pursuant thereto is unconditional and unaffected by prior
recourse by Laurus to the other Companies or any Collateral for such Company's
Obligations or the lack thereof.
(d) Each Company expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which such Company may now or hereafter have against any other Company or
other person or entity directly or contingently liable for the Obligations, or
against or with respect to any other Company's property (including, without
limitation, any property which is Collateral for the Obligations), arising from
the existence or performance of this Agreement, until all Obligations have been
paid in full in cash and this Agreement has been irrevocably terminated
(e) Each Company represents and warrants to Laurus that (i)
the Companies have one or more common shareholders, directors and officers, (ii)
the businesses and corporate activities of the other Companies are closely
related to, and substantially benefit, the business and corporate activities of
such Company, (iii) the financial and other operations of the Companies are
performed on a combined basis as if the Companies constituted a consolidated
corporate group, (iv) such Company will receive a substantial economic benefit
from entering into this Agreement and will receive a substantial economic
benefit from the application of each Revolving Credit Advance hereunder, in each
case, whether or not such amount is used directly by such Company and (v) all
requests for Revolving Credit Advance hereunder by the Company Agent are for the
exclusive and indivisible benefit of each Company as though, for purposes of
this Agreement, the Companies constituted a single entity.
32. Limitation of Liability. Each Company acknowledges and
understands that in order to assure repayment of the Obligations hereunder
Laurus may be required to exercise any and all of Laurus' rights and remedies
hereunder and agrees that 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.
33. Entire Understanding. This Agreement and the Ancillary
Agreements contain the entire understanding between Companies and Laurus and any
promises, representations, warranties or guarantees not herein contained shall
have no force and effect unless in writing, signed by Companies' 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.
34. 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
26
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions thereof.
35. Captions. All captions are and shall be without substantive
meaning or content of any kind whatsoever.
36. Counterparts; Telecopier Signatures. This Agreement may be
executed in one or more counterparts, each of which shall constitute an original
and all of which taken together shall constitute one and the same agreement. Any
signature delivered by a party via telecopier transmission shall be deemed to be
any original signature hereto.
37. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
38. Publicity. Companies hereby authorize Laurus to make
appropriate announcements of the financial arrangement entered into by and
between Companies 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.
27
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
JMAR TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Executive Officer
JMAR RESEARCH, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Acting President
JMAR/XXX NANOLITHOGRAPHY, INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Chief Financial Officer
JSI MICROELECTRONICS, INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
-----------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Chief Financial Officer
LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx Grin
-----------------------------------------
Name: Xxxxx Grin
Title: Director
28
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 eighty five percent (85%) 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.
"Books and Records" means all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer
29
discs and other data and software storage and media devices, accounting books
and records, financial statements (actual and pro forma), filings with
Governmental Authorities and any and all records and instruments relating to the
Collateral or otherwise necessary or helpful in the collection thereof or the
realization thereupon.
"Business Day" means a day on which Laurus is open for business and
that is not a Saturday, a Sunday or other day on which banks are required or
permitted to be closed in the State of New York.
"Capital Availability Amount" means $3,000,000.
"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;
(k) all Instruments;
(l) all commercial tort claims set forth on Exhibit 1(A);
(m) all Books and Records;
30
(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 Laurus 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 three-quarters percent (0.75%), provided however, that the Contract
Rate shall not be permitted to be less than five percent (5.00%).
"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) Laurus is, and continues to be, satisfied with the
credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than ninety (90) days from invoice date; (h) not more than twenty-five
percent (25%) of the unpaid amount of invoices due from such Account Debtor
remains unpaid more than ninety (90) days from invoice date; (i) is not
evidenced by chattel paper or an instrument of any kind with respect to or in
payment of the Account unless such instrument is duly endorsed to and in
possession of Laurus or represents a check in payment of a Account; (j) the
Account Debtor is located in the
00
Xxxxxx Xxxxxx; (k) Laurus has a first priority perfected Lien in such Account
and such Account is not subject to any Lien other than Permitted Liens; (l) does
not arise out of transactions with any employee, officer, agent, director,
stockholder or Affiliate of the Company; (m) is payable to one of the Companies;
(n) does not arise out of a xxxx and hold sale prior to shipment and does not
arise out of a sale to any Person to which the Company is indebted (excluding
amounts owed to the federal government); (o) is net of any returns, discounts,
claims, credits and allowances; (p) if the Account arises out of contracts
between the Company and the United States, any state, or any department, agency
or instrumentality of any of them, the Company has so notified Laurus, in
writing, prior to the creation of such Account, and there has been compliance
with any governmental notice or approval requirements, including compliance with
the Federal Assignment of Claims Act; (q) is a good and valid account
representing an undisputed bona fide indebtedness incurred by the Account Debtor
therein named, for a fixed sum as set forth in the invoice relating thereto with
respect to an unconditional sale and delivery upon the stated terms of goods
sold by the Company, or work, labor and/or services rendered by the Company; (r)
does not arise out of progress xxxxxxxx prior to completion of the order
(excluding the Companies' contracts with the federal government and subcontracts
related to contracts with the federal government); (s) the Company's right to
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever; (t) such Company is able to bring suit and enforce its remedies
against the Account Debtor through judicial process; (u) does not represent
interest payments, late or finance charges or service charges owing to the
Company and (v) is otherwise satisfactory to Laurus as determined by Laurus in
the exercise of its sole discretion.
"Equipment" means all "equipment" as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including any
and all machinery, apparatus, equipment, fittings, furniture, fixtures, motor
vehicles and other tangible personal property (other than Inventory) of every
kind and description that may be now or hereafter used in such Person's
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall have the meaning given to such term in Section 12(g).
"Event of Default" means the occurrence of any of the events set forth
in Section 19.
"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
32
business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, Software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials, Books and
Records, Goodwill (including the Goodwill associated with any Intellectual
Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss, and casualty, whether covering personal
property, real property, tangible rights or intangible rights, all liability,
life, key-person, and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Indemnified Person" shall have the meaning given to such term in
Section 26.
"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
33
business or in the processing, production, packaging, promotion, delivery or
shipping of the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such term is
defined in the UCC, now owned or hereafter acquired by any Person, wherever
located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as such term
is defined in the UCC, now owned or hereafter acquired by any Person, including
rights to payment or performance under a letter of credit, whether or not such
Person, as beneficiary, has demanded or is entitled to demand payment or
performance.
"License" means any rights under any written agreement now or hereafter
acquired by any Person to use any trademark, trademark registration, copyright,
copyright registration or invention for which a patent is in existence or other
license of rights or interests now held or hereafter acquired by any Person.
"Lien" means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" 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
$3,000,000 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
34
debt, liability or obligation owing from the Company to others which Laurus may
have obtained by assignment or otherwise and further including all interest
(including interest accruing at the then applicable rate provided in this
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in this Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), charges or any other payments the Company is
required to make by law or otherwise arising under or as a result of this
Agreement and the Ancillary Agreements, together with all reasonable expenses
and reasonable attorneys' fees chargeable to the Company's account or incurred
by Laurus in connection with the Company's account whether provided for herein
or in any Ancillary Agreement.
"Payment Intangibles" means all "payment intangibles" as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including, a
General Intangible under which the Account Debtor's principal obligation is a
monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with workmen's compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums (i)
not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
applicable Company in conformity with GAAP; (c) Liens in favor of Laurus; (d)
Liens for taxes (i) not yet due or (ii) being diligently contested in good faith
by appropriate proceedings, provided that adequate reserves with respect thereto
are maintained on the books of the applicable Company in conformity with GAAP
provided, that, the Lien shall have no effect on the priority of Liens in favor
of Laurus or the value of the assets in which Laurus has a Lien; (e) Purchase
Money Liens securing Purchase Money Indebtedness to the extent permitted in this
Agreement 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
35
parties (i) for past, present or future infringement of any Intellectual
Property or (ii) for past, present or future infringement or dilution of any
trademark or trademark license or for injury to the goodwill associated with any
trademark, trademark registration or trademark licensed under any trademark
License; (d) any recoveries by the Company against third parties with respect to
any litigation or dispute concerning any Collateral, including claims arising
out of the loss or nonconformity of, interference with the use of, defects in,
or infringement of rights in, or damage to, Collateral; (e) all amounts
collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and Instruments with respect to Investment
Property and pledged Stock; and (f) any and all other amounts , rights to
payment or other property acquired upon the sale, lease, license, exchange or
other disposition of Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness incurred for
the payment of all or any part of the purchase price of any fixed asset, (b) any
indebtedness incurred for the sole purpose of financing or refinancing all or
any part of the purchase price of any fixed asset, and (c) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
"Purchase Money Lien" means any Lien upon any fixed assets that secures
the Purchase Money Indebtedness related thereto but only if such Lien shall at
all times be confined solely to the asset the purchase price of which was
financed or refinanced through the incurrence of the Purchase Money Indebtedness
secured by such Lien and only if such Lien secures only such Purchase Money
Indebtedness.
"Revolving Credit Advances" shall have the meaning given to such term
in Section 2(a)(i).
"Securities" means the Note, Warrant and the shares of the Company's
Common Stock underlying the Note and Warrant.
"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.
36
"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
Exhibit 1(A) - Commercial Tort Claims
Exhibit 2 - Permitted Liens
Exhibit 7(c) - Actions for Perfection
Exhibit 7(e) - Sale of Collateral
Exhibit 7(p) - 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 13(h) - Accounts Payable
Exhibit A - List of Companies
Exhibit B - Form of Borrowing Base Certificate
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