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SECURITY AGREEMENT
This Security Agreement is made as of March __, 2004 by and
between LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus") and
Veridium Corporation, a Delaware corporation (the "Company").
BACKGROUND
Company has requested that Laurus make advances available to
Company; and
Laurus has agreed to make such advances to Company on the
terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
(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.
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.
Loans.
(i) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus may make loans (the "Loans") to
Company from time to time during the Term which, in the aggregate
at any time outstanding, will not exceed the lesser of: (x) (I)
the Capital Availability Amount minus (II) such reserves as
Laurus may reasonably in its good faith judgment deem proper and
necessary from time to time (the "Reserves"), (y) an amount equal
to (I) the Accounts Availability minus (II) the Reserves and (z)
the sum of Accounts Availability and ($500,000) minus
Subordinated Accounts. The amount derived at any time from
Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall be referred to
as the "Formula Amount". In no event shall Laurus be required to
make any Loans to the Company without Laurus written consent, if
Loans outstanding under the Notes or pursuant hereto shall equal
or exceed One Million Seven Hundred Fifty Thousand Dollars
($1,750,000). Company shall execute and deliver to Laurus on the
Closing Date a Minimum Borrowing Note and a Secured Revolving
Note evidencing the Loans funded on the Closing Date. From time
to time thereafter, Company shall execute and deliver to Laurus
immediately prior to the final funding of each additional
$1,000,000 tranche of Loans (calculated on a cumulative basis for
each such tranche) an additional Minimum Borrowing Note
evidencing such tranche, in the form of Note delivered by Company
to Laurus on the Closing Date. Notwithstanding anything herein to
the contrary, whenever during the Term the outstanding balance on
the Revolving Note should equal or exceed $500,000, to the extent
that the outstanding balance on Minimum Borrowing Note shall be
less than $1,000,000 (the difference of $1,000,000 less the
actual balance of the Minimum Borrowing Note, the "Available
Minimum Borrowing"), such portion of the balance of the Revolving
Note as shall equal the Available Minimum Borrowing shall be
deemed to be simultaneously extinguished on the Revolving Note
and transferred to, and evidenced by, the Minumum Borrowing Note
(e.g., the Available Minimum Borrowing shall be $0).
(ii) Notwithstanding the limitations set forth above, if requested by
the Company, Laurus retains the right to lend to Company from
time to time such amounts in excess of such limitations as Laurus
may determine in its sole discretion.
Company acknowledges that the exercise of Laurus' discretionary rights
hereunder may result during the Term in one or more increases or decreases in
the advance percentages used in determining Accounts Availability and Company
hereby consents to any such increases or decreases which may limit or restrict
advances requested by Company.
If Company does not pay any interest, fees, costs or charges to Laurus when
due, Company shall thereby be deemed to have requested, and Laurus is hereby
authorized at its discretion to make and charge to Company's account, a Loan to
Company as of such date in an amount equal to such unpaid interest, fees, costs
or charges.
If Company at any time fails to perform or observe any of the covenants
contained in this Agreement or any Ancillary Agreement, Laurus may, but need
not, perform or observe such covenant on behalf and in the name, place and stead
of Company (or, at Laurus' option, in Laurus' name) and may, but need not, take
any and all other actions which Laurus may deem necessary to cure or correct
such failure (including the payment of taxes, the satisfaction of Liens, the
performance of obligations owed to Account Debtors, lessors or other obligors,
the procurement and maintenance of insurance, the execution of assignments,
security agreements and financing statements, and the endorsement of
instruments). The amount of all monies expended and all costs and expenses
(including attorneys' fees and legal expenses) incurred by Laurus in connection
with or as a result of the performance or observance of such agreements or the
taking of such action by Laurus shall be charged to Company's account as a Loan
and added to the Obligations. To facilitate Laurus' performance or observance of
such covenants of Company, Company hereby irrevocably appoints Laurus, or
Laurus' delegate, acting alone, as Company's attorney in fact (which appointment
is coupled with an interest) with the right (but not the duty) from time to time
to create, prepare, complete, execute, deliver, endorse or file in the name and
on behalf of Company any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed delivered or endorsed
by Company.
Laurus will account to Company monthly with a statement of all Loans and
other advances, charges and payments made pursuant to this Agreement, and such
account rendered by Laurus shall be deemed final, binding and conclusive unless
Laurus is notified by Company in writing to the contrary within thirty (30) days
of the date each account was rendered specifying the item or items to which
objection is made.
During the Term, Company may borrow and prepay Loans in excess of the
Minimum Borrowing Amount, all in accordance with the terms and conditions
hereof.
If any Eligible Account is not paid by the Account Debtor within ninety
(90) days after the date that such Eligible Account was invoiced or if any
Account Debtor asserts a deduction, dispute, contingency, set-off, or
counterclaim with respect to any Eligible Account, (a "Delinquent Account"), the
Company shall (i) reimburse Laurus for the amount of the Revolving Credit
Advance made with respect to such Delinquent Account plus an adjustment fee in
an amount equal to one-half of one percent (0.50%) of the gross face amount of
such Eligible Account or (ii) immediately replace such Delinquent Account with
an otherwise Eligible Account.
Following the occurrence of an Event of Default which continues to exist,
Laurus may, at its option, elect to convert the credit facility contemplated
hereby to an accounts receivable purchase facility. Upon such election by Laurus
(subsequent notice of which Laurus shall provide to Company), Company shall be
deemed to hereby have sold, assigned, transferred, conveyed and delivered to
Laurus, and Laurus shall be deemed to have purchased and received from Company,
all right, title and interest of Company in and to all Accounts which shall at
any time constitute Eligible Accounts (the "Receivables Purchase"). All
outstanding Loans hereunder shall be deemed obligations under such accounts
receivable purchase facility. The conversion to an accounts receivable purchase
facility in accordance with the terms hereof shall not be deemed an exercise by
Laurus of its secured creditor rights under Article 9 of the UCC. Immediately
following Laurus' request, Company shall execute all such further documentation
as may be required by Laurus to more fully set forth the accounts receivable
purchase facility herein contemplated, including, without limitation, Laurus'
standard form of accounts receivable purchase agreement and account debtor
notification letters, but Company's failure to enter into any such documentation
shall not impair or affect the Receivables Purchase in any manner whatsoever.
(c) Minimum Borrowing Amount. After a registration statement registering
the Registrable Securities has been declared effective by the SEC,
conversions of the Minimum Borrowing Amount into the Common Stock of
the Company may be initiated as set forth in the Note. From and after
the date upon which any outstanding principal of the Minimum Borrowing
Amount (as evidenced by the first Minimum Borrowing Note) is converted
into Common Stock (the "First Conversion Date"), (i) corresponding
amounts of all outstanding Loans (not attributable to the then
outstanding Minimum Borrowing Amount) existing on or made after the
First Conversion Date will be aggregated until they reach the sum of
$[1,000,000] and (ii) the Company will issue a new (serialized)
Minimum Borrowing Note to Laurus in respect of such [$1,000,000]
aggregation, and (iii) the Company shall prepare and file a subsequent
registration statement with the SEC to register such subsequent
Minimum Borrowing Note as set forth in the Registration Rights
Agreement.
Repayment of the Loans. Company (a) may prepay the Obligations in excess of
the Minimum Borrowing Amount from time to time in accordance with the terms and
provisions of the Notes (and Section 16 hereof if such prepayment is due to a
termination of this Agreement); and (b) shall repay on the expiration of the
Term (i) the then aggregate outstanding principal balance of the Loans made by
Laurus to Company hereunder together with accrued and unpaid interest, fees and
charges and (ii) all other amounts owed Laurus under this Agreement and the
Ancillary Agreements. Any payments of principal, interest, fees or any other
amounts payable hereunder or under any Ancillary Agreement shall be made prior
to 12:00 noon (New York time) on the due date thereof in immediately available
funds.
Procedure for Loans. Company may by written notice request a borrowing of
Loans prior to 12:00 p.m.. (New York time) on the Business Day of its request to
incur, on the next business day, a Loan. Together with each request for a Loan
(or at such other intervals as Laurus may request), Company shall deliver to
Laurus a Borrowing Base Certificate in the form of Exhibit A, which shall be
certified as true and correct by the Chief Executive Officer or Chief Financial
Officer of Company together with all supporting documentation relating thereto.
All Loans shall be disbursed from whichever office or other place Laurus may
designate from time to time and shall be charged to Company's account on Laurus'
books. The proceeds of each Loan made by Laurus shall be made available to
Company on the Business Day following the Business Day so requested in
accordance with the terms of this Section 4 by way of credit to Company's
operating account maintained with such bank as Company designated to Laurus. Any
and all Obligations due and owing hereunder may be charged to Company's account
and shall constitute Loans.
Interest and Payments.
Interest.
Except as modified by Section 5(a)(iii) below, Company shall pay interest
at the Contract Rate on the unpaid principal balance of each Loan until such
time as such Loan is collected in full in good funds in dollars of the United
States of America.
Interest and payments shall be computed on the basis of actual days elapsed
in a year of 360 days. At Laurus' option, Laurus may charge Company account for
said interest.
Effective upon the occurrence of any Event of Default and for so long as
any Event of Default shall be continuing, the Contract Rate shall automatically
be increased by five percent (5%) per annum (such increased rate, the "Default
Rate"), and all outstanding Obligations, including unpaid interest, shall
continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
In no event shall the aggregate interest payable hereunder exceed the
maximum rate permitted under any applicable law or regulation, as in effect from
time to time (the "Maximum Legal Rate") and if any provision of this Agreement
or any Ancillary Agreement is in contravention of any such law or regulation,
interest payable under this Agreement and each Ancillary Agreement shall be
computed on the basis of the Maximum Legal Rate (so that such interest will not
exceed the Maximum Legal Rate).
Company shall pay principal, interest and all other amounts payable
hereunder, or under any Ancillary Agreement, without any deduction whatsoever,
including any deduction for any set-off or counterclaim.
Payments.
Closing/Annual Payments. Upon execution of this Agreement by Company and
Laurus, Company shall pay to Laurus Capital Management, LLC a closing payment in
an amount equal to three and six-tenths percent (3.6%) of the Capital
Availability Amount. Such payment shall be deemed fully earned on the Closing
Date and shall not be subject to rebate or proration for any reason.
Unused Line Payment. If, for any month, the average outstanding Loans (the
"Average Loan Amount") do not equal the Capital Availability Amount, Company
shall pay to Laurus at the end of such month a payment (calculated on a per
annum basis) in an amount equal to one half percent (0.5%) of the amount by
which the Capital Availability Amount exceeds the Average Loan Amount.
Notwithstanding the foregoing, any unpaid fee shall be immediately due and
payable upon termination of this Agreement.
Overadvance Payment. Without affecting Laurus' rights hereunder in the
event the Loans exceed the amounts permitted by Section 2 ("Overadvances"), in
the event an Overadvance occurs or is made by Laurus, all such Overadvances
shall bear interest at a rate equal to two percent (2%) of the amount of such
Overadvances for each month or portion thereof as such amounts shall be
outstanding provided, however, that if the Company shall have an Accounts
Availability less than Five Hundred Thousand Dollars ($500,000) at any time, any
Loans outstanding at such time in excess of Five Hundred Thousand Dollars
($500,000) shall be deemed Overadvances.
Financial Information Default. Without affecting Laurus' other rights and
remedies, in the event Company fails to deliver the financial information
required by Section 11 on or before the date required by this Agreement, Company
shall pay Laurus a fee in the amount of $500.00 per week (or portion thereof)
for each such failure until such failure is cured to Laurus' satisfaction or
waived in writing by Laurus. Such fee shall be charged to Company's account upon
the occurrence of each such failure.
Security Interest.
To secure the prompt payment to Laurus of the Obligations, Company hereby
assigns, pledges and grants to Laurus a continuing security interest in and Lien
upon all of the Collateral. All of Company's Books and Records relating to the
Collateral shall, until delivered to or removed by Laurus, be kept by Company in
trust for Laurus until all Obligations have been paid in full. Each confirmatory
assignment schedule or other form of assignment hereafter executed by Company
shall be deemed to include the foregoing grant, whether or not the same appears
therein.
Company hereby (i) authorizes Laurus to file any financing statements,
continuation statements or amendments thereto that (x) indicate the Collateral
(1) as all assets of Company or words of similar effect, regardless of whether
any particular asset comprised in the Collateral falls within the scope of
Article 9 of the UCC of such jurisdiction, or (2) as being of an equal or lesser
scope or with greater detail, and (y) contain any other information required by
Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance
of any financing statement, continuation statement or amendment and (ii)
ratifies its authorization for Laurus to have filed any initial financial
statements, or amendments thereto if filed prior to the date hereof. Company
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
without the prior written consent of Laurus and agrees that it will not do so
without the prior written consent of Laurus, subject to Company's rights under
Section 9-509(d)(2) of the UCC.
Company hereby grants to Laurus an irrevocable, non-exclusive license
(exercisable upon the termination of this Agreement due to an occurrence and
during the continuance of an Event of Default without payment of royalty or
other compensation to Company) to use, license or sublicense any Intellectual
Property now owned, licensed to, or hereafter acquired by Company, and wherever
the same may be located, and including in such license access to all media in
which any of the licensed items may be recorded or stored and to all computer
and automatic machinery software and programs used for the compilation or
printout thereof, and to the extent that any such license or sublicense is not
or 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.
Representations, Warranties and Covenants Concerning the Collateral.
Company represents, warrants (each of which such representations and warranties
shall be deemed repeated upon the making of each request for a Loan and made as
of the time of each and every Loan hereunder) and covenants as follows:
all of the Collateral (i) is owned by Company free and clear of all Liens
(including any claims of infringement) except those in Laurus' favor and
Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a Lien.
Company shall not encumber, mortgage, pledge, assign or grant any Lien in
any Collateral of Company or any of Company's other assets to anyone other than
Laurus and except for Permitted Liens.
The Liens granted pursuant to this Agreement, upon completion of the
filings and other actions listed on Exhibit 7(c) (which, in the case of all
filings and other documents referred to in said Exhibit, have been delivered to
Laurus in duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all creditors of and any purchasers from Company
and such security interest is prior to all other Liens in existence on the date
hereof.
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.
Company shall not dispose of any of the Collateral whether by sale, lease
or otherwise except for the sale of Inventory in the ordinary course of business
and for the disposition or transfer in the ordinary course of business during
any fiscal year of obsolete and worn-out Equipment having an aggregate fair
market value of not more than $25,000 and only to the extent that (i) the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Laurus' first priority security interest or are used to repay
Loans or to pay general corporate expenses, or (ii) following the occurrence of
an Event of Default which continues to exist the proceeds of which are remitted
to Laurus to be held as cash collateral for the Obligations.
Company shall defend the right, title and interest of Laurus in and to the
Collateral against the claims and demands of all Persons whomsoever, and take
such actions, including (i) all actions necessary to grant Laurus "control" of
any Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper owned by Company, with any agreements establishing control to be
in form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus' request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by the Company (in each case, accompanied by stock
powers, allonges or other instruments of transfer executed in blank), (iii)
notification of Laurus' interest in Collateral at Laurus' request, and (iv) the
institution of litigation against third parties as shall be prudent in order to
protect and preserve Company's and Laurus' respective and several interests in
the Collateral.
Company shall promptly, and in any event within five (5) Business Days
after the same is acquired by it, notify Laurus of any commercial tort claim (as
defined in the UCC) acquired by it and unless otherwise consented by Laurus,
Company shall enter into a supplement to this Agreement granting to Laurus a
Lien in such commercial tort claim.
Company shall place notations upon its Books and Records and any financial
statement of Company to disclose Laurus' Lien in the Collateral.
If Company retains possession of any Chattel Paper or Instrument with
Laurus' consent, upon Laurus' request such Chattel Paper and Instruments shall
be marked with the following legend: "This writing and obligations evidenced or
secured hereby are subject to the security interest of Laurus Master Fund, Ltd."
Company shall perform in a reasonable time all other steps requested by
Laurus to create and maintain in Laurus' favor a valid perfected first Lien in
all Collateral subject only to Permitted Liens.
Company shall notify Laurus promptly and in any event within three (3)
Business Days after obtaining knowledge thereof (i) of any event or circumstance
that to Company's knowledge would cause Laurus to consider any then existing
Account, to the extent such Account(s) constitute three percent (3%) or more of
the Eligible Accounts, as no longer constituting an Eligible Account; (ii) of
any material delay in Company's performance of any of its obligations to any
Account Debtor; (iii) of any assertion by any Account Debtor of any material
claims, offsets or counterclaims; (iv) of any allowances, credits and/or monies
granted by Company to any Account Debtor; (v) of all material adverse
information relating to the financial condition of an Account Debtor; (vi) of
any material return of goods; and (vii) of any loss, damage or destruction of
any of the Collateral.
All Eligible Accounts (i) which are billed on a construction completion
basis but not payable until the project is completed, represent complete bona
fide transactions which require no further act under any circumstances on
Company's part to make such Accounts payable by the Account Debtors, (ii) are
not subject to any present, future contingent offsets or counterclaims, and
(iii) do not represent xxxx and hold sales, consignment sales, guaranteed sales,
sale or return or other similar understandings or obligations of any Affiliate
or Subsidiary of Company. Company has not made, and will not make any agreement
with any Account Debtor for any extension of time for the payment of any
Account, any compromise or settlement for less than the full amount thereof, any
release of any Account Debtor from liability therefor, or any deduction
therefrom except a discount or allowance for prompt or early payment allowed by
Company in the ordinary course of its business consistent with historical
practice and as previously disclosed to Laurus in writing.
Company shall keep and maintain its Equipment in good operating condition,
except for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall at all
times be maintained and preserved. Company shall not permit any such items to
become a Fixture to real estate or accessions to other personal property.
Company shall maintain and keep all of its Books and Records concerning the
Collateral at Company's executive offices listed in Exhibit 12(d).
Company shall maintain and keep the tangible Collateral at the addresses
listed in Exhibit 12(d), provided, that Company may change such locations or
open a new location, provided that Company provides Laurus at least thirty (30)
days prior written notice of such changes or new location and (ii) prior to such
change or opening of a new location where Collateral having a value of more than
$50,000 will be located, Company executes and delivers to Laurus such agreements
as Laurus may request, including landlord agreements, mortgagee agreements and
warehouse agreements, each in form and substance satisfactory to Laurus.
Exhibit 7(p) lists all banks and other financial institutions at which
Company maintains deposits and/or other accounts, and such Exhibit correctly
identifies the name, address and telephone number of each such depository, the
name in which the account is held, a description of the purpose of the account,
and the complete account number. The Company shall not establish any depository
or other bank account of any with any financial institution (other than the
accounts set forth on Exhibit 7(p)) without Laurus' prior written consent.
Payment of Accounts.
Company, shall upon the Closing Date irrevocably direct all of its present
and future Account Debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the lockbox maintained
by Company (the "Lockbox") with NorthFork Bank (the "Lockbox Bank") pursuant to
the terms of the Clearing Account Agreement dated March __, 2004 or such other
financial institution accepted by Laurus in writing as may be selected by
Company. On or prior to the Closing Date, Company shall and shall cause the
Lockbox Bank to enter into all such documentation acceptable to Laurus pursuant
to which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox
on a daily basis and deposit all checks received therein to an account
designated by Laurus in writing and (b) comply only with the instructions or
other directions of Laurus concerning the Lockbox. Notwithstanding the
foregoing, the Company shall have up to ninety (90) days to comply with the
requirement that all of its Account Debtors make all payments constituting
Collateral into the Lockbox. Until such time all of the Company's Account
Debtors comply, should the Company receive any payments constituting Collateral,
the Company shall (i) 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 (ii) deliver such payments to the Lockbox within five (5) business days
of the receipt of same. All of Company's invoices, account statements and other
written or oral communications directing, instructing, demanding or requesting
payment of any Account of Company or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox or such
other address as Laurus may direct in writing. If, notwithstanding the
instructions to Account Debtors, Company receives any payments, Company shall
immediately remit such payments to Laurus in their original form with all
necessary endorsements. Until so remitted, Company shall hold all such payments
in trust for and as the property of Laurus and shall not commingle such payments
with any of its other funds or property.
At Laurus' election, following the occurrence of an Event of Default which
is continuing, Laurus may notify Company's Account Debtors of Laurus' security
interest in the Accounts, collect them directly and charge the collection costs
and expenses thereof to Company's account.
Collection and Maintenance of Collateral.
Laurus may verify Company's Accounts from time to time, but not more often
than once every three (3) months unless an Event of Default has occurred and is
continuing, utilizing an audit control company or any other agent of Laurus.
Proceeds of Accounts received by Laurus will be deemed received on the
Business Day after Laurus' receipt of such proceeds in good funds in dollars of
the United States of America in Laurus' account. Any amount received by Laurus
after 12:00 noon (New York time) on any Business Day shall be deemed received on
the next Business Day.
As Laurus receives the proceeds of Accounts, it shall remit all such
proceeds (net of interest, fees and other amounts then due and owing to Laurus
hereunder) to Company upon request (but no more often than twice a week).
Notwithstanding the foregoing, following the occurrence and during the
continuance of an Event of Default, Laurus, at its option, may (a) apply such
proceeds to the Obligations in such order as Laurus shall elect, (b) hold such
proceeds as cash collateral for the Obligations and Company hereby grants to
Laurus a security interest in such cash collateral amounts as security for the
Obligations and/or (c) do any combination of the foregoing.
Inspections and Appraisals. At all times during normal business hours,
Laurus, and/or any agent of Laurus shall have the right to (a) have access to,
visit, inspect, review, evaluate and make physical verification and appraisals
of Company's properties and the Collateral, (b) inspect, audit and copy (or take
originals if necessary) and make extracts from Company's Books and Records,
including management letters prepared by independent accountants, and (c)
discuss with Company's principal officers, and independent accountants,
Company's business, assets, liabilities, financial condition, results of
operations and business prospects. Company will deliver to Laurus any instrument
necessary for Laurus to obtain records from any service bureau maintaining
records for Company. If any internally prepared financial information, including
that required under this Section is unsatisfactory in any manner to Laurus,
Laurus may request that the Accountants review the same.
Financial Reporting. Company will deliver, or cause to be delivered, to
Laurus each of the following, which shall be in form and detail acceptable to
Laurus:
As soon as available, and in any event within ninety (90) days after the
end of each fiscal year of Company, Company's audited financial statements with
a report of independent certified public accountants of recognized standing
selected by Company and acceptable to Laurus (the "Accountants"), which annual
financial statements shall include Company's balance sheet as at the end of such
fiscal year and the related statements of Company's income, retained earnings
and cash flows for the fiscal year then ended, prepared, if Laurus so requests,
on a consolidating and consolidated basis to include all Subsidiaries and
Affiliates, all in reasonable detail and prepared in accordance with GAAP,
together with (i) if and when available, copies of any management letters
prepared by such accountants; and (ii) a certificate of Company's President,
Chief Executive Officer or Chief Financial Officer stating that such financial
statements have been prepared in accordance with GAAP and whether or not such
officer has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto;
As soon as available and in any event within forty five (45) days after the
end of each quarter, an unaudited/internal balance sheet and statements of
income, retained earnings and cash flows of Company as at the end of and for
such quarter and for the year to date period then ended, prepared, if Laurus so
requests, on a consolidating and consolidated basis to include all Subsidiaries
and Affiliates, in reasonable detail and stating in comparative form the figures
for the corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end adjustments and accompanied by a
certificate of Company's President, Chief Executive Officer or Chief Financial
Officer, stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and (ii) whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
Within thirty (30) days after the end of each month (or more frequently if
Laurus so requests), agings of Company's Accounts, unaudited trial balances and
their accounts payable and a calculation of Company's Accounts, Eligible
Accounts and thirty (30) days after the end of each fiscal quarter for Inventory
ledger as at the end of such month or shorter time period, provided, however,
that if Laurus shall request the foregoing information more often than as set
forth in the immediately preceding clause, the Company shall have thirty days
from each such request to comply with Laurus' demand; and
Promptly after (i) the filing thereof, copies of Company's most recent
registration statements and annual, quarterly, monthly or other regular reports
which Company files with the Securities and Exchange Commission (the "SEC"), and
(ii) the issuance thereof, copies of such financial statements, reports and
proxy statements as Company shall send to its stockholders.
Additional Representations and Warranties. Company represents and warrants
(each of which such representations and warranties shall be deemed repeated upon
the making of a request for a Loan and made as of the time of each Loan made
hereunder), as follows:
Company is a corporation duly incorporated and validly existing under the
laws of the jurisdiction of its incorporation and duly qualified and in good
standing in every other state or jurisdiction in which the nature of Company's
business requires such qualification.
The execution, delivery and performance of this Agreement and the Ancillary
Agreements (i) have been duly authorized, (ii) are not in contravention of
Company's certificate of incorporation, by-laws or of any indenture, agreement
or undertaking to which Company is a party or by which Company is bound and
(iii) are within Company's corporate powers.
This Agreement and the Ancillary Agreements executed and delivered by
Company are Company's legal, valid and binding obligations, enforceable in
accordance with their terms.
Exhibit 12(d) sets forth Company's name as it appears in official filing in
the state of its incorporation, the type of entity of Company, the
organizational identification number issued by Company's state of incorporation
or a statement that no such number has been issued, Company's state of
incorporation, and the location of Company's chief executive office, corporate
offices, warehouses, other locations of Collateral and locations where records
with respect to Collateral are kept (including in each case the county of such
locations) and, except as set forth in such Exhibit 12(d), such locations have
not changed during the preceding twelve months. As of the Closing Date, during
the prior five years, except as set forth in Exhibit 12(d), Company has not been
known as or conducted business in any other name (including trade names).
Company has only one state of incorporation.
Based upon the Employee Retirement Income Security Act of 1974 ("ERISA"),
and the regulations and published interpretations thereunder: (i) Company has
not engaged in any Prohibited Transactions as defined in Section 406 of ERISA
and Section 4975 of the Internal Revenue Code, as amended; (ii) Company has met
all applicable minimum funding requirements under Section 302 of ERISA in
respect of its plans; (iii) Company has no knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any employee benefit plan(s);
(iv) Company has no fiduciary responsibility for investments with respect to any
plan existing for the benefit of persons other than Company's employees; and (v)
except as disclosed in Exhibit 12(e) attached hereto, Company has not withdrawn,
completely or partially, from any multi-employer pension plan so as to incur
liability under the Multiemployer Pension Plan Amendments Act of 1980.
There is no pending or threatened litigation, court order, judgment, writ,
suit, action or proceeding which could reasonably be expected to have a Material
Adverse Effect.
All balance sheets and income statements which have been delivered to
Laurus fairly, accurately and properly state Company's financial condition on a
basis consistent with that of previous financial statements and except as
reflected in such financial statements there has been no material adverse change
in Company's financial condition as reflected in such statements since the
balance sheet date of the statements last delivered to Laurus and such
statements do not fail to disclose any fact or facts which might have a Material
Adverse Effect on Company's financial condition.
Company possesses or has licenses to use all of the Intellectual Property
necessary to conduct its business. There has been no assertion or claim of
violation or infringement with respect to any Intellectual Property. Exhibit
12(i) describes all Intellectual Property of Company.
Neither this Agreement, the exhibits and schedules hereto, the Ancillary
Agreements nor any other document delivered by Company to Laurus or its
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material fact
nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading. The issuance of the Notes and the Warrants and the shares
of common stock issued upon conversion of the Notes and exercise of the Warrants
will be exempt from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.
Neither Company nor any of its Affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of the Securities.
The common stock of the Company is registered pursuant to Section 12(b) or
12(g) of the Exchange Act and, except with respect to certain matters set forth
on Exhibit 12(j) attached hereto, the Company has timely filed all proxy
statements, reports, schedules, forms, statements and other documents required
to be filed by it under the Exchange Act. The Company and its predecessor have
filed (i) its Annual Report on Form 10-K for the fiscal year ended December 31,
2002 and (ii) its Quarterly Report on Form 10-Q for the fiscal quarters ended
March 31, 2003, June 30, 2003 and September 30, 2003 (collectively, the "SEC
Reports"). Each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed) and fairly present in all material respects the financial
condition, the results of operations and the cash flows of the Company and its
subsidiaries, on a consolidated basis, as of, and for, the periods presented in
each such SEC Report.
The common stock of the Company is listed for trading on the NASD Over the
Counter Bulletin Board ("OTCBB") and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
common stock will be delisted from the OTCBB or that the common stock does not
meet all requirements for the continuation of such listing.
Neither the Company, nor any of its Affiliates, nor any person acting on
its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would cause the offering of the Securities pursuant to this Agreement and the
Ancillary Agreements to be integrated with prior offerings by the Company for
purposes of the Securities Act which would prevent the Company from selling the
Securities pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any of
its Affiliates or Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings (other than
such concurrent offering to Laurus).
The Securities are all restricted securities under the Securities Act as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of any of the Securities at such
time as such Securities are registered for public sale or an exemption from
registration is available, except as required by federal or state securities
laws.
The Company understands the nature of the Securities issuable under the
Ancillary Agreements and recognizes that the issuance of such Securities may
have a potential dilutive effect. The Company specifically acknowledges that its
obligation to issue the Securities is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.
Except for agreements made in the ordinary course of business, there is no
agreement that has not been filed with the Commission as an exhibit to a
registration statement or to a form required to be filed by the Company under
the Exchange Act, the breach of which could reasonably be expected to have a
Material Adverse Effect or would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement the Registration Rights Agreement executed by Company in favor of
Laurus in any material respect.
Covenants. Company covenants as follows:
Company will not, without the 60 day prior written notice of Laurus, change
(i) its name as it appears in the official filings in the state of its
incorporation or formation, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws or other organizational document.
The operation of Company's business is and will continue to be in
compliance in all material respects with all applicable federal, state and local
laws, rules and ordinances, including to all laws, rules, regulations and orders
relating to taxes, payment and withholding of payroll taxes, employer and
employee contributions and similar items, securities, employee retirement and
welfare benefits, employee health safety and environmental matters.
Company will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon Company or any of the Collateral
unless such amounts are being diligently contested in good faith by appropriate
proceedings provided that (i) adequate reserves with respect thereto are
maintained on the books of Company in conformity with GAAP and (ii) the related
Lien shall have no effect on the priority of the Liens in favor of Laurus or the
value of the assets in which Laurus has a Lien.
Company will promptly inform Laurus in writing of: (i) the commencement of
all proceedings and investigations by or before and/or the receipt of any
notices from, any governmental or nongovernmental body and all actions and
proceedings in any court or before any arbitrator against or in any way
concerning any event which could reasonable be expected to have singly or in the
aggregate, a Material Adverse Effect; (ii) any amendment of Company's
certificate of incorporation, by-laws or other organizational document; (iii)
any change which has had or could reasonably be expected to have a Material
Adverse Effect; (iv) any Event of Default or Default; (v) any default or any
event which with the passage of time or giving of notice or both would
constitute a default under any agreement for the payment of money to which
Company is a party or by which Company or any of Company's properties may be
bound the breach of which would have a Material Adverse Effect and (vi) any
change in Company's name or any other name used in its business.
The Company will not (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other than
Company's indebtedness to Laurus and as set forth on Exhibit 13(e)(i) attached
hereto and made a part hereof; (ii) cancel any debt owing to it in excess of
$50,000 in the aggregate during any 12 month period; (iii) assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of negotiable
instruments by a Company for deposit or collection or similar transactions in
the ordinary course of business; (iv) directly or indirectly declare, pay or
make any dividend or distribution on any class of its Stock other than to pay
dividends on shares of its outstanding Preferred Stock or apply any of its
funds, property or assets to the purchase, redemption or other retirement of any
Stock of the Company except as required under the terms of the Company's
outstanding Preferred Stock issued and outstanding on the date hereof; (v)
purchase or hold beneficially any Stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any other Person, including
any partnership or joint venture, except (x) travel advances, (y) loans to
Company's officers and employees not exceeding at any one time an aggregate of
$10,000, and (z) existing Subsidiaries of the Company; (vi) create or permit to
exist any Subsidiary, other than any Subsidiary in existence on the date hereof
and listed in Exhibit 13(e)(ii) unless such new Subsidiary is designated by
Laurus as either a co-borrower or guarantor hereunder and such Subsidiary shall
have entered into all such documentation required by Laurus to grant to Laurus a
first priority perfected security interest in such Subsidiary's assets to secure
the Obligations; (vii) directly or indirectly, prepay any indebtedness (other
than to Laurus and in the ordinary course of business), or repurchase, redeem,
retire or otherwise acquire any indebtedness (other than to Laurus and in the
ordinary course of business) except to make scheduled payments of principal and
interest thereof; (viii) enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a portion of the
assets or Stock of any Person or permit any other Person to consolidate with or
merge with it, unless (1) Company is the surviving entity of such merger or
consolidation, (2) no Event of Default shall exist immediately prior to and
after giving effect to such merger or consolidation, (3) Company shall have
provided Laurus copies of all documentation relating to such merger or
consolidation and (4) Company shall have provided Laurus with at least thirty
(30) days' prior written notice of such merger or consolidation; (ix) materially
change the nature of the business in which it is presently engaged; (x) change
its fiscal year or make any changes in accounting treatment and reporting
practices without prior written notice to Laurus except as required by GAAP or
in the tax reporting treatment or except as required by law; (xi) enter into any
transaction with any employee, director or Affiliate, except in the ordinary
course on arms-length terms; or (xii) xxxx Accounts under any name except the
present name of Company or its existing Subsidiaries.
None of the proceeds of the Loans hereunder will be used directly or
indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness
incurred to "purchase" or "carry" "margin stock" within the respective meanings
of each of the quoted terms under Regulation U of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect.
Company will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. At Company's own cost and expense in
amounts and with carriers acceptable to Laurus, Company shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to Company's including
business interruption insurance; (ii) maintain a bond in such amounts as is
customary in the case of companies engaged in businesses similar to Company's
insuring against larceny, embezzlement or other criminal misappropriation of
insured's officers and employees who may either singly or jointly with others at
any time have access to the assets or funds of Company either directly or
through Governmental Authority to draw upon such funds or to direct generally
the disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which Company is
engaged in business; and (v) furnish Laurus with (x) certificates as to all such
insurance coverages and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) endorsements to such policies
naming Laurus as "co-insured" or "additional insured" and appropriate loss
payable endorsements in form and substance satisfactory to Laurus, naming Laurus
as loss payee, and (z) evidence that as to Laurus the insurance coverage shall
not be impaired or invalidated by any act or neglect of Company and the insurer
will provide Laurus with at least thirty (30) days notice prior to cancellation
or expiration thereof. Company shall instruct the insurance carriers that in the
event of any loss thereunder, the carriers shall make payment for such loss to
Laurus and not to Company and Laurus jointly. If any insurance losses are paid
by check, draft or other instrument payable to Company and Laurus jointly,
Laurus may endorse Company's name thereon and do such other things as Laurus may
deem advisable to reduce the same to cash. Laurus is hereby authorized to adjust
and compromise claims. All loss recoveries received by Laurus upon any such
insurance may be applied to the Obligations, in such order as Laurus in its sole
discretion shall determine or shall otherwise be delivered to the Company. Any
surplus shall be paid by Laurus to Company or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by Company to Laurus, on
demand.
Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock to provide for the conversion of the Notes and
exercise of the Warrants.
Further Assurances. At any time and from time to time, upon the written
request of Laurus and at the sole expense of Company, Company shall promptly and
duly execute and deliver any and all such further instruments and documents and
take such further action as Laurus may request (a) to obtain the full benefits
of this Agreement and the Ancillary Agreements, (b) to protect, preserve and
maintain Laurus' rights in the Collateral and under this Agreement or any
Ancillary Agreement, or (c) to enable Laurus to exercise all or any of the
rights and powers herein granted or any Ancillary Agreement.
Power of Attorney. Company hereby appoints Laurus, or any other Person whom
Laurus may designate as Company's attorney, with power to: (i) endorse Company's
name on any checks, notes, acceptances, money orders, drafts or other forms of
payment or security that may come into Laurus' possession; (ii) sign Company's
name on any invoice or xxxx of lading relating to any Accounts, drafts against
Account Debtors, schedules and assignments of Accounts, notices of assignment,
financing statements and other public records, verifications of Account and
notices to or from Account Debtors; (iii) verify the validity, amount or any
other matter relating to any Account by mail, telephone, telegraph or otherwise
with Account Debtors; (iv) do all things necessary to carry out this Agreement,
any Ancillary Agreement and all related documents; and (v) on or after the
occurrence and continuation of an Event of Default, notify the post office
authorities to change the address for delivery of Company's mail to an address
designated by Laurus, and to receive, open and dispose of all mail addressed to
Company. Company hereby ratifies and approves all acts of the attorney. Neither
Laurus, nor the attorney will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law, except for gross negligence or
willful misconduct. This power, being coupled with an interest, is irrevocable
so long as Laurus has a security interest and until the Obligations have been
fully satisfied.
Term of Agreement. Laurus' agreement to make Loans and extend financial
accommodations under and in accordance with the terms of this Agreement or any
Ancillary Agreement shall continue in full force and effect until the expiration
of the Initial Term. At Laurus' election following the occurrence of an Event of
Default, Laurus may terminate this Agreement. The termination of the Agreement
shall not affect any of Laurus' rights hereunder or any Ancillary Agreement and
the provisions hereof and thereof shall continue to be fully operative until all
transactions entered into, rights or interests created and the Obligations have
been disposed of, concluded or liquidated. Notwithstanding the foregoing, Laurus
shall release its security interests at any time after thirty (30) days notice
upon payment to it of all Obligations if Companies shall have (i) provided
Laurus with an executed release of any and all claims which Companies may have
or thereafter have under this Agreement and all Ancillary Agreements and (ii)
paid to Laurus an early payment fee in an amount equal to (1) five percent (5%)
of the Capital Availability Amount if such payment occurs prior to the first
anniversary of the Initial Term or any applicable renewal term, and (2) four
(4%) of the Capital Availability Amount if such payment occurs on or after the
first anniversary and prior to the second anniversary of the Initial Term or any
applicable renewal term and three percent (3%) if such termination occurs
thereafter during the Initial Term; such fee being intended to compensate Laurus
for its costs and expenses incurred in initially approving this Agreement or
extending same. Such early payment fee shall be due and payable by Company to
Laurus upon termination by acceleration of this Agreement by Laurus due to the
occurrence and continuance of an Event of Default.
Termination of Lien. The Liens and rights granted to Laurus hereunder and
any Ancillary Agreements and the financing statements filed in connection
herewith or therewith shall continue in full force and effect, notwithstanding
the termination of this Agreement or the fact that Company's account may from
time to time be temporarily in a zero or credit position, until (a) all of the
Obligations of Company have been paid or performed in full after the termination
of this Agreement. Laurus shall not be required to send termination statements
to Company, or to file them with any filing office, unless and until this
Agreement and the Ancillary Agreements shall have been terminated in accordance
with their terms and all Obligations paid in full in immediately available
funds.
Events of Default. The occurrence of any of the following shall constitute
an Event of Default:
failure to make payment of any of the Obligations when required
hereunder;
failure to pay any taxes when due unless such taxes are being
contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been provided on Company's books;
failure to perform under and/or committing any breach of this
Agreement or any Ancillary Agreement or any other agreement between Company
and Laurus which shall continue for a period of fifteen (15) days after the
occurrence thereof;
the occurrence of a default under any agreement to which Company is a
party with third parties which has a Material Adverse Effect;
any representation, warranty or statement made by Company hereunder,
in any Ancillary Agreement, any certificate, statement or document
delivered pursuantto the terms hereof, or in connection with the
transactions contemplated by this Agreement should at any time be false or
misleading in any material respect;
an attachment or levy is made upon Company's assets having an
aggregate value in excess of $50,000 or a judgment is rendered against
Company or Company's property involving a liability of more than $50,000
which shall not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof;
any change in Company's condition or affairs (financial or otherwise)
which in Laurus' reasonable, good faith opinion, could reasonably be
expected to have a Material Adverse Effect;
any Lien created hereunder or under any Ancillary Agreement for any
reason ceases to be or is not a valid and perfected Lien having a first
priority interest;
if Company shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under the federal bankruptcy laws (as now
or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing for
the relief of debtors, (vi) acquiesce to, or fail to have dismissed, within
thirty (30) days, any petition filed against it in any involuntary case
under such bankruptcy laws, or (vii) take any action for the purpose of
effecting any of the foregoing;
Company shall admit in writing its inability, or be generally unable
to pay its debts as they become due or cease operations of its present
business;
any Affiliate or Subsidiary of the Company shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or
be generally unable, to pay its debts as they become due or cease
operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a
bankrupt or insolvent, (vi) file a petition seeking to take advantage of
any other law providing for the relief of debtors, (vii) acquiesce to, or
fail to have dismissed, within thirty (30) days, any petition filed against
it in any involuntary case under such bankruptcy laws or (viii) take any
action for the purpose of effecting any of the foregoing;
Company directly or indirectly sells, assigns, transfers, conveys, or
suffers or permits to occur any sale, assignment, transfer or conveyance of
any assets of Company or any interest therein, except as permitted herein;
the occurrence of a change in the controlling ownership of the
Company;
a default by Company in the payment, when due, of any principal of or
interest on any other indebtedness for money borrowed in an amount greater
than $25,000, which is not cured within any applicable cure or grace
period;
the indictment or threatened indictment of Company or any executive
officer of Company under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against Company or
any executive officer of Company pursuant to which statute or proceeding
penalties or remedies sought or available include forfeiture of any of the
property of Company;
if an Event of Default shall occur under and as defined in any Note;
or
any Guarantor shall breach any term or provision of any Ancillary
Agreement which is not cured within any applicable cure or grace period;
if any Guarantor attempts to terminate, challenges the validity of, or
its liability under any Guaranty or any Guarantor Security Agreement; or
should any Guarantor default in its obligations under any Guaranty or
any Guarantor Security Agreement or if any proceeding shall be brought to
challenge the validity, binding effect of any Guaranty or any Guarantor
Security Agreement or should any Guarantor breach any representation,
warranty or covenant contained in any Guaranty Agreement or any Guarantor
Security Agreement or should any Guaranty or Guarantor Security Agreement
cease to be a valid, binding and enforceable obligation.
Remedies. Following the occurrence of an Event of Default, Laurus
shall have the right to demand repayment in full of all Obligations,
whether or not otherwise due. Until all Obligations have been fully
satisfied, Laurus shall retain its Lien in all Collateral. Laurus shall
have, in addition to all other rights provided herein and in each Ancillary
Agreement, the rights and remedies of a secured party under the UCC, and
under other applicable law, all other legal and equitable rights to which
Laurus may be entitled, including the right to take immediate possession of
the Collateral, to require Company to assemble the Collateral, at Company's
expense, and to make it available to Laurus at a place designated by Laurus
which is reasonably convenient to both parties and to enter any of the
premises of Company or wherever the Collateral shall be located, with or
without force or process of law, and to keep and store the same on said
premises until sold (and if said premises be the property of Company,
Company agrees not to charge Laurus for storage thereof), and the right to
apply for the appointment of a receiver for Company's property. Further,
Laurus may, at any time or times after the occurrence of an Event of
Default, sell and deliver all Collateral held by or for Laurus at public or
private sale for cash, upon credit or otherwise, at such prices and upon
such terms as Laurus, in Laurus' sole discretion, deems advisable or Laurus
may otherwise recover upon the Collateral in any commercially reasonable
manner as Laurus, in its sole discretion, deems advisable. The requirement
of reasonable notice shall be met if such notice is mailed postage prepaid
to Company at Company's address as shown in Laurus' records, at least ten
(10) days before the time of the event of which notice is being given.
Laurus may be the purchaser at any sale, if it is public. In connection
with the exercise of the foregoing remedies, Laurus is granted permission
to use all of Company's trademarks, tradenames, tradestyles, patents,
patent applications, licenses, franchises and other proprietary rights. The
proceeds of sale shall be applied first to all costs and expenses of sale,
including attorneys' fees, and second to the payment (in whatever order
Laurus elects) of all Obligations. After the indefeasible payment and
satisfaction in full in cash of all of the Obligations, and after the
payment by Laurus of any other amount required by any provision of law,
including Section 608(a)(1) of the Code (but only after Laurus has received
what Laurus considers reasonable proof of a subordinate party's security
interest), the surplus, if any, shall be paid to Company or its
representatives or to whosoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct. Company shall
remain liable to Laurus for any deficiency. In addition, Company shall pay
Laurus a liquidation fee ("Liquidation Fee") in the amount of five percent
(5%) of the actual amount collected in respect of each Account outstanding
at any time during a "liquidation period". For purposes hereof,
"liquidation period" means a period: (i) beginning on the earliest date of
(x) an event referred to in Section 18(i) or 18(j), or (y) the cessation of
Company's business; and (ii) ending on the date on which Laurus has
actually received all Obligations due and owing it under this Agreement and
the Ancillary Agreements. The Liquidation Fee shall be paid on the date on
which Laurus collects the applicable Account by deduction from the proceeds
thereof.. Company and Laurus acknowledge that the actual damages that would
be incurred by Laurus after the occurrence of an Event of Default would be
difficult to quantify and that Company and Laurus have agreed that the fees
and obligations set forth in this Section and in this Agreement would
constitute fair and appropriate liquidated damages in the event of any such
termination.
Waivers. To the full extent permitted by applicable law, Company
waives (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or
all of this Agreement and the Ancillary Agreements or any other notes,
commercial paper, Accounts, contracts, Documents, Instruments, Chattel
Paper and guaranties at any time held by Laurus on which Company may in any
way be liable, and hereby ratifies and confirms whatever Laurus may do in
this regard; (b) all rights to notice and a hearing prior to Laurus' taking
possession or control of, or to Laurus' replevy, attachment or levy upon,
any Collateral or any bond or security that might be required by any court
prior to allowing Laurus to exercise any of its remedies; and (c) the
benefit of all valuation, appraisal and exemption laws. Company
acknowledges that it has been advised by counsel of its choices and
decisions with respect to this Agreement, the Ancillary Agreements and the
transactions evidenced hereby and thereby.
Expenses. Company shall pay all of Laurus' reasonable out-of-pocket
costs and expenses, including reasonable fees and disbursements of in-house
or outside counsel and appraisers, in connection with the preparation,
execution and delivery of this Agreement and the Ancillary Agreements, and
in connection with the prosecution or defense of any action, contest,
dispute, suit or proceeding concerning any matter in any way arising out
of, related to or connected with this Agreement or any Ancillary Agreement.
Company shall also pay all of Laurus' reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of
counsel and appraisers, in connection with (a) the preparation, execution
and delivery of any waiver, any amendment thereto or consent proposed or
executed in connection with the transactions contemplated by this Agreement
or the Ancillary Agreements, (b) Laurus' obtaining performance of the
Obligations under this Agreement and any Ancillary Agreements, including,
but not limited to, the enforcement or defense of Laurus' security
interests, assignments of rights and Liens hereunder as valid perfected
security interests, (c) any attempt to inspect, verify, protect, collect,
sell, liquidate or otherwise dispose of any Collateral, (d) any appraisals
or re-appraisals of any property (real or personal) pledged to Laurus by
Company as Collateral for, or any other Person as security for, Company's
Obligations hereunder and (e) any consultations in connection with any of
the foregoing. Company shall also pay Laurus' customary bank charges for
all bank services (including wire transfers) performed or caused to be
performed by Laurus for Company at Company's request or in connection with
Company's loan account with Laurus. All such costs and expenses together
with all filing, recording and search fees, taxes and interest payable by
Company to Laurus shall be payable on demand and shall be secured by the
Collateral. If any tax by any Governmental Authority is or may be imposed
on or as a result of any transaction between Company and Laurus which
Laurus is or may be required to withhold or pay, Company agrees to
indemnify and hold Laurus harmless in respect of such taxes, and Company
will repay to Laurus the amount of any such taxes which shall be charged to
Company's account; and until Company shall furnish Laurus with indemnity
therefor (or supply Laurus with evidence satisfactory to it that due
provision for the payment thereof has been made), Laurus may hold without
interest any balance standing to Company's credit and Laurus shall retain
its Liens in any and all Collateral.
Assignment By Laurus. Laurus may assign any or all of the Obligations
together with any or all of the security therefor to any Person which is
not a competitor of the Company and any such transferee shall succeed to
all of Laurus' rights with respect thereto. Upon such transfer, Laurus
shall be released from all responsibility for the Collateral to the extent
same is assigned to any transferee. Laurus may from time to time sell or
otherwise grant participations in any of the Obligations and the holder of
any such participation shall, subject to the terms of any agreement between
Laurus and such holder, be entitled to the same benefits as Laurus with
respect to any security for the Obligations in which such holder is a
participant. Company agrees that each such holder may exercise any and all
rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though Company were directly
indebted to such holder in the amount of such participation.
No Waiver; Cumulative Remedies. Failure by Laurus to exercise any
right, remedy or option under this Agreement, any Ancillary Agreement or
any supplement hereto or thereto or any other agreement between Company and
Laurus or delay by Laurus in exercising the same, will not operate as a
waiver; no waiver by Laurus will be effective unless it is in writing and
then only to the extent specifically stated. Laurus' rights and remedies
under this Agreement and the Ancillary Agreements will be cumulative and
not exclusive of any other right or remedy which Laurus may have.
Application of Payments. Company irrevocably waives the right to
direct the application of any and all payments at any time or times
hereafter received by Laurus from or on Company's behalf and Company hereby
irrevocably agrees that Laurus shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times
hereafter against the Obligations hereunder in such manner as Laurus may
deem advisable notwithstanding any entry by Laurus upon any of Laurus'
books and records.
Indemnity. Company agrees to indemnify and hold Laurus, and its
respectiveaffiliates, employees, attorneys and agents (each, an
"Indemnified Person"), harmless from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses of
any kind or nature whatsoever (including attorneys' fees and disbursements
and other costs of investigation or defense, including those incurred upon
any appeal) which may be instituted or asserted against or incurred by any
such Indemnified Person as the result of credit having been extended,
suspended or terminated under this Agreement or any of the Ancillary
Agreements or with respect to the execution, delivery, enforcement,
performance and administration of, or in any other way arising out of or
relating to, this Agreement, the Ancillary Agreements or any other
documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing,
except to the extent that any such indemnified liability is finally
determined by a court of competent jurisdiction to have resulted solely
from such Indemnified Person's gross negligence or willful misconduct. NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO COMPANY OR TO ANY
OTHER PARTY OR TO ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY
OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED
AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER
THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY OTHER
TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
Revival. Company further agrees that to the extent Company makes a
payment or payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver
or any other party under any bankruptcy act, state or federal law, common
law or equitable cause, then, to the extent of such payment or repayment,
the obligation or part thereof intended to be satisfied shall be revived
and continued in full force and effect as if said payment had not been
made.
Notices. Any notice or request hereunder may be given to Company or
Laurus at the respective addresses set forth below or as may hereafter be
specified in a notice designated as a change of address under this Section.
Any notice or request hereunder shall be given by registered or certified
mail, return receipt requested, hand delivery, overnight mail or telecopy
(confirmed by mail). Notices and requests shall be, in the case of those by
hand delivery, deemed to have been given when delivered to any officer of
the party to whom it is addressed, in the case of those by mail or
overnight mail, deemed to have been given three (3) business days after the
date when deposited in the mail or with the overnight mail carrier, and, in
the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
000 Xxxxx Xxxxxx 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Company: Veridium Corporation
Address: Xxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx Xxxxxxxx,
President & CEO
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
With a copy to:
Telephone:
Telecopier:
or such other address as may be designated in writing hereafter in accordance
with this Section 27 by such Person.
Governing Law, Jurisdiction and Waiver of Jury Trial. (a) THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE. (b) COMPANY
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN COMPANY AND LAURUS
PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS; PROVIDED, THAT LAURUS AND COMPANY ACKNOWLEDGE THAT ANY APPEALS
FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING
IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR
OF LAURUS. COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY
SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
COMPANY AT THE ADDRESS SET FORTH IN SECTION 27 AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY'S ACTUAL RECEIPT
THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.
THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING
BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR
OTHERWISE BETWEEN LAURUS AND COMPANY ARISING OUT OF, CONNECTED WITH,
RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS
RELATED THERETO.
Limitation of Liability. Company acknowledges and understands that in
order to assure repayment of the Obligations hereunder Laurus may be
required to exercise any and all of Laurus' rights and remedies hereunder
and agrees that, except as limited by applicable law, neither Laurus nor
any of Laurus' agents shall be liable for acts taken or omissions made in
connection herewith or therewith except for actual bad faith.
Entire Understanding. This Agreement and the Ancillary Agreements
contain the entire understanding between Company and Laurus as to the
subject matter hereof and thereof and any promises, representations,
warranties or guarantees not herein contained shall have no force and
effect unless in writing, signed by Company's and Laurus' respective
officers. Neither this Agreement, the Ancillary Agreements, nor any portion
or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or 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.
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.
Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
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.
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.
Publicity. Company hereby authorizes Laurus to make appropriate
announcements of the financial arrangement entered into by and between
Company and Laurus, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected
parties as Laurus shall in its sole and absolute discretion deem
appropriate, or as required by applicable law.
Legends. The Securities shall bear legends as
follows;
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO VERIDIUM CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) Any shares of Common Stock issued pursuant to conversion
of the Note or exercise of the Warrants, shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO VERIDIUM CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear substantially the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
VERIDIUM CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
Balance of page intentionally left blank; signature page
follows.
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
VERIDIUM CORPORATION
By:___________________________________
Name:_________________________________
Title:__________________________________
LAURUS MASTER FUND, LTD.
By:___________________________________
Name:_________________________________
Title:__________________________________
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated
with respect to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section
11(a).
"Accounts" means all "accounts", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, including: (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper or
Instruments) (including any such obligations that may be characterized as an
account or contract right under the UCC); (b) all of such Person's rights in, to
and under all purchase orders or receipts for goods or services; (c) all of such
Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (d) all rights
to payment due to such Person for Goods or other property sold, leased,
licensed, assigned or otherwise disposed of, for a policy of insurance issued or
to be issued, for a secondary obligation incurred or to be incurred, for energy
provided or to be provided, for the use or hire of a vessel under a charter or
other contract, arising out of the use of a credit card or charge card, or for
services rendered or to be rendered by such Person or in connection with any
other transaction (whether or not yet earned by performance on the part of such
Person); and (e) all collateral security of any kind given by any Account Debtor
or any other Person with respect to any of the foregoing.
"Accounts Availability" means the amount of Loans against
Eligible Accounts Laurus may from time to time make available to Company up to
ninety percent (90%) of the net face amount of Eligible Accounts based on
Accounts of Company.
"Affiliate" of any Person means (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Ancillary Agreements" means, the Notes, Warrants,
Registration Rights Agreements, each Guaranty, each Guaranty Security Agreement
and all other agreements, instruments, documents, mortgages, pledges, powers of
attorney, consents, assignments, contracts, notices, security agreements, trust
agreements and guarantees whether heretofore, concurrently, or hereafter
executed by or on behalf of Company or any other Person or delivered to Laurus,
relating to this Agreement or to the transactions contemplated by this Agreement
or otherwise relating to the relationship between the Company and Laurus.
"Books and Records" means all books, records, board minutes,
contracts, licenses, insurance policies, environmental audits, business plans,
files, computer files, computer discs and other data and software storage and
media devices, accounting books and records, financial statements (actual and
pro forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.
"Business Day" means a day on which Laurus is open for
business and that is not a Saturday, a Sunday or other day on which banks are
required or permitted to be closed in the State of New York.
"Capital Availability Amount" means Two Million Five
Hundred Thousand Dollars ($2,500,000).
"Chattel Paper" means all "chattel paper," as such term is
defined in the UCC, including electronic chattel paper, now owned or hereafter
acquired by any Person.
"Closing Date" means the date on which Company shall first
receive proceeds of the initial Loans.
"Collateral" means all of Company's property and assets,
whether real or personal, tangible or intangible, and whether now owned or
hereafter acquired, or in which it now has or at any time in the future may
acquire any right, title or interests including all of the following property in
which it now has or at any time in the future may acquire any right, title or
interest:
all Inventory;
all Equipment, subject only to the liens granted to
Xxxx Xxxxxxxx pursuant
to _____________;
all Fixtures;
all General Intangibles;
all Accounts;
all Deposit Accounts, other bank accounts and all
funds on deposit therein;
all Investment Property;
all Stock;
all Chattel Paper;
all Letter-of-Credit Rights;
all Instruments;
all commercial tort claims set forth on Exhibit 1(A);
------------
all Books and Records;
all Supporting Obligations including letters of
credit and guarantees issued in support of Accounts, Chattel Paper, General
Intangibles and Investment Property;
(i) all money, cash and cash equivalents and (ii) all cash held as cash
collateral to the extent not otherwise constituting Collateral, all
other cashor property at any time on deposit with or held by Laurus
for the account of Company (whether for safekeeping, custody, pledge,
transmission or otherwise); and all products and Proceeds of all or
any of the foregoing, tort claims and all claims and other rights to
payment including insurance claims against third parties for loss of,
damage to, or destruction of, and
(ii) payments due or to become due under leases, rentals and hires of any
or all of the foregoing and Proceeds payable under, or unearned
premiums with respect to policies of insurance in whatever form.
"Contract Rate" means an interest rate per annum equal to the Prime
Rate plus five percent (5%) per annum, but, subject to the immediately following
sentence, the Contract Rate shall not be less than nine percent (9.0 %). The
Contract Rate shall be subject to adjustment if (i) the Company shall have
registered the shares of the Company's common stock underlying the conversion of
all the Minumum Borrowing Notes issued by the Company to Laurus and that certain
warrant issued to Laurus on a registration statement declared effective by the
SEC, and (ii) the volume weighted average price of the Common Stock as reported
by Bloomberg, L.P. on the principal market for any of the ten (10) trading days
immediately preceding an interest payment date exceeds the then applicable Fixed
Conversion Price in such percentages as outlined in the table below, the
Contract Rate for the succeeding calendar month shall automatically be adjusted:
------------------------------------------- ---------------------------
Contract Rate
--------------------------------------------------- -------------------
125% of the Fixed Conversion Price Prime plus 4.75%
--------------------------------------- -------------------------------
150% of the Fixed Conversion Price Prime plus 4.50%
--------------------------------------- -------------------------------
175% of the Fixed Conversion Price Prime plus 4.25%
--------------------------------------- -------------------------------
In no event shall the Contract Rate ever be less than 0.00%.
"Default" means any act or event that, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Default Rate" has the meaning given to such term in Section
5(a)(iii).
"Deposit Accounts" means all "deposit accounts" as such term
is defined in the UCC, now or hereafter held in the name of any Person,
including, without limitation, the Lockbox Account.
"Documents" means all "documents", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all bills of lading, dock warrants, dock receipts, warehouse receipts,
and other documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" means and includes each Account which
conforms to the following criteria: (a) shipment of the merchandise or the
rendition of services has been completed; (b) no return, rejection or
repossession of the merchandise has occurred; (c) merchandise or services shall
not have been rejected or disputed by the Account Debtor and there shall not
have been asserted any offset, defense or counterclaim; (d) continues to be in
full conformity with the representations and warranties made by Company to
Laurus with respect thereto; (e) Laurus is, and continues to be, satisfied with
the credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than ninety (90) days from invoice date; (h) not more than twenty-five
percent (25%) of the unpaid amount of invoices due from such Account Debtor
remains unpaid more than ninety (90) days from invoice date; (i) is not
evidenced by chattel paper or an instrument of any kind with respect to or in
payment of the Account unless such instrument is duly endorsed to and in
possession of Laurus or represents a check in payment of a Account; (j) the
Account Debtor is located in the United States; provided, however, Laurus may,
from time to time, in the exercise of its sole discretion and based upon
satisfaction of certain conditions to be determined at such time by Laurus, deem
certain Accounts as Eligible Accounts notwithstanding that such Account is due
from an Account Debtor located outside of the United States; (k) Laurus has a
first priority perfected Lien in such Account and such Account is not subject to
any Lien other than Permitted Liens; (l) does not arise out of transactions with
any employee, officer, director, stockholder or Affiliate of Company; (m) is
payable to Company; (n) does not arise out of a xxxx and hold sale prior to
shipment and does not arise out of a sale to any Person to which Company is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between Company and the United
States, any state, or any department, agency or instrumentality of any of them,
Company has so notified Laurus, in writing, prior to the creation of such
Account, and there has been compliance with any governmental notice or approval
requirements, including compliance with the Federal Assignment of Claims Act;
(q) is a good and valid account representing an undisputed bona fide
indebtedness incurred by the Account Debtor therein named, for a fixed sum as
set forth in the invoice relating thereto with respect to an unconditional sale
and delivery upon the stated terms of goods sold by Company or work, labor
and/or services rendered by Company; (r) does not arise out of progress xxxxxxxx
prior to completion of the order; (s) the total unpaid Accounts from such
Account Debtor does not exceed twenty-five percent (25%) of all Eligible
Accounts; (t) Company's right to payment is absolute and not contingent upon the
fulfillment of any condition whatsoever; (u) Company is able to bring suit and
enforce its remedies against the Account Debtor through judicial process; (v)
does not represent interest payments, late or finance charges owing to Company
and (w) is otherwise satisfactory to Laurus as determined by Laurus in the
exercise of its sole discretion. In the event Company requests that Laurus
include within Eligible Accounts certain Accounts of one or more of Company's
acquisition targets, Laurus shall at the time of such request consider such
inclusion, but any such inclusion shall be at the sole option of Laurus and
shall at all times be subject to the execution and delivery to Laurus of all
such documentation (including, without limitation, guaranty and security
documentation) as Laurus may require in its sole discretion.
"Equipment" means all "equipment" as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including any and all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal property (other than
Inventory) of every kind and description that may be now or hereafter used in
such Person's operations or that are owned by such Person or in which such
Person may have an interest, and all parts, accessories and accessions thereto
and substitutions and replacements therefor.
"ERISA" shall have the meaning given to such term in Section
12(g).
"Event of Default" means the occurrence of any of the
events set forth in Section
18.
"Fixed Conversion Price" has the meaning given such term
in the Minimum Borrowing
Note.
"Fixtures" means all "fixtures" as such term is defined in the
UCC, now owned or hereafter acquired by any Person.
"Formula Amount" has the meaning set forth in Section 2(a)(i).
"GAAP" means generally accepted accounting principles,
practices and procedures in effect from time to time in the United States of
America.
"General Intangibles" means all "general intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person
including all right, title and interest that such Person may now or hereafter
have in or under any contract, all Payment Intangibles, customer lists,
Licenses, Intellectual Property, interests in partnerships, joint ventures and
other business associations, permits, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, Software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials, Books and
Records, Goodwill (including the Goodwill associated with any Intellectual
Property), all rights and claims in or under insurance policies (including
insurance for fire, damage, loss, and casualty, whether covering personal
property, real property, tangible rights or intangible rights, all liability,
life, key-person, and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit accounts, rights
to receive tax refunds and other payments, rights to received dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged Stock and Investment Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including
embedded software to the extent included in "goods" as defined in the UCC,
manufactured homes, standing timber that is cut and removed for sale and unborn
young of animals.
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Guarantor" means and any Person who may guarantee payment of
performance of the whole or any part of the Obligations.
"Guarantor Security Agreements" means all security agreements,
mortgages, cash collateral deposit letters, pledges and other agreements which
are executed by any Guarantor in favor of Laurus.
"Guaranty" means all agreements to perform all or any portion
of the Obligations on behalf of Company.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Indemnified Person" shall have the meaning given to such term
in Section 25.
"Initial Term" means the Closing Date through the close of
business on the day immediately preceding the second anniversary of the Closing
Date, subject to acceleration at the option of Laurus upon the occurrence of an
Event of Default hereunder or other termination hereunder.
"Instruments" means all "instruments", as such term is defined
in the UCC, now owned or hereafter acquired by any Person, wherever located,
including all certificated securities and all promissory notes and other
evidences of indebtedness, other than instruments that constitute, or are a part
of a group of writings that constitute, Chattel Paper.
"Intellectual Property" means any and all Licenses, patents,
patent registrations, copyrights, copyright registrations, trademarks, trademark
registrations, trade secrets and customer lists.
"Inventory" means all "inventory", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all inventory, merchandise, goods and other personal property that are
held by or on behalf of such Person for sale or lease or are furnished or are to
be furnished under a contract of service or that constitute raw materials, work
in process, finished goods, returned goods, or materials or supplies of any
kind, nature or description used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
wherever located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as
such term is defined in the UCC, now owned or hereafter acquired by any Person,
including rights to payment or performance under a letter of credit, whether or
not such Person, as beneficiary, has demanded or is entitled to demand payment
or performance.
"License" means any rights under any written agreement now or
hereafter acquired by any Person to use any trademark, trademark registration,
copyright, copyright registration or invention for which a patent is in
existence or other license of rights or interests now held or hereafter acquired
by any Person.
"Lien" means any mortgage, security deed, deed of trust,
pledge, hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect of
any asset of any kind or nature whatsoever including any conditional sale or
other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the UCC or comparable law of any
jurisdiction.
"Loans" shall have the meaning set forth in Section 2(a)(i)
and shall include all other extensions of credit hereunder and under any
Ancillary Agreement.
"Material Adverse Effect" means a material adverse effect on
(a) the condition, operations, assets, business or prospects of Company, (b)
Company's ability to pay or perform the Obligations in accordance with the terms
hereof or any Ancillary Agreement, (c) the value of the Collateral, the Liens on
the Collateral or the priority of any such Lien or (d) the practical realization
of the benefits of Laurus' rights and remedies under this Agreement and the
Ancillary Agreements.
"Maximum Legal Rate" shall have the meaning given to such term
in Section 5(a)(iv).
"Minimum Borrowing Amount" means $1,000,000, which such
aggregate amount shall be evidenced by Minimum Borrowing Notes.
"Minimum Borrowing Notes" shall mean each Secured Convertible
Note, which shall be issued in a series, made by the Company in favor of Laurus
to evidence the Minimum Borrowing Amount.
"Notes" means each of the Minimum Borrowing Notes and the
Revolving Note made by Company in favor of Laurus in connection with the
transactions contemplated hereby, as the same may be amended, modified and
supplemented from time to time, as applicable.
"Obligations" means all Loans, all advances, debts,
liabilities, obligations, covenants and duties owing by Company to Laurus (or
any corporation that directly or indirectly controls or is controlled by or is
under common control with Laurus) of every kind and description (whether or not
evidenced by any note or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including any debt, liability or obligation
owing from Company to others which Laurus may have obtained by assignment or
otherwise and further including all interest (including interest accruing at the
then applicable rate provided in this Agreement after the maturity of the Loans
and interest accruing at the then applicable rate provided in this Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), charges or
any other payments Company is required to make by law or otherwise arising under
or as a result of this Agreement and the Ancillary Agreements, together with all
reasonable expenses and reasonable attorneys' fees chargeable to Company's
account or incurred by Laurus in connection with Company's account whether
provided for herein or in any Ancillary Agreement.
"Payment Intangibles" means all "payment intangibles" as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
including, a General Intangible under which the Account Debtor's principal
obligation is a monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen,
artisans, bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary course of
business in connection with workmen's compensation, unemployment insurance or
other forms of governmental insurance or benefits, relating to employees,
securing sums (i) not overdue or (ii) being diligently contested in good faith
provided that adequate reserves with respect thereto are maintained on the books
of the applicable Company in conformity with GAAP; (c) Liens in favor of Laurus;
(d) Liens for taxes (i) not yet due or (ii) being diligently contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the applicable Company in conformity with
GAAP provided, that, the Lien shall have no effect on the priority of Liens in
favor of Laurus or the value of the assets in which Laurus has a Lien; (e)
Purchase Money Liens securing Purchase Money Indebtedness to the extent
permitted in this Agreement and (f) Liens specified on Exhibit 2 hereto.
"Person" means any individual, sole proprietorship,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Prime Rate" means the "prime rate" published in The Wall
Street Journal from time to time. The Prime Rate shall be increased or decreased
as the case may be for each increase or decrease in the Prime Rate in an amount
equal to such increase or decrease in the Prime Rate; each change to be
effective as of the day of the change in such rate.
"Proceeds" means "proceeds", as such term is defined in the
UCC and, in any event, shall include: (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Company or any other Person from time
to time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to Company from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of any
Collateral by any governmental body, governmental authority, bureau or agency
(or any person acting under color of governmental authority); (c) any claim of
Company against third parties (i) for past, present or future infringement of
any Intellectual Property or (ii) for past, present or future infringement or
dilution of any trademark or trademark license or for injury to the goodwill
associated with any trademark, trademark registration or trademark licensed
under any trademark License; (d) any recoveries by Company against third parties
with respect to any litigation or dispute concerning any Collateral, including
claims arising out of the loss or nonconformity of, interference with the use
of, defects in, or infringement of rights in, or damage to, Collateral; (e) all
amounts collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and Instruments with respect to Investment
Property and pledged Stock; and (f) any and all other amounts , rights to
payment or other property acquired upon the sale, lease, license, exchange or
other disposition of Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness
incurred for the payment of all or any part of the purchase price of any fixed
asset, including indebtedness under capitalized leases, (b) any indebtedness
incurred for the sole purpose of financing or refinancing all or any part of the
purchase price of any fixed asset, and (c) any renewals, extensions or
refinancings thereof (but not any increases in the principal amounts thereof
outstanding at that time).
"Purchase Money Lien" means any Lien upon any fixed assets
that secures the Purchase Money Indebtedness related thereto but only if such
Lien shall at all times be confined solely to the asset the purchase price of
which was financed or refinanced through the incurrence of the Purchase Money
Indebtedness secured by such Lien and only if such Lien secures only such
Purchase Money Indebtedness.
"Registration Rights Agreements" means those registration
rights agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.
"Revolving Note" means that secured revolving note made by the
Company in favor of Laurus in the aggregate principal amount of up to One
Million Five Hundred Thousand Dollars ($1,500,000).
"Securities" means the Notes and the Warrants being issued by
the Company to Laurus pursuant to this Agreement and the Ancillary Agreements
and the shares of the common stock of the Company which may be issued pursuant
to conversion of such Notes in whole or in part or exercise of such Warrants.
"Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.
"Stock" means all certificated and uncertificated shares,
options, warrants, membership interests, general or limited partnership
interests, participation or other equivalents (regardless of how designated) of
or in a corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including common stock, preferred stock, or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the SEC under the Securities Exchange Act
of 1934).
"Subsidiary" of any Person means a corporation or other
entity whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other Persons performing similar functions for such
entity, are owned, directly or indirectly, by such Person.
"Supporting Obligations" means all "supporting obligations" as
such term is defined in the UCC.
"Term" means, as applicable, the Initial Term and any Renewal
Term.
"UCC" means the Uniform Commercial Code as the same may, from
time be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
"Warrants" has the meaning set forth in the Registration
Rights Agreements.
EXHIBITS
Exhibit 1(A) - Commercial Tort Claims
Exhibit 2 - Permitted Liens
Exhibit 7(c) - Actions for Perfection
Exhibit 7(p) - Bank Accounts
Exhibit 12(d) - Corporate Information and Locations of Collateral Exhibit 12(e)
- ERISA Exhibit 12(i) - Licenses, Patents, Trademarks and Copyrights Exhibit
12(j) - Certain SEC matters Exhibit 13(e)(i) - Permitted Indebtedness Exhibit
13(e)(ii) - Existing Subsidiaries Exhibit A - Form of Borrowing Base Certificate
Exhibit 1(A)
Commercial Tort Claims
The Company's predecessor was party to the matter entitled Somerset Hills
Consultants, Inc., et al, v. KBF. The action was filed in the Supreme Court of
the State of New York, February 13, 2002. The Verified Complaint seeks specific
performance of certain agreements between the plaintiffs and KPMI, plus
attorney's fees and costs. The plaintiffs were awarded partial judgment as to
some issues. The Company has issued 300,128 shares of its common stock into an
escrow account pending final judgment in this matter. The matter is ongoing and
counsel is therefore unable to evaluate the probability of an unfavorable
outcome or range of potential loss at this time.
The Company's predecessor was party to the matter entitled Xxxxx Manufacturing
Corp. v. KBF Pollution Management, Inc. The action was filed in the Supreme
Court of the State of New York, August 14, 2003. The Verified Complaint seeks
performance of certain agreements between the plaintiffs and KPMI and VEC, plus
attorney's fees and costs. The matter is ongoing and counsel is therefore unable
to evaluate the probability of an unfavorable outcome or range of potential loss
at this time. This matter relates to VEC's recent acquisition of Vulcan Waste
Systems, Inc. ("Vulcan") from Xxxxx Manufacturing Corp. ("Xxxxx") and the breach
by Xxxxx of the terms and conditions of the relevant acquisition agreement.
Included on the balance sheet at December 31, 2003 are $1,890,000 of a fixed
asset and 1,350,000 shares of restricted common stock related to the Vulcan
acquisition, which acquisition is subject to reversal. The Company is currently
pursuing the reversal of this acquisition and seeking the return of the common
stock issued.
The Company, through its assumption of the liabilities of its predecessor, is
party to various non-material administrative enforcement proceedings for which
the Company has accrued $237,500 in potential expenses. The Company is involved
in various minor collection matters in which the Company and vendors are seeking
payment for services rendered and goods provided.
Exhibit 2
Permitted Liens
The Company's assets are subject to the following security interests:
Liens granted to Xxxx Xxxxxxxx and his affiliates on certain of the Company's
assets as noted to the terms and conditions of that certain Subordination
Agreement by and between Laurus and GCS Investments, L.L.C., executed
contemporaneously herewith. Additionally, certain of these assets are subject to
the further limited security interest of X.X. Xxxxx & Co., Inc. The Company has
guaranteed the guarantee obligations of Xxxxx Xxxxxxxx and his affiliates in
regard to financing with Xxxx Xxxxxxxx and his affiliates as well as certain
other obligations of the Company secured by common stock of the Company.
Xxxxxx Properties, Inc., currently holds a first mortgage position in the
amount of $300,000 on the Company's Lowell, Massachusetts property.
The Company is party to several operating and capital leases that are secured by
the relevant assets.
Exhibit 7(c)
Actions for Perfection
Exhibit 7(p)
Bank Accounts
[To be provided]
Exhibit 12 (d)
Veridium Corporation
0 Xxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxxxx 00000
Exhibit 12(i)
Licenses, Patents, Trademarks and Copyrights
The Company holds six patents. The marks, Veridium, Veridium Environmental, the
"Veridium Logo" and the tagline "A Clear Vision for a Better Environment" are
the registered trademarks of Veridium Corporation.
Exhibit 13(e)(i)
Permitted Indebtedness
All existing financing arrangements of the Company as disclosed in the Company's
Form 10KSB for the period ended December 31, 2003, and its Form 10QSB for the
period ended March 31, 2004.
Exhibit 13(e)(ii)
Existing Subsidiaries
Veridium Environmental Corporation
> Xxxxx Environmental Services, L.L.C.
>> Xxxxx Environmental Services (North East), Inc.
> EnviroSafe, Corp.
> American Metal Recovery, Corp.
>> New World Recycling, Inc.
>> Metal Recovery Transportation, Corp.
Exhibit A
Borrowing Base Certificate
-----------------------------------------------------------------------------
DATE: CERTIFICATE NUMBER:
---------------
--------------------------------------------------------------
BORROWER NAME: Veridium Corporation
-----------------------------------------------------------------------------
1. Period end Accounts as of: $------------
Ineligible Accounts as of:
Accounts over 90 days from invoice date $
---------------
Intercompany and Affiliate Accounts $
---------------
Contra Accounts $
---------------
COD Accounts $
---------------
Foreign Accounts $
---------------
Discounts, Credits and Allowances $
---------------
25% cross aging exclusion $
---------------
Xxxx and Hold invoices $
---------------
Progress Accounts $
---------------
Finance/Service/Late Charges $
----------------
Other _____________________ $
----------------
2. Total ineligibles $
------------
3. Eligible Accounts (Line 1 minus Line 2) $
------------
4. Eligible Accounts advance rate (90% )
5. Accounts Availability (Line 3 multiplied
by Line 4) $
-------------
6. Borrowing Availability (lesser of sum
of lines 5 + 6 or the Capital Availability Amount)
7. Revolving Credit Advances balance $------------
Outstanding secured debt owed to
Xxxx Xxxxxxxx $-------------
9. Reserves (explain) $-------------
10. Net Borrowing Availability (Line
6 minus the sum of Lines 7, 8 and 9) $------------
The undersigned hereby certifies that all of the foregoing information regarding
the Eligible Accounts is true and correct on the date hereof and all such
Accounts listed as Eligible Accounts are Eligible Accounts within the meaning
given such term in the Security Agreement dated _____, 2003 between Borrower and
Laurus Master Fund, Ltd.
VERIDIUM CORPORATION
By: __________________________________
Name: _______________________________
Title:________________________________
LAURUS MASTER FUND, LTD.
and
VERIDIUM CORPORATION,
Dated: March __, 2004
Page(s)
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TABLE OF CONTENTS
Page
201354.1 044202- 32136NY289021.2
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1. (a) General Definitions................................................................................1
(b) Accounting Terms..............................................................................1
(c) Other Terms...................................................................................1
(d) Rules of Construction.........................................................................1
2. Credit Advances........................................................................................2
3. Repayment of the Loans.................................................................................4
4. Procedure for Loans....................................................................................4
5. Interest and Payments..................................................................................4
(a) Interest......................................................................................4
(b) Payments......................................................................................5
6. Security Interest......................................................................................6
7. Representations, Warranties and Covenants Concerning the Collateral....................................6
8. Payment of Accounts....................................................................................9
9. Collection and Maintenance of Collateral..............................................................10
10. Inspections and Appraisals............................................................................10
11. Financial Reporting...................................................................................10
12. Additional Representations and Warranties.............................................................11
13. Covenants. Company covenants as follows:.............................................................14
14. Further Assurances....................................................................................16
15. Power of Attorney.....................................................................................17
16. Term of Agreement.....................................................................................17
17. Termination of Lien...................................................................................17
18. Events of Default.....................................................................................18
19. Remedies..............................................................................................19
20. Waivers...............................................................................................20
21. Expenses..............................................................................................21
22. Assignment By Laurus..................................................................................21
23. No Waiver; Cumulative Remedies........................................................................22
24. Application of Payments...............................................................................22
25. Indemnity.............................................................................................22
26. Revival...............................................................................................22
27. Notices...............................................................................................22
28. Governing Law, Jurisdiction and Waiver of Jury........................................................23
29. Limitation of Liability...............................................................................24
30. Entire Understanding..................................................................................24
31. Severability..........................................................................................25
32. Captions..............................................................................................25
33. Counterparts; Telecopier Signatures...................................................................25
34. Construction..........................................................................................25
35. Publicity.............................................................................................25
