Exhibit 10.1
LAURUS MASTER FUND, LTD.
CREATIVE VISTAS, INC.,
A.C. Technical ACQUISTION CORP.
and
A.C. Technical Systems Ltd.
Dated: September 30, 2004
TABLE OF CONTENTS
Page
[To be updated]
1. (a) General Definitions..............................................1
(b) Accounting Terms............................................1
(c) Other Terms.................................................1
(d) Rules of Construction.......................................1
2. Credit Advances......................................................2
3. Repayment of the Loans...............................................4
4. Procedure for Loans..................................................4
5. Interest and Payments................................................5
(a) Interest....................................................5
(b) Payments....................................................6
6. Security Interest....................................................7
7. Representations, Warranties and Covenants Concerning
the Collateral.................. ...............................8
8. Payment of Accounts.................................................11
9. Collection and Maintenance of Collateral............................12
10. Inspections and Appraisals..........................................12
11. Financial Reporting.................................................12
12. Additional Representations and Warranties...........................13
13. Covenants. ........................................................25
14. Further Assurances..................................................31
15. Power of Attorney...................................................33
16. Term of Agreement...................................................34
17. Termination of Lien.................................................34
18. Events of Default...................................................34
19. Remedies............................................................36
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20. Waivers.............................................................38
21. Expenses............................................................38
22. Assignment By Laurus................................................39
23. No Waiver; Cumulative Remedies......................................39
24. Application of Payments.............................................39
25. Indemnity...........................................................40
26. Revival.............................................................40
27. Notices.............................................................41
28. Governing Law, Jurisdiction and Waiver of Jury......................42
29. Limitation of Liability.............................................43
30. Entire Understanding................................................43
31. Severability........................................................43
32. Captions............................................................44
33. Counterparts; Telecopier Signatures.................................44
34. Construction........................................................44
35. Publicity...........................................................44
LIST OF EXHIBITS
Exhibit A-Borrowing Base Certificate
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Exhibit 10.1
SECURITY AGREEMENT
This Security Agreement is made as of September 30, 2004 by and
among LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"),
CREATIVE VISTAS, INC., an Arizona corporation ("Company"), A.C. TECHNICAL
ACQUISITION CORP., a corporation incorporated under the laws of Ontario
("Acquisition Corp."), and A.C. Technical Systems Ltd., a corporation
incorporated under the laws of Ontario ("AC Tech").
BACKGROUND
WHEREAS, Company has requested that Laurus make advances available
to Company;
WHEREAS, Laurus has agreed to make such advances to Company on the
terms and conditions set forth in this Agreement; and
WHEREAS, contemporaneous with the closing of the transactions
contemplated hereby, the Company and Laurus will enter into and consummate the
transactions contemplated by that certain securities purchase agreement dated as
of the date hereof, pursuant to which the Company will issue to Laurus (i) a
Convertible Term Note in the aggregate principal amount of Four Million Five
Hundred Thousand Dollars ($4,500,000) and (ii) a related option and warrants to
purchase common stock of the Company (as amended, modified or supplemented from
time to time, the "Securities Purchase Agreement").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. (a) General Definitions. Capitalized terms used in this Agreement
shall have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined shall have the meanings customarily given
them in accordance with GAAP and all financial computations shall be computed,
unless specifically provided herein, in accordance with GAAP consistently
applied.
(c) Other Terms. All other terms used in this Agreement and defined
in the UCC, shall have the meaning given therein unless otherwise defined
herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and
Exhibits hereto or expressly identified to this Agreement are incorporated
herein by reference and taken together with this Agreement constitute but a
single agreement. The words "herein", hereof" and "hereunder" or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or
clause contained in this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include the
singular and the plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter. The term
"or" is not exclusive. The term "including" (or any form thereof) shall not be
limiting or exclusive. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations. All
references in this Agreement or in the Schedules, Addenda, Annexes and Exhibits
to this Agreement to sections, schedules, disclosure schedules, exhibits, and
attachments shall refer to the corresponding sections, schedules, disclosure
schedules, exhibits, and attachments of or to this Agreement. All references to
any instruments or agreements, including references to any of this Agreement or
the Ancillary Agreements shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
2. Loans. (a)(i) Subject to the terms and conditions set forth
herein and in the Ancillary Agreements, Laurus may make loans (the "Loans") to
Company from time to time during the Term which, in the aggregate at any time
outstanding, will not exceed the lesser of (x) (I) the Capital Availability
Amount minus (II) such reserves as Laurus may reasonably in its good faith
judgment deem proper and necessary from time to time (including, without
limitation, reserves established to reflect the amount of any Priority Payables)
(the "Reserves") and (y) an amount equal to (I) the 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". Company shall
execute and deliver to Laurus on the Closing Date a Minimum Borrowing Note and a
Revolving Note evidencing the Loans funded on the Closing Date. From time to
time thereafter, Company shall execute and deliver to Laurus immediately prior
to the final funding of each additional $1,000,000 tranche of Loans allocated to
any Minimum Borrowing Note issued by Company to Laurus after the date hereof
(calculated on a cumulative basis for each such tranche) an additional Minimum
Borrowing Note evidencing such tranche, substantially in the form of the Minimum
Borrowing Note delivered by Company to Laurus on the Closing Date.
Notwithstanding anything herein to the contrary, whenever during the Term the
outstanding balance on the Revolving Note should equal or exceed $1,000,000 to
the extent that the outstanding balance on Minimum Borrowing Note shall be less
than $500,000 (the difference of $1,000,000 less the actual balance of the
Minimum Borrowing Note, the "Available Minimum Borrowing"), such portion of the
balance of the Revolving Note as shall equal the Available Minimum Borrowing
shall be deemed to be simultaneously extinguished on the Revolving Note and
transferred to, and evidenced by, the Minimum Borrowing Note.
(ii) Notwithstanding the limitations set forth above, if
requested by Company, Laurus retains the right to lend to Company from time to
time such amounts in excess of such limitations as Laurus may determine in its
sole discretion.
(iii) Company acknowledges that the exercise of Laurus'
discretionary rights hereunder may result during the Term in one or more
increases or decreases in the advance percentages used in determining Accounts
Availability and Company hereby consents to any such increases or decreases
which may limit or restrict advances requested by Company.
(iv) If Company does not pay any interest, fees, costs or
charges to Laurus when due, Company shall thereby be deemed to have requested,
and Laurus is hereby
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authorized at its discretion to make and charge to Company's account, a Loan to
Company as of such date in an amount equal to such unpaid interest, fees, costs
or charges.
(v) If Company at any time fails to perform or observe any of
the covenants contained in this Agreement or any Ancillary Agreement, Laurus
may, but need not, perform or observe such covenant on behalf and in the name,
place and stead of Company (or, at Laurus' option, in Laurus' name) and may, but
need not, take any and all other actions which Laurus may 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 reasonable attorneys' fees and legal expenses) incurred by Laurus in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by Laurus shall be charged to Company's
account as a Loan and added to the Obligations. Solely to facilitate Laurus'
performance or observance of such covenants of Company pursuant to this
Agreement or any Ancillary Agreement, Company hereby irrevocably appoints
Laurus, or Laurus' delegate, acting alone, as Company's attorney in fact (which
appointment is coupled with an interest) with the right (but not the duty) from
time to time to create, prepare, complete, execute, deliver, endorse or file in
the name and on behalf of Company any and all instruments, documents,
assignments, security agreements, financing statements, applications for
insurance and other agreements and writings required to be obtained, executed
delivered or endorsed by Company.
(vi) Laurus will account to Company monthly with a statement of
all Loans and other advances, charges and payments made pursuant to this
Agreement, and such account rendered by Laurus shall be deemed final, binding
and conclusive unless Laurus is notified by Company in writing to the contrary
within sixty (60) days of the date each account was rendered specifying the item
or items to which objection is made.
(vii) During the Term, Company may borrow and prepay Loans in
accordance with the terms and conditions hereof. (viii) If any Eligible Account
is not paid by the Account Debtor within ninety (90) days (or one hundred twenty
(120) days for certain Account Debtors as described in clauses (g) and (h) of
the definition of Eligible Account below) after the date that such Eligible
Account was invoiced or if any Account Debtor asserts a deduction, dispute,
contingency, set-off, or counterclaim with respect to any Eligible Account, (a
"Delinquent Account"), Company shall, at its option, (i) reimburse Laurus for
the amount of the Loans made with respect to such Delinquent Account or (ii)
immediately replace such Delinquent Account with an otherwise Eligible Account.
(b) Following the occurrence of an Event of Default which continues
to exist and the expiration of all applicable notice and grace periods, Laurus
may, at its option, elect to convert the credit facility contemplated hereby to
an accounts receivable purchase facility. Upon such election by Laurus (prior
notice of which Laurus shall provide to Company), Company shall be deemed to
hereby have sold, assigned, transferred, conveyed and delivered to Laurus, and
Laurus shall be deemed to have purchased and received from Company, all right,
title and
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interest of Company in and to all Accounts which shall at any time constitute
Eligible Accounts (the "Receivables Purchase"). All outstanding Loans hereunder
shall be deemed obligations under such accounts receivable purchase facility.
The conversion to an accounts receivable purchase facility in accordance with
the terms hereof shall not be deemed an exercise by Laurus of its secured
creditor rights under Article 9 of the UCC. Immediately following Laurus'
request, Company shall execute all such further documentation as may be required
by Laurus to more fully set forth the accounts receivable purchase facility
herein contemplated, including, without limitation, Laurus' standard form of
accounts receivable purchase agreement and account debtor notification letters,
but Company's failure to enter into any such documentation shall not impair or
affect the Receivables Purchase in any manner whatsoever.
(c) Minimum Borrowing Amount. After a registration statement
registering the Registrable Securities has been declared effective by the SEC,
conversions of the Minimum Borrowing Amount into the Common Stock of Company may
be initiated as set forth in the respective Minimum Borrowing Note. From and
after the date upon which any outstanding principal of the Minimum Borrowing
Amount (as evidenced by the first Minimum Borrowing Note) is converted into
Common Stock (the "First Conversion Date"), (i) corresponding amounts of all
outstanding Loans (not attributable to the then outstanding Minimum Borrowing
Amount) existing on or made after the First Conversion Date will be aggregated
until they reach the sum of $1,000,000 and (ii) Company will issue a new
(serialized) Minimum Borrowing Note to Laurus in respect of such $1,000,000
aggregation, and (iii) Company shall prepare and file a subsequent registration
statement with the SEC to register such subsequent Minimum Borrowing Note
required pursuant to the terms of the Registration Rights Agreement.
3. Repayment of the Loans. Company (a) may prepay the Obligations
from time to time in accordance with the terms and provisions of the Notes (and
Section 16 hereof if such prepayment is due to a termination of this Agreement);
and (b) shall repay on the expiration of the Term (i) the then aggregate
outstanding principal balance of the Loans made by Laurus to Company hereunder
together with accrued and unpaid interest, fees and charges and (ii) all other
amounts owed Laurus under this Agreement and the Ancillary Agreements. Any
payments of principal, interest, fees or any other amounts payable hereunder or
under any Ancillary Agreement shall be made prior to 12:00 noon (New York time)
on the due date thereof in immediately available funds.
4. Procedure for Loans. Company may by written notice request a
borrowing of Loans prior to 12:00 p.m. (New York time) on the Business Day of
its request to incur, on the next business day, a Loan. Together with each
request for a Loan (or at such other intervals as Laurus may request), Company
shall deliver to Laurus a Borrowing Base Certificate substantially in the form
of Exhibit A, which shall be certified as true and correct by the Chief
Executive Officer or Chief Financial Officer of Company together with all
supporting documentation relating thereto. All Loans shall be disbursed from
whichever office or other place Laurus may designate from time to time and shall
be charged to Company's account on Laurus' books. The proceeds of each Loan made
by Laurus shall be made available to Company on the Business Day following the
Business Day so requested in accordance with the terms of this Section 4 by way
of credit to Company's operating account maintained with such bank as Company
designated to Laurus. Any and all Obligations due and owing hereunder may be
charged to Company's account and shall constitute Loans.
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5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(a)(iii) below, Company shall
pay interest at the Contract Rate on the unpaid principal balance of each Loan
until such time as such Loan is collected in full in good funds in dollars of
the United States of America.
(ii) Interest and payments shall be computed on the basis of
actual days elapsed in a year of 360 days. At Laurus' option, Laurus may charge
Company's account for said interest.
(iii) Effective upon the occurrence of any Event of Default and
for so long as any Event of Default shall be continuing, the Contract Rate shall
automatically be increased as set forth in the Notes (such increased rate, the
"Default Rate"), and all outstanding Obligations, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable hereunder
exceed the maximum rate permitted under any applicable law or regulation, as in
effect from time to time (the "Maximum Legal Rate") and if any provision of this
Agreement or any Ancillary Agreement is in contravention of any such law or
regulation, interest payable under this Agreement and each Ancillary Agreement
shall be computed on the basis of the Maximum Legal Rate (so that such interest
will not exceed the Maximum Legal Rate).
(v) Company shall pay principal, interest and all other amounts
payable hereunder, or under any Ancillary Agreement, without any deduction
whatsoever, including any deduction for any set-off, counterclaim, defense,
Taxes restrictions or conditions of any kind. If Company or any Eligible
Subsidiary shall be required by law to deduct or withhold in respect of any
Indemnified Taxes from or in respect of any sum payable hereunder to Laurus,
then:
(A) the sum payable shall be increased by such additional amount
(the "Additional Amount") as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable to
such Additional Amount) Laurus receives an amount equal to the sum it would have
received had no such deductions or withholdings been made;
(B) such Company or Eligible Subsidiary shall make the
appropriate deductions or withholdings and shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law;
(C) within thirty (30) days after the date of such payment, upon
Laurus' request, such Company or Eligible Subsidiary shall furnish to Laurus the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment reasonably satisfactory to Laurus;
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(D) if such Company or Eligible Subsidiary fails to pay amounts
in accordance with paragraph (B) above, such Company or Eligible Subsidiary
shall indemnify Laurus for any incremental Indemnified Taxes that is paid by
Laurus as a result of the failure;
(E) the Company will indemnify Laurus for the full amount of any
Taxes imposed by any jurisdiction and paid by Laurus with respect to any
Additional Amount payable pursuant to paragraph (A) above and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes are correctly asserted; and
(F) the indemnification contemplated in paragraphs (D) and (E)
above shall be made within 30 days from the date Laurus makes written demand
therefor (which demand shall identify the nature and amount of Taxes for which
indemnification is being sought and shall include a copy of the relevant portion
of any written assessment from the Governmental Authority demanding payment of
such Taxes).
(vi) For purposes of disclosure under the Interest Act (Canada),
where interest is calculated pursuant thereto at a rate based upon a year of
360, 365 or 366 days, as the case may be (the "First Rate"), the rate or
percentage of interest on a yearly basis is equivalent to such First Rate
multiplied by the actual number of days in the year divided by 360, 365 or 366,
as the case may be.
(vii) Notwithstanding the provisions of this Section 5 or any other
provision of this Agreement in no event shall the aggregate "interest" (as that
term is defined in Section 347 of the Criminal Code (Canada)) with respect to
any Loans by Laurus result in the receipt by Laurus of interest with respect of
the Obligations at a "criminal rate" (as such term is construed under the
Criminal Code (Canada)). The effective annual rate of interest for such purpose
shall be determined in accordance with generally accepted actuarial practices
and principles over the term of the Loan by Laurus, and in the event of a
dispute, a certificate of a Fellow of the Canadian Institute of Actuaries
appointed by Laurus will be conclusive for the purposes of such determination.
(viii) For greater certainty, unless otherwise specified in this
Agreement or any of the other Ancillary Agreements, as applicable, whenever any
amount is payable under this Agreement or any of the other Ancillary Agreements
by any Eligible Subsidiary as interest or as a fee which requires the
calculation of an amount using a percentage per annum, each party to this
Agreement acknowledges and agrees that such amount shall be calculated as of the
date payment is due without application of the "deemed reinvestment principle"
or the "effective yield method." As an example, when interest is calculated and
payable monthly the rate of interest payable per month is one twelfth (1/12) of
the stated rate of interest per annum.
(b) Payments; Certain Closing Conditions.
(i) Closing/Annual Payments. Upon execution of this
Agreement by Company and Laurus, Company shall pay to Laurus Capital Management,
L.L.C. a closing payment in an amount equal to three and one-half percent
(3.50%) of the Capital Availability
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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) Unused Line Payment. If, during any month, the average
of the aggregate Loans outstanding during such month (the "Average Loan Amount")
do not equal the Capital Availability Amount, Company shall pay to Laurus at the
end of such month a payment (calculated on a per annum basis) in an amount equal
to one half percent (0.50%) of the amount by which the Capital Availability
Amount exceeds the Average Loan Amount. Notwithstanding the foregoing, any such
due and unpaid fee shall come immediately due and payable upon termination of
this Agreement.
(iii) Overadvance Payment. Without affecting Laurus' rights
hereunder in the event the Loans exceed the Formula Amount (each such event, an
"Overadvance"), all such Overadvances shall bear interest at an annual rate
equal to one and one-half percent (1.50%) of the amount of such Overadvances for
each month or portion thereof such amounts shall be outstanding and in excess of
the Formula Amount. Such interest rate shall not exceed the Maximum Legal Rate.
(iv) Financial Information Default. Without affecting
Laurus' other rights and remedies, in the event Company fails to deliver the
financial information required by Section 11 on or before the date required by
this Agreement, Company shall pay Laurus a fee in the amount of $250.00 per week
(or portion thereof) for each such failure until such failure is cured to
Laurus' reasonable satisfaction or waived in writing by Laurus. Such fee shall
be charged to Company's account upon the occurrence of each such failure.
(v) Expenses. The Company shall reimburse Laurus for its
reasonable expenses (including legal fees and expenses) incurred in connection
with the preparation and negotiation of this Agreement and the Ancillary
Agreements (as hereinafter defined), and expenses incurred in connection with
Laurus' due diligence review of the Company and its Subsidiaries and all related
matters. Amounts required to be paid under this Section 5(b)(v), together with
amounts required to be paid pursuant to Section 2(c) of the Securities Purchase
Agreement (as defined below), will be paid on the Closing Date and shall be
$52,500 (plus any amounts related to (x) fees and expenses in respect of local
Canadian counsel for Laurus and (y) registration and filing expenses in
connection with the granting and perfection of Laurus' security interests) for
such expenses (less $20,000 previously paid to Laurus).
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations,
each of Company and each Eligible Subsidiary hereby assigns, pledges and grants
to Laurus a continuing security interest in and Lien upon all of the Collateral.
All of Company's and each Eligible Subsidiary's Books and Records relating to
the Collateral shall, until delivered to or removed by Laurus, be kept by
Company and each Eligible Subsidiary, as the case may be, in trust for Laurus
until all Obligations have been paid in full. Each confirmatory assignment
schedule or other form of assignment hereafter executed by Company and each
Eligible Subsidiary shall be deemed to include the foregoing grant, whether or
not the same appears therein.
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(b) Company and each Eligible Subsidiary hereby (i) authorizes
Laurus to file any financing statements, continuation statements or amendments
thereto that (x) indicate the Collateral (1) as all assets and personal property
of Company or such Eligible Subsidiary, as the case may be, or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the UCC of such jurisdiction, or (2) as
being of an equal or lesser scope or with greater detail, and (y) contain any
other information required by Part 5 of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement, continuation statement
or amendment and (ii) ratifies its authorization for Laurus to have filed any
initial financial statements, or amendments thereto if filed prior to the date
hereof. Each of Company and each Eligible Subsidiary acknowledges that it is not
authorized to file any financing statement or amendment, discharge 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, which consent shall not be unreasonably withheld,
delayed or conditioned, subject to Company's and such Eligible Subsidiary's
rights under Section 9-509(d)(2) of the UCC.
(c) Each of Company and each Eligible Subsidiary hereby grants
to Laurus an irrevocable, non-exclusive license (exercisable upon the
termination of this Agreement due to an occurrence and during the continuance of
an Event of Default, in each case, following the expiration of applicable notice
or grace periods, without payment of royalty or other compensation to Company or
such Eligible Subsidiary, as the case may be) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by Company and/or such Eligible Subsidiary, and wherever the same may
be located, and including in such license access to all media in which any of
the licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof,
and represents, promises and agrees that any such license or sublicense is not
and will not be in conflict with the contractual or commercial rights of any
third Person; provided, that such license will terminate on the earlier of (i)
termination of this Agreement and the payment in full of all Obligations or (ii)
the cure of such Event of Default.
7. Representations, Warranties and Covenants Concerning the
Collateral. Each of Company and each Eligible Subsidiary represents, warrants
(each of which such representations and warranties shall be deemed repeated upon
the making of each request for a Loan and made as of the time of each and every
Loan hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by Company and/or an
Eligible Subsidiary, as the case may be, or such entity has the right to use
such Collateral, free and clear of all Liens (including any claims of
infringement) except those in Laurus' favor and Permitted Liens and (ii) is not
subject to any agreement prohibiting the granting of a Lien or requiring notice
of or consent to the granting of a Lien.
(b) neither the Company nor any Eligible Subsidiary shall
encumber, mortgage, pledge, assign or grant any Lien in any Collateral or any of
Company's or any Eligible Subsidiary other assets to anyone other than Laurus
and except for Permitted Liens.
(c) the Liens granted pursuant to this Agreement, upon
completion of the filings and other actions listed on Schedule 7(c) (which, in
the case of all filings and other documents
8
referred to in said Schedule, have been delivered to Laurus in duly executed
form) constitute valid perfected security interests in all of the Collateral in
favor of Laurus as security for the prompt and complete payment and performance
of the Obligations, enforceable in accordance with the terms hereof against any
and all creditors of and any purchasers from Company and the Eligible
Subsidiaries and such security interest is prior to all other Liens in existence
on the date hereof.
(d) no effective security agreement, mortgage, deed of trust,
financing statement, equivalent security or Lien instrument or continuation
statement covering all or any part of the Collateral is or will be on file or of
record in any public office, except those relating to Permitted Liens.
(e) neither Company nor any Eligible Subsidiary shall dispose of
any of the Collateral whether by sale, lease or otherwise except for the sale of
Inventory in the ordinary course of business and for the disposition or transfer
in the ordinary course of business during any fiscal year of obsolete and
worn-out Equipment having an aggregate fair market value of not more than
$50,000 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 are used to repay Loans or to pay general corporate
expenses, or (ii) following the occurrence of an Event of Default which
continues to exist the proceeds of which are remitted to Laurus to be held as
cash collateral for the Obligations.
(f) each of Company and each Eligible Subsidiary shall use its
commercially reasonable efforts to defend the right, title and interest of
Laurus in and to the Collateral against the claims and demands of all Persons
whomsoever, and take such actions, including (i) all actions reasonably
necessary to grant Laurus "control" of any Investment Property, Deposit
Accounts, Letter-of-Credit Rights or electronic Chattel Paper owned by Company
and each Eligible Subsidiary, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus' request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by Company and each Eligible Subsidiary (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank), (iii) notification of Laurus' interest in Collateral at Laurus'
request, and (iv) the institution of litigation against third parties as shall
be prudent in order to protect and preserve Company's, each Eligible
Subsidiary's and/or Laurus' respective and several interests in the Collateral.
(g) each of Company and each Eligible Subsidiary shall promptly,
and in any event within ten (10) 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 of Company and/or each
Eligible Subsidiary, as the case may be, shall enter into a supplement to this
Agreement granting to Laurus a Lien in such commercial tort claim.
(h) each of Company and each Eligible Subsidiary shall place
notations upon its Books and Records and any financial statement of Company and
each Eligible Subsidiary, as the case may be, to disclose Laurus' Lien in the
Collateral.
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(i) If either Company and/or ay Eligible Subsidiary retains
possession of any Chattel Paper or Instrument with Laurus' consent, upon Laurus'
request such Chattel Paper and Instruments shall be marked with the following
legend: "This writing and obligations evidenced or secured hereby are subject to
the security interest of Laurus Master Fund, Ltd."
(j) each of Company and each Eligible Subsidiary shall perform
in a reasonable time all other steps reasonably requested by Laurus to create
and maintain in Laurus' favor a valid perfected first Lien in all Collateral
subject only to Permitted Liens.
(k) each of Company and each Eligible Subsidiary shall notify
Laurus promptly and in any event within five (5) Business Days after obtaining
knowledge thereof (i) of any event or circumstance that to Company's or any
Eligible Subsidiary's knowledge would cause Laurus to consider any then existing
Account which had previously been designated by Laurus as an Eligible Account as
no longer constituting an Eligible Account; (ii) of any material delay in
Company's or any Eligible Subsidiary's performance of any of its obligations to
any Account Debtor with respect to any Account at any time considered an
Eligible Account by Laurus (each, an "Eligible Account Debtor"); (iii) of any
assertion by any Account Debtor of any material claims, offsets or
counterclaims; (iv) of any allowances, credits and/or monies granted by Company
or any Eligible Subsidiary 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 material loss, damage or
destruction of any of the Collateral.
(l) All Eligible Accounts (i) which are billed on a construction
completion basis but not payable until the project is completed, represent
complete bona fide transactions which require no further act under any
circumstances on Company's or any Eligible Subsidiary's part to make such
Accounts payable by the Account Debtors, (ii) are not subject to any present,
future contingent offsets or counterclaims, and (iii) do not represent xxxx and
hold sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of either Company
or any Eligible Subsidiary. Neither Company nor any Eligible Subsidiary has
made, and neither Company nor any Eligible Subsidiary will make, any agreement
with any Eligible 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 Eligible Account Debtor from liability therefor, or any
deduction therefrom except a discount or allowance for prompt or early payment
allowed by Company or any Eligible Subsidiary in the ordinary course of its
business consistent with historical practice and as previously disclosed to
Laurus in writing.
(m) each of Company and each Eligible Subsidiary shall keep and
maintain its Equipment in operating condition, except for ordinary wear and
tear, and shall make all necessary repairs and replacements thereof so that the
value and operating efficiency shall at all times be maintained and preserved.
Neither Company nor any Eligible Subsidiary shall permit any such items to
become a Fixture to real estate or accessions to other personal property.
(n) each of Company and each Eligible Subsidiary shall maintain
and keep all of its Books and Records concerning the Collateral at such person's
executive offices listed in Schedule 12(bb).
10
(o) each of Company and each Eligible Subsidiary shall maintain
and keep the tangible Collateral at the addresses listed in Schedule 12(bb),
provided, that each of Company and/or any such Eligible Subsidiary may change
such locations or open a new location, provided that Company or any such
Eligible Subsidiary, as the case may be, provides Laurus at least thirty (30)
days prior written notice of such changes or new location and (ii) prior to such
change or opening of a new location where Collateral having a value of more than
$75,000 will be located, Company and/or any such Eligible Subsidiary, as the
case may be, executes and delivers to Laurus such agreements as Laurus may
reasonably request, including landlord agreements, mortgagee agreements and
warehouse agreements, each in form and substance satisfactory to Laurus.
(p) Schedule 7(p) lists all banks and other financial
institutions at which Company and each Eligible Subsidiary maintains deposits
and/or other accounts, and such Schedule correctly identifies the name, address
and telephone number of each such depository, the name in which the account is
held, a description of the purpose of the account, and the complete account
number. Neither the Company nor any Eligible Subsidiary shall establish any
depository or other bank account of any with any financial institution (other
than the accounts set forth on Schedule 7(p)) without Laurus' prior written
consent.
8. Payment of Accounts.
(a) Each of Company and each Eligible Subsidiary will
irrevocably direct all of its present and future Account Debtors and other
Persons obligated to make payments constituting Collateral to make such payments
directly to the lockboxes maintained by Company and each Eligible Subsidiary
(the "Lockboxes") with North Fork Bank, the Royal Bank of Canada or such other
financial institution accepted by Laurus in writing as may be selected by
Company and/or any Eligible Subsidiary (collectively, the "Lockbox Bank")
pursuant to the terms of the documentation acceptable to Laurus. On or prior to
the Closing Date, each of Company and each Eligible Subsidiary shall and shall
cause the Lockbox Bank to enter into all such documentation acceptable to Laurus
pursuant to which, among other things, the Lockbox Bank agrees to: (a) sweep the
Lockbox on a daily basis and deposit all checks received therein to an account
designated by Laurus in writing and (b) comply only with the instructions or
other directions of Laurus concerning the Lockbox. All of Company's and each
Eligible Subsidiary's invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment of any
Account of Company or any Eligible Subsidiary or any other amount constituting
Collateral shall conspicuously direct that all payments be made to the Lockbox
or such other address as Laurus may direct in writing. If, notwithstanding the
instructions to Account Debtors, Company or any Eligible Subsidiary receives any
payments, Company or such Eligible Subsidiary, as the case may be, shall
immediately remit such payments to Laurus in their original form with all
necessary endorsements. Until so remitted, Company and each Eligible Subsidiary
shall hold all such payments in trust for and as the property of Laurus and
shall not commingle such payments with any of its other funds or property.
(b) At Laurus' election, following the occurrence of an Event of
Default which is continuing and the expiration of all applicable notice and cure
periods, Laurus may notify each of Company's and each Eligible Subsidiary's
Account Debtors of Laurus' security interest in the
11
Accounts, collect them directly and charge the collection costs and expenses
thereof to Company's and the Eligible Subsidiaries joint and several account.
9. Collection and Maintenance of Collateral.
(a) Laurus may verify Company's and each Eligible Subsidiary's
Accounts from time to time, but not more often than once every three (3) months
unless an Event of Default has occurred and is continuing, utilizing an audit
control company or any other agent of Laurus.
(b) Proceeds of Accounts received by Laurus will be deemed
received on the Business Day after Laurus' receipt of such proceeds in good
funds in dollars of the United States of America in Laurus' account. Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall be
deemed received on the next Business Day.
(c) As Laurus receives the proceeds of Accounts of Company or
any Eligible Subsidiary, it shall (i) apply such proceeds, as required, to
amounts outstanding under the Notes, and (ii) remit all such remaining proceeds
(net of interest, fees and other amounts then due and owing to Laurus hereunder)
to Company and/or any such Eligible Subsidiary upon request (but no more often
than twice a week). Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default, Laurus, at its option, may (a)
apply such proceeds to the Obligations in such order as Laurus shall elect, (b)
hold all such proceeds as cash collateral for the Obligations and each of
Company and each Eligible Subsidiary hereby grants to Laurus a security interest
in such cash collateral amounts as security for the Obligations and/or (c) do
any combination of the foregoing.
10. Inspections and Appraisals. During normal business hours,
Laurus, and/or any agent of Laurus shall have the right upon reasonable advance
written or email notice to (a) have access to, visit, inspect, review, evaluate
and make physical verification and appraisals of each of Company's and each
Eligible Subsidiary's properties and the Collateral, (b) inspect, audit and copy
and make extracts from Company's and each Eligible Subsidiary's Books and
Records, including management letters prepared by independent accountants, and
(c) discuss with Company's and each Eligible Subsidiary's principal officers,
and independent accountants, Company's and each Eligible Subsidiary's business,
assets, liabilities, financial condition, results of operations and business
prospects. Each of Company and each Eligible Subsidiary will deliver to Laurus
any instrument necessary for Laurus to obtain records from any service bureau
maintaining records for Company and such Eligible Subsidiary. If any internally
prepared financial information, including that required under this Section is
unsatisfactory in any manner to Laurus, Laurus may request that the Accountants
review the same.
11. Financial Reporting. During the Term, Company will deliver,
or cause to be delivered, to Laurus each of the following, which shall be in
form and detail acceptable to Laurus:
(a) To the extent not included in the Company's applicable
annual report filed with the SEC (as defined below), as soon as available, and
in any event within ninety (90) days after the end of each fiscal year of
Company, Company's audited financial statements with a report of independent
certified public accountants of recognized standing selected by Company
12
and acceptable to Laurus (the "Accountants"), which annual financial statements
shall include Company's balance sheet as at the end of such fiscal year and the
related statements of Company's income, retained earnings and cash flows for the
fiscal year then ended, prepared, if Laurus so requests, on a consolidating and
consolidated basis to include all Subsidiaries and Affiliates, all in reasonable
detail and prepared in accordance with GAAP, together with (i) if and when
available, copies of any management letters prepared by such accountants; and
(ii) a certificate of Company's President, Chief Executive Officer or Chief
Financial Officer stating that such financial statements have been prepared in
accordance with GAAP and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so, stating in
reasonable detail the facts with respect thereto;
(b) To the extent not included in Company's applicable quarterly
report filed with the SEC, as soon as available and in any event within 60 days
after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of Company as at the end
of and for such quarter and for the year to date period then ended, prepared, if
Laurus so requests, on a consolidating and consolidated basis to include all
Subsidiaries and Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous year,
all prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of Company's President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto;
(c) Within thirty (30) days after the end of each month (or more
frequently if Laurus so requests), agings of Company's and each Eligible
Subsidiary's Accounts, unaudited trial balances and their accounts payable and a
calculation of Company's and each Eligible Subsidiary's Accounts, Eligible
Accounts, provided, however, that if Laurus shall request the foregoing
information more often than as set forth in the immediately preceding clause,
Company and/or any Eligible Subsidiary shall have thirty (30) days from each
such request to comply with Laurus' demand; and
(d) Promptly after (i) the filing thereof, copies of Company's
most recent registration statements and annual, quarterly, monthly or other
regular reports which Company files with the Securities and Exchange Commission
(the "SEC"), and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as Company shall send to its stockholders.
12. Additional Representations and Warranties. Company (together
with each Eligible Subsidiary party hereto on the date hereof) hereby represents
and warrants to Laurus as follows (which representations and warranties are
supplemented by, and subject to, Company's filings under the Securities Exchange
Act of 1934 (collectively, the "Exchange Act Filings"), copies of which have
been provided to Laurus:
(a) Organization, Good Standing and Qualification. Each of
Company and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under
13
the laws of its jurisdiction of organization. Each of Company and each of its
Subsidiaries has the power (corporate and otherwise) and authority to own and
operate its properties and assets, to execute and deliver this Agreement and the
Ancillary Agreements, to issue and sell the Notes and the shares of Common Stock
issuable upon conversion of the Minimum Borrowing Note (the "Note Shares"), to
issue and sell the Option and the shares of Common Stock issuable upon
conversion of the Option (the "Option Shares"), to issue and sell the Warrants
and the shares of Common Stock issuable upon conversion of the Warrants (the
"Warrant Shares"), and to carry out the provisions of this Agreement and the
Ancillary Agreements and to carry on its business as presently conducted. Each
of Company and each of its Subsidiaries is duly qualified and is authorized to
do business and is in good standing as a foreign corporation in all
jurisdictions, except for those jurisdictions in which the failure to do so has
not had, or could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Subsidiaries. Each direct and indirect Subsidiary of
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 12(b).
(c) Capitalization; Voting Rights.
The authorized capital stock of the Company, as of the date hereof
consists of 100,050,000 shares, of which 100,000,000 are shares of Common Stock,
no par value per share, 10,000,000shares of which are issued and outstanding,
and 50,000 are shares of preferred stock, no par value per share of which 0
shares are issued and outstanding. The authorized capital stock of each
Subsidiary of the Company is set forth on Schedule 12 (c).
(i) Except as disclosed on Schedule 12(c), other than: (i)
the shares reserved for issuance under Company's stock option plans; and (ii)
shares which may be issued pursuant to this Agreement and the Ancillary
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from Company of any of its securities. Except as
disclosed on Schedule 12(c), neither the offer, issuance or sale of any of the
Notes, the Option or the Warrants, or the issuance of any of the Note Shares,
the Option Shares or the Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(ii) All issued and outstanding shares of Company's Common
Stock: (i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(iii) The rights, preferences, privileges and restrictions
of the shares of the Common Stock are as stated in Company's Certificate of
Incorporation (the "Charter"). The Note Shares, the Option Shares and the
Warrant Shares have been duly and validly reserved for issuance. When issued in
compliance with the provisions of this Agreement and Company's
14
Charter, the Securities will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at the
time a transfer is proposed.
(d) Authorization; Binding Obligations. All corporate action on
the part of each of Company and each of its Subsidiaries, their respective
officers and directors necessary for the authorization of this Agreement and the
Ancillary Agreements, the performance of all obligations of Company and each of
its Subsidiaries hereunder and under the Ancillary Agreements on the Closing
Date and, the authorization, sale, issuance and delivery of the Notes, the
Option and the Warrant has been taken or will be taken prior to the Closing
Date. This Agreement and the Ancillary Agreements, when executed and delivered
and to the extent it is a party thereto, will be valid and binding obligations
of each of Company and each of its Subsidiaries enforceable in accordance with
their terms, except:
(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(ii) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
and the issuance of the Option and the subsequent exercise of the Option for
Option Shares are not and will not be subject to any preemptive rights or rights
of first refusal that have not been properly waived or complied with.
(e) Liabilities. Neither the Company nor any of its Subsidiaries
has any contingent liabilities, except current liabilities incurred in the
ordinary course of business, liabilities disclosed in the Financial Statements
(as defined below) and liabilities set forth on Schedule 12(e).
(f) Agreements; Action. Except as set forth on Schedule 12(f) or
as disclosed in any Exchange Act Filings:
(i) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company or any of its Subsidiaries is a party or to its knowledge by which
it is bound which may involve: (i) obligations (contingent or otherwise) of, or
payments to, the Company or any of its Subsidiaries in excess of $100,000 (other
than obligations of, or payments to, the Company arising from purchase or sale
agreements entered into in the ordinary course of business); or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from the Company or
15
any of its Subsidiaries (other than licenses arising from the purchase of "off
the shelf" or other standard products); or (iii) provisions restricting the
development, manufacture or distribution of the Company's or any of its
Subsidiaries' products or services; or (iv) indemnification by the Company or
any of its Subsidiaries with respect to infringements of proprietary rights.
(ii) Since December 31, 2003, neither the Company nor any of
its Subsidiaries has: (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock; (ii) incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually in excess of
$100,000 or, in the case of indebtedness and/or liabilities individually less
than $100,000, in excess of $200,000 in the aggregate; (iii) made any loans or
advances to any person not in excess, individually or in the aggregate, of
$100,000, other than ordinary course advances for travel expenses; or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(iii) For the purposes of subsections (i) and (ii) of this
Section 12(f) above, all indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same person or
entity (including persons or entities the Company has reason to believe are
affiliated therewith or with any Subsidiary thereof) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsections.
(g) Obligations to Related Parties. Except as set forth on
Schedule 12(g), there are no obligations of Company or any of its Subsidiaries
to officers, directors, stockholders or employees of Company or any of its
Subsidiaries other than:
(i) for payment of salary for services rendered and for
bonus payments;
(ii) reimbursement for reasonable expenses incurred on
behalf of the Company or any of its Subsidiaries;
(iii) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of the Company); and
(iv) obligations listed in the Company's Financial
Statements or disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 12(g), to the best
of Company's knowledge, none of the officers, directors, key employees or
stockholders of Company, any of its Subsidiaries or any members of their
immediate families, are indebted to Company or any of their Subsidiaries,
individually or in the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any firm or corporation with which Company or any
of its Subsidiaries is affiliated or with which Company or any of its
Subsidiaries has a business relationship, or any firm or corporation which
competes with Company or any of its Subsidiaries, other than passive investments
in publicly traded companies (representing less than one percent
16
(1%) of such company) which may compete with Company or any of its Subsidiaries.
Except as described above, no officer, director or stockholder, or any member of
their immediate families, is, directly or indirectly, interested in any material
contract with Company or any of its Subsidiaries and no agreements,
understandings or proposed transactions are contemplated between Company or any
of its Subsidiaries and any such person. Except as set forth on Schedule 12(g),
neither Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
(h) Changes. Since December 31, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Ancillary Agreements, there has not been:
(i) any change in the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company or any of its Subsidiaries, which individually or in the aggregate has
had, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect;
(ii) any resignation or termination of any officer, key
employee or group of employees of the Company or any of its Subsidiaries;
(iii) any material change, except in the ordinary course of
business, in the contingent obligations of the Company or any of its
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or otherwise;
(iv) any damage, destruction or loss, whether or not covered
by insurance, has had, or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect;
(v) any waiver by the Company or any of its Subsidiaries of
a valuable right or of a material debt owed to it;
(vi) any direct or indirect material loans made by the
Company or any of its Subsidiaries to any stockholder, employee, officer or
director of the Company or any of its Subsidiaries, other than advances made in
the ordinary course of business and a certain note payable for the purchase of
shares of A.C. Technical Systems Ltd. to The Navaratnam Trust and The Xxxxx
Trust issued on the date hereof;
(vii) any material change in any compensation arrangement or
agreement with any key employee, officer, director or stockholder of the Company
or any of its Subsidiaries;
(viii) any declaration or payment of any dividend or other
distribution of the assets of the Company or any of its Subsidiaries;
17
(ix) any labor organization activity related to the Company
or any of its Subsidiaries;
(x) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Subsidiaries in excess of a principal
amount of $150,000 in the aggregate, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(xi) any sale, assignment or transfer of any material
patents, trademarks, copyrights, trade secrets or other intangible assets owned
by the Company or any of its Subsidiaries other than in the ordinary course of
business;
(xii) any change in any material agreement to which the
Company or any of its Subsidiaries is a party or by which either the Company or
any of its Subsidiaries is bound which either individually or in the aggregate
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(xiii) any other event or condition of any character that,
either individually or in the aggregate, has had, or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
or
(xiv) any arrangement or commitment by the Company or any of
its Subsidiaries to do any of the acts described in subsection (i) through
(xiii) of this Section 12(h).
(i) Title to Properties and Assets; Liens, Etc. Except as set
forth on Schedule 12(i), each of Company and each of its Subsidiaries has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than:
(i) those resulting from taxes which have not yet become
delinquent;
(ii) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of Company or any of its Subsidiaries; and
(iii) those that have otherwise arisen in the ordinary
course of business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by Company or any of its Subsidiaries are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as set forth on Schedule 12(i),
each of Company and each of its Subsidiaries are in compliance with all material
terms of each lease to which it is a party or is otherwise bound.
(j) Intellectual Property.
18
(i) Each of Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all Intellectual Property necessary for its
business as now conducted and to Company's knowledge as presently proposed to be
conducted, without any known infringement of the rights of others. Except as set
forth on Schedule 12(j)(i), there are no outstanding options, licenses or
agreements of any kind relating to such Intellectual Property of Company or any
of its Subsidiaries, nor is Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with respect to the
Intellectual Property of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
(ii) Neither Company nor any of its Subsidiaries has
received any communications alleging that Company or any of its Subsidiaries has
violated any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity, nor
is Company aware of any basis therefor.
(iii) Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by Company or any of its Subsidiaries,
except for inventions, trade secrets or proprietary information that have been
rightfully assigned to Company or any such Subsidiary.
(k) Compliance with Other Instruments. Neither Company nor any
of its Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Ancillary Agreements to which it is a party, and the issuance and sale of
the Note by Company and the other Securities by Company each pursuant hereto and
thereto, will not, with or without the passage of time or giving of notice,
result in any such material violation, or be in conflict with or constitute a
default under any such term or provision, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of Company or any of its Subsidiaries or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to Company or any of its Subsidiaries, its business or
operations or any of its assets or properties.
(l) Litigation. Except as set forth on Schedule 12(l), there is
no action, suit, proceeding or investigation pending or, to Company's knowledge,
currently threatened against Company or any of its Subsidiaries that prevents
Company or any of its Subsidiaries from entering into this Agreement or the
Ancillary Agreements, or from consummating the transactions contemplated hereby
or thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, or could result in
any change in the current equity ownership of Company or any of its
Subsidiaries, nor is Company aware that there is any basis to assert any of the
foregoing. Neither Company nor any of its Subsidiaries is a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit,
19
proceeding or investigation by Company or any of its Subsidiaries currently
pending or which Company or any of its Subsidiaries intends to initiate.
(m) Tax Returns and Payments. Each of Company and each of its
Subsidiaries has timely filed or received an extension to file all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be due
and payable on such returns, any assessments imposed, and all other taxes due
and payable by each of Company and each of its Subsidiaries on or before the
Closing Date, have been paid or will be paid prior to the time they become
delinquent unless the Company is contesting such taxes in good faith. Except as
set forth on Schedule 12(m), neither Company nor any of its Subsidiaries has
been advised:
(i) that any of its returns, federal, state, provincial or
other, have been or are being audited as of the date hereof; or
(ii) of any deficiency in assessment or proposed judgment to
its federal, state, provincial or other taxes.
Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
(n) Employees. Except as set forth on Schedule 12(n), neither
Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to Company's knowledge, threatened with respect to Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
12(n), neither Company nor any of its Subsidiaries is a party to or bound by any
currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To Company's knowledge, no employee of
Company or any of its Subsidiaries, nor any consultant with whom Company or any
of its Subsidiaries has contracted, is in violation of any term of any
employment contract, proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract
with, Company or any of its Subsidiaries because of the nature of the business
to be conducted by Company or any of its Subsidiaries; and to Company's
knowledge the continued employment by Company and its Subsidiaries of their
respective present employees, and the performance of Company's and its
Subsidiaries contracts with its independent contractors, will not result in any
such violation. Company is not aware that any of its or any of its Subsidiaries'
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to Company or any of its Subsidiaries. Neither Company nor any of
its Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment agreement
with Company or any of its Subsidiaries, no employee of Company or any of its
Subsidiaries has been granted the right to continued employment by Company or
any of its Subsidiaries or to any material compensation following termination of
employment with Company or any of its Subsidiaries. Except as set
20
forth on Schedule 12(n), neither Company nor any of its Subsidiaries is aware
that any officer, key employee or group of employees intends to terminate his,
her or their employment with Company or any of its Subsidiaries, nor does
Company or any of its Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of employees. With respect to
any Canadian Pension Plan: (i) the Canadian Pension Plans are duly registered
under all applicable Federal and Provincial pension benefits legislation, (ii)
all statutory obligations of Company or any Eligible Subsidiary required to be
performed in connection with the Canadian Pension Plans or the funding
agreements therefor have been performed in a timely fashion and there are no
outstanding disputes concerning the assets held pursuant to any such funding
agreement, (iii) all contributions or premiums required to be made by Company or
any Eligible Subsidiary to the Canadian Pension Plans have been made in a timely
fashion in accordance with the terms of the Canadian Pension Plans and
applicable laws and regulations, (iv) all employee contributions to the Canadian
Pension Plans required to be made by way of authorized payroll deduction have
been properly withheld by Company or any Eligible Subsidiary and fully paid into
the Canadian Pension Plans in a timely fashion, (v) all reports and disclosures
relating to the Canadian Pension Plans required by any applicable laws or
regulations have been filed or distributed in a timely fashion, (vi) there have
been no improper withdrawals, or applications of, the assets of any of the
Pension Plans, (vii) no amount is owing by any of the Canadian Pension Plans
under the Income Tax Act (Canada) or any provincial taxation statute, (viii) the
Canadian Pension Plans are fully funded in accordance with applicable law both
on an ongoing basis and on a solvency basis (using actuarial assumptions and
methods which are consistent with the valuations last filed with the applicable
governmental authorities and which are consistent with generally accepted
actuarial principles), and (ix) none of the Canadian Pension Plans is the
subject of an investigation, proceeding, action or claim and there exists no
state of facts which after notice or lapse of time or both could reasonably be
expected to give rise to any such proceeding, action or claim. Company and each
Eligible Subsidiary shall (i) cause the Canadian Pension Plans to be
administered in accordance with the requirements of the applicable pension plan
texts, funding agreements, the Income Tax Act (Canada) and applicable provincial
pension benefits legislation, (ii) deliver to Laurus an undertaking of the
funding agent for such Canadian Pension Plan stating that the funding agent will
notify Laurus within seven (7) days of the failure of Company or any Eligible
Subsidiary to make any required contribution to each Canadian Pension Plan,
(iii) not accept payment of any amount from any Canadian Pension Plan (other
than amounts on account of expenses reasonably incurred in connection with the
operations of such Canadian Pension Plan) without the prior written consent of
Laurus, (iv) not terminate, or cause to be terminated, any Canadian Pension
Plan, if such plan would have a solvency deficiency on termination, (v) shall
promptly provide Laurus with any documentation relating to the Canadian Pension
Plans as Laurus may reasonably request, and (vi) shall promptly notify Laurus of
(A) a material increase in the liabilities of any Canadian Pension Plan, (B) the
establishment of a new registered pension plan or (C) the commencement of
payments of contributions to any Canadian Pension Plan to which Company or any
Eligible Subsidiary had not previously been paying or contributing.
(o) Registration Rights and Voting Rights. Except (i) in
connection with this Agreement and the Ancillary Agreements, (ii) as set forth
on Schedule 12(o) and (iii) as disclosed in Exchange Act Filings, neither
Company nor any of its Subsidiaries is presently not under any obligation, and
has not granted any rights, to register any of Company's or any such
Subsidiary's presently outstanding securities or any of its securities that may
hereafter be issued.
21
Except as set forth on Schedule 12(o) and except as disclosed in Exchange Act
Filings, to Company's knowledge, no stockholder of Company or any of its
Subsidiaries has entered into any agreement with respect to the voting of equity
securities of Company or any of its Subsidiaries.
(p) Compliance with Laws; Permits. Neither Company nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
Ancillary Agreement and the issuance of any of the Securities, except such as
has been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing Date, as will be filed in a timely manner. Each
of Company and each of its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
(q) Environmental and Safety Laws. Neither Company is nor any of
its Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 12(q), no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by Company or any of its Subsidiaries or, to
Company's knowledge, by any other person or entity on any property owned, leased
or used by Company or any of its Subsidiaries. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean:
(i) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal and/or foreign
laws and regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; and
(ii) any petroleum products or nuclear materials.
(r) Valid Offering. Assuming the accuracy of the representations
and warranties of Laurus contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
22
(s) Full Disclosure. Each of Company and each of its
Subsidiaries has provided Laurus with all information requested by Laurus in
connection with its decision to purchase the Notes and the Warrants, including
all information Company believes is reasonably necessary to make such investment
decision. Neither this Agreement, the Ancillary Agreements nor the exhibits and
schedules hereto and thereto nor any other document delivered by Company or any
of its Subsidiaries to Laurus or its attorneys or agents in connection herewith
or therewith or with the transactions contemplated hereby or thereby, contain
any untrue statement of a material fact nor omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they are made, not misleading.
(t) Insurance. Each of Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which Company believes are customary for companies similarly situated
to Company and its Subsidiaries in the same or similar business.
(u) SEC Reports; Financial Statements. Except as set forth on
Schedule 12(u), Company and each of its Subsidiaries has filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act since May 2001. AC Tech has furnished Laurus with copies of: AC
Tech's audited balance sheet, statement of retained earnings, statement of
operations and statement of cash flows for the fiscal years ended December 31,
2002 and December 31, 2003 (collectively, the "Financial Statements"). Except as
set forth on Schedule 12(u), each Financial Statement was, at the time of its
filing, in substantial compliance with the requirements of its respective form
and none of the Financial Statements, nor the financial statements (and the
notes thereto) included in the Financial Statements, as of their respective
filing dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Such Financial Statements have been prepared in accordance with
generally accepted accounting principles (x) in the case of the period ended
December 31, 2002, as in effect in Canada and (y) in the case of the period
ended December 31, 2003, as in effect in the United States of America , in each
case, applied on a consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed) and fairly present in all material
respects the financial condition, the results of operations, the retained
earnings and the cash flows of AC Tech, as of, and for, the periods presented in
each such Financial Statements.
(v) Listing. The Company's Common Stock is listed for trading on
the National Association of Securities Dealers Over the Counter Bulletin Board
("NASD OTCBB") and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will not
be eligible to be traded on the NASD OTCBB or that its Common Stock does not
meet all requirements for such trading.
(w) No Integrated Offering. Neither Company, nor any of its
Subsidiaries nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any
23
offers or sales of any security or solicited any offers to buy any security
(other than a concurrent offering to Laurus under a Securities Purchase
Agreement between Company and Laurus dated as of the date hereof (as amended,
modified or supplemented from time to time, the "Securities Purchase Agreement")
under circumstances that would cause the offering of the Securities pursuant to
this Agreement or any Ancillary Agreement to be integrated with prior offerings
by Company for purposes of the Securities Act which would prevent Company from
selling the Securities pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will Company or
any of its affiliates or Subsidiaries take any action or steps that would cause
the offering of the Securities to be integrated with other offerings.
(x) Stop Transfer. The Securities are restricted securities as
of the date of this Agreement. Company will not issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
(y) Dilution. Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Notes and
exercise of the Warrants and the Option is binding upon Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of Company. (z) Patriot Act. The Company certifies that, to
the best of Company's knowledge, neither the Company nor any of its Subsidiaries
has been designated, and is not owned or controlled, by a "suspected terrorist"
as defined in Executive Order 13224. The Company hereby acknowledges that Laurus
seeks to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
any of its Subsidiaries will pay or will contribute to Laurus has been or shall
be derived from, or related to, any activity that is deemed criminal under
United States law; and (ii) no contribution or payment by the Company or any of
its Subsidiaries to Laurus, to the extent that they are within the Company's or
any such Subsidiary's control shall cause Laurus to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify Laurus if any of these representations ceases to be true and accurate
regarding the Company or any of its Subsidiaries. The Company agrees to provide
Laurus any additional information regarding the Company and each Subsidiary
thereof that Laurus deems reasonably necessary or convenient to ensure
compliance with all applicable laws concerning money laundering and similar
activities. The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of the Laurus' investment in the Company. The
Company further understands that Laurus may release confidential information
about the Company and its Subsidiaries and, if applicable, any underlying
beneficial owners, to proper authorities if Laurus, in its sole
24
discretion, determines that it is in the best interests of Laurus in light of
relevant rules and regulations under the laws set forth in subsection (ii)
above.
(aa) Schedule 12(bb) sets forth Company's and each Eligible
Subsidiary's name as it appears in official filing in the state of its
incorporation, the type of entity of Company and each Eligible Subsidiary, the
organizational identification number issued by Company's and each Eligible
Subsidiary's state of incorporation or a statement that no such number has been
issued, Company's and each Eligible Subsidiary's state of incorporation, and the
location of Company's and each Eligible Subsidiary's chief executive office,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as set forth in such Schedule 12(bb), such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth in Schedule 12(bb),
neither Company nor any Eligible Subsidiary has been known as or conducted
business in any other name (including trade names). Each of Company and each
Eligible Subsidiary has only one state of incorporation.
13. Covenants. Company covenants and agrees with Laurus as
follows:
(a) Stop-Orders. Company will advise Laurus, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of Company, or of the suspension of
the qualification of the Common Stock of Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Notes and exercise of the
Warrants on the NASD OTCBB (the "Principal Market") upon which shares of Common
Stock are listed (subject to official notice of issuance) and shall maintain
such listing so long as any other shares of Common Stock shall be so listed.
Company will maintain the listing of its Common Stock on the Principal Market,
and will comply in all material respects with Company's reporting, filing and
other obligations under the bylaws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
(c) Market Regulations. Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.
(d) Reporting Requirements. Company will timely file with the
SEC all reports required to be filed pursuant to the Exchange Act and refrain
from terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.
25
(e) Use of Funds. Company agrees that it will, and will cause
its Subsidiaries to, use the proceeds of the sale of the Notes, the Option and
the Warrants for working capital purposes and as set forth on Schedule 13(e)
hereto.
(f) Access to Facilities. To the extent permitted by applicable
securities laws and regulations, Company will, and will cause each of its
Subsidiaries to, permit any representatives designated by Laurus (or any
successor of Laurus), upon reasonable notice and during normal business hours,
at such person's expense and accompanied by a representative of Company or any
such Subsidiary, as the case may be, to:
(i) visit and inspect any of the properties of Company or any such Subsidiary;
(ii) examine the corporate and financial records of Company or any of its
Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom; and
(iii) discuss the affairs, finances and accounts of Company or any of its
Subsidiaries with the directors, officers and independent accountants of Company
or any of its Subsidiaries.
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to Laurus unless Laurus signs
a confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
(g) Taxes. Company will, and will cause each of its Subsidiaries
to, promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of Company or such
Subsidiary, as the case may be; provided, however, that any such tax,
assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if Company
and/or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that Company will, and will cause each
of its Subsidiaries to, pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien which may
have attached as security therefor.
(h) Insurance. Each of Company and each Eligible Subsidiary, as
the case may be, will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. Each of Company and each of its
Subsidiaries will keep its assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in similar
business similarly situated as Company and its Subsidiaries; and Company and its
Subsidiaries will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks
26
and liability to persons and property to the extent and in the manner which
Company and/or such Subsidiary thereof reasonably believes is customary for
companies in similar business similarly situated as Company and its Subsidiaries
and to the extent available on commercially reasonable terms. Company and each
of its Subsidiaries will jointly and severally bear the full risk of loss from
any loss of any nature whatsoever with respect to the assets pledged to Laurus
as security for its obligations hereunder and under the Ancillary Agreements. At
Company's own cost and expense in amounts and with carriers reasonably
acceptable to Laurus, Company and each of its Subsidiaries shall (i) keep all
its insurable properties and properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to Company's or
the respective Subsidiary's including business interruption insurance; (ii)
maintain a bond in such amounts as is customary in the case of companies engaged
in businesses similar to Company and its Subsidiaries insuring against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of Company or any of its Subsidiaries either directly or
through governmental authority to draw upon such funds or to direct generally
the disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which Company or
any of its Subsidiaries is engaged in business; and (v) furnish Laurus with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting Company's and its
Subsidiaries' workers' compensation policy, endorsements to such policies naming
Laurus as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Laurus, naming Laurus as loss
payee, and (z) evidence that as to Laurus the insurance coverage shall not be
impaired or invalidated by any act or neglect of Company or any of its
Subsidiaries and the insurer will provide Laurus with at least thirty (30) days
notice prior to cancellation. So long as the Notes remain outstanding, Company
shall instruct the insurance carriers that in the event of any loss thereunder,
the carriers shall make payment for such loss to Laurus and not to Company
and/or any Subsidiary thereof and Laurus jointly. If any insurance losses are
paid by check, draft or other instrument payable to Company and/or any
Subsidiary thereof and Laurus jointly, Laurus may endorse Company's and/or such
Subsidiary's name thereon and do such other things as Laurus may deem advisable
to reduce the same to cash. Laurus is hereby authorized to adjust and compromise
claims. 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 Company and/or such Subsidiary
thereof. Any surplus shall be paid by Laurus to Company and/or such Subsidiary
thereof or applied as may be otherwise required by law. Any deficiency thereon
shall be paid by Company and its Subsidiaries to Laurus, on demand.
Notwithstanding anything herein or in any Related Agreement to the contrary, the
Company shall obtain customary insurance and name the Purchaser as an additional
insured and loss payee thereunder as soon as practicable following the Closing
Date, and in any event within thirty days following the Closing Date.
(i) Intellectual Property. Company shall, and shall cause each
of its Subsidiaries to, maintain in full force and effect its corporate
existence, rights and franchises and all licenses
27
and other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.
(j) Properties. Company will, and will cause each of its
Subsidiaries to, keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and Company will, and will cause each of its Subsidiaries to, at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.
(k) Confidentiality. The Company and each Eligible Subsidiary on
behalf of itself and its successors, assigns and Affiliates, agrees to use its
best efforts to maintain as confidential all confidential information provided
to it by Laurus, including, but not limited to, financial statements,
certificates, reports, agreements and information, financial results,
information that may constitute material non-public information and other
information considered by Laurus to be confidential and proprietary and to use
such information in compliance with all applicable laws, solely for the purpose
of and as necessary to fulfill its obligations under this Agreement and will not
reveal it to any third party without the express written consent of Laurus. The
Company and each Eligible Subsidiary will take appropriate measures to prevent
its agents, employees and subcontractors from using or disclosing any such
confidential information, except as is expressly permitted under this Agreement.
The Company and each Eligible Subsidiary agrees that it will not disclose, and
will not include in any public announcement, the name of Laurus, unless
expressly agreed to by Laurus or unless and until such disclosure is required by
law or applicable regulation, and then only to the extent of such requirement
and upon notice to the Company. Company may disclose Laurus' identity and the
terms of this Agreement to its current and prospective debt and equity financing
sources and in its filings with the SEC.
(l) Required Approvals(m) . Company shall not, and shall not
permit any of its Subsidiaries to, without the prior written consent of Laurus,
(i) create, incur, assume or suffer to exist any indebtedness (exclusive of
trade debt) whether secured or unsecured other than Company's indebtedness to
Laurus and as set forth on Schedule 13(l)(i) attached hereto and made a part
hereof; (ii) cancel any debt owing to it in excess of $75,000 in the aggregate
during any 12 month period; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by a Company for
deposit or collection or similar transactions in the ordinary course of
business; (iv) directly or indirectly declare, pay or make any dividend or
distribution on any class of its Stock other than to pay dividends on shares of
the Company's Preferred Stock outstanding on the date hereof or apply any of its
funds, property or assets to the purchase, redemption or other retirement of any
Stock of Company outstanding on the date hereof, or issue any Preferred Stock
mandatorily redeemable prior to the one year anniversary of the Maturity Date
(as defined in the Notes); (v) purchase or hold beneficially any Stock or other
securities or evidences of indebtedness of, make or permit to exist any loans or
28
advances to, or make any investment or acquire any interest whatsoever in, or
transfer any assets to, any other Person, including any partnership or joint
venture, except (x) travel advances, (y) loans to Company's officers and
employees not exceeding at any one time an aggregate of $25,000, and (z)
existing Subsidiaries of Company which have fully guaranteed the obligations
owed to, and granted a security interest in all of their respective assets for
the benefit of, Laurus; (vi) create or permit to exist any Subsidiary, other
than any Subsidiary in existence on the date hereof and listed in Schedule 12(b)
unless such new Subsidiary is a wholly-owned Subsidiary and is designated by
Laurus as either a co-borrower or guarantor hereunder and such Subsidiary shall
have entered into all such documentation required by Laurus, including, without
limitation, to grant to Laurus a first priority perfected security interest in
substantially all of such Subsidiary's assets to secure the Obligations; (vii)
directly or indirectly, prepay any indebtedness (other than to Laurus and in the
ordinary course of business), or repurchase, redeem, retire or otherwise acquire
any indebtedness (other than to Laurus and in the ordinary course of business)
except to make scheduled payments of principal and interest thereof; (viii)
enter into any merger, consolidation or other reorganization with or into any
other Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to consolidate with or merge with it, unless (1) Company
is the surviving entity of such merger or consolidation, (2) no Event of Default
shall exist immediately prior to and after giving effect to such merger or
consolidation, (3) Company shall have provided Laurus copies of all
documentation relating to such merger or consolidation and (4) Company shall
have provided Laurus with at least thirty (30) days' prior written notice of
such merger or consolidation; (ix) materially change the nature of the business
in which it is presently engaged; (x) become subject to (including, without
limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict the
Company's right to perform the provisions of this Agreement or any of the
agreements contemplated thereby; (xi) change its fiscal year or make any changes
in accounting treatment and reporting practices without prior written notice to
Laurus except as required by GAAP or in the tax reporting treatment or except as
required by law; (xii) enter into any transaction with any employee, director or
Affiliate, except in the ordinary course on arms-length terms; or (xiii) xxxx
Accounts under any name except the present name of Company or its existing
Subsidiaries.
(n) Reissuance of Securities. Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 37 below at such time as:
(i) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act; or
(ii) upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act.
Company agrees to cooperate with Laurus in connection with all resales pursuant
to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow
such resales provided Company and its counsel receive reasonably requested
representations from Laurus (including a legal opinion from counsel to Laurus,
if customary and requested) and broker, if any.
29
(o) Opinion. On the Closing Date, Company will deliver to Laurus
an opinion reasonably acceptable to Laurus from Company's legal counsel. Company
will provide, at Company's expense, such other legal opinions in the future as
are reasonably necessary for the conversion of the Notes and the exercise of the
Warrants and the Option.
(p) Legal Name, etc. Neither Company nor any of its Eligible
Subsidiaries will, without providing Laurus with 30 days prior written notice,
change (i) its name as it appears in the official filings in the state of its
incorporation or formation, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws or other organizational document.
(q) Compliance with Laws. The operation of each of the Company's
and each of its Subsidiaries' business is and will continue to be in compliance
in all material respects with all applicable federal, state and local laws,
rules and ordinances, including to all laws, rules, regulations and orders
relating to taxes, payment and withholding of payroll taxes, employer and
employee contributions and similar items, securities, employee retirement and
welfare benefits, employee health safety and environmental matters.
(r) Notices. Each of the Company and each of its Subsidiaries
will promptly inform Laurus in writing of: (i) the commencement of all
proceedings and investigations by or before and/or the receipt of any notices
from, any governmental or nongovernmental body and all actions and proceedings
in any court or before any arbitrator against or in any way concerning any event
which could reasonable be expected to have singly or in the aggregate, a
Material Adverse Effect; (ii) any change which has had, or could reasonably be
expected to have, a Material Adverse Effect; (iii) any Event of Default or
Default; and (iv) any default or any event which with the passage of time or
giving of notice or both would constitute a default under any agreement for the
payment of money to which Company or any of its Subsidiaries is a party or by
which Company or any of its Subsidiaries or any of Company's or any such
Subsidiary's properties may be bound the breach of which would have a Material
Adverse Effect.
(s) Margin Stock. The Company will not permit any of the
proceeds of the Loans, the Note, the Warrant or the Option to be used directly
or indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness
incurred to "purchase" or "carry" "margin stock" within the respective meanings
of each of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect.
(t) Offering Restrictions. Except as previously disclosed in the
Financial Statements or in the Exchange Act Filings, or stock or stock options
granted to employees or directors of the Company (these exceptions hereinafter
referred to as the "Excepted Issuances"), the Company will not issue any
securities with a continuously variable/floating conversion feature which are or
could be (by conversion or registration) free-trading securities (i.e. common
stock subject to a registration statement) prior to the full repayment or
conversion of the Notes (together with all accrued and unpaid interest and fees
related thereto (the "Exclusion Period").
30
(u) Authorization and Reservation of Shares. Company will at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the conversion of the Notes and exercise of the Warrants.
(v) Financing Right of First Refusal. (i) For a period of one
hundred eighty (180) days following the Closing Date, Company hereby grants to
the Purchaser a right of first refusal to provide any Additional Financing (as
defined below) to be issued by the Company and/or any of its Subsidiaries,
subject to the following terms and conditions. From and after the date hereof,
prior to the incurrence of any additional indebtedness and/or the sale or
issuance of any equity interests of the Company or any of its Subsidiaries
(other than (i) pursuant to options, warrants or other obligations to issue
shares outstanding on the date hereof as disclosed to Laurus in writing; (ii)
pursuant to options that may be issued under any employee incentive stock option
and/or any qualified stock option plan adopted by the Company; or (iii)
securities issued pursuant to acquisitions or strategic transactions the primary
purpose of which is not raising capital, so long as, in the case of this clause
(iii), such shares of Common Stock so issued (or securities convertible into
Common Stock so issued) are restricted and do not become freely or publicly
traded in any respect prior to the two year anniversary of the issuance thereof)
(an "Additional Financing"), the Company and/or any Subsidiary of the Company,
as the case may be, shall notify Laurus of its intention to enter into such
Additional Financing. In connection therewith, the Company and/or the applicable
Subsidiary thereof shall submit a fully executed term sheet (a "Proposed Term
Sheet") to Laurus setting forth the terms, conditions and pricing of any such
Additional Financing (such financing to be negotiated on "arm's length" terms
and the terms thereof to be negotiated in good faith) proposed to be entered
into by the Company and/or such Subsidiary. Laurus shall have the right, but not
the obligation, to deliver its own proposed term sheet (the "Laurus Term Sheet")
setting forth the terms and conditions upon which Laurus would be willing to
provide such Additional Financing to the Company and/or such Subsidiary. The
Laurus Term Sheet shall contain terms no less favorable to the Company and /or
the Subsidiary than those outlined in Proposed Term Sheet. Laurus shall deliver
such Laurus Term Sheet within ten business days of receipt of each such Proposed
Term Sheet. If the provisions of the Laurus Term Sheet are at least as favorable
to the Company and/or such Subsidiary, as the case may be, as the provisions of
the Proposed Term Sheet, the Company and/or such Subsidiary shall either (a)
enter into and consummate the Additional Financing transaction outlined in the
Laurus Term Sheet or (b) choose not to consummate such Additional Financing, in
which case the Company shall be obligated to comply with the provisions of this
Section 6.17 with respect to any future potential financing.
(ii) The Company will not, and will not permit its Subsidiaries
to, agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of Laurus to consummate an Additional Financing with
the Company or any of its Subsidiaries.
(w) Further Assurances. At any time and from time to time, upon
the written request of Laurus and at the sole expense of Company, each of
Company and each Eligible Subsidiary shall promptly and duly execute and deliver
any and all such further instruments and documents and take such further action
as Laurus may reasonably request (a) to obtain the full benefits of this
Agreement and the Ancillary Agreements, (b) to protect, preserve and maintain
Laurus' rights in the Collateral and under this Agreement or any Ancillary
Agreement, or (c) to
31
enable Laurus to exercise all or any of the rights and powers herein granted or
any Ancillary Agreement.
14. Representations and Warranties of Laurus.
Laurus hereby represents and warrants to Company as follows:
(a) Requisite Power and Authority. Laurus has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Ancillary Agreements and to carry out their
provisions. All corporate action on Laurus' part required for the lawful
execution and delivery of this Agreement and the Ancillary Agreements have been
or will be effectively taken prior to the Closing Date. Upon their execution and
delivery, this Agreement and the Ancillary Agreements will be valid and binding
obligations of Laurus, enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
(b) Investment Representations. Laurus understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Laurus' representations
contained in this Agreement, including, without limitation, that Laurus is an
"accredited investor" within the meaning of Regulation D under the Securities
Act. Laurus has received or has had full access to all the information it
considers necessary or appropriate to make an informed investment decision with
respect to the Note to be purchased by it under this Agreement and the
Securities acquired by it upon the conversion of the Note.
(c) Laurus Bears Economic Risk. Laurus has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to Company so that it is capable of evaluating
the merits and risks of its investment in Company and has the capacity to
protect its own interests. Laurus must bear the economic risk of this investment
until the Securities are sold pursuant to (i) an effective registration
statement under the Securities Act, or (ii) an exemption from registration is
available.
(d) Acquisition for Own Account. Laurus is acquiring the
Securities for its own account for investment only, and not as a nominee or
agent and not with a view towards or for resale in connection with their
distribution.
(e) Laurus Can Protect Its Interest. Laurus represents that by
reason of its, or of its management's, business and financial experience, Laurus
has the capacity to evaluate the merits and risks of its investment in the Note,
and the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Ancillary Agreements.
Further, Laurus is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Ancillary Agreements.
(f) Accredited Investor. Laurus represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
32
(g) Shorting. Neither Laurus nor any of its Affiliates or
investment partners has, will, or will cause any person or entity, to directly
engage in "short sales" of Company's common stock directly related to Company's
Common Stock as long as any Minimum Borrowing Note shall be outstanding.
(h) Patriot Act. Laurus certifies that, to the best of Laurus'
knowledge, Laurus has not been designated, and is not owned or controlled, by a
"suspected terrorist" as defined in Executive Order 13224. Laurus seeks to
comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, Laurus hereby represents, warrants
and agrees that: (i) none of the cash or property that Laurus will use to
purchase the Notes has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
disbursement by Laurus to the Company, to the extent within Laurus' control,
shall cause Laurus to be in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001. Laurus shall promptly notify the Company if any of these
representations ceases to be true and accurate regarding Laurus. Laurus agrees
to provide the Company any additional information regarding Laurus that the
Company deems necessary or convenient to ensure compliance with all applicable
laws concerning money laundering and similar activities. Laurus understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, Laurus may undertake
appropriate actions to ensure compliance with applicable law or regulation,
including but not limited to segregation and/or redemption of Laurus' investment
in the Company. Laurus further understands that the Company may release
information about Laurus and, if applicable, any underlying beneficial owners,
to proper authorities if the Company, in its sole discretion, determines that it
is in the best interests of the Company in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
15. Power of Attorney. Each of Company and each Eligible
Subsidiary hereby appoints Laurus, or any other Person whom Laurus may designate
as Company's and/or any Eligible Subsidiary's attorney, with power to: (i)
endorse Company's and each Eligible Subsidiary's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Laurus' possession; (ii) sign Company's and each Eligible Subsidiary's
name on any invoice or xxxx of lading relating to any Accounts, drafts against
Account Debtors, schedules and assignments of Accounts, notices of assignment,
financing statements and other public records, verifications of Account and
notices to or from Account Debtors; (iii) verify the validity, amount or any
other matter relating to any Account by mail, telephone, telegraph or otherwise
with Account Debtors; (iv) do all things necessary to carry out this Agreement,
any Ancillary Agreement and all related documents; and (v) on or after the
occurrence and continuation of an Event of Default, notify the post office
authorities to change the address for delivery of Company's and each Eligible
Subsidiary's mail to an address designated by Laurus, and to receive, open and
dispose of all mail addressed to Company or any Eligible Subsidiary. Each of
Company and each Eligible Subsidiary hereby ratifies and approves all acts of
the attorney. Neither Laurus, nor the attorney will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law, except for
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable so long as Laurus has a
33
security interest and until the Obligations have been fully satisfied. Laurus
shall provide the Company with written notice (as promptly as practicable) upon
any actions taken pursuant to the foregoing power of attorney; provided that the
failure to provide any such notice shall not have the effect of invalidating
such actions in any respect.
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 irrevocably disposed of, concluded or
liquidated. Notwithstanding the foregoing, Laurus shall release its security
interests at any time after thirty (30) days notice upon irrevocable payment to
it of all Obligations if Company and each Eligible Subsidiary shall have (i)
provided Laurus with an executed release of any and all claims which Company or
any Eligible Subsidiary may have or thereafter have under this Agreement and all
Ancillary Agreements and (ii) paid to Laurus an early payment fee in an amount
equal to (1) five percent (5%) of the Capital Availability Amount if such
payment occurs prior to the first anniversary of the Closing Date, (2) four
percent (4%) of the Capital Availability Amount if such payment occurs on or
after the first anniversary of the Closing Date and prior to the second
anniversary of the Closing Date and (3) three percent (3%) of the Capital
Availability Amount if such termination occurs on or after the second
anniversary of the Closing Date; such fee being intended to compensate Laurus
for its costs and expenses incurred in initially approving this Agreement or
extending same. Such early payment fee shall be due and payable by Company to
Laurus upon termination by acceleration of this Agreement by Laurus due to the
occurrence and continuance of an Event of Default.
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 Company's
account may from time to time be temporarily in a zero or credit position, until
(a) all of the Obligations of Company have been paid or performed in full after
the termination of this Agreement. Laurus shall not be required to send
termination statements to Company or any Eligible Subsidiary, or to file them
with any filing office, unless and until this Agreement and the Ancillary
Agreements shall have been terminated and all Obligations constituting
indebtedness and interest and related fees and expenses have been paid in full.
As promptly as practicable following the occurrence of such payment, Laurus
agrees to provide the Company and any Eligible Subsidiary, as applicable, with
termination statements.
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 by the Company or any of its Subsidiaries to pay any
taxes when due unless such taxes are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
provided on Company's and/or such Subsidiary's books;
34
(c) failure to perform under, and/or committing any breach of,
in any material respect, this Agreement or any Ancillary Agreement or any other
agreement between Company and/or any Subsidiary thereof, on the one hand, and
Laurus, on the other hand, which failure or breach shall continue for a period
of thirty (30) days after the occurrence thereof;
(d) the occurrence of any event of default (or similar term)
under any indebtedness which Company or any of its Subsidiaries is a party with
one or more third parties, which exceeds an aggregate principal amount for all
such indebtedness of $50,000;
(e) any representation, warranty or statement made by Company or
any of its Subsidiaries hereunder, in any Ancillary Agreement, any certificate,
statement or document delivered pursuant to the terms hereof, or in connection
with the transactions contemplated by this Agreement should at any time be false
or misleading in any material respect;
(f) an attachment or levy is made upon Company's assets having
an aggregate value in excess of $100,000 or a judgment is rendered against
Company or Company's property involving a liability of more than $250,000 which
shall not have been vacated, discharged, stayed or bonded within thirty (30)
days from the entry thereof;
(g) any change in Company's or any of its Subsidiaries'
condition or affairs (financial or otherwise) which has had, or 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;
(i) if Company or any of its Subsidiaries shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under the United States or
Canadian federal bankruptcy laws (including, without limitation, the Bankruptcy
and Insolvency Act (Canada), or the Companies Creditors Arrangement Act
(Canada)) (in each case, 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 60 days, any petition filed against it in any involuntary
case under such bankruptcy laws, or (vii) take any action for the purpose of
effecting any of the foregoing;
(j) Company or any of its Subsidiaries shall admit in writing
its inability, or be generally unable to pay its debts as they become due or
cease operations of its present business;
(k) Company directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any assets of Company or any interest therein, except as permitted
herein;
(l) (i) Any "Person" or "group" (as such terms are defined in
Sections 13(d) and 14(d) of the Exchange Act, as in effect on the date hereof)
is or becomes the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5
under the Exchange Act), directly or indirectly, of 35% or more on a fully
diluted basis of the then outstanding voting equity interest of the Borrower or
35
(ii) the Board of Directors of the Borrower shall cease to consist of a majority
of the Board of Directors of the Borrower on the date hereof (or directors
appointed by a majority of the Board of Directors in effect immediately prior to
such appointment).;
(m) the indictment or threatened indictment of Company or any of
its Subsidiaries or any executive officer of Company or any of its Subsidiaries
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceeding against Company or any of its Subsidiaries or any
executive officer of Company or any of its Subsidiaries pursuant to which
statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of Company or any of its Subsidiaries; or
(n) if an Event of Default shall occur under and as defined in
any Note or in any Ancillary Agreement;.
(o) the Company or any of its Subsidiaries shall breach any term
or provision of any Ancillary Agreement to which it is a party which is not
cured within any applicable cure or grace period;
(p) if the Company of any of its Subsidiaries attempts to
terminate, challenges the validity of, or its liability under any Ancillary
Agreement;
(q) should the Company or any of its Subsidiaries default in its
obligations under any Ancillary Agreement to which it is a party or if any
proceeding shall be brought to challenge the validity, binding effect of any
Ancillary Agreement to which it is a party or should the Company or any of its
Subsidiaries breach any representation, warranty or covenant contained in any
Ancillary Agreement to which it is a party or should any Ancillary Agreement
cease to be a valid, binding and enforceable obligation of the Company of any of
its Subsidiaries (to the extent such Persons are a party thereto); or
(r) an SEC stop trade order or Principal Market trading
suspension of the Common Stock shall be in effect for five (5) consecutive days
or five (5) days during a period of ten (10) consecutive days, excluding in all
cases a suspension of all trading on a Principal Market, provided that the
Company shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice. The "Principal Market" for the
Common Stock, for the purpose of this clause (r), shall mean shall include the
NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System,
American Stock Exchange, or New York Stock Exchange (whichever of the foregoing
is at the time the principal trading exchange or market for the Common Stock).
19. Remedies. (a) Following the occurrence and continuation 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, the PPSA
and under other applicable law, all other legal and equitable rights to which
Laurus may be entitled, including the right to take immediate possession of the
Collateral, to require Company and/or
37
each Eligible Subsidiary to assemble the Collateral, at Company's and each
Eligible Subsidiaries' joint and several expense, and to make it available to
Laurus at a place designated by Laurus which is reasonably convenient to both
parties and to enter any of the premises of Company or any Eligible Subsidiary
or wherever the Collateral shall be located, with or without force or process of
law, and to keep and store the same on said premises until sold (and if said
premises be the property of Company or any Eligible Subsidiary, Company agrees
not to charge Laurus for storage thereof), and the right to apply for the
appointment of a receiver for Company's and each Eligible Subsidiary's property.
Further, Laurus may, at any time or times after the occurrence of an Event of
Default, sell and deliver all Collateral held by or for Laurus at public or
private sale for cash, upon credit or otherwise, at such prices and upon such
terms as Laurus, in Laurus' sole discretion, deems advisable or Laurus may
otherwise recover upon the Collateral in any commercially reasonable manner as
Laurus, in its sole discretion, deems advisable. The requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to Company or any
such Eligible Subsidiary, as the case may be, at Company's or such Eligible
Subsidiary's address as shown in Laurus' records, at least ten (10) days before
the time of the event of which notice is being given. Laurus may be the
purchaser at any sale, if it is public. In connection with the exercise of the
foregoing remedies, Laurus is granted permission to use all of Company's and
each Eligible Subsidiary's trademarks, tradenames, tradestyles, patents, patent
applications, licenses, franchises and other proprietary rights. The proceeds of
sale shall be applied first to all costs and expenses of sale, including
attorneys' fees, and second to the payment (in whatever order Laurus elects) of
all Obligations. After the indefeasible payment and satisfaction in full in cash
of all of the Obligations, and after the payment by Laurus of any other amount
required by any provision of law, including Section 608(a)(1) of the Code (but
only after Laurus has received what Laurus considers reasonable proof of a
subordinate party's security interest), the surplus, if any, shall be paid to
Company, such Eligible Subsidiary or its representatives or to whosoever may be
lawfully entitled to receive the same, or as a court of competent jurisdiction
may direct. Each of Company and each Eligible Subsidiary shall remain jointly
and severally liable to Laurus for any deficiency. In addition, each of Company
and each Eligible Subsidiary shall pay Laurus a liquidation fee ("Liquidation
Fee") in the amount of five percent (5%) of the actual amount collected in
respect of each Account outstanding at any time during a "liquidation period".
For purposes hereof, "liquidation period" means a period: (i) beginning on the
earliest date of (x) an event referred to in Section 18(i) or 18(j), or (y) the
cessation of Company's of any Eligible such Subsidiary's business; and (ii)
ending on the date on which Laurus has actually received all Obligations due and
owing it under this Agreement and the Ancillary Agreements. The Liquidation Fee
shall be paid on the date on which Laurus collects the applicable Account by
deduction from the proceeds thereof.. Company and Laurus acknowledge that the
actual damages that would be incurred by Laurus after the occurrence of an Event
of Default would be difficult to quantify and that Company and Laurus have
agreed that the fees and obligations set forth in this Section and in this
Agreement would constitute fair and appropriate liquidated damages in the event
of any such termination.
(b) Without limiting the foregoing, at any time that an Event of
Default shall exist or have occurred and be continuing, Laurus may appoint or
reappoint by instrument in writing, any person or persons, whether an officer or
officers or any employee or employees of Laurus or not, to be a receiver or
receivers (hereinafter called a "Receiver", which term when used herein shall
include a receiver and manager) of any Collateral of Company or any Eligible
Subsidiary (including any interest, income or profits therefrom) and may remove
any Receiver so appointed
37
and appoint another in his/her stead. Any such Receiver shall, so far as
concerns responsibility for his/her acts, be deemed the agent of Company or the
applicable Eligible Subsidiary and not Laurus, and Laurus shall not be in any
way responsible for any misconduct, negligence or non feasance on the part of
any such Receiver, his/her servants, agents or employees. Subject to the
provisions of the instrument appointing him/her, any such Receiver shall have
power to take possession of Collateral, to preserve Collateral or its value, to
carry on or concur in carrying on all or any part of the business of Company or
the applicable Eligible Subsidiary and to sell, lease, license or otherwise
dispose of or concur in selling, leasing, licensing or otherwise disposing of
Collateral. To facilitate the foregoing powers, any such Receiver may, to the
exclusion of all others, including Laurus, enter upon, use and occupy all
premises owned or occupied by Company or the applicable Eligible Subsidiary
wherein Collateral may be located, maintain Collateral upon such premises,
borrow money on a secured or unsecured basis and use Collateral directly in
carrying on Company's or the applicable Eligible Subsidiary's business or as
security for loans or advances to enable the Receiver to carry on Company's or
the applicable Eligible Subsidiary's business or otherwise, as such Receiver
shall, in its discretion, determine. Except as may be otherwise directed by
Laurus, all proceeds of Collateral received from time to time by such Receiver
in carrying out his/her appointment shall be received in trust for and paid over
to Laurus. Every such Receiver may, in the discretion of Laurus be vested with
all or any of the rights and powers of Laurus. Laurus may, either directly or
through its agents or nominees, exercise any or all powers and rights given to a
Receiver by virtue of the foregoing provisions of this paragraph.
20. Waivers. To the full extent permitted by applicable law,
each of Company and each Eligible Subsidiary hereby waives (a) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all of this Agreement and the
Ancillary Agreements or any other notes, commercial paper, Accounts, contracts,
Documents, Instruments, Chattel Paper and guaranties at any time held by Laurus
on which Company or any such Eligible Subsidiary may in any way be liable, and
hereby ratifies and confirms whatever Laurus may do in this regard; (b) all
rights to notice and a hearing prior to Laurus' taking possession or control of,
or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Each of Company and each Eligible Subsidiary acknowledges
that it has been advised by counsel of its choices and decisions with respect to
this Agreement, the Ancillary Agreements and the transactions evidenced hereby
and thereby.
21. Expenses. Company shall pay all of Laurus' reasonable
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and in
connection with the prosecution or defense of any action, contest, dispute, suit
or proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. Company shall also pay
all of Laurus' reasonable fees, charges, out-of-pocket costs and expenses,
including fees and disbursements of counsel and appraisers, or any Receiver 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,
38
(b) Laurus' obtaining performance of the Obligations under this Agreement and
any Ancillary Agreements, including, but not limited to, the enforcement or
defense of Laurus' security interests, assignments of rights and Liens hereunder
as valid perfected security interests, (c) any attempt to inspect, verify,
protect, collect, sell, liquidate or otherwise dispose of any Collateral, (d)
any appraisals or re-appraisals of any property (real or personal) pledged to
Laurus by Company or any of its Subsidiaries as Collateral for, or any other
Person as security for, Company's Obligations hereunder and (e) any
consultations in connection with any of the foregoing. Company shall also pay
Laurus' customary bank charges for all bank services (including wire transfers)
performed or caused to be performed by Laurus for Company or any of its
Subsidiaries at Company's or such Subsidiary's request or in connection with
Company's loan account with Laurus. All such costs and expenses together with
all filing, recording and search fees, taxes and interest payable by Company to
Laurus shall be payable on demand and shall be secured by the Collateral. If any
tax by any Governmental Authority is or may be imposed on or as a result of any
transaction between Company and/or any Subsidiary thereof, on the one hand, and
Laurus on the other hand, which Laurus is or may be required to withhold or pay,
Company agrees to indemnify and hold Laurus harmless in respect of such taxes,
and Company will repay to Laurus the amount of any such taxes which shall be
charged to Company's account; and until Company shall furnish Laurus with
indemnity therefor (or supply Laurus with evidence satisfactory to it that due
provision for the payment thereof has been made), Laurus may hold without
interest any balance standing to Company's credit and Laurus shall retain its
Liens in any and all Collateral.
22. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person
which is not a competitor of Company and any such transferee shall succeed to
all of Laurus' rights with respect thereto. Upon such transfer, Laurus shall be
released from all responsibility for the Collateral to the extent same is
assigned to any transferee. Laurus may from time to time sell or otherwise grant
participations in any of the Obligations and the holder of any such
participation shall, subject to the terms of any agreement between Laurus and
such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant. Company
agrees that each such holder may exercise any and all rights of banker's lien,
set-off and counterclaim with respect to its participation in the Obligations as
fully as though Company were directly indebted to such holder in the amount of
such participation.
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
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. Company irrevocably waives the
right to direct the application of any and all payments at any time or times
hereafter received by Laurus from or on Company's behalf and Company hereby
irrevocably agrees that Laurus shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
39
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. Company agrees to indemnify and hold Laurus, and
its respective affiliates, employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of any kind or
nature whatsoever (including attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which may
be instituted or asserted against or incurred by any such Indemnified Person as
the result of credit having been extended, suspended or terminated under this
Agreement or any of the Ancillary Agreements or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement, the Ancillary Agreements or any
other documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing, except
to the extent that any such indemnified liability is finally determined by a
court of competent jurisdiction to have resulted solely from such Indemnified
Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
26. Currency Indemnity. If, for the purposes of obtaining
judgment in any court in any jurisdiction with respect to this Agreement or any
of the other Ancillary Agreements, it becomes necessary to convert into the
currency of such jurisdiction (the "Judgment Currency") any amount due under
this Agreement or under any of the other Ancillary Agreements in any currency
other than the Judgment Currency (the "Currency Due"), then conversion shall be
made at the Exchange Rate at which Laurus is able, on the relevant date, to
purchase the Currency Due with the Judgment Currency prevailing on the Business
Day before the day on which judgment is given. In the event that there is a
change in the rate of Exchange Rate prevailing between the Business Day before
the day on which the judgment is given and the date of receipt by Laurus of the
amount due, Company will, on the date of receipt by Laurus, pay such additional
amounts, if any, or be entitled to receive reimbursement of such amount, if any,
as may be necessary to ensure that the amount received by Laurus on such date is
the amount in the Judgment Currency which when converted at the rate of exchange
prevailing on the date of receipt by Laurus is the amount then due under this
Agreement or such other of the Ancillary Agreements in the Currency Due. If the
amount of the Currency Due which Laurus is able to purchase is less than the
amount of the Currency Due originally due to it, Company shall indemnify and
save Laurus harmless from and against loss or damage arising as a result of such
deficiency. The indemnity contained herein shall constitute an obligation
separate and independent from the other obligations contained in this Agreement
and the other Ancillary Agreements, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence granted
by Laurus from time to time and shall continue in full force and effect
notwithstanding any
41
judgment or order for a liquidated sum in respect of an amount due under this
Agreement or any of the other Ancillary Agreements or under any judgment or
order.
27. Revival. Company further agrees that to the extent Company
makes a payment or payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
28. Notices. Any notice or request hereunder may be given to
Company or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given three (3) business days after the date when
deposited in the mail or with the overnight mail carrier, and, in the case of a
telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
000 Xxxxx Xxxxxx 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
41
If to Company or any Eligible Subsidiary: Creative Vistas, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx-0-00
Xxxxxx, Xxxxxxx, X0X 0X0
Xxxxxx
Attn: Xxxxx Xxxxxxxxxx
Telephone: 000.000.0000
Facsimile: 905.666.9795
With a copy to (which shall not Xxxxxxx Xxxxxxxxx LLP
constitute notice to the Company):
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or such other address as may be designated in writing hereafter in accordance
with this Section 29 by such Person.
29. Governing Law, Jurisdiction and Waiver of Jury Trial. (a)
THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(b) COMPANY AND EACH ELIGIBLE SUBSIDIARY HEREBY CONSENTS AND
AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE
OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS
OR DISPUTES BETWEEN COMPANY AND/OR EACH ELIGIBLE SUBSIDIARY, ON THE ONE HAND,
AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS, EACH
ELIGIBLE SUBSIDIARY AND COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE
OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF LAURUS. EACH OF COMPANY AND EACH ELIGIBLE
SUBSIDIARY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
42
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY HEREBY WAIVES ANY
OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. EACH OF COMPANY AND EACH ELIGIBLE SUBSIDIARY
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO COMPANY AT THE ADDRESS SET FORTH IN SECTION 27 AND THAT SERVICE SO
MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY'S OR SUCH ELIGIBLE
SUBSIDIARY'S, AS THE CASE MAY BE, ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. IF ANY PARTY SHALL COMMENCE
AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS HEREOF, THEN THE PREVAILING
PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR
ITS ATTORNEYS FEES AND OTHER COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION,
PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
LAURUS, ANY ELIGIBLE SUBSIDIARY AND/OR COMPANY ARISING OUT OF, CONNECTED WITH,
RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION
WITH THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED
THERETO.
30. Limitation of Liability. Company acknowledges and
understands that in order to assure repayment of the Obligations hereunder
Laurus may be required to exercise any and all of Laurus' rights and remedies
hereunder and agrees that, except as limited by applicable law, neither Laurus
nor any of Laurus' agents shall be liable for acts taken or omissions made in
connection herewith or therewith except for actual bad faith.
31. Entire Understanding. This Agreement and the Ancillary
Agreements contain the entire understanding between Company and Laurus as to the
subject matter hereof and thereof and any promises, representations, warranties
or guarantees not herein contained shall have no force and effect unless in
writing, signed by Company's, each Eligible Subsidiaries' on the date hereof 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
43
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. Company hereby authorizes Laurus to make
appropriate announcements of the financial arrangement entered into by and
between Company and Laurus, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Laurus shall in its sole and absolute discretion deem appropriate
(provided that the Company shall have the opportunity to review such
announcement prior to its disclosure), or as required by applicable law.
37. Joinder. It is understood and agreed that any person or
entity that desires to become an Eligible Subsidiary hereunder, or is required
to execute a counterpart of this Agreement after the date hereof pursuant to the
requirements of this Agreement or any Ancillary Agreement, shall become an
Eligible Subsidiary hereunder by (x) executing a Joinder Agreement in form and
substance satisfactory to Laurus, (y) delivering supplements to such exhibits
and annexes to this Agreement and the Ancillary Agreements as Laurus shall
reasonably request and (z) taking all actions as specified in this Agreement as
would have been taken by such Assignor had it been an original party to this
Agreement, in each case with all documents required above to be delivered to
Laurus and with all documents and actions required above to be taken to the
reasonable satisfaction of Laurus.
38. Choice of Language. The parties hereto confirm that they
have requested that this Agreement and all documents related hereto be drafted
in English. Les parties aux presentes ont exige que cette convention ainsi que
tout document connexe soient rediges en anglais.
39. Legends. The Securities shall bear legends as follows;
(a) The Notes shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES
44
LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO CREATIVE VISTAS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) Any shares of Common Stock issued pursuant to conversion of
the Note or exercise of the Warrants, shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO CREATIVE VISTAS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
CREATIVE VISTAS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
45
[Balance of page intentionally left blank; signature page follows.]
46
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
CREATIVE VISTAS, INC.
By: /s/ Xxxxx Xxxxxxxxxx
--------------------------------
Name: Xxxxx Xxxxxxxxxx
Title: CEO
A.C. TECHNICAL ACQUISTION CORP.
By: /s/ Xxxxx Xxxxxxxxxx
--------------------------------
Name: Xxxxx Xxxxxxxxxx
Title: CEO
A.C. TECHNICAL SYSTEMS LTD.
By: /s/ Xxxxxxx Xxxxx
--------------------------------
Name: Xxxxxxx Xxxxx
Title: President
LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx Grin
--------------------------------
Name: Xxxxx Grin
Title: Managing Partner
47
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated
with respect to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section
11(a).
"Accounts" means all "accounts", as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including: (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) (including
any such obligations that may be characterized as an account or contract right
under the UCC); (b) all of such Person's rights in, to and under all purchase
orders or receipts for goods or services; (c) all of such Person's rights to any
goods represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
"Accounts Availability" means the amount of Loans against
Eligible Accounts Laurus may from time to time make available to Company up to
ninety percent (90%) of the net face amount of Eligible Accounts based on
Accounts of Company and the Eligible Subsidiaries.
"Affiliate" of any Person means (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Ancillary Agreements" means, the Notes, the Warrants, the
Registration Rights Agreements, each Security Document and all other agreements,
instruments, documents, mortgages, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, trust agreements and
guarantees whether heretofore, concurrently, or hereafter executed by or on
behalf of Company or any other Person or delivered to Laurus, relating to this
Agreement or to the transactions contemplated by this Agreement or otherwise
relating to the relationship between the Company and Laurus.
"Available Minimum Borrowing" shall have the meaning given such
term in Section 2(a)(i).
48
"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.
"Canadian Pension Plan" shall mean any plan, program or
arrangement (other than the Canada/Quebec Pension Plan) that is a pension plan
for the purposes of any applicable pension benefits legislation or any tax laws
of Canada or a Province thereof, whether or not registered under any such laws,
which is maintained or contributed to by, or to which there is or may be an
obligation to contribute by, any Eligible Subsidiary in respect of any Person's
employment in Canada with such Eligible Subsidiary.
"Capital Availability Amount" means $3,000,000.
"Charter" shall have the meaning given such term in Section
12(c)(iv).
"Chattel Paper" means all "chattel paper," as such term is
defined in the UCC, including electronic chattel paper, now owned or hereafter
acquired by any Person.
"Closing Date" means the date on which Company shall first
receive proceeds of the initial Loans or the date hereof, if no Loan is made
under the facility on the date hereof.
"Collateral" means all of Company's and each Eligible
Subsidiary's property and assets, whether real or personal, tangible or
intangible, and whether now owned or hereafter acquired, or in which it now has
or at any time in the future may acquire any right, title or interests including
all of the following property in which it now has or at any time in the future
may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts; (f) all Deposit Accounts, other bank accounts
and all funds on deposit therein;
(g) all Investment Property;
49
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
(l) all commercial tort claims set forth on Schedule 1(A);
(m) all Books and Records;
(n) all Intellectual Property;
(o) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General
Intangibles and Investment Property;
(p)(i) all money, cash and cash equivalents and (ii) all cash
held as cash collateral to the extent not otherwise constituting
Collateral, all other cash or property at any time on deposit with
or held by Laurus for the account of Company and/or any Eligible
Subsidiary (whether for safekeeping, custody, pledge, transmission
or otherwise); and
(q) all products and Proceeds of all or any of the foregoing,
tort claims and all claims and other rights to payment including (i)
insurance claims against third parties for loss of, damage to, or
destruction of, the foregoing Collateral and (ii) payments due or to
become due under leases, rentals and hires of any or all of the
foregoing and Proceeds payable under, or unearned premiums with
respect to policies of insurance in whatever form.
Notwithstanding anything to the contrary set forth above in this
definition, the types of Collateral described in this definition shall not
include: (i) the last day of the term of the lease or agreement to which any
Eligible Subsidiary is a party therefore, but upon enforcement of the security
interest the applicable Eligible Subsidiary shall stand possessed of such last
day in trust to assign the same to any person acquiring the term of the lease or
agreement therefore; and (ii) Consumer Goods (as defined in the PPSA).
"Common Stock" the shares of stock representing the Company's
common equity interests.
"Contract Rate" shall have the meaning set forth in the
respective Note.
"Default" means any act or event which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Default Rate" has the meaning given to such term in Section
5(a)(iii).
50
"Deposit Accounts" means all "deposit accounts" as such term is
defined in the UCC, now or hereafter held in the name of any Person, including,
without limitation, the Lockbox Account(s).
"Documents" means all "documents", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all bills of lading, dock warrants, dock receipts, warehouse receipts,
and other documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" means and includes each Account of the
Company and each Eligible Subsidiary which conforms to the following criteria:
(a) : (i) in the case of a shipment of merchandise, shipment of the merchandise
has been completed or (ii) in the case of a rendition of services, (w) the
rendition of services has been completed, (x) the fees for such services have
been fully earned by the Company or such Eligible Subsidiary, the case may be,
(y) the respective Account Debtor has been billed for such services and (z) the
Account Debtor has confirmed, pursuant to documentation satisfactory to Laurus,
that such invoice is accurate; (b) no return, rejection or repossession of the
merchandise has occurred; (c) merchandise or services shall not have been
rejected or disputed by the Account Debtor and there shall not have been
asserted any offset, defense or counterclaim; (d) continues to be in full
conformity with the representations and warranties made by Company and each
Eligible Subsidiary to Laurus with respect thereto; (e) Laurus is, and continues
to be, satisfied with the credit standing of the Account Debtor in relation to
the amount of credit extended; (f) there are no facts existing or threatened
which are likely to result in any material adverse change in an Account Debtor's
financial condition; (g) is documented by an invoice in a form approved by
Laurus and shall not be unpaid more than ninety (90) days from invoice date (one
hundred twenty (120) days in the case of governmental or ministry customers set
forth on Schedule 3 hereto); (h) not more than thirty-five percent (35%) of the
unpaid amount of invoices due from such Account Debtor remains unpaid more than
ninety (90) days from invoice date (one hundred twenty (120) days in the case of
governmental or ministry, customers set forth on Schedule 3 hereto); (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 maintains a location in the United States or Canada; provided,
however, Laurus may, from time to time, in the exercise of its sole discretion
and based upon satisfaction of certain conditions to be determined at such time
by Laurus, deem certain Accounts as Eligible Accounts notwithstanding that such
Account is due from an Account Debtor located outside of the United States or
Canada; (k) Laurus has a first priority perfected Lien in such Account and such
Account is not subject to any Lien other than Permitted Liens; (l) does not
arise out of transactions with any employee, officer, director, stockholder or
Affiliate of Company or any Eligible Subsidiary; (m) is payable to Company or
any Eligible Subsidiary; (n) does not arise out of a xxxx and hold sale prior to
shipment and does not arise out of a sale to any Person to which Company or any
Eligible Subsidiary is indebted; (o) is net of any returns, discounts, claims,
credits and allowances; (p) if the Account arises out of contracts between
Company and/or any Eligible Subsidiary, on the one hand, and the United States,
on the other hand, any state, or any department, agency or instrumentality of
any of them, Company and/or such Eligible Subsidiary, as the case may be, has so
notified Laurus, in writing, prior to the creation of such Account, and there
has been compliance with any governmental notice or approval requirements,
including compliance with the Federal Assignment of Claims
51
Act; (q) is a good and valid account representing an undisputed bona fide
indebtedness incurred by the Account Debtor therein named, for a fixed sum as
set forth in the invoice relating thereto with respect to an unconditional sale
and delivery upon the stated terms of goods sold by Company or any Eligible
Subsidiary or work, labor and/or services rendered by Company or any Eligible
Subsidiary; (r) if the Account Debtor is Her Majesty in right of Canada or any
other provincial or local governmental entity or any ministry, such Eligible
Subsidiary has assigned its rights to payment of such account to Laurus pursuant
to and in accordance with the Financial Administration Act, R.S.C. 185, c.F-11,
as amended, or any similar applicable provincial or local law, regulation or
requirement, (s) does not arise out of progress xxxxxxxx prior to completion of
the order (other than progress xxxxxxxx which otherwise satisfy the conditions
set forth in this definition); (t) the total unpaid Accounts from such Account
Debtor does not exceed twenty-five percent (25%) of all Eligible Accounts; (t)
Company's or such Eligible Subsidiary's right to payment is absolute and not
contingent upon the fulfillment of any condition whatsoever; (u) Company or such
Eligible Subsidiary, as the case may be, is able to bring suit and enforce its
remedies against the Account Debtor through judicial process; (v) does not
represent interest payments, late or finance charges owing to Company or such
Eligible Subsidiary, as the case may be, and (w) is otherwise satisfactory to
Laurus as determined by Laurus in the exercise of its sole discretion. In the
event Company requests that Laurus include within Eligible Accounts certain
Accounts of one or more of Company's acquisition targets, Laurus shall at the
time of such request consider such inclusion, but any such inclusion shall be at
the sole option of Laurus and shall at all times be subject to the execution and
delivery to Laurus of all such documentation (including, without limitation,
guaranty and security documentation) as Laurus may require in its sole
discretion.
"Eligible Subsidiary" shall mean Acquisition Corp., AC Tech and
each other Subsidiary of the Company consented to in writing by Laurus to be
included as and "Eligible Subsidiary" for the purposes of this Agreement.
"Equipment" means all "equipment" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
any and all machinery, apparatus, equipment, fittings, furniture, fixtures,
motor vehicles and other tangible personal property (other than Inventory) of
every kind and description that may be now or hereafter used in such Person's
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"Event of Default" means the occurrence of any of the events set
forth in Section 18.
"Excepted Issuances" shall have the meaning given such term in
Section 13(t).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Act Filings" shall have the meaning given to such term
in Section 12.
"Exchange Rate" shall mean the prevailing spot rate of exchange
of North Fork
52
Bank (or, if such rate is not available from North Fork Bank, such other bank as
Laurus may reasonably select) for the purpose of conversion of one currency to
another, at or around 11:00 a.m. New York time, on the date on which any such
conversion of currency is to be made under this Agreement.
"Excluded Taxes" shall mean, with respect to Laurus, any Taxes
(including income, branch profits or franchise taxes) imposed on or measured by
its net income or any transfer Taxes in connection with the issuance of
securities of the Company upon conversion or exercise of securities originally
held by Laurus to a Person other than Laurus.
"Exclusion Period" shall have the meaning given such term in
Section 13(t).
"Financial Statements" shall have the meaning provided such term
in Section 12(u).
"Fixed Conversion Price" has the meaning given such term in the
Minimum Borrowing Note.
"Fixtures" means all "fixtures" as such term is defined in the
UCC, now owned or hereafter acquired by any Person.
"Formula Amount" has the meaning set forth in Section 2(a)(i).
"GAAP" means generally accepted accounting principles, practices
and procedures in effect from time to time in the United States of America.
"General Intangibles" means all "general intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person
including all right, title and interest that such Person may now or hereafter
have in or under any contract, all Payment Intangibles, customer lists,
Licenses, Intellectual Property, interests in partnerships, joint ventures and
other business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, Software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials, Books and
Records, Goodwill (including the Goodwill associated with any Intellectual
Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss, and casualty, whether covering personal
property, real property, tangible rights or intangible rights, all liability,
life, key-person, and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including
embedded software to the extent included in "goods" as defined in the UCC,
manufactured homes, standing timber that is cut and removed for sale and unborn
young of animals.
53
"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, any province or other political subdivision thereof, and any agency,
department or other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Hazardous Materials" shall have the meaning given such term in
Section 12(q).
"Indemnified Person" shall have the meaning given to such term
in Section 25.
"Indemnified Taxes" shall mean Taxes other than Excluded Taxes.
"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 patents, trademarks,
service marks, trade names, copyrights, trade secrets, Licenses, information and
other proprietary rights and processes.
"Inventory" means all "inventory", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all inventory, merchandise, goods and other personal property that are
held by or on behalf of such Person for sale or lease or are furnished or are to
be furnished under a contract of service or that constitute raw materials, work
in process, finished goods, returned goods, or materials or supplies of any
kind, nature or description used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"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.
54
"License" means any rights under any written agreement now or
hereafter acquired by any Person to use any trademark, trademark registration,
copyright, copyright registration or invention for which a patent is in
existence or other license of rights or interests now held or hereafter acquired
by any Person.
"Lien" means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" shall have the meaning set forth in Section 2(a)(i) and
shall include all other extensions of credit hereunder and under any Ancillary
Agreement.
"Material Adverse Effect" means a material adverse effect on (a)
a material adverse effect on the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of Company or
Company and its Subsidiaries (taken as a whole), (b) Company's or any of its
Subsidiary's ability to pay or perform the Obligations in accordance with the
terms hereof or any Ancillary Agreement, or (c) the value of the Collateral, the
Liens on the Collateral or the priority of any such Lien.
"Maximum Legal Rate" shall have the meaning given to such term
in Section 5(a)(iv).
"Minimum Borrowing Amount" means One Million Dollars
($1,000,000), which such aggregate amount shall be evidenced by Minimum
Borrowing Notes.
"Minimum Borrowing Notes" shall mean each Secured Convertible
Note, which shall be issued in a series, made by Company in favor of Laurus to
evidence the Minimum Borrowing Amount.
"NASD" shall have the meaning given to such term in Section
13(b).
"NASD OTCBB" shall have the meaning given such term in Section
12(w).
"Note Shares" shall have the meaning given such term in Section
12(a).
"Notes" means each of the Minimum Borrowing Notes and the
Revolving Note made by Company in favor of Laurus in connection with the
transactions contemplated hereby, as the same may be amended, modified and
supplemented from time to time, as applicable.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Company or any of its Subsidiaries to
Laurus (or any corporation that directly or indirectly controls or is controlled
by or is under common control with Laurus) of every kind and description
(whether or not evidenced by any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act),
55
direct or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including any debt, liability or
obligation owing from Company or any of its Subsidiaries to others which Laurus
may have obtained by assignment or otherwise and further including all interest
(including interest accruing at the then applicable rate provided in this
Agreement after the maturity of the Loans and interest accruing at the then
applicable rate provided in this Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding), charges or any other payments Company or any of its
Subsidiaries is required to make by law or otherwise arising under or as a
result of this Agreement and the Ancillary Agreements, together with all
reasonable expenses and reasonable attorneys' fees chargeable to Company's or
any of its Subsidiary's account or incurred by Laurus in connection with
Company's or any of its Subsidiary's account whether provided for herein or in
any Ancillary Agreement.
"Option" shall mean that certain Option to purchase up to
499,999 shares of Common Stock in connection with the consummation of the
transactions set forth in this Agreement and the Securities Purchase Agreement.
"Option Shares" shall have the meaning set forth in Section
12(a).
"Payment Intangibles" means all "payment intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
including, a General Intangible under which the Account Debtor's principal
obligation is a monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen,
artisans, bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary course of
business in connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (i) not overdue or (ii) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the Company or any Subsidiary thereof in conformity with GAAP; (c) Liens in
favor of Laurus; (d) Liens for taxes (i) not yet due or (ii) being diligently
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the Company or any
Subsidiary thereof in conformity with GAAP provided, that, the Lien shall have
no effect on the priority of Liens in favor of Laurus or the value of the assets
in which Laurus has a Lien; (e) Purchase Money Liens securing Purchase Money
Indebtedness to the extent permitted in this Agreement and (f) Liens specified
on Schedule 2 hereto.
"Person" means any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"PPSA" shall mean the Personal Property Security Act as in
effect in the Province of Ontario, or any other Canadian Federal or Provincial
statute pertaining to the granting,
56
perfecting, priority or ranking of security interests, liens, hypothecs on
personal property, and any successor statutes, together with any regulations
thereunder, in each case as in effect from time to time. References to sections
of the PPSA shall be construed to also refer to any successor sections.
"Prime Rate" means the "prime rate" published in The Wall Street
Journal from time to time. The Prime Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in such rate.
"Priority Payables" shall mean, as to any Eligible Subsidiary at
any time, (a) the full amount of the liabilities of such Eligible Subsidiary at
such time which (i) have a trust imposed to provide for payment or a security
interest, pledge, lien or charge ranking or capable of ranking senior to or pari
passu with security interests, liens or charges securing the Obligations on any
of the Eligible Accounts of such Eligible Subsidiary under Federal, Provincial,
State, county, district, municipal, or local law or (ii) have a right imposed to
provide for payment ranking or capable of ranking senior to or pari passu with
the Obligations under local or national law, regulation or directive, including,
but not limited to, claims for unremitted and/or accelerated rents, taxes,
wages, withholding taxes, VAT and other amounts payable to an insolvency
administrator, employee withholdings or deductions and vacation pay, workers'
compensation obligations, government royalties or pension fund obligations in
each case to the extent such trust, or security interest, lien or charge has
been or may be imposed.
"Proceeds" means "proceeds", as such term is defined in the UCC
and, in any event, shall include: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Company, any Eligible Subsidiary or
any other Person from time to time with respect to any Collateral; (b) any and
all payments (in any form whatsoever) made or due and payable to Company or any
Eligible Subsidiary from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, governmental authority, bureau or agency (or any person
acting under color of governmental authority); (c) any claim of Company or any
Eligible Subsidiary against third parties (i) for past, present or future
infringement of any Intellectual Property or (ii) for past, present or future
infringement or dilution of any trademark or trademark license or for injury to
the goodwill associated with any trademark, trademark registration or trademark
licensed under any trademark License; (d) any recoveries by Company or any
Eligible Subsidiary against third parties with respect to any litigation or
dispute concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts , rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness
incurred for the payment of all or any part of the purchase price of any fixed
asset, including indebtedness under capitalized leases, (b) any indebtedness
incurred for the sole purpose of financing or refinancing all or any part of the
purchase price of any fixed asset, and (c) any renewals, extensions or
57
refinancings thereof (but not any increases in the principal amounts thereof
outstanding at that time).
"Purchase Money Lien" means any Lien upon any fixed assets that
secures the Purchase Money Indebtedness related thereto but only if such Lien
shall at all times be confined solely to the asset the purchase price of which
was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
"Receivables Purchase" shall have the meaning given such term in
Section 2(b).
"Registration Rights Agreements" means those registration rights
agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.
"Revolving Note" means that secured revolving note made by
Company in favor of Laurus in the aggregate principal amount of Two Million
Dollars ($2,000,000).
"SEC" shall mean the Securities and Exchange Commission.
"Securities" means the Notes, the Option and the Warrants being
issued by Company to Laurus pursuant to this Agreement and the Ancillary
Agreements and the shares of the common stock of Company which may be issued
pursuant to conversion of such Notes in whole or in part or exercise of such
Warrants or such Option.
"Securities Act" shall have the meaning given such term in
Section 12(r).
"Security Documents" means all security agreements, mortgages,
cash collateral deposit letters, pledges and other agreements which are executed
by the Company or any of its Subsidiaries in favor of Laurus.
"Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.
"Stock" means all certificated and uncertificated shares,
options, warrants, membership interests, general or limited partnership
interests, participation or other equivalents (regardless of how designated) of
or in a corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including common stock, preferred stock, or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the SEC under the Securities Exchange Act
of 1934).
"Subsidiary" of any Person means (i) a corporation or other
entity whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other persons or entities performing
58
similar functions for such person or entity, are owned, directly or indirectly,
by such person or entity or (ii) a corporation or other entity in which such
person or entity owns, directly or indirectly, more than 50% of the equity
interests at such time.
"Supporting Obligations" means all "supporting obligations" as
such term is defined in the UCC.
"Taxes" shall mean any and all present or future taxes, levies,
imposts, deductions and other governmental charges or withholdings, and all
interest, penalties and other liabilities with respect thereto, imposed by any
jurisdiction (or any political subdivision thereof).
"Term" means, as applicable, the Initial Term and any Renewal
Term.
"UCC" means the Uniform Commercial Code as the same may, from
time be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
"VAT" shall mean Value Added Tax imposed in Canada or any other
jurisdiction and any equivalent tax applicable in any jurisdiction (including
Goods and Services Tax, Harmonized Sales Tax and Quebec Sales Tax).
"Warrant Shares" shall have the meaning given such term in
Section 12(a).
"Warrants" has the meaning set forth in the Registration Rights
Agreements.
59
Exhibit A
Borrowing Base Certificate
[To be inserted]
--------------------------------
