Exhibit 10.73
LAURUS MASTER FUND, LTD.
and
VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC.,
Dated: November 20, 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. Loans ................................................................. 2
3. Repayment of the Loans Company ........................................ 4
4. Procedure for Loans ................................................... 4
5. Interest and Payments ................................................. 4
(a) Interest ........................................................ 4
(b) Payments ........................................................ 5
6. Security Interest ..................................................... 5
7. Representations, Warranties and Covenants Concerning the Collateral ... 6
8. Payment of Accounts ................................................... 9
9. Collection and Maintenance of Collateral .............................. 9
10. Inspections and Appraisals ............................................ 10
11. Financial Reporting ................................................... 10
12. Additional Representations and Warranties ............................. 11
13. Covenants ............................................................. 14
14. Further Assurances .................................................... 16
15. Power of Attorney ..................................................... 16
16. Term of Agreement ..................................................... 17
17. Termination of Lien ................................................... 17
18. Events of Default ..................................................... 17
19. Remedies .............................................................. 19
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PAGE(S)
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20. Waivers ............................................................... 20
21. Expenses .............................................................. 20
22. Assignment By Laurus .................................................. 21
23. No Waiver; Cumulative Remedies ........................................ 21
24. Application of Payments ............................................... 22
25. Indemnity ............................................................. 22
26. Revival ............................................................... 22
27. Notices ............................................................... 22
28. Governing Law, Jurisdiction and Waiver of Jury Trial .................. 23
29. Limitation of Liability ............................................... 24
30. Entire Understanding .................................................. 24
31. Severability .......................................................... 24
32. Captions .............................................................. 25
33. Counterparts; Telecopier Signatures ................................... 25
34. Construction .......................................................... 25
35. Publicity ............................................................. 25
36. Legends ............................................................... 25
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SECURITY AGREEMENT
This Security Agreement is made as of November 20, 2003 by and
between LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus") and
Ventures-National Incorporated d/b/a Titan General Holdings, Inc., a Utah
corporation (the "Company").
BACKGROUND
Company has requested that Laurus make advances available to
Company; and
Laurus has agreed to make such advances to Company on the terms
and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. (a) General Definitions. Capitalized terms used in this
Agreement shall have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this
Agreement which are not specifically defined shall have the meanings customarily
given them in accordance with GAAP and all financial computations shall be
computed, unless specifically provided herein, in accordance with GAAP
consistently applied.
(c) Other Terms. All other terms used in this Agreement
and defined in the UCC, shall have the meaning given therein unless otherwise
defined herein.
(d) Rules of Construction. All Schedules, Addenda,
Annexes and Exhibits hereto or expressly identified to this Agreement are
incorporated herein by reference and taken together with this Agreement
constitute but a single agreement. The words "herein", hereof" and "hereunder"
or other words of similar import refer to this Agreement as a whole, including
the Exhibits, Addenda, Annexes and Schedules thereto, as the same may be from
time to time amended, modified, restated or supplemented, and not to any
particular section, subsection or clause contained in this Agreement. Wherever
from the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and the plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter. The term "or" is not exclusive. The term "including" (or any
form thereof) shall not be limiting or exclusive. All references to statutes and
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. Loans.
(i) Subject to the terms and conditions set forth herein
and in the Ancillary Agreements, Laurus may make loans (the "Loans") to Company
from time to time during the Term which, in the aggregate at any time
outstanding, will not exceed the lesser of (x) (I) the Capital Availability
Amount minus (II) such reserves as Laurus may reasonably in its good faith
judgment deem proper and necessary from time to time (the "Reserves") 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". Company shall execute and deliver to
Laurus on the Closing Date a Minimum Borrowing Note and a Secured Revolving Note
evidencing the Loans funded on the Closing Date. From time to time thereafter,
Company shall execute and deliver to Laurus immediately prior to the final
funding of each additional $1,000,000 tranche of Loans (calculated on a
cumulative basis for each such tranche) an additional Minimum Borrowing Note
evidencing such tranche, in the form of Note delivered by Company to Laurus on
the Closing Date. Notwithstanding anything herein to the contrary, whenever
during the Term the outstanding balance on the Revolving Note should equal or
exceed $1,000,000, to the extent that the outstanding balance on Minimum
Borrowing Note shall be less than $1,500,000 (the difference of $1,500,000 less
the actual balance of the Minimum Borrowing Note, the "Available Minimum
Borrowing"), such portion of the balance of the Revolving Note as shall equal
the Available Minimum Borrowing shall be deemed to be simultaneously
extinguished on the Revolving Note and transferred to, and evidenced by, the
next additional Minimum Borrowing Note (e.g., the Available Minimum Borrowing
shall remain $0).
(ii) Notwithstanding the limitations set forth above, if
requested by the Company, Laurus retains the right to lend to Company from time
to time such amounts in excess of such limitations as Laurus may determine in
its sole discretion.
(iii) Company acknowledges that the exercise of Laurus'
discretionary rights hereunder may result during the Term in one or more
increases or decreases in the advance percentages used in determining Accounts
Availability and Company hereby consents to any such increases or decreases
which may limit or restrict advances requested by Company.
(iv) If Company does not pay any interest, fees, costs or
charges to Laurus when due, Company shall thereby be deemed to have requested,
and Laurus is hereby authorized at its discretion to make and charge to
Company's account, a Loan to Company as of such date in an amount equal to such
unpaid interest, fees, costs or charges.
(v) If Company at any time fails to perform or observe
any of the covenants contained in this Agreement or any Ancillary Agreement,
Laurus may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of Company (or, at Laurus' option, in Laurus' name) and
may, but need not, take any and all other actions which Laurus may deem
necessary to cure or correct such failure (including the payment of taxes, the
satisfaction of Liens, the performance of obligations owed to Account Debtors,
lessors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments). The amount of all
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monies expended and all costs and expenses (including reasonable attorneys' fees
and legal expenses) incurred by Laurus in connection with or as a result of the
performance or observance of such agreements or the taking of such action by
Laurus shall be charged to Company's account as a Loan and added to the
Obligations. To facilitate Laurus' performance or observance of such covenants
of Company, Company hereby irrevocably appoints Laurus, or Laurus' delegate,
acting alone, as Company's attorney in fact (which appointment is coupled with
an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of Company any and all instruments, documents, assignments, security agreements,
financing statements, applications for insurance and other agreements and
writings required to be obtained, executed delivered or endorsed by Company.
(vi) Laurus will account to Company monthly with a
statement of all Loans and other advances, charges and payments made pursuant to
this Agreement, and such account rendered by Laurus shall be deemed final,
binding and conclusive unless Laurus is notified by Company in writing to the
contrary within thirty (30) days of the date each account was rendered
specifying the item or items to which objection is made.
(vii) During the Term, Company may borrow and prepay Loans
in excess of the Minimum Borrowing Amount, all in accordance with the terms and
conditions hereof.
(viii) If any Eligible Account is not paid by the Account
Debtor within ninety (90) days after the date that such Eligible Account was
invoiced or if any Account Debtor asserts a deduction, dispute, contingency,
set-off, or counterclaim with respect to any Eligible Account, (a "Delinquent
Account"), the Company shall (i) reimburse Laurus for the amount of the
Revolving Credit Advance made with respect to such Delinquent Account plus an
adjustment fee in an amount equal to one-half of one percent (0.50%) of the
gross face amount of such Eligible Account or (ii) immediately replace such
Delinquent Account with an otherwise Eligible Account.
(b) Following the occurrence of an Event of Default which
continues to exist, Laurus may, at its option, elect to convert the credit
facility contemplated hereby to an accounts receivable purchase facility. Upon
such election by Laurus (subsequent notice of which Laurus shall provide to
Company), Company shall be deemed to hereby have sold, assigned, transferred,
conveyed and delivered to Laurus, and Laurus shall be deemed to have purchased
and received from Company, all right, title and interest of Company in and to
all Accounts which shall at any time constitute Eligible Accounts (the
"Receivables Purchase"). All outstanding Loans hereunder shall be deemed
obligations under such accounts receivable purchase facility. The conversion to
an accounts receivable purchase facility in accordance with the terms hereof
shall not be deemed an exercise by Laurus of its secured creditor rights under
Article 9 of the UCC. Immediately following Laurus' request, Company shall
execute all such further documentation as may be required by Laurus to more
fully set forth the accounts receivable purchase facility herein contemplated,
including, without limitation, account debtor notification letters, but
Company's failure to enter into any such documentation shall not impair or
affect the Receivables Purchase in any manner whatsoever.
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(c) Minimum Borrowing Amount. After a registration statement
registering the Registrable Securities (as defined in the Registration rights
Agreement) has been declared effective by the SEC, conversions of the Minimum
Borrowing Amount into the Common Stock of the Company may be initiated as set
forth in the Notes. From and after the date upon which any outstanding principal
of the Minimum Borrowing Amount (as evidenced by the first Minimum Borrowing
Note) is converted into Common Stock (the "First Conversion Date"), (i)
corresponding amounts of all outstanding Loans (not attributable to the then
outstanding Minimum Borrowing Amount) existing on or made after the First
Conversion Date will be aggregated (and the corresponding amounts shall be
deducted from loans under the Revolving Note) until they reach the sum of
$1,500,000 and (ii) the Company will issue a new (serialized) Minimum Borrowing
Note to Laurus in respect of such $1,500,000 aggregation, and (iii) the Company
shall prepare and file a subsequent registration statement with the SEC to
register such subsequent Minimum Borrowing Note as set forth in the Registration
Rights Agreement.
3. Repayment of the Loans. Company (a) may prepay the
Obligations in excess of the Minimum Borrowing Amount from time to time in
accordance with the terms and provisions of the Notes (and Section 16 hereof if
such prepayment is due to a termination of this Agreement); and (b) shall repay
on the expiration of the Term (i) the then aggregate outstanding principal
balance of the Loans made by Laurus to Company hereunder together with accrued
and unpaid interest, fees and charges and (ii) all other amounts owed to 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 5:00 p.m. (New York time) on the due date
thereof in immediately available funds.
4. Procedure for Loans. Company may by written notice request
a borrowing of Loans prior to 12:00 p.m. (New York time) on the Business Day of
its request to incur, on the next business day, a Loan. Together with each
request for a Loan (or at such other intervals as Laurus may request), Company
shall deliver to Laurus a borrowing base certificate in the form of Exhibit A,
which shall be certified as true and correct by the Chief Executive Officer or
Chief Financial Officer of Company together with all supporting documentation
relating thereto. All Loans shall be disbursed from whichever office or other
place Laurus may designate from time to time and shall be charged to Company's
account on Laurus' books. The proceeds of each Loan made by Laurus shall be made
available to Company on the Business Day following the Business Day so requested
in accordance with the terms of this Section 4 by way of credit to Company's
operating account maintained with such bank as Company designated to Laurus. Any
and all Obligations due and owing hereunder may be charged to Company's account
and shall constitute Loans.
5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(a)(iii) below,
Company shall pay interest at the Contract Rate on the unpaid principal balance
of each Loan until such time as such Loan is collected in full in good funds in
dollars of the United States of America.
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(ii) Interest and payments shall be computed on the basis
of actual days elapsed in a year of 360 days. At Laurus' option, Laurus may
charge Company account for said interest.
(iii) Effective upon the occurrence of any Event of
Default and for so long as any Event of Default shall be continuing, the
Contract Rate shall automatically be increased by five percent (5%) per annum
(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 until
such time as the Event of Default no longer exists or is waived.
(iv) In no event shall the aggregate interest payable
hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate") and if any
provision of this Agreement or any Ancillary Agreement is in contravention of
any such law or regulation, interest payable under this Agreement and each
Ancillary Agreement shall be computed on the basis of the Maximum Legal Rate (so
that such interest will not exceed the Maximum Legal Rate).
(v) Company shall pay principal, interest and all other
amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including any deduction for any set-off or counterclaim.
(b) Payments.
(i) Closing/Annual Payments. Upon execution of this
Agreement by Company and Laurus, Company shall pay to Laurus Capital Management,
LLC a closing payment in an amount equal to three and six tenths percent (3.6%)
of the Capital Availability Amount. Such payment shall be deemed fully earned on
the Closing Date and shall not be subject to rebate or proration for any reason.
(ii) Unused Line Payment. If, for any month, the average
outstanding Loans (the "Average Loan Amount") do not equal the Capital
Availability Amount, Company shall pay to Laurus at the end of such month a
payment (calculated on a per annum basis) in an amount equal to one half percent
(0.5%) of the amount by which the Capital Availability Amount exceeds the
Average Loan Amount. Notwithstanding the foregoing, any unpaid fee shall be
immediately due and payable upon termination of this Agreement.
(iii) Overadvance Payment. Without affecting Laurus'
rights hereunder in the event the Loans exceed the amounts permitted by Section
2 ("Overadvances"), in the event an Overadvance occurs or is made by Laurus, all
such Overadvances shall bear interest at an annual rate equal to two percent
(2%) of the amount of such Overadvances for each month or portion thereof as
such amounts shall be outstanding.
(iv) Financial Information Default. Without affecting
Laurus' other rights and remedies, in the event Company fails to deliver the
financial information required by Section 11 on or before the date required by
this Agreement, Company shall pay Laurus a fee in the amount of $500.00 per week
(or portion thereof) for each such failure until such failure is
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cured to Laurus' satisfaction or waived in writing by Laurus. Such fee shall be
charged to Company's account upon the occurrence of each such failure.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations,
Company hereby assigns, pledges and grants to Laurus a continuing security
interest in and Lien upon all of the Collateral. All of Company's Books and
Records relating to the Collateral shall, until delivered to or removed by
Laurus, be kept by 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 Company shall be deemed to include the foregoing grant,
whether or not the same appears therein.
(b) 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 Company 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. Company
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement filed
by or on behalf of Laurus without the prior written consent of Laurus and agrees
that it will not do so without the prior written consent of Laurus, subject to
Company's rights under Section 9-509(d)(2) of the UCC.
(c) 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 Company) to use, transfer, license or
sublicense any Intellectual Property now owned, licensed to, to the extent
permitted by the applicable license agreement or hereafter acquired by 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, to
the knowledge of the Company, 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. Company represents, warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each request for a Loan
and made as of the time of each and every Loan hereunder) and covenants as
follows:
(a) all of the Collateral (i) is owned by Company free and
clear of all Liens (including any claims of infringement) except those in
Laurus' favor and Permitted Liens and (ii)
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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) Company shall not encumber, mortgage, pledge, assign or
grant any Lien in any Collateral of Company or any of 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 Company 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) 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 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 are
used to repay Loans or to pay general corporate expenses, or (ii) following the
occurrence of an Event of Default which continues to exist the proceeds of which
are remitted to Laurus to be held as cash collateral for the Obligations.
(f) 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 Company, with any agreements
establishing control to be in form and substance satisfactory to Laurus, (ii)
the prompt (but in no event later than five (5) Business Days following Laurus'
request therefor) delivery to Laurus of all original Instruments, Chattel Paper,
negotiable Documents and certificated Stock owned by the Company (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank), (iii) notification of Laurus' interest in Collateral at Laurus'
request, and (iv) the institution of litigation against third parties as shall
be prudent in order to protect and preserve Company's and Laurus' respective and
several interests in the Collateral.
(g) Company shall promptly, and in any event within five (5)
Business Days after the same is acquired by it, notify Laurus of any commercial
tort claim (as defined in the UCC) acquired by it and unless otherwise consented
by Laurus, Company shall enter into a supplement to this Agreement granting to
Laurus a Lien in such commercial tort claim.
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(h) Company shall place notations upon its Books and Records
and any financial statement of Company to disclose Laurus' Lien in the
Collateral.
(i) If Company retains possession of any Chattel Paper or
Instrument with Laurus' consent, upon Laurus' request such Chattel Paper and
Instruments shall be marked with the following legend: "This writing and
obligations evidenced or secured hereby are subject to the security interest of
Laurus Master Fund, Ltd."
(j) 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) Company shall notify Laurus promptly and in any event
within three (3) Business Days after obtaining knowledge thereof (i) of any
event or circumstance that to 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 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 Company to any Account Debtor; (v) of all material adverse
information relating to the financial condition of an Account Debtor; (vi) of
any material return of goods; and (vii) of any material loss, damage or
destruction of any of the Collateral.
(l) All Eligible Accounts (i) which are billed on a
construction completion basis but not payable until the project is completed,
represent complete bona fide transactions which require no further act under any
circumstances on Company's part to make such Accounts payable by the Account
Debtors, (ii) are not subject to any present, future contingent offsets or
counterclaims, and (iii) do not represent xxxx and hold sales, consignment
sales, guaranteed sales, sale or return or other similar understandings or
obligations of any Affiliate or Subsidiary of Company. Company has not made, and
will not make, unless commercially reasonable, any agreement with any Account
Debtor for any extension of time for the payment of any Account, any compromise
or settlement for less than the full amount thereof, any release of any Account
Debtor from liability therefor, or any deduction therefrom except a discount or
allowance for prompt or early payment allowed by Company in the ordinary course
of its business consistent with historical practice and as previously disclosed
to Laurus in writing.
(m) Company shall keep and maintain its Equipment in good
operating condition, except for ordinary wear and tear, and shall make all
necessary repairs and replacements thereof so that the value and operating
efficiency shall at all times be maintained and preserved. Company shall not
permit any such items to become a Fixture to real estate or accessions to other
personal property.
(n) Company shall maintain and keep all of its Books and
Records concerning the Collateral at Company's executive offices listed in
Exhibit 12(d).
(o) Company shall maintain and keep the tangible Collateral at
the addresses listed in Exhibit 12(d), provided, that Company may change such
locations or open a new location, provided that (i) Company provides Laurus at
least thirty (30) days prior written notice
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of such changes or new location and (ii) prior to such change or opening of a
new location where Collateral having a value of more than $50,000 will be
located, Company 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 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 not 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) Company will irrevocably direct all of its present and
future Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the lockbox maintained by Company
(the "Lockbox") with Commerce Bank (the "Lockbox Bank") pursuant to the terms of
the Clearing Account Agreement dated November 20, 2003 or such other financial
institution accepted by Laurus in writing as may be selected by Company. On or
prior to the Closing Date, Company shall and shall cause the Lockbox Bank to
enter into all such documentation acceptable to Laurus pursuant to which, among
other things, the Lockbox Bank agrees to: (a) sweep the Lockbox account (number
#7916375160) on a daily basis and deposit all checks received therein to an
account designated by Laurus in writing and (b) comply only with the
instructions or other directions of Laurus concerning the Lockbox. All of
Company's invoices, account statements and other written or oral communications
directing, instructing, demanding or requesting payment of any Account of
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,
Company receives any payments, Company shall immediately remit such payments to
Laurus in their original form with all necessary endorsements. Until so
remitted, 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.
(b) At Laurus' election, following the occurrence of an Event
of Default which is continuing, Laurus may notify Company's Account Debtors of
Laurus' security interest in the Accounts, collect them directly and charge the
reasonable collection costs and expenses thereof to Company's account.
9. Collection and Maintenance of Collateral.
(a) Laurus may verify Company's Accounts from time to time, but
not more often than once every ninety (90) days unless an Event of Default has
occurred and is continuing, utilizing an audit control company or any other
agent of Laurus.
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(b) Proceeds of Accounts received by Laurus will be deemed
received on the Business Day of Laurus' receipt of such proceeds in good funds
in dollars of the United States of America in Laurus' account. Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall be
deemed received on the next Business Day.
(c) As Laurus receives the proceeds of Accounts, it shall remit
all such proceeds (net of interest, fees and other amounts then due and owing to
Laurus hereunder) to Company upon request (but no more often than twice a week).
Notwithstanding the foregoing, following the occurrence and during the
continuance of an Event of Default, Laurus, at its option, may (a) apply such
proceeds to the Obligations in such order as Laurus shall elect, (b) hold such
proceeds as cash collateral for the Obligations and Company hereby grants to
Laurus a security interest in such cash collateral amounts as security for the
Obligations and/or (c) do any combination of the foregoing.
10. Inspections and Appraisals. At all times during normal
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 Company's properties and the Collateral, (b) inspect, audit
and copy (or take originals if reasonably necessary) and make extracts from
Company's Books and Records, including management letters prepared by
independent accountants, and (c) discuss with Company's principal officers, and
independent accountants, Company's business, assets, liabilities, financial
condition, results of operations and business prospects. Company will deliver to
Laurus any instrument necessary for Laurus to obtain records from any service
bureau maintaining records for Company. If any internally prepared financial
information, including that required under this Section is unsatisfactory in any
manner to Laurus, Laurus may request that the Accountants review the same.
11. Financial Reporting. Company will deliver, or cause to be
delivered, to Laurus each of the following, which shall be in form and detail
reasonably acceptable to Laurus:
(a) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year of Company, Company's audited financial
statements with a report of independent certified public accountants of
recognized standing selected by Company and acceptable to Laurus (the
"Accountants"), which annual financial statements shall include Company's
balance sheet as at the end of such fiscal year and the related statements of
Company's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if Laurus so requests, on a consolidating and consolidated
basis to include all Subsidiaries and Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) if and when available,
copies of any management letters prepared by such accountants; and (ii) a
certificate of Company's President, Chief Executive Officer or Chief Financial
Officer stating that such financial statements have been prepared in accordance
with GAAP and whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder and, if so, stating in reasonable detail
the facts with respect thereto;
(b) As soon as available and in any event within forty five
(45) days after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of Company as at the end
of and for such quarter and for the year to date period then ended, prepared, if
Laurus so requests, on a consolidating and consolidated basis to
10
include all Subsidiaries and Affiliates, in reasonable detail and stating in
comparative form the figures for the corresponding date and periods in the
previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of Company's President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore reported
and remedied and, if so, stating in reasonable detail the facts with respect
thereto;
(c) Within thirty (30) days after the end of each month (or
more frequently if Laurus so requests), agings of Company's Accounts, unaudited
trial balances and their accounts payable and a calculation of Company's
Accounts, Eligible Accounts and thirty (30) days after the end of each fiscal
quarter for Inventory ledger as at the end of such month or shorter time period,
provided, however, that if Laurus shall request the foregoing information more
often than as set forth in the immediately preceding clause, the Company shall
have thirty (30) days from each such request to comply with Laurus' demand; and
(d) Promptly after (i) the filing thereof, copies of Company's
most recent registration statements and annual, quarterly, monthly or other
regular reports which Company files with the Securities and Exchange Commission
(the "SEC"), and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as Company shall send to its stockholders.
12. Additional Representations and Warranties. Company
represents and warrants (each of which such representations and warranties shall
be deemed repeated upon the making of a request for a Loan and made as of the
time of each Loan made hereunder), as follows:
(a) 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 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 Company's certificate of incorporation, by-laws or of any
indenture, agreement or undertaking to which Company is a party or by which
Company is bound and (iii) are within Company's corporate powers.
(c) This Agreement and the Ancillary Agreements executed and
delivered by Company are Company's legal, valid and binding obligations,
enforceable in accordance with their terms.
(d) Exhibit 12(d) sets forth Company's name as it appears in
official filing in the state of its incorporation, the type of entity of
Company, the organizational identification number issued by Company's state of
incorporation or a statement that no such number has been issued, Company's
state of incorporation, and the location of Company's chief executive office,
corporate offices, warehouses, other locations of Collateral and locations where
records with
11
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), Company has not been
known as or conducted business in any other name (including trade names).
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) 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)
Company has met all applicable minimum funding requirements under Section 302 of
ERISA in respect of its plans; (iii) 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) Company has no fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than Company's
employees; and (v) except as disclosed in Exhibit 12(e) attached hereto, 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) There is no pending or threatened litigation, court order,
judgment, writ, suit, action or proceeding which could reasonably be expected to
have a Material Adverse Effect.
(g) All balance sheets and income statements which have been
delivered to Laurus fairly, accurately and properly state Company's financial
condition on a basis consistent with that of previous financial statements and
except as reflected in such financial statements there has been no material
adverse change in 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 Company's financial condition.
(h) Company possesses or has licenses to use all of the
Intellectual Property necessary to conduct its business. There has been no
assertion or claim of violation or infringement with respect to any Intellectual
Property. Exhibit 12(i) describes all Intellectual Property of Company.
(i) Neither this Agreement, the exhibits and schedules hereto,
the Ancillary Agreements nor any other document delivered by Company to Laurus
or its attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, contain any untrue statement of a
material fact nor omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading. Assuming that the representations and warranties
of Laurus in the documentation relating to such securities is accurate,
complete, and correct, tThe issuance of the Notes and the Warrants and the
shares of common stock issued upon conversion of the Notes and exercise of the
Warrants will be exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither Company nor any of its Affiliates,
12
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.
(j) The common stock of the Company is registered pursuant to
Section 12(b) or 12(g) of the Exchange Act and, except with respect to certain
matters set forth on Exhibit 12(j) attached hereto, 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 filed (i) its
Annual Report on Form 10-K for the fiscal year ended August 31, 2002 and (ii)
its Quarterly Reports on Form 10-Q for the fiscal quarters ended November 30,
2002, February 28, 2003, and May 31, 2003 (collectively, the "SEC Reports").
Each SEC Report, as it may from time to time be amended, 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 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 generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed) and fairly present in all material respects the financial
condition, the results of operations and the cash flows of the Company and its
subsidiaries, on a consolidated basis, as of, and for, the periods presented in
each such SEC Report.
(k) The common stock of the Company is listed for trading on
the NASD Over the Counter Bulletin Board ("OTCBB") and satisfies all
requirements for the continuation of such listing. The Company has not received
any notice that its common stock will be delisted from the OTCBB or that the
common stock does not meet all requirements for the continuation of such
listing.
(l) 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 (other than
a concurrent offering to Laurus under a Securities Purchase Agreement between
the Company and Laurus dated as of November 20, 2003) under circumstances that
would cause the offering of the Securities pursuant to this Agreement and the
Ancillary Agreements 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 (other than
such concurrent offering to Laurus).
(m) The Securities are all restricted securities under the
Securities Act as of the date of this Agreement. The Company will not issue any
stop transfer order or other order
13
impeding the sale and delivery of any of the Securities at such time as such
Securities are registered for public sale or an exemption from registration is
available, except as provided in the Registration Rights Agreement and as
otherwise required by federal or state securities laws.
(n) The Company understands the nature of the Securities
issuable under the Ancillary Agreements and recognizes that the issuance of such
Securities may have a potential dilutive effect. The Company specifically
acknowledges that its obligation to issue the Securities 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.
(o) Except for agreements made in the ordinary course of
business, there is no agreement that has not been filed with the Commission as
an exhibit to a registration statement or to a form required to be filed by the
Company under the Exchange Act, the breach of which could reasonably be expected
to have a Material Adverse Effect or would prohibit or otherwise interfere with
the ability of the Company to enter into and perform any of its obligations
under this Agreement or the Registration Rights Agreement executed by Company in
favor of Laurus in any material respect.
13. Covenants. Company covenants as follows:
(a) Company will not, without the prior written consent of
Laurus, change (i) its name as it appears in the official filings in the state
of its incorporation or formation, (ii) the type of legal entity it is, (iii)
its organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws or other organizational document.
(b) The operation of 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) Company will pay or discharge when due all taxes,
assessments and governmental charges or levies imposed upon 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 Company in conformity with GAAP and (ii)
the related Lien shall have no effect on the priority of the Liens in favor of
Laurus or the value of the assets in which Laurus has a Lien.
(d) Company will promptly inform Laurus in writing of: (i) the
commencement of all proceedings and investigations by or before and/or the
receipt of any notices from, any governmental or nongovernmental body and all
actions and proceedings in any court or before any arbitrator against or in any
way concerning any event which could reasonable be expected to have singly or in
the aggregate, a Material Adverse Effect; (ii) any amendment of Company's
certificate of incorporation, by-laws or other organizational document; (iii)
any change which has had or could reasonably be expected to have a Material
Adverse Effect; (iv) any Event of Default or Default; (v) any default or any
event which with the passage of time or
14
giving of notice or both would constitute a default under any agreement for the
payment of money to which Company is a party or by which Company or any of
Company's properties may be bound the breach of which would have a Material
Adverse Effect and (vi) any change in Company's name or any other name used in
its business.
(e) The Company will not (i) except for Permitted Liens,
create, incur, assume or suffer to exist any indebtedness (exclusive of trade
debt) whether secured or unsecured other than Company's indebtedness to Laurus
and as set forth on 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 other than to pay dividends on shares of
its outstanding Preferred Stock or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any Stock of the Company except
as required under the terms of the Company's outstanding Preferred Stock issued
and outstanding on the date hereof; (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, (y) loans to Company's officers and employees not exceeding at
any one time an aggregate of $10,000, and (z) existing Subsidiaries of the
Company; (vi) create or permit to exist any Subsidiary, other than any
Subsidiary in existence on the date hereof and listed in Exhibit 13(e)(ii)
unless such new Subsidiary is designated by Laurus as either a co-borrower or
guarantor hereunder and such Subsidiary shall have entered into all such
documentation required by Laurus to grant to Laurus a first priority perfected
security interest in such Subsidiary's assets to secure the Obligations; (vii)
directly or indirectly, prepay any indebtedness (other than to Laurus and in the
ordinary course of business), or repurchase, redeem, retire or otherwise acquire
any indebtedness (other than to Laurus and in the ordinary course of business)
except to make scheduled payments of principal and interest thereof; (viii)
enter into any merger, consolidation or other reorganization with or into any
other Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to consolidate with or merge with it, unless (1) Company
is the surviving entity of such merger or consolidation, (2) no Event of Default
shall exist immediately prior to and after giving effect to such merger or
consolidation, (3) Company shall have provided Laurus copies of all
documentation relating to such merger or consolidation and (4) Company shall
have provided Laurus with at least thirty (30) days' prior written notice of
such merger or consolidation; (ix) materially change the nature of the business
in which it is presently engaged; (x) 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 Company or its existing
Subsidiaries.
(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
15
under Regulation U of the Board of Governors of the Federal Reserve System as
now and from time to time hereafter in effect.
(g) Company will bear the full risk of loss from any loss of
any nature whatsoever with respect to the Collateral. At Company's own cost and
expense in amounts and with carriers acceptable to Laurus, Company shall (i)
keep all its insurable properties and properties in which it has an interest
insured against the hazards of fire, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to Company's
including business interruption insurance; (ii) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to
Company'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 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 Company is engaged in business; and (v) furnish Laurus
with (x) certificates as to all such insurance coverages and evidence of the
maintenance of such policies at least thirty (30) days before any expiration
date, (y) endorsements to such policies naming Laurus as "co-insured" or
"additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Laurus, naming Laurus as loss payee, and (z) evidence
that as to Laurus the insurance coverage shall not be impaired or invalidated by
any act or neglect of Company and the insurer will provide Laurus with at least
thirty (30) days notice prior to cancellation or expiration thereof. Company
shall instruct the insurance carriers that in the event of any loss thereunder,
the carriers shall make payment for such loss to Laurus and not to Company and
Laurus jointly. If any insurance losses are paid by check, draft or other
instrument payable to Company and Laurus jointly, Laurus may endorse Company's
name thereon and do such other things as Laurus may deem advisable to reduce the
same to cash. Laurus is hereby authorized to adjust and compromise claims. All
loss recoveries received by Laurus upon any such insurance may be applied to the
Obligations, in such order as Laurus in its sole discretion shall determine or
shall otherwise be delivered to the Company. Any surplus shall be paid by Laurus
to Company or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by Company to Laurus, on demand.
(h) Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide for the conversion of the
Notes and exercise of the Warrants.
14. Further Assurances. At any time and from time to time, upon
the written request of Laurus and at the sole expense of Company, 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.
16
15. Power of Attorney. Company hereby appoints Laurus, or any
other Person whom Laurus may designate as Company's attorney, with power to: (i)
endorse 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 Company's name on any invoice or xxxx of lading relating to any
Accounts, drafts against Account Debtors, schedules and assignments of Accounts,
notices of assignment, financing statements and other public records,
verifications of Account and notices to or from Account Debtors; (iii) verify
the validity, amount or any other matter relating to any Account by mail,
telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) on or after the occurrence and continuation of an Event of
Default, notify the post office authorities to change the address for delivery
of Company's mail to an address designated by Laurus, and to receive, open and
dispose of all mail addressed to Company. Company hereby ratifies and approves
all acts of the attorney. Neither Laurus, nor the attorney will be liable for
any acts or omissions or for any error of judgment or mistake of fact or law,
except for gross negligence or willful misconduct. This power, being coupled
with an interest, is irrevocable so long as Laurus has a security interest and
until the Obligations have been fully satisfied.
16. Term of Agreement. Laurus' agreement to make Loans and
extend financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Initial Term. At Laurus' election following the
occurrence of an Event of Default, Laurus may terminate this Agreement. The
termination of the Agreement shall not affect any of Laurus' rights hereunder or
any Ancillary Agreement and the provisions hereof and thereof shall continue to
be fully operative until all transactions entered into, rights or interests
created and the Obligations have been disposed of, concluded or liquidated.
Notwithstanding the foregoing, Laurus shall release its security interests at
any time after thirty (30) days notice upon payment to it of all Obligations if
Company shall have (i) provided Laurus with an executed release of any and all
claims which 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 (1) FIVE PERCENT (5%) of the Capital Availability Amount if such
payment occurs prior to the first anniversary of the Initial Term or any
applicable renewal term, and (2) FOUR (4%) of the Capital Availability Amount if
such payment occurs on or after the first anniversary and prior to the second
anniversary of the Initial Term or any applicable renewal term and THREE PERCENT
(3%) if such termination occurs thereafter during the Initial Term; such fee
being intended to compensate Laurus for its costs and expenses incurred in
initially approving this Agreement or extending same. Such early payment fee
shall be due and payable by Company to Laurus upon termination by acceleration
of this Agreement by Laurus due to the occurrence and continuance of an Event of
Default.
17. Termination of Lien. The Liens and rights granted to Laurus
hereunder and any Ancillary Agreements and the financing statements filed in
connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Company's
account may from time to time be temporarily in a zero or credit position, until
all of the Obligations of Company have been paid or performed in full after the
termination of this Agreement. Laurus shall not be required to send termination
statements to Company, or to file them with any filing office, unless and until
this Agreement and the
17
Ancillary Agreements shall have been terminated in accordance with their terms
and all Obligations paid in full in immediately available funds.
18. Events of Default. The occurrence of any of the following
shall constitute an Event of Default:
(a) failure to make payment of any of the Obligations when
required hereunder;
(b) failure to pay any taxes when due unless such taxes are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been provided on Company's books;
(c) failure to perform under and/or committing any breach of
this Agreement or any Ancillary Agreement or any other agreement between Company
and Laurus which shall continue for a period of fifteen (15) days after the
occurrence thereof;
(d) the occurrence of a default under any agreement to which
Company is a party with third parties which has a Material Adverse Effect;
(e) any representation, warranty or statement made by Company
hereunder, in any Ancillary Agreement, any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in any
material respect;
(f) an attachment or levy is made upon Company's assets having
an aggregate value in excess of $50,000 or a judgment is rendered against
Company or Company's property involving a liability of more than $50,000 which
shall not have been vacated, discharged, stayed or bonded pending appeal within
thirty (30) days from entry thereof;
(g) any change in Company's condition or affairs (financial or
otherwise) which in Laurus' reasonable, good faith opinion, could reasonably be
expected to have a Material Adverse Effect;
(h) any Lien created hereunder or under any Ancillary Agreement
for any reason ceases to be or is not a valid and perfected Lien having a first
priority interest;
(i) if 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) 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;
18
(k) any Affiliate or Subsidiary of the Company shall (i) apply
for, consent to or suffer to exist the appointment of, or the taking possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vii) acquiesce to, or fail to have dismissed, within 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) Company directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any assets of Company or any interest therein, except as permitted
herein;
(m) the occurrence of a change in the controlling ownership of
the Company;
(n) a default by Company in the payment, when due, of any
principal of or interest on any other indebtedness for money borrowed in an
amount greater than $25,000, which is not cured within any applicable cure or
grace period;
(o) the indictment or threatened indictment of Company or any
executive officer of Company under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against Company or any
executive officer of Company pursuant to which statute or proceeding penalties
or remedies sought or available include forfeiture of any of the property of
Company;
(p) if an Event of Default shall occur under and as defined in
any Note;
(q) any Guarantor shall breach any term or provision of any
Ancillary Agreement which is not cured within any applicable cure or grace
period;
(r) if any Guarantor attempts to terminate, challenges the
validity of, or its liability under any Guaranty or any Guarantor Security
Agreement; or
(s) should any Guarantor default in its obligations under any
Guaranty or any Guarantor Security Agreement or if any proceeding shall be
brought to challenge the validity, binding effect of any Guaranty or any
Guarantor Security Agreement or should any Guarantor breach any representation,
warranty or covenant contained in any Guaranty Agreement or any Guarantor
Security Agreement or should any Guaranty or Guarantor Security Agreement cease
to be a valid, binding and enforceable obligation.
19. Remedies. Following the occurrence of an Event of Default,
Laurus shall have the right to demand repayment in full of all Obligations,
whether or not otherwise due. Until all Obligations have been fully satisfied,
Laurus shall retain its Lien in all Collateral. Laurus shall have, in addition
to all other rights provided herein and in each Ancillary Agreement, the rights
and remedies of a secured party under the UCC, and under other applicable law,
all other legal and equitable rights to which Laurus may be entitled, including
the
19
right to take immediate possession of the Collateral, to require Company to
assemble the Collateral, at 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 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
Company, Company agrees not to charge Laurus for storage thereof), and the right
to apply for the appointment of a receiver for Company's property. Further,
Laurus may, at any time or times after the occurrence of an Event of Default,
sell and deliver all Collateral held by or for Laurus at public or private sale
for cash, upon credit or otherwise, at such prices and upon such terms as
Laurus, in Laurus' sole discretion, deems advisable or Laurus may otherwise
recover upon the Collateral in any commercially reasonable manner as Laurus, in
its sole discretion, deems advisable. The requirement of reasonable notice shall
be met if such notice is mailed postage prepaid to Company at 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 Company's trademarks, tradenames, tradestyles,
patents, patent applications, licenses (subject to the terms of such license),
franchises and other proprietary rights. The proceeds of sale shall be applied
first to all costs and expenses of sale, including reasonable attorneys' fees,
and second to the payment (in whatever order Laurus elects) of all Obligations.
After the indefeasible payment and satisfaction in full in cash of all of the
Obligations, and after the payment by Laurus of any other amount required by any
provision of law, including Section 608(a)(1) of the Code (but only after Laurus
has received what Laurus considers reasonable proof of a subordinate party's
security interest), the surplus, if any, shall be paid to Company or its
representatives or to whosoever may be lawfully entitled to receive the same, or
as a court of competent jurisdiction may direct. Company shall remain liable to
Laurus for any deficiency. In addition, Company shall pay Laurus a liquidation
fee ("Liquidation Fee") in the amount of five percent (5%) of the actual amount
collected in respect of each Account outstanding at any time during a
"liquidation period". For purposes hereof, "liquidation period" means a period:
(i) beginning on the earliest date of (x) an event referred to in Section 18(i)
or 18(j), or (y) the cessation of Company's business; and (ii) ending on the
date on which Laurus has actually received all Obligations due and owing it
under this Agreement and the Ancillary Agreements. The Liquidation Fee shall be
paid on the date on which Laurus collects the applicable Account by deduction
from the proceeds thereof. Company and Laurus acknowledge that the actual
damages that would be incurred by Laurus after the occurrence of an Event of
Default would be difficult to quantify and that Company and Laurus have agreed
that the fees and obligations set forth in this Section and in this Agreement
would constitute fair and appropriate liquidated damages in the event of any
such termination.
20. Waivers. To the full extent permitted by applicable law,
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 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
20
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Company acknowledges that it has been advised by counsel of
its choices and decisions with respect to this Agreement, the Ancillary
Agreements and the transactions evidenced hereby and thereby.
21. Expenses. Company shall pay all of Laurus' reasonable
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and in
connection with the prosecution or defense of any action, contest, dispute, suit
or proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement, provided that such
amount does not exceed $[39,500]. Company shall also pay all of Laurus'
reasonable fees, charges, out-of-pocket costs and expenses, including fees and
disbursements of counsel and appraisers, in connection with (a) the preparation,
execution and delivery of any waiver, any amendment thereto or consent proposed
or executed in connection with the transactions contemplated by this Agreement
or the Ancillary Agreements, (b) Laurus' obtaining performance of the
Obligations under this Agreement and any Ancillary Agreements, including, but
not limited to, the enforcement or defense of Laurus' security interests,
assignments of rights and Liens hereunder as valid perfected security interests,
(c) any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any Collateral, (d) any appraisals or re-appraisals of any
property (real or personal) pledged to Laurus by Company as Collateral for, or
any other Person as security for, Company's Obligations hereunder and (e) any
consultations in connection with any of the foregoing. Company shall also pay
Laurus' customary bank charges for all bank services (including wire transfers)
performed or caused to be performed by Laurus for Company at Company's request
or in connection with Company's loan account with Laurus. All such costs and
expenses together with all filing, recording and search fees, taxes and interest
payable by Company to Laurus shall be payable on demand and shall be secured by
the Collateral. If any tax by any Governmental Authority is or may be imposed on
or as a result of any transaction between Company and Laurus which Laurus is or
may be required to withhold or pay, Company agrees to indemnify and hold Laurus
harmless in respect of such taxes, and Company will repay to Laurus the amount
of any such taxes which shall be charged to Company's account; and until Company
shall furnish Laurus with indemnity therefor (or supply Laurus with evidence
satisfactory to it that due provision for the payment thereof has been made),
Laurus may hold without interest any balance standing to Company's credit and
Laurus shall retain its Liens in any and all Collateral.
22. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person
which is not a competitor of the Company and any such transferee shall succeed
to all of Laurus' rights with respect thereto. Upon such transfer, Laurus shall
be released from all responsibility for the Collateral to the extent same is
assigned to any transferee. Laurus may from time to time sell or otherwise grant
participations in any of the Obligations and the holder of any such
participation shall, subject to the terms of any agreement between Laurus and
such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant. Company
agrees that each such holder may exercise any and all rights of banker's lien,
set-off and counterclaim with respect to its participation in the Obligations as
fully as though Company were directly indebted to such holder in the amount of
such participation.
21
23. No Waiver; Cumulative Remedies. Failure by Laurus to
exercise any right, remedy or option under this Agreement, any Ancillary
Agreement or any supplement hereto or thereto or any other agreement between
Company and Laurus or delay by Laurus in exercising the same, will not operate
as a waiver; no waiver by Laurus will be effective unless it is in writing and
then only to the extent specifically stated. Laurus' rights and remedies under
this Agreement and the Ancillary Agreements will be cumulative and not exclusive
of any other right or remedy which Laurus may have.
24. Application of Payments. Company irrevocably waives the
right to direct the application of any and all payments at any time or times
hereafter received by Laurus from or on Company's behalf and Company hereby
irrevocably agrees that Laurus shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
against the Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus' books and records.
25. Indemnity. Company agrees to indemnify and hold Laurus, and
its respective affiliates, employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of any kind or
nature whatsoever (including attorneys' fees and disbursements and other costs
of investigation or defense, including those incurred upon any appeal) which may
be instituted or asserted against or incurred by any such Indemnified Person as
the result of credit having been extended, suspended or terminated under this
Agreement or any of the Ancillary Agreements or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement, the Ancillary Agreements or any
other documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing, except
to the extent that any such indemnified liability is finally determined by a
court of competent jurisdiction to have resulted solely from such Indemnified
Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
26. Revival. Company further agrees that to the extent Company
makes a payment or payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
27. Notices. Any notice or request hereunder may be given to
Company or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice
22
designated as a change of address under this Section. Any notice or request
hereunder shall be given by registered or certified mail, return receipt
requested, hand delivery, overnight mail or telecopy (confirmed by mail).
Notices and requests shall be, in the case of those by hand delivery, deemed to
have been given when delivered to any officer of the party to whom it is
addressed, in the case of those by mail or overnight mail, deemed to have been
given three (3) business days after the date when deposited in the mail or with
the overnight mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
000 Xxxxx Xxxxxx 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Company: .
Address:
Attention: Chief Financial Officer
Telephone:
Telecopier:
With a copy to: Reitler Xxxxx LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
or such other address as may be designated in writing hereafter in accordance
with this Section 27 by such Person.
28. Governing Law, Jurisdiction and Waiver of Jury Trial. (a)
THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(b) 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
COMPANY AND LAURUS PERTAINING TO THIS
23
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 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. COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AT THE
ADDRESS SET FORTH IN SECTION 27 AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF 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 COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO.
29. Limitation of Liability. Company acknowledges and
understands that in order to assure repayment of the Obligations hereunder
Laurus may be required to exercise any and all of Laurus' rights and remedies
hereunder and agrees that, except as limited by applicable law, neither Laurus
nor any of Laurus' agents shall be liable for acts taken or omissions made in
connection herewith or therewith except for actual gross negligence, bad faith
or willful misconduct.
30. Entire Understanding. This Agreement and the Ancillary
Agreements contain the entire understanding between Company and Laurus as to the
subject matter hereof and thereof and any promises, representations, warranties
or guarantees not herein contained shall have no force and effect unless in
writing, signed by Company's 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
24
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.
31. 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.
32. Captions. All captions are and shall be without substantive
meaning or content of any kind whatsoever.
33. 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.
34. 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.
35. Publicity. Company hereby authorizes Laurus to make
appropriate announcements of the financial arrangement entered into by and
between Company and Laurus, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Laurus shall in its sole and absolute discretion deem appropriate, or
as required by applicable law.
36. Legends. The Securities shall bear legends as follows;
(a) The Notes shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO VENTURES-NATIONAL
INCORPORATED THAT SUCH REGISTRATION IS NOT
REQUIRED."
25
(b) Any shares of Common Stock issued pursuant to conversion of
the Note or exercise of the Warrants, shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES UNDER SAID ACT AND APPLICABLE STATE LAWS OR AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL
INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED
THAT SUCH REGISTRATION IS NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
26
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
VENTURES-NATIONAL INCORPORATED
D/B/A TITAN GENERAL HOLDINGS, INC.
By: /s/ Xxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxx
---------------------------------
Title: President
---------------------------------
LAURUS MASTER FUND, LTD.
By: /s/ Xxxxx Grin
------------------------------------
Name: Xxxxx Grin
----------------------------------
Title:
----------------------------------
27
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated with
respect to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section 11(a).
"Accounts" means all "accounts", as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including: (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) (including
any such obligations that may be characterized as an account or contract right
under the UCC); (b) all of such Person's rights in, to and under all purchase
orders or receipts for goods or services; (c) all of such Person's rights to any
goods represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
"Accounts Availability" means the amount of Loans against Eligible
Accounts Laurus may from time to time make available to Company up to eighty
five percent (85%) of the net face amount of Eligible Accounts based on Accounts
of Company.
"Affiliate" of any Person means (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Ancillary Agreements" means, the Notes, Warrants, Registration
Rights Agreements, each Guaranty, each Guaranty Security 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 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 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
28
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 $4,000,000.
"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 Company shall first receive
proceeds of the initial Loans.
"Collateral" means all of Company's property and assets, whether
real or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now has or at any time in the future may acquire any
right, title or interests including all of the following property in which it
now has or at any time in the future may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
(f) all Deposit Accounts, other bank accounts and all funds on
deposit therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
(l) all commercial tort claims set forth on Exhibit 1(A);
(m) all Books and Records;
(n) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
29
(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 percent (3.0%) per annum, but subject to the immediately following
sentence, the Contract Rate shall not be less than seven percent (7%). The
Contract Rate shall be subject to adjustment if (i) the Company shall have
registered the shares of the Company's common stock underlying the conversion of
all the Minimum Borrowing Notes issued by the Company to Laurus and that certain
warrant issued to Laurus on a registration statement declared effective by the
SEC, and (ii) the volume weighted average price of the Common Stock as reported
by Bloomberg, L.P. on the principal market for any of the ten (10) trading days
immediately preceding an interest payment date exceeds the then applicable Fixed
Conversion Price in such percentages as outlined in the table below, the
Contract Rate for the succeeding calendar month shall automatically be adjusted:
--------------------------------------- -----------------------------
Contract Rate
--------------------------------------- -----------------------------
125% of the Fixed Conversion Price Contract Rate minus 0.25%
--------------------------------------- -----------------------------
150% of the Fixed Conversion Price Contract Rate minus 0.25%
--------------------------------------- -----------------------------
175% of the Fixed Conversion Price Contract Rate minus 0.75%
--------------------------------------- -----------------------------
And thereafter, for each 25% incremental increase in the Fixed Conversion
Price, the Contract Rate will be correspondingly reduced by twenty five (25)
basis points, PROVIDED, HOWEVER, that in no event will the Contract Rate
hereunder be reduced to less than 0.00%.
"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, the Lockbox Account .
"Documents" means all "documents", as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
all bills of lading, dock
30
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 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 United States; provided, however, Laurus may,
from time to time, in the exercise of its sole discretion and based upon
satisfaction of certain conditions to be determined at such time by Laurus, deem
certain Accounts as Eligible Accounts notwithstanding that such Account is due
from an Account Debtor located outside of the United States; (k) Laurus has a
first priority perfected Lien in such Account and such Account is not subject to
any Lien other than Permitted Liens; (l) does not arise out of transactions with
any employee, officer, director, stockholder or Affiliate of Company; (m) is
payable to Company or a wholly-owned subsidiary thereof; (n) does not arise out
of a xxxx and hold sale prior to shipment and does not arise out of a sale to
any Person to which Company is indebted; (o) is net of any returns, discounts,
claims, credits and allowances; (p) if the Account arises out of contracts
between Company and the United States, any state, or any department, agency or
instrumentality of any of them, 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
Company or work, labor and/or services rendered by Company; (r) does not arise
out of progress xxxxxxxx prior to completion of the order; (s) the total unpaid
Accounts from such Account Debtor does not exceed twenty-five percent (25%) of
all Eligible Accounts; (t) Company's right to payment is absolute and not
contingent upon the fulfillment of any condition whatsoever; (u) Company is able
to bring suit and enforce its remedies against the Account Debtor through
judicial process; (v) does not represent interest payments, late or finance
charges owing to Company and (w) is otherwise satisfactory to Laurus as
determined by Laurus in the exercise of its sole discretion. In the event
Company requests that Laurus include within Eligible Accounts certain Accounts
of one or more of Company's acquisition targets, Laurus shall at the time of
such request consider such inclusion, but any such inclusion shall be at the
sole option of Laurus and shall at all times be subject to the execution and
delivery to Laurus of all such documentation (including, without limitation,
guaranty and security documentation) as Laurus may require in its sole
discretion.
31
"Equipment" means all "equipment" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
any and all machinery, apparatus, equipment, fittings, furniture, fixtures,
motor vehicles and other tangible personal property (other than Inventory) of
every kind and description that may be now or hereafter used in such Person's
operations or that are owned by such Person or in which such Person may have an
interest, and all parts, accessories and accessions thereto and substitutions
and replacements therefor.
"ERISA" shall have the meaning given to such term in Section
12(g).
"Event of Default" means the occurrence of any of the events set
forth in Section 18.
"Fixed Conversion Price" has the meaning given such term in the
Minimum Borrowing Note.
"Fixtures" means all "fixtures" as such term is defined in the
UCC, now owned or hereafter acquired by any Person.
"Formula Amount" has the meaning set forth in Section 2(a)(i).
"GAAP" means generally accepted accounting principles, practices
and procedures in effect from time to time in the United States of America.
"General Intangibles" means all "general intangibles" as such term
is defined in the UCC, now owned or hereafter acquired by any Person including
all right, title and interest that such Person may now or hereafter have in or
under any contract, all Payment Intangibles, customer lists, Licenses,
Intellectual Property, interests in partnerships, joint ventures and other
business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, Software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials, Books and
Records, Goodwill (including the Goodwill associated with any Intellectual
Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss, and casualty, whether covering personal
property, real property, tangible rights or intangible rights, all liability,
life, key-person, and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs,
32
operating and training manuals, customer lists, and distribution agreements now
owned or hereafter acquired by any Person.
"Guarantor" means and any Person who may guarantee payment of
performance of the whole or any part of the Obligations.
"Guarantor Security Agreements" means all security agreements,
mortgages, cash collateral deposit letters, pledges and other agreements which
are executed by any Guarantor in favor of Laurus.
"Guaranty" means all agreements to perform all or any portion of
the Obligations on behalf of Company.
"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 25.
"Initial Term" means the Closing Date through the close of
business on the day immediately preceding the second anniversary of the Closing
Date, subject to acceleration at the option of Laurus upon the occurrence of an
Event of Default hereunder or other termination hereunder.
"Instruments" means all "instruments", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all certificated securities and all promissory notes and other
evidences of indebtedness, other than instruments that constitute, or are a part
of a group of writings that constitute, Chattel Paper.
"Intellectual Property" means any and all Licenses, patents,
patent registrations, copyrights, copyright registrations, trademarks, trademark
registrations, trade secrets and customer lists.
"Inventory" means all "inventory", as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
all inventory, merchandise, goods and other personal property that are held by
or on behalf of such Person for sale or lease or are furnished or are to be
furnished under a contract of service or that constitute raw materials, work in
process, finished goods, returned goods, or materials or supplies of any kind,
nature or description used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
wherever located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
including rights to payment or
33
performance under a letter of credit, whether or not such Person, as
beneficiary, has demanded or is entitled to demand payment or performance.
"License" means any rights under any written agreement now or
hereafter acquired by any Person to use any trademark, trademark registration,
copyright, copyright registration or invention for which a patent is in
existence or other license of rights or interests now held or hereafter acquired
by any Person.
"Lien" means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" shall have the meaning set forth in Section 2(a)(i) and
shall include all other extensions of credit hereunder and under any Ancillary
Agreement.
"Material Adverse Effect" means a material adverse effect on (a)
the condition, operations, assets, business or prospects of Company, (b)
Company's ability to pay or perform the Obligations in accordance with the terms
hereof or any Ancillary Agreement, (c) the value of the Collateral, the Liens on
the Collateral or the priority of any such Lien or (d) the practical realization
of the benefits of Laurus' rights and remedies under this Agreement and the
Ancillary Agreements.
"Maximum Legal Rate" shall have the meaning given to such term in
Section 5(a)(iv).
"Minimum Borrowing Amount" means $1,500,000, which such aggregate
amount shall be evidenced by Minimum Borrowing Notes.
"Minimum Borrowing Notes" shall mean each Secured Convertible
Note, which shall be issued in a series, made by the Company in favor of Laurus
to evidence the Minimum Borrowing Amount.
"Notes" means each of the Minimum Borrowing Notes and the
Revolving Note made by Company in favor of Laurus in connection with the
transactions contemplated hereby, as the same may be amended, modified and
supplemented from time to time, as applicable.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Company to Laurus (or any corporation
that directly or indirectly controls or is controlled by or is under common
control with Laurus) of every kind and description (whether or not evidenced by
any note or other instrument and whether or not for the payment of money or the
performance or non-performance of any act), direct or indirect, absolute or
contingent, due or to become due, contractual or tortious, liquidated or
unliquidated, whether existing by operation of law or otherwise now existing or
hereafter arising including any debt, liability or obligation owing from Company
to others which Laurus may have obtained by
34
assignment or otherwise and further including all interest (including interest
accruing at the then applicable rate provided in this Agreement after the
maturity of the Loans and interest accruing at the then applicable rate provided
in this Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding), charges or any other payments Company is required to make by law or
otherwise arising under or as a result of this Agreement and the Ancillary
Agreements, together with all reasonable expenses and reasonable attorneys' fees
chargeable to Company's account or incurred by Laurus in connection with
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 "prime rate" published in The Wall Street
Journal from time to time. The Prime Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in such rate.
"Proceeds" means "proceeds", as such term is defined in the UCC
and, in any event, shall include: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Company or any other Person from time
to time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to Company from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of any
Collateral by any governmental body, governmental authority, bureau or agency
(or any person acting under color of governmental authority); (c) any claim of
Company against third parties (i) for past, present or future infringement of
any Intellectual Property or (ii) for past,
35
present or future infringement or dilution of any trademark or trademark license
or for injury to the goodwill associated with any trademark, trademark
registration or trademark licensed under any trademark License; (d) any
recoveries by Company against third parties with respect to any litigation or
dispute concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts , rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness incurred
for the payment of all or any part of the purchase price of any fixed asset,
including indebtedness under capitalized leases, (b) any indebtedness incurred
for the sole purpose of financing or refinancing all or any part of the purchase
price of any fixed asset, and (c) any renewals, extensions or refinancings
thereof (but not any increases in the principal amounts thereof outstanding at
that time).
"Purchase Money Lien" means any Lien upon any fixed assets that
secures the Purchase Money Indebtedness related thereto but only if such Lien
shall at all times be confined solely to the asset the purchase price of which
was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
"Registration Rights Agreements" means those registration rights
agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.
"Revolving Note" means that secured revolving note made by the
Company in favor of Laurus in the aggregate principal amount of two million five
hundred thousand dollars ($2,500,000) .
"Securities" means the Notes and the Warrants being issued by the
Company to Laurus pursuant to this Agreement and the Ancillary Agreements and
the shares of the common stock of the Company which may be issued pursuant to
conversion of such Notes in whole or in part or exercise of such Warrants.
"Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.
"Stock" means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Securities Exchange Act of
1934).
36
"Subsidiary" of any Person means a corporation or other entity
whose shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Supporting Obligations" means all "supporting obligations" as
such term is defined in the UCC.
"Term" means, as applicable, the Initial Term and any Renewal
Term.
"UCC" means the Uniform Commercial Code as the same may, from time
be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
"Warrants" has the meaning set forth in the Registration Rights
Agreements.
EXHIBITS
Exhibit 1(A) - Commercial Tort Claims
Exhibit 2 - Permitted Liens
Exhibit 7(c) - Actions for Perfection
Exhibit 7(p) - Bank Accounts
Exhibit 12(d) - Corporate Information and Locations of Collateral
Exhibit 12(e) - ERISA
Exhibit 12(i) - Licenses, Patents, Trademarks and Copyrights
Exhibit 12(j) - Certain SEC matters
Exhibit 13(e)(i) - Permitted Indebtedness
Exhibit 13(e)(ii) - Existing Subsidiaries
Exhibit A - Form of Borrowing Base Certificate
37
Exhibit A
Borrowing Base Certificate
--------------------------------------------------------------------------------
DATE: CERTIFICATE NUMBER:
--------------------------------------------------------------------------------
BORROWER NAME: VENTURES NATIONAL INC.
D/B/A TITAN GENERAL HOLDINGS, INC.
--------------------------------------------------------------------------------
1. Period end Accounts as of: $
--------------------- --------------
Ineligible Accounts as of:
---------------------
Accounts over 90 days from invoice date $
--------------
Intercompany and Affiliate 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 Security Agreement dated _____, 2003 between Borrower and
Laurus Master Fund, Ltd.
VENTURES NATIONAL INC. D/B/A TITAN GENERAL HOLDINGS, INC.
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
