EXHIBIT 10.33
SECURITY AND PURCHASE AGREEMENT
LAURUS MASTER FUND, LTD.
PROXYMED, INC.
and
PROXYMED TRANSACTION SERVICES, INC.
PROXYMED LAB SERVICES, LLC
PLANVISTA CORPORATION
PLANVISTA SOLUTIONS, INC.
NATIONAL NETWORK SERVICES, LLC
Dated: December 6, 2005
TABLE OF CONTENTS
PAGE
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1. General Definitions and Terms; Rules of Construction................................................. 1
2. Loans and Closing Shares............................................................................. 2
3. Repayment of the Loans............................................................................... 3
4. Procedure for Revolving Loans........................................................................ 4
5. Interest and Payments................................................................................ 4
6. Security Interest.................................................................................... 5
7. Representations, Warranties and Covenants Concerning the Collateral.................................. 6
8. Payment of Accounts.................................................................................. 8
9. Collection and Maintenance of Collateral............................................................. 9
10. Inspections and Appraisals........................................................................... 9
11. Financial Reporting................................................................................. 10
12. Additional Representations and Warranties........................................................... 11
13. Covenants........................................................................................... 22
14. Further Assurances.................................................................................. 28
15. Representations, Warranties and Covenants of Laurus................................................. 28
16. Power of Attorney................................................................................... 30
17. Term of Agreement................................................................................... 31
18. Termination of Lien................................................................................. 31
19. Events of Default................................................................................... 32
20. Remedies............................................................................................ 34
21. Waivers............................................................................................. 35
22. Expenses............................................................................................ 35
23. Assignment By Laurus................................................................................ 36
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PAGE(S)
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24. No Waiver; Cumulative Remedies...................................................................... 36
25. Application of Payments............................................................................. 36
26. Indemnity........................................................................................... 36
27. Revival............................................................................................. 37
28. Borrowing Agency Provisions......................................................................... 37
29. Notices............................................................................................. 38
30. Governing Law, Jurisdiction and Waiver of Jury Trial................................................ 39
31. Limitation of Liability............................................................................. 40
32. Entire Understanding; Maximum Interest.............................................................. 40
33. Severability........................................................................................ 40
34. Survival............................................................................................ 41
35. Captions............................................................................................ 41
36. Counterparts; Telecopier Signatures................................................................. 41
37. Construction........................................................................................ 41
38. Publicity........................................................................................... 41
39. Joinder............................................................................................. 41
40. Legends............................................................................................. 41
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SECURITY AND PURCHASE AGREEMENT
This
Security and Purchase Agreement is made as of December 6, 2005 by
and among LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus").
PROXYMED, INC., a Florida corporation ("the Parent"), and each party listed on
Exhibit A attached hereto (each an "Eligible Subsidiary" and collectively, the
"Eligible Subsidiaries") (the Parent and each Eligible Subsidiary, each a
"Company" and collectively, the "Companies").
BACKGROUND
The Companies have requested that Laurus make advances available to the
Companies; and
Laurus has agreed to make such advances 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. General Definitions and Terms: Rules of Construction.
(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.
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. If any interest, any other payment or
any document, instrument or certificate to be made or delivered under this
Agreement, becomes due and payable or deliverable on a day other than a Business
Day, such payment date or delivery date shall be extended to the next succeeding
Business Day and interest thereon shall be payable at the then applicable rate
during such extension.
2. Loans and Closing Shares.
(a) Revolving Loans.
(i) Subject to the terms and conditions set forth herein and in
the Ancillary Agreements, Laurus may make revolving loans (the "Revolving
Loans") to Companies from time to time during the Revolving Loan Term which, in
the aggregate at any time outstanding, will not exceed the lesser of (x) the
Maximum Availability Amount and (y) an amount equal to the Formula Amount. The
Companies shall, jointly and severally, execute and deliver to Laurus on the
Closing Date the Revolving Note.
(ii) Notwithstanding the limitations set forth above, if
requested by any Company, Laurus retains the right (but not the obligation) to
lend to such Company from time to time such amounts in excess of such
limitations as Laurus may determine in its sole discretion.
(iii) If any interest, fees, costs or charges payable to Laurus
hereunder are not paid when due, each of the Companies shall thereby be deemed
to have requested, and Laurus is hereby authorized at its discretion to make and
charge to the Companies' account, a Revolving Loan as of such date in an amount
equal to such unpaid interest, fees, costs or charges; provided that in the
event Laurus so charges the Companies' account at a time when no other Event of
Default shall have occurred and be continuing and an Overadvance does not result
from the charging of the Companies' account, the Companies shall be deemed to be
not in default of this Agreement.
(iv) If any Company at any time fails to perform or observe any
of the covenants contained in this Agreement or any Ancillary Agreement, Laurus
may, but need not, perform or observe such covenant on behalf and in the name,
place and stead of such Company (or, at Laurus' option, in Laurus' name) and
may, but need not, take any and all other actions which Laurus may deem
necessary to cure or correct such failure (including the payment of taxes, the
satisfaction of Liens, the performance of obligations owed to Account Debtors,
lessors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments). The amount of all monies expended and all costs and
expenses (including 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 the
Companies' account as a Revolving Loan and added to the Obligations. To
facilitate Laurus' performance or observance of such covenants by each Company,
each Company hereby irrevocably appoints
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Laurus, or Laurus' delegate, acting alone, as such Company's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of such Company any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by such Company.
(v) Laurus will account to Company Agent monthly with a statement
of all Loans and other advances, charges and payments made pursuant to this
Agreement, and such account rendered by Laurus shall be deemed final, binding
and conclusive unless Laurus is notified by Company Agent in writing to the
contrary within thirty (30) days of the date each account was rendered
specifying the item or items to which objection is made.
(vi) During the Term, the Companies may borrow and prepay Loans
in accordance with the terms and conditions of this Agreement and the Notes.
(b) Term Loan. Subject to the terms and conditions set forth herein and
in the Ancillary Agreements, Laurus shall make a term loan (the "Term Loan") to
the Companies in an aggregate amount equal to $5,000,000. The Term Loan shall be
advanced on the Closing Date and shall be, with respect to principal, payable in
consecutive monthly installments of principal commencing on April 1, 2006 and on
the first day of each month thereafter, subject to acceleration upon the
occurrence of an Event of Default or termination of this Agreement. The first
fifty-five principal installments shall be each in the amount of $89,285.71 and
the final installment shall be in an amount equal to the unpaid principal
balance of the Term Loan plus all accrued and unpaid interest thereon, The Term
Loan shall be evidenced by the Term Note.
(c) Closing Shares. Subject to the terms and conditions set forth
herein, on the Closing Date, the Parent shall sell to Laurus, and Laurus shall
purchase from the Parent, the Closing Shares. The purchase price for the Closing
Shares shall be equal to the product of (i) the amount of Closing Shares issued
to Laurus hereunder multiplied by (ii) $0.01. On the Closing Date, the Parent
will deliver to Laurus the stock certificates evidencing the Closing Shares
registered in Laurus' name and Laurus will deliver to the Parent the purchase
price for the Closing Shares. Notwithstanding anything contained herein to the
contrary, Laurus shall not be entitled to purchase Common Stock pursuant to the
terms of this Agreement in an amount which would exceed the difference between
(i) 4.99% of the outstanding shares of Common Stock and (ii) the number of
shares of Common Stock beneficially owned by Laurus. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13d-3
thereunder. The limitation described in this Section 2(c) shall automatically
become null and void without any notice to the Parent upon the occurrence and
during the continuance of an Event of Default, or upon 75 days prior written
notice to the Parent. Notwithstanding anything contained herein to the contrary,
the provisions of this Section 2(c) are irrevocable and may not be waived by
Laurus or any Company.
3. Repayment of the Loans. The Companies (a) may prepay the Obligations
from time to time in accordance with the terms and provisions of the Notes (and
Section 17 hereof if such prepayment is due to a termination of this Agreement);
(b) shall repay on the expiration of the Revolving Loan Term the then aggregate
outstanding principal balance of the Revolving
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Loans together with accrued and unpaid interest, fees and charges; (c) shall
repay on the expiration of the Term Loan Term the then aggregate principal
balance of the Term Loan together with accrued and unpaid interest, fees and
charges and all other amounts owed Laurus under this Agreement and the Ancillary
Agreements; and (d) subject to Section 2(a)(ii), shall repay on any day on which
the then aggregate outstanding principal balance of the Revolving Loans are in
excess of the Formula Amount at such time, Revolving Loans in an amount equal to
such excess. Any payments of principal, interest, fees or any other amounts
payable hereunder or under any Ancillary Agreement shall be made prior to 12:00
noon (
New York time) on the due date thereof in immediately available funds.
4. Procedure for Revolving Loans. Company Agent may by written notice
request a borrowing of Revolving Loans prior to 12:00 noon (
New York time) on
the Business Day of its request to incur, on the next Business Day, a Revolving
Loan. Together with each request for a Revolving Loan (or at such other
intervals as Laurus may request), Company Agent shall deliver to Laurus a
Borrowing Base Certificate in the form of Exhibit B attached hereto, which shall
be certified as true and correct by the Chief Executive Officer or Chief
Financial Officer of Company Agent together with all supporting documentation
relating thereto. All Revolving Loans shall be disbursed from whichever office
or other place Laurus may designate from time to time and shall be charged to
the Companies' account on Laurus' books. The proceeds of each Revolving Loan
made by Laurus shall be made available to Company Agent on the Business Day
following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to the applicable Company's operating account
maintained with such bank as Company Agent designated to Laurus. Any and all
Obligations due and owing hereunder may be charged to the Companies' account and
shall constitute Revolving Loans.
5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(a)(iii) below, the Companies
shall jointly and severally pay interest at the applicable Contract Rate on the
unpaid principal balance of each Loan until such time as such Loan is collected
in full in good funds in dollars of the United States of America.
(ii) Interest and payments shall be computed on the basis of
actual days elapsed in a year of 360 days. At Laurus' option, Laurus may charge
the Companies' account for said interest.
(iii) Effective upon the occurrence of any Event of Default and
for so long as any Event of Default shall be continuing, the Contract Rate shall
automatically be increased as set forth in the Notes (such increased rate, the
"Default Rate"), and all outstanding Obligations, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable hereunder
exceed the maximum rate permitted under any applicable law or regulation, as in
effect from time to time (the "Maximum Legal Rate"), and if any provision of
this Agreement or any Ancillary
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Agreement is in contravention of any such law or regulation, interest payable
under this Agreement and each Ancillary Agreement shall be computed on the basis
of the Maximum Legal Rate (so that such interest will not exceed the Maximum
Legal Rate).
(v) The Companies shall jointly and severally pay principal,
interest and all other amounts payable hereunder, or under any Ancillary
Agreement, without any deduction whatsoever, including any deduction for any
set-off or counterclaim.
(b) Payments; Certain Closing Conditions.
(i) Closing/Annual Payments. Upon execution of this Agreement by
each Company and Laurus, the Companies shall jointly and severally pay to Laurus
Capital Management, LLC a closing payment in an amount equal to three and
one-half percent (3.50%) of the Total Investment Amount. Such payment shall be
deemed fully earned on the Closing Date and shall not be subject to rebate or
proration for any reason.
(ii) Overadvance Payment. Without affecting Laurus' rights
hereunder in the event the Revolving Loans exceed the Formula Amount (each such
event, an "Overadvance"), all such Overadvances shall bear additional interest
at a rate equal to one and one-half percent (1.50%) per month (pro rated for
partial months) of the amount of such Overadvances for all times such amounts
shall be in excess of the Formula Amount commencing on the date of the
Overadvance. All amounts that are incurred pursuant to this Section 5(b)(ii)
shall be due and payable by the Companies monthly, in arrears, on the first
Business Day of each calendar month and upon expiration of the Revolving Loan
Term.
(iii) Financial Information Default. Without affecting Laurus'
other rights and remedies, in the event any Company fails to deliver the
financial information required by Section 11 on or before the date required by
this Agreement, the Companies shall jointly and severally pay Laurus an
aggregate fee in the amount of $500.00 per week (or portion thereof) for each
such failure until such failure is cured to Laurus' satisfaction or waived in
writing by Laurus. All amounts that are incurred pursuant to this Section
5(b)(iii) shall be due and payable by the Companies monthly, in arrears, on the
first business of each calendar month and upon expiration of the Term.
(iv) Expenses. The Companies shall jointly and severally
reimburse Laurus for its expenses (including reasonable legal fees and expenses)
incurred in connection with the preparation and negotiation of this Agreement
and the Ancillary Agreements, and reasonable expenses incurred in connection
with Laurus' due diligence review of each Company and its Subsidiaries and all
related matters. Amounts required to be paid under this Section 5(b)(iv) will be
paid on the Closing Date.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations, each
Company hereby assigns, pledges and grants to Laurus a continuing security
interest in and Lien upon all of the Collateral. All of each Company's Books and
Records relating to the Collateral shall, until delivered to or removed by
Laurus, be kept by such Company in trust for Laurus until all Obligations have
been paid in full. Each confirmatory assignment schedule or other form of
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assignment hereafter executed by each Company shall be deemed to include the
foregoing grant, whether or not the same appears therein.
(b) Each Company hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral (1) as all assets and personal property of such 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. Each Company acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement without the prior written consent of Laurus and agrees that
it will not do so without the prior written consent of Laurus, subject to such
Company's rights under Section 9-509(d)(2) of the UCC.
(c) Each Company hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable upon the 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 such Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by such
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this Agreement and the payment in
full of all Obligations.
7. Representations, Warranties and Covenants Concerning the Collateral.
Each Company represents, warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each request for a
Revolving Loan and made as of the time of each and every Revolving Loan
hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by it free and clear of all
Liens (including any claims of infringement) except those in Laurus' favor and
Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a Lien.
(b) it shall not encumber, mortgage, pledge, assign or grant any Lien
in any Collateral or any other assets to anyone other than Laurus and except for
Permitted Liens.
(c) the Liens granted pursuant to this Agreement, upon completion of
the filings and other actions listed on Schedule 7(c) (which, in the case of all
filings and other documents referred to in said Schedule, have been delivered to
Laurus in duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in
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accordance with the terms hereof against any and all of its creditors and
purchasers 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) it 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 $100,000 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) it 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 it, 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 it (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 its and/or Laurus' respective and several interests in the
Collateral.
(g) it 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, it
shall enter into a supplement to this Agreement granting to Laurus a Lien in
such commercial tort claim.
(h) it shall place notations upon its Books and Records and any of its
financial statements to disclose Laurus' Lien in the Collateral.
(i) if it 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."
Notwithstanding the foregoing, upon the reasonable request of Laurus, such
Chattel Paper and Instruments shall be delivered to Laurus.
(j) it 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.
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(k) it shall keep and maintain its Equipment in good operating
condition, except for ordinary wear and tear and dispositions permitted pursuant
to Section 7(e), and shall make all necessary repairs and replacements thereof
so that the value and operating efficiency shall at all times be maintained and
preserved. It shall not permit any such items having an aggregate value in
excess of $10,000 to become a Fixture to real estate or accessions to other
personal property.
(1) it shall maintain and keep all of its Books and Records concerning
the Collateral at its executive offices listed in Schedule 12(z).
(m) it shall maintain and keep the tangible Collateral at the addresses
listed in Schedule 12(z), provided, that it may change such locations or open a
new location, provided that it provides Laurus at least thirty (30) days prior
written notice of such changes or new location and (ii) prior to such change or
opening of a new location where Collateral having a value of more than $100,000
will be located, it executes and delivers to Laurus such agreements deemed
reasonably necessary or prudent by Laurus, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus, to adequately protect and maintain Laurus' security
interest in such Collateral.
(n) Schedule 7(n) lists all banks and other financial institutions at
which it maintains deposits and/or other accounts, and such Schedule correctly
identifies the name, address and telephone number of each such depository, the
name in which the account is held, a description of the purpose of the account,
and the complete account number. It shall not establish any depository or other
bank account with any financial institution (other than the accounts set forth
on Schedule 7(n)) without Laurus' prior written consent.
8. Payment of Accounts.
(a) Each 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 lockboxes maintained by such
Company (the "Lockboxes") with Wachovia Bank, National Association, or such
other financial institution accepted by Laurus in writing as may be selected by
such Company (the "Lockbox Bank") pursuant to the terms of the certain
agreements among one or more Companies, Laurus and/or the Lockbox Bank dated as
of December 6, 2005. On or prior to the Closing Date, each 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 on a daily basis and deposit all checks received therein to an
account of Parent designated by Laurus in writing and (b) comply only with the
instructions or other directions of Laurus concerning the Lockbox. All of each
Company's invoices, account statements and other written or oral communications
directing, instructing, demanding or requesting payment of any Account of any
Company or any other amount constituting Collateral shall conspicuously direct
that all payments be made to the Lockbox or following the occurrence of an Event
of Default which is continuing, such other address as Laurus may direct in
writing. If, notwithstanding the instructions to Account Debtors, any Company
receives any payments, such Company shall immediately remit such payments to
Laurus in their original form with all necessary endorsements. Until so
remitted, such Company
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shall hold all such payments in trust for and as the property of Laurus and
shall not commingle such payments with any of its other funds or property.
(b) At Laurus' election, following the occurrence of an Event of
Default which is continuing, Laurus may notify each Company's Account Debtors of
Laurus' security interest in the Accounts, collect them directly and charge the
collection costs and expenses thereof to Company's and the Eligible Subsidiaries
joint and several account.
9. Collection and Maintenance of Collateral.
(a) Laurus may verify each Company's Accounts from time to time, but
not more often than once every four (4) months, unless an Event of Default has
occurred and is continuing or Laurus believes that such verification is
necessary to preserve or protect the Collateral, utilizing an audit control
company or any other agent of Laurus. Unless an Event of Default has occurred,
Companies shall only be required to reimburse Laurus for no more than $30,000 in
audit costs in the aggregate during each fiscal year.
(b) Proceeds of Accounts received by Laurus will be deemed received on
the Business Day after Laurus' receipt of such proceeds in good funds in
dollars of the United States of America to an account designated by Laurus. Any
amount received by Laurus after 12:00 noon (
New York time) on any Business Day
shall be deemed received on the next Business Day.
(c) As Laurus receives the proceeds of Accounts of any Company, it
shall (i) apply such proceeds, as required, to amounts outstanding under the
Revolving Note, and (ii) remit all such remaining proceeds (net of interest,
fees and other amounts then due and owing to Laurus hereunder) to Company Agent
(for the benefit of the applicable Companies) upon request (but no more often
than twice a week). Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default, Laurus, at its option, may (a)
apply such proceeds to the Obligations in such order as Laurus shall elect, (b)
hold all such proceeds as cash collateral for the Obligations and each 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
and absent the occurrence of an Event of Default, reasonable prior notice,
Laurus, and/or any agent of Laurus shall have the right to (a) have access to,
visit, inspect, review, evaluate and make physical verification and appraisals
of each Company's properties and the Collateral, (b) inspect, audit and copy (or
take originals if necessary to perfect Laurus' Lien in such Collateral or
facilitate the collection thereof) and make extracts from each Company's Books
and Records, including management letters prepared by the Accountants, and (c)
discuss with each Company's directors, principal officers, and independent
accountants, each Company's business, assets, liabilities, financial condition,
results of operations and business prospects. Each Company will deliver to
Laurus any instrument necessary for Laurus to obtain records from any service
bureau maintaining records for such 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.
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11. Financial Reporting. Company Agent will deliver, or cause to be
delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Parent, each Company's audited
financial statements with a report of independent certified public accountants
of recognized standing selected by the Parent and acceptable to Laurus (the
"Accountants"), which annual financial statements shall be without qualification
and shall include each of the Parent's and each of its Subsidiaries' balance
sheet as at the end of such fiscal year and the related statements of each of
the Parent's and each of its Subsidiaries' income, retained earnings and cash
flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include the Parent, each Subsidiary of the Parent and each
of their respective 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 the Accountants; and (ii) a certificate of the
Parent'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 fiscal quarter of the Parent, an unaudited/internal
balance sheet and statements of income, retained earnings and cash flows of each
of the Parent's and each of its Subsidiaries' as at the end of and for such
quarter and for the year to date period then ended, prepared on a consolidating
and consolidated basis to include the Parent, each Subsidiary of the Parent and
each of their respective 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 the Parent'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) As soon as available and in any event within twenty (20) days after
the end of each calendar month, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of each of the Parent and
its Subsidiaries as at the end of and for such month and for the year to date
period then ended, prepared on a consolidating and consolidated basis to include
the Parent, each Subsidiary of the Parent and each of their respective
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 the Parent'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;
10
(d) Within ten (10) days after the end of each month (or more
frequently if Laurus so requests), a Borrowing Base Certificate as of the last
day of the previous month.
(e) Within twenty (20) days after the end of each month (or more
frequently if Laurus so requests), agings of each Company's Accounts, unaudited
trial balances and their accounts payable and a calculation of each Company's
Accounts and Inventory, provided, however, that if Laurus shall request the
foregoing information more often than as set forth in the immediately preceding
clause, each Company shall have fifteen (15) days from each such request to
comply with Laurus' demand;
(f) Promptly after (i) the filing thereof, copies of the Parent's most
recent registration statements and annual, quarterly, monthly or other regular
reports which the Parent files with the Securities and Exchange Commission (the
"SEC"), and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as the Parent shall send to its stockholders (the
foregoing obligation shall be deemed satisfied once such reports are filed with
the SEC); and
(g) The Parent shall deliver, or cause the applicable Subsidiary of the
Parent to deliver, such other information as Laurus shall reasonably request.
12. Additional Representations and Warranties. Each Company hereby
represents and warrants to Laurus as follows:
(a) Organization, Good Standing and Qualification. It and each of
its Subsidiaries is a corporation, partnership or limited liability company, as
the case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. It and each of its Subsidiaries has
the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar as
it is or shall be a party thereto, to (i) execute and deliver this Agreement and
the Ancillary Agreements, (ii) to issue and sell the Closing Shares and to issue
the Notes, and to (iii) carry out the provisions of this Agreement and the
Ancillary Agreements and to carry on its business as presently conducted. It and
each of its Subsidiaries is duly qualified and is authorized to do business and
is in good standing as a foreign corporation, partnership or limited liability
company, as the case may be, in all jurisdictions in which the nature or
location of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so has not had, or could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
(b) Subsidiaries. Each of its direct and indirect Subsidiaries, the
direct owner of each such Subsidiary and its percentage ownership thereof, is
set forth on Schedule 12(b).
(c) Capitalization; Voting Rights.
(i) The authorized capital stock of the Parent, as of the date
hereof consists of 32,000,000 shares, of which 30,000,000 are shares of Common
Stock, par value $0.001 per share, 12,704,087 shares of which are issued and
outstanding and 2,000,000 are shares of preferred stock, par value $0.01 per
share shares of which 130,000 are designated as Series A Preferred Stock, 15,000
of which are designated as Series B Preferred Stock and
11
300,000 of which are designated as Series C 7% Convertible Preferred Stock
("Parent Series C Stock") of which 2,000 shares of Parent Series C Stock are
outstanding. The authorized, issued and outstanding capital stock of each
Subsidiary of each Company is set forth on Schedule 12(c).
(ii) Except as disclosed on Schedule 12(c), other than: (i) the
shares reserved for issuance under the Parent's stock option plans; and (ii)
shares which may be issued pursuant to this Agreement and the Ancillary
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Parent of any of its securities. Except as
disclosed on Schedule 12(c), neither the offer or issuance of any of the Notes
or the issuance of any of the Closing Shares, nor the consummation of any
transaction contemplated hereby will result in a change in the price or number
of any securities of the Parent outstanding, under anti-dilution or other
similar provisions contained in or affecting any such securities.
(iii) All issued and outstanding shares of the Parent's Common
Stock: (i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(iv) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Parent's Certificate of
Incorporation (the "Charter"). The Closing Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Parent's Charter, the Securities will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances; provided,
however, that the Securities may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
(d) Authorization, Binding Obligations. All corporate, partnership or
limited liability company, as the case may be, action on its and its
Subsidiaries' part (including their respective officers and directors) necessary
for the authorization of this Agreement and the Ancillary Agreements, the
performance of all of its and its Subsidiaries' obligations hereunder and under
the Ancillary Agreements on the Closing Date and, the authorization, issuance
and delivery of the Notes and the Closing Shares have been taken or will be
taken prior to the Closing Date. This Agreement and the Ancillary Agreements,
when executed and delivered and to the extent it is a party thereto, will be its
and its Subsidiaries' valid and binding obligations enforceable against each
such Person in accordance with their terms, except:
(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(ii) general principles of equity that restrict the availability
of equitable or legal remedies.
The issuance of the Notes are not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. The issuance of the Closing
12
Shares is not subject and will not be subject to any preemptive rights or rights
of first refusal that have not been properly waived or complied with.
(e) Liabilities. Neither it nor any of its Subsidiaries has any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
(f) Agreements; Action. Except as set forth on Schedule 12(f) and
Schedule 12(g) or as disclosed in any Exchange Act Filings:
(i) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
it or any of its Subsidiaries is a party or to its knowledge by which it is
bound which may involve: (i) obligations (contingent or otherwise) of, or
payments to, it or any of its Subsidiaries in excess of $50,000 (other than
obligations of, or payments to, it or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from it (other than licenses arising from the purchase
of "off the shelf or other standard products); or (iii) provisions restricting
the development, manufacture or distribution of its or any of its Subsidiaries'
products or services; or (iv) indemnification by it or any of its Subsidiaries
with respect to infringements of proprietary rights.
(ii) Since December 31, 2004 (the "Balance Sheet Date") neither
it nor any of its Subsidiaries has: (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (ii) incurred any Indebtedness or any other liabilities
(other than ordinary course obligations) individually in excess of $50,000 or,
in the case of Indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate; (iii) made any loans or advances to any
Person not in excess, individually or in the aggregate, of $100,000, other than
ordinary advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its Inventory in
the ordinary course of business.
(iii) For the purposes of subsections (i) and (ii) of this
Section 12(f), all Indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same Person
(including Persons it or any of its applicable Subsidiaries has reason to
believe are affiliated therewith or with any Subsidiary thereof) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(iv) The Parent maintains disclosure controls and procedures
("Disclosure Controls") designed to ensure that information required to be
disclosed by the Parent in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported, within the time
periods specified in the rules and forms of the SEC.
(v) The Parent makes and keeps books, records, and accounts,
that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of its assets. It maintains internal control over financial
reporting ("Financial Reporting Controls") designed by, or under the supervision
of, its principal executive and principal financial officers, and effected
13
by its board of directors, management, and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP, including that:
(1) transactions are executed in accordance with
management's general or specific authorization;
(2) unauthorized acquisition, use, or disposition of the
Parent's assets that could have a material effect on the financial statements
are prevented or timely detected;
(3) transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that its
receipts and expenditures are being made only in accordance with authorizations
of the Parent's management and board of directors,
(4) transactions are recorded as necessary to maintain
accountability for assets; and
(5) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and appropriate action is taken
with respect to any differences.
(vi) There is no weakness in any of its Disclosure Controls or
Financial Reporting Controls that is required to be disclosed in any of the
Exchange Act Filings, except as so disclosed.
(g) Obligations to Related Parties. Except as set forth on Schedule
12(g), neither it nor any of its Subsidiaries has any obligations to their
respective officers, directors, stockholders or employees other than:
(i) for payment of salary for services rendered and for bonus
payments;
(ii) reimbursement for reasonable expenses incurred on its or its
Subsidiaries' behalf;
(iii) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by its and its Subsidiaries' Board of Directors,
as applicable); and
(iv) obligations listed in its and each of its Subsidiary's
financial statements or disclosed in any of the Parent's Exchange Act Filings.
Except as described above or set forth on Schedule 12(g), none of its officers,
directors or, to the best of its knowledge, key employees or stockholders, any
of its Subsidiaries or any members of their immediate families, are indebted to
it or any of its Subsidiaries, individually or in the aggregate, in excess of
$150,000 or have any direct or indirect ownership interest in any Person
14
with which it or any of its Subsidiaries is affiliated or with which it or any
of its Subsidiaries has a business relationship, or any Person which competes
with it or any of its Subsidiaries, other than passive investments in publicly
traded companies (representing less than one percent (1%) of such company) which
may compete with it or any of its Subsidiaries. Except as described above, none
of its officers, directors or stockholders, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
it or any of its Subsidiaries and no agreements, understandings or proposed
transactions are contemplated between it or any of its Subsidiaries and any such
Person. Except as set forth on Schedule 12(g), neither it nor any of its
Subsidiaries has incurred Guaranteed Indebtedness.
(h) Changes. Since the Balance Sheet Date, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Ancillary Agreements, there has not been:
(i) any change in its or any of its Subsidiaries' business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects, which, individually or in the aggregate, has had, or could
reasonably be expected to have, a Material Adverse Effect;
(ii) any resignation or termination of any of its or its
Subsidiaries' officers, key employees or groups of employees;
(iii) any change, except in the ordinary course of business, in
its or any of its Subsidiaries' contingent obligations by way of guaranty,
endorsement, indemnity, warranty or otherwise which change, individually or in
the aggregate, has had, or could reasonably be expected to have, a Material
Adverse Effect;
(iv) any damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(v) any waiver by it or any of its Subsidiaries of a valuable
right or of a debt owed to it except such waivers in the ordinary course of
business consistent with historical practice;
(vi) any direct or indirect material loans made by it or any of
its Subsidiaries to any of its or any of its Subsidiaries' stockholders,
employees, officers or directors, other than advances made in the ordinary
course of business;
(vii) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(viii) any declaration or payment of any dividend or other
distribution of its or any of its Subsidiaries' assets except for dividends or
other distributions to a Company;
(ix) any labor organization activity related to it or any of its
Subsidiaries;
15
(x) any debt, obligation or liability incurred, assumed or
guaranteed by it or any of its Subsidiaries, except those for immaterial amounts
and for current liabilities incurred in the ordinary course of business;
(xi) any sale, assignment or transfer of any Intellectual
Property or other intangible assets which are necessary to the operation of the
business of any Company or have any material value;
(xii) any change in any material agreement to which it or any of
its Subsidiaries is a party or by which either it or any of its Subsidiaries is
bound which, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(xiii) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
(xiv) any arrangement or commitment by it or any of its
Subsidiaries to do any of the acts described in subsection (i) through (xiii) of
this Section 12(h).
(i) Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 12(i), it and each of its Subsidiaries has good and marketable title to
their respective properties and assets, and good title to its leasehold
interests, in each case subject to no Lien, other than Permitted Liens.
Substantially all facilities, Equipment, Fixtures, vehicles and other properties
owned, leased or used by it or any of its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 12(i), it and each of
its Subsidiaries is in compliance with all material terms of each lease to which
it is a party or is otherwise bound.
(j) Intellectual Property.
(i) It and each of its Subsidiaries owns or possesses sufficient
legal rights to all Intellectual Property necessary for their respective
businesses as now conducted and, to its knowledge as presently proposed to be
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to its or any
of its Subsidiary's Intellectual Property, nor is it or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the Intellectual Property of any other Person other than such
licenses or agreements arising from the purchase of "off the shelf" or standard
products.
(ii) Except as set forth on Schedule 12(j)(ii), neither it nor
any of its Subsidiaries has received any communications alleging that it or any
of its Subsidiaries has violated any of the Intellectual Property or other
proprietary rights of any other Person, nor is it or any of its Subsidiaries
aware of any basis therefor.
16
(iii) Neither it nor any of its Subsidiaries believes it is or
will be necessary to utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their employment by it or any
of its Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to it or any of its Subsidiaries.
(k) Compliance with Other Instruments. Neither it nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter, Bylaws,
certificate of formation, operating agreement or other organizational document
or (y) any provision of any Indebtedness, mortgage, indenture, contract,
agreement or instrument to which it is party or by which it is bound or of any
judgment, decree, order or writ, which violation or default, in the case of this
clause (y), has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. The execution,
delivery and performance of and compliance with this Agreement and the Ancillary
Agreements to which it is a party, and the issuance of the Notes and the other
Securities each pursuant hereto and thereto, will not, with or without the
passage of time or giving of notice, result in any such material violation, or
be in conflict with or constitute a default under any such term or provision, or
result in the creation of any Lien upon any of its or any of its Subsidiary's
properties or assets or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to it or
any of its Subsidiaries, their businesses or operations or any of their assets
or properties.
(l) Litigation. Except as set forth on Schedule 12(l), there is no
action, suit, proceeding or investigation pending or, to its knowledge,
currently threatened against it or any of its Subsidiaries that prevents it or
any of its Subsidiaries from entering into this Agreement or the Ancillary
Agreements, or from consummating the transactions contemplated hereby or
thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, or could result in
any change in its or any of its Subsidiaries' current equity ownership, nor is
it aware that there is any basis to assert any of the foregoing. Neither it nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by it or
any of its Subsidiaries currently pending or which it or any of its Subsidiaries
intends to initiate which involves an aggregate amount in excess of $100,000.
(m) Tax Returns and Payments. It and each of its Subsidiaries has
timely filed all tax returns (federal, state and local) required to be filed by
it. All taxes shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by it and each of its Subsidiaries
on or before the Closing Date, have been paid or will be paid prior to the time
they become delinquent. Except as set forth on Schedule 12(m), neither it nor
any of its Subsidiaries has been advised:
(i) that any of its returns, federal, state or other, have been
or are being audited as of the date hereof; or
(ii) of any adjustment, deficiency, assessment or court decision
in respect of its federal, state or other taxes.
17
Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
(n) Employees. Except as set forth on Schedule 12(n), neither it nor
any of its Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to its
knowledge, threatened with respect to it or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule 12(n), neither it nor any
of its Subsidiaries is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To its knowledge, none of its or any of its Subsidiaries' employees,
nor any consultant with whom it or any of its Subsidiaries has contracted, is in
violation of any term of any employment contract, proprietary informant on
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, it or any of its Subsidiaries because of
the nature of the business to be conducted by it or any of its Subsidiaries; and
to its knowledge the continued employment by it and its Subsidiaries of their
present employees, and the performance of its and its Subsidiaries contracts
with its independent contractors, will not result in any such violation. Neither
it nor any of its Subsidiaries is aware that any of its or any of its
Subsidiaries' employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that would
interfere with their duties to it or any of its Subsidiaries. Neither it nor any
of its Subsidiaries has received any notice alleging that any such violation has
occurred. Except for employees who have a current effective employment agreement
with it or any of its Subsidiaries, none of its or any of its Subsidiaries'
employees has been granted the right to continued employment by it or any of its
Subsidiaries or to any material compensation following termination of employment
with it or any of its Subsidiaries. Except as set forth on Schedule 12(n),
neither it nor any of its Subsidiaries is aware that any officer, key employee
or group of employees intends to terminate his, her or their employment with it
or any of its Subsidiaries, as applicable, nor does it or any of its
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
(o) Registration Rights and Voting Rights. Except as set forth on
Schedule 12(o) and except as disclosed in Exchange Act Filings, neither it nor
any of its Subsidiaries is presently under any obligation, and neither it nor
any of its Subsidiaries has granted any rights, to register any of its or any of
its Subsidiaries' presently outstanding securities or any of its securities that
may hereafter be issued. Except as set forth on Schedule 12(o) and except as
disclosed in Exchange Act Filings, to its knowledge, none of its or any of its
Subsidiaries' stockholders has entered into any agreement with respect to its or
any of its Subsidiaries' voting of equity securities.
(p) Compliance with Laws; Permits. Neither it nor any of its
Subsidiaries is in violation of the Xxxxxxxx-Xxxxx Act of 2002 or any SEC
related regulation or rule or any rule of the Principal Market promulgated
thereunder or any other applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are
18
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or any
Ancillary Agreement and the issuance of any of the Securities, except such as
have been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing Date, as will be filed in a timely manner.
It and each of its Subsidiaries has all material franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(q) Environmental and Safety Laws. Neither it nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no expenditures are or will be required in order to comply with any
such existing statute, law or regulation except in each case such violation or
expenditure would have or is reasonably likely to have a Material Adverse
Effect. Except as set forth on Schedule 12(q), no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by it or any
of its Subsidiaries or, to its knowledge, by any other Person on any property
owned, leased or used by it or any of its Subsidiaries except for those
materials which are not reasonably likely to result in a Material Adverse
Effect. For the purposes of the preceding sentence, "Hazardous Materials" shall
mean:
(i) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal and/or foreign
laws and regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; and
(ii) any petroleum products or nuclear materials.
(r) Valid Offering. Assuming the accuracy of the representations and
warranties of Laurus contained in this Agreement, the offer and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
(s) Full Disclosure. It and each of its Subsidiaries has provided
Laurus with all information requested by Laurus in connection with Laurus'
decision to enter into this Agreement, including all information each Company
and its Subsidiaries believe is reasonably necessary to make such investment
decision. Neither this Agreement, the Ancillary Agreements nor the exhibits and
schedules hereto and thereto nor any other document delivered by it or any of
its Subsidiaries to Laurus or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to Laurus by it or any of its Subsidiaries were
based on its and its Subsidiaries' experience in the industry and on assumptions
of fact and opinion as to
19
future events which it or any of its Subsidiaries, at the date of the issuance
of such projections or estimates, believed to be reasonable.
(t) Insurance. It and each of its Subsidiaries has general commercial,
product liability, fire and casualty insurance policies with coverages which it
believes are customary for companies similarly situated to it and its
Subsidiaries in the same or similar business.
(u) SEC Reports and Financial Statements. Except as set forth on
Schedule 12(u), it and each of its Subsidiaries has filed all proxy statements,
reports and other documents required to be filed by it under the Exchange Act.
The Parent has furnished Laurus with or Laurus has obtained by accessing the
Parent's SEC Filings copies of: (i) its Annual Report on Form 10-KSB for its
fiscal year ended December 31, 2005; and (ii) its Quarterly Reports on Form
10-QSB for its fiscal quarters ended September 30, 2005, June 30, 2005 and March
31, 2005, and the Form 8-K filings which it has made during its fiscal year 2005
to date (collectively, the "SEC Reports"). Except as set forth on Schedule
12(u), each SEC Report was, at the time of its filing, in substantial compliance
with the requirements of its respective form and none of the SEC Reports, nor
the financial statements (and the notes thereto) included in the SEC Reports, as
of their respective filing dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Such financial statements have been
prepared in accordance with 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 cash flows of the Parent and its Subsidiaries, on a
consolidated basis, as of, and for, the periods presented in each such SEC
Report.
(v) Listing. The Parent's Common Stock is listed or quoted, as
applicable, on the Principal Market and satisfies all requirements for the
continuation of such listing or quotation, as applicable, and the Parent shall
do all things necessary for the continuation of such listing or quotation, as
applicable. The Parent has not received any notice that its Common Stock will be
delisted from, or no longer quoted on, as applicable, the Principal Market or
that its Common Stock does not meet all requirements for such listing or
quotation, as applicable.
(w) No Integrated Offering. Neither it, nor any of its Subsidiaries nor
any of its Affiliates, nor any Person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement or any Ancillary Agreement to be
integrated with prior offerings by it for purposes of the Securities Act which
would prevent it from issuing the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will it or any of its Affiliates or Subsidiaries take any action
or steps that would cause the offering of the Securities to be integrated with
other offerings.
(x) Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. Neither it nor any of its Subsidiaries will issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are
20
registered for public sale or an exemption from registration is available,
except as required by state and federal securities laws.
(y) Patriot Act. It certifies that, to the best of its knowledge,
neither it nor any of its Subsidiaries has been designated, nor is or shall be
owned or controlled, by a "suspected terrorist" as defined in Executive Order
13224. It hereby acknowledges that Laurus seeks to comply with all applicable
laws concerning money laundering and related activities. In furtherance of those
efforts, it hereby represents, warrants and covenants that: (i) none of the cash
or property that it or any of its Subsidiaries will pay or will contribute to
Laurus has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or payment by
it or any of its Subsidiaries to Laurus, to the extent that they are within its
or any such Subsidiary's control shall cause Laurus to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly notify
Laurus if any of these representations, warranties and covenants ceases to be
true and accurate regarding it or any of its Subsidiaries. It shall provide
Laurus with any additional information regarding it and each Subsidiary thereof
that Laurus deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. It
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties and covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in it. It further
understands that Laurus may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
(z) Company Name; Locations of Offices, Records and Collateral.
Schedule 12(z) sets forth each Company's name as it appears in official filings
in the state of its organization, the type of entity of each Company, the
organizational identification number issued by each Company's state of
organization or a statement that no such number has been issued, each Company's
state of organization, and the location of each Company's chief executive
office, corporate offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept (including in each
case the county of such locations) and, except as set forth in such Schedule
12(z), such locations have not changed during the preceding twelve months. As of
the Closing Date, during the prior five years, except as set forth in Schedule
12(z), no Company has been known as or conducted business in any other name
(including trade names). Each Company has only one state of organization.
(aa) ERISA. Based upon the Employee Retirement Income Security Act of
1974 ("ERISA"), and the regulations and published interpretations thereunder:
(i) neither it nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the Code);
(ii) it and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
it nor any of its Subsidiaries has any knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to
21
terminate any employee benefit plan(s); (iv) neither it nor any of its
Subsidiaries has any fiduciary responsibility for investments with respect to
any plan existing for the benefit of persons other than its or such Subsidiary's
employees; and (v) neither it nor any of its Subsidiaries has withdrawn,
completely or partially, from any multi-employer pension plan so as to incur
liability under the Multiemployer Pension Plan Amendments Act of 1980.
(bb) Senior Debt. The Obligations constitute "Senior Debt" as such term
is defined in the Indenture.
13. Covenants. Each Company, as applicable, covenants and agrees with
Laurus as follows:
(a) Stop-Orders. It shall advise Laurus, promptly after it receives
notice of issuance by the SEC, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Parent, or of the suspension of the
qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. It shall promptly secure the listing or quotation, as
applicable, of the Closing Shares on the Principal Market upon which shares of
Common Stock are listed or quoted, as applicable, (subject to official notice of
issuance) and shall maintain such listing or quotation, as applicable, so long
as any other shares of Common Stock shall be so listed or quoted, as applicable.
The Parent shall maintain the listing or quotation, as applicable, of its Common
Stock on the Principal Market, and will comply in all material respects with the
Parent's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
(c) Market Regulations. It shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.
(d) Reporting Requirements. It shall timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
(e) Use of Funds. It shall use the proceeds of the Loans to repay
existing secured Indebtedness of the Companies to Wachovia Bank, NA and for
general working capital purposes only.
(f) Access to Facilities. It shall, and shall cause each of its
Subsidiaries to, permit any representatives designated by Laurus (or any
successor of Laurus), upon reasonable notice and during normal business hours,
at Company's expense and accompanied by a representative of Company Agent
(provided that no such prior notice shall be required to be given and no such
representative shall be required to accompany Laurus in the event Laurus
22
believes such access is necessary to preserve or protect the Collateral or
following the occurrence and during the continuance of an Event of Default), to:
(i) visit and inspect any of its or any such Subsidiary's
properties;
(ii) examine its or any such Subsidiary's corporate and financial
records (unless such examination is not permitted by federal, state or local law
or by contract) and make copies thereof or extracts therefrom; and
(iii) discuss its or any such Subsidiary's affairs, finances and
accounts with its or any such Subsidiary's directors, officers and Accountants.
Notwithstanding the foregoing, neither it nor any of its Subsidiaries shall
provide any material, non-public information to Laurus unless Laurus signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
(g) Taxes. It shall, and shall cause each of its Subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon it and its Subsidiaries' income, profits, property or business, as
the case may be; provided, however, that any such tax, assessment, charge or
levy need not be paid currently if (i) the validity thereof shall currently and
diligently be contested in good faith by appropriate proceedings, (ii) such tax,
assessment, charge or levy shall have no effect on the Lien priority of Laurus
in the Collateral, and (iii) if it and/or such Subsidiary, as applicable, shall
have set aside on its and/or such Subsidiary's books adequate reserves with
respect thereto in accordance with GAAP; and provided, further, that it shall,
and shall cause each of its Subsidiaries to, pay all such taxes, assessments,
charges or levies which in aggregate amount exceed $100,000 forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefor.
(h) Insurance. It shall bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral. It and each of its
Subsidiaries shall keep its assets which are of an insurable character insured
by financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in similar
business similarly situated as it and its Subsidiaries; and it and its
Subsidiaries shall maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner which it and/or such Subsidiary thereof
reasonably believes is customary for companies in similar business similarly
situated as it and its Subsidiaries and to the extent available on commercially
reasonable terms. It and each of its Subsidiaries will jointly and severally
bear the full risk of loss from any loss of any nature whatsoever with respect
to the assets pledged to Laurus as security for its obligations hereunder and
under the Ancillary Agreements. At its own cost and expense in amounts and with
carriers reasonably acceptable to Laurus, it and each of its Subsidiaries shall
(i) keep all their insurable properties and properties in which they have an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to it or the respective Subsidiary's including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies
23
engaged in businesses similar to it and its Subsidiaries' insuring against
larceny, embezzlement or other criminal misappropriation of insured's officers
and employees who may either singly or jointly with others at any time have
access to its or any of its Subsidiaries assets or funds 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 it or any
of its Subsidiaries is engaged in business; and (v) furnish Laurus with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting its and its
Subsidiaries' workers' compensation policy, endorsements to such policies naming
Laurus as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Laurus, naming Laurus as
lenders loss payee, and (z) evidence that as to Laurus the insurance coverage
shall not be impaired or invalidated by any act or neglect of any Company or any
of its Subsidiaries and the insurer will provide Laurus with at least thirty
(30) days notice prior to cancellation. It 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 any Company or any of its Subsidiaries and Laurus
jointly. If any insurance losses are paid by check, draft or other instrument
payable to any Company and/or any of its Subsidiaries and Laurus jointly, Laurus
may endorse, as applicable, such Company's and/or any of its Subsidiaries' name
thereon and do such other things as Laurus may deem advisable to reduce the same
to cash. Laurus is hereby authorized to adjust and compromise claims. All loss
recoveries received by Laurus upon any such insurance may be applied to the
Obligations, in such order as Laurus in its sole discretion shall determine or
shall otherwise be delivered to Company Agent for the benefit of the applicable
Company and/or its Subsidiaries. Any surplus shall be paid by Laurus to Company
Agent for the benefit of the applicable Company and/or its Subsidiaries, or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid, as applicable, by Companies and their Subsidiaries to Laurus, on demand.
(i) Intellectual Property. It shall, and shall cause each of its
Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(j) Properties. It shall, and shall cause each of its Subsidiaries to,
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and it shall, and
shall cause each of its Subsidiaries to, at all times comply with each provision
of all leases to which it is a party or under which it occupies property if the
breach of such provision could reasonably be expected to have a Material Adverse
Effect.
(k) Confidentiality. It shall not, and shall not permit any of its
Subsidiaries to, disclose, and will not include in any public announcement, the
name of Laurus, unless expressly agreed to by Laurus or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. Notwithstanding the foregoing, each Company and its
Subsidiaries may disclose Laurus' identity and the terms of this Agreement to
its current and prospective debt and equity financing sources.
24
(l) Required Approvals. It shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Laurus, (i) create, incur,
assume or suffer to exist any Indebtedness whether secured or unsecured other
than each Company's Indebtedness to Laurus and as set forth on Schedule 13(l)i)
attached hereto and made a part hereof; (ii) cancel any debt owing to it except
for (x) debt in excess of $100,000 in the aggregate during any 12 month period
and (y) trade debt in the normal course of business consistent with historical
practice which does not exceed in any month 20% of total trade debt billed
during such monthly 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 it or its
Subsidiaries 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 except for dividends or
distributions payable by one Company to another Company or apply any of its
funds, property or assets to the purchase, redemption or other retirement of any
of its or its Subsidiaries' Stock outstanding on the date hereof, or issue any
preferred stock; (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 its and its Subsidiaries' officers and employees not exceeding at
any one time an aggregate of $30,000, and (z) loans to its existing Subsidiaries
so long as such Subsidiaries are designated as either a co-borrower hereunder or
has entered into such guaranty and security documentation required by Laurus,
including, without limitation, to grant to Laurus a first priority perfected
security interest in substantially all of such Subsidiary's assets to secure the
Obligations; (vi) create or permit to exist any Subsidiary, other than any
Subsidiary in existence on the date hereof and listed in Schedule 12(b) unless
such new Subsidiary is a wholly-owned Subsidiary and is designated by Laurus as
either a co-borrower or guarantor hereunder and such Subsidiary shall have
entered into all such documentation required by Laurus, including, without
limitation, to grant to Laurus a first priority perfected security interest in
substantially all of such Subsidiary's assets to secure the Obligations; (vii)
directly or indirectly, prepay any Indebtedness in excess of $50,000 (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) such 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) such Company shall have provided Laurus
copies of all documentation relating to such merger or consolidation and (4)
such Company shall have provided Laurus with at least thirty (30) days' prior
written notice of such merger or consolidation; (ix) materially change the
nature of the business in which it is presently engaged; (x) become subject to
(including, without limitation, by way of amendment to or modification of) any
agreement or instrument which by its terms would (under any circumstances)
restrict its or any of its Subsidiaries' right to perform the provisions of this
Agreement or any of the Ancillary Agreements; (xi) change its fiscal year or
make any changes in accounting treatment and reporting practices without prior
written notice to Laurus except as required by GAAP or in the tax reporting
treatment or except as required by law; (xii) enter into any transaction with
any employee, director or Affiliate, except in the
25
ordinary course on arms-length terms; (xiii) xxxx Accounts under any name except
the then current name of such Company; or (xiv) sell, lease, transfer or
otherwise dispose of any of its properties or assets, or any of the properties
or assets of its Subsidiaries, except for (1) the sale of Inventory in the
ordinary course of business and (2) the disposition or transfer in the ordinary
course of business during any fiscal year of obsolete and worn-out Equipment in
accordance with Section 7(e).
(m) Reissuance of Securities. The Parent shall reissue certificates
representing the Securities without the legends set forth in Section 40 below at
such time as:
(i) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(ii) upon resale subject to an effective registration statement
after such Securities are registered under the Securities Act.
The Parent agrees to cooperate with Laurus in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Parent and its counsel receive reasonably
requested representations from Laurus and broker, if any.
(n) Opinion. On the Closing Date, it shall deliver to Laurus an opinion
acceptable to Laurus from each Company's legal counsel.
(o) Legal Name, etc. It shall not, without providing Laurus with 30
days prior written notice, change (i) its name as it appears in the official
filings in the state of its organization, (ii) the type of legal entity it is,
(iii) its organization identification number, if any, issued by its state of
organization, (iv) its state of organization or (v) amend its certificate of
incorporation, by-laws or other organizational document.
(p) Compliance with Laws. The operation of each of its and each of its
Subsidiaries' business is and shall 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 and safety and environmental matters.
(q) Notices. It and each of its Subsidiaries shall promptly inform
Laurus in writing of: (i) the commencement of all proceedings and investigations
by or before and/or the receipt of any notices from, any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any way concerning any event which could reasonably be
expected to have singly or in the aggregate, a Material Adverse Effect; (ii) any
change which has had, or could reasonably be expected to have, a Material
Adverse Effect; (iii) any Event of Default or Default; and (iv) any default or
any event which with the passage of time or giving of notice or both would
constitute a default under any agreement for the payment of money to which it or
any of its Subsidiaries is a party or by which it or any of its Subsidiaries or
any of its or any such Subsidiary's properties may be bound the breach of which
would have a Material Adverse Effect.
26
(r) Margin Stock. It shall not permit any of the proceeds of the Loans
made hereunder to be used directly or indirectly to "purchase" or "carry"
"margin stock" or to repay Indebtedness incurred to "purchase" or "carry"
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
(s) Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to its
employees or directors, neither it nor any of its Subsidiaries shall, prior to
the full repayment or conversion of the Notes (together with all accrued and
unpaid interest and fees related thereto), (x) enter into any equity line of
credit agreement or similar agreement or (y) issue, or enter into any agreement
to issue, any securities with a variable/floating conversion and/or pricing
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement).
(t) Intentionally Omitted.
(u) Financing Right of First Refusal.
(i) It hereby grants to Laurus a right of first refusal to
provide any Additional Financing (as defined below) to be issued by any Company
and/or any of its Subsidiaries (the "Additional Financing Parties"), subject to
the following terms and conditions. From and after the date hereof, prior to the
incurrence of any additional Indebtedness of the Additional Financing Parties
(an "Additional Financing"), Company Agent shall notify Laurus of such
Additional Financing. In connection therewith, Company Agent shall submit a
fully executed term sheet (a "Proposed Term Sheet") to Laurus setting forth the
terms, conditions and pricing of any such Additional Financing (such financing
to be negotiated on "arm's length" terms and the terms thereof to be negotiated
in good faith) proposed to be entered into by the Additional Financing Parties.
Laurus shall have the right, but not the obligation, to deliver to Company Agent
its own proposed term sheet (the "Laurus Term Sheet") setting forth the terms
and conditions upon which Laurus would be willing to provide such Additional
Financing to the Additional Financing Parties. The Laurus Term Sheet shall
contain terms no less favorable to the Additional Financing Parties than those
outlined in Proposed Term Sheet. Laurus shall deliver to Company Agent the
Laurus Term Sheet within ten Business Days of receipt of each such Proposed Term
Sheet. If the provisions of the Laurus Term Sheet are at least as favorable, in
the reasonable opinion of the Additional Financing Parties, to the Additional
Financing Parties as the provisions of the Proposed Term Sheet, the Additional
Financing Parties shall enter into and consummate the Additional Financing
transaction outlined in the Laurus Term Sheet.
(ii) It shall not, and shall not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any Person which limits
the ability of Laurus to consummate an Additional Financing with it or any of
its Subsidiaries.
(v) Prohibition of Amendments to Subordinated Notes and the Indenture.
It shall not, without the prior written consent of Laurus, amend, modify or in
any way alter the terms of any of the Subordinated Notes or the Indenture.
27
(w) Prohibition of Grant of Collateral for Subordinated Notes. It shall
not, without the prior written consent of Laurus, grant or permit any of its
Subsidiaries to grant to any Person any Collateral of such Company or any
collateral of any of its Subsidiaries as security for any obligation arising
under the Subordinated Notes.
(x) Prohibitions of Payment under Subordinated Notes. Neither it nor
any of its Subsidiaries shall, without the prior written consent of Laurus, make
any payments in respect of the Indebtedness evidenced by the Subordinated Notes,
other than as expressly permitted by the terms thereof and the applicable
Subordination Agreement.
14. Further Assurances. At any time and from time to time, upon the written
request of Laurus and at the sole expense of Companies, each Company shall
promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Laurus may reasonably request (a) to
obtain the full benefits of this Agreement and the Ancillary Agreements, (b) to
protect, preserve and maintain Laurus' rights in the Collateral and under this
Agreement or any Ancillary Agreement, and/or (c) to enable Laurus to exercise
all or any of the rights and powers granted herein or in any Ancillary
Agreement.
15. Representations, Warranties and Covenants of Laurus. Laurus hereby
represents, warrants and covenants to each Company as follows:
(a) Requisite Power and Authority. Laurus has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Ancillary Agreements and to carry out their provisions. All
corporate action on Laurus' part required for the lawful execution and delivery
of this Agreement and the Ancillary Agreements have been or will be effectively
taken prior to the Closing Date. Upon their execution and delivery, this
Agreement and the Ancillary Agreements shall be valid and binding obligations of
Laurus, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
(b) Investment Representations. Laurus understands that the Securities
are being offered pursuant to an exemption from registration contained in the
Securities Act based in part upon Laurus' representations contained in this
Agreement, including, without limitation, that Laurus is an "accredited
investor" within the meaning of Regulation D under the Securities Act. Laurus
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Securities to be issued to it under this Agreement.
(c) Laurus Bears Economic Risk. Laurus has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Parent so that it is capable of evaluating the merits
and risks of its investment in the Parent and has the capacity to protect its
own interests. Laurus must bear the economic risk of this investment until the
Securities are sold pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available.
28
(d) Investment for Own Account. The Securities are being issued to
Laurus for its own account for investment only, and not as a nominee or agent
and not with a view towards or for resale in connection with their distribution.
(e) Laurus Can Protect Its Interest. Laurus represents that by reason
of its, or of its management's, business and financial experience, Laurus has
the capacity to evaluate the merits and risks of its investment in the
Securities and to protect its own interests in connection with the transactions
contemplated in this Agreement, and the Ancillary Agreements. Further, Laurus is
aware of no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Ancillary Agreements.
(f) Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(g) Shorting. Neither Laurus nor any of its Affiliates or investment
partners has, will, or will cause any Person, to directly engage in "short
sales" of the Parent's Common Stock as long as any Note shall remain
outstanding.
(h) Patriot Act. Laurus certifies that, to the best of Laurus'
knowledge, Laurus has not been designated, and is not owned or controlled, by a
"suspected terrorist" as defined in Executive Order 13224. Laurus seeks to
comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, Laurus hereby represents, warrants
and covenants that: (i) none of the cash or property that Laurus will use to
make the Loans has been or shall be derived from, or related to, any activity
that is deemed criminal under United States law; and (ii) no disbursement by
Laurus to any Company to the extent within Laurus' control, shall cause Laurus
to be in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. Laurus shall promptly notify the Company Agent if any of these
representations ceases to be true and accurate regarding Laurus. Laurus agrees
to provide the Company Agent any additional information regarding Laurus that
the Company Agent deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. Laurus
understands and agrees that if at any time it is discovered that any of the
foregoing representations are incorrect, or if otherwise required by applicable
law or regulation related to money laundering similar activities, Laurus may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of
Laurus' investment in the Parent. Laurus further understands that the Parent may
release information about Laurus and, if applicable, any underlying beneficial
owners, to proper authorities if the Parent, in its sole discretion, determines
that it is in the best interests of the Parent in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
(i) Limitation on Acquisition of Common Stock. Notwithstanding anything
to the contrary contained in this Agreement, any Ancillary Agreement, or any
document, instrument or agreement entered into in connection with any other
transaction entered into by and between Laurus and any Company (and/or
Subsidiaries or Affiliates of any Company), Laurus shall not acquire stock in
the Parent (including, without limitation, pursuant to a contract
29
to purchase, by exercising an option or warrant, by converting any other
security or instrument, by acquiring or exercising any other right to acquire,
shares of stock or other security convertible into shares of stock in the
Parent, or otherwise, and such options, warrants, conversion or other rights
shall not be exercisable) to the extent such stock acquisition would cause any
interest (including any original issue discount) payable by any Company to
Laurus not to qualify as portfolio interest, within the meaning of Section
881(c)(2) of the Internal Revenue Code of 1986, as amended (the "Code") by
reason of Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the "Stock Acquisition
Limitation"). The Stock Acquisition Limitation shall automatically become null
and void without any notice to any Company upon the earlier to occur of either
(a) the Parent's delivery to Laurus of a Notice of Redemption (as defined in the
Notes) or (b) the existence of an Event of Default.
(j) Lock-up Period. Laurus shall not sell, offer to sell, contract to
sell, grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound), pledge, hypothecate or
otherwise transfer any of the Closing Shares for the period commencing on the
Closing Date hereof and ending on the first anniversary of the Closing Date.
Notwithstanding anything contained herein to the contrary, the foregoing
restrictions shall not be applicable and shall have no further force or effect
(a) following the occurrence and during the continuance of an Event of Default
or (b) in the event any Company shall effect a reorganization, consolidate with
or merge into any other entity or transfer all or substantially all of its
properties or assets.
(k) Investigation. To the best of its knowledge, as of the date of this
Agreement, Laurus is not and has not been the subject of an investigation by the
SEC.
16. Power of Attorney. Each Company hereby appoints Laurus, or any other
Person whom Laurus may designate as such Company's attorney, with power to: (i)
endorse such Company's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Laurus'
possession; (ii) sign such Company's name on any invoice or xxxx of lading
relating to any Accounts, drafts against Account Debtors, schedules and
assignments of Accounts, notices of assignment, financing statements and other
public records, verifications of Account and notices to or from Account Debtors;
(iii) verify the validity, amount or any other matter relating to any Account by
mail, telephone, telegraph or otherwise with Account Debtors, provided that
absent the occurrence and continuance of an Event of Default such verifications
will be made in a manner not to disclose the existence of Laurus; (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 during the
continuation of an Event of Default, notify the post office authorities to
change the address for delivery of such Company's mail to an address designated
by Laurus, and to receive, open and dispose of all mail addressed to such
Company. Each Company hereby ratifies and approves all acts of the attorney.
Neither Laurus, nor the attorney will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law, except for gross negligence or
willful misconduct. This power, being coupled with an interest, is irrevocable
so long as Laurus has a security interest and until the Obligations have been
fully satisfied.
30
17. Term of Agreement.
(a) 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
Term applicable to such Loans. At Laurus' election following the occurrence of
an Event of Default, Laurus may terminate this Agreement. The termination of
this Agreement shall not affect any of Laurus' rights hereunder or any Ancillary
Agreement and the provisions hereof and thereof shall continue to be fully
operative until all transactions entered into, rights or interests created and
the Obligations have been irrevocably disposed of, concluded or liquidated.
(b) If for any reason this Agreement is terminated whether by
acceleration of this Agreement by Laurus due to the occurrence and continuance
of an Event of Default or otherwise or if the Obligations in respect of
Revolving Loans are paid in full and Laurus' commitment to make additional
Revolving Loans has been terminated, in each case, prior to the end of the
Revolving Loan Term, the Companies shall jointly and severally pay to Laurus,
upon the effective date of such termination or payment, as the case may be, an
early payment fee in an amount equal to (i) five percent (5%) of the Maximum
Availability Amount if such event occurs prior to the first anniversary of the
Closing Date or (ii) four percent (4%) of the Maximum Availability Amount if
such event occurs on or after the first anniversary of the Closing Date and
prior to the third anniversary of the Closing Date; such fee being intended to
compensate Laurus for its costs and expenses incurred in initially approving
this Agreement.
(c) If for any reason this Agreement is terminated whether by
acceleration of this Agreement by Laurus due to the occurrence and continuance
of an Event of Default or otherwise or if the Obligations in respect of the Term
Loan are prepaid in full by the Companies prior to the end of the Term Loan
Term, the Companies shall jointly and severally pay to Laurus, upon the
effective date of such termination or prepayment, as the case may be, the
Redemption Amount (as defined in the Term Note) and such other amounts required
to be paid by the Companies to Laurus at such time pursuant to and in accordance
with the terms of the Term Note.
18. Termination of Lien. The Liens and rights granted to Laurus hereunder
and any Ancillary Agreements and the financing statements filed in connection
herewith or therewith shall continue in full force and effect, notwithstanding
the termination of this Agreement or the fact that any Company's account may
from time to time be temporarily in a zero or credit position, until all of the
Obligations have been Indefeasibly Paid in full after the termination of this
Agreement. Laurus shall not be required to send termination statements to any
Company, or to file them with any filing office, unless and until this Agreement
and the Ancillary Agreements shall have been terminated in accordance with their
terms and all Obligations indefeasibly paid in full in immediately available
funds.
31
19. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default":
(a) failure to make payment of any of the Obligations when required
hereunder, and, in any such case, such failure shall continue for a period of
three (3) Business Days following the date upon which any such payment was due;
(b) failure by any Company or any of its Subsidiaries to pay any taxes
in the aggregate amount in excess of $100,000 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 such Company's and/or such
Subsidiary's books;
(c) failure to perform under, and/or committing any breach of, in any
material respect, this Agreement or any covenant contained herein, which failure
or breach shall continue without remedy for a period of twenty (20) days after
the occurrence thereof;
(d) any representation, warranty or statement made by any Company or
any of its Subsidiaries hereunder, in any Ancillary Agreement, any certificate,
statement or document delivered pursuant to the terms hereof, or in connection
with the transactions contemplated by this Agreement should prove to be false or
misleading in any material respect on the date as of which made or deemed made;
(e) the occurrence of any default (or similar term) in the observance
or performance of any other agreement or condition relating to any Indebtedness
or contingent obligation of any Company or any of its Subsidiaries (including,
without limitation, the Indebtedness evidenced by the Subordinated Notes and the
Indenture) in an amount in excess of $150,000 beyond the period of grace (if
any), the effect of which default is to cause, or permit the holder or holders
of such Indebtedness or beneficiary or beneficiaries of such contingent
obligation to cause, such Indebtedness to become due prior to its stated
maturity or such contingent obligation to become payable;
(f) attachments or levies in excess of $100,000 in the aggregate are
made upon any Company's assets or a judgment is rendered against any Company's
property involving a liability of more than $100,000 which shall not have been
vacated, discharged, stayed or bonded within thirty (30) days from the entry
thereof;
(g) any change in any Company's or any of its Subsidiary'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 and, except for
Permitted Liens, having a first priority interest;
(i) any Company or any of its Subsidiaries shall (i) apply for, consent
to or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under the federal bankruptcy laws (as
32
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 without challenge within ten (10) days of
the filing thereof, or failure to have dismissed within forty five (45) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of the
foregoing;
(j) any Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business for reasons other than a transfer of its
assets to another Company;
(k) any Company or any of its Subsidiaries directly or indirectly
sells, assigns, transfers, conveys, or suffers or permits to occur any sale,
assignment, transfer or conveyance of any assets of such Company or any interest
therein, except as permitted herein;
(1) any event or circumstance as a result of which (i) the Board of
Directors of the Parent shall cease to consist of a majority of the Parent's
board of directors on the date hereof (or directors appointed by a majority of
the board of directors in effect immediately prior to such appointment) or (ii)
except to the extent permitted under the terms of this Agreement, any Company or
any of its Subsidiaries merges or consolidates with, or sells all or
substantially all of its assets to, any other Person;
(m) the indictment or threatened indictment of any Company or any of
its Subsidiaries or any executive officer of any Company or any of its
Subsidiaries under any criminal statute, or commencement or threatened
commencement of criminal or civil proceeding against any Company or any of its
Subsidiaries or any executive officer of any Company or any of its Subsidiaries
pursuant to which statute or proceeding penalties or remedies sought or
available include forfeiture of any of the property of any Company or any of its
Subsidiaries having a value in excess of $10,000;
(n) an Event of Default (or similar term) shall occur under and as
defined in any Note or in any other Ancillary Agreement;
(o) any Company or any of its Subsidiaries shall breach any term or
provision of any Ancillary Agreement to which it is a party, in any material
respect which breach is not cured within any applicable cure or grace period
provided in respect thereof (if any);
(p) any Company or any of its Subsidiaries attempts to terminate,
challenges the validity of, or its liability under this Agreement or any
Ancillary Agreement, or any proceeding shall be brought to challenge the
validity, binding effect of any Ancillary Agreement or any Ancillary Agreement
ceases to be a valid, binding and enforceable obligation of such Company or any
of its Subsidiaries (to the extent such Persons are a party thereto);
(q) an SEC stop trade order or Principal Market trading suspension of
the Common Stock shall be in effect for five (5) consecutive days or five (5)
days during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Parent shall
not have been able to cure such trading suspension within thirty (30) days of
the notice thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice; or
33
(r) any Company, or any of its Subsidiaries shall take or participate
in any action which would be prohibited under the provisions of any of the
Subordinated Notes or the Indenture or make any payment on the Indebtedness
evidenced by the Subordinated Notes or the Indenture to a Person that was not
entitled to receive such payments under the subordination provisions of
applicable Subordinated Notes or in violation of the applicable Subordination
Agreement.
20. Remedies. Following the occurrence of an Event of Default, Laurus shall
have the right to demand repayment in full of all Obligations, whether or not
otherwise due. Until all Obligations have been fully and indefeasibly satisfied,
Laurus shall retain its Lien in all Collateral. Laurus shall have, in addition
to all other rights provided herein and in each Ancillary Agreement, the rights
and remedies of a secured party under the UCC, and under other applicable law,
all other legal and equitable rights to which Laurus may be entitled, including
the right to take immediate possession of the Collateral, to require each
Company to assemble the Collateral, at Companies' joint and several expense, and
to make it available to Laurus at a place designated by Laurus which is
reasonably convenient to both parties and to enter any of the premises of any
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 any Company, such Company agrees not to
charge Laurus for storage thereof), and the right to apply for the appointment
of a receiver for such Company's property. Further, Laurus may, at any time or
times after the occurrence of an Event of Default, sell and deliver all
Collateral held by or for Laurus at public or private sale for cash, upon credit
or otherwise, at such prices and upon such terms as Laurus, in Laurus' sole
discretion, deems advisable or Laurus may otherwise recover upon the Collateral
in any commercially reasonable manner as Laurus, in its sole discretion, deems
advisable. The requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Company Agent at Company Agent's address as shown in
Laurus' records, at least ten (10) days before the time of the event of which
notice is being given. Laurus may be the purchaser at any sale, if it is public.
In connection with the exercise of the foregoing remedies, Laurus is granted
permission to use all of each Company's Intellectual Property. 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 all of the Obligations have been Indefeasibly
Paid, and after the payment by Laurus of any other amount required by any
provision of law, including Section 9-608(a)(l) of the UCC (but only after
Laurus has received what Laurus considers reasonable proof of a subordinate
party's security interest), the surplus, if any, shall be paid to Company Agent
(for the benefit of the applicable Companies) or its representatives or to
whosoever may be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct. The Companies shall remain jointly and
severally liable to Laurus for any deficiency. In addition, the Companies shall
jointly and severally 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 19(i) or 19(j), or (y) the cessation of
any Company's business; and (ii) ending on the date on which Laurus has actually
received all Obligations due and owing it under this Agreement and the Ancillary
Agreements. The Liquidation Fee shall be paid on the date on which Laurus
collects the applicable Account by deduction from the proceeds thereof. Each
Company and Laurus acknowledge that the actual damages that would be incurred by
Laurus after the occurrence of an Event of Default would be
34
difficult to quantify and that such Company and Laurus have agreed that the fees
and obligations set forth in this Section and in this Agreement would constitute
fair and appropriate liquidated damages in the event of any such termination.
21. Waivers. To the full extent permitted by applicable law, each
Company hereby waives (a) presentment, demand and protest, and notice of
presentment, dishonor, intent to accelerate, acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of
any or all of this Agreement and the Ancillary Agreements or any other notes,
commercial paper, Accounts, contracts, Documents, Instruments, Chattel Paper and
guaranties at any time held by Laurus on which such Company may in any way be
liable, and hereby ratifies and confirms whatever Laurus may do in this regard;
(b) all rights to notice and a hearing prior to Laurus' taking possession or
control of, or to Laurus' replevy, attachment or levy upon, any Collateral or
any bond or security that might be required by any court prior to allowing
Laurus to exercise any of its remedies; and (c) the benefit of all valuation,
appraisal and exemption laws. Each Company acknowledges that it has been advised
by counsel of its choices and decisions with respect to this Agreement, the
Ancillary Agreements and the transactions evidenced hereby and thereby.
22. Expenses. The Companies shall jointly and severally pay all of
Laurus' 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.
The Companies shall also jointly and severally 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 any Company or any of its
Subsidiaries as Collateral for, or any other Person as security for, the
Obligations hereunder and (e) any consultations in connection with any of the
foregoing. The Companies shall also jointly and severally pay Laurus' customary
bank charges for all bank services (including wire transfers) performed or
caused to be performed by Laurus for any Company or any of its Subsidiaries at
any Company's or such Subsidiary's request or in connection with any Company's
loan account with Laurus. All such costs and expenses together with all filing,
recording and search fees, taxes and interest payable by the Companies 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 any Company and/or any Subsidiary thereof, on the one hand,
and Laurus on the other hand, which Laurus is or may be required to withhold or
pay, the Companies hereby jointly and severally indemnifies and holds Laurus
harmless in respect of such taxes, and the Companies will repay to Laurus the
amount of any such taxes which shall be charged to the Companies' account; and
until the Companies shall furnish Laurus with indemnity therefor (or supply
Laurus with
35
evidence satisfactory to it that due provision for the payment thereof has been
made), Laurus may hold without interest any balance standing to each Company's
credit and Laurus shall retain its Liens in any and all Collateral.
23. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person and
any such assignee shall succeed to all of Laurus' rights with respect thereto;
provided that Laurus shall not be permitted to effect any such assignment to a
competitor of any Company unless an Event of Default has occurred and is
continuing. Upon such assignment, Laurus shall be released from all
responsibility for the Collateral to the extent same is assigned to any
transferee. Laurus may from time to time sell or otherwise grant participations
in any of the Obligations and the holder of any such participation shall,
subject to the terms of any agreement between Laurus and such holder, be
entitled to the same benefits as Laurus with respect to any security for the
Obligations in which such holder is a participant. Each Company agrees that each
such holder may exercise any and all rights of banker's lien, set-off and
counterclaim with respect to its participation in the Obligations as fully as
though such Company were directly indebted to such holder in the amount of such
participation.
24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise any
right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between or among any Company
and Laurus or delay by Laurus in exercising the same, will not operate as a
waiver; no waiver by Laurus will be effective unless it is in writing and then
only to the extent specifically stated. Laurus' rights and remedies under this
Agreement and the Ancillary Agreements will be cumulative and not exclusive of
any other right or remedy which Laurus may have.
25. Application of Payments. Each Company irrevocably waive the right
to direct the application of any and all payments at any time or times hereafter
received by Laurus from or on such Company's behalf and each Company hereby
irrevocably agrees that Laurus shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
against the Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus' books and records.
26. Indemnity, (a) Each Company hereby jointly and severally 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
36
OR LIABLE TO ANY COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR, ASSIGNEE OR
THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY
OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) Promptly after receipt by an Indemnified Party of notice of the
commencement of any action, such Indemnified Party shall, if a claim for
indemnification in respect thereof is to be made against a Company, notify
Company Agent in writing thereof, but the omission to so notify the Company
Agent shall not relieve any Company from any liability which it may have to any
Indemnified Party under this Section 26 and shall only relieve the Companies
from any liability which they may have to an Indemnified Party under this
Section 26 if and to the extent such Company is prejudiced by such omission.
27. Revival. The Companies further agree that to the extent any Company
makes a payment or payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
28. Borrowing Agency Provisions.
(a) Each Company hereby irrevocably designates Company Agent to be its
attorney and agent and in such capacity to borrow, sign and endorse notes, and
execute and deliver all instruments, documents, writings and further assurances
now or hereafter required hereunder, on behalf of such Company, and hereby
authorizes Laurus to pay over or credit all loan proceeds hereunder in
accordance with the request of Company Agent.
(b) The handling of this credit facility as a co-borrowing facility
with a borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to the Companies and at their request. Laurus shall not incur any
liability to any Company as a result thereof. To induce Laurus to do so and in
consideration thereof, each Company hereby indemnifies Laurus and holds Laurus
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Laurus by any Person arising from or
incurred by reason of the handling of the financing arrangements of the
Companies as provided herein, reliance by Laurus on any request or instruction
from Company Agent or any other action taken by Laurus with respect to this
Paragraph 28.
(c) All Obligations shall be joint and several, and the Companies shall
make payment upon the maturity of the Obligations by acceleration or otherwise,
and such obligation and liability on the part of the Companies shall in no way
be affected by any extensions, renewals and forbearance granted by Laurus to any
Company, failure of Laurus to give any
37
Company notice of borrowing or any other notice, any failure of Laurus to pursue
to preserve its rights against any Company, the release by Laurus of any
Collateral now or thereafter acquired from any Company, and such agreement by
any Company to pay upon any notice issued pursuant thereto is unconditional and
unaffected by prior recourse by Laurus to any Company or any Collateral for such
Company's Obligations or the lack thereof.
(d) Each Company expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Company may now or hereafter have against the other or other Person
directly or contingently liable for the Obligations, or against or with respect
to any other's property (including, without limitation, any property which is
Collateral for the Obligations), arising from the existence or performance of
this Agreement, until all Obligations have been indefeasibly paid in full and
this Agreement has been irrevocably terminated.
(e) Each Company represents and warrants to Laurus that (i) the
Companies have one or more common shareholders, directors and officers, (ii) the
businesses and corporate activities of the Companies are closely related to, and
substantially benefit, the business and corporate activities of the Companies,
(iii) the financial and other operations of the Companies are performed on a
combined basis as if the Companies constituted a consolidated corporate group,
(iv) the Companies will receive a substantial economic benefit from entering
into this Agreement and will receive a substantial economic benefit from the
application of each Loan hereunder, in each case, whether or not such amount is
used directly by any Company and (v) all requests for Loans hereunder by the
Company Agent are for the exclusive and indivisible benefit of the Companies as
though, for purposes of this Agreement, the Companies constituted a single
entity.
29. Notices. Any notice or request hereunder may be given to any Company,
Company Agent or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail. 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.
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
Facsimile: (000) 000-0000
38
With a copy to: Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
Telephone: (000)000-0000
Facsimile: (000)000-0000
If to any Company,
or Company Agent: ProxyMed, Inc.
0000 Xxxxxxxxxxx Xx., Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000
Attention: Chief Financial Officer and
General Counsel
Telephone: (000)000-0000
or such other address as may be designated in writing hereafter in accordance
with this Section 29 by such Person.
30. 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, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF
NEW YORK, STATE OF
NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY,
ON THE ONE HAND, AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR
ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND
EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF THE COUNTY OF
NEW YORK, STATE OF
NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF LAURUS. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY
HEREBY WAIVES PERSONAL
39
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AGENT AT THE ADDRESS
SET FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON
THE EARLIER OF COMPANY AGENT'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS,
AND/OR ANY 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 HERETO OR THERETO.
31. Limitation of Liability. Each Company acknowledges and understands that
in order to assure repayment of the Obligations hereunder Laurus may be required
to exercise any and all of Laurus' rights and remedies hereunder and agrees
that, 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 such Person's actual bad faith, gross negligence or
willful misconduct as finally determined by a court of competent jurisdiction.
32. Entire Understanding; Maximum Interest. This Agreement and the
Ancillary Agreements contain the entire understanding among each 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 each Company's and Laurus'
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged. Nothing contained in this Agreement, any Ancillary
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Companies to Laurus and thus refunded to the Companies.
33. Severability. Wherever possible each provision of this Agreement or the
Ancillary Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.
40
34. Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Laurus and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Companies pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Companies hereunder solely as of the date
of such certificate or instrument. All indemnities set forth herein shall
survive the execution, delivery and termination of this Agreement and the
Ancillary Agreements and the making and repaying of the Obligations.
35. Captions. All captions are and shall be without substantive meaning
or content of any kind whatsoever.
36. 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.
37. 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.
38. Publicity. Each Company hereby authorizes Laurus to make
appropriate announcements of the financial arrangement entered into by and among
each 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, disclosure
of the transactions contemplated by this Agreement and the Ancillary Agreement
on its website or as required by applicable law.
39. Joinder. It is understood and agreed that any Person that desires
to become a Company hereunder, or is required to execute a counterpart of this
Agreement after the date hereof pursuant to the requirements of this Agreement
or any Ancillary Agreement, shall become a Company hereunder by (a) executing a
Joinder Agreement in form and substance satisfactory to Laurus, (b) delivering
supplements to such exhibits and annexes to this Agreement and the Ancillary
Agreements as Laurus shall reasonably request and (c) taking all actions as
specified in this Agreement as would have been taken by such Company had it been
an original party to this Agreement, in each case with all documents required
above to be delivered to Laurus and with all documents and actions required
above to be taken to the reasonable satisfaction of Laurus.
40. Legends. The Securities shall bear legends as follows: any shares
of Closing Shares 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
41
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO [PARENT] THAT SUCH
REGISTRATION IS NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
42
IN WITNESS WHEREOF, the parties have executed this
Security and
Purchase Agreement as of the date first written above.
PROXYMED, INC.
BY: /s/ XXXXXXX X. X'XXXX
------------------------------------
Name: Xxxxxxx X. X'Xxxx
Title: CFO
PROXYMED TRANSACTION SERVICES,
INC.
By: /s/ XXXXXXX X. X'XXXX
------------------------------------
Name: Xxxxxxx X. X'Xxxx
Title: CFO
PROXYMED LAB SERVICES, LLC
By: /s/ XXXXXXX X. X'XXXX
------------------------------------
Name: Xxxxxxx X. X'Xxxx
Title: CFO
PLANVISTA CORPORATION
By: /s/ XXXXXXX X. X'XXXX
------------------------------------
Name: Xxxxxxx X. X'Xxxx
Title: CFO
PLANVISTA SOLUTIONS, INC.
By: /s/ XXXXXXX X. X'XXXX
------------------------------------
Name: Xxxxxxx X. X'Xxxx
Title: CFO
NATIONAL NETWORK SERVICES, LLC
By: /s/ XXXXXXX X. X'XXXX
------------------------------------
Name: Xxxxxxx X. X'Xxxx
Title: CFO
LAURUS MASTER FUND, LTD.
By:
------------------------------------
Name:
Title:
NATIONAL NETWORK SERVICES, LLC
By:
------------------------------------
Name:
Title:
LAURUS MASTER FUND, LTD.
By: /s/ XXXXX GRIN
------------------------------------
Name: Xxxxx Grin
Title: Director
44
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.
"Affiliate" means, with respect to any Person, (a) any other Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with such Person or (b) any other
Person who is a director or officer (i) of such Person, (ii) of any Subsidiary
of such Person or (iii) of any Person described in clause (a) above. For the
purposes of this definition, control of a Person shall mean the power (direct or
indirect) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Ancillary Agreements" means the Notes, the Registration Rights
Agreements, the Subordination Agreements, each Security Document and all other
agreements, instruments, documents, mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, trust agreements
and guarantees whether heretofore, concurrently, or hereafter executed by or on
behalf of any Company, any of its Subsidiaries 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 or among any
Company and Laurus, as each of the same may be amended, supplemented, restated
or otherwise modified from time to time.
"Balance Sheet Date" has the meaning given such term in Section
12(f)(ii).
"Books and Records" means all books, records, board minutes, contracts,
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records,
financial statements (actual and pro forma), filings with Governmental
Authorities and any and all records and instruments relating to the Collateral
or otherwise necessary or helpful in the collection thereof or the realization
thereupon.
"Business Day" means a day on which Laurus is open for business and
that is not a Saturday, a Sunday or other day on which banks are required or
permitted to be closed in the State of
New York.
"Charter" has the meaning given such term in Section 12(c)(iv).
"Chattel Paper" means all "chattel paper," as such term is defined in
the UCC, including electronic chattel paper, now owned or hereafter acquired by
any Person.
"Closing Date" means the date on which any Company shall first receive
proceeds of the initial Loans or the date hereof, if no Loan is made under the
facility on the date hereof.
"Closing Shares" means 500,000 shares of Common Stock issued to Laurus
pursuant to Section 2(c).
"Code" has the meaning given such term in Section 15(i).
"Collateral" means all of each Company's property and assets, whether
real or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now has or at any time in the future may acquire any
right, title or interests including all of the following property in which it
now has or at any time in the future may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
(f) all Deposit Accounts, other bank accounts and all funds on deposit
therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
2
(1) all commercial tort claims set forth on Schedule 1(A);
(m) all Books and Records;
(n) all Intellectual Property;
(o) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
(p) (i) all money, cash and cash equivalents and (ii) all cash held as
cash collateral to the extent not otherwise constituting Collateral, all other
cash or property at any time on deposit with or held by Laurus for the account
of any Company (whether for safekeeping, custody, pledge, transmission or
otherwise); and
(q) all products and Proceeds of all or any of the foregoing, tort
claims and all claims and other rights to payment including (i) insurance claims
against third parties for loss of, damage to, or destruction of, the foregoing
Collateral and (ii) payments due or to become due under leases, rentals and
hires of any or all of the foregoing and Proceeds payable under, or unearned
premiums with respect to policies of insurance in whatever form.
"Common Stock" means the shares of stock representing the Parent's
common equity interests.
"Company Agent" means the Parent.
"Contract Rate" has the meaning given such term in the respective
Notes.
"Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"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 Lockboxes.
"Disclosure Controls" has the meaning given such term in Section
12(f)(iv).
"Documents" means all "documents", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including all
bills of lading, dock warrants, dock receipts, warehouse receipts, and other
documents of title, whether negotiable or non-negotiable.
"EBITDA" means, for any period, the Net Income (Loss) of Parent and its
Subsidiaries on a consolidated basis for such period, plus interest expense,
income tax expense, amortization expense, depreciation expense, extraordinary
losses, non-cash equity compensation expenses, write downs of intangible assets
and such other adjustments approved by Laurus and minus extraordinary gains, in
each case, of Parent and its Subsidiaries on a consolidated basis for such
period determined in accordance with GAAP to the extent included in the
determination of such Net Income (Loss).
3
"Eligible Subsidiary" means each Subsidiary of the Parent set forth on
Exhibit A hereto, as the same may be updated from time to time with Laurus'
written consent.
"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" has the meaning given such term in Section 12(bb).
"Event of Default" means the occurrence of any of the events set forth
in Section 19.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Act Filings" means the Parent's filings under the Exchange
Act made prior to the date of this Agreement.
"Financial Reporting Controls" has the meaning given such term in
Section 12(f)(v).
"Fixtures" means all "fixtures" as such term is defined in the UCC, now
owned or hereafter acquired by any Person.
"Formula Amount" means at the date of determination, an amount equal to
three (3) times EBITDA for the immediately preceding twelve (12) month period.
"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.
4
"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.
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Indebtedness" means, as to any Person, any obligation of
such Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such guaranteeing Person
(whether or not contingent): (i) to purchase or repurchase any such primary
obligation; (ii) to advance or supply funds (a) for the purchase or payment of
any such primary obligation or (b) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor; (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation; or (iv) to indemnify the owner of such primary
obligation against loss in respect thereof.
"Indebtedness" of any Person means: (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(including reimbursement and all other obligations with respect to surety bonds,
letters of credit and bankers' acceptances, whether or not matured, but not
including obligations to trade creditors incurred in the ordinary course of
business); (ii) all obligations evidenced by notes, bonds, debentures or similar
instruments; (iii) all indebtedness created or arising under any conditional
sale or other title retention agreements with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property); (iv) all capital lease obligations; (v) all Guaranteed
Indebtedness; (vi) all Indebtedness referred to in clauses (i), (ii), (iii),
(iv) or (v) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness; (vii) the Obligations; and (viii) all liabilities under Title IV
of ERISA.
"Indefeasibly Paid" means (a) payment in full in cash of the principal
of and interest (including interest accruing during the pendency of any
insolvency or liquidation proceeding, regardless of whether allowed or allowable
in such insolvency or liquidation proceeding) and premium, if any, on all
Indebtedness outstanding under this Agreement or any Ancillary Agreement, (b)
payment in full of all other Obligations that are due and payable or
5
otherwise accrued and owing at or prior to the time such principal and interest
are paid and (c) termination or expiration of all commitments to lend under this
Agreement.
"Indenture" mean the Indenture dated December 31, 2002 between LaSalle
Bank National Association and Parent.
"Instruments" means all "instruments", as such term is defined in the
UCC, now owned or hereafter acquired by any Person, wherever located, including
all certificated securities and all promissory notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
"Intellectual Property" means any and all patents, trademarks, service
marks, trade names, copyrights, trade secrets, Licenses, information and other
proprietary rights and processes.
"Inventory" means all "inventory", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including all
inventory, merchandise, goods and other personal property that are held by or on
behalf of such Person for sale or lease or are furnished or are to be furnished
under a contract of service or that constitute raw materials, work in process,
finished goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person's business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such term is
defined in the UCC, now owned or hereafter acquired by any Person, wherever
located.
"IP Security Agreement" means the Intellectual Property Security
Agreement dated as of the date hereof made by Companies in favor of Laurus.
"Letter-of-Credit Rights" means "letter-of-credit rights" as such term
is defined in the UCC, now owned or hereafter acquired by any Person, including
rights to payment or performance under a letter of credit, whether or not such
Person, as beneficiary, has demanded or is entitled to demand payment or
performance.
"License" means any rights under any written agreement now or hereafter
acquired by any Person to use any trademark, trademark registration, copyright,
copyright registration or invention for which a patent is in existence or other
license of rights or interests now held or hereafter acquired by any Person.
"Lien" means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
6
"Loans" means the Revolving Loans, the Term Loan and shall include all
other extensions of credit hereunder and under any Ancillary Agreement.
"Lockboxes" has the meaning given such term in Section 8(a).
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, liabilities, condition (financial or otherwise), properties,
operations or prospects of any Company or any of its Subsidiaries (taken
individually and as a whole), (b) any Company's or any of its Subsidiary's
ability to pay or perform the Obligations in accordance with the terms hereof or
any Ancillary Agreement, (c) the value of the Collateral, the Liens on the
Collateral or the priority of any such Lien or (d) the practical realization of
the benefits of Laurus' rights and remedies under this Agreement and the
Ancillary Agreements.
"Maximum Availability Amount" means $ 15,000,000.
"NASD" has the meaning given such term in Section 13(b).
"Net Income Loss" means with respect to any Person and for any period,
the aggregate net income (or loss) after taxes of such Person for such period,
determined in accordance with GAAP.
"Notes" means the Term Note and the Revolving Note made by Companies in
favor of Laurus in connection with the transactions contemplated hereby, as each
of the same may be amended, supplemented, restated and/or otherwise modified
from time to time.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by each Company and each of its
Subsidiaries to Laurus (or any corporation that directly or indirectly controls
or is controlled by or is under common control with Laurus) of every kind and
description (whether or not evidenced by any note or other instrument and
whether or not for the payment of money or the performance or non-performance of
any act), direct or indirect, absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, whether existing by
operation of law or otherwise now existing or hereafter arising including any
debt, liability or obligation owing from any Company and/or each of its
Subsidiaries to others which Laurus may have obtained by assignment or otherwise
and further including all interest (including interest accruing at the then
applicable rate provided in this Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in this Agreement after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, whether or not a claim for post-filing or
post-petition interest is allowed or allowable in such proceeding), charges or
any other payments each Company and each of its Subsidiaries is required to make
by law or otherwise arising under or as a result of this Agreement, the
Ancillary Agreements or otherwise, together with all reasonable expenses and
reasonable attorneys' fees chargeable to the Companies' or any of their
Subsidiaries' accounts or incurred by Laurus in connection therewith.
"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.
7
"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 worker'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
Companies and their Subsidiaries, as applicable, 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
Companies and their Subsidiaries, as applicable, in conformity with GAAP; and
which have no effect on the priority of Liens in favor of Laurus or the value of
the assets in which Laurus has a Lien; (e) Purchase Money Liens securing
Purchase Money Indebtedness to the extent permitted in this Agreement and (f)
Liens specified on Schedule 2 hereto.
"Person" means any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Pledge Agreements" means, collectively, (a) the Stock Pledge Agreement
dated as of the date hereof made by Parent in favor of Laurus, (b) the Stock
Pledge Agreement dated as of the date hereof made by Plan Vista Corporation in
favor of Laurus, (c) the Member Pledge Agreement dated as of the date hereof
made by Plan Vista Solutions, Inc. in favor of Laurus and (b) the Member Pledge
Agreement dated as of the date hereof made by ProxyMed Transaction Services,
Inc. in favor of Laurus.
"Principal Market" means the NASD Over The Counter Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange
or
New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock).
"Proceeds" means "proceeds", as such term is defined in the UCC and, in
any event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Company or any other Person from time to
time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to any Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of any Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) any recoveries by any
Company against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment
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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 or cash proceeds 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 that certain Registration Rights
Agreement dated as of the Closing Date by and between the Parent and Laurus and
each other registration rights agreement by and between the Parent and Laurus,
as each of the same may be amended, modified and supplemented from time to time.
"Revolving Loan Term" means the Closing Date through the close of
business on the day immediately preceding the third anniversary of the Closing
Date; provided that the Revolving Loan Term shall, in the sole discretion of
Laurus, be extended for two (2) additional years if Company Agent provides
written notice to Laurus not earlier than ninety (90) days prior the third
anniversary of the Closing Date and not later than sixty (60) days prior to the
third anniversary of the Closing Date, that Companies desire to extend the then
current Revolving Loan Term, and Laurus provides written notice to Company Agent
thirty (30) days prior to the third anniversary of the Closing Date that Laurus
has elected to extend the Revolving Loan Term, subject to acceleration at the
option of Laurus upon the occurrence of an Event of Default hereunder or other
termination hereunder. The foregoing notwithstanding, the Revolving Loan Term
shall not be extended if, as of the then current Revolving Loan Term, an Event
of Default shall have occurred and be continuing. Nothing contained herein shall
be deemed to be a commitment by Laurus to extend the Revolving Loan Term.
"Revolving Loans" has the meaning given to such term in Section
2(a)(i).
"Revolving Note" means that certain Secured Revolving Note dated as of
the Closing Date made by the Companies in favor of Laurus in the original
principal amount of $15,000,000, as the same may be amended, supplemented,
restated and/or otherwise modified from time to time.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning given such term in Section 12(u).
"Securities" means the Closing Shares and the Notes.
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"Securities Act" has the meaning given such term in Section 12(r).
"Security Documents" means the IP Security Agreement, the Pledge
Agreements, all security agreements, mortgages, cash collateral deposit letters,
pledges and other agreements which are executed by any Company or any of its
Subsidiaries in favor of Laurus.
"Software" means all "software" as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including all computer programs and
all supporting information provided in connection with a transaction related to
any program.
"Stock" means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Securities Exchange Act of
1934).
"Subordinated Notes" means collectively, the promissory notes described
on Exhibit C hereto and any promissory notes issued pursuant to the Indenture.
"Subordination Agreements" means collectively, the subordination
provisions contained in the Indenture and each subordination agreement executed
by the holder of each Subordinated Note in favor of Laurus and acknowledged by
the Companies and any and all other Subordination Agreements accepted by Laurus
from time to time with respect to Indebtedness of the Companies.
"Subsidiary" means, with respect to any Person, (i) any other Person
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 or other
governing body of such other Person, are owned, directly or indirectly, by such
Person or (ii) any other Person in which such Person owns, directly or
indirectly, more than 50% of the equity interests at such time.
"Supporting Obligations" means all "supporting obligations" as such
term is defined in the UCC.
"Term" means (a) with respect to the Revolving Loans, the Revolving
Loan Term and (b) with respect to the Term Loan, the Term Loan Term.
"Term Loan Term" means the Closing Date through the close of business
on the day immediately preceding the fifth 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.
"Term Note" means that certain Secured Term Note dated as of the
Closing Date made by the Companies in favor of Laurus in the original principal
amount of $5,000,000, as the same may be amended, supplemented, restated and/or
otherwise modified from time to time.
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"Total Investment Amount" means $20,000,000.
"UCC" means the Uniform Commercial Code as the same may, from time to
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.
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