EXHIBIT 10.17
SECURITY AGREEMENT
This Security Agreement is made as of February 23, 2004 by and
among LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"),
ELINEAR, INC. a Delaware corporation ("eLinear" and as agent for the Companies
(as defined below), the "Company Agent") and each other company set forth on
Exhibit 1 hereto (eLinear and each such other company shall hereinafter be
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referred to, individually, as a "Company" and jointly and severally,
"Companies").
BACKGROUND
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Companies have requested that Laurus make loans and advances available
to Companies; and
Laurus has agreed to make such loans and advances to Companies on the
terms and conditions set forth in this Agreement.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. (a) General Definitions. Capitalized terms used in this
Agreement shall have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this
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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
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defined in the UCC, shall have the meaning given therein unless otherwise
defined herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes
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and Exhibits hereto or expressly identified to this Agreement are incorporated
herein by reference and taken together with this Agreement constitute but a
single agreement. The words "herein", hereof" and "hereunder" or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All references to any instruments or agreements, including
references to any of this Agreement or the Ancillary Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
2. Loans.
(a) (i) Subject to the terms and conditions set forth herein
and in the Ancillary Agreements, Laurus may make loans (the "Loans") to
Companies from time to time during the Term which, in the aggregate at
any time outstanding, will not exceed the lesser of (x) (I) the Capital
Availability Amount minus (II) such reserves as Laurus may reasonably in its
good faith judgment deem proper and necessary from time to time, (the
"Reserves") or (y) an amount equal to (I) Accounts Availability minus (II) the
Reserves. The amount derived at any time from Section 2(a)(i)(y)(I) minus
2(a)(i)(y)(II) shall be referred to as the "Formula Amount." Each Company shall
execute and deliver to Laurus on the Closing Date a Minimum Borrowing Note
evidencing the Loans funded on the Closing Date and a Revolving Note evidencing
the Capital Availability Amount. From time to time thereafter, each Company
shall execute and deliver to Laurus immediately prior to the final funding of
each additional $2,000,000 tranche of Loans (calculated on a cumulative basis
for each such tranche) an additional Minimum Borrowing Note evidencing such
tranche, in the form of Minimum Borrowing Note delivered by Companies to Laurus
on the Closing Date.
(ii) Notwithstanding the limitations set forth above,
Laurus retains the right to lend to Companies from time to time such amounts in
excess of such limitations as Laurus may determine in its sole discretion.
(iii) Each 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 each Company hereby consents to any such increases or decreases
which may limit or restrict advances requested by such Company after such
change.
(iv) If any Company does not pay any interest, fees,
costs or charges to Laurus when due, Companies shall thereby be deemed to have
requested, and Laurus is hereby authorized at its discretion to make and charge
to Companies' account, a Loan to Companies as of such date in an amount equal to
such unpaid interest, fees, costs or charges.
(v) If any Company at any time fails to perform or
observe any of the covenants contained in this Agreement or any Ancillary
Agreement, Laurus may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of such Company (or, at Laurus' option, in
Laurus' name) and may, but need not, take any and all other actions which Laurus
may deem necessary to cure or correct such failure (including the payment of
taxes, the satisfaction of Liens, the performance of obligations owed to Account
Debtors, lessors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments). The amount of all monies
expended and all costs and expenses (including attorneys' fees and legal
expenses) incurred by Laurus in connection with or as a result of the
performance or observance of such agreements or the taking of such action by
Laurus shall be charged to Companies' account as a Loan and added to the
Obligations. To facilitate Laurus' performance or observance of such covenants
of Companies, each Company hereby irrevocably appoints Laurus, or Laurus'
delegate, acting alone, as such Company's attorney in fact (which appointment is
coupled with an interest) with the right (but not the duty) from time to time to
create, prepare, complete, execute, deliver, endorse or file in the name and on
behalf of such Company any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed delivered or endorsed
by such Company.
(vi) Laurus will account to Company Agent monthly with a
statement of all Loans and other advances, charges and payments made pursuant to
this Agreement, and such account rendered by Laurus shall be deemed final,
binding and conclusive unless Laurus is notified by Company Agent in writing to
the contrary within thirty (30) days of the date each account was rendered
specifying the item or items to which objection is made.
(vii) During the Term, Companies may borrow and prepay
Loans in excess of the Minimum Borrowing Amount, all 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"),
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Companies shall (i) reimburse Laurus for the amount of the Revolving Credit
Advance 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 and during the continuance of an
Event of Default, Laurus may, at its option, elect to convert the credit
facility contemplated hereby to an accounts receivable purchase facility. Upon
such election by Laurus (subsequent notice of which Laurus shall provide to
Company Agent), Companies shall be deemed to hereby have sold, assigned,
transferred, conveyed and delivered to Laurus, and Laurus shall be deemed to
have purchased and received from Companies, all right, title and interest of
Companies in and to all Accounts which shall at any time constitute Eligible
Accounts (the "Receivables Purchase"). All outstanding Loans hereunder shall be
deemed obligations under such accounts receivable purchase facility. The
conversion to an accounts receivable purchase facility in accordance with the
terms hereof shall not be deemed an exercise by Laurus of its secured creditor
rights under Article 9 of the UCC. Immediately following Laurus' request, each
Company shall execute all such further documentation as may be required by
Laurus to more fully set forth the accounts receivable purchase facility herein
contemplated, including, without limitation, Laurus' standard form of accounts
receivable purchase agreement and account debtor notification letters, but any
Company's failure to enter into any such documentation shall not impair or
affect the Receivables Purchase in any manner whatsoever.
(c) Minimum Borrowing Amount. After a registration statement
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registering the Registrable Securities (as defined in the Registration Rights
Agreement) has been declared effective by the Securities and Exchange
Commission, conversions of the Minimum Borrowing Amount into the Common Stock of
eLinear may be initiated as set forth in the applicable 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 $2,000,000 and (ii) the Company will
issue a new (serialized) Minimum Borrowing Note to Laurus in respect of such
$2,000,000 aggregation, and (iii) eLinear shall prepare and file a subsequent
registration statement with the Securities and Exchange Commission to register
such subsequent Minimum Borrowing Note as set forth in the Registration Rights
Agreement.
3. Repayment of the Loans. Companies (a) may prepay the
Obligations in excess of the Minimum Borrowing Amount from time to time in
accordance with the terms and provisions of the Notes (and Section 16 hereof if
such termination 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 Companies hereunder together with accrued
and unpaid interest, fees and charges and (ii) all other amounts owed Laurus
under this Agreement and the Ancillary Agreements. Any payments of principal,
interest, fees or any other amounts payable hereunder or under any Ancillary
Agreement shall be made prior to 12:00 noon (New York time) on the due date
thereof in immediately available funds.
4. Procedure for Loans. Company Agent on behalf of any 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 Agent shall deliver to Laurus a Borrowing Base
Certificate in the form of Exhibit A, which shall be certified as true and
correct by the President, Chief Executive Officer or Chief Financial Officer of
Companies 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 Companies' account on
Laurus' books. The proceeds of each Loan made by Laurus shall be made available
to Companies on the Business Day following the Business Day so requested in
accordance with the terms of this Section 4 by way of credit to Companies'
operating account maintained with such bank as Companies designated to Laurus.
Any and all Obligations due and owing hereunder may be charged to Companies'
account and shall constitute Loans.
5. Interest and Fees.
(a) Interest.
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(i) Except as modified by Section 5(a)(iii) below,
Companies shall pay interest at the Contract Rate on the unpaid principal
balance of each Loan until such time as such Loan is collected in full in good
funds in dollars of the United States of America.
(ii) Interest and payments shall be computed on the
basis of actual days elapsed in a year of 360 days. At Laurus' option, Laurus
may charge Companies' account for said interest.
(iii) Effective upon the occurrence of any Event of
Default and for so long as any Event of Default shall be continuing, the
Contract Rate shall automatically be increased by five percent (5.0%) per month
(such increased rate, the "Default Rate"), and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest from the date of
such Event of Default at the Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable
hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate") and if any
provision of this Agreement or Ancillary Agreement is in contravention of any
such law or regulation, interest payable under this Agreement and each Ancillary
Agreement shall be computed on the basis of the Maximum Legal Rate (so that such
interest will not exceed the Maximum Legal Rate).
(v) Companies shall pay principal, interest and all
other amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including any deduction for any set-off or counterclaim.
(b) Payments.
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(i) Closing Payment. Upon execution of this Agreement
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by the Companies and Laurus, the Companies shall pay to Laurus Capital
Management, LLC a closing payment in an amount equal to three and nine-tenths
percent (3.9%) 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'
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rights hereunder in the event the Loans exceed the amounts permitted by Section
2 ("Overadvances"), in the event an Overadvance occurs or is made by Laurus, all
such Overadvances shall bear interest at a monthly rate equal to 1.5% of the
amount of such Overadvances for each month or portion thereof as such amounts
shall be outstanding.
(iii) Financial Information Default. Without affecting
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Laurus' other rights and remedies, in the event Companies fail to deliver the
financial information required by Section 11 on the date required by this
Agreement, Companies shall pay Laurus a fee in the aggregate 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 Companies' account upon the occurrence of each such failure.
6. Security Interest.
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(a) To secure the prompt payment to Laurus of the
Obligations, each Company hereby assigns, pledges and grants to Laurus a
continuing security interest in and Lien upon all of the Collateral. All of
Companies' Books and Records relating to the Collateral shall, until delivered
to or removed by Laurus, be kept by Companies in trust for Laurus until all
Obligations have been paid in full. Each confirmatory assignment schedule or
other form of assignment hereafter executed by Companies shall be deemed to
include the foregoing grant, whether or not the same appears therein.
(b) Each Company hereby (i) authorizes Laurus to file any
financing statements, continuation statements or amendments thereto that (x)
indicate the Collateral (1) as all assets of such Company (or any portion of
such Company's assets) or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the UCC of such jurisdiction, or (2) as being of an equal or lesser
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scope or with greater detail, and (y) contain any other information required by
Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance
of any financing statement, continuation statement or amendment and (ii)
ratifies its authorization for Laurus to have filed any initial financial
statements, or amendments thereto if filed prior to the date hereof. Each
Company acknowledges that it is not authorized to file any financing statement
or amendment or termination statement with respect to any financing statement
without the prior written consent of Laurus and agrees that it will not do so
without the prior written consent of Laurus, subject to Companies' rights under
Section 9-509(d)(2) of the UCC.
(c) Each Company hereby grants to Laurus an irrevocable,
non-exclusive license (exercisable upon the occurrence and during the
continuance of an Event of Default without payment of royalty or other
compensation to Companies) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by
Companies, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this agreement and the payment in
full of all Obligations.
7. Representations, Warranties and Covenants Concerning the
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Collateral. Each Company represents, warrants (each of which such
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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:
(a) All of the Collateral (i) is owned by Companies free and
clear of all Liens (including any claims of infringement) except those in
Laurus' favor and Permitted Liens and (ii) is not subject to any agreement
prohibiting the granting of a Lien or requiring notice of or consent to the
granting of a Lien.
(b) No Company shall encumber, mortgage, pledge, assign or
grant any Lien in any Collateral of such Company or any of such Company's other
assets to anyone other than Laurus and except for Permitted Liens.
(c) The Liens granted pursuant to this Agreement, upon
completion of the filings and other actions listed on Exhibit 7(c) (which, in
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the case of all filings and other documents referred to in said Exhibit, have
been delivered to Laurus in duly executed form) constitute valid perfected
security interests in all of the Collateral in favor of Laurus as security for
the prompt and complete payment and performance of the Obligations, enforceable
in accordance with the terms hereof against any and all creditors of and any
purchasers from Companies 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) No Company shall dispose of any of the Collateral whether
by sale, lease or otherwise except for the sale of Inventory in the ordinary
course of business and for the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment having an
aggregate fair market value of not more than $25,000 and only to the extent that
(i) the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to Laurus' first priority security interest or (ii)
following the occurrence of an Event of Default the proceeds of which are
remitted to Laurus to be held as cash collateral for the Obligations.
(f) Each Company shall defend the right, title and interest
of Laurus in and to the Collateral against the claims and demands of all Persons
whomsoever, and take such actions, including (i) all actions necessary to grant
Laurus "control" of any Investment Property, Deposit Accounts, Letter-of-Credit
Rights or electronic Chattel Paper owned by such Company, with any agreements
establishing control to be in form and substance satisfactory to Laurus, (ii)
the prompt (but in no event later than two Business Days following Laurus'
request therefor) delivery to Laurus of all original Instruments, Chattel Paper,
negotiable Documents and certificated Stock
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owned by a Company (in each case, accompanied by stock powers, allonges or other
instruments of transfer executed in blank), (iii) notification of Laurus'
interest in Collateral at Laurus' request, and (iv) the institution of
litigation against third parties as shall be prudent in order to protect and
preserve Companies' and Laurus' respective and several interests in the
Collateral.
(g) Each Company 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 by Laurus, each Company shall enter into a supplement to
this Agreement granting to Laurus a Lien in such commercial tort claim.
(h) Each Company shall place notations upon such Company's
Books and Records and any financial statement of such Company to disclose
Laurus' Lien in the Collateral.
(i) If any Company retains possession of any Chattel Paper or
Instrument with Laurus' consent, upon Laurus' request such Chattel Paper and
Instruments shall be marked wit the following legend: "This writing and
obligations evidenced or secured hereby are subject to the security interest of
Laurus Master Fund, Ltd."
(j) Each Company shall perform all other steps requested by
Laurus to create and maintain in Laurus' favor a valid perfected first Lien in
all Collateral subject only to Permitted Liens.
(k) Each Company 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 such Company's knowledge would cause Laurus to
consider any then existing Account as no longer constituting an Eligible
Account; (ii) of any material delay in such Company's performance of any of its
obligations to any Account Debtor; (iii) of any assertion by any Account Debtor
of any material claims, offsets or counterclaims; (iv) of any allowances,
credits and/or monies (collectively, "Allowances") to the extent such Allowances
with respect to any Account Debtor exceed $25,000 granted by such Company to any
Account Debtor; (v) of all material adverse information relating to the
financial condition of an Account Debtor; (vi) of any material return of goods;
and (vii) of any loss, damage or destruction of any of the Collateral
(collectively, "Losses") having an aggregate value with respect to all such
Losses of greater than $25,000.
(l) All Accounts (i) represent complete bona fide
transactions which require no further act under any circumstances on any
Company's part to make such Accounts payable by the Account Debtors, (ii) are
not subject to any present, future or contingent offsets or counterclaims, and
(iii) do not represent xxxx and hold sales, consignment sales, guaranteed sales,
sale or return or other similar understandings or obligations of any Affiliate
or Subsidiary of any Company. Companies have not made, and will not make, any
agreement with any Account Debtor for any extension of time for the payment of
any Account, any compromise or settlement for less than the full amount thereof,
any release of any Account Debtor from liability therefor, or any deduction
therefrom except a discount or allowance for prompt or early payment allowed by
any Company in the ordinary course of its business consistent with historical
practice and as previously disclosed to Laurus in writing.
(m) Each Company shall keep and maintain the Equipment in
good operating condition, except for ordinary wear and tear, and shall make all
necessary repairs and replacements thereof so that the value and operating
efficiency shall at all times be maintained and preserved. No Company shall
permit any such items to become a Fixture to real estate or accessions to other
personal property.
(n) Each Company shall maintain and keep all of such
Company's Books and Records concerning the Collateral at such Company's
executive offices listed in Exhibit 12(d).
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(o) Each Company shall maintain and keep the tangible
Collateral at the addresses listed in Exhibit 12(d), provided, that any Company
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may change such locations or open a new location, provided that such Company
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,
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such Company executes and delivers to Laurus such agreements as Laurus may
request, including landlord agreements, mortgagee agreements and warehouse
agreements, each in form and substance satisfactory to Laurus.
(p) Exhibit 7(p) lists all banks and other financial
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institutions at which Companies maintain deposits and/or other accounts, and
such Exhibit correctly identifies the name, address and telephone number of each
such depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number. No Company shall
establish any depository or other bank account with any financial institution
(other than the accounts set forth on Exhibit 7(p)) without Laurus' prior
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written consent.
8. Payment of Accounts.
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(a) Companies will irrevocably direct all present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral (excluding Investment Property) to make such payments directly to the
lockbox maintained by the Company Agent (the "Lockbox") with ___________
pursuant to the terms of the Clearing Account Lockbox Agreement dated
__________, 2004 or such other financial institution accepted by Laurus in
writing as may be selected by the Company Agent (the "Lockbox Bank"). On or
prior to the Closing Date, the Company Agent shall and shall cause the Lockbox
Bank to enter into all such documentation acceptable to Laurus pursuant to
which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox on
a daily basis and deposit all checks received therein to an account designated
by Laurus in writing and (b) comply only with the instructions or other
directions of Laurus concerning the Lockbox. All of Companies' invoices,
account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account of Companies 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, any Company receives any payments, such Company shall
immediately remit such payments to Laurus in their original form with all
necessary endorsements. Until so remitted, such Company shall hold all such
payments in trust for and as the property of Laurus and shall not commingle such
payments with any of its other funds or property. Companies shall pay Laurus
five percent (5%) of the amount of any payment so received by any Company and
not delivered in kind to Laurus within ten (10) Business Days following such
Company's receipt thereof.
(b) At Laurus' election following the occurrence of an Event
of Default, Laurus may notify Companies' Account Debtors of Laurus' security
interest in the Accounts, collect them directly and charge the collection costs
and expenses thereof to Companies' account.
9. Collection and Maintenance of Collateral.
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(a) Laurus may at any time verify Companies' Accounts
utilizing an audit control company or any other agent of Laurus; provided,
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however, so long as no Event of Default shall have occurred and be continuing,
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Laurus shall not charge Companies for more than two such verifications during
any calendar year.
(b) Proceeds of Accounts received by Laurus will be deemed
received on the fifth (5th) 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 proceeds of Accounts, it shall remit
all such proceeds (net of interest, fees and other amounts then due and owing to
Laurus hereunder) to Company Agent (for the benefit of Companies) upon request
(but not 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 such proceeds as cash collateral for the
Obligations and each such Company hereby grants to Laurus a security interest in
such cash collateral amounts as security for the Obligations and/or (c) do any
combination of the foregoing.
10. Inspections and Appraisals. At all times during normal
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business hours, Laurus, and/or any agent of Laurus shall have the right upon
reasonable notice (provided that no such notice shall be required following
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the occurrence or during the continuance of an Event of Default or in the event
Laurus believes in the good faith exercise of its commercially reasonable
judgment that such action is necessary to preserve or protect the Collateral
and/or Laurus' rights and remedies hereunder and under applicable law) to (a)
have access to, visit, inspect, review, evaluate and make physical verification
and appraisals of each Company's properties and the Collateral, (b) inspect,
audit and copy (or take originals if necessary) and make extracts from each
Company's Books and Records, including management letters prepared by
independent accountants, and (c) discuss with Companies' principal officers, and
independent accountants, Companies' business, assets, liabilities, financial
condition, results of operations and business prospects. Companies will deliver
to Laurus any instrument necessary for Laurus to obtain records from any service
bureau maintaining records for Companies. 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. Companies will deliver, or cause to be
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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 eLinear, eLinear's audited financial
statements prepared on a consolidated and consolidating basis with a report of
Xxxxxx and Xxxxxx PLLC or such other independent certified public accountants of
recognized standing selected by eLinear and reasonably acceptable to Laurus (the
"Accountants"), which annual financial statements shall include eLinear's
balance sheet as at the end of such fiscal year and the related statements of
eLinear's income, retained earnings and cash flows for the fiscal year then
ended, prepared 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 all management
letters prepared by such accountants; and (ii) a certificate of eLinear'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,
statements of income and retained earnings of eLinear, and cash flows of eLinear
on a consolidating and consolidated basis, as at the end of and for such quarter
and for the year to date period then ended, prepared, 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
audit adjustments; and accompanied by a certificate of eLinear'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; and
(c) Within thirty (30) days after the end of each month (or
more frequently if Laurus so requests), agings of each Company's Accounts,
unaudited trial balances for each Company, accounts payable reports for each
Company and a calculation of each Company's Accounts and Eligible Accounts as at
the end of such month or shorter time period.
(d) Promptly after (i) the filing thereof, copies of
eLinear's most recent registration statements and annual, quarterly, monthly or
other regular reports which eLinear files with the Securities and Exchange
Commission (the "SEC"), and (ii) the issuance thereof, copies of such financial
statements, reports and proxy statements as eLinear shall send to its
stockholders.
8
12. Additional Representations and Warranties. Each Company
-----------------------------------------
represents and warrants (each of which such representations and warranties shall
be deemed repeated upon the making of a request for a Loan and made as of the
time of each Loan made hereunder) as follows:
(a) Each Company is a corporation duly incorporated and
validly existing under the laws of the jurisdiction of its incorporation and
duly qualified and in good standing in every other state or jurisdiction in
which the nature of such Company's business requires such qualification.
(b) The execution, delivery and performance of this Agreement
and the Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of such Company's certificate of incorporation, by-laws or of any
indenture, agreement or undertaking to which such Company is a party or by which
such Company is bound and (iii) are within such Company's corporate powers.
(c) This Agreement and the Ancillary Agreements executed and
delivered by each Company are such Company's legal, valid and binding
obligations, enforceable in accordance with their terms.
(d) Exhibit 12(d) sets forth each Company's name as it
-------------
appears in official filing in the state of its incorporation, the type of entity
of each Company, the organizational identification number issued by each
Company's state of incorporation or a statement that no such number has been
issued, each Company's state of incorporation, and the location of each
Company's chief executive office, corporate offices, warehouses, other locations
of Collateral and locations where records with respect to Collateral are kept
(including in each case the county of such locations) and, except as set forth
in such Exhibit 12(d), such locations have not changed during the preceding
-------------
twelve months. As of the Closing Date, during the prior five years, except as
set forth in Exhibit 12(d), no Company has been known as or conducted business
------------
in any other name (including trade names). Each Company has only one state of
incorporation.
(e) Based upon the Employee Retirement Income Security Act of
1974 ("ERISA"), and the regulations and published interpretations thereunder:
(i) no Company has engaged in any Prohibited Transactions as defined in Section
406 of ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii)
each Company has met all applicable minimum funding requirements under Section
302 of ERISA in respect of its plans; (iii) no Company has any knowledge of any
event or occurrence which would cause the Pension Benefit Guaranty Corporation
to institute proceedings under Title IV of ERISA to terminate any employee
benefit plan(s); (iv) no Company has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than Companies' employees; and (v) no Company has withdrawn, completely or
partially, from any multi-employer pension plan so as to incur liability under
the Multiemployer Pension Plan Amendments Act of 1980.
(f) On a consolidated basis, the Companies are solvent, able
to pay their debts as they mature, have capital sufficient to carry on their
businesses and all businesses in which the Companies are about to engage and the
fair saleable value of their assets (calculated on a going concern basis) are in
excess of the amount of their liabilities.
(g) There is no pending or threatened litigation, court
order, judgment, writ, suit, action or proceeding which could reasonably be
expected to have a Material Adverse Effect.
(h) All balance sheets and income statements which have been
delivered to Laurus fairly, accurately and properly state the applicable
Company's financial condition on a basis consistent with that of previous
financial statements and there has been no material adverse change in such
Company's financial condition as reflected in such statements since the balance
sheet date of the statements last delivered to Laurus and such statements do not
fail to disclose any fact or facts which might have a Material Adverse Effect on
such Company's financial condition.
9
(i) Each Company possesses or has licenses to use all of the
Intellectual Property necessary to conduct its business. There has been no
assertion or claim of violation or infringement with respect to any Intellectual
Property. Exhibit 12(i) describes all Intellectual Property of Companies.
-------------
(j) Neither this Agreement, the exhibits and schedules
hereto, the Ancillary Agreements nor any other document delivered by any Company
to Laurus or its attorneys or agents in connection herewith or therewith or with
the transactions contemplated hereby or thereby, contain any untrue statement of
a material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Assuming the accuracy of Laurus' representation
and warranties in the Ancillary Agreements, the issuance of the Notes and the
Warrants and the shares of common stock issued upon conversion of the Notes and
exercise of the Warrants 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. No Company nor any of its Affiliates, nor any person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Securities.
(k) The common stock of eLinear is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act and except with respect to certain
matters set forth on Exhibit 12(k) attached hereto, eLinear has timely filed all
-------------
proxy statements, reports, schedules, forms, statements and other documents
required to be filed by it under the Exchange Act and filed its Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2003 (collectively, the "SEC
Reports"). Each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of eLinear and each other Company included in the SEC Reports comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed) and fairly present in
all material respects the financial condition and the results of operations and
cash flows of the Companies on a consolidated basis, as of and for the periods
presented in each such SEC Report.
(l) eLinear's common stock is listed for trading on the OTC
Bulletin Board and satisfies all requirements for the continuation of such
listing. eLinear has not received any notice that its common stock will be
delisted from the OTC Bulletin Board or that its common stock does not meet all
requirements for the continuation of such listing.
(m) No Company, or any of its affiliates, or any person
acting on its or their behalf, has directly or indirectly made any offers or
sales of any security or solicited any offers to buy any security under
circumstances that would cause the offering of the Securities under the
Ancillary Agreements to be integrated with prior offerings by such Company for
purposes of the Securities Act which would prevent such Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions. No Company or any of its
affiliates or subsidiaries shall take any action or steps after the date hereof
that would cause the offering of the Securities to be integrated with other
offerings.
(n) The Securities are restricted securities under the
Securities Act as of the date of this Agreement. eLinear will not issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by federal or state
securities laws.
(o) Each Company understands the nature of the Securities
being issued under the Ancillary Agreements and recognizes that the issuance of
such Securities may have a potential dilutive effect. eLinear
10
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
eLinear and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of eLinear.
(p) Except for agreements made in the ordinary course of
business, there is no agreement that has not been filed with the SEC as an
exhibit to a registration statement or to a form required to be filed by eLinear
under the Exchange Act, the breach of which could reasonably be expected to have
a Material Adverse Effect or would prohibit or otherwise interfere with the
ability of eLinear or any other Company to enter into and perform any of its
obligations under this Agreement or any Ancillary Agreement in any material
respect.
13. Covenants. Each Company covenants as follows:
---------
(a) No Company will, without the prior written consent of
Laurus, change (i) its name as it appears in the official filings in the state
of its incorporation or formation, (ii) the type of legal entity it is, (iii)
its organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws or other organizational document to the extent any such
amendment could reasonably be expected to affect in any manner the Collateral,
Laurus' rights and remedies hereunder and/or the first priority perfected Lien
of Laurus on the Collateral.
(b) The operation of each Company's business is and will
continue to be in compliance in all material respects with all applicable
federal, state and local laws, rules and ordinances, including to all laws,
rules, regulations and orders relating to taxes, payment and withholding of
payroll taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee health safety and
environmental matters.
(c) Each Company will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon such Company or any
of the Collateral unless such amounts are being diligently contested in good
faith by appropriate proceedings provided that (i) adequate reserves with
respect thereto are maintained on the books of such Company in conformity with
GAAP and (ii) the related Lien shall have no effect on the priority of the Liens
in favor of Laurus or the value of the assets in which Laurus has a Lien.
(d) Each Company will promptly inform Laurus in writing of:
(i) the commencement of all proceedings and investigations by or before and/or
the receipt of any notices from, any governmental or nongovernmental body and
all actions and proceedings in any court or before any arbitrator against or in
any way concerning any event which could reasonably be expected to singly or in
the aggregate have a Material Adverse Effect; (ii) any amendment of any
Company's certificate of incorporation, by-laws or other organizational
document; (iii) any change which has had or could reasonably be expected to have
a Material Adverse Effect; (iv) any Event of Default or Default; (v) any default
or any event which with the passage of time or giving of notice or both would
constitute a default under any agreement for the payment of money to which any
Company is a party or by which any Company or any of such Company's properties
may be bound which could reasonably be expected to have a Material Adverse
Effect and (vii) any change in any Company's name or any other name used in its
business.
(e) No Company will (i) create, incur, assume or suffer to
exist any indebtedness (exclusive of trade debt) whether secured or unsecured
other than such Company's indebtedness to Laurus and as set forth on Exhibit
-------
13(e)(i) attached hereto and made a part hereof; (ii) cancel any debt owing to
--------
it in excess of $50,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently liable
in connection with any obligations of any other Person, except the endorsement
of negotiable instruments by a Company for deposit or collection or similar
transactions in the ordinary course of business; (iv) directly or indirectly
declare, pay or make any dividend or distribution on any class of its Stock or
apply any of its funds, property or assets to the purchase, redemption or other
retirement of any Stock of a Company (excluding issuances of Common Stock on a
pro rata basis to all of eLinear's shareholders); (v) purchase or hold
beneficially any Stock or other securities or evidences of indebtedness of, make
or permit to exist any loans or advances to, or make any investment or acquire
any interest whatsoever in, any other Person, including any partnership or joint
venture, except (x) travel advances or (y) loans to such Company's officers and
employees not exceeding at any one time an
11
aggregate of $10,000 for all Companies; (vi) create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof and listed
in Exhibit 13(e)(ii) unless such new Subsidiary is designated by Laurus as
-----------------
either a co-borrower or guarantor hereunder and such Subsidiary shall have
entered into all such documentation required by Laurus to grant to Laurus a
first priority perfected security interest in 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; (ix) materially change the nature of the business in which it is
presently engaged; (x) change its fiscal year or make any changes in accounting
treatment and reporting practices without prior written notice to Laurus except
as required by GAAP or in the tax reporting treatment or except as required by
law; (xi) enter into any transaction with any employee, director or Affiliate,
except in the ordinary course on arms-length terms; or (xii) xxxx Accounts under
any name except the present name of such Company.
(f) None of the proceeds of the Loans hereunder will be used
directly or indirectly to "purchase" or "carry" "margin stock" or to repay
indebtedness incurred to "purchase" or "carry" "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.
(g) Each Company will bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. At each Company's
own cost and expense in amounts and with carriers acceptable to Laurus, each
Company shall (i) keep all its insurable properties and properties in which it
has an interest insured against the hazards of fire, flood, sprinkler leakage,
those hazards covered by extended coverage insurance and such other hazards, and
for such amounts, as is customary in the case of companies engaged in businesses
similar to such Company's including business interruption insurance; (ii)
maintain a bond in such amounts as is customary in the case of companies engaged
in businesses similar to such Company's insuring against larceny, embezzlement
or other criminal misappropriation of insured's officers and employees who may
either singly or jointly with others at any time have access to the assets or
funds of such Company either directly or through Governmental Authority to draw
upon such funds or to direct generally the disposition of such assets; (iii)
maintain public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (iv) maintain all such
worker's compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which such Company is engaged in business; and (v)
furnish Laurus with (x) copies of all policies and evidence of the maintenance
of such policies at least thirty (30) days before any expiration date, (y)
endorsements to such policies 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 any Company and the insurer will provide Laurus with at least thirty
(30) days notice prior to cancellation or expiration thereof. Each Company
shall instruct the insurance carriers that in the event of any loss thereunder,
the carriers shall make payment for such loss to Laurus and not to such Company
and Laurus jointly. If any insurance losses are paid by check, draft or other
instrument payable to any Company and Laurus jointly, Laurus may endorse such
Company's name thereon and do such other things as Laurus may deem advisable to
reduce the same to cash. Laurus is hereby authorized to adjust and compromise
claims. All loss recoveries received by Laurus upon any such insurance may be
applied to the Obligations, in such order as Laurus in its sole discretion shall
determine, or shall otherwise be delivered to the Company Agent for the benefit
of Companies. Any surplus shall be paid by Laurus to Company Agent for the
benefit of Companies or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by Companies to Laurus, on demand.
(h) eLinear 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.
14. Further Assurances. At any time and from time to time, upon
the reasonable written request of Laurus and at the sole expense of Companies,
each Company shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Laurus may
reasonably request (a) to obtain the full benefits of this Agreement and the
Ancillary Agreements, (b) to protect, preserve and maintain
12
Laurus' rights in the Collateral and under this Agreement or any Ancillary
Agreement, or (c) to enable Laurus to exercise all or any of the rights and
powers herein granted or any Ancillary Agreement.
15. Power of Attorney. Each Company hereby appoints Laurus, or
-----------------
any other Person whom Laurus may designate as such Company's attorney, with
power to: (i) endorse each Company's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come into
Laurus' possession; (ii) sign such Company's name on any invoice or xxxx of
lading relating to any Accounts, drafts against Account Debtors, schedules and
assignments of Accounts, notices of assignment, financing statements and other
public records, verifications of Account and notices to or from Account Debtors;
(iii) verify the validity, amount or any other matter relating to any Account by
mail, telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) on or after the occurrence and continuation of an Event of
Default, notify the post office authorities to change the address for delivery
of such Company's mail to an address designated by Laurus, and to receive, open
and dispose of all mail addressed to such Company. Each Company hereby ratifies
and approves all acts of the attorney. Neither Laurus, nor the attorney will be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law, 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.
16. Term of Agreement. Laurus' agreement to make Loans and extend
-----------------
financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Initial Term. At Laurus' election following the
occurrence of an Event of Default, Laurus may terminate this Agreement. The
termination of the Agreement shall not affect any of Laurus' rights hereunder or
any Ancillary Agreement and the provisions hereof and thereof shall continue to
be fully operative until all transactions entered into, rights or interests
created and the Obligations have been disposed of, concluded or liquidated.
Notwithstanding the foregoing, Laurus shall release its security interests at
any time after thirty (30) days notice upon payment to it of all Obligations if
Companies shall have (i) provided Laurus with an executed release of any and all
claims which Companies may have or thereafter have under this Agreement and all
Ancillary Agreements and (ii) paid to Laurus an early payment fee in an amount
equal to (1) seven percent (7%) 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)
two percent (2%) of the Capital Availability Amount if such payment occurs on or
after the second anniversary of the Initial Term or any renewal 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 also be due and payable by Companies to Laurus upon termination of this
Agreement by Laurus after the occurrence and during the continuance of an Event
of Default.
17. Termination of Lien. The Liens and rights granted to Laurus
-------------------
hereunder and any Ancillary Agreements and the financing statements filed in
connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Companies'
account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Companies have been paid or performed in full after
the termination of this Agreement and Laurus shall not be required to send such
termination statements to Companies, or to file them with any filing office,
unless and until this Agreement and the Ancillary Agreements shall have been
terminated in accordance with their terms and all Obligations paid in full in
immediately available funds.
18. Events of Default. The occurrence of any of the following
-----------------
shall constitute an Event of Default:
(a) failure to make payment of any of the Obligations when
required hereunder;
(b) failure to pay any taxes when due unless such taxes are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been provided on the applicable Company's books;
13
(c) failure to perform under and/or committing any breach of
this Agreement or any Ancillary Agreement or any other agreement between any
Company and Laurus which shall continue for a period of fifteen (15) days after
the occurrence thereof;
(d) the occurrence of a default under any agreement to which
any Company is a party with third parties which has a Material Adverse Effect;
(e) any representation, warranty or statement made by any
Company hereunder, in any Ancillary Agreement, any certificate, statement or
document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Agreement should at any time be false or
misleading in any material respect;
(f) an attachment or levy is made upon any Company's assets
having an aggregate value in excess of $50,000 (for all such Companies on an
aggregate basis) or a judgment is rendered against any Company or any Company's
property involving a liability of more than $50,000 (for all such Companies on
an aggregate basis) which shall not have been vacated, discharged, stayed or
bonded pending appeal within thirty (30) days from the entry thereof;
(g) any change in any Company's condition or affairs
(financial or otherwise) which in Laurus' reasonable, good faith opinion 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 excluding Permitted Liens;
(i) if any Company shall (i) apply for, consent to or suffer
to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within forty-five (45) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
(j) any Company shall admit in writing its inability, or be
generally unable to pay its debts as they become due or cease operations of its
present business;
(k) any Subsidiary of any Company shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, within forty-five (45) days, any
petition filed against it in any involuntary case under such bankruptcy laws or
(viii) take any action for the purpose of effecting any of the foregoing;
(l) any Company directly or indirectly sells, assigns,
transfers, conveys, or suffers or permits to occur any sale, assignment,
transfer or conveyance of any assets of such Company or any interest therein,
except as permitted herein;
(m) the occurrence of a change in the controlling ownership
of any Company (other than eLinear) or any member of Senior Management ceases to
be involved in the day to day operations or management of any Company;
14
(n) default by any Company in the payment, when due, of any
principal of or interest on any other indebtedness for money borrowed in an
amount greater than $25,000, which is not cured within any applicable cure or
grace period;
(o) the indictment of any Company, any officer of any Company
under any criminal statute, or commencement of criminal or civil proceeding
against any Company or any officer of any Company pursuant to which statute or
proceeding penalties or remedies sought or available include forfeiture of any
of the property of any Company;
(p) if an Event of Default shall occur under and as defined
in any Note;
(q) any Company or any Guarantor shall breach any term or
provision of any Ancillary Agreement which is not cured within any applicable
cure or grace period;
(r) if any Guarantor attempts to terminate, challenges the
validity of, or its liability under any Guaranty or any Guarantor Security
Agreement; or
(s) should any Guarantor default in its obligations under any
Guaranty or any Guarantor Security Agreement or if any proceeding shall be
brought to challenge the validity, binding effect of any Guaranty or any
Guarantor Security Agreement or should any Guarantor breach any representation,
warranty or covenant contained in any Guaranty Agreement or any Guarantor
Security Agreement or should any Guaranty or Guarantor Security Agreement cease
to be a valid, binding and enforceable obligation.
19. 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
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 a Company
to assemble the Collateral, at Companies' expense, and to make it available to
Laurus at a place designated by Laurus which is reasonably convenient to both
parties and to enter any of the premises of a Company or wherever the Collateral
shall be located, with or without force or process of law, and to keep and store
the same on said premises until sold (and if said premises be the property of
such Company, such Company agrees not to charge Laurus for storage thereof), and
the right to apply for the appointment of a receiver for such Company's
property. Further, Laurus may, at any time or times after the occurrence of an
Event of Default, sell and deliver all Collateral held by or for Laurus at
public or private sale for cash, upon credit or otherwise, at such prices and
upon such terms as Laurus, in Laurus' sole discretion, deems advisable or Laurus
may otherwise recover upon the Collateral in any commercially reasonable manner
as Laurus, in its sole discretion, deems advisable. The requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to
Company Agent at Company Agent's address as shown in Laurus' records, at least
ten (10) days before the time of the event of which notice is being given.
Laurus may be the purchaser at any sale, if it is public. In connection with
the exercise of the foregoing remedies, Laurus is granted permission to use all
of Companies' trademarks, tradenames, tradestyles, patents, patent applications,
licenses, franchises and other proprietary rights. The proceeds of sale shall
be applied first to all costs and expenses of sale, including attorneys' fees,
and second to the payment (in whatever order Laurus elects) of all Obligations.
After the indefeasible payment and satisfaction in full in cash of all of the
Obligations, and after the payment by Laurus of any other amount required by any
provision of law, including Section 608(a)(1) of the Code (but only after Laurus
has received what Laurus considers reasonable proof of a subordinate party's
security interest), the surplus, if any, shall be paid to Company Agent or its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. Companies shall remain liable
to Laurus for any deficiency. In addition, Companies shall pay Laurus a
liquidation fee ("Liquidation Fee") in the amount of five percent (5%) of the
face amount of each Account outstanding at any time during a "liquidation
period". For purposes hereof, "liquidation period" means a period: (i)
beginning on the earliest date of (x) an event referred to in Section 18(i) or
18(j), or (y) the cessation of any Company's business; and (ii) ending on the
date on which Laurus has actually received all Obligations due and owing it
under this Agreement and the Ancillary Agreements. The Liquidation Fee shall be
paid on the date on
15
which Laurus collects the applicable Account by deduction from the proceeds
thereof. Each Company and Laurus acknowledge that the actual damages that would
be incurred by Laurus after the occurrence of an Event of Default would be
difficult to quantity and that Companies and Laurus have agreed that the fees
and obligations set forth in this Section and in this Agreement would constitute
fair and appropriate liquidated damages in the event of any such termination.
20. Waivers. To the full extent permitted by applicable law, each
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Company waives (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all of
this Agreement and the Ancillary Agreements or any other notes, commercial
paper, Accounts, contracts, Documents, Instruments, Chattel Paper and guaranties
at any time held by Laurus on which any Company may in any way be liable, and
hereby ratifies and confirms whatever Laurus may do in this regard; (b) all
rights to notice and a hearing prior to Laurus' taking possession or control of,
or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Each Company acknowledges that it has been advised by
counsel of its choices and decisions with respect to this Agreement, the
Ancillary Agreements and the transactions evidenced hereby and thereby.
21. Expenses. Each 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 (but
subject to the cap set forth in the proposal letter between Laurus and Companies
related to the transactions contemplated hereby), and in connection with the
prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matter in any way arising out of, related to or connected with
this Agreement or any Ancillary Agreement. Each Company shall also pay all of
Laurus' reasonable fees, charges, out-of-pocket costs and expenses, including
reasonable fees and disbursements of counsel and appraisers, in connection with
(a) the preparation, execution and delivery of any waiver, any amendment thereto
or consent proposed or executed in connection with the transactions contemplated
by this Agreement or the Ancillary Agreements, (b) Laurus' obtaining performance
of the Obligations under this Agreement and any Ancillary Agreements, including,
but not limited to, the enforcement or defense of Laurus' security interests,
assignments of rights and Liens hereunder as valid perfected security interests,
(c) any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any Collateral, (d) any appraisals or re-appraisals of any
property (real or personal) pledged to Laurus by Companies as Collateral for, or
any other Person as security for, Companies' Obligations hereunder and (e) any
consultations in connection with any of the foregoing. Companies shall also pay
Laurus' customary bank charges for all bank services (including wire transfers)
performed or caused to be performed by Laurus for Companies at Companies'
request or in connection with Companies' loan account with Laurus. All such
costs and expenses together with all filing, recording and search fees, taxes
and interest payable by any Company to Laurus shall be payable on demand and
shall be secured by the Collateral. If any tax by any Governmental Authority is
or may be imposed on or as a result of any transaction between such Company and
Laurus (excluding taxes relating to the net income of Laurus) which Laurus is or
may be required to withhold or pay, such Company agrees to indemnify and hold
Laurus harmless in respect of such taxes, and such Company will repay to Laurus
the amount of any such taxes which shall be charged to Companies' account; and
until such Company shall furnish Laurus with indemnity therefor (or supply
Laurus with evidence satisfactory to it that due provision for the payment
thereof has been made), Laurus may hold without interest any balance standing to
Companies' credit and Laurus shall retain its Liens in any and all Collateral.
22. Assignment By Laurus. Laurus may assign any or all of the
---------------------
Obligations together with any or all of the security therefor and any transferee
shall succeed to all of Laurus's rights and obligations with respect thereto.
Upon such transfer, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. Each 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 Companies were directly
indebted to such holder in the amount of such participation.
16
23. No Waiver; Cumulative Remedies. Failure by Laurus to exercise
-------------------------------
any right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between any Company and
Laurus or delay by Laurus in exercising the same, will not operate as a waiver;
no waiver by Laurus will be effective unless it is in writing and then only to
the extent specifically stated. Laurus' rights and remedies under this
Agreement and the Ancillary Agreements will be cumulative and not exclusive of
any other right or remedy which Laurus may have.
24. Application of Payments. Each Company irrevocably waives the
------------------------
right to direct the application of any and all payments at any time or times
hereafter received by Laurus from or on any Company's behalf and each Company
hereby irrevocably agrees that Laurus shall have the continuing exclusive right
to apply and reapply any and all payments received at any time or times
hereafter against the Obligations hereunder in such manner as Laurus may deem
advisable notwithstanding any entry by Laurus upon any of Laurus' books and
records.
25. Indemnity. Each Company agrees to indemnify and hold Laurus,
---------
and its affiliates, employees, attorneys and agents (each, an "Indemnified
Person"), harmless from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses of any kind or nature
whatsoever (including attorneys' fees and disbursements and other costs of
investigation or defense, including those incurred upon any appeal) which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended, suspended or terminated under this
Agreement or any of the Ancillary Agreements or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement, the Ancillary Agreements or any
other documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing, except
to the extent that any such indemnified liability is finally determined by a
court of competent jurisdiction to have resulted solely from such Indemnified
Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO ANY COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
26. Revival. Each Company further agrees that to the extent any
-------
Company makes a payment or payments to Laurus, which payment or payments or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or repayment, the
obligation or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if said payment had not been made.
27. Notices. Any notice or request hereunder may be given to
-------
Company Agent or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given when deposited in the mail or with the overnight
mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Grin
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
17
With a copy to: Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Company Agent: eLinear, Inc.
____________________
____________________
Attention: _____________
Telephone: _______________
Telecopier: ______________
With a copy to:
__________________________________
__________________________________
__________________________________
Attention: _______________
Telephone: _______________
Telecopier: _______________
28. Governing Law, Jurisdiction and Waiver of Jury Trial. (a)
----------------------------------------------------
THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
COMPANY AND LAURUS PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND EACH COMPANY ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY HEREBY WAIVES
ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AGENT AT THE ADDRESS
SET FORTH IN SECTION 27 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF COMPANY AGENT'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY
18
DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS AND EACH
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO.
29. Borrowing Agency Provisions.
---------------------------
(a) Each Company hereby irrevocably designates Company Agent
to be its attorney and agent and in such capacity to borrow, sign and endorse
notes, and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of such Company or
Companies, and hereby authorizes Laurus to pay over or credit all loan proceeds
hereunder in accordance with the request of Company Agent.
(b) The handling of this credit facility as a co-borrowing
facility with a borrowing agent in the manner set forth in this Agreement is
solely as an accommodation to Companies and at their request. Laurus shall not
incur liability to Companies as a result thereof. To induce Laurus to do so and
in consideration thereof, each Company hereby indemnifies Laurus and holds
Laurus harmless from and against any and all liabilities, expenses, losses,
damages and claims of damage or injury asserted against Laurus by any Person
arising from or incurred by reason of the handling of the financing arrangements
of Companies as provided herein, reliance by Laurus on any request or
instruction from Company Agent or any other action taken by Laurus with respect
to this paragraph 29.
(c) All Obligations shall be joint and several, and each
Company shall make payment upon the maturity of the Obligations by acceleration
or otherwise, and such obligation and liability on the part of each Company
shall in no way be affected by any extensions, renewals and forbearance granted
by Laurus to any Company, failure of Laurus to give any Company notice of
borrowing or any other notice, any failure of Laurus to pursue to preserve its
rights against any Company, the release by Laurus of any Collateral now or
thereafter acquired from any Company, and such agreement by each Company to pay
upon any notice issued pursuant thereto is unconditional and unaffected by prior
recourse by Laurus to the other Companies or any Collateral for such Company's
Obligations or the lack thereof.
(d) Each Company expressly waives any and all rights of
subrogation, reimbursement, indemnity, exoneration, contribution or any other
claim which such Company may now or hereafter have against any other Company or
other person or entity directly or contingently liable for the Obligations, or
against or with respect to any other Company's property (including, without
limitation, any property which is Collateral for the Obligations), arising from
the existence or performance of this Agreement, until all Obligations have been
paid in full in cash and this Agreement has been irrevocably terminated
(e) Each Company represents and warrants to Laurus that (i)
the Companies have one or more common shareholders, directors and officers, (ii)
the businesses and corporate activities of the other Companies are closely
related to, and substantially benefit, the business and corporate activities of
such Company, (iii) the financial and other operations of the Companies are
performed on a combined basis as if the Companies constituted a consolidated
corporate group, (iv) such Company will receive a substantial economic benefit
from entering into this Agreement and will receive a substantial economic
benefit from the application of each Loan hereunder, in each case, whether or
not such amount is used directly by such Company and (v) all requests for Loan
hereunder by the Company Agent are for the exclusive and indivisible benefit of
each Company as though, for purposes of this Agreement, the Companies
constituted a single entity.
19
30. Limitation of Liability. Each Company acknowledges and
-----------------------
understands that in order to assure repayment of the Obligations hereunder
Laurus may be required to exercise any and all of Laurus' rights and remedies
hereunder and agrees that neither Laurus nor any of Laurus' agents shall be
liable for acts taken or omissions made in connection herewith or therewith
except for actual bad faith.
31. Entire Understanding. This Agreement and the Ancillary
--------------------
Agreements contain the entire understanding between Companies and Laurus and any
promises, representations, warranties or guarantees not herein contained shall
have no force and effect unless in writing, signed by Companies' and Laurus'
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.
32. Severability. Wherever possible each provision of this
------------
Agreement or the Ancillary Agreements shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement or the Ancillary Agreements shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions thereof.
33. Captions. All captions are and shall be without substantive
--------
meaning or content of any kind whatsoever.
34. Counterparts; Telecopier Signatures. This Agreement may be
-----------------------------------
executed in one or more counterparts, each of which shall constitute an original
and all of which taken together shall constitute one and the same agreement.
Any signature delivered by a party via telecopier transmission shall be deemed
to be any original signature hereto.
35. Construction. The parties acknowledge that each party and its
------------
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
36. Publicity. Companies hereby authorize Laurus to make
---------
appropriate announcements of the financial arrangement entered into by and
between Companies and Laurus, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Laurus shall in its sole and absolute discretion deem appropriate or
as required by applicable law.
20
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
ELINEAR, INC.
By:______________________________
Name:
Title:
NETVIEW TECHNOLOGIES, INC.
By:______________________________
Name:
Title:
NETBRIDGE TECHNOLOGIES, INC.
By:______________________________
Name:
Title:
LAURUS MASTER FUND, LTD.
By:______________________________
Name:
Title:
21
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, Instruments or Investment
Property) (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 the Companies up to
ninety percent (90%) of the net face amount of Eligible Accounts based on
Accounts of the Companies.
"Affiliate" of any Person means (a) any Person (other than a
---------
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Ancillary Agreements" means, the Notes, Warrants, Registration Rights
--------------------
Agreements, each Guaranty, if any, each Guaranty Security Agreement, if any, 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 any 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 Companies and
Laurus.
"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.
---------------------------
"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 any Company shall first receive
------------
proceeds of the initial Loans.
22
"Collateral" means all of each Company's property and assets, whether
----------
real or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now has or at any time in the future may acquire any
right, title or interests including all of the following property in which it
now has or at any time in the future may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
(f) all Deposit Accounts, other bank accounts and all funds on
deposit therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
(l) all commercial tort claims set forth on Exhibit 1(A);
------------
(m) all Books and Records;
(n) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
(o) (i) all money, cash and cash equivalents and (ii) all cash
held as cash collateral to the extent not otherwise constituting Collateral, all
other cash or property at any time on deposit with or held by Laurus for the
account of any Company (whether for safekeeping, custody, pledge, transmission
or otherwise); and
(p) all products and Proceeds of all or any of the foregoing, tort
claims and all claims and other rights to payment including insurance claims
against third parties for loss of, damage to, or destruction of, and 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" means (a) the common stock of eLinear, Inc., par value
------------
$.__ per share and (b) any other securities into which or for which any of the
securities described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization , merger, sale of assets or otherwise.
"Company Agent" means eLinear, Inc., a Delaware corporation.
-------------
"Contract Rate" means an interest rate per annum equal to the Prime
--------------
Rate plus three-quarters of one percent (0.75%), but in no event less than four
----
and three-quarters percent (4.75%) per annum. The Contract Rate shall be
adjusted as follows: if (i) eLinear shall have registered the shares of its
Common Stock underlying the
23
conversion of all currently issued and outstanding Minimum Borrowing Notes and
the Warrant on a registration statement declared effective by the Securities and
Exchange Commission, and (ii) the volume weighted average price of the Common
Stock as reported by Bloomberg, L.P. on the principal market for any of the ten
(10) trading days immediately preceding any applicable date upon which interest
is payable under Section 5 hereof exceeds 125% of the applicable Fixed
Conversion Price (as defined in the applicable Minimum Borrowing Note) (the
"Specified Percentage"), then the Contract Rate for the succeeding calendar
month shall automatically be reduced by one hundred basis points (100 b.p.) for
such month; provided that for each subsequent incremental twenty-five percent
increase above the Specified Percentage, the Contract Rate shall be reduced by
an additional two hundred basis points (200 b.p.) for the succeeding calendar
month, but in no event shall the Contract Rate by less than zero percent (0%).
"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.
"Documents" means all "documents", as such term is defined in the UCC,
----------
now owned or hereafter acquired by any Person, wherever located, including all
bills of lading, dock warrants, dock receipts, warehouse receipts, and other
documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" means and includes each Account which conforms to
------------------
the following criteria: (a) shipment of the merchandise or the rendition of
services has been completed; (b) no return, rejection or repossession of the
merchandise has occurred; (c) merchandise or services shall not have been
rejected or disputed by the Account Debtor and there shall not have been
asserted any offset, defense or counterclaim; (d) continues to be in full
conformity with the representations and warranties made by Companies to Laurus
with respect thereto; (e) Laurus is, and continues to be, satisfied with the
credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than ninety (90) days from invoice date; (h) not more than twenty-five
percent (25%) of the unpaid amount of invoices due from such Account Debtor
remains unpaid more than ninety (90) days from invoice date; (i) is not
evidenced by chattel paper or an instrument of any kind with respect to or in
payment of the Account unless such instrument is duly endorsed to and in
possession of Laurus or represents a check in payment of a Account; (j) the
Account Debtor is located in the 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 Accounts are 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, agent, director, stockholder or Affiliate of any Company;
(m) is payable to a Company; (n) does not arise out of a xxxx and hold sale
prior to shipment and does not arise out of a sale to any Person to which any
Company is indebted; (o) is net of any returns, discounts, claims, credits and
allowances; (p) if the Account arises out of contracts between a Company and the
United States, any state, or any department, agency or instrumentality of any of
them, such Company has so notified Laurus, in writing, prior to the creation of
such Account, and there has been compliance with any governmental notice or
approval requirements, including compliance with the Federal Assignment of
Claims Act; (q) is a good and valid account representing an undisputed bona fide
indebtedness incurred by the Account Debtor therein named, for a fixed sum as
set forth in the invoice relating thereto with respect to an unconditional sale
and delivery upon the stated terms of goods sold by a Company, or work, labor
and/or services rendered by a Company; (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) such Company's right to payment is absolute and not contingent
upon the fulfillment of any condition whatsoever; (u) such Company 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 or
service charges owing to a Company; and (w) is otherwise satisfactory to Laurus
as determined by Laurus in the exercise of its sole discretion.
24
"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.
"Fixtures" means all "fixtures" as such term is defined in the UCC,
--------
now owned or hereafter acquired by any Person.
"Formula Amount" shall have the meaning given to such term 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.
"Guarantor" means and any Person who may guarantee payment of
---------
performance of the whole or any part of the Obligations.
"Guarantor Security Agreements" means all security agreements,
-----------------------------
mortgages, cash collateral deposit letters, pledges and other agreements which
are executed by any Guarantor in favor of Laurus.
"Guaranty" means all agreements to perform all or any portion of the
--------
Obligations on behalf of the Companies.
"Indemnified Person" shall have the meaning given to such term in
------------------
Section 25.
25
"Initial Term" means the Closing Date through the close of business on
------------
the day immediately preceding the third anniversary of the Closing Date, subject
to acceleration at the option of Laurus upon the occurrence of an Event of
Default hereunder or other termination hereunder.
"Instruments" means all "instruments", as such term is defined in the
-----------
UCC, now owned or hereafter acquired by any Person, wherever located, including
all certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
"Intellectual Property" means any and all Licenses, patents, patent
---------------------
registrations, copyrights, copyright registrations, trademarks, trademark
registrations, trade secrets and customer lists.
"Inventory" means all "inventory", as such term is defined in the UCC,
---------
now owned or hereafter acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property that are held by or on
behalf of such Person for sale or lease or are furnished or are to be furnished
under a contract of service or that constitute raw materials, work in process,
finished goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person's business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such term is
-------------------
defined in the UCC, now owned or hereafter acquired by any Person, wherever
located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as such term
-----------------------
is defined in the UCC, now owned or hereafter acquired by any Person, including
rights to payment or performance under a letter of credit, whether or not such
Person, as beneficiary, has demanded or is entitled to demand payment or
performance.
"License" means any rights under any written agreement now or
-------
hereafter acquired by any Person to use any trademark, trademark registration,
copyright, copyright registration or invention for which a patent is in
existence or other license of rights or interests now held or hereafter acquired
by any Person.
"Lien" means any mortgage, security deed, deed of trust, pledge,
----
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" shall have the meaning given to such term in Section 2(a)(i)
-----
and includes all other extensions of credit hereunder and under any Ancillary
Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
condition, operations, assets, business or prospects of Netview, individually,
or the Companies, taken as a whole, (b) any Company's ability to pay or perform
the Obligations in accordance with the terms hereof or any Ancillary Agreement,
(c) the value of the Collateral, the Liens on the Collateral or the priority of
any such Lien or (d) the practical realization of the benefits of Laurus' rights
and remedies under this Agreement and the Ancillary Agreements.
"Maximum Legal Rate" shall have the meaning given to such term in
------------------
Section 5(a)(iv).
"Minimum Borrowing Amount" means $2,000,000, which such aggregate
------------------------
amount shall be evidenced by Minimum Borrowing Notes.
"Minimum Borrowing Notes" means each Secured Convertible Minimum
-----------------------
Borrowing Note which shall be issued in a series, made by the Companies in favor
of Laurus to evidence the Minimum Borrowing Amount.
26
"Netview" means Netview Technologies, Inc., a Texas corporation.
-------
"Notes" means each Minimum Borrowing Note and the Revolving Note made
-----
by the Companies in favor of Laurus in connection with the transactions
contemplated hereby as the same may be amended, modified and supplemented from
time to time.
"Obligations" means all Loans, all advances, debts, liabilities,
-----------
obligations, covenants and duties owing by any Company to Laurus (or any
corporation that directly or indirectly controls or is controlled by or is under
common control with Laurus) of every kind and description (whether or not
evidenced by any note or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including any debt, liability or obligation
owing from any Company to others which Laurus may have obtained by assignment or
otherwise and further including all interest (including interest accruing at the
then applicable rate provided in this Agreement after the maturity of the Loans
and interest accruing at the then applicable rate provided in this Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), charges or
any other payments any Company is required to make by law or otherwise arising
under or as a result of this Agreement and the Ancillary Agreements, together
with all reasonable expenses and reasonable attorneys' fees chargeable to
Companies' account or incurred by Laurus in connection with Companies' account
whether provided for herein or in any Ancillary Agreement.
"Payment Intangibles" means all "payment intangibles" as such term is
-------------------
defined in the UCC, now owned or hereafter acquired by any Person, including, a
General Intangible under which the Account Debtor's principal obligation is a
monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans,
---------------
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with workmen's compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums (i)
not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
applicable Company in conformity with GAAP; (c) Liens in favor of Laurus; (d)
Liens for taxes (i) not yet due or (ii) being diligently contested in good faith
by appropriate proceedings, provided that adequate reserves with respect thereto
are maintained on the books of the applicable Company in conformity with GAAP
provided, that, the Lien shall have no effect on the priority of Liens in favor
-------- ----
of Laurus or the value of the assets in which Laurus has a Lien; (e) Purchase
Money Liens securing Purchase Money Indebtedness to the extent permitted in this
Agreement and (f) Liens specified on Exhibit 2 hereto.
---------
"Person" means any individual, sole proprietorship, partnership,
------
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Prime Rate" means the "base rate" or "prime rate" published in the
----------
Wall Street Journal from time to time. The Prime Rate shall be increased or
decreased as the case may be for each increase or decrease in the Prime Rate in
an amount equal to such increase or decrease in the Prime Rate; each change to
be effective as of the day of the change in such rate.
"Proceeds" means "proceeds", as such term is defined in the UCC and,
--------
in any event, shall include: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Company or any other Person from
time to time with respect to any Collateral; (b) any and all payments (in any
form whatsoever) made or due and payable to any Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of any Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution
27
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 any Company against third parties with
respect to any litigation or dispute concerning any Collateral, including claims
arising out of the loss or nonconformity of, interference with the use of,
defects in, or infringement of rights in, or damage to, Collateral; (e) all
amounts collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and Instruments with respect to Investment
Property and pledged Stock; and (f) any and all other amounts , rights to
payment or other property acquired upon the sale, lease, license, exchange or
other disposition of Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness incurred for
---------------------------
the payment of all or any part of the purchase price of any fixed asset, (b) any
indebtedness incurred for the sole purpose of financing or refinancing all or
any part of the purchase price of any fixed asset, and (c) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
"Purchase Money Lien" means any Lien upon any fixed assets that
-------------------
secures the Purchase Money Indebtedness related thereto but only if such Lien
shall at all times be confined solely to the asset the purchase price of which
was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
"Registration Rights Agreements" means those registration rights
------------------------------
agreements from time to time entered into between eLinear and Laurus, as
amended, modified and supplemented form time to time.
"Revolving Note" means the secured revolving note made by Companies in
--------------
favor of Laurus in the aggregate principal amount of Five Million Dollars
($5,000,000), as the same may be amended, modified and supplemented from time to
time.
"SEC Reports" shall have the meaning given to such term in Section
-----------
12(k).
"Securities" means the Notes and the Warrants being issued by the
----------
Companies to Laurus pursuant to this Agreement and the Ancillary Agreements and
the shares of Common Stock which may be issued pursuant to conversion of such
Notes in whole or in part and/or exercise of such Warrants.
"Senior Management" means Xxxxx Xxxxx, Xxxxx Xxxxxx and Xxxxxxx Xxxxxx
-----------------
Xxxxx.
"Software" means all "software" as such term is defined in the UCC,
--------
now owned or hereafter acquired by any Person, including all computer programs
and all supporting information provided in connection with a transaction related
to any program.
"Stock" means all certificated and uncertificated shares, options,
-----
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934).
"Subsidiary" of any Person means a corporation or other entity whose
----------
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Supporting Obligations" means all "supporting obligations" as such
----------------------
term is defined in the UCC.
"Term" means, as applicable, the Initial Term and any renewal term.
----
28
"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.
"Warrants" has the meaning set forth in the Registration Rights
--------
Agreements.
29
LAURUS MASTER FUND, LTD.
AND
ELINEAR, INC.
NETVIEW TECHNOLOGIES, INC.
NEWBRIDGE TECHNOLOGIES, INC.
DATED: FEBRUARY 23, 2004
TABLE OF CONTENTS
-----------------
PAGE(S)
-------
1. (a) General Definitions . . . . . . . . . . . . . . . . . . . . . . . . .1
(b) Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . .1
(c) Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
(d) Rules of Construction. . . . . . . . . . . . . . . . . . . . . . .1
2. Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3. Repayment of the Loans . . . . . . . . . . . . . . . . . . . . . . . . . .4
4. Procedure for Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
5. Interest and Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(a) Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
(b) Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
(i) Closing Payment. . . . . . . . . . . . . . . . . . . . . .5
(ii) Overadvance Payment. . . . . . . . . . . . . . . . . . . .5
(iii) Financial Information Default. . . . . . . . . . . . . . .5
6. Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7. Representations, Warranties and Covenants Concerning the Collateral. . . .6
8. Payment of Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
9. Collection and Maintenance of Collateral . . . . . . . . . . . . . . . . .9
10. Inspections and Appraisals . . . . . . . . . . . . . . . . . . . . . . . 10
11. Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. Additional Representations and Warranties. . . . . . . . . . . . . . . . 11
13. Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
15. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16. Term of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
17. Termination of Lien. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
19. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
20. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
21. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
i
PAGE(S)
-------
22. Assignment By Laurus . . . . . . . . . . . . . . . . . . . . . . . . . . 21
23. No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . 21
24. Application of Payments. . . . . . . . . . . . . . . . . . . . . . . . . 22
25. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
26. Revival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
27. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
28. Governing Law, Jurisdiction and Waiver of Jury Trial . . . . . . . . . . 23
29. Borrowing Agency Provisions. . . . . . . . . . . . . . . . . . . . . . . 24
30. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . . . . 25
31. Entire Understanding . . . . . . . . . . . . . . . . . . . . . . . . . . 25
32. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
33. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
34. Counterparts; Telecopier Signatures. . . . . . . . . . . . . . . . . . . 26
35. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
36. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ii
