Exhibit 4.3
LAURUS MASTER FUND, LTD.,
XXXXXXXX TECHNOLOGIES OF MINNESOTA, INC.,
XXXXXXXX TECHNOLOGIES OF GEORGIA, INC.
XXXXXXXX TECHNOLOGIES OF TENNESSEE, INC.
and
XXXXXXXX TECHNOLOGIES, INC.
1
SECURITY AGREEMENT
This Security Agreement is made as of June 30, 2004 by and among
LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"), XXXXXXXX
TECHNOLOGIES, INC., a Delaware corporation ("Company"), XXXXXXXX TECHNOLOGIES OF
MINNESOTA, INC., a Minnesota corporation ("XxxxxXxx Minnesota"), XXXXXXXX
TECHNOLOGIES OF GEORGIA, INC., a Georgia corporation ("XxxxxXxx Georgia"), and
XXXXXXXX TECHNOLOGIES OF TENNESSEE, INC., a Tennessee corporation ("XxxxxXxx
Tennessee").
BACKGROUND
Company has requested that Laurus make advances available to
Company; and
Laurus has agreed to make such advances to Company on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
1. (a) General Definitions. Capitalized terms used in this Agreement
shall have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined shall have the meanings customarily given
them in accordance with GAAP and all financial computations shall be computed,
unless specifically provided herein, in accordance with GAAP consistently
applied.
(c) Other Terms. All other terms used in this Agreement and defined
in the UCC, shall have the meaning given therein unless otherwise defined
herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and
Exhibits hereto or expressly identified to this Agreement are incorporated
herein by reference and taken together with this Agreement constitute but a
single agreement. The words "herein", hereof" and "hereunder" or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules 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
2
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. Loans. (a)(i) Subject to the terms and conditions set forth
herein and in the Ancillary Agreements, Laurus may make loans (the "Loans") to
Company from time to time during the Term which, in the aggregate at any time
outstanding, will not exceed the lesser of (x) (I) the Capital Availability
Amount minus (II) such reserves as Laurus may reasonably in its good faith
judgment deem proper and necessary from time to time (the "Reserves") and (y) an
amount equal to (I) the Accounts Availability plus (II) the Inventory
Availability, minus (III) the Reserves. The amount derived at any time from
Section 2(a)(i)(y)(I) plus 2(a)(i)(y)(II) minus 2(a)(i)(y)(III) shall be
referred to as the "Formula Amount". Company shall execute and deliver to Laurus
on the Closing Date a Minimum Borrowing Note and a Revolving Note evidencing the
Loans funded on the Closing Date. From time to time thereafter, Company shall
execute and deliver to Laurus immediately prior to the final funding of each
additional $1,000,000 tranche of Loans allocated to any Minimum Borrowing Note
issued by Company to Laurus after the date hereof (calculated on a cumulative
basis for each such tranche) an additional Minimum Borrowing Note evidencing
such tranche, substantially in the form of the Minimum Borrowing Note delivered
by Company to Laurus on the Closing Date. Notwithstanding anything herein to the
contrary, whenever during the Term the outstanding balance on the Revolving Note
should equal or exceed $1,000,000 to the extent that the outstanding balance on
Minimum Borrowing Note shall be less than $1,000,000 (the difference of
$1,000,000 less the actual balance of the Minimum Borrowing Note, the "Available
Minimum Borrowing"), such portion of the balance of the Revolving Note as shall
equal the Available Minimum Borrowing shall be deemed to be simultaneously
extinguished on the Revolving Note and transferred to, and evidenced by, the
Minimum Borrowing Note.
(ii) Notwithstanding the limitations set forth above, if
requested by Company, Laurus retains the right to lend to Company from time to
time such amounts in excess of such limitations as Laurus may determine in its
sole discretion.
(iii) Company acknowledges that the exercise of Laurus'
discretionary rights hereunder may result during the Term in one or more
increases or decreases in the advance percentages used in determining Accounts
Availability and/or Inventory Availability and Company hereby consents to any
such increases or decreases which may limit or restrict advances requested by
Company.
(iv) If Company does not pay any interest, fees, costs or
charges to Laurus when due, Company shall thereby be deemed to have requested,
and Laurus is hereby authorized at its discretion to make and charge to
Company's account, a Loan to Company as of such date in an amount equal to such
unpaid interest, fees, costs or charges.
(v) If 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
3
and stead of Company (or, at Laurus' option, in Laurus' name) and may, but need
not, take any and all other actions which Laurus may reasonably deem necessary
to cure or correct such failure (including the payment of taxes, the
satisfaction of Liens, the performance of obligations owed to Account Debtors,
lessors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments). The amount of all monies expended and all
reasonable costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by Laurus in connection with or as a result of the
performance or observance of such agreements or the taking of such action by
Laurus shall be charged to Company's account as a Loan and added to the
Obligations. To facilitate Laurus' performance or observance of such covenants
of Company, Company hereby irrevocably appoints Laurus, or Laurus' delegate,
acting alone, as 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 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 Company.
(vi) Laurus will account to Company monthly with a statement
of all Loans and other advances, charges and payments made pursuant to this
Agreement, and such account rendered by Laurus shall be deemed final, binding
and conclusive unless Laurus is notified by Company in writing to the contrary
within thirty (30) days of the date each account was rendered specifying the
item or items to which objection is made.
(vii) During the Term, Company may borrow and prepay Loans in
accordance with the terms and conditions hereof. (viii) If any Eligible Account
is not paid by the Account Debtor within ninety (90) days after the date that
such Eligible Account was invoiced or if any Account Debtor asserts a deduction,
dispute, contingency, set-off, or counterclaim with respect to any Eligible
Account, (a "Delinquent Account"), Company shall (i) reimburse Laurus for the
amount of the Loans made with respect to such Delinquent Account plus an
adjustment fee in an amount equal to one-half of one percent (0.50%) of the
gross face amount of such Eligible Account or (ii) immediately replace such
Delinquent Account with an otherwise Eligible Account.
(b) Following the occurrence of an Event of Default which continues
to exist, 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),
Company shall be deemed to hereby have sold, assigned, transferred, conveyed and
delivered to Laurus, and Laurus shall be deemed to have purchased and received
from Company, all right, title and interest of Company in and to all Accounts
which shall at any time constitute Eligible Accounts (the "Receivables
Purchase"). All outstanding Loans hereunder shall be deemed obligations under
such accounts receivable purchase facility. The conversion to an accounts
receivable purchase facility in accordance with the terms hereof shall not be
deemed an exercise by Laurus of its secured creditor rights under Article 9 of
the UCC. Immediately following Laurus' request, 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
4
limitation, Laurus' standard form of accounts receivable purchase agreement and
account debtor notification letters, but Company's failure to enter into any
such documentation shall not impair or affect the Receivables Purchase in any
manner whatsoever.
(c) Minimum Borrowing Amount. After a registration statement
registering the Registrable Securities has been declared effective by the SEC,
conversions of the Minimum Borrowing Amount into the Common Stock of Company may
be initiated as set forth in the respective Minimum Borrowing Note. From and
after the date upon which any outstanding principal of the Minimum Borrowing
Amount (as evidenced by the first Minimum Borrowing Note) is converted into
Common Stock (the "First Conversion Date"), (i) corresponding amounts of all
outstanding Loans (not attributable to the then outstanding Minimum Borrowing
Amount) existing on or made after the First Conversion Date will be aggregated
until they reach the sum of $1,000,000 and (ii) Company will issue a new
(serialized) Minimum Borrowing Note to Laurus in respect of such $1,000,000
aggregation, and (iii) Company shall prepare and file a subsequent registration
statement with the SEC to register such subsequent Minimum Borrowing Note as set
forth in the Registration Rights Agreement.
3. Repayment of the Loans. Company (a) may prepay the Obligations
from time to time in accordance with the terms and provisions of the Notes (and
Section 16 hereof if such prepayment is due to a termination of this Agreement);
and (b) shall repay on the expiration of the Term (i) the then aggregate
outstanding principal balance of the Loans made by Laurus to Company hereunder
together with accrued and unpaid interest, fees and charges and (ii) all other
amounts owed Laurus under this Agreement and the Ancillary Agreements. Any
payments of principal, interest, fees or any other amounts payable hereunder or
under any Ancillary Agreement shall be made prior to 12:00 noon (New York time)
on the due date thereof in immediately available funds.
4. Procedure for Loans. Company may by written notice request a
borrowing of Loans prior to 12:00 p.m. (New York time) on the Business Day of
its request to incur, on the next business day, a Loan. Together with each
request for a Loan (or at such other intervals as Laurus may request), Company
shall deliver to Laurus a Borrowing Base Certificate in the form of Exhibit A,
which shall be certified as true and correct by the Chief Executive Officer or
Chief Financial Officer of Company together with all supporting documentation
relating thereto. All Loans shall be disbursed from whichever office or other
place Laurus may designate from time to time and shall be charged to Company's
account on Laurus' books. The proceeds of each Loan made by Laurus shall be made
available to Company on the Business Day following the Business Day so requested
in accordance with the terms of this Section 4 by way of credit to Company's
operating account maintained with such bank as Company designated to Laurus. Any
and all Obligations due and owing hereunder may be charged to Company's account
and shall constitute Loans.
5. Interest and Payments.
(a) Interest.
5
(i) Except as modified by Section 5(a)(iii) below, Company
shall pay interest at the Contract Rate on the unpaid principal balance of each
Loan until such time as such Loan is collected in full in good funds in dollars
of the United States of America.
(ii) Interest and payments shall be computed on the basis of
actual days elapsed in a year of 360 days. At Laurus' option, Laurus may charge
Company's 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 as set forth in each Note, respectively, (such
increased rate, the "Default Rate"), and all outstanding Obligations, including
unpaid interest, shall continue to accrue interest from the date of such Event
of Default at the Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable
hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate") and if any
provision of this Agreement or any Ancillary Agreement is in contravention of
any such law or regulation, interest payable under this Agreement and each
Ancillary Agreement shall be computed on the basis of the Maximum Legal Rate (so
that such interest will not exceed the Maximum Legal Rate).
(v) Company shall pay principal, interest and all other
amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including any deduction for any set-off or counterclaim.
(b) Payments; Certain Closing Conditions.
(i) Closing/Annual Payments. Upon execution of this Agreement
by Company and Laurus, Company shall pay to Laurus Capital Management, LLC a
closing payment in an amount equal to three and one-half percent (3.50%) of the
Capital Availability Amount. Such payment shall be deemed fully earned on the
Closing Date and shall not be subject to rebate or proration for any reason.
(ii) Overadvance Payment. Without affecting Laurus' rights
hereunder in the event the Loans exceed the Formula Amount (each such event, an
"Overadvance"), all such Overadvances shall bear interest at an annual rate
equal to two percent (2%) of the amount of such Overadvances for each month or
portion thereof such amounts shall be outstanding and in excess of the Formula
Amount.
(iii) Financial Information Default. Without affecting Laurus'
other rights and remedies, in the event Company fails to deliver the financial
information required by Section 11 on or before the date required by this
Agreement, Company shall pay Laurus a fee in the amount of $500.00 per week (or
portion thereof) for each such failure until such failure is cured to Laurus'
satisfaction or waived in writing by Laurus. Such fee shall be charged to
Company's account upon the occurrence of each such failure.
(iv) [Intentionally Omitted].
6
(v) Equity Investment. On or prior to the Closing Date, the
Company shall have received a common equity investment of no less than $500,000
from equity investors, and subject to documentation, satisfactory to the
Purchaser.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations, each
of Company and each Eligible Subsidiary hereby assigns, pledges and grants to
Laurus a continuing security interest in and Lien upon all of the Collateral.
All of Company's and each Eligible Subsidiary's Books and Records relating to
the Collateral shall, until delivered to or removed by Laurus, be kept by
Company and each Eligible Subsidiary, as the case may be, in trust for Laurus
until all Obligations have been paid in full. Each confirmatory assignment
schedule or other form of assignment hereafter executed by Company and each
Eligible Subsidiary shall be deemed to include the foregoing grant, whether or
not the same appears therein.
(b) Company and each Eligible Subsidiary hereby (i) authorizes
Laurus to file any financing statements, continuation statements or amendments
thereto that (x) indicate the Collateral (1) as all assets and personal property
of Company or such Eligible Subsidiary, as the case may be, 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 of Company and each Eligible Subsidiary 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 Company's and such Eligible Subsidiary's rights under Section
9-509(d)(2) of the UCC.
(c) Each of Company and each Eligible Subsidiary 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 Company or such
Eligible Subsidiary, as the case may be) to use, transfer, license or sublicense
any Intellectual Property now owned, licensed to, or hereafter acquired by
Company and/or such Eligible Subsidiary, 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 of Company and each Eligible Subsidiary represents, warrants
(each of which such representations and warranties shall be deemed repeated upon
the making of each request for a Loan and made as of the time of each and every
Loan hereunder) and covenants as follows:
7
(a) all of the Collateral (i) is owned by Company and/or an Eligible
Subsidiary, as the case may be, 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) neither the Company nor any Eligible Subsidiary shall encumber,
mortgage, pledge, assign or grant any Lien in any Collateral or any of Company's
or any Eligible Subsidiary other assets to anyone other than Laurus and except
for Permitted Liens.
(c) the Liens granted pursuant to this Agreement, upon completion of
the filings and other actions listed on Schedule 7(c) (which, in the case of all
filings and other documents referred to in said Schedule, have been delivered to
Laurus in duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all creditors of and any purchasers from Company
and the Eligible Subsidiaries 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) neither Company nor any Eligible Subsidiary 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 2.5%
of the then book value of the total tangible assets of the Company and its
Eligible Subsidiaries and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus' first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (ii) following the occurrence of an Event of
Default which continues to exist the proceeds of which are remitted to Laurus to
be held as cash collateral for the Obligations.
(f) each of Company and each Eligible Subsidiary 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 Company
and each Eligible Subsidiary, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus' request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by Company and each Eligible Subsidiary (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank), (iii) notification of Laurus' interest in Collateral at Laurus'
request, and (iv) the institution of litigation against third parties as shall
be prudent in order to protect and preserve Company's, each Eligible
Subsidiary's and/or Laurus' respective and several interests in the Collateral.
8
(g) each of Company and each Eligible Subsidiary shall promptly, and
in any event within five (5) Business Days after the same is acquired by it,
notify Laurus of any commercial tort claim (as defined in the UCC) acquired by
it and unless otherwise consented to by Laurus, each of Company and/or each
Eligible Subsidiary, as the case may be, shall enter into a supplement to this
Agreement granting to Laurus a Lien in such commercial tort claim.
(h) each of Company and each Eligible Subsidiary shall place
notations upon its Books and Records and any financial statement of Company and
each Eligible Subsidiary, as the case may be, to disclose Laurus' Lien in the
Collateral.
(i) If either Company and/or ay Eligible Subsidiary retains
possession of any Chattel Paper or Instrument with Laurus' consent, upon Laurus'
request such Chattel Paper and Instruments shall be marked with the following
legend: "This writing and obligations evidenced or secured hereby are subject to
the security interest of Laurus Master Fund, Ltd."
(j) each of Company and each Eligible Subsidiary shall perform in a
reasonable time all other steps reasonably requested by Laurus to create and
maintain in Laurus' favor a valid perfected first Lien in all Collateral subject
only to Permitted Liens.
(k) each of Company and each Eligible Subsidiary shall notify Laurus
promptly and in any event within three (3) Business Days after obtaining
knowledge thereof (i) of any event or circumstance that to Company's or any
Eligible Subsidiary's knowledge would cause any then existing Account or
Inventory as no longer constituting an Eligible Account or Eligible Inventory,
as the case may be; (ii) of any material delay in Company's or any Eligible
Subsidiary's performance of any of its obligations to any Account Debtor outside
of the ordinary course of business; (iii) of any assertion by any Account Debtor
of any material claims, offsets or counterclaims outside of the ordinary course
of business; (iv) of any material allowances, credits and/or monies granted by
Company or any Eligible Subsidiary to any Account Debtor which are outside of
the ordinary course of business; (v) of all material adverse information
relating to the financial condition of an Account Debtor; (vi) of any material
return of goods outside of the ordinary course of business; and (vii) of any
material loss, damage or destruction of any of the Collateral.
(l) All Eligible Accounts (i) which are billed on a construction
completion basis but not payable until the project is completed, represent
complete bona fide transactions which require no further act under any
circumstances on Company's or any Eligible Subsidiary's part to make such
Accounts payable by the Account Debtors, (ii) are not subject to any present,
future contingent offsets or counterclaims, and (iii) do not represent xxxx and
hold sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of either Company
or any Eligible Subsidiary. Neither Company nor any Eligible Subsidiary has
made, and neither Company nor any Eligible Subsidiary will 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
Company or any Eligible Subsidiary in the ordinary course of its business
consistent with historical practice.
9
(m) each of Company and each Eligible Subsidiary shall keep and
maintain its Equipment in good operating condition, except for ordinary wear and
tear, and shall make all necessary repairs and replacements thereof so that the
value and operating efficiency shall at all times be maintained and preserved.
Neither Company nor any Eligible Subsidiary shall permit any such items to
become a Fixture to real estate or accessions to other personal property.
(n) each of Company and each Eligible Subsidiary shall maintain and
keep all of its Books and Records concerning the Collateral at such person's
executive offices listed in Schedule 12(bb). (o) each of Company and each
Eligible Subsidiary shall maintain and keep the tangible Collateral at the
addresses listed in Schedule 12(bb), provided, that each of Company and/or any
such Eligible Subsidiary may change such locations or open a new location,
provided that Company or any such Eligible Subsidiary, as the case may be,
provides Laurus at least thirty (30) days prior written notice of such changes
or new location and (ii) prior to such change or opening of a new location where
Collateral having a value of more than $50,000 will be located, Company and/or
any such Eligible Subsidiary, as the case may be, executes and delivers to
Laurus such agreements as Laurus may request, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
reasonably satisfactory to Laurus.
(p) Schedule 7(p) lists all banks and other financial institutions
at which Company and each Eligible Subsidiary maintains deposits and/or other
accounts, and such Schedule correctly identifies the name, address and telephone
number of each such depository, the name in which the account is held, a
description of the purpose of the account, and the complete account number.
Neither the Company nor any Eligible Subsidiary shall establish any depository
or other bank account of any with any financial institution (other than the
accounts set forth on Schedule 7(p)) without Laurus' prior written consent which
will not be unreasonably withheld or delayed.
(q) All Inventory manufactured by Company in the United States of
America shall be produced in accordance with the requirements of the Federal
Fair Labor Standards Act of 1938, as amended and all rules, regulations and
orders related thereto or promulgated thereunder.
8. Payment of Accounts.
(a) Each of Company and each Eligible Subsidiary will irrevocably
direct all of its present and future Account Debtors and other Persons obligated
to make payments constituting Collateral to make such payments directly to the
lockboxes maintained by Company and each Eligible Subsidiary (the "Lockboxes")
with Bank North, N.A. (together with such other financial institution accepted
by Laurus in writing as may be selected by Company and/or any Eligible
Subsidiary, the "Lockbox Bank") pursuant to the terms of the lockbox agreements
entered into by the Company and/or the Eligible Subsidiaries and the Lockbox
Bank and the related control agreements entered into by the Company and/or the
Eligible Subsidiaries, the Lockbox Bank and Laurus. On or prior to the Closing
Date, each of Company and each Eligible Subsidiary shall and shall cause the
Lockbox Bank to enter into all such documentation acceptable to Laurus pursuant
10
to which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox
on a daily basis and deposit all checks received therein to an account
designated by Laurus in writing and (b) comply only with the instructions or
other directions of Laurus concerning the Lockbox. All of Company's and each
Eligible Subsidiary's invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of any
Account of Company or any Eligible Subsidiary or any other amount constituting
Collateral shall conspicuously direct that all payments be made to the Lockbox
or such other address as Laurus may direct in writing. If, notwithstanding the
instructions to Account Debtors, Company or any Eligible Subsidiary receives any
payments, (x) with respect to the period from the Closing Date to and including
the 45th day following the Closing Date, Company or such Eligible Subsidiary, as
the case may be, shall deposit such payments in the appropriate Lockbox and (y)
at any time thereafter, Company or such Eligible Subsidiary, as the case may be,
shall immediately remit such payments to Laurus in their original form with all
necessary endorsements. Until so remitted, Company and each Eligible Subsidiary
shall hold all such payments in trust for and as the property of Laurus and
shall not commingle such payments with any of its other funds or property.
(b) At Laurus' election, following the occurrence of an Event of
Default which is continuing, Laurus may notify each of Company's and each
Eligible Subsidiary's Account Debtors of Laurus' security interest in the
Accounts, collect them directly and charge the collection costs and expenses
thereof to Company's and the Eligible Subsidiaries joint and several account.
9. Collection and Maintenance of Collateral.
(a) Laurus may verify Company's and each Eligible Subsidiary's
Accounts from time to time, but not more often than once every three (3) months
unless an Event of Default has occurred and is continuing, utilizing an audit
control company or any other agent of Laurus.
(b) Proceeds of Accounts received by Laurus will be deemed received
on the Business Day after Laurus' receipt of such proceeds in good funds in
dollars of the United States of America 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 of Company or any
Eligible Subsidiary, it shall (i) apply such proceeds, as required, to amounts
outstanding under the Notes, and (ii) remit all such remaining proceeds (net of
interest, fees and other amounts then due and owing to Laurus hereunder) to
Company and/or any such Eligible Subsidiary upon request (but no more often than
twice a week). Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default, Laurus, at its option, may (a)
apply such proceeds to the Obligations in such order as Laurus shall elect, (b)
hold all such proceeds as cash collateral for the Obligations and each of
Company and each Eligible Subsidiary hereby grants to Laurus a security interest
in such cash collateral amounts as security for the Obligations and/or (c) do
any combination of the foregoing.
11
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 each of Company's and each Eligible Subsidiary's properties and
the Collateral, (b) inspect, audit and copy (or take originals if necessary) and
make extracts from Company's and each Eligible Subsidiary's Books and Records,
including management letters prepared by independent accountants, and (c)
discuss with Company's and each Eligible Subsidiary's principal officers, and
independent accountants, Company's and each Eligible Subsidiary's business,
assets, liabilities, financial condition, results of operations and business
prospects. Each of Company and each Eligible Subsidiary will deliver to Laurus
any instrument necessary for Laurus to obtain records from any service bureau
maintaining records for Company and such Eligible Subsidiary. If any internally
prepared financial information, including that required under this Section is
unsatisfactory in any manner to Laurus, Laurus may request that the Accountants
review the same.
11. Financial Reporting. Company will deliver, or cause to be
delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of Company, Company's audited financial
statements with a report of independent certified public accountants of
recognized standing selected by Company and reasonably acceptable to Laurus (the
"Accountants"), it being agreed and acknowledged that the Company's current
independent certified public accountants, Wolf & Co., are acceptable to Laurus,
which annual financial statements shall include Company's balance sheet as at
the end of such fiscal year and the related statements of Company's income,
retained earnings and cash flows for the fiscal year then ended, prepared, if
Laurus so requests, on a consolidating and consolidated basis to include all
Subsidiaries and Affiliates, all in reasonable detail and prepared in accordance
with GAAP, together with (i) if and when available, copies of any management
letters prepared by such accountants; and (ii) a certificate of Company's
President, Chief Executive Officer or Chief Financial Officer stating that such
financial statements have been prepared in accordance with GAAP and whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) As soon as available and in any event within forty five (45)
days after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of Company as at the end
of and for such quarter and for the year to date period then ended, prepared, if
Laurus so requests, on a consolidating and consolidated basis to include all
Subsidiaries and 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 Company's President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto;
(c) Within thirty (30) days after the end of each month (or more
frequently if Laurus so requests), agings of Company's and each Eligible
Subsidiary's Accounts, unaudited trial balances and their accounts payable and a
calculation of Company's and each Eligible Subsidiary's Accounts, Eligible
12
Accounts, Inventory and Eligible Inventory, provided, however, that if Laurus
shall request the foregoing information more often than as set forth in the
immediately preceding clause, Company and/or any Eligible Subsidiary shall have
thirty (30) days from each such request to comply with Laurus' demand; and
(d) Promptly after (i) the filing thereof, copies of Company's most
recent registration statements and annual, quarterly, monthly or other regular
reports which Company files with the Securities and Exchange Commission (the
"SEC"), and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as Company shall send to its stockholders.
12. Additional Representations and Warranties. Company hereby
represents and warrants to Laurus as follows (which representations and
warranties are supplemented by, and subject to, Company's filings under the
Securities Exchange Act of 1934 referenced in Subsection 12(u) herein
(collectively, the "Exchange Act Filings"), copies of which have been provided
to Laurus:
(a) Organization, Good Standing and Qualification. Each of Company
and each of its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. Each of
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, to execute and deliver such of this
Agreement and the Ancillary Agreements to which it is a party, to, in the case
of the Company only, issue and sell the Notes and the shares of Common Stock
issuable upon conversion of the Minimum Borrowing Note (the "Note Shares"), to,
in the case of the Company only, issue and sell the Warrants and the shares of
Common Stock issuable upon conversion of the Warrants (the "Warrant Shares"),
and to carry out the provisions of such of this Agreement and the Ancillary
Agreements to which it is a party and to carry on its business as presently
conducted. Each of Company and each of its Subsdiaries is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions, except for those jurisdictions in which the failure to do so
has not had, or could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Subsidiaries. Each direct and indirect Subsidiary of Company,
the direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 12(b). No Immaterial Subsidiary owns any assets (other than
immaterial assets) or has any liabilities (other than immaterial liabilities).
(c) Capitalization; Voting Rights.
(i) The authorized capital stock of the Company, as of the
date hereof consists of 31,000,000 shares, of which 30,000,000 are shares of
Common Stock, par value $0.01 per share, 19,015,691 shares of which are issued
and outstanding, and 1,000,000 are shares of preferred stock, par value $1.00
per share, of which no shares are issued and outstanding. The authorized capital
stock of each Subsidiary of the Company is set forth on Schedule 12 (c).
13
(ii) Except as disclosed on Schedule 12(c), other than: (i)
the shares reserved for issuance under Company's stock option plans; and (ii)
shares which may be issued pursuant to this Agreement and the Ancillary
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from Company of any of its securities. Except as
disclosed on Schedule 12(c), neither the offer, issuance or sale of any of the
Notes or the Warrants, or the issuance of any of the Note Shares or the Warrant
Shares, nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
(iii) All issued and outstanding shares of Company's Common
Stock: (i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(iv) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in Company's Certificate of
Incorporation (the "Charter"). The Note Shares and the Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement, the Notes or the Warrants, as applicable, and
Company's Charter, the Note Shares and the Warrant Shares will be validly
issued, fully paid and nonassessable. When issued in compliance with the terms
of this Agreement, the Notes or the Warrants, as applicable, and Company's
Charter, the Securities will be free of any liens or encumbrances; provided,
however, that the Securities may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
(d) Authorization; Binding Obligations. All corporate action on the
part of each of Company and each of its Subsidiaries, their respective officers
and directors necessary for the authorization of such of this Agreement and the
Ancillary Agreements as the Company and each Subsidiary shall be party to, the
performance of all obligations of Company and each of its Subsidiaries under
such of this Agreement and the Ancillary Agreements to which it is a party on
the Closing Date and, in the case of the Company only, the authorization, sale,
issuance and delivery of the Notes and the Warrant has been taken or will be
taken prior to the Closing Date. This Agreement and the Ancillary Agreements,
when executed and delivered and to the extent it is a party thereto, will be
valid and binding obligations of each of Company and each of its Subsidiaries
enforceable in accordance with their terms, except:
(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(ii) general principles of equity that restrict the
availability of equitable or legal remedies.
14
The sale of the Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
(e) Liabilities. Neither Company nor any of its Subsidiaries has any
contingent liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any Exchange Act Filings.
(f) Agreements; Action. Except as set forth on Schedule 12(f) or as
disclosed in any Exchange Act Filings:
(i) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
Company or any of its Subsidiaries is a party or to its knowledge by which it is
bound which may involve: (i) obligations (contingent or otherwise) of, or
payments to, Company or any of its Subsidiaries in excess of $50,000 (other than
obligations of, or payments to, Company or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from Company or any of its Subsidiaries (other than
licenses arising from the purchase of "off the shelf" or other standard
products); or (iii) provisions restricting the development, manufacture or
distribution of Company's or any of its Subsidiaries' products or services; or
(iv) indemnification by Company or any of its Subsidiaries with respect to
infringements of proprietary rights.
(ii) Since September 30, 2003, neither Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate;
(iii) For the purposes of subsections (i) and (ii) of this
Section 12(f) above, all indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same person or
entity (including persons or entities Company has reason to believe are
affiliated therewith or with any Subsidiary thereof) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsections.
(g) Obligations to Related Parties. Except as set forth on Schedule
12(g), there are no obligations of Company or any of its Subsidiaries to
officers, directors, stockholders or employees of Company or any of its
Subsidiaries other than:
15
(i) for payment of salary for services rendered and for bonus
payments;
(ii) reimbursement for reasonable expenses incurred on behalf
of Company or any of its Subsidiaries;
(iii) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of Company); and
(iv) obligations listed in Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 12(g) or as disclosed in any
Exchange Act Filings, none of the officers, directors or, to the best of
Company's knowledge, key employees or stockholders of Company, any of its
Subsidiaries or any members of their immediate families, are indebted to Company
or any of their Subsidiaries, individually or in the aggregate, in excess of
$50,000 or have any direct or indirect ownership interest in any firm or
corporation with which Company or any of its Subsidiaries is affiliated or with
which Company or any of its Subsidiaries has a business relationship, or any
firm or corporation which competes with Company or any of its Subsidiaries,
other than passive investments in publicly traded companies (representing less
than one percent (1%) of such company) which may compete with Company or any of
its Subsidiaries. Except as described above or as set forth on Schedule 12(g) or
as disclosed in any Exchange Act Filings, no officer, director or stockholder,
or any member of their immediate families, is, directly or indirectly,
interested in any material contract with Company or any of its Subsidiaries and
no agreements, understandings or proposed transactions are contemplated between
Company or any of its Subsidiaries and any such person. Except as set forth on
Schedule 12(g) or as disclosed in any Exchange Act Filings, neither Company nor
any of its Subsidiaries is a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.
(h) Changes. Since September 30, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Ancillary Agreements, there has not been:
(i) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of Company or any
of its Subsidiaries, which, individually or in the aggregate, has had, or could
reasonably be expected to have, a Material Adverse Effect;
(ii) any resignation or termination of any officer, key
employee or group of employees of Company or any of its Subsidiaries;
(iii) any material change, except in the ordinary course of
business, in the contingent obligations of Company or any of its Subsidiaries by
way of guaranty, endorsement, indemnity, warranty or otherwise;
16
(iv) any damage, destruction or loss, whether or not covered
by insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(v) any waiver by Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(vi) any direct or indirect material loans made by Company or
any of its Subsidiaries to any stockholder, employee, officer or director of
Company or any of its Subsidiaries, other than advances made in the ordinary
course of business;
(vii) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(viii) any declaration or payment of any dividend or other
distribution of the assets of Company or any of its Subsidiaries;
(ix) any labor organization activity related to Company or any
of its Subsidiaries;
(x) any debt, obligation or liability incurred, assumed or
guaranteed by Company or any of its Subsidiaries, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of business;
(xi) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(xii) any change in any material agreement to which Company or
any of its Subsidiaries is a party or by which it is bound which, either
individually or in the aggregate, has had, or could reasonably be expected to
have, a Material Adverse Effect;
(xiii) any other event or condition of any character that,
either individually or in the aggregate, has had, or could reasonably be
expected to have, a Material Adverse Effect; or
(xiv) any arrangement or commitment by Company or any of its
Subsidiaries to do any of the acts described in subsection (i) through (xiii) of
this Section 12(h).
(i) Title to Properties and Assets; Liens, Etc. Except as set forth
on Schedule 12(i) or as disclosed in any Exchange Act Filings, each of Company
and each of its Subsidiaries has good and marketable title to its properties and
assets, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than:
(i) those resulting from taxes which have not yet become
delinquent;
17
(ii) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of Company or any of its Subsidiaries; and
(iii) those that have otherwise arisen in the ordinary course
of business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by Company or any of its Subsidiaries are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as set forth on Schedule 12(i) or
as disclosed in any Exchange Act Filings, each of Company and each of its
Subsidiaries is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.
(j) Intellectual Property.
(i) Each of Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all Intellectual Property necessary for its
business as now conducted and to Company's knowledge as presently proposed to be
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to such
Intellectual Property of Company or any of its Subsidiaries, nor is Company or
any of its Subsidiaries bound by or a party to any options, licenses or
agreements of any kind with respect to the Intellectual Property of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
(ii) Neither Company nor any of its Subsidiaries has received
any communications alleging that Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is
Company aware of any basis therefor.
(iii) Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by Company or any of its Subsidiaries,
except for inventions, trade secrets or proprietary information that have been
rightfully assigned to Company or any such Subsidiary.
(k) Compliance with Other Instruments. Neither Company nor any of
its Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Ancillary Agreements to which it is a party, and the issuance and sale of
the Note by Company and the other Securities by Company each pursuant hereto and
thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
18
assets of Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to Company or any of its Subsidiaries, its business or
operations or any of its assets or properties.
(l) Litigation. Except as set forth on Schedule 12(l) or as
disclosed in any Exchange Act Filings, there is no action, suit, proceeding or
investigation pending or, to Company's knowledge, currently threatened against
Company or any of its Subsidiaries that prevents Company or any of its
Subsidiaries from entering into this Agreement or the Ancillary Agreements, or
from consummating the transactions contemplated hereby or thereby, or which has
had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect, or could result in any change in the
current equity ownership of Company or any of its Subsidiaries, nor is Company
aware that there is any basis to assert any of the foregoing. Neither Company
nor any of its Subsidiaries is a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by
Company or any of its Subsidiaries currently pending or which Company or any of
its Subsidiaries intends to initiate.
(m) Tax Returns and Payments. Each of Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by each of
Company and each of its Subsidiaries on or before the Closing Date, have been
paid or will be paid prior to the time they become delinquent. Except as set
forth on Schedule 12(m), neither Company nor any of its Subsidiaries has been
advised:
(i) that any of its returns, federal, state or other, have
been or are being audited as of the date hereof; or
(ii) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes.
Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
(n) Employees. Except as set forth on Schedule 12(n) or as disclosed
in any Exchange Act Filings, neither Company nor any of its Subsidiaries has any
collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to Company's knowledge, threatened with
respect to Company or any of its Subsidiaries. Except as disclosed in the
Exchange Act Filings or on Schedule 12(n), neither Company nor any of its
Subsidiaries is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To Company's knowledge, no employee of Company or any of its
Subsidiaries, nor any consultant with whom Company or any of its Subsidiaries
19
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, Company or any of
its Subsidiaries because of the nature of the business to be conducted by
Company or any of its Subsidiaries; and to Company's knowledge the continued
employment by Company and its Subsidiaries of their respective present
employees, and the performance of Company's and its Subsidiaries contracts with
its independent contractors, will not result in any such violation. Company is
not aware that any of its or any of its Subsidiaries' employees is obligated
under any contract (including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to Company or any
of its Subsidiaries. Neither Company nor any of its Subsidiaries has received
any notice alleging that any such violation has occurred. Except for employees
who have a current effective employment agreement with Company or any of its
Subsidiaries, no employee of Company or any of its Subsidiaries has been granted
the right to continued employment by Company or any of its Subsidiaries or to
any material compensation following termination of employment with Company or
any of its Subsidiaries. Except as set forth on Schedule 12(n) or as disclosed
in any Exchange Act Filings, neither Company nor any of its Subsidiaries is
aware that any officer, key employee or group of employees intends to terminate
his, her or their employment with Company or any of its Subsidiaries, nor does
Company or any of its Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of employees.
(o) Registration Rights and Voting Rights. Except as set forth on
Schedule 12(o) and except as disclosed in Exchange Act Filings, neither Company
nor any of its Subsidiaries is presently under any obligation, and has not
granted any rights, to register any of Company's or any such Subsidiary's
presently outstanding securities or any of its securities that may hereafter be
issued. Except as set forth on Schedule 12(o) and except as disclosed in
Exchange Act Filings, to Company's knowledge, no stockholder of Company or any
of its Subsidiaries has entered into any agreement with respect to the voting of
equity securities of Company or any of its Subsidiaries.
(p) Compliance with Laws; Permits. Neither Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any Ancillary
Agreement and the issuance of any of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing Date, as will be filed in a timely manner. Each of
Company and each of its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
20
(q) Environmental and Safety Laws. Neither Company is nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 12(q), no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by Company or any of its Subsidiaries or, to
Company's knowledge, by any other person or entity on any property owned, leased
or used by Company or any of its Subsidiaries. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean:
(i) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal and/or foreign
laws and regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; and
(ii) any petroleum products or nuclear materials.
(r) Valid Offering. Assuming the accuracy of the representations and
warranties of Laurus contained in this Agreement, the offer, sale and issuance
of the Securities 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.
(s) Full Disclosure. Each of Company and each of its Subsidiaries
has provided Laurus with all information requested by Laurus in connection with
its decision to purchase the Notes and the Warrants, including all information
Company believes is reasonably necessary to make such investment decision.
Neither this Agreement, the Ancillary Agreements nor the exhibits and schedules
hereto and thereto nor any other document delivered by Company or any of its
Subsidiaries to Laurus or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to Laurus by Company and its Subsidiaries were
based on Company's and its Subsidiaries' experience in the industry and on
assumptions of fact and opinion as to future events which Company and/or such
Subsidiary, at the date of the issuance of such projections or estimates,
believed to be reasonable.
(t) Insurance. Each of Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which Company believes are customary for companies similarly situated
to Company and its Subsidiaries in the same or similar business.
21
(u) SEC Reports and Financial Statements(v) . Except as set forth on
Schedule 12(u), Company and each of its Subsidiaries has filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act. Company has furnished Laurus with copies of: (i) its Annual Report
on Form 10-KSB for its fiscal year ended September 30, 2003; (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarters ended December 31, 2003 and March
31, 2004; and (iii) the Form 8-K filings which it has made during the Company's
current fiscal year to date (collectively, the "SEC Reports"). Except as set
forth on Schedule 12(u), each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and the
cash flows of Company and its Subsidiaries, on a consolidated basis, as of, and
for, the periods presented in each such SEC Report.
(w) Listing. The Company's Common Stock is traded on the American
Stock Exchange ("AMEX") and satisfies all requirements for the continuation of
such trading. The Company has not received any notice that its Common Stock will
be ineligible to trade on the AMEX or that its Common Stock does not meet all
requirements for such trading.
(x) No Integrated Offering. Neither Company, nor any of its
Subsidiaries nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security (other than a concurrent offering to
Laurus under a Securities Purchase Agreement between Company and Laurus dated as
of the date hereof (as amended, modified or supplemented from time to time, the
"Securities Purchase Agreement")) under circumstances that would cause the
offering of the Securities pursuant to this Agreement or any Ancillary Agreement
to be integrated with prior offerings by Company for purposes of the Securities
Act which would prevent Company from selling the Securities pursuant to Rule 506
under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will Company or any of its affiliates or Subsidiaries
take any action or steps that would cause the offering of the Securities to be
integrated with other offerings.
(y) Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. Company 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 state and federal securities
laws.
22
(z) Dilution. Company specifically acknowledges that its obligation
to issue the shares of Common Stock upon conversion of the Notes and exercise of
the Warrants is binding upon Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of
Company.
(aa) Patriot Act. Company certifies that, to the best of Company's
knowledge, neither Company nor any of its Subsidiaries has been designated, and
is not owned or controlled, by a "suspected terrorist" as defined in Executive
Order 13224. Company hereby acknowledges that Laurus seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, Company hereby represents, warrants and agrees
that: (i) none of the cash or property that Company or any of its Subsidiaries
will pay or will contribute to Laurus has been or shall be derived from, or
related to, any activity that is deemed criminal under United States law; and
(ii) no contribution or payment by Company or any of its Subsidiaries to Laurus,
to the extent that they are within Company's or any such Subsidiary's control
shall cause Laurus to be in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001. Company shall promptly notify Laurus if any of these representations
ceases to be true and accurate regarding Company or any of its Subsidiaries.
Company agrees to provide Laurus with any additional information regarding
Company and each Subsidiary thereof that Laurus deems necessary or convenient to
ensure compliance with all applicable laws concerning money laundering and
similar activities. Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in Company. Company further
understands that Laurus may release confidential information about Company and
its Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
(bb) Schedule 12(bb) sets forth Company's and each Eligible
Subsidiary's name as it appears in official filing in the state of its
incorporation, the type of entity of Company and each Eligible Subsidiary, the
organizational identification number issued by Company's and each Eligible
Subsidiary's state of incorporation or a statement that no such number has been
issued, Company's and each Eligible Subsidiary's state of incorporation, and the
location of Company's and each Eligible Subsidiary's chief executive office,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as set forth in such Schedule 12(bba), such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth in Schedule 12(bb),
neither Company nor any Eligible Subsidiary has been known as or conducted
business in any other name (including trade names). Each of Company and each
Eligible Subsidiary has only one state of incorporation.
23
13. Covenants. Company covenants and agrees with Laurus as follows:
(a) Stop-Orders. Company will advise Laurus, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of Company, or of the suspension of
the qualification of the Common Stock of Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. Company shall promptly secure the listing of the shares
of Common Stock issuable upon conversion of the Notes and exercise of the
Warrants on the AMEX (the "Principal Market") upon which shares of Common Stock
are listed (subject to official notice of issuance) and shall maintain such
listing so long as any other shares of Common Stock shall be so listed. Company
will maintain the listing of its Common Stock on the Principal Market, and will
comply in all material respects with Company's reporting, filing and other
obligations under the bylaws or rules of the AMEX and such other exchanges, as
applicable.
(c) Market Regulations. Company shall notify the SEC, the National
Association of Securities Dealers ("NASD") and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Securities to Laurus and promptly provide copies thereof
to Laurus.
(d) Reporting Requirements. Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
(e) Use of Funds. Company agrees that it will use the proceeds of
the sale of the Notes and the Warrants for working capital purposes only.
(f) Access to Facilities. Company will, and will cause each of its
Subsidiaries to, permit any representatives designated by Laurus (or any
successor of Laurus), upon reasonable notice and during normal business hours,
at such person's expense and accompanied by a representative of Company or any
such Subsidiary, as the case may be, to:
(i) visit and inspect any of the properties of Company or any
such Subsidiary;
(ii) examine the corporate and financial records of Company or
any of its Subsidiaries (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
(iii) discuss the affairs, finances and accounts of Company or
any of its Subsidiaries with the directors, officers and independent accountants
of Company or any of its Subsidiaries.
24
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to Laurus unless Laurus signs
a confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
(g) Taxes. Company will, and will cause each of its Subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of Company or such
Subsidiary, as the case may be; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if Company
and/or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that Company will, and will cause each
of its Subsidiaries to, pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor.
(h) Insurance. Each of Company and each Eligible Subsidiary, as the
case may be, will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. Each of Company and each of its
Subsidiaries will keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in similar
business similarly situated as Company and its Subsidiaries; and Company and its
Subsidiaries will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner which Company and/or such Subsidiary thereof
reasonably believes is customary for companies in similar business similarly
situated as Company and its Subsidiaries and to the extent available on
commercially reasonable terms. Company and each of its Subsidiaries will jointly
and severally bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to Laurus as security for its obligations
hereunder and under the Ancillary Agreements. At Company's own cost and expense
in amounts and with carriers reasonably acceptable to Laurus, Company and each
of its Subsidiaries 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 Company's or the respective Subsidiary's
including business interruption insurance; (ii) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to
Company and its Subsidiaries insuring against larceny, embezzlement or other
criminal misappropriation of insured's officers and employees who may either
singly or jointly with others at any time have access to the assets or funds of
Company or any of its Subsidiaries 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
25
such worker's compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which Company or any of its Subsidiaries is
engaged in business; and (v) furnish Laurus with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting Company's and its Subsidiaries' workers'
compensation policy, endorsements to such policies naming Laurus as "co-insured"
or "additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Laurus, naming Laurus as loss payee, and (z) evidence
that as to Laurus the insurance coverage shall not be impaired or invalidated by
any act or neglect of Company or any of its Subsidiaries and the insurer will
provide Laurus with at least thirty (30) days notice prior to cancellation.
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
Company and/or any Subsidiary thereof and Laurus jointly. If any insurance
losses are paid by check, draft or other instrument payable to Company and/or
any Subsidiary thereof and Laurus jointly, Laurus may endorse Company's and/or
such Subsidiary'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. In the event that as of the date of receipt of each loss
recovery upon any such insurance, Laurus has not declared an event of default
with respect to this Agreement or any of the Ancillary Agreements, then the
Company and/or such Subsidiary shall be permitted to direct the application of
such loss recovery proceeds toward investment in property, plant and equipment
that would comprise "Collateral" secured by Laurus' security interest pursuant
to its security agreement, with any surplus funds to be applied toward payment
of the obligations of the Company to Laurus. In the event that Laurus has
properly declared an event of default with respect to this Agreement or any of
the Ancillary Agreements, then all loss recoveries received by Laurus upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Ancillary Agreements, in such order as Laurus may
determine. Any surplus (following satisfaction of all Company obligations to
Laurus) shall be paid by Laurus to the Company or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by the Company or the
Subsidiary, as applicable, to Laurus, on demand.
(i) Intellectual Property. Company shall, and shall cause each of
its Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(j) Properties. Company will, and will cause each of its
Subsidiaries to, keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and Company will, and will cause each of its Subsidiaries to, at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.
26
(k) Confidentiality. Company agrees that it will not, and will not
permit any of its Subsidiaries to, disclose, and will not include in any public
announcement, the name of Laurus, unless expressly agreed to by Laurus or unless
and until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement. Company may disclose Laurus' identity
and the terms of this Agreement to its current and prospective debt and equity
financing sources.
(l) Required Approvals(m). Company shall not, and shall not permit
any of its Subsidiaries to, without the prior written consent of Laurus, (i)
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt and debt incurred to finance the purchase of equipment (not in excess of
five percent (5%) per annum of the fair market value of the Company's assets)
whether secured or unsecured other than (x) the Company's indebtedness to
Laurus, and (y) indebtedness set forth on Schedule 13(e)(i) attached hereto and
made a part hereof and any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the indebtedness being refinanced or replaced;
(ii) cancel any debt owing to it in excess of $50,000 in the aggregate during
any 12 month period; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by a Company for
deposit or collection or similar transactions in the ordinary course of
business; (iv) directly or indirectly declare, pay or make any dividend or
distribution on any class of its Stock other than to pay dividends on shares of
its Preferred Stock outstanding on the date hereof or apply any of its funds,
property or assets to the purchase, redemption or other retirement of any Stock
of Company outstanding on the date hereof, or issue any Preferred Stock
manditorily redeemable prior to the sixth month anniversary of the Maturity Date
(as defined in the Notes); (v) purchase or hold beneficially any Stock or other
securities or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in, any
other Person, including any partnership or joint venture, except (w) travel
advances, (x) loans to Company's officers and employees not exceeding at any one
time an aggregate of $10,000, (y) existing Subsidiaries of Company, and (z) in
connection with acquisitions of certain assets, the consideration paid in
connection therewith (whether in cash, equity interests or otherwise) does not
exceed $250,000 in the aggregate; (vi) create or permit to exist any Subsidiary,
other than any Subsidiary in existence on the date hereof and listed in Schedule
12(b) unless such new Subsidiary is a wholly-owned Subsidiary and is designated
by Laurus as either a co-borrower or guarantor hereunder and such Subsidiary
shall have entered into all such documentation required by Laurus, including,
without limitation, to grant to Laurus a first priority perfected security
interest in substantially all of such Subsidiary's assets to secure the
Obligations; (vii) directly or indirectly, prepay any indebtedness (other than
to Laurus and in the ordinary course of business), or repurchase, redeem, retire
or otherwise acquire any indebtedness (other than to Laurus and in the ordinary
course of business) except to make scheduled payments of principal and interest
thereof; (viii) enter into any merger, consolidation or other reorganization
with or into any other Person or acquire all or a portion of the assets or Stock
of any Person or permit any other Person to consolidate with or merge with it,
unless (1) Company is the surviving entity of such merger or consolidation, (2)
no Event of Default shall exist immediately prior to and after giving effect to
such merger or consolidation, (3) Company shall have provided Laurus copies of
all documentation relating to such merger or consolidation and (4) Company shall
have provided Laurus with at least thirty (30) days' prior written notice of
such merger or consolidation; (ix) materially change the nature of the business
27
in which it is presently engaged; (x) become subject to (including, without
limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict the
Company's right to perform the provisions of this Agreement or any of the
agreements contemplated thereby; (xi) change its fiscal year or make any changes
in accounting treatment and reporting practices without prior written notice to
Laurus except as required by GAAP or in the tax reporting treatment or except as
required by law; (xii) enter into any transaction with any employee, director or
Affiliate, except in the ordinary course on arms-length terms; (xiii) xxxx
Accounts under any name except the present name of Company or its existing
Subsidiaries; or (xiv) with respect to the Company and each of its Subsidiaries
(other than XxxxxXxx Technologies of Iowa, Inc. ("XxxxxXxx Iowa"), XxxxxXxx
Technologies of California, Inc. ("XxxxxXxx California") and the Immaterial
Subsidiaries) transfer any of their respective assets, or merge with or
consolidate into, or maintain any assets in, make any investments in or make any
loans or advances to, XxxxxXxx Iowa, XxxxxXxx California or any Immaterial
Subsidiary, other than immaterial asset transfers, assets maintained,
investments, loans or advances, in each case, made in the ordinary course of
business.
(n) Reissuance of Securities. Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 37 below at
such time as:
(i) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act; or
(ii) upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act.
Company agrees to cooperate with Laurus in connection with all resales pursuant
to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow
such resales provided Company and its counsel receive reasonably requested
representations from Laurus and broker, if any.
(o) Opinion. On the Closing Date, Company will deliver to Laurus an
opinion acceptable to Laurus from Company's legal counsel. Company will provide,
at Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Notes and the exercise of the Warrants.
(p) Legal Name, etc. Neither Company nor any of its Eligible
Subsidiaries will, without providing Laurus with 30 days prior written notice,
change (i) its name as it appears in the official filings in the state of its
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.
(q) Compliance with Laws. The operation of each of the Company's and
each of its Subsidiaries' business is and will continue to be in compliance in
all material respects with all applicable federal, state and local laws, rules
28
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.
(r) Notices. Each of the Company and each of its Subsidiaries 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
could reasonable be expected to have singly or in the aggregate, a Material
Adverse Effect; (ii) any change which has had, or could reasonably be expected
to have, a Material Adverse Effect; (iii) any Event of Default or Default; and
(iv) any default or any event which with the passage of time or giving of notice
or both would constitute a default under any agreement for the payment of money
to which Company or any of its Subsidiaries is a party or by which Company or
any of its Subsidiaries or any of Company's or any such Subsidiary's properties
may be bound the breach of which would have a Material Adverse Effect..
(s) Margin Stock. The Company will not permit any of the proceeds of
the Loans made hereunder to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.
(t) Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), the Company will not issue any securities with a
continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Notes (together with all accrued and unpaid interest and fees related thereto
(the "Exclusion Period").
(u) Authorization and Reservation of Shares. Company will at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of the Notes and exercise of the Warrants.
(v) Financing Right of First Refusal. (a) The Company hereby grants
to the Purchaser a right of first refusal to provide any Additional Financing
(as defined below) to be issued by the Company and/or any of its Subsidiaries,
subject to the following terms and conditions. Prior to the incurrence of
additional indebtedness or the issuance of any additional equity interests (an
"Additional Financing"), in each case, after the date hereof, the Company and/or
any Subsidiary of the Company, as the case may be, shall notify the Purchaser of
its intention to enter into such Additional Financing, together with the terms
that such proposed Additional Financing will be subject to. In connection
therewith, the Company and/or the applicable Subsidiary thereof shall submit a
fully executed term sheet (a "Proposed Term Sheet") to the Purchaser setting
forth the terms, conditions and pricing of any such Additional Financing (such
financing to be negotiated on "arm's length" terms and the terms thereof to be
negotiated in good faith) proposed to be entered into by the Company and/or such
Subsidiary. The Purchaser shall have the right, but not the obligation, to agree
29
to provide such Additional Financing to the Company and/or such Subsidiary on
terms no less favorable than those outlined in Proposed Term Sheet within ten
business days of receipt of any such Proposed Term Sheet. If the provisions of
the Purchaser's term sheet are at least as favorable to the Company or such
Subsidiary, as the case may be, as the provisions of the Proposed Term Sheet,
the Company and/or such Subsidiary shall enter into the Additional Financing
outlined in the Purchaser's term sheet. Notwithstanding anything in the
foregoing to the contrary, the term "Additional Financing" shall not include (x)
trade accounts payable or (y) indebtedness incurred at the time of acquisition
of equipment so long as the proceeds of such indebtedness are used to pay all or
a portion of the purchase price of such equipment.
(b) The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchaser to consummate an Additional Financing
with the Company or any of its Subsidiaries.
14. Further Assurances. At any time and from time to time, upon the
written request of Laurus and at the sole expense of Company, each of Company
and each Eligible Subsidiary 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.
Laurus hereby represents and warrants to Company as follows:
(a) Requisite Power and Authority. Laurus has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Ancillary Agreements and to carry out their provisions. All
corporate action on Laurus' part required for the lawful execution and delivery
of this Agreement and the Ancillary Agreements have been or will be effectively
taken prior to the Closing Date. Upon their execution and delivery, this
Agreement and the Ancillary Agreements 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 this Agreement, including, without limitation, that Laurus is an
"accredited investor" within the meaning of Regulation D under the Securities
Act. Laurus has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note to be purchased by it under this Agreement and the
Securities acquired by it upon the conversion of the Note.
30
(c) Laurus Bears Economic Risk. Laurus has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to Company so that it is capable of evaluating the merits and
risks of its investment in 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,
and the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Ancillary Agreements.
Further, Laurus is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Ancillary Agreements.
(f) Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(g) Shorting. Neither Laurus nor any of its Affiliates or investment
partners has, will, or will cause any person or entity, directly or indirectly
to, engage in "short sales" of Company's common stock directly related to
Company's Common Stock as long as any Minimum Borrowing Note shall be
outstanding.
(h) Patriot Act. Laurus certifies that, to the best of Laurus'
knowledge, Laurus has not been designated, and is not owned or controlled, by a
"suspected terrorist" as defined in Executive Order 13224. Laurus seeks to
comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, Laurus hereby represents, warrants
and agrees that: (i) none of the cash or property that Laurus will use to
purchase the Notes has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
disbursement by Laurus to the Company, to the extent within Laurus' control,
shall cause Laurus to be in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001. Laurus shall promptly notify the Company if any of these
representations ceases to be true and accurate regarding Laurus. Laurus agrees
to provide the Company any additional information regarding Laurus that the
Company deems necessary or convenient to ensure compliance with all applicable
laws concerning money laundering and similar activities. Laurus understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, Laurus may undertake
appropriate actions to ensure compliance with applicable law or regulation,
including but not limited to segregation and/or redemption of Laurus' investment
in the Company. Laurus further understands that the Company may release
31
information about Laurus and, if applicable, any underlying beneficial owners,
to proper authorities if the Company, in its sole discretion, determines that it
is in the best interests of the Company in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
16. Power of Attorney. Each of Company and each Eligible Subsidiary
hereby appoints Laurus, or any other Person whom Laurus may designate as
Company's and/or any Eligible Subsidiary's attorney, with power to: (i) endorse
Company's and each Eligible Subsidiary's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come into
Laurus' possession; (ii) sign Company's and each Eligible Subsidiary;s name on
any invoice or xxxx of lading relating to any Accounts, drafts against Account
Debtors, schedules and assignments of Accounts, notices of assignment, financing
statements and other public records, verifications of Account and notices to or
from Account Debtors; (iii) verify the validity, amount or any other matter
relating to any Account by mail, telephone, telegraph or otherwise with Account
Debtors; (iv) do all things necessary to carry out this Agreement, any Ancillary
Agreement and all related documents; and (v) on or after the occurrence and
continuation of an Event of Default, notify the post office authorities to
change the address for delivery of Company's and each Eligible Subsidiary's mail
to an address designated by Laurus, and to receive, open and dispose of all mail
addressed to Company or any Eligible Subsidiary. Each of Company and each
Eligible Subsidiary hereby ratifies and approves all acts of the attorney.
Neither Laurus, nor the attorney will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law, except for gross negligence or
willful misconduct. This power, being coupled with an interest, is irrevocable
so long as Laurus has a security interest and until the Obligations have been
fully satisfied.
17. Term of Agreement. Laurus' agreement to make Loans and extend
financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Initial Term. At Laurus' election following the
occurrence of an Event of Default, Laurus may terminate this Agreement. The
termination of the Agreement shall not affect any of Laurus' rights hereunder or
any Ancillary Agreement and the provisions hereof and thereof shall continue to
be fully operative until all transactions entered into, rights or interests
created and the Obligations have been irrevocably disposed of, concluded or
liquidated. Notwithstanding the foregoing, Laurus shall release its security
interests as promptly as practicable upon irrevocable payment to it of all
Obligations (but in no event later than thirty (30) days after such payment) if
Company and each Eligible Subsidiary shall have (i) provided Laurus with an
executed release of any and all claims which Company or any Eligible Subsidiary
may have or thereafter have under this Agreement and all Ancillary Agreements
and (ii) paid to Laurus an early payment fee in an amount equal to (1) five
percent (5%) of the Capital Availability Amount if such payment occurs prior to
the first anniversary of the Initial Term or any applicable renewal term, (2)
four percent (4%) of the Capital Availability Amount if such payment occurs on
or after the first anniversary and prior to the second anniversary of the
Initial Term or any applicable renewal term and (3) three percent (3%) of the
Capital Availability Amount if such termination occurs thereafter during the
Initial Term; such fee being intended to compensate Laurus for its costs and
expenses incurred in initially approving this Agreement or extending same. Such
early payment fee shall be due and payable by Company to Laurus upon termination
by acceleration of this Agreement by Laurus due to the occurrence and
continuance of an Event of Default.
32
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 Company's
account may from time to time be temporarily in a zero or credit position, until
(a) all of the Obligations of Company have been paid or performed in full after
the termination of this Agreement. Laurus shall not be required to send
termination statements to Company or any Eligible Subsidiary, 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":
(a) failure to make payment of any of the Obligations when required
hereunder;
(b) failure by the Company or any of its Subsidiaries to pay any
taxes when due unless such taxes are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
provided on Company's and/or such Subsidiary's books;
(c) failure to perform under, and/or committing any breach of, in
any material respect, this Agreement or any Ancillary Agreement or any other
agreement between Company and/or any Subsidiary thereof, on the one hand, and
Laurus, on the other hand, which failure or breach shall continue for a period
of thirty (30) days after the occurrence thereof;
(d) the occurrence of any event of default (or similar term) under
any indebtedness which Company or any of its Subsidiaries is a party with third
parties and such default shall not be cured within any applicable cure period as
provided for in such agreement or under such indebtedness;
(e) any representation, warranty or statement made by Company or any
of its Subsidiaries hereunder, in any Ancillary Agreement, any certificate,
statement or document delivered pursuant to the terms hereof, or in connection
with the transactions contemplated by this Agreement should at any time be false
or misleading in any material respect and, if subject to cure, shall not be
cured for a period of thirty (30) business days after the occurrence thereof;
(f) an attachment or levy is made upon Company's assets having an
aggregate value in excess of $50,000 or a judgment is rendered against Company
or Company's property involving a liability of more than $50,000 which shall not
have been vacated, discharged, stayed or bonded pending appeal within thirty
(30) business days from the entry thereof;
(g) any change in Company's or any of its Subsidiaries' condition or
affairs (financial or otherwise) which in Laurus' reasonable, good faith
opinion, could reasonably be expected to have a Material Adverse Effect;
(h) any Lien created hereunder or under any Ancillary Agreement for
any reason ceases to be or is not a valid and perfected Lien having a first
priority interest;
33
(i) if Company or any of its Subsidiaries shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under the federal bankruptcy laws
(as now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, or fail to have dismissed, within sixty
(60) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing;
(j) Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable to pay its debts as they become due or cease
operations of its present business;
(k) Company directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any material assets of Company or any interest therein, except as
permitted herein;
(l) the occurrence of a change in the controlling ownership of
Company;
(m) the indictment or threatened indictment of Company or any of its
Subsidiaries or any executive officer of Company or any of its Subsidiaries
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceeding against Company or any of its Subsidiaries or any
executive officer of Company or any of its Subsidiaries pursuant to which
statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of Company or any of its Subsidiaries; or
(n) if an Event of Default shall occur under and as defined in any
Note or in any Ancillary Agreement;.
(o) the Company or any of its Subsidiaries shall breach any term or
provision of any Ancillary Agreement to which it is a party which is not cured
within any applicable cure or grace period;
(p) if the Company of any of its Subsidiaries attempts to terminate,
challenges the validity of, or its liability under any Ancillary Agreement; or
(q) should the Company or any of its Subsidiaries default in its
obligations under any Ancillary Agreement to which it is a party or if any
proceeding shall be brought to challenge the validity, binding effect of any
Ancillary Agreement to which it is a party or should the Company or any of its
Subsidiaries breach any representation, warranty or covenant contained in any
Ancillary Agreement to which it is a party or should any Ancillary Agreement
cease to be a valid, binding and enforceable obligation of the Company of any of
its Subsidiaries (to the extent such Persons are a party thereto).
20. Remedies. Following the occurrence of an Event of Default,
Laurus shall have the right to demand repayment in full of all Obligations,
whether or not otherwise due. Until all Obligations have been fully satisfied,
Laurus shall retain its Lien in all Collateral. Laurus shall have, in addition
34
to all other rights provided herein and in each Ancillary Agreement, the rights
and remedies of a secured party under the UCC, and under other applicable law,
all other legal and equitable rights to which Laurus may be entitled, including
the right to take immediate possession of the Collateral, to require Company
and/or each Eligible Subsidiary to assemble the Collateral, at Company's and
each Eligible Subsidiaries' joint and several expense, and to make it available
to Laurus at a place designated by Laurus which is reasonably convenient to both
parties and to enter any of the premises of Company or any Eligible Subsidiary
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 Company or any Eligible Subsidiary, Company agrees
not to charge Laurus for storage thereof), and the right to apply for the
appointment of a receiver for Company's and each Eligible Subsidiary'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 or any
such Eligible Subsidiary, as the case may be, at Company's or such Eligible
Subsidiary'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 Company's and
each Eligible Subsidiary's trademarks, tradenames, tradestyles, patents, patent
applications, licenses, franchises and other proprietary rights. The proceeds of
sale shall be applied first to all costs and expenses of sale, including
attorneys' fees, and second to the payment (in whatever order Laurus elects) of
all Obligations. After the indefeasible payment and satisfaction in full in cash
of all of the Obligations, and after the payment by Laurus of any other amount
required by any provision of law, including Section 608(a)(1) of the Code (but
only after Laurus has received what Laurus considers reasonable proof of a
subordinate party's security interest), the surplus, if any, shall be paid to
Company, such Eligible Subsidiary or its representatives or to whosoever may be
lawfully entitled to receive the same, or as a court of competent jurisdiction
may direct. Each of Company and each Eligible Subsidiary shall remain jointly
and severally liable to Laurus for any deficiency. In addition, each of Company
and each Eligible Subsidiary shall pay Laurus a liquidation fee ("Liquidation
Fee") in the amount of five percent (5%) of the actual amount collected in
respect of each Account outstanding at any time during a "liquidation period".
For purposes hereof, "liquidation period" means a period: (i) beginning on the
earliest date of (x) an event referred to in Section 18(i) or 18(j), or (y) the
cessation of Company's of any such Subsidiary's business; and (ii) ending on the
date on which Laurus has actually received all Obligations due and owing it
under this Agreement and the Ancillary Agreements. The Liquidation Fee shall be
paid on the date on which Laurus collects the applicable Account by deduction
from the proceeds thereof.. Company and Laurus acknowledge that the actual
damages that would be incurred by Laurus after the occurrence of an Event of
Default would be difficult to quantify and that Company and Laurus have agreed
that the fees and obligations set forth in this Section and in this Agreement
would constitute fair and appropriate liquidated damages in the event of any
such termination.
21. Waivers. To the full extent permitted by applicable law, each of
Company and each Eligible Subsidiary hereby waives (a) presentment, demand and
protest, and notice of presentment, dishonor, intent to accelerate,
35
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 Company or any such Eligible Subsidiary may in any way be liable, and
hereby ratifies and confirms whatever Laurus may do in this regard; (b) all
rights to notice and a hearing prior to Laurus' taking possession or control of,
or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Each of Company and each Eligible Subsidiary 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. Company shall pay all of Laurus' reasonable
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and in
connection with the prosecution or defense of any action, contest, dispute, suit
or proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. 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 Company or any of its
Subsidiaries as Collateral for, or any other Person as security for, Company's
Obligations hereunder and (e) any consultations in connection with any of the
foregoing. Company shall also pay Laurus' customary bank charges for all bank
services (including wire transfers) performed or caused to be performed by
Laurus for Company or any of its Subsidiaries at Company's or such Subsidiary's
request or in connection with Company's loan account with Laurus. All such costs
and expenses together with all filing, recording and search fees, taxes and
interest payable by 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 Company and/or any
Subsidiary thereof, on the one hand, and Laurus on the other hand, which Laurus
is or may be required to withhold or pay, Company agrees to indemnify and hold
Laurus harmless in respect of such taxes, and Company will repay to Laurus the
amount of any such taxes which shall be charged to Company's account; and until
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 Company's credit
and Laurus shall retain its Liens in any and all Collateral.
23. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person
which is not a competitor of Company and any such transferee shall succeed to
all of Laurus' rights with respect thereto. Upon such transfer, Laurus shall be
36
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. Company
agrees that each such holder may exercise any and all rights of banker's lien,
set-off and counterclaim with respect to its participation in the Obligations as
fully as though Company were directly indebted to such holder in the amount of
such participation.
24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise
any right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between 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. 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 Company's behalf and 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. 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 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.
37
27. Revival. Company further agrees that to the extent Company makes
a payment or payments to Laurus, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
28. Notices. Any notice or request hereunder may be given to Company
or Laurus at the respective addresses set forth below or as may hereafter be
specified in a notice designated as a change of address under this Section. Any
notice or request hereunder shall be given by registered or certified mail,
return receipt requested, hand delivery, overnight mail or telecopy (confirmed
by mail). Notices and requests shall be, in the case of those by hand delivery,
deemed to have been given when delivered to any officer of the party to whom it
is addressed, in the case of those by mail or overnight mail, deemed to have
been given three (3) business days after the date when deposited in the mail or
with the overnight mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
000 Xxxxx Xxxxxx 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
38
If to Company: XxxxxXxx Technologies, Inc.
0 Xxxxxxx Xxxx
Xxxxxxxx X
Xxxxxxxxx, XX 00000
Attention: Chief Financial Officer
Telephone: 000-000-0000
Facsimile: 000-000-0000
With a copy to: Xxxx X. Xxxxxx, Esq.
Xxxxx, Xxxxxx-Xxxxx & Xxxxxxxxx
Reservoir Place
0000 Xxxxxxx Xxxx
Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
or such other address as may be designated in writing hereafter in accordance
with this Section 28 by such Person.
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) COMPANY AND EACH ELIGIBLE SUBSIDIARY HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW
YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN COMPANY AND/OR EACH ELIGIBLE SUBSIDIARY, ON THE ONE HAND, AND
LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS, EACH ELIGIBLE SUBSIDIARY AND
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 OF COMPANY AND EACH ELIGIBLE SUBSIDIARY EXPRESSLY SUBMITS AND
39
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH OF
COMPANY AND EACH ELIGIBLE SUBSIDIARY HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AT THE ADDRESS SET FORTH IN
SECTION 27 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF COMPANY'S OR SUCH ELIGIBLE SUBSIDIARY'S, AS THE CASE MAY BE, 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, ANY
ELIGIBLE SUSBIDIARY AND/OR 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. Limitation of Liability. Company acknowledges and understands
that in order to assure repayment of the Obligations hereunder Laurus may be
required to exercise any and all of Laurus' rights and remedies hereunder and
agrees that, except as limited by applicable law, neither Laurus nor any of
Laurus' agents shall be liable for acts taken or omissions made in connection
herewith or therewith except for actual bad faith.
31. Entire Understanding. This Agreement and the Ancillary
Agreements contain the entire understanding between Company and Laurus as to the
subject matter hereof and thereof and any promises, representations, warranties
or guarantees not herein contained shall have no force and effect unless in
writing, signed by Company's, Qualtec's and Laurus' respective officers. Neither
this Agreement, the Ancillary Agreements, nor any portion or provisions thereof
may be changed, modified, amended, waived, supplemented, discharged, cancelled
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged.
32. Severability. Wherever possible each provision of this Agreement
or the Ancillary Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or the Ancillary Agreements shall be prohibited by or invalid under applicable
law such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions thereof.
40
33. Captions. All captions are and shall be without substantive
meaning or content of any kind whatsoever.
34. Counterparts; Telecopier Signatures. This Agreement may be
executed in one or more counterparts, each of which shall constitute an original
and all of which taken together shall constitute one and the same agreement. Any
signature delivered by a party via telecopier transmission shall be deemed to be
any original signature hereto.
35. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
36. Publicity. Company hereby authorizes Laurus to make appropriate
announcements of the financial arrangement entered into by and between Company
and Laurus, including, without limitation, announcements which are commonly
known as tombstones, in such publications and to such selected parties as Laurus
shall in its sole and absolute discretion deem appropriate, or as required by
applicable law.
37. Legends. The Securities shall bear legends as follows;
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO XXXXXXXX TECHNOLOGIES, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) Any shares of Common Stock issued pursuant to conversion of the
Note or exercise of the Warrants, shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE,
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
41
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE
STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
XXXXXXXX TECHNOLOGIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO XXXXXXXX TECHNOLOGIES, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
42
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
XXXXXXXX TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: Chief Executive Officer
XXXXXXXX TECHNOLOGIES OF MINNESOTA, INC.
By: /s/ Xxxxxxx X. Xxxxx
Name: Xxxxxxx X. Xxxxx
Title: Treasurer
XXXXXXXX TECHNOLOGIES OF GEORGIA, INC.
By: /s/ Xxxxxxx X. Xxxxx
Name: Xxxxxxx X. Xxxxx
Title: Treasurer
XXXXXXXX TECHNOLOGIES OF TENNESSEE, INC.
By: /s/ Xxxxxxx X. Xxxxx
Name: Xxxxxxx X. Xxxxx
Title: Treasurer
LAURUS MASTER FUND, LTD.
By: /s/ Xxxxxx Grin
Name: Xxxxxx Grin
Title: Director
43
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 Loans against Eligible
Accounts Laurus may from time to time make available to Company up to ninety
percent (90%) of the net face amount of Eligible Accounts based on Accounts of
Company and the Eligible Subsidiaries.
"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, (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 the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"AMEX" shall have the meaning set forth in Section 12(w).
"Ancillary Agreements" means, the Notes, the Warrants, the
Registration Rights Agreements, each Security Document and all other agreements,
instruments, documents, mortgages, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, trust agreements and
guarantees whether heretofore, concurrently, or hereafter executed by or on
behalf of 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.
"Available Minimum Borrowing" shall have the meaning given such term
in Section 2(a)(i).
44
"Books and Records" means all books, records, board minutes,
contracts, licenses, insurance policies, environmental audits, business plans,
files, computer files, computer discs and other data and software storage and
media devices, accounting books and records, financial statements (actual and
pro forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.
"Business Day" means a day on which Laurus is open for business and
that is not a Saturday, a Sunday or other day on which banks are required or
permitted to be closed in the State of New York.
"Capital Availability Amount" means $5,000,000.
"Charter" shall have the meaning given such term in Section
12(c)(iv).
"Chattel Paper" means all "chattel paper," as such term is defined
in the UCC, including electronic chattel paper, now owned or hereafter acquired
by any Person.
"Closing Date" means the date on which Company shall first receive
proceeds of the initial Loans or the date hereof, if no Loan is made under the
facility on the date hereof.
"Collateral" means all of Company's and each Eligible Subsidiary'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;
45
(l) all commercial tort claims set forth on Schedule 1(A);
(m) all Books and Records;
(n) all Intellectual Property;
(o) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General
Intangibles and Investment Property;
(p)(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 and/or any Eligible Subsidiary (whether for
safekeeping, custody, pledge, transmission or otherwise); and
(q) 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.
"Common Stock" the shares of stock representing the Company's common
equity interests.
"Contract Rate" shall have the meaning set forth in the respective
Note.
"Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"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, the Lockbox Account(s).
"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 of the Company
and each Eligible Subsidiary 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 Company and each Eligible Subsidiary to Laurus with
respect thereto; (e) Laurus is, and continues to be, satisfied with the credit
46
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 United States;
provided, however, Laurus may, from time to time, in the exercise of its sole
discretion and based upon satisfaction of certain conditions to be determined at
such time by Laurus, deem certain Accounts as Eligible Accounts notwithstanding
that such Account is due from an Account Debtor located outside of the United
States; (k) Laurus has a first priority perfected Lien in such Account and such
Account is not subject to any Lien other than Permitted Liens; (l) does not
arise out of transactions with any employee, officer, director, stockholder or
Affiliate of Company or any Eligible Subsidiary; (m) is payable to Company or
any Eligible Subsidiary; (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 Company or any
Eligible Subsidiary is indebted; (o) is net of any returns, discounts, claims,
credits and allowances; (p) if the Account arises out of contracts between
Company and/or any Eligible Subsidiary, on the one hand, and the United States,
on the other hand, any state, or any department, agency or instrumentality of
any of them, Company and/or such Eligible Subsidiary, as the case may be, 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 Company or any Eligible Subsidiary or work, labor
and/or services rendered by Company or any Eligible Subsidiary; (r) does not
arise out of progress xxxxxxxx prior to completion of the order; (s) the total
unpaid Accounts from such Account Debtor does not exceed twenty-five percent
(25%) of all Eligible Accounts; (t) Company's or such Eligible Subsidiary's
right to payment is absolute and not contingent upon the fulfillment of any
condition whatsoever; (u) Company or such Eligible Subsidiary, as the case may
be, is able to bring suit and enforce its remedies against the Account Debtor
through judicial process; (v) does not represent interest payments, late or
finance charges owing to Company or such Eligible Subsidiary, as the case may
be, and (w) is otherwise satisfactory to Laurus as determined by Laurus in the
exercise of its sole discretion. In the event Company requests that Laurus
include within Eligible Accounts certain Accounts of one or more of Company's
acquisition targets, Laurus shall at the time of such request consider such
inclusion, but any such inclusion shall be at the sole option of Laurus and
shall at all times be subject to the execution and delivery to Laurus of all
such documentation (including, without limitation, guaranty and security
documentation) as Laurus may require in its sole discretion.
"Eligible Inventory" means Inventory owned by Company and/or an
Eligible Subsidiary which Laurus, in its sole and absolute discretion,
determines: (a) is subject to a first priority perfected Lien in favor of Laurus
and is subject to no other Liens whatsoever (other than Permitted Liens); (b) is
located on premises with respect to which Laurus has received a landlord or
mortgagee waiver acceptable in form and substance to Laurus; (c) is not in
transit; (d) is in good condition and meets all standards imposed by any
47
governmental agency, or department or division thereof having regulatory
Governmental Authority over such Inventory, its use or sale including the
Federal Fair Labor Standards Act of 1938 as amended, and all rules, regulations
and orders thereunder; (e) is currently either usable or salable in the normal
course of Company's and/or such Eligible Subsidiary's business; (f) is not
placed by Company and/or such Eligible Subsidiary on consignment or held by
Company and/or such Eligible Subsidiary on consignment from another Person; (g)
is in conformity with the representations and warranties made by Company and/or
such Eligible Subsidiary to Laurus with respect thereto; (h) is not subject to
any licensing, patent, royalty, trademark, trade name or copyright agreement
with any third parties; (i) does not require the consent of any Person for the
completion of manufacture, sale or other disposition of such Inventory and such
completion, manufacture or sale does not constitute a breach or default under
any contract or agreement to which Company and/or such Eligible Subsidiary is a
party or to which such Inventory is or may be subject; (j) is not
work-in-process; (k) is covered by casualty insurance acceptable to Laurus; and
(l) not to be ineligible for any other reason.
"Eligible Subsidiary" shall mean XxxxxXxx Minnesota, XxxxxXxx
Georgia, XxxxxXxx Tennessee and each other Subsidiary of the Company consented
to in writing by Laurus to be included as and "Eligible Subsidiary" for the
purposes of this Agreement.
"Equipment" means all "equipment" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
any and all machinery, apparatus, equipment, fittings, furniture, fixtures,
motor vehicles and other tangible personal property (other than Inventory) of
every kind and description that may be now or hereafter used in such Person's
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall have the meaning given to such term in Section 12(g).
"Event of Default" means the occurrence of any of the events set
forth in Section 18.
"Excepted Issuances" shall have the meaning given such term in
Section 13(t).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Act Filings" shall have the meaning given to such term in
Section 12.
"Exclusion Period" shall have the meaning given such term in Section
13(t).
"Fixed Conversion Price" has the meaning given such term in the
Minimum Borrowing Note.
"Fixtures" means all "fixtures" as such term is defined in the UCC,
now owned or hereafter acquired by any Person.
48
"Formula Amount" has the meaning set forth in Section 2(a)(i).
"GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time in the United States of America.
"General Intangibles" means all "general intangibles" as such term
is defined in the UCC, now owned or hereafter acquired by any Person including
all right, title and interest that such Person may now or hereafter have in or
under any contract, all Payment Intangibles, customer lists, Licenses,
Intellectual Property, interests in partnerships, joint ventures and other
business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, Software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials, Books and
Records, Goodwill (including the Goodwill associated with any Intellectual
Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss, and casualty, whether covering personal
property, real property, tangible rights or intangible rights, all liability,
life, key-person, and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC, manufactured
homes, 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.
"Hazardous Materials" shall have the meaning given such term in
Section 12(q).
"Immaterial Subsidiaries" shall mean, collectively, XxxxxXxx
Technologies of South Carolina, Inc., XxxxxXxx Technologies of Oklahoma, Inc.,
XxxxxXxx Technologies of Louisiana, Inc., Unlimited Tire Technologies, Inc.,
Technical Tire Recycling, Inc. and DuraWear Corporation.
"Indemnified Person" shall have the meaning given to such term in
Section 25.
"Initial Term" means the Closing Date through the close of business
on the day immediately preceding the second anniversary of the Closing Date,
subject to acceleration at the option of Laurus upon the occurrence of an Event
49
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 patents, trademarks,
service marks, trade names, copyrights, trade secrets, Licenses, information and
other proprietary rights and processes
"Inventory" means all "inventory", as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
all inventory, merchandise, goods and other personal property that are held by
or on behalf of such Person for sale or lease or are furnished or are to be
furnished under a contract of service or that constitute raw materials, work in
process, finished goods, returned goods, or materials or supplies of any kind,
nature or description used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"Inventory Availability" means the amount of Loans against Eligible
Inventory Laurus may from time to time make available to Company up to the
lesser of (a) fifty percent (50%) of the value of Company's Eligible Inventory
(calculated on the basis of the lower of cost or market, on a first-in first-out
basis) and (b) $1,000,000.
"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.
50
"Loans" shall have the meaning set forth in Section 2(a)(i) and
shall include all other extensions of credit hereunder and under any Ancillary
Agreement.
"Material Adverse Effect" means a material adverse effect on (a) a
material adverse effect on the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of Company or any
of its Subsidiaries (taken individually or as a whole), (b) Company's or any of
its Subsidiary's ability to pay or perform the Obligations in accordance with
the terms hereof or any Ancillary Agreement, (c) the value of the Collateral,
the Liens on the Collateral or the priority of any such Lien or (d) the
practical realization of the benefits of Laurus' rights and remedies under this
Agreement and the Ancillary Agreements.
"Maximum Legal Rate" shall have the meaning given to such term in
Section 5(a)(iv).
"Minimum Borrowing Amount" means $1,000,000, which such aggregate
amount shall be evidenced by Minimum Borrowing Notes.
"Minimum Borrowing Notes" shall mean each Secured Convertible Note,
which shall be issued in a series, made by Company in favor of Laurus to
evidence the Minimum Borrowing Amount.
"NASD" shall have the meaning given to such term in Section 13(b).
"Note Shares" shall have the meaning given such term in Section
12(a).
"Notes" means each of the Minimum Borrowing Notes and the Revolving
Note made by Company in favor of Laurus in connection with the transactions
contemplated hereby, as the same may be amended, modified and supplemented from
time to time, as applicable.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Company or any of its Subsidiaries to
Laurus (or any corporation that directly or indirectly controls or is controlled
by or is under common control with Laurus) of every kind and description
(whether or not evidenced by any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act), direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including any debt, liability or
obligation owing from Company or any of its Subsidiaries to others which Laurus
may have obtained by assignment or otherwise and further including all interest
(including interest accruing at the then applicable rate provided in this
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in this Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), charges or any other payments Company or any of its
Subsidiaries 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 Company's or
any of its Subsidiary's account or incurred by Laurus in connection with
51
Company's or any of its Subsidiary'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 Company or any Subsidiary thereof 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 Company or any
Subsidiary thereof 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 Schedule 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 "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 Company, any Eligible Subsidiary 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 Company or any
Eligible Subsidiary from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, governmental authority, bureau or agency (or any person
acting under color of governmental authority); (c) any claim of Company or any
Eligible Subsidiary against third parties (i) for past, present or future
infringement of any Intellectual Property or (ii) for past, present or future
infringement or dilution of any trademark or trademark license or for injury to
the goodwill associated with any trademark, trademark registration or trademark
licensed under any trademark License; (d) any recoveries by Company or any
Eligible Subsidiary against third parties with respect to any litigation or
dispute concerning any Collateral, including claims arising out of the loss or
52
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts , rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness incurred
for the payment of all or any part of the purchase price of any fixed asset,
including indebtedness under capitalized leases, (b) any indebtedness incurred
for the sole purpose of financing or refinancing all or any part of the purchase
price of any fixed asset, and (c) any renewals, extensions or refinancings
thereof (but not any increases in the principal amounts thereof outstanding at
that time).
"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.
"Receivables Purchase" shall have the meaning given such term in
Section 2(b).
"Registration Rights Agreements" means those registration rights
agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.
"Revolving Note" means that secured revolving note made by Company
in favor of Laurus in the aggregate principal amount of $4,000,000.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Reports" shall have the meaning provided such term in Section
12(u).
"Securities" means the Notes and the Warrants being issued by
Company to Laurus pursuant to this Agreement and the Ancillary Agreements and
the shares of the common stock of Company which may be issued pursuant to
conversion of such Notes in whole or in part or exercise of such Warrants.
"Securities Act" shall have the meaning given such term in Section
12(r).
"Security Documents" means all security agreements, mortgages, cash
collateral deposit letters, pledges and other agreements which are executed by
the Company or any of its Subsidiaries in favor of Laurus.
"Software" means all "software" as such term is defined in the UCC,
now owned or hereafter acquired by any Person, including all computer programs
and all supporting information provided in connection with a transaction related
to any program.
53
"Stock" means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Securities Exchange Act of
1934).
"Subsidiary" of any Person means (i) 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 or entities performing similar functions for such
person or entity, are owned, directly or indirectly, by such person or entity or
(ii) a corporation or other entity in which such person or entity owns, directly
or indirectly, more than 50% of the equity interests at such time.
"Supporting Obligations" means all "supporting obligations" as such
term is defined in the UCC.
"Term" means, as applicable, the Initial Term and any Renewal Term.
"UCC" means the Uniform Commercial Code as the same may, from time
be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
"Warrant Shares" shall have the meaning given such term in Section
12(a).
"Warrants" has the meaning set forth in the Registration Rights
Agreements.
54
