EXHIBIT 4.1
LAURUS MASTER FUND, LTD.
AND
CARDIOGENESIS CORPORATION
DATED: MARCH 27, 2003
TABLE OF CONTENTS
PAGE
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1. (a) General Definitions................................................ 1
(b) Accounting Terms.............................................. 1
(c) Other Terms................................................... 1
(d) Rules of Construction......................................... 1
2. Credit Advances........................................................ 2
3. Repayment of the Loans................................................. 3
4. Procedure for Revolving Credit Advances................................ 3
5. Interest and Payments.................................................. 4
(a) Interest....................................................... 4
(b) Payments....................................................... 4
6. Security Interest...................................................... 5
7. Representations, Warranties and Covenants Concerning the Collateral.... 6
8. Payment of Accounts.................................................... 8
9. Collection and Maintenance of Collateral............................... 9
10. Inspections and Appraisals............................................. 9
11. Financial Reporting.................................................... 10
12. Additional Representations, Warranties and Covenants................... 11
13. Covenants.............................................................. 13
14. Further Assurances..................................................... 16
15. Representations and Warranties of Laurus............................... 16
16. Power of Attorney...................................................... 17
17. Term of Agreement...................................................... 17
18. Termination of Lien.................................................... 18
19. Events of Default...................................................... 18
20. Remedies............................................................... 20
21. Waivers................................................................ 21
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PAGE(s)
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22. Expenses............................................................... 21
23. Assignment By Laurus................................................... 22
24. No Waiver; Cumulative Remedies......................................... 22
25. Application of Payments................................................
26. Indemnity.............................................................. 22
27. Revival................................................................ 22
28. Notices................................................................ 23
29. Governing Law, Jurisdiction and Waiver of Jury Trial................... 24
30. Attorney Fees.......................................................... 24
31. Limitation of Liability................................................ 25
32. Entire Understanding................................................... 25
33. Severability........................................................... 25
34. Captions............................................................... 25
35. Counterparts; Telecopier Signatures.................................... 25
36. Construction........................................................... 25
37. Publicity.............................................................. 25
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PURCHASE AND SECURITY AGREEMENT
This Purchase and Security Agreement is made as of March 27,
2003 by and among LAURUS MASTER FUND, LTD., a Cayman Islands corporation
("Laurus") and CARDIOGENESIS CORPORATION, a California corporation (the
"Company").
BACKGROUND
The Company has requested that Laurus make investments and
advances available to the Company; and
Laurus has agreed to make such investments and advances to the
Company on the terms and conditions set forth in this Agreement.
AGREEMENT
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.
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2. Credit Advances.
(a) (i) Subject to the terms and conditions set forth
herein and in the Ancillary Agreements, Laurus shall make revolving credit
advances (the "Revolving Credit Advances") to the Company from time to time
during the Term which, in the aggregate at any time outstanding, will not exceed
the lesser of (x) (I) the Capital Availability Amount minus (II) such reserves
as Laurus may reasonably in its good faith judgment deem proper and necessary
from time to time and with respect to which Laurus will consult the Company
prior to taking any such reserves (the "Reserves") or (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".
(ii) Notwithstanding the limitations set forth
above, Laurus retains the right to lend to the Company from time to time such
amounts in excess of such limitations as Laurus may determine in its sole
discretion.
(iii) If the Company does not pay any interest,
fees, costs or charges to Laurus when due, the Company shall thereby be deemed
to have requested, and Laurus is hereby authorized at its discretion and after
providing notice to the Company, to make and charge to the Company's account, a
Revolving Credit Advance to the Company as of such date in an amount equal to
such unpaid interest, fees, costs or charges.
(iv) If the Company at any time fails to perform
or observe any of the covenants contained in this Agreement or any Ancillary
Agreement, Laurus may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Company (or, at Laurus' option, in
Laurus' name) and may, but need not, take any and all other actions which Laurus
may deem necessary to cure or correct such failure (including the payment of
taxes, the satisfaction of Liens, the performance of obligations owed to Account
Debtors, lessors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); provided, however, unless
Laurus determines in the exercise of its reasonable discretion that the taking
of any such action by Laurus is necessary to preserve or protect the Collateral
or Laurus' rights and remedies under this Agreement and/or applicable law, the
Company shall have a period of not more than ten (10) Business Days to cure or
correct such failure prior to Laurus' taking any such action. The amount of all
monies expended and all costs and expenses (including attorneys' fees and legal
expenses) incurred by Laurus in connection with or as a result of the
performance or observance of such agreements or the taking of such action by
Laurus shall be charged to the Company's account as a Revolving Credit Advance
and added to the Obligations.
(v) Laurus will account to the Company monthly
with a statement of all Loans and other advances, charges and payments made
pursuant to this Agreement, and such account rendered by Laurus shall be deemed
final, binding and conclusive unless Laurus is notified by the Company in
writing to the contrary within fifteen (15) days of the date each account was
rendered specifying the item or items to which objection is made.
(vi) During the Term, the Company may borrow,
prepay and reborrow Revolving Credit Advances, all in accordance with the terms
and conditions hereof.
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(vii) If any Eligible Account is not paid by the
Account Debtor within ninety (90) days after the date that such Eligible Account
was invoiced or if any Account Debtor asserts a deduction, dispute, contingency,
set-off, or counterclaim with respect to any Eligible Account, the Company shall
reimburse Laurus for the amount of the Revolving Credit Advance made with
respect to such Eligible Account plus an adjustment fee in an amount equal to
one-half of one percent (0.50%) of the gross face amount of such Eligible
Account; provided, however, that the Company shall have the right but not the
obligation to pay or otherwise set-off such unpaid Eligible Account within
fifteen (15) days of the event described above such that no adjustment fee shall
be imposed on such balance.
(b) Following the occurrence of an Event of Default,
Laurus may, at its option, after providing the Company with at least three (3)
days' prior written notice, 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 the Company), the Company shall
be deemed to hereby have sold, assigned, transferred, conveyed and delivered to
Laurus, and Laurus shall be deemed to have purchased and received from the
Company, all right, title and interest of the Company in and to all Accounts
which shall at any time constitute Eligible Accounts (the "Receivables
Purchase"). All outstanding Loans hereunder shall be deemed obligations under
such accounts receivable purchase facility. The conversion to an accounts
receivable purchase facility in accordance with the terms hereof shall not be
deemed an exercise by Laurus of its secured creditor rights under Article 9 of
the UCC. Immediately following Laurus' request, the Company shall execute all
such further documentation as may be required by Laurus to more fully set forth
the accounts receivable purchase facility herein contemplated, including,
without limitation, Laurus' standard form of accounts receivable purchase
agreement and account debtor notification letters, but the Company's failure to
enter into any such documentation shall not impair or affect the Receivables
Purchase in any manner whatsoever.
3. Repayment of the Loans. The Company shall be required to
(a) make a mandatory prepayment hereunder within five (5) days of the date on
which the aggregate outstanding principal balance of the Revolving Credit
Advances made by Laurus to the Company hereunder is in excess of the Formula
Amount, in an amount equal to such excess; and (b) repay on the expiration of
the Term (i) the then aggregate outstanding principal balance of the Loans made
by Laurus to the Company hereunder together with accrued and unpaid interest,
fees and charges and (ii) all other amounts owed Laurus under this Agreement and
the Ancillary Agreements. Any payments of principal, interest, fees or any other
amounts payable hereunder or under any Ancillary Agreement shall be made prior
to 12:00 noon (New York time) on the due date thereof in immediately available
funds.
4. Procedure for Revolving Credit Advances. The Company may
by written notice request a borrowing of Revolving Credit Advances prior to
12:00 noon (New York time) on the Business Day of its request to incur, on that
day, a Revolving Credit Advance. Together with each request for a Revolving
Credit Advance (or at such other intervals as Laurus may request), the Company
shall deliver to Laurus a Borrowing Base Certificate in the form of Exhibit A,
which shall be certified as true and correct by the Chief Executive Officer or
Chief Financial Officer of the Company together with all supporting
documentation relating thereto. All Revolving Credit Advances shall be disbursed
from whichever office or other place Laurus may designate from time to time and
shall be charged to the Company's account on Laurus' books. The proceeds of each
Revolving Credit Advance made by Laurus shall be made available
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to the Company on the Business Day following the Business Day so requested in
accordance with the terms of this Section 4 by way of credit to the Company's
operating account maintained with such bank as the Company designated to Laurus.
Any and all money Obligations due and owing hereunder may be charged to the
Company's account and shall constitute Revolving Credit Advances.
5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(a)(iii)
below, the Company shall pay interest at the Contract Rate on the unpaid
principal balance of each Loan until such time as such Loan is collected in full
in good funds in dollars of the United States of America.
(ii) Interest and payments shall be computed on
the basis of actual days elapsed in a year of 360 days. At Laurus' option,
Laurus may charge the Company account for said interest.
(iii) Effective upon the occurrence of any Event
of Default and for so long as any Event of Default shall be continuing, the
Contract Rate shall automatically be increased to one and one-quarter percent
(1.25%) per month (such increased rate, the "Default Rate"), and all outstanding
Obligations, including unpaid interest, shall continue to accrue interest from
the date of such Event of Default at the Default Rate applicable to such
Obligations.
(iv) In no event shall the aggregate interest
payable hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate") and if any
provision of this Agreement or Ancillary Agreement is in contravention of any
such law or regulation, interest payable under this Agreement and each Ancillary
Agreement shall be computed on the basis of the Maximum Legal Rate (so that such
interest will not exceed the Maximum Legal Rate).
(v) The Company shall pay principal, interest
and all other amounts payable hereunder, or under any Ancillary Agreement,
without any deduction whatsoever, including any deduction for any set-off or
counterclaim.
(b) Payments.
(i) Closing/Annual Payments. Upon execution of
this Agreement by the Company and Laurus, the Company shall pay to Laurus
Capital Management, LLC a closing payment in an amount equal to three percent
(3%) of the Capital Availability Amount. On each of the first and second
anniversary of the Closing Date, the Company shall pay to Laurus Capital
Management, LLC an annual payment equal to one percent (1%) of the Capital
Availability Amount. Such payments shall be deemed fully earned on the Closing
Date but shall not become payable until the occurrence of the execution of this
Agreement or the anniversary of the Closing Date, as the case may be. In
addition, the Company shall pay to Laurus Capital Management, LLC a closing
payment equal to 0.20% of all Collateral Accounts (as defined below).
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(ii) Collateral Management Payment. For
underwriting, processing and supervising the Company's Accounts, the Company
shall make a monthly payment of 0.50% of all Accounts created during each month
to the extent that at the time such Account is created it is an Eligible Account
and for which there are outstanding Revolving Credit Advances against such
Account or against which a Revolving Credit Advance is made during such month
("Collateral Accounts"). This payment shall be payable monthly in arrears by a
charge by Laurus to the Company's account.
(iii) Unused Line payment. If, for any month, the
average outstanding Revolving Advances (the "Average Revolving Amount") do not
equal the Capital Availability Amount, the Company shall pay to Laurus at the
end of such month a payment (calculated on a per annum basis) in an amount equal
to 0.45% of the amount by which the Capital Availability Amount exceeds the
Average Revolving Amount.
(iv) Overadvance Payment. Without affecting the
Company's obligation to immediately repay any Loans which exceed the amounts
permitted by Section 2 ("Overadvances"), in the event an Overadvance occurs, all
such Overadvances shall bear interest at a monthly rate equal to 2% of the
amount of such Overadvances for each month or portion thereof as such amounts
shall be outstanding.
(v) Financial Information Default. Without
affecting Laurus' other rights and remedies, in the event the Company fails to
deliver the financial information required by Section 11 on or before the date
required by this Agreement, the Company shall pay Laurus a fee in the amount of
$250.00 per week (or portion thereof) for each such failure until such failure
is cured to Laurus' satisfaction or waived in writing by Laurus. Such fee shall
be charged to the Company's account upon the occurrence of each such failure.
Such fee shall not apply in the case where such failure of timely delivery was
due to reasonable cause.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the
Obligations, the Company hereby assigns, pledges and grants to Laurus a
continuing security interest in and Lien upon all of the Collateral. All of the
Company's Books and Records relating to the Collateral shall, until delivered to
or removed by Laurus, be kept by the Company in trust for Laurus until all
Obligations have been paid in full. Each confirmatory assignment schedule or
other form of assignment hereafter executed by the Company shall be deemed to
include the foregoing grant, whether or not the same appears therein.
(b) The Company hereby (i) authorizes Laurus to file any
financing statements, continuation statements or amendments thereto that (x)
indicate the Collateral (1) as all assets of the Company (or any portion of the
Company's assets) or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the UCC of such jurisdiction, or (2) as being of an equal or lesser scope or
with greater detail, and (y) contain any other information required by Part 5 of
Article 9 of the UCC for the sufficiency or filing office acceptance of any
financing statement, continuation statement or amendment and (ii) ratifies its
authorization for Laurus to have filed any initial financial statements, or
amendments thereto if filed prior to the date hereof. The Company acknowledges
that it is not authorized to file any financing statement or amendment or
termination statement with respect to any financing
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statement without the prior written consent of Laurus and agrees that it will
not do so without the prior written consent of Laurus, subject to the Company's
rights under Section 9-509(d)(2) of the UCC.
(c) The Company hereby grants to Laurus an irrevocable,
non-exclusive license (exercisable upon the termination of this Agreement due to
an occurrence and during the continuance of an Event of Default without payment
of royalty or other compensation to the Company) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, or hereafter
acquired by the Company, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof, and represents, promises
and agrees that any such license or sublicense is not and will not be in
conflict with the contractual or commercial rights of any third Person;
provided, that such license will terminate on the termination of this agreement
and the payment in full of all Obligations.
7. Representations, Warranties and Covenants Concerning the
Collateral. The Company represents, warrants (each of which such representations
and warranties shall be deemed repeated upon the making of each request for a
Revolving Credit Advance and made as of the time of each and every Revolving
Credit Advance hereunder) and covenants as follows:
(a) Except as set forth on Exhibit 7(a), all of the
Collateral (i) is owned by the Company free and clear of all Liens (including
any claims of infringement) except those in Laurus' favor and Permitted Liens
and (ii) is not subject to any agreement prohibiting the granting of a Lien or
requiring notice of or consent to the granting of a Lien.
(b) The Company shall not encumber, mortgage, pledge,
assign or grant any Lien in any Collateral of the Company or any of the
Company's other assets to anyone other than Laurus and except for Permitted
Liens.
(c) The Liens granted pursuant to this Agreement, upon
completion of the filings and other actions listed on Exhibit 7(c) (which, in
the case of all filings and other documents referred to in said Exhibit, have
been delivered to Laurus in duly executed form) constitute valid perfected
security interests in all of the Collateral in favor of Laurus as security for
the prompt and complete payment and performance of the Obligations, enforceable
in accordance with the terms hereof against any and all creditors of and any
purchasers from the Company, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, and (b) general principles of equity
that restrict the availability of equitable or legal remedies, and such security
interest is prior to all other Liens in existence on the date hereof.
(d) No effective security agreement, mortgage, deed of
trust, financing statement, equivalent security or Lien instrument or
continuation statement covering all or any part of the Collateral is or will be
on file or of record in any public office, except those relating to Permitted
Liens.
(e) The Company shall not dispose of any of the Collateral
whether by sale, lease or otherwise except for the sale of Inventory in the
ordinary course of business and for the
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disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out Equipment having an aggregate fair market value of
not more than $25,000 and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus' first priority security interest or (ii) the proceeds of which are
remitted to Laurus in reduction of the Obligations.
(f) The Company shall defend the right, title and interest
of Laurus in and to the Collateral against the claims and demands of all Persons
whomsoever, and take such actions, including (i) all actions necessary to grant
Laurus "control" of any Investment Property, Deposit Accounts, Letter-of-Credit
Rights or electronic Chattel Paper owned by the Company, with any agreements
establishing control to be in form and substance satisfactory to Laurus which
such action shall be taken by the Company within three Business Days of Laurus'
request therefor, (ii) the prompt (but in no event later than three Business
Days following Laurus' request therefor) delivery to Laurus of all original
Instruments, Chattel Paper, negotiable Documents and certificated Stock owned by
a Company (in each case, accompanied by stock powers, allonges or other
instruments of transfer executed in blank), (iii) notification of Laurus'
interest in Collateral at Laurus' request within three Business Days following
Laurus' request therefor, and (iv) the institution of litigation against third
parties as shall be prudent in order to protect and preserve the Company's and
Laurus' respective and several interests in the Collateral; provided, however,
in the event Laurus requests that the Company institutes any such litigation,
such litigation shall be instituted within 5 Business Days following Laurus'
request therefor.
(g) The Company shall promptly, and in any event within
three (3) Business Days after the same is acquired by it, notify Laurus of any
commercial tort claim (as defined in the UCC) acquired by it and unless
otherwise consented by Laurus, the Company shall enter into a supplement to this
Agreement granting to Laurus a Lien in such commercial tort claim.
(h) The Company shall place notations upon its Books and
Records to disclose Laurus' Lien in the Collateral.
(i) If the Company retains possession of any Chattel Paper
or Instrument with Laurus' consent, such Chattel Paper and Instruments shall be
marked with the following legend: "This writing and obligations evidenced or
secured hereby are subject to the security interest of Laurus Master Fund, Ltd."
(j) The Company shall perform in a reasonable time all
other steps requested by Laurus to create and maintain in Laurus' favor a valid
perfected first Lien in all Collateral subject only to Permitted Liens.
(k) The Company shall notify Laurus promptly and in any
event within four (4) Business Days after obtaining knowledge thereof (i) of any
event or circumstance that to the Company's knowledge would cause Laurus to
consider any then existing Account as no longer constituting an Eligible
Account; (ii) of any material delay in the Company's performance of any of its
obligations to any Account Debtor; (iii) of any assertion by any Account Debtor
of any material claims, offsets or counterclaims; (iv) of any allowances,
credits and/or monies granted by the Company to any Account Debtor; (v) of any
material adverse information relating to the financial condition of an Account
Debtor; (vi) of any material return of goods; and (vii) of any loss, damage or
destruction of any of the Collateral.
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(l) All Eligible Accounts (i) represent complete bona fide
transactions which require no further act under any circumstances on the
Company's part to make such Accounts payable by the Account Debtors, (ii) are
not subject to any present, contingent or, to the Company's knowledge, future
offsets or counterclaims, and (iii) do not represent consignment sales,
guaranteed sales, sale or return or other similar understandings or obligations
of any Affiliate or Subsidiary of the Company. The Company has not made, and
will not make except in the ordinary course of business consistent with past
practice, any agreement with any Account Debtor for any extension of time for
the payment of any Account, any compromise or settlement for less than the full
amount thereof, any release of any Account Debtor from liability therefor, or
any deduction therefrom except a discount or allowance for prompt or early
payment allowed by the Company in the ordinary course of its business consistent
with historical practice and as previously disclosed to Laurus in writing.
(m) The Company shall keep and maintain the Equipment in
good operating condition, except for ordinary wear and tear, and shall make all
necessary repairs and replacements thereof so that the value and operating
efficiency shall at all times be maintained and preserved. The Company shall not
permit any such items to become a Fixture to real estate or accessions to other
personal property.
(n) The Company shall maintain and keep all of its Books
and Records concerning the Collateral at the Company's executive offices listed
in Exhibit 12(d).
(o) The Company shall maintain and keep the Collateral at
the addresses listed in Exhibit 12(d), provided, that the Company may change
such locations or open a new location, provided that the Company provides Laurus
at least twenty (20) days prior written notice of such changes or new location
and (ii) prior to such change or opening of a new location it executes and
delivers to Laurus such agreements as Laurus may request, including landlord
agreements, mortgagee agreements and warehouse agreements, each in form and
substance satisfactory to Laurus.
(p) Exhibit 7(p) lists all banks and other financial
institutions at which the Company maintains deposits and/or other accounts, and
such Exhibit correctly identifies the name, address and telephone number of each
such depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number. The Company shall
establish any depository or other bank account of any with any financial
institution (other than the accounts set forth on Exhibit 7(p) without Laurus'
prior written consent.
8. Payment of Accounts.
(a) The Company will direct all present and future Account
Debtors and other Persons obligated to make payments constituting Collateral to
make such payments directly to the lockbox maintained by the Company (the
"Lockbox") with Xxxxx Fargo pursuant to the terms of the Four Party Wholesale
Lockbox Agreement dated March 27, 2003 or such other financial institution
accepted by Laurus in writing as may be selected by the Company (the "Lockbox
Bank"). On or prior to the Closing Date, the Company shall and shall cause the
Lockbox Bank to enter into all such documentation acceptable to Laurus (i) to
perfect Laurus' first priority security interest in the Blocked Account and (ii)
pursuant to which the Lockbox Bank agrees to: (a) sweep the Lockbox on a daily
basis and deposit all checks received therein to deposit account number
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___________ maintained by Borrower with Xxxxx Fargo (the "Blocked Account") and
(b) comply only with the instructions or other directions of Laurus concerning
the Lockbox and the Blocked Account. All of the Company's invoices, account
statements and other written or oral communications directing, instructing,
demanding or requesting payment of any Account of the Company or any other
amount constituting Collateral shall conspicuously direct that all payments be
made to the Lockbox or such other address as Laurus may direct in writing. If,
notwithstanding the instructions to Account Debtors, the Company receives any
payments, the Company shall immediately remit such payments to the Blocked
Account in their original form with all necessary endorsements. Until so
remitted, the Company shall hold all such payments in trust for and as the
property of Laurus and shall not commingle such payments with any of its other
funds or property. The Company shall pay Laurus five percent (5%) of the amount
of any payment so received by the Company and not delivered in kind to the
Blocked Account within five (5) Business Days following the Company's receipt
thereof.
(b) At Laurus' election, if an Event of Default has
occurred and is continuing, Laurus may notify the Company's Account Debtors of
Laurus' security interest in the Accounts, collect them directly and charge the
collection costs and expenses thereof to the Company's account.
9. Collection and Maintenance of Collateral.
(a) Laurus may verify the Company's Accounts utilizing an
audit control company or any other agent of Laurus. So long as no Default or
Event of Default shall have occurred and be continuing and/or Laurus does not
believe such verifications are necessary to preserve or protect the Collateral
or its rights and remedies under this Agreement and applicable law, Laurus shall
not verify the Company's Accounts more than four (4) times during any calendar
year and not more than two (2) times during any consecutive six (6) month
period.
(b) Laurus will credit (conditional upon final collection)
all proceeds of Accounts to the Company's account three (3) Business Days after
receipt by Laurus of good funds in dollars of the United States of America in
Laurus' account. Any amount received by Laurus after 12:00 noon (New York time)
on any Business Day shall be deemed received on the next Business Day.
(c) As Laurus receives the proceeds of Accounts, it shall
apply such proceeds to (A) Revolving Credit Advances including Overadvances made
by Laurus, if any, (B) the interest and fees earned by Laurus with respect to
such Accounts, and (C) any amounts otherwise due Laurus including, without
limitation, pursuant to Sections 2, 5(b) and 22 hereof which have theretofore
not been paid, and if no Revolving Credit Advances are then outstanding, pay to
the Company in weekly intervals the aggregate amount so collected. Following the
occurrence and during the continuance of an Event of Default, Laurus shall have
the right to apply all proceeds of Accounts to the Obligations in such order as
Laurus shall elect.
10. Inspections and Appraisals. At all times during normal
business hours, Laurus, and/or any agent of Laurus shall have the right to (a)
have access to, visit, inspect, review, evaluate and make physical verification
and appraisals of the Company's properties and the Collateral, (b) inspect,
audit and copy (or take originals if necessary) and make extracts from the
Company's Books and Records, including management letters prepared by
independent
9
accountants, and (c) discuss with the Company's principal officers, and
independent accountants, the Company's business, assets, liabilities, financial
condition, results of operations and business prospects. The Company will
deliver to Laurus any instrument necessary for Laurus to obtain records from any
service bureau maintaining records for the Company. If any internally prepared
financial information, including that required under this paragraph is
unsatisfactory in any manner to Laurus, Laurus may request that the Accountants
review the same.
11. Financial Reporting. The Company will deliver, or cause to
be delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
(a) As soon as available, and in any event within ninety
(90) days after the end of each fiscal year of the Company, the Company's
unaudited financial statements reviewed by independent certified public
accountants of recognized standing selected by Company and acceptable to Laurus
(the "Accountants"),which annual financial statements shall include the
Company's balance sheet as at the end of such fiscal year and the related
statements of the Company's income, retained earnings and cash flows for the
fiscal year then ended, prepared, if Laurus so requests, on a consolidating and
consolidated basis to include any Affiliates, all in reasonable detail and
prepared in accordance with GAAP accepting only that they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete consolidated financial
statements, together with (i) copies of any management letters prepared by such
accountants; (ii) a report signed by the Accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default; and (iii) a certificate
of the Company's Chief Executive Officer or Chief Financial Officer stating that
such financial statements have been prepared in accordance with GAAP and whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) As soon as available and in any event within forty
five (45) days after the end of each quarter, an unaudited/internal balance
sheet and statements of income, retained earnings and cash flows of the Company
as at the end of and for such quarter and for the year to date period then
ended, prepared, if Laurus so requests, on a consolidating and consolidated
basis to include any Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous year,
all prepared in accordance with generally accepted accounting principles in the
United States of America for interim financial information and subject to
year-end adjustments. And accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete consolidated financial statements,;
and accompanied by a certificate of the Company' President or Chief Financial
Officer, stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and (ii) whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto; and
(c) Within twenty (20) days after the end of each month,
agings of the Company's Accounts, unaudited trial balances and its accounts
payable and a calculation of the Company's Accounts, Eligible Accounts and
Inventory as at the end of such month or shorter time period.
10
12. Additional Representations and Warranties. The Company
represents and warrants (each of which such representations and warranties shall
be deemed repeated upon the making of a request for a Revolving Credit Advance
and made as of the time of each Revolving Credit Advance made hereunder), as
follows:
(a) The Company is a corporation duly incorporated and
validly existing under the laws of the jurisdiction of its incorporation and
duly qualified and in good standing in every other state or jurisdiction in
which the nature of the Company's business requires such qualification.
(b) The execution, delivery and performance of this
Agreement and the Ancillary Agreements (i) have been duly authorized, (ii) are
not in contravention of the Company's certificate of incorporation, by-laws or
of any indenture, agreement or undertaking to which the Company is a party or by
which the Company is bound and (iii) are within the Company's corporate powers.
(c) This Agreement and the Ancillary Agreements executed
and delivered by the Company are the Company's legal, valid and binding
obligations, enforceable in accordance with their terms.
(d) Exhibit 12(d) sets forth the Company's name as it
appears in official filing in the state of its incorporation, the type of entity
of the Company, the organizational identification number issued by the Company's
state of incorporation or a statement that no such number has been issued, the
Company's state of incorporation, and the location of the Company's chief
executive office, corporate offices, warehouses, other locations of Collateral
and locations where records with respect to Collateral are kept (including in
each case the county of such locations) and, except as set forth in such Exhibit
12(d), such locations have not changed during the preceding twelve months. As of
the Closing Date, during the prior five years, except as set forth in Exhibit
12(d), the Company has not been known as or conducted business in any other name
(including trade names). The Company has only one state of incorporation.
(e) Based upon the Employee Retirement Income Security Act
of 1974 ("ERISA"), and the regulations and published interpretations thereunder:
(i) the Company has not engaged in any Prohibited Transactions as defined in
Section 406 of ERISA and Section 4975 of the Internal Revenue Code, as amended;
(ii) the Company has met all applicable minimum funding requirements under
Section 302 of ERISA in respect of its plans; (iii) the Company has no knowledge
of any event or occurrence which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Title IV of ERISA to terminate any
employee benefit plan(s); (iv) the Company has no fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than the Company's employees; and (v) the Company has not withdrawn, completely
or partially, from any multi-employer pension plan so as to incur liability
under the Multiemployer Pension Plan Amendments Act of 1980.
(f) Except as set forth on Exhibit 12(f), the Company is
solvent, able to pay its debts as they mature, has capital sufficient to carry
on its business and all businesses in which the Company is about to engage and
the fair saleable value of its assets (calculated on a going concern basis) is
in excess of the amount of its liabilities.
11
(g) There is no pending or threatened litigation, action
or proceeding which involves the possibility of having a Material Adverse
Effect.
(h) All balance sheets and income statements which have
been delivered to Laurus fairly state the Company's financial condition on a
basis consistent with that of previous financial statements and there has been
no material adverse change in the Company's financial condition as reflected in
such statements since the balance sheet date of the statements last delivered to
Laurus and such statements do not fail to disclose any fact or facts which might
have a Material Adverse Effect on the Company's financial condition.
(i) The Company possesses all of the Intellectual Property
necessary to conduct its business. There has been no assertion or claim of
violation or infringement with respect to any Intellectual Property.
(j) Neither this Agreement, the exhibits and schedules
hereto, the Ancillary Agreements nor any other document delivered by the Company
to Laurus or its attorneys or agents in connection herewith or therewith or with
the transactions contemplated hereby or thereby, contain any untrue statement of
a material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Any financial projections and other estimates
provided to Laurus by the Company were based on the Company's experience in the
industry and on assumptions of fact and opinion as to future events which the
Company, at the date of the issuance of such projections or estimates, believed
to be reasonable. As of the date hereof no facts have come to the attention of
the Company that would, in its opinion, require the Company to revise or amplify
in any material respect the assumptions underlying such projections and other
estimates or the conclusions derived therefrom.
(k) The offer, sale and issuance of the Note and the
Warrant will be exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither the Company nor any of its Affiliates, nor any person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Securities.
(l) The Common Stock of the Company is registered pursuant
to Section 12(b) or 12(g) of the Exchange Act and the Company has timely filed
all proxy statements, reports, schedules, forms, statements and other documents
required to be filed by it under the Exchange Act. The Company has furnished
Laurus with copies of (i) its Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 as amended and (ii) its Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 2002, June 30, 2002 and September 30,
2002 (collectively, the "SEC Reports"). Each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective form
and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the
12
SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed) and fairly present in all material respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).
(m) Except as set forth on Exhibit 12(m), the Company's
Common Stock is listed for trading on the Nasdaq SmallCap Market and satisfies
all requirements for the continuation of such listing. The Company has received
anotice that its Common Stock may be delisted from the Nasdaq SmallCap Market
and that the Common Stock does not meet all requirements for the continuation of
such listing.
(n) Neither the Company, nor any of its affiliates, nor
any person acting on its or their behalf, has directly or indirectly made any
offers or sales of any security or solicited any offers to buy any security
under circumstances that would cause the offering of the Securities pursuant to
this Agreement to be integrated with prior offerings by the Company for purposes
of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions. Nor will the 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.
(o) The Securities are restricted securities as of the
date of this Agreement. The 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 federal securities laws.
(p) The Company understands the nature of the Securities
being sold hereby and recognizes that they may have a potential dilutive effect.
The Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Note and exercise of the Warrant is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
(q) There is no agreement that has not been filed with the
SEC as an exhibit to a registration statement or other applicable form the
breach of which could have a material and adverse effect as to the Company and
its subsidiaries, or would prohibit or otherwise interfere with the ability of
the Company to enter into and perform any of its obligations under this
Agreement or the Registration Rights Agreement in any material respect.
13. Covenants. The Company covenants as follows:
(a) The Company will not, without the prior written
consent of Laurus, change (i) its name as it appears in the official filings in
the state of its incorporation or formation, (ii) the type of legal entity it
is, (iii) its organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws
13
or other organizational document; provided, however, the Company may, without
such consent, amend its certificate of incorporation (subject to Section
13(a)(i)-(iv) above), by-laws or other organization document in connection with
an equity investment in the Company, a stock split or reverse stock split, or
other combination of the Company's shares of Common Stock, and the Company shall
provide Laurus with a copy of such amendment documentation not later than three
Business Days prior to the effectiveness thereof.
(b) The operation of the Company's business is and will
continue to be in compliance in all material respects with all applicable
federal, state and local laws, rules and ordinances, including to all laws,
rules, regulations and orders relating to taxes, payment and withholding of
payroll taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee health safety and
environmental matters.
(c) The Company will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon the Company or any
of the Collateral unless such amounts are being diligently contested in good
faith by appropriate proceedings provided that (i) adequate reserves with
respect thereto are maintained on the books of the Company in conformity with
GAAP and (ii) the Lien with respect to such taxes, assessments and governmental
charges or levies shall have no effect on the priority of the Liens in favor of
Laurus or the value of the assets in which Laurus has a Lien.
(d) The Company will promptly inform Laurus in writing of:
(i) the commencement of all proceedings and investigations by or before and/or
the receipt of any notices from, any governmental or nongovernmental body and
all actions and proceedings in any court or before any arbitrator against or in
any way concerning any event which might singly or in the aggregate, have a
Material Adverse Effect; (ii) any amendment of the Company's certificate of
incorporation, by-laws or other organizational document; (iii) any change which
has had or might have a Material Adverse Effect; (iv) any Event of Default or
Default; (v) any default or any event which with the passage of time or giving
of notice or both would constitute a default under any agreement for the payment
of money to which the Company is a party or by which the Company or any of the
Company's properties may be bound which would have a Material Adverse Effect and
(vi) any change in the Company's name or any other name used in its business.
(e) The Company will not, without Laurus' prior written
consent, which shall not be reasonably withheld, (i) create, incur, assume or
suffer to exist any indebtedness whether secured or unsecured other than the
Company's indebtedness to Laurus and as set forth on Exhibit 13(e)(i) attached
hereto and made a part hereof; (ii) cancel any debt owing to it in excess of
$50,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of negotiable
instruments by a Company for deposit or collection or similar transactions in
the ordinary course of business; (iv) directly or indirectly declare, pay or
make any dividend or distribution on any class of its Stock or apply any of its
funds, property or assets to the purchase, redemption or other retirement of any
Stock of a Company; (v) purchase or hold beneficially any Stock or other
securities or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in, any
other Person, including any partnership or joint venture, except (x) travel
advances or (y) loans to the Company's officers and employees not exceeding at
any one time an aggregate of $10,000;
14
(vi) create or permit to exist any Subsidiary, other than any Subsidiary in
existence on the date hereof and listed in Exhibit 13(e)(ii) unless such new
Subsidiary is designated by Laurus as either a co-borrower or guarantor
hereunder; (vii) directly or indirectly, prepay any indebtedness (other than to
Laurus), or repurchase, redeem, retire or otherwise acquire any indebtedness;
(viii) enter into any merger, consolidation or other reorganization with or into
any other Person or acquire all or a portion of the assets or Stock of any
Person or permit any other Person to consolidate with or merge with it; (ix)
materially change the nature of the business in which it is presently engaged;
(x) change its fiscal year or make any changes in accounting treatment and
reporting practices without prior written notice to Laurus except as required by
GAAP or in the tax reporting treatment or except as required by law; (xi) enter
into any transaction with any employee, director or Affiliate, except in the
ordinary course on arms-length terms; or (xii) xxxx Accounts under any name
except the present name of the Company.
(f) None of the proceeds of the Loans hereunder will be
used directly or indirectly to "purchase" or "carry" "margin stock" or to repay
indebtedness incurred to "purchase" or "carry" "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.
(g) The Company will bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. At the Company's
own cost and expense in amounts and with carriers acceptable to Laurus, the
Company shall (i) keep all its insurable properties and properties in which it
has an interest insured against the hazards of fire, flood, sprinkler leakage,
those hazards covered by extended coverage insurance and such other hazards, and
for such amounts, as is customary in the case of companies engaged in businesses
similar to the Company's including business interruption insurance; (ii)
maintain a bond in such amounts as is customary in the case of companies engaged
in businesses similar to the Company's insuring against larceny, embezzlement or
other criminal misappropriation of insured's officers and employees who may
either singly or jointly with others at any time have access to the assets or
funds of the Company either directly or through Governmental Authority to draw
upon such funds or to direct generally the disposition of such assets; (iii)
maintain public and product liability insurance against claims for personal
injury, death or property damage suffered by others; (iv) maintain all such
worker's compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which the Company is engaged in business; and (v)
furnish Laurus with (x) copies of all policies and evidence of the maintenance
of such policies at least thirty (30) days before any expiration date and (y)
evidence that as to Laurus the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company and the insurer will provide
Laurus with at least thirty (30) days notice prior to cancellation.
(h) The Company shall not at any time permit any accounts
payable to remain unpaid more than ninety (90) days from the due date thereof
unless there exists an agreement in writing between the Company and any Person
with respect to such payable permitting extended payment terms or a bona fide
dispute exists with respect to such accounts payable, such amounts are being
diligently contested in good faith and adequate reserves with respect thereto
are maintained on the books of the Company in conformity with GAAP or unless the
Company otherwise notifies Laurus of the situation.
15
(i) The Company will at all times have authorized and
reserved a sufficient number of shares of Common Stock to provide for the
conversion of the Note and exercise of the Warrant.
14. Further Assurances. At any time and from time to time,
upon the written request of Laurus, the Company shall promptly and duly execute
and deliver any and all such further instruments and documents and take such
further action as Laurus may request (a) to obtain the full benefits of this
Agreement and the Ancillary Agreements, (b) to protect, preserve and maintain
Laurus' rights in the Collateral and under this Agreement or any Ancillary
Agreement, or (c) to enable Laurus to exercise all or any of the rights and
powers herein granted or any Ancillary Agreement.
15. Representations and Warranties of Laurus.
Laurus hereby represents and warrants to the Company as
follows:
(a) Requisite Power and Authority. Laurus has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and the Ancillary Agreements and to carry out their
provisions. All corporate action on Laurus' part required for the lawful
execution and delivery of this Agreement and the Ancillary Agreements have been
or will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Ancillary Agreements will be valid and binding
obligations of Laurus, enforceable in accordance with their terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
and (b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
(b) Investment Representations. Laurus understands that
the Securities are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Laurus'
representations contained in the Agreement, including, without limitation, that
Laurus is an "accredited investor" within the meaning of Regulation D under the
Securities Act. Laurus has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Note and the Warrant to be purchased by it under
this Agreement and the Securities acquired by it upon the conversion of the Note
and the exercise of the Warrant, respectively.
(c) Laurus Bears Economic Risk. Laurus has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Laurus must bear the economic risk of
this investment until the Securities are sold pursuant to (i) an effective
registration statement under the Securities Act, or (ii) an exemption from
registration is available.
(d) Acquisition for Own Account. Laurus is acquiring the
Securities for its own account for investment only, and not as a nominee or
agent and not with a view towards or for resale in connection with their
distribution.
16
(e) Laurus Can Protect Its Interest. Laurus represents
that by reason of its, or of its management's, business and financial
experience, Laurus has the capacity to evaluate the merits and risks of its
investment in the Note, the Warrant and the Securities and to protect its own
interests in connection with the transactions contemplated in this Agreement,
and the Ancillary Agreements. Further, Laurus is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Ancillary Agreements.
(f) Accredited Investor. Laurus represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
16. Power of Attorney. The Company hereby appoints Laurus, or
any other Person whom Laurus may designate as the Company's attorney, with power
to: (i) endorse the Company's name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into Laurus'
possession; (ii) sign the Company's name on any invoice or xxxx of lading
relating to any Accounts, drafts against Account Debtors, schedules and
assignments of Accounts, notices of assignment, financing statements and other
public records, verifications of Account and notices to or from Account Debtors;
(iii) verify the validity, amount or any other matter relating to any Account by
mail, telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) notify the post office authorities to change the address for
delivery of the Company's mail to an address designated by Laurus, and to
receive, open and dispose of all mail addressed to the Company. This power,
being coupled with an interest, is irrevocable so long as Laurus has a security
interest and until the Obligations have been fully satisfied. Notwithstanding
the foregoing, Laurus will not exercise any rights contemplated by the first
sentence of this section (other than under clause (iii) hereof) unless a Default
or Event of Default has occurred or the Company otherwise fails (following
Laurus' request therefor) to execute any such document, instrument or agreement,
supply any such information, correct any such errors, sign the Company's name on
any such financing statements or do such other things as Laurus reasonably deems
necessary to carry out this Agreement
17. Term of Agreement. Laurus' agreement to make Loans and
extend financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Initial Term. If an Event of Default has occurred
and is continuing, Laurus may terminate this Agreement. The termination of the
Agreement shall not affect any of Laurus' rights hereunder or any Ancillary
Agreement and the provisions hereof and thereof shall continue to be fully
operative until all transactions entered into, rights or interests created and
the Obligations have been disposed of, concluded or liquidated. Notwithstanding
the foregoing, Laurus shall release its security interests at any time after
seven (7) days notice upon payment to it of all Obligations if the Company shall
have (i) provided Laurus with an executed release of any and all claims which
the Company may have or thereafter have under this Agreement and all Ancillary
Agreements and (ii) paid to Laurus an early payment fee in an amount equal to
two percent (2%) of the Capital Availability Amount if such payment occurs prior
to the end of the first year of the Initial Term, three percent (3%) if such
payment occurs after the first year but prior to the end of the Initial Term;
such early payment fee being intended to compensate Laurus for its costs and
expenses incurred in initially approving this Agreement.
17
18. Termination of Lien. The Liens and rights granted to
Laurus hereunder and any Ancillary Agreements and the financing statements filed
in connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that The Company'
account may from time to time be temporarily in a zero or credit position, until
(a) all of the Obligations of the Company have been paid or performed in full
after the termination of this Agreement and (b) the Company has an executed
release of any and all claims which the Company may have or thereafter have
under this Agreement and all Ancillary Agreements. Accordingly, the Company
waives any rights which it may have under the UCC to demand the filing of
termination statements with respect to the Collateral, and Laurus shall not be
required to send such termination statements to the Company, or to file them
with any filing office, unless and until this Agreement and the Ancillary
Agreements shall have been terminated in accordance with their terms and all
Obligations paid in full in immediately available funds.
19. Events of Default. The occurrence of any of the following
shall constitute an Event of Default:
(a) failure to make payment of any of the Obligations when
required hereunder provided, however, that in the event that such failure is
curable, the Company shall have 3 Business Days from the notice thereof to cure
such failure;
(b) failure to pay any taxes when due unless such taxes
are being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been provided on the Company's books; provided,
however, that in the event that such failure is curable, the Company shall have
7 Business Days from the notice thereof to cure such failure;
(c) failure to perform under and/or committing any
material (as determined by Laurus in the exercise of its good faith discretion)
breach of this Agreement or any Ancillary Agreement or any other agreement
between the Company and Laurus; provided, however, that in the event that such
failure is curable, the Company shall have 7 Business Days from the notice
thereof to cure such failure;
(d) the occurrence of a default under any agreement to
which the Company is a party with third parties which has a Material Adverse
Effect which is not cured within any applicable cure or grace period;
(e) any material (as determined by Laurus in the exercise
of its good faith discretion) representation, warranty or statement made by the
Company hereunder, in any Ancillary Agreement, any certificate, statement or
document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Agreement should at any time be false or
misleading in any material respect; provided, however, that in the event that
such breach shall be curable, the Company shall have 7 Business Days from the
notice thereof to cure such breach;
(f) an attachment or levy is made upon the Company's
assets having an aggregate value in excess of $150,000 or a judgment is rendered
against the Company or the Company's property involving a liability of more than
$150,000 which shall not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof;
18
(g) any change in the Company's condition or affairs
(financial or otherwise) which in Laurus' reasonable, good faith opinion,
impairs the Collateral or the ability of the Company to perform its Obligations
(excluding the Company receiving a "going concern" opinion from its auditors);
provided, however, that the Company shall have 7 Business Days from the notice
thereof to cure such breach, or such other time period as may be agreed by the
parties hereto in writing;
(h) any Lien created hereunder or under any Ancillary
Agreement for any reason ceases to be or is not a valid and perfected Lien
having a first priority interest;
(i) if the Company shall (i) apply for, consent to or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
(j) the Company shall admit in writing its inability, or
be generally unable to pay its debts as they become due or cease operations of
its present business;
(k) any Subsidiary, shall (i) apply for, consent to or
suffer to exist the appointment of, or the taking possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property, (ii) admit in writing its inability, or be generally unable, to
pay its debts as they become due or cease operations of its present business,
(iii) make a general assignment for the benefit of creditors, (iv) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws or
(viii) take any action for the purpose of effecting any of the foregoing;
(l) the Company directly or indirectly sells, assigns,
transfers, conveys, or suffers or permits to occur any sale, assignment,
transfer or conveyance of any assets of the Company or any interest therein
without Laurus' prior written consent, except in the ordinary course of
business;
(m) a default by the Company in the payment, when due, of
any principal of or interest on any other indebtedness for money borrowed in an
amount greater than $50,000, which is not cured within any applicable cure or
grace period;
(n) the occurrence of an event whereby a person or entity
takes control of the Company and replaces the current management without the
approval of the Company's current Board of Directors;
(o) the indictment or threatened indictment of the
Company, any officer of the Company under any criminal statute, or commencement
or threatened commencement of criminal
19
or civil proceeding against the Company or any officer of the Company pursuant
to which statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of the Company; or
(p) if an Event of Default shall occur under the Note and
the Default Notice Period (as defined in the Note) has expired.
20. Remedies. If an Event of Default has occurred and is
continuing, Laurus shall have the right to demand repayment in full of all
Obligations, whether or not otherwise due. Until all Obligations have been fully
satisfied, Laurus shall retain its Lien in all Collateral. Laurus shall have, in
addition to all other rights provided herein, the rights and remedies of a
secured party under the UCC, and under other applicable law, all other legal and
equitable rights to which Laurus may be entitled, including the right to take
immediate possession of the Collateral, to require a Company to assemble the
Collateral, at the Company's expense, and to make it available to Laurus at a
place designated by Laurus which is reasonably convenient to both parties and to
enter any of the premises of a Company or wherever the Collateral shall be
located, with or without force or process of law, and to keep and store the same
on said premises until sold (and if said premises be the property of the
Company, the Company agrees not to charge Laurus for storage thereof), and the
right to apply for the appointment of a receiver for the Company's property.
Further, Laurus may, at any time or times after the occurrence of an Event of
Default, sell and deliver all Collateral held by or for Laurus at public or
private sale for cash, upon credit or otherwise, at such prices and upon such
terms as Laurus, in Laurus' sole discretion, deems advisable or Laurus may
otherwise recover upon the Collateral in any commercially reasonable manner as
Laurus, in its sole discretion, deems advisable. The requirement of reasonable
notice shall be met if such notice is mailed postage prepaid to the Company at
the Company's address as shown in Laurus' records, at least ten (10) days before
the time of the event of which notice is being given. Laurus may be the
purchaser at any sale, if it is public. In connection with the exercise of the
foregoing remedies, Laurus is granted permission to use all of the Company's
trademarks, tradenames, tradestyles, patents, patent applications, licenses,
franchises and other proprietary rights. The proceeds of sale shall be applied
first to all costs and expenses of sale, including attorneys' fees, and second
to the payment (in whatever order Laurus elects) of all Obligations. After the
indefeasible payment and satisfaction in full in cash of all of the Obligations,
and after the payment by Laurus of any other amount required by any provision of
law, including Section 608(a)(1) of the Code (but only after Laurus has received
what Laurus considers reasonable proof of a subordinate party's security
interest), the surplus, if any, shall be paid to the Company or its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. The Company shall remain liable
to Laurus for any deficiency. In addition, Companies shall pay Laurus a
liquidation fee ("Liquidation Fee") in the amount of five percent (5%) of the
face amount of each Account outstanding at any time during a "liquidation
period". For purposes hereof, "liquidation period" means a period: (i) beginning
on the earliest date of (x) an event referred to in Section 19(i) or 19(j), or
(y) the cessation of any Company's business; and (ii) ending on the date on
which Laurus has actually received all Obligations due and owing it under this
Agreement and the Ancillary Agreements. The Liquidation Fee shall be paid on the
earlier to occur of: (i) the date on which Laurus collects the applicable
Account; and (ii) the 90th day from the invoice of such Account by deduction
from any amount otherwise due from Laurus to the Company directly, at the option
of Laurus. The Company and Laurus acknowledge that
20
the actual damages that would be incurred by Laurus after the occurrence of an
Event of Default would be difficult to quantity and that the Company and Laurus
have agreed that the fees and obligations set forth in this Section and in this
Agreement would constitute fair and appropriate liquidated damages in the event
of any such termination.
21. Waivers. To the full extent permitted by applicable law,
the Company waives (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all of this Agreement and the Ancillary Agreements or any other notes,
commercial paper, Accounts, contracts, Documents, Instruments, Chattel Paper and
guaranties at any time held by Laurus on which the Company may in any way be
liable, and hereby ratifies and confirms whatever Laurus may do in this regard;
(b) all rights to notice and a hearing prior to Laurus' taking possession or
control of, or to Laurus' replevy, attachment or levy upon, any Collateral or
any bond or security that might be required by any court prior to allowing
Laurus to exercise any of its remedies; and (c) the benefit of all valuation,
appraisal and exemption laws. The Company acknowledges that it has been advised
by counsel of its choices and decisions with respect to this Agreement, the
Ancillary Agreements and the transactions evidenced hereby and thereby.
22. Expenses. The Company shall pay all of Laurus' reasonable
out-of-pocket costs and expenses, up to a maximum of $37,500, including fees and
disbursements of in-house or outside counsel and appraisers, in connection with
the preparation, execution and delivery of this Agreement and the Ancillary
Agreements. The Company shall also pay all of Laurus' reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of counsel
and appraisers, in connection with (a) 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,
(b) any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any Collateral, (c) any appraisals or re-appraisals of any
property (real or personal) pledged to Laurus by the Company as Collateral for,
or any other Person as security for, the Company's Obligations hereunder and (d)
any consultations in connection with any of the foregoing; provided, however
that costs and expenses related to (c) above shall be limited to a maximum of
$5,000 per quarter. The Company shall also pay Laurus' customary bank charges
for all bank services (including wire transfers) performed or caused to be
performed by Laurus for the Company at the Company's request or in connection
with the Company's loan account with Laurus. All such costs and expenses
together with all filing, recording and search fees, taxes and interest payable
by the Company to Laurus shall be payable on demand and shall be secured by the
Collateral. If any tax by any Governmental Authority is or may be imposed on or
as a result of any transaction between the Company and Laurus which Laurus is or
may be required to withhold or pay, the Company agrees to indemnify and hold
Laurus harmless in respect of such taxes, and the Company will repay to Laurus
the amount of any such taxes which shall be charged to the Company's account;
and until the Company shall furnish Laurus with indemnity therefor (or supply
Laurus with evidence satisfactory to it that due provision for the payment
thereof has been made), Laurus may hold without interest any balance standing to
the Company's credit and Laurus shall retain its Liens in any and all
Xxxxxxxxxx.
00
00. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor and any transferee
shall succeed to all of Laurus' rights with respect thereto; provided, however,
that in the event that such assignee or transferee is not an affiliate of
Laurus, Laurus shall request the approval of the Company prior to any such
assignment or transfer, which such approval shall not be unreasonably withheld.
Upon such transfer, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. The Company agrees that each such holder may exercise any and all
rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though the Company were directly
indebted to such holder in the amount of such participation.
24. No Waiver; Cumulative Remedies. Failure by Laurus to
exercise any right, remedy or option under this Agreement, any Ancillary
Agreement or any supplement hereto or thereto or any other agreement between the
Company and Laurus or delay by Laurus in exercising the same, will not operate
as a waiver; no waiver by Laurus will be effective unless it is in writing and
then only to the extent specifically stated. Laurus' rights and remedies under
this Agreement and the Ancillary Agreements will be cumulative and not exclusive
of any other right or remedy which Laurus may have.
25. [intentionally deleted]
26. Indemnity. The Company agrees to indemnify and hold
Laurus, and its respective affiliates, employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of any kind or
nature whatsoever (including attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which may
be instituted or asserted against or incurred by any such Indemnified Person as
the result of credit having been extended, suspended or terminated under this
Agreement or any of the Ancillary Agreements or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement, the Ancillary Agreements or any
other documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing, except
to the extent that any such indemnified liability is finally determined by a
court of competent jurisdiction to have resulted solely from such Indemnified
Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO THE COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
27. Revival. The Company further agrees that to the extent the
Company makes a payment or payments to Laurus, which payment or payments or any
part thereof are
22
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
the Company or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given when deposited in the mail or with the overnight
mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
Laurus Master Fund, Ltd.
If to Laurus: C/o Laurus Capital Management, LLC
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Grin
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
With a copy to: Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to the Company: CardioGenesis Corporation
00000 Xxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention:
Telephone:
Telecopier:
With a copy to: Xxxxxx, Xxxx & Xxxxxxxx LLP
---------------------------
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
23
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) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE
OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
THE COMPANY AND LAURUS PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND THE COMPANY ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE COMPANY HEREBY WAIVES
ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET
FORTH IN SECTION 27 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT
IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY
A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN LAURUS AND THE COMPANY ARISING OUT OF, CONNECTED WITH, RELATED
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO.
30. Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and
24
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
31. Limitation of Liability. The Company acknowledges and
understands that in order to assure repayment of the Obligations hereunder
Laurus may be required to exercise any and all of Laurus' rights and remedies
hereunder and agrees that neither Laurus nor any of Laurus' agents shall be
liable for acts taken or omissions made in connection herewith or therewith
except for actual bad faith.
32. Entire Understanding. This Agreement and the Ancillary
Agreements contain the entire understanding between the Company and Laurus and
any promises, representations, warranties or guarantees not herein contained
shall have no force and effect unless in writing, signed by the Company's and
Laurus' respective officers. Neither this Agreement, the Ancillary Agreements,
nor any portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.
33. Severability. Wherever possible each provision of this
Agreement or the Ancillary Agreements shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this
Agreement or the Ancillary Agreements shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions thereof.
34. Captions. All captions are and shall be without
substantive meaning or content of any kind whatsoever.
35. 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.
36. 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.
37. Publicity. The Company hereby authorize Laurus to make
appropriate announcements of the financial arrangement entered into by and
between the Company and Laurus, including, without limitation, announcements
which are commonly known as tombstones, in such publications and to such
selected parties as Laurus shall in its sole and absolute discretion deem
appropriate.
25
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
CARDIOGENESIS CORPORATION
By: /s/ XXXXXXX X. XXXXXXXX
-----------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
LAURUS MASTER FUND, LTD.
By: /s/ XXXXX GRIN
-----------------------------------
Name: Xxxxx Grin
Title: Partner
26
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated
with respect to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section
11(a).
"Accounts" means all "accounts", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, including: (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper or
Instruments) (including any such obligations that may be characterized as an
account or contract right under the UCC); (b) all of such Person's rights in, to
and under all purchase orders or receipts for goods or services; (c) all of such
Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (d) all rights
to payment due to such Person for Goods or other property sold, leased,
licensed, assigned or otherwise disposed of, for a policy of insurance issued or
to be issued, for a secondary obligation incurred or to be incurred, for energy
provided or to be provided, for the use or hire of a vessel under a charter or
other contract, arising out of the use of a credit card or charge card, or for
services rendered or to be rendered by such Person or in connection with any
other transaction (whether or not yet earned by performance on the part of such
Person); and (e) all collateral security of any kind given by any Account Debtor
or any other Person with respect to any of the foregoing.
"Accounts Availability" means the amount of Revolving Credit
Advances against Eligible Accounts Laurus may from time to time make available
to the Company up to eighty five percent (85%) of the Company's Eligible
Accounts.
"Affiliate" of any Person means (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (i) to vote five
percent (5.00%) or more of the securities having ordinary voting power for the
election of directors of such Person, or (ii) to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
"Ancillary Agreements" means, the Note, Warrant, Registration
Rights Agreement, and all other agreements, instruments, documents, mortgages,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, trust agreements and guarantees whether heretofore, concurrently, or
hereafter executed by or on behalf of the Company or any other Person or
delivered to Laurus, relating to this Agreement or to the transactions
contemplated by this Agreement or otherwise relating to the relationship between
the Company and Laurus.
"Books and Records" means all books, records, board minutes,
contracts, licenses, insurance policies, environmental audits, business plans,
files, computer files, computer
27
discs and other data and software storage and media devices, accounting books
and records, financial statements (actual and pro forma), filings with
Governmental Authorities and any and all records and instruments relating to the
Collateral or otherwise necessary or helpful in the collection thereof or the
realization thereupon.
"Business Day" means a day on which Laurus is open for
business and that is not a Saturday, a Sunday or other day on which banks are
required or permitted to be closed in the State of New York.
"Capital Availability Amount" means $2,000,000.
"Chattel Paper" means all "chattel paper," as such term is
defined in the UCC, including electronic chattel paper, now owned or hereafter
acquired by any Person.
"Closing Date" means the date on which the Company shall first
receive proceeds of the initial Loans.
"Collateral" means all of the Company's property and assets,
whether real or personal, tangible or intangible, and whether now owned or
hereafter acquired, or in which it now has or at any time in the future may
acquire any right, title or interests including all of the following property in
which it now has or at any time in the future may acquire any right, title or
interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
(f) all Deposit Accounts, other bank accounts and all funds on
deposit therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
(l) all commercial tort claims set forth on Exhibit 1(A);
(m) all Books and Records;
28
(n) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
(o) (i) all money, cash and cash equivalents and (ii) all cash
held as cash collateral to the extent not otherwise constituting Collateral, all
other cash or property at any time on deposit with or held by Laurus for the
account of Company (whether for safekeeping, custody, pledge, transmission or
otherwise); and
(p) all products and Proceeds of all or any of the foregoing,
tort claims and all claims and other rights to payment including insurance
claims against third parties for loss of, damage to, or destruction of, and (ii)
payments due or to become due under leases, rentals and hires of any or all of
the foregoing and Proceeds payable under, or unearned premiums with respect to
policies of insurance in whatever form.
"Contract Rate" means an interest rate per annum equal to the
Prime Rate plus three and thirty five one hundredth percent (3.35%), provided
however, that the Contract Rate shall not be permitted to be less than six
percent (6.00%).
"Default" means any act or event which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Default Rate" has the meaning given to such term in Section
5(a)(iii).
"Deposit Accounts" means all "deposit accounts" as such term
is defined in the UCC, now or hereafter held in the name of any Person,
including, without limitation, Deposit Account number _________ maintained by
Borrower with Xxxxx Fargo and all replacements and substitutions thereof.
"Documents" means all "documents", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all bills of lading, dock warrants, dock receipts, warehouse receipts,
and other documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" means and includes each Account which
conforms to the following criteria: (a) shipment of the merchandise or the
rendition of services has been completed; (b) no return, rejection or
repossession of the merchandise has occurred; (c) merchandise or services shall
not have been rejected or disputed by the Account Debtor and there shall not
have been asserted any offset, defense or counterclaim; (d) continues to be in
full conformity with the representations and warranties made by the Company to
Laurus with respect thereto; (e) Laurus is, and continues to be, satisfied with
the credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than ninety (90) days from invoice date; (h) not more than twenty-five
percent (25%) of the unpaid amount of invoices due from such Account Debtor
remains unpaid more than ninety (90) days from invoice date; (i) is not
evidenced by chattel paper or an instrument of any kind with respect to or in
payment of the Account unless such instrument is duly endorsed to and in
possession of Laurus or represents a check in payment of a Account; (j) the
Account Debtor is located in the
00
Xxxxxx Xxxxxx; (k) Laurus has a first priority perfected Lien in such Account
and such Account is not subject to any Lien other than Permitted Liens; (l) does
not arise out of transactions with any employee, officer, agent, director,
stockholder or Affiliate of the Company; (m) is payable to the Company; (n) does
not arise out of a xxxx and hold sale prior to shipment and does not arise out
of a sale to any Person to which the Company is indebted; (o) is net of any
returns, discounts, claims, credits and allowances; (p) if the Account arises
out of contracts between the Company and the United States, any state, or any
department, agency or instrumentality of any of them, the Company has so
notified Laurus, in writing, prior to the creation of such Account, and there
has been compliance with any governmental notice or approval requirements,
including compliance with the Federal Assignment of Claims Act; (q) is a good
and valid account representing an undisputed bona fide indebtedness incurred by
the Account Debtor therein named, for a fixed sum as set forth in the invoice
relating thereto with respect to an unconditional sale and delivery upon the
stated terms of goods sold by the Company, or work, labor and/or services
rendered by the Company; (r) does not arise out of progress xxxxxxxx prior to
completion of the order; (s) the Company's right to payment is absolute and not
contingent upon the fulfillment of any condition whatsoever; (t) such Company is
able to bring suit and enforce its remedies against the Account Debtor through
judicial process; and (u) does not represent interest payments, late or finance
charges or service charges owing to the Company.
"Equipment" means all "equipment" as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including any and all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal property (other than
Inventory) of every kind and description that may be now or hereafter used in
such Person's operations or that are owned by such Person or in which such
Person may have an interest, and all parts, accessories and accessions thereto
and substitutions and replacements therefor.
"ERISA" shall have the meaning given to such term in Section
12(e).
"Event of Default" means the occurrence of any of the events
set forth in Section 19.
"Fixtures" means all "fixtures" as such term is defined in the
UCC, now owned or hereafter acquired by any Person.
"Formula Amount" has the meaning set forth in Section 2(a).
"GAAP" means generally accepted accounting principles,
practices and procedures in effect from time to time in the United States of
America.
"General Intangibles" means all "general intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person
including all right, title and interest that such Person may now or hereafter
have in or under any contract, all Payment Intangibles, customer lists,
Licenses, Intellectual Property, interests in partnerships, joint ventures and
other 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,
30
Books and Records, Goodwill (including the Goodwill associated with any
Intellectual Property), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss, and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key-person, and business interruption insurance, and all
unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments, rights to received
dividends, distributions, cash, Instruments and other property in respect of or
in exchange for pledged Stock and Investment Property, and rights of
indemnification.
"Goods" means all "goods", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including
embedded software to the extent included in "goods" as defined in the UCC,
manufactured homes, standing timber that is cut and removed for sale and unborn
young of animals.
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Indemnified Person" shall have the meaning given to such term
in Section 26.
"Initial Term" means the Closing Date through the close of
business on the third anniversary of the Closing Date, subject to acceleration
at the option of Laurus upon the occurrence of an Event of Default hereunder or
other termination hereunder.
"Instruments" means all "instruments", as such term is defined
in the UCC, now owned or hereafter acquired by any Person, wherever located,
including all certificated securities and all promissory notes and other
evidences of indebtedness, other than instruments that constitute, or are a part
of a group of writings that constitute, Chattel Paper.
"Intellectual Property" means any and all Licenses, patents,
patent registrations, copyrights, copyright registrations, trademarks, trademark
registrations, trade secrets and customer lists.
"Inventory" means all "inventory", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all inventory, merchandise, goods and other personal property that are
held by or on behalf of such Person for sale or lease or are furnished or are to
be furnished under a contract of service or that constitute raw materials, work
in process, finished goods, returned goods, or materials or supplies of any
kind, nature or description used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
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"Investment Property" means all "investment property", as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
wherever located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as
such term is defined in the UCC, now owned or hereafter acquired by any Person,
including rights to payment or performance under a letter of credit, whether or
not such Person, as beneficiary, has demanded or is entitled to demand payment
or performance.
"License" means any rights under any written agreement now or
hereafter acquired by any Person to use any trademark, trademark registration,
copyright, copyright registration or invention for which a patent is in
existence or other license of rights or interests now held or hereafter acquired
by any Person.
"Lien" means any mortgage, security deed, deed of trust,
pledge, hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" means the Revolving Credit Advances and all extensions
of credit hereunder or under any Ancillary Agreement.
"Material Adverse Effect" means a material adverse effect on
(a) the condition, operations, assets, business or prospects of the Company, (b)
the Company's ability to pay or perform the Obligations in accordance with the
terms hereof or any Ancillary Agreement, (c) the value of the Collateral, the
Liens on the Collateral or the priority of any such Lien or (d) the practical
realization of the benefits of Laurus' rights and remedies under this Agreement
and the Ancillary Agreements.
"Maximum Legal Rate" shall have the meaning given to such term
in Section 5(a)(iv).
"Note" means the Convertible Note in the original principal
amount of $2,000,000 made by the Company in favor of Laurus dated as of the
Closing Date, as the same may be amended, modified and supplemented from time to
time.
"Obligations" means all Loans, all advances, debts,
liabilities, obligations, covenants and duties owing by the Company to Laurus
(or any corporation that directly or indirectly controls or is controlled by or
is under common control with Laurus) of every kind and description (whether or
not evidenced by any note or other instrument and whether or not for the payment
of money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including any debt, liability or obligation
owing from the Company to others which Laurus may have obtained by assignment or
otherwise and further including all interest (including interest accruing at the
then applicable rate provided in this Agreement after the maturity of the Loans
and interest
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accruing at the then applicable rate provided in this Agreement after the filing
of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding), charges or any other
payments the Company is required to make by law or otherwise arising under or as
a result of this Agreement and the Ancillary Agreements, together with all
reasonable expenses and reasonable attorneys' fees chargeable to the Company's
account or incurred by Laurus in connection with the Company's account whether
provided for herein or in any Ancillary Agreement.
"Payment Intangibles" means all "payment intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
including, a General Intangible under which the Account Debtor's principal
obligation is a monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen,
artisans, bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary course of
business in connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (i) not overdue or (ii) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the applicable Company in conformity with GAAP; (c) Liens in favor of Laurus;
(d) Liens for taxes (i) not yet due or (ii) being diligently contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the applicable Company in conformity with
GAAP provided, that, the Lien shall have no effect on the priority of Liens in
favor of Laurus or the value of the assets in which Laurus has a Lien; (e)
Purchase Money Liens securing Purchase Money Indebtedness to the extent
permitted in this Agreement and (f) Liens specified on Exhibit 2 hereto.
"Person" means any individual, sole proprietorship,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Prime Rate" means the "base rate" or "prime rate" published
in the Wall Street Journal from time to time. The Prime Rate shall be increased
or decreased as the case may be for each increase or decrease in the Prime Rate
in an amount equal to such increase or decrease in the Prime Rate; each change
to be effective as of the day of the change in such rate.
"Proceeds" means "proceeds", as such term is defined in the
UCC and, in any event, shall include: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to the Company or any other Person from
time to time with respect to any Collateral; (b) any and all payments (in any
form whatsoever) made or due and payable to the Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of the Company against third parties (i) for past, present or
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
33
any trademark License; (d) any recoveries by the Company against third parties
with respect to any litigation or dispute concerning any Collateral, including
claims arising out of the loss or nonconformity of, interference with the use
of, defects in, or infringement of rights in, or damage to, Collateral; (e) all
amounts collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and Instruments with respect to Investment
Property and pledged Stock; and (f) any and all other amounts, rights to
payment or other property acquired upon the sale, lease, license, exchange or
other disposition of Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness
incurred for the payment of all or any part of the purchase price of any fixed
asset, (b) any indebtedness incurred for the sole purpose of financing or
refinancing all or any part of the purchase price of any fixed asset, and (c)
any renewals, extensions or refinancings thereof (but not any increases in the
principal amounts thereof outstanding at that time).
"Purchase Money Lien" means any Lien upon any fixed assets
that secures the Purchase Money Indebtedness related thereto but only if such
Lien shall at all times be confined solely to the asset the purchase price of
which was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
"Revolving Credit Advances" shall have the meaning given to
such term in Section 2(a)(i).
"Securities" means the Note, Warrant and the shares of the
Company's Common Stock underlying the Note and Warrant.
"Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.
"Stock" means all certificated and uncertificated shares,
options, warrants, membership interests, general or limited partnership
interests, participation or other equivalents (regardless of how designated) of
or in a corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including common stock, preferred stock, or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934).
"Subsidiary" of any Person means a corporation or other entity
whose shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Supporting Obligations" means all "supporting obligations" as
such term is defined in the UCC.
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"Term" means the Initial Term.
"UCC" means the Uniform Commercial Code as the same may, from
time be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
EXHIBITS
Exhibit 1(A) - Commercial Tort Claims
Exhibit 7(a) - Permitted Liens
Exhibit 7(c) - Actions for Perfection
Exhibit 7(p) - Bank Accounts
Exhibit 12(d) - Corporate Information and Locations of Collateral
Exhibit 12 (f) - Solvency
Exhibit 12(m) - Nasdaq Listing
Exhibit 13(e)(i) - Permitted Indebtedness
Exhibit 13(e)(ii) - Existing Subsidiaries
Exhibit A - Form of Borrowing Base Certificate
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Exhibit A
Borrowing Base Certificate
DATE CERTIFICATE NUMBER:
BORROWER NAME: CARDIOGENESIS CORPORATION PREVIOUSLY FAXED: YES NO (CIRCLE ONE)
1. Period end Accounts as of: ____________________ $_______________
Ineligible Accounts as of: ____________________
Accounts over 90 days from invoice date $_______________
Intercompany and Affiliate Accounts $_______________
Government Accounts $_______________
Contra Accounts $_______________
COD Accounts $_______________
Foreign Accounts $_______________
Discounts, Credits and Allowances $_______________
25% cross aging exclusion $_______________
Xxxx and Hold invoices $_______________
Progress Accounts $_______________
Finance/Service/Late Charges $_______________
Other $_______________
2. Total ineligibles $_______________
3. Eligible Accounts (Line 1 minus Line 2) $_______________
4. Eligible Accounts advance rate (85%)
5. Accounts Availability (Line 3 multiplied by Line 4) $_______________
6. Borrowing Availability (lesser of sum of lines 5 + 6 or the Capital Availability Amount) $_______________
7. Revolving Credit Advances balance $_______________
8. Reserves (explain) $_______________
9. Net Borrowing Availability (Line 6 minus the total of Lines 7 and 8) $_______________
The undersigned hereby certifies that all of the foregoing information regarding
the Eligible Accounts is true and correct on the date hereof and all such
Accounts listed as Eligible Accounts are Eligible Accounts within the meaning
given such term in the Purchase and Security Agreement dated March __, 2003
between Borrower and Laurus Master Fund, Ltd. (as from time to time amended,
supplemented, restated or otherwise modified, the "Purchase Agreement").
CARDIOGENESIS CORPORATION
By: _____________________________
Name: _______________________
Title: ______________________
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