Exhibit 99.1
SECURITY AGREEMENT
This Security Agreement is made as of January 10, 2005 by and among
LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"), RETURN ON
INVESTMENT CORPORATION, a Delaware corporation ("Company"), GO SOFTWARE, INC., a
Georgia corporation ("GO Software") and TECTONIC SOLUTIONS, INC., a Georgia
corporation ("Tectonic" and together with GO Software, each an "Eligible
Subsidiary" and collectively, the "Eligible Subsidiaries").
BACKGROUND
Company and Eligible Subsidiaries have requested that Laurus make
advances available to Company and each Eligible Subsidiary; and
Laurus has agreed to make such advances on the terms and conditions set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. General Definitions and Terms; Rules of Construction.
(a) General Definitions. Capitalized terms used in this Agreement shall
have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this Agreement which
are not specifically defined shall have the meanings customarily given them in
accordance with GAAP and all financial computations shall be computed, unless
specifically provided herein, in accordance with GAAP consistently applied.
(c) Other Terms. All other terms used in this Agreement and defined in
the UCC, shall have the meaning given therein unless otherwise defined herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and Exhibits
hereto or expressly identified to this Agreement are incorporated herein by
reference and taken together with this Agreement constitute but a single
agreement. The words "herein", hereof" and "hereunder" or other words of similar
import refer to this Agreement as a whole, including the Exhibits, Addenda,
Annexes and Schedules thereto, as the same may be from time to time amended,
modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
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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 (as hereinafter
defined) shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.
2. Revolving Loans. (a)(i) Subject to the terms and conditions set
forth herein and in the Ancillary Agreements and so long as no Event of Default
shall have occurred and be continuing, Laurus shall make revolving loans (the
"Revolving Loans") to Company and the Eligible Subsidiaries 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") and (y) an amount equal to the (I) Accounts
Availability minus (II) the Reserves. The amount derived at any time from
Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall be referred to as the "Formula
Amount". Company and each Eligible Subsidiary shall jointly and severally
execute and deliver to Laurus on the Closing Date the Revolving Note and a
Minimum Borrowing Note evidencing the Revolving Loans funded on the Closing
Date. From time to time thereafter, Company and each Eligible Subsidiary shall
jointly and severally execute and deliver to Laurus immediately prior to the
final funding of each additional $500,000 tranche of Revolving Loans allocated
to any Minimum Borrowing Note issued after the date hereof (calculated on a
cumulative basis for each such tranche) an additional Minimum Borrowing Note
evidencing such tranche, substantially in the form of the Minimum Borrowing Note
delivered by Company and each Eligible Subsidiary 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 the Minimum Borrowing Note shall be less
than $500,000 (the difference of $500,000 less the actual balance of the Minimum
Borrowing Note, the "Available Minimum Borrowing"), such portion of the balance
of the Revolving Note as shall equal the Available Minimum Borrowing shall be
deemed to be simultaneously extinguished on the Revolving Note and transferred
to, and evidenced by, the Minimum Borrowing Note. At the sole and absolute
option of Laurus, Laurus shall have the right during the period commencing on
the Closing Date and ending on the date which is 270 days following the Closing
Date to make an additional loan to and/or investment in the Company and/or any
all Eligible Subsidiaries in an aggregate amount of up to forty percent (40%) of
the Total Investment Amount on the same terms and at the same conversion price
set forth herein and in this Agreement and the Ancillary Agreements. In
connection with any such additional loan and/or investment, each of Company and
the Eligible Subsidiaries shall execute all such documents, instruments and
agreements necessary to evidence the same.
(ii) Notwithstanding the limitations set forth above, if
requested by Company and/or the Eligible Subsidiaries, Laurus retains the right
to lend to Company and the Eligible Subsidiaries from time to time such amounts
in excess of such limitations as Laurus may determine in its sole discretion.
(iii) Each of Company and the Eligible Subsidiaries
acknowledge 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 each of Company and
the Eligible Subsidiaries hereby consent to any such increases or decreases
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which may limit or restrict advances requested by Company and each Eligible
Subsidiary.
(iv) If any interest, fees, costs or charges payable to Laurus
hereunder are not paid when due, each of Company and the Eligible Subsidiaries
shall thereby be deemed to have requested, and Laurus is hereby authorized at
its discretion to make and charge to Company's and the Eligible Subsidiaries'
account, a Revolving Loan as of such date in an amount equal to such unpaid
interest, fees, costs or charges.
(v) If Company or any Eligible Subsidiary 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 and/or such Eligible
Subsidiary (or, at Laurus' option, in Laurus' name) and may, but need not, take
any and all other actions which Laurus may deem necessary to cure or correct
such failure (including the payment of taxes, the satisfaction of Liens, the
performance of obligations owed to Account Debtors, lessors or other obligors,
the procurement and maintenance of insurance, the execution of assignments,
security agreements and financing statements, and the endorsement of
instruments). The amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Laurus in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by Laurus shall be charged to Company's
and the Eligible Subsidiaries' account as a Revolving Loan and added to the
Obligations. Solely to facilitate Laurus' performance or observance of such
covenants of Company and each Eligible Subsidiary, each of Company and each
Eligible Subsidiary hereby irrevocably appoint Laurus, or Laurus' delegate,
acting alone, as Company's and each such Eligible Subsidiary'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 and each Eligible Subsidiary 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 and/or such
Eligible Subsidiary.
(vi) Laurus will account to Company monthly with a statement
of all Loans and other advances, charges and payments made pursuant to this
Agreement, and such account rendered by Laurus shall be deemed final, binding
and conclusive unless Laurus is notified by Company in writing to the contrary
within thirty (30) days of the date each account was rendered specifying the
item or items to which objection is made.
(vii) During the Term, Company and each Eligible Subsidiary
may borrow and prepay and reborrow Revolving Loans in accordance with the terms
and conditions hereof.
(viii) If any Eligible Account is not paid by the Account
Debtor within ninety (90) days 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"), each of Company and the Eligible Subsidiaries shall, solely to the
extent Revolving Loans outstanding continue to be supported by such Delinquent
Account and not by other Eligible Accounts (i) reimburse Laurus for the amount
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of the Revolving Loans made with respect to such Delinquent Account plus an
adjustment fee in an amount equal to one-quarter of one percent (0.25%) of the
gross face amount of such Eligible Account or (ii) immediately replace such
Delinquent Account with an otherwise Eligible Account.
(b) Following the occurrence of an Event of Default which continues to
exist, Laurus may, at its option, elect to convert the credit facility
contemplated hereby to an accounts receivable purchase facility. Upon such
election by Laurus (subsequent notice of which Laurus shall provide to Company
and the Eligible Subsidiaries), Company and the Eligible Subsidiaries 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
and each Eligible Subsidiary, all right, title and interest of Company and each
Eligible Subsidiary 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 and each Eligible Subsidiary shall execute all such further
documentation as may be reasonably 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, with such changes as are
reasonably acceptable to Laurus and Company, but Company's or any Eligible
Subsidiary'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 (as defined in the Registration Rights
Agreement) has been declared effective by the SEC, conversions of the Minimum
Borrowing Amount into the Common Stock of Company may be initiated as set forth
in the respective Minimum Borrowing Note. From and after the date upon which any
outstanding principal of the Minimum Borrowing Amount (as evidenced by the first
Minimum Borrowing Note) is converted into Common Stock (the "First Conversion
Date"), (i) corresponding amounts of all outstanding Revolving 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 $500,000 and (ii) Company and each Eligible Subsidiary will issue a new
(serialized) Minimum Borrowing Note to Laurus in respect of such $500,000
aggregation, and (iii) Company shall prepare and file a subsequent registration
statement with the SEC to register such subsequent Minimum Borrowing Note in
accordance with the requirements set forth in the Registration Rights Agreement.
(d) Term Loan. Subject to the terms and conditions set forth herein and
in the Ancillary Agreements, Laurus shall make a term loan (the "Term Loan") to
Company and the Eligible Subsidiaries in an aggregate amount equal to
$4,000,000. The Term Loan shall be advanced on the Closing Date and shall be,
with respect to principal, payable in consecutive monthly installments of
principal commencing on April 1, 2005 and on the first day of each month
thereafter, subject to acceleration upon the occurrence of an Event of Default
or termination of this Agreement. The first thirty-two principal installments
shall each be in the amount of $121,212.12 and the thirty-third and final
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installment shall be in an amount equal to the unpaid principal balance of the
Term Loan plus all accrued and unpaid interest thereon. The Term Loan shall be
evidenced by the Secured Convertible Term Note.
3. Repayment of the Loans. Company and the Eligible Subsidiaries (a)
may prepay the Obligations from time to time in accordance with the terms and
provisions of the Notes (and Section 16 hereof if such prepayment is due to a
termination of this Agreement); and (b) shall repay on the expiration of the
Term (i) the then aggregate outstanding principal balance of the Loans together
with accrued and unpaid interest, fees and charges and (ii) all other amounts
owed Laurus under this Agreement and the Ancillary Agreements. Any payments of
principal, interest, fees or any other amounts payable hereunder or under any
Ancillary Agreement shall be made prior to 12:00 noon (New York time) on the due
date thereof in immediately available funds.
4. Procedure for Revolving Loans. Company Agent may by written notice
request a borrowing of Revolving Loans prior to 12:00 noon (New York time) on
the Business Day of its request to incur, on the next Business Day, a Revolving
Loan. Together with each request for a Revolving Loan (or at such other
intervals as Laurus may request), Company Agent shall deliver to Laurus a
Borrowing Base Certificate in the form of Exhibit A, which shall be certified as
true and correct by the Chief Executive Officer or Chief Financial Officer of
Company Agent together with all supporting documentation relating thereto. All
Revolving Loans shall be disbursed from whichever office or other place Laurus
may designate from time to time and shall be charged to Company's and the
Eligible Subsidiaries' account on Laurus' books. The proceeds of each Revolving
Loan made by Laurus shall be made available to Company Agent on the Business Day
following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to Company's and the Eligible Subsidiaries' operating
accounts maintained with such bank as Company and each Eligible Subsidiary have
designated from time to time to Laurus. Any and all Obligations due and owing
hereunder may be charged to Company's and each Eligible Subsidiary's account and
shall constitute Revolving Loans.
5. Interest and Payments. (a) Interest.
(i) Except as modified by Section 5(a)(iii) below, Company and
each Eligible Subsidiary shall pay interest at the Contract Rate on the unpaid
principal balance of each Loan until such time as such Loan is collected in full
in good funds in dollars of the United States of America.
(ii) Interest and payments shall be computed on the basis of
actual days elapsed in a year of 360 days. At Laurus' option, Laurus may charge
Company's and each Eligible Subsidiary's account for said interest.
(iii) Effective upon the occurrence of any Event of Default
and for so long as any Event of Default shall be continuing, the Contract Rate
shall automatically be increased as set forth in the Notes (such increased rate,
the "Default Rate"), and all outstanding Obligations, including unpaid interest,
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shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable
hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate"), and if
any provision of this Agreement or any Ancillary Agreement is in contravention
of any such law or regulation, interest payable under this Agreement and each
Ancillary Agreement shall be computed on the basis of the Maximum Legal Rate (so
that such interest will not exceed the Maximum Legal Rate).
(v) Company and each Eligible Subsidiary shall pay principal,
interest and all other amounts payable hereunder, or under any Ancillary
Agreement, without any deduction whatsoever, including any deduction for any
set-off or counterclaim. (b) Payments; Certain Closing Conditions.
(i) Closing/Annual Payments. Upon execution of this
Agreement by Company and Laurus, Company and the Eligible Subsidiaries shall pay
to Laurus Capital Management, LLC a closing payment in an amount equal to four
and one-half percent (4.50%) of the Total Investment Amount. Such payment shall
be deemed fully earned on the Closing Date and shall not be subject to rebate or
proration for any reason.
(ii) Unused Line Payment. If, during any month, the
average of the aggregate Loans outstanding during such month (the "Average Loan
Amount") does not equal the Total Investment Amount, Company and the Eligible
Subsidiaries shall pay to Laurus at the end of such month a payment (calculated
on a per annum basis) in an amount equal to one half percent (0.50%) of the
amount by which the Total Investment Amount exceeds the Average Loan Amount (the
"Unused Line Payment"). Any such due and unpaid fee shall come immediately due
and payable upon termination of this Agreement. Notwithstanding the foregoing,
if on or prior to June 30, 2005 Laurus shall have released its Lien on the
assets of Go Software based upon ROIE's satisfaction of the conditions for such
release as set forth in the GO Software Side Letter Agreement, then on and after
the date of such Lien release the Unused Line Payment shall equal zero ($0).
(iii) Overadvance Payment. Without affecting Laurus'
rights hereunder in the event the Revolving Loans exceed the Formula Amount
(each such event, an "Overadvance"), all such Overadvances shall bear interest
at an annual rate equal to two percent (2%) of the amount of such Overadvances
for each month or portion thereof such amounts shall be outstanding and in
excess of the Formula Amount.
(iv) Financial Information Default. Without affecting
Laurus' other rights and remedies, in the event Company or any Eligible
Subsidiary fails to deliver the financial information required by Section 11 on
or before the date required by this Agreement, Company and the Eligible
Subsidiaries shall pay Laurus an aggregate fee in the amount of $250.00 per week
(or portion thereof) for each such failure until such failure is cured to
Laurus' satisfaction or waived in writing by Laurus. Such fee shall be charged
to Company's and the Eligible Subsidiaries account upon the occurrence of each
such failure.
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(v) Expenses. The Company and the Eligible
Subsidiaries shall reimburse Laurus for its reasonable expenses (including legal
fees and expenses) incurred in connection with the preparation and negotiation
of this Agreement and the Ancillary Agreements and reasonable expenses incurred
in connection with Laurus' due diligence review of the Company and its
Subsidiaries and all related matters. Amounts required to be paid under this
Section 5(b)(v) will be paid on the Closing Date.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations, each of
Company and each Eligible Subsidiary hereby assigns, pledges and grants to
Laurus a continuing security interest in and Lien upon all of such Person's
right, title and interest in and to the Collateral. All of Company's and each
Eligible Subsidiary's Books and Records relating to the Collateral shall, until
delivered to or removed by Laurus, be kept by Company and each Eligible
Subsidiary, as the case may be, in trust for Laurus until all Obligations have
been paid in full. Each confirmatory assignment schedule or other form of
assignment hereafter executed by Company and each Eligible Subsidiary shall be
deemed to include the foregoing grant, whether or not the same appears therein.
(b) Company and each Eligible Subsidiary hereby (i) authorizes Laurus
to file any financing statements, continuation statements or amendments thereto
that (x) indicate the Collateral (1) as all assets and personal property of
Company or such Eligible Subsidiary, as the case may be, or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the UCC of such jurisdiction, or (2) as
being of an equal or lesser scope or with greater detail, and (y) contain any
other information required by Part 5 of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement, continuation statement
or amendment and (ii) ratifies its authorization for Laurus to have filed any
initial financial statements, or amendments thereto if filed prior to the date
hereof. Each of Company and each Eligible Subsidiary acknowledges that it is not
authorized to file any financing statement or amendment 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 and such Eligible Subsidiary's rights under Section
9-509(d)(2) of the UCC.
(c) Each of Company and each Eligible Subsidiary hereby grants to
Laurus an irrevocable, non-exclusive license (exercisable upon the termination
of this Agreement due to an occurrence and during the continuance of an Event of
Default without payment of royalty or other compensation to Company or such
Eligible Subsidiary, as the case may be) to use, transfer, license or sublicense
any Intellectual Property now owned, licensed to, or hereafter acquired by
Company and/or such Eligible Subsidiary, and wherever the same may be located,
and including in such license access to all media in which any of the licensed
items may be recorded or stored and to all computer and automatic machinery
software and programs used for the compilation or printout thereof, and
represents, promises and agrees that any such license or sublicense is not and
will not be in conflict with the contractual or commercial rights of any third
Person; provided, that such license will terminate on the termination of this
Agreement and the payment in full of all Obligations.
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7. Representations, Warranties and Covenants Concerning the Collateral.
Each of Company and each Eligible Subsidiary represents, warrants (each of which
such representations and warranties shall be deemed repeated upon the making of
each request for a Revolving Loan and made as of the time of each and every
Revolving Loan hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by Company and/or an Eligible
Subsidiary (other than certain Equipment of Company and/or an Eligible
Subsidiary leased in the ordinary course of business), as the case may be, free
and clear of all Liens (including any claims of infringement) except those in
Laurus' favor and Permitted Liens and (ii) is not subject to any agreement
prohibiting the granting of a Lien or requiring notice of or consent to the
granting of a Lien.
(b) neither the Company nor any Eligible Subsidiary shall encumber,
mortgage, pledge, assign or grant any Lien in any Collateral or any of Company's
or any Eligible Subsidiary other assets to anyone other than Laurus and except
for Permitted Liens.
(c) the Liens granted pursuant to this Agreement, upon completion of
the filings and other actions listed on Schedule 7(c) (which, in the case of all
filings and other documents referred to in said Schedule, have been delivered to
Laurus in duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all creditors of and any purchasers from Company
and the Eligible Subsidiaries and such security interest is prior to all other
Liens in existence on the date hereof other than Permitted Liens.
(d) no effective security agreement, mortgage, deed of trust, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those relating to Permitted Liens.
(e) except to the extent expressly permitted pursuant to the terms of
Section 13(1)(xiv) hereof, neither Company nor any Eligible Subsidiary shall
dispose of any of the Collateral whether by sale, lease or otherwise except for
the sale of Inventory in the ordinary course of business and for the disposition
or transfer in the ordinary course of business during any fiscal year of
obsolete and worn-out Equipment and only to the extent that (i) the proceeds of
any such disposition are used to acquire replacement Equipment which is subject
to Laurus' first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (ii) following the occurrence of an Event of
Default which continues to exist the proceeds of which are remitted to Laurus to
be held as cash collateral for the Obligations.
(f) each of Company and each Eligible Subsidiary shall defend the
right, title and interest of Laurus in and to the Collateral against the claims
and demands of all Persons whomsoever, other than those Persons holding
Permitted Liens, and take such actions, including (i) the prompt taking of all
actions necessary to grant Laurus "control" of any Investment Property, Deposit
Accounts, Letter-of-Credit Rights or electronic Chattel Paper owned by Company
and each Eligible Subsidiary, with any agreements establishing control to be in
form and substance reasonably satisfactory to Laurus, (ii) the prompt (but in no
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event later than five (5) Business Days following Laurus' request therefor)
delivery to Laurus of all original Instruments, Chattel Paper, negotiable
Documents and certificated Stock owned by Company and each Eligible Subsidiary
(in each case, accompanied by stock powers, allonges or other instruments of
transfer executed in blank), (iii) notification of Laurus' interest in
Collateral at Laurus' request, and (iv) the institution of litigation against
third parties as shall be necessary in order to protect and preserve Company's,
each Eligible Subsidiary's and/or Laurus' respective and several interests in
the Collateral.
(g) each of Company and each Eligible Subsidiary shall promptly, and in
any event within 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, each of Company and/or each Eligible
Subsidiary, as the case may be, shall enter into a supplement to this Agreement
granting to Laurus a Lien in such commercial tort claim.
(h) if either Company and/or ay Eligible Subsidiary retains possession
of any Chattel Paper or Instrument with Laurus' consent, upon Laurus' request
such Chattel Paper and Instruments shall be marked with the following legend:
"This writing and obligations evidenced or secured hereby are subject to the
security interest of Laurus Master Fund, Ltd."
(i) each of Company and each Eligible Subsidiary 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.
(j) each of Company and each Eligible Subsidiary 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 or any
Eligible Subsidiary's knowledge would cause Laurus to consider any then existing
Account as no longer constituting an Eligible Account; (ii) of any material
delay in Company's or any Eligible Subsidiary'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 (collectively, "Allowances") granted by Company or any
Eligible Subsidiary to any Account Debtor but only to the extent the aggregate
Allowances with respect to any single Account owing by such Account Debtor
exceed fifteen percent (15%) of the net face amount of any such Account and/or
the aggregate Allowances with respect to all Accounts owing by any single
Account Debtor exceed fifteen percent (15%) of the net face amount of all such
Accounts, as applicable; (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 having a
fair market value of more than $10,000.
(k) all Eligible Accounts (i) which are billed on a construction
completion basis but not payable until the project is completed, represent
complete bona fide transactions which require no further act under any
circumstances on Company's or any Eligible Subsidiary's part to make such
Accounts payable by the Account Debtors, (ii) are not subject to any present,
future contingent offsets or counterclaims, and (iii) do not represent ▇▇▇▇ and
hold sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of either Company
or any Eligible Subsidiary. Neither Company nor any Eligible Subsidiary has
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made, and neither Company nor any Eligible Subsidiary will 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 or any Eligible Subsidiary in the ordinary course of its business
consistent with historical practice and as previously disclosed to Laurus in
writing.
(l) each of Company and each Eligible Subsidiary shall keep and
maintain its Equipment in good operating condition, except for ordinary wear and
tear, and disposal of obsolete Equipment (in accordance with the foregoing
clause "(e)") and shall make all necessary repairs and replacements thereto.
Neither Company nor any Eligible Subsidiary shall permit any such items to
become a Fixture to real estate or accessions to other personal property.
(m) each of Company and each Eligible Subsidiary shall maintain and
keep all of its Books and Records concerning the Collateral at such person's
executive offices listed in Schedule 12(bb).
(n) each of Company and each Eligible Subsidiary shall maintain and
keep the tangible Collateral at the addresses listed in Schedule 12(bb),
provided, that each of Company and/or any such Eligible Subsidiary may change
such locations or open a new location, so long as Company or any such Eligible
Subsidiary, as the case may be, provides Laurus at least thirty (30) days' prior
written notice of such changes or new location and (ii) prior to such change or
opening of a new location where Collateral having a value of more than $50,000
will be located, Company and/or any such Eligible Subsidiary, as the case may
be, executes and delivers to Laurus such agreements as Laurus may request,
including landlord agreements, mortgagee agreements and warehouse agreements,
each in form and substance reasonably satisfactory to Laurus.
(o) Schedule 7(p) lists all banks and other financial institutions at
which Company and each Eligible Subsidiary maintains deposits and/or other
accounts, and such Schedule correctly identifies the name, address and telephone
number of each such depository, the name in which the account is held, a
description of the purpose of the account, and the complete account number.
Neither the Company nor any Eligible Subsidiary shall establish any depository
or other bank account of any with any financial institution (other than the
accounts set forth on Schedule 7(p)) without Laurus' prior written consent.
8. Payment of Accounts.
(a) Within forty-five (45) days following the Closing Date, each of
Company and each Eligible Subsidiary will irrevocably direct all of its present
and future Account Debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the lockboxes
maintained by Company and each Eligible Subsidiary (the "Lockboxes") with North
Fork Bank (the "Lockbox Bank"), pursuant to such documentation reasonably
acceptable to Laurus, or such other financial institution accepted by Laurus in
writing as may be selected by Company and/or any Eligible Subsidiary. Within
forty-five (45) days following the Closing Date, each of Company and each
Eligible Subsidiary shall and shall cause the Lockbox Bank to enter into all
10
such documentation acceptable to Laurus pursuant to which, among other things,
the Lockbox Bank agrees to: (a) sweep the Lockbox on a daily basis and deposit
all checks received therein to an account designated by Laurus in writing and
(b) comply only with the instructions or other directions of Laurus concerning
the Lockbox. All of Company's and each Eligible Subsidiary's invoices, account
statements and other written or oral communications directing, instructing,
demanding or requesting payment of any Account of Company or any Eligible
Subsidiary or any other amount constituting Collateral shall conspicuously
direct that all payments be made to the Lockbox or such other address as Laurus
may direct in writing. If, notwithstanding the instructions to Account Debtors,
Company or any Eligible Subsidiary receives any payments, Company or such
Eligible Subsidiary, as the case may be, shall immediately remit such payments
to Laurus in their original form with all necessary endorsements. Until so
remitted, Company and each Eligible Subsidiary shall hold all such payments in
trust for and as the property of Laurus and shall not commingle such payments
with any of its other funds or property.
(b) At Laurus' election, following the occurrence of an Event of
Default which is continuing, Laurus may notify each of Company's and each
Eligible Subsidiary's Account Debtors of Laurus' security interest in the
Accounts, collect them directly and charge the collection costs and expenses
thereof to Company's and the Eligible Subsidiaries joint and several account.
9. Collection and Maintenance of Collateral.
(a) Laurus may verify Company's and each Eligible Subsidiary's Accounts
from time to time, but not more often than once every three (3) months unless an
Event of Default has occurred and is continuing, utilizing an audit control
company or any other agent of Laurus.
(b) Proceeds of Accounts received by Laurus will be deemed received on
the Business Day after Laurus' receipt of such proceeds in good funds in dollars
of the United States of America to an account designated by Laurus. Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall be
deemed received on the next Business Day.
(c) As Laurus receives the proceeds of Accounts of Company or any
Eligible Subsidiary, it shall (i) apply such proceeds, as required, to amounts
outstanding under the Notes, and (ii) remit all such remaining proceeds (net of
interest, fees and other amounts then due and owing to Laurus hereunder) to
Company and/or any such Eligible Subsidiary upon request (but no more often than
twice a week). Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default, Laurus, at its option, may (a)
apply such proceeds to the Obligations in such order as Laurus shall elect, (b)
hold all such proceeds as cash collateral for the Obligations and each of
Company and each Eligible Subsidiary hereby grants to Laurus a security interest
in such cash collateral amounts as security for the Obligations and/or (c) do
any combination of the foregoing.
10. Inspections and Appraisals. 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 each of Company's and each Eligible Subsidiary's properties and
the Collateral, (b) inspect, audit and copy (or take originals if necessary) and
11
make extracts from Company's and each Eligible Subsidiary's Books and Records,
including management letters prepared by independent accountants, and (c)
discuss with Company's and each Eligible Subsidiary's directors, principal
officers, and independent accountants, Company's and each Eligible Subsidiary's
business, assets, liabilities, financial condition, results of operations and
business prospects. Each of Company and each Eligible Subsidiary will deliver to
Laurus any instrument necessary for Laurus to obtain records from any service
bureau maintaining records for Company and such Eligible Subsidiary. If any
internally prepared financial information, including that required under this
Section is unsatisfactory in any manner to Laurus, Laurus may request that the
Accountants review the same.
Notwithstanding the foregoing, neither the Company nor any of its
Subsidiaries will provide any material, non-public information to Laurus unless
Laurus signs a confidentiality agreement and otherwise complies with Regulation
FD, under the federal securities laws.
11. 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:
(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of Company, Company's audited financial
statements with a report of independent certified public accountants of
recognized standing selected by Company and acceptable to Laurus (the
"Accountants"), which annual financial statements shall include Company's
balance sheet as at the end of such fiscal year and the related statements of
Company's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if Laurus so requests, on a consolidating and consolidated
basis to include all Subsidiaries and Affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) if and when available,
copies of any management letters prepared by such accountants; and (ii) a
certificate of Company's President, Chief Executive Officer or Chief Financial
Officer stating that such financial statements have been prepared in accordance
with GAAP and whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder and, if so, stating in reasonable detail
the facts with respect thereto;
(b) As soon as available and in any event within forty five (45) days
after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of Company as at the end
of and for such quarter and for the year to date period then ended, prepared, if
Laurus so requests, on a consolidating and consolidated basis to include all
Subsidiaries and Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous year,
all prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of Company's President, Chief Executive Officer or
Chief Financial Officer, stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto;
(c) Within thirty (30) days after the end of each month (or more
frequently if Laurus so requests), agings of Company's and each Eligible
Subsidiary's Accounts, unaudited trial balances and their accounts payable and a
12
calculation of Company's and each Eligible Subsidiary's Accounts, Eligible
Accounts, provided, however, that if Laurus shall request the foregoing
information more often than as set forth in the immediately preceding clause,
Company and/or any Eligible Subsidiary shall have thirty (30) days from each
such request to comply with Laurus' demand;
and (d) Promptly after (i) the filing thereof, copies of Company's most
recent registration statements and annual, quarterly, monthly or other regular
reports which Company files with the Securities and Exchange Commission (the
"SEC"), and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as Company shall send to its stockholders.
12. Additional Representations and Warranties. Company and each
Eligible Subsidiary hereby represent and warrant to Laurus as follows (which
representations and warranties are supplemented by, and subject to, Company's
filings under the Securities Exchange Act of 1934 (collectively, the "Exchange
Act Filings"), copies of which have been provided to Laurus:
(a) Organization, Good Standing and Qualification. Each of Company and
each of its Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Each of
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this Agreement
and the Ancillary Agreements, to issue and sell the Notes and the shares of
Common Stock issuable upon conversion of the Notes (the "Note Shares"), to issue
and sell the Warrants and the shares of Common Stock issuable upon conversion of
the Warrants (the "Warrant Shares"),and to carry out the provisions of this
Agreement and the Ancillary Agreements and to carry on its business as presently
conducted. Each of Company and each of its Subsidiaries is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions, except for those jurisdictions in which the failure to do so
has not had, or could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(b) Subsidiaries. Each direct and indirect Subsidiary of Company, the
direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 12(b).
(c) Capitalization; Voting Rights.
(i) The authorized capital stock of the Company, as of the
date hereof consists of 25,500,000 shares, of which 25,000,000 are shares of
Common Stock, par value $0.01 per share, 13,867,054 shares of which are issued
and outstanding, and 500,000 are shares of preferred stock, par value $0.01 per
share of which no shares are issued and outstanding. The authorized capital
stock of each Subsidiary of the Company is set forth on Schedule 12(c).
(ii) Except as disclosed on Schedule 12(c), other than: (i)
the shares reserved for issuance under Company's stock option plans; and (ii)
shares which may be issued pursuant to this Agreement and the Ancillary
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
13
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from Company of any of its securities. Except as
disclosed on Schedule 12(c), neither the offer, issuance or sale of any of the
Notes or the Warrants, or the issuance of any of the Note Shares or the Warrant
Shares, nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
(iii) All issued and outstanding shares of Company's Common
Stock: (i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(iv) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in Company's Certificate of
Incorporation (the "Charter"). The Note Shares and the Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and Company's Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
(d) Authorization; Binding Obligations. All corporate action on the
part of each of Company and each of its Subsidiaries, their respective officers
and directors necessary for the authorization of this Agreement and the
Ancillary Agreements, the performance of all obligations of Company and each of
its Subsidiaries hereunder and under the Ancillary Agreements on the Closing
Date and, the authorization, sale, issuance and delivery of the Notes and the
Warrant has been taken or will be taken prior to the Closing Date. This
Agreement and the Ancillary Agreements, when executed and delivered and to the
extent it is a party thereto, will be valid and binding obligations of each of
Company and each of its Subsidiaries enforceable in accordance with their terms,
except:
(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; and
(ii) general principles of equity that restrict the
availability of equitable or legal remedies.
The sale of the Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
(e) Liabilities. Neither Company nor any of its Subsidiaries has any
contingent liabilities, except current liabilities incurred in the ordinary
course of business and liabilities disclosed in any Exchange Act Filings.
14
(f) Agreements; Action. Except as set forth on Schedule 12(f) or as
disclosed in any Exchange Act Filings:
(i) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
Company or any of its Subsidiaries is a party or to its knowledge by which it is
bound which may involve: (i) obligations (contingent or otherwise) of, or
payments to, Company or any of its Subsidiaries in excess of $50,000 (other than
obligations of, or payments to, Company or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from Company or any of its Subsidiaries (other than
licenses arising from the purchase of "off the shelf" or other standard
products); or (iii) provisions restricting the development, manufacture or
distribution of Company's or any of its Subsidiaries' products or services; or
(iv) indemnification by Company or any of its Subsidiaries with respect to
infringements of proprietary rights.
(ii) Since June 30, 2004, neither Company nor any of its
Subsidiaries has: (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate; (iii) made any loans or advances to any
person not in excess, individually or in the aggregate, of $100,000, other than
ordinary advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(iii) For the purposes of subsections (i) and (ii) of this
Section 12(f) above, all indebtedness, liabilities, agreements, understandings,
instruments, contracts and proposed transactions involving the same person or
entity (including persons or entities Company has reason to believe are
affiliated therewith or with any Subsidiary thereof) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsections.
(g) Obligations to Related Parties. Except as set forth on Schedule
12(g), there are no obligations of Company or any of its Subsidiaries to
officers, directors, stockholders or employees of Company or any of its
Subsidiaries other than:
(i) for payment of salary for services rendered and for bonus
payments;
(ii) reimbursement for reasonable expenses incurred on behalf
of Company or any of its Subsidiaries;
(iii) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under
any stock option plan approved by the Board of Directors of Company); and
(iv) obligations listed in Company's financial statements or
disclosed in any of its Exchange Act Filings.
15
Except as described above or set forth on Schedule 12(g), none of the officers,
directors or, to the best of Company's and each Eligible Subsidiary's knowledge,
key employees or stockholders of Company, any of its Subsidiaries or any members
of their immediate families, are indebted to Company or any of their
Subsidiaries, individually or in the aggregate, in excess of $50,000 or have any
direct or indirect ownership interest in any firm or corporation with which
Company or any of its Subsidiaries is affiliated or with which Company or any of
its Subsidiaries has a business relationship, or any firm or corporation which
competes with Company or any of its Subsidiaries, other than passive investments
in publicly traded companies (representing less than one percent (1%) of such
company) which may compete with Company or any of its Subsidiaries. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with Company or any of its Subsidiaries and no agreements,
understandings or proposed transactions are contemplated between Company or any
of its Subsidiaries and any such person. Except as set forth on Schedule 12(g),
neither Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
(h) Changes. Since June 30, 2004, except as disclosed in any Exchange
Act Filing or in any Schedule to this Agreement or to any of the Ancillary
Agreements, there has not been:
(i) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of Company or any
of its Subsidiaries, which, individually or in the aggregate, has had, or could
reasonably be expected to have, a Material Adverse Effect;
(ii) any resignation or termination of any officer, key
employee or group of employees of Company or any of its Subsidiaries;
(iii) any material change, except in the ordinary course of
business, in the contingent obligations of Company or any of its Subsidiaries by
way of guaranty, endorsement, indemnity, warranty or otherwise;
(iv) any damage, destruction or loss, whether or not covered
by insurance, which has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(v) any waiver by Company or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(vi) any direct or indirect material loans made by Company or
any of its Subsidiaries to any stockholder, employee, officer or director of
Company or any of its Subsidiaries, other than advances made in the ordinary
course of business;
(vii) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(viii) any declaration or payment of any dividend or other
distribution of the assets of Company or any of its Subsidiaries;
16
(ix) any labor organization activity related to Company or any
of its Subsidiaries;
(x) any debt, obligation or liability incurred, assumed or
guaranteed by Company or any of its Subsidiaries, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of business;
(xi) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(xii) any change in any material agreement to which Company or
any of its Subsidiaries is a party or by which it is bound which, either
individually or in the aggregate, has had, or could reasonably be expected to
have, a Material Adverse Effect;
(xiii) any other event or condition of any character that,
either individually or in the aggregate, has had, or could reasonably be
expected to have, a Material Adverse Effect; or
(xiv) any arrangement or commitment by Company or any of its
Subsidiaries to do any of the acts described in subsection (i) through (xiii) of
this Section 12(h).
(i) Title to Properties and Assets; Liens, Etc. Except as set forth on
Schedule 12(i), each of Company and each of its Subsidiaries has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than:
(i) those resulting from taxes which have not yet become
delinquent;
(ii) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of Company or any of its Subsidiaries;
(iii) those that have otherwise arisen in the ordinary course
of business; and
(iv) Permitted Liens.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by Company or any of its Subsidiaries are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as set forth on Schedule 12(i),
each of Company and each of its Subsidiaries is in compliance with all material
terms of each lease to which it is a party or is otherwise bound.
(j) Intellectual Property.
(i) Each of Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all Intellectual Property reasonably deemed
to be necessary for its business as now conducted and to Company's knowledge as
presently proposed to be conducted, without any known infringement of the rights
17
of others. There are no outstanding options, licenses or agreements of any kind
relating to such Intellectual Property of Company or any of its Subsidiaries,
nor is Company or any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other person or entity other than such licenses or agreements arising from
the purchase of "off the shelf" or standard products.
(ii) Neither Company nor any of its Subsidiaries has received
any communications alleging that Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is
Company aware of any basis therefor.
(iii) Neither Company nor any Eligible Subsidiary believes it
is or will be necessary to utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their employment by Company or
any Eligible Subsidiary or any of their respective Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to Company or any such Subsidiary.
(k) Compliance with Other Instruments. Neither Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. Except as
set forth on Schedule 12(k), the execution, delivery and performance of and
compliance with this Agreement and the Ancillary Agreements to which it is a
party, and the issuance of the Notes by Company and the Eligible Subsidiaries
and the other Securities by Company each pursuant hereto and thereto, will not,
with or without the passage of time or giving of notice, result in any such
material violation, or be in conflict with or constitute a default under any
such term or provision, or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of Company or any of
its Subsidiaries or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to
Company or any of its Subsidiaries, its business or operations or any of its
assets or properties.
(l) Litigation. Except as set forth on Schedule 12(l), there is no
action, suit, proceeding or investigation pending or, to Company's knowledge,
currently threatened against Company or any of its Subsidiaries that prevents
Company or any of its Subsidiaries from entering into this Agreement or the
Ancillary Agreements, or from consummating the transactions contemplated hereby
or thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, or could result in
any change in the current equity ownership of Company or any of its
Subsidiaries, nor is Company aware that there is any basis to assert any of the
foregoing. Neither Company nor any of its Subsidiaries is a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit, proceeding or
investigation by Company or any of its Subsidiaries currently pending or which
Company or any of its Subsidiaries intends to initiate.
18
(m) Tax Returns and Payments. Each of Company and each of its
Subsidiaries has timely filed all tax returns (federal, state and local)
required to be filed by it. All taxes shown to be due and payable on such
returns, any assessments imposed, and all other taxes due and payable by each of
Company and each of its Subsidiaries on or before the Closing Date, have been
paid or will be paid prior to the time they become delinquent. Except as set
forth on Schedule 12(m), neither Company nor any of its Subsidiaries has been
advised:
(i) that any of its returns, federal, state or other, have
been or are being audited as of the date hereof;
or (ii) of any deficiency in assessment or proposed judgment
to its federal, state or other taxes.
Neither Company nor any Eligible Subsidiary has any knowledge of any liability
of any tax to be imposed upon its properties or assets as of the date of this
Agreement that is not adequately provided for.
(n) Employees. Except as set forth on Schedule 12(n), neither Company
nor any of its Subsidiaries has any collective bargaining agreements with any of
its employees. There is no labor union organizing activity pending or, to
Company's or any Eligible Subsidiary's knowledge, threatened with respect to
Company or any such Subsidiary. Except as disclosed in the Exchange Act Filings
or on Schedule 12(n), neither Company nor any of its Subsidiaries is a party to
or bound by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. To Company's and
each Eligible Subsidiary's knowledge, no employee of Company or any of its
Subsidiaries, nor any consultant with whom Company or any of its Subsidiaries
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, Company or any of
its Subsidiaries because of the nature of the business to be conducted by
Company or any of its Subsidiaries; and to Company's and each Eligible
Subsidiary's knowledge the continued employment by Company and its Subsidiaries
of their respective present employees, and the performance of Company's and its
Subsidiaries contracts with its independent contractors, will not result in any
such violation. Neither Company nor any Eligible Subsidiary is aware that any of
its or any of its Subsidiaries' employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to Company or any of its
Subsidiaries. Neither Company nor any of its Subsidiaries has received any
notice alleging that any such violation has occurred. Except for employees who
have a current effective employment agreement with Company or any of its
Subsidiaries, no employee of Company or any of its Subsidiaries has been granted
the right to continued employment by Company or any of its Subsidiaries or to
any material compensation following termination of employment with Company or
any of its Subsidiaries. Except as set forth on Schedule 12(n), neither Company
nor any of its Subsidiaries is aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with Company or any
of its Subsidiaries, nor does Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
employees.
19
(o) Registration Rights and Voting Rights. Except as set forth on
Schedule 12(o) and except as disclosed in Exchange Act Filings, neither Company
nor any of its Subsidiaries is presently under any obligation, and has granted
any rights, to register any of Company's or any such Subsidiary's presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 12(o) and except as disclosed in Exchange Act
Filings, to Company's and each Eligible Subsidiary's knowledge, no stockholder
of Company or any of its Subsidiaries has entered into any agreement with
respect to the voting of equity securities of Company or any of its
Subsidiaries.
(p) Compliance with Laws; Permits. Neither Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any Ancillary
Agreement and the issuance of any of the Securities, except such as has been
duly and validly obtained or filed, or with respect to any filings that must be
made after the Closing Date, as will be filed in a timely manner. Each of
Company and each of its Subsidiaries has all material franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could, either individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
(q) Environmental and Safety Laws. Neither Company is nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation. Except as set forth on
Schedule 12(q), no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by Company or any of its Subsidiaries or, to
Company's knowledge, by any other person or entity on any property owned, leased
or used by Company or any of its Subsidiaries. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean:
(i) materials which are listed or otherwise defined as
"hazardous" or "toxic" under any applicable local, state, federal and/or foreign
laws and regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; and
(ii) any petroleum products or nuclear materials.
(r) Valid Offering. Assuming the accuracy of the representations and
warranties of Laurus contained in this Agreement, the offer, sale and issuance
of the Securities will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and will have been
registered or qualified (or are exempt from registration and qualification)
20
under the registration, permit or qualification requirements of all applicable
state securities laws.
(s) Full Disclosure. Each of Company and each of its Subsidiaries has
provided Laurus with all information requested by Laurus in connection with its
decision to purchase the Notes and the Warrants, including all information
Company believes is reasonably necessary to make such investment decision.
Neither this Agreement, the Ancillary Agreements nor the exhibits and schedules
hereto and thereto nor any other document delivered by Company or any of its
Subsidiaries to Laurus or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, taken as a
whole contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
Any financial projections and other estimates provided to Laurus by Company and
its Subsidiaries were based on Company's and its Subsidiaries' experience in the
industry and on assumptions of fact and opinion as to future events which
Company and/or such Subsidiary, at the date of the issuance of such projections
or estimates, believed to be reasonable.
(t) Insurance. Each of Company and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance policies with
coverages which Company believes are customary for companies similarly situated
to Company and its Subsidiaries in the same or similar business.
(u) SEC Reports and Financial Statements. Except as set forth on
Schedule 12(u), Company and each of its Subsidiaries has filed all proxy
statements, reports and other documents required to be filed by it under the
Exchange Act. Company has furnished Laurus with copies of: (i) its Annual Report
on Form 10-KSB for its fiscal year ended June 30, 2004; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarters ended September 30, 2004, and the
Form 8-K filings which it has made during its fiscal year 2005 to date
(collectively, the "SEC Reports"). Except as set forth on Schedule 4.21, each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Such financial statements have been prepared in
accordance with 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 Company and its
Subsidiaries, on a consolidated basis, as of, and for, the periods presented in
each such SEC Report.
(v) Listing. The Company's Common Stock is traded on the NASD OTC
Bulletin Board ("OTC BB") and satisfies all requirements for the continuation of
such trading. The Company has not received any notice that its Common Stock will
be ineligible to trade on the OTC BB or that its Common Stock does not meet all
requirements for such trading.
21
(w) No Integrated Offering. Neither Company, nor any of its
Subsidiaries nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or
solicited any offers to buy any security under circumstances that would cause
the offering of the Securities pursuant to this Agreement or any Ancillary
Agreement to be integrated with prior offerings by Company for purposes of the
Securities Act which would prevent Company from selling the Securities pursuant
to Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions, nor will Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
(x) Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. Company will not issue any stop transfer order or other
order impeding the sale and delivery of any of the Securities at such time as
the Securities are registered for public sale or an exemption from registration
is available, except as required by state and federal securities laws.
(y) Dilution. Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Notes and exercise of
the Warrants is binding upon Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of
Company.
(z) Patriot Act. Each of Company and each Eligible Subsidiary certifies
that, to the best of Company's and such Eligible Subsidiary's knowledge, neither
Company nor any of its Subsidiaries has been designated, and is not owned or
controlled, by a "suspected terrorist" as defined in Executive Order 13224. Each
of Company and each Eligible Subsidiary hereby acknowledges that Laurus seeks to
comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, each of Company and each Eligible
Subsidiary hereby represent, warrant and agree that: (i) none of the cash or
property that it or any of its Subsidiaries will pay or will contribute to
Laurus has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or payment by
it or any of its Subsidiaries to Laurus, to the extent that they are within
Company's or any such Subsidiary's control shall cause Laurus to be in violation
of the United States Bank Secrecy Act, the United States International Money
Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. Each of Company
and each Eligible Subsidiary shall promptly notify Laurus if any of these
representations ceases to be true and accurate regarding Company or any of its
Subsidiaries. Each of Company and each Eligible Subsidiary agrees to provide
Laurus with any additional information regarding Company and each Subsidiary
thereof that Laurus deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. Each of
Company and each Eligible Subsidiary understands and agrees that if at any time
it is discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in Company and each Eligible
Subsidiary. Each of Company and each Eligible Subsidiary further understands
that Laurus may release confidential information about Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
22
authorities if Laurus, in its sole discretion, determines that it is in the best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
(aa) Schedule 12(aa) sets forth Company's and each Eligible
Subsidiary's name as it appears in official filing in the state of its
incorporation, the type of entity of Company and each Eligible Subsidiary, the
organizational identification number issued by Company's and each Eligible
Subsidiary's state of incorporation or a statement that no such number has been
issued, Company's and each Eligible Subsidiary's state of incorporation, and the
location of Company's and each Eligible Subsidiary's chief executive office,
corporate offices, warehouses, other locations of Collateral and locations where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as set forth in such Schedule 12(aa), such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth in Schedule 12(aa),
neither Company nor any Eligible Subsidiary has been known as or conducted
business in any other name (including trade names). Each of Company and each
Eligible Subsidiary has only one state of incorporation.
13. Covenants. Each of Company and each Eligible Subsidiary, as
applicable, covenants and agrees with Laurus as follows:
(a) Stop-Orders. It will advise Laurus, promptly after it receives
notice of issuance by the SEC, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of Company, or of the suspension of the
qualification of the Common Stock of Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. It will promptly secure the listing of the shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
on the OTC BB (the "Principal Market") upon which shares of Common Stock are
listed (subject to official notice of issuance) and shall maintain such listing
so long as any other shares of Common Stock shall be so listed. Company will
maintain the listing of its Common Stock on the Principal Market, and will
comply in all material respects with Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable.
(c) Market Regulations. Company will notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.
(d) Reporting Requirements. Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
23
(e) Use of Funds. It will use the proceeds of the Loans to repay the
existing indebtedness owing to Silicon Valley Bank and on the Specified
Subordinated Debt and for working capital purposes only.
(f) Intentionally Omitted.
(g) Taxes. It will, and will cause each of its Subsidiaries to,
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon its and its Subsidiaries' income, profits, property or business, as
the case may be; provided, however, that any such tax, assessment, charge or
levy need not be paid if the validity thereof shall currently be contested in
good faith by appropriate proceedings and if it and/or such Subsidiary shall
have set aside on its and/or such Subsidiary's books adequate reserves with
respect thereto, and provided, further, that it will, and will cause each of its
Subsidiaries to, pay all such taxes, assessments, charges or levies forthwith
upon the commencement of proceedings to foreclose any lien which may have
attached as security therefor.
(h) Insurance. It will bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral. It will keep its assets which
are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated; and it will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which it reasonably believes is customary for companies in similar
business similarly situated and to the extent available on commercially
reasonable terms. It will (jointly and severally) bear the full risk of loss
from any loss of any nature whatsoever with respect to the assets pledged to
Laurus as security for its obligations hereunder and under the Ancillary
Agreements. At its own cost and expense in amounts and with carriers reasonably
acceptable to Laurus, it shall (i) keep all its insurable properties and
properties in which it has an interest insured against the hazards of fire,
flood, sprinkler leakage, those hazards covered by extended coverage insurance
and such other hazards, and for such amounts, as is customary in the case of
companies engaged in similar businesses similar including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in similar businesses insuring against larceny, embezzlement
or other criminal misappropriation of insured's officers and employees who may
either singly or jointly with others at any time have access to the assets or
funds of Company or any of its Subsidiaries either directly or through
governmental authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage suffered
by others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which Company or
any of its Subsidiaries is engaged in business; and (v) furnish Laurus with (x)
copies of all policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting Company's and its
Subsidiaries' workers' compensation policy, endorsements to such policies naming
Laurus as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Laurus, naming Laurus as loss
payee, and (z) evidence that as to Laurus the insurance coverage shall not be
impaired or invalidated by any act or neglect of Company or any of its
Subsidiaries and the insurer will provide Laurus with at least thirty (30) days
24
notice prior to cancellation. Each of Company and each Eligible Subsidiary shall
instruct the insurance carriers that in the event of any loss thereunder, the
carriers shall make payment for such loss to Laurus and not to Company and/or
any Subsidiary thereof and Laurus jointly. If any insurance losses are paid by
check, draft or other instrument payable to Company and/or any Subsidiary
thereof and Laurus jointly, Laurus may endorse Company's and/or such
Subsidiary's name thereon and do such other things as Laurus may deem advisable
to reduce the same to cash. Laurus is hereby authorized to adjust and compromise
claims. All loss recoveries received by Laurus upon any such insurance may be
applied to the Obligations, in such order as Laurus in its sole discretion shall
determine or shall otherwise be delivered to Company and/or such Subsidiary
thereof. Any surplus shall be paid by Laurus to Company and/or such Subsidiary
thereof or applied as may be otherwise required by law. Any deficiency thereon
shall be paid by Company and its Subsidiaries to Laurus, on demand.
(i) Intellectual Property. It will, and will cause each of its
Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(j) Properties. It will, and will cause each of its Subsidiaries to,
keep its properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and it will, and
will cause each of its Subsidiaries to, at all times comply with each provision
of all leases to which it is a party or under which it occupies property if the
breach of such provision could reasonably be expected to have a Material Adverse
Effect.
(k) Confidentiality. It will not, and will not permit any of its
Subsidiaries to, disclose, and will not include in any public announcement, the
name of Laurus, unless expressly agreed to by Laurus or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. Laurus acknowledges that this Agreement and the
transactions pursuant hereto shall be deemed a material contract and a material
event for the Company and shall be the subject of an SEC filing on Form 8-K.
Company and its Subsidiaries may disclose Laurus' identity and the terms of this
Agreement to its current and prospective debt and equity financing sources.
(l) Required Approvals. It shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Laurus, (i) create, incur,
assume or suffer to exist any indebtedness (exclusive of trade debt) whether
secured or unsecured other than Company's and each Eligible Subsidiary's
indebtedness to Laurus and as set forth on Schedule 13(l)(i) attached hereto and
made a part hereof; (ii) cancel any debt owing to it in excess of $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 Company or an Eligible Subsidiary for deposit or collection or
similar transactions in the ordinary course of business; (iv) directly or
indirectly declare, pay or make any dividend or distribution on any class of its
Stock or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any Stock of Company or any Eligible Subsidiary
outstanding on the date hereof, or issue any preferred stock; (v) purchase or
hold beneficially any Stock or other securities or evidences of indebtedness of,
25
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 and each
Eligible Subsidiaries officers and employees not exceeding at any one time an
aggregate of $10,000, and (z) existing Subsidiaries of Company; (vi) create or
permit to exist any Subsidiary, other than any Subsidiary in existence on the
date hereof and listed in Schedule 12(b) unless such new Subsidiary is a
wholly-owned Subsidiary and is designated by Laurus as either a co-borrower or
guarantor hereunder and such Subsidiary shall have entered into all such
documentation required by Laurus, including, without limitation, to grant to
Laurus a first priority perfected security interest in substantially all of such
Subsidiary's assets to secure the Obligations; (vii) directly or indirectly,
prepay any indebtedness (other than to Laurus and in the ordinary course of
business), or repurchase, redeem, retire or otherwise acquire any indebtedness
(other than to Laurus and in the ordinary course of business) except to make
scheduled payments of principal and interest thereof; (viii) enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or Stock of any Person or permit any
other Person to consolidate with or merge with it, unless (1) Company or an
Eligible Subsidiary, as applicable, 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 and each
Eligible Subsidiary, as applicable, shall have provided Laurus copies of all
documentation relating to such merger or consolidation and (4) Company shall
have provided Laurus with at least thirty (30) days' prior written notice of
such merger or consolidation; (ix) materially change the nature of the business
in which it is presently engaged; (x) become subject to (including, without
limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) materially
restrict the Company's or any Eligible Subsidiary's right to perform the
provisions of this Agreement or any of the agreements contemplated thereby; (xi)
change its fiscal year or make any changes in accounting treatment and reporting
practices without prior written notice to Laurus except as required by GAAP or
in the tax reporting treatment or except as required by law; (xii) enter into
any transaction with any employee, director or Affiliate, except in the ordinary
course on arms-length terms; (xiii) ▇▇▇▇ Accounts under any name except the
present name of Company or any Eligible Subsidiary; or (xiv) sell, lease,
transfer or otherwise dispose of any of its properties or assets, or any of the
properties or assets of its Subsidiaries, except (1) in the ordinary course of
business consistent with past practice and (2) the GO Software Sale so long as
all of the conditions set forth in the GO Software Sale Letter Agreement shall
have been satisfied in a manner reasonably satisfactory to Laurus for Laurus'
agreement to release its Lien in the assets covered by the GO Software Sale.
(m) Reissuance of Securities. Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 37 below at
such time as:
(i) the holder thereof is permitted to dispose of such
Securities pursuant to Rule 144(k) under the Securities Act; or
(ii) upon resale subject to an effective registration
statement after such Securities are registered under the Securities Act.
26
Company agrees to cooperate with Laurus in connection with all resales pursuant
to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow
such resales provided Company and its counsel receive reasonably requested
representations from Laurus and broker, if any.
(n) Opinion. On the Closing Date, Company and each Eligible Subsidiary
will deliver to Laurus an opinion acceptable to Laurus from Company's and each
Eligible Subsidiary's legal counsel. Company and each Eligible Subsidiary will
provide, at Company's and each Eligible Subsidiary's expense, such other legal
opinions in the future as are reasonably necessary for the conversion of the
Notes and the exercise of the Warrants.
(o) Legal Name, etc. Neither Company nor any of its Eligible
Subsidiaries will, without providing Laurus with 20 days prior written notice,
change (i) its name as it appears in the official filings in the state of its
incorporation or formation, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws or other organizational document; provided that Laurus is
aware that the Company intends to change its name in connection with the GO
Software Sale. Company shall provide Laurus 20 days prior written notice of such
name change.
(p) Compliance with Laws. The operation of each of the Company's and
each of its Subsidiaries' business is and will continue to be in compliance in
all material respects with all applicable federal, state and local laws, rules
and ordinances, including to all laws, rules, regulations and orders relating to
taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health safety and environmental matters.
(q) Notices. Each of the Company and each of its Subsidiaries will
promptly inform Laurus in writing of: (i) the commencement of all proceedings
and investigations by or before and/or the receipt of any notices from, any
governmental or nongovernmental body and all actions and proceedings in any
court or before any arbitrator against or in any way concerning any event which
could reasonable be expected to have singly or in the aggregate, a Material
Adverse Effect; (ii) any change which has had, or could reasonably be expected
to have, a Material Adverse Effect; (iii) any Event of Default or Default; and
(iv) any default or any event which with the passage of time or giving of notice
or both would constitute a default under any agreement for the payment of money
to which Company or any of its Subsidiaries is a party or by which Company or
any of its Subsidiaries or any of Company's or any such Subsidiary's properties
may be bound the breach of which would have a Material Adverse Effect..
(r) Margin Stock. The Company will not permit any of the proceeds of
the Loans made hereunder to be used directly or indirectly to "purchase" or
"carry" "margin stock" or to repay indebtedness incurred to "purchase" or
"carry" "margin stock" within the respective meanings of each of the quoted
terms under Regulation U of the Board of Governors of the Federal Reserve System
as now and from time to time hereafter in effect.
(s) Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), the Company will not issue any securities with a
27
continuously variable/floating conversion feature which are or could be (by
conversion or registration) free-trading securities (i.e. common stock subject
to a registration statement) prior to the full repayment or conversion of the
Notes (together with all accrued and unpaid interest and fees related thereto
(the "Exclusion Period").
(t) Authorization and Reservation of Shares. Company will at all times
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the conversion of the Notes and exercise of the Warrants.
(u) Prohibition of Amendments to Subordinated Debt Documentation.
Neither the Company nor any Eligible Subsidiary shall, without the prior written
consent of Laurus, amend, modify or in any way alter the terms of any of the
Subordinated Debt Documentation.
(v) Prohibition of Grant of Collateral for Subordinated Debt
Documentation. Neither the Company nor any Eligible Subsidiary shall, without
the prior written consent of Laurus, grant or permit any of its Subsidiaries to
grant to any Person any collateral of such Company, Eligible Subsidiary or other
Subsidiary as security for any obligation arising under the Subordinated Debt
Documentation.
(w) Prohibitions of Payment Under Subordinated Debt Documentation.
Neither the Company nor any Eligible Subsidiary shall, without the prior written
consent of Laurus, make any payments in respect of the indebtedness evidenced by
the Subordinated Debt Documentation, other than as expressly permitted by the
terms thereof.
14. Further Assurances. At any time and from time to time, upon the
written request of Laurus and at the sole expense of Company, each of Company
and each Eligible Subsidiary shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Laurus may request (a) to obtain the full benefits of this Agreement and the
Ancillary Agreements, (b) to protect, preserve and maintain Laurus' rights in
the Collateral and under this Agreement or any Ancillary Agreement, or (c) to
enable Laurus to exercise all or any of the rights and powers herein granted or
any Ancillary Agreement.
15. Representations and Warranties of Laurus. Laurus hereby represents
and warrants to Company as follows:
(a) Requisite Power and Authority. Laurus has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Ancillary Agreements and to carry out their provisions. All
corporate action on Laurus' part required for the lawful execution and delivery
of this Agreement and the Ancillary Agreements have been or will be effectively
taken prior to the Closing Date. Upon their execution and delivery, this
Agreement and the Ancillary Agreements will be valid and binding obligations of
Laurus, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
28
(b) Investment Representations. Laurus understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Laurus' representations contained in
this Agreement, including, without limitation, that Laurus is an "accredited
investor" within the meaning of Regulation D under the Securities Act. Laurus
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Notes to be purchased by it under this Agreement and the Securities acquired
by it upon the conversion of the Notes.
(c) Laurus Bears Economic Risk. Laurus has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to Company so that it is capable of evaluating the merits and
risks of its investment in Company and has the capacity to protect its own
interests. Laurus must bear the economic risk of this investment until the
Securities are sold pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available.
(d) Acquisition for Own Account. Laurus is acquiring the Securities for
its own account for investment only, and not as a nominee or agent and not with
a view towards or for resale in connection with their distribution.
(e) Laurus Can Protect Its Interest. Laurus represents that by reason
of its, or of its management's, business and financial experience, Laurus has
the capacity to evaluate the merits and risks of its investment in the Notes,
and the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Ancillary Agreements.
Further, Laurus is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Ancillary Agreements.
(f) Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(g) Shorting. Neither Laurus nor any of its Affiliates or investment
partners has, will, or will cause any person or entity, directly or indirectly
to, engage in "short sales" of Company's common stock directly related to
Company's Common Stock as long as any Obligations shall be outstanding.
(h) Patriot Act. Laurus certifies that, to the best of Laurus'
knowledge, Laurus has not been designated, and is not owned or controlled, by a
"suspected terrorist" as defined in Executive Order 13224. Laurus seeks to
comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, Laurus hereby represents, warrants
and agrees that: (i) none of the cash or property that Laurus will use to
purchase the Notes has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
disbursement by Laurus to the Company, to the extent within Laurus' control,
shall cause Laurus to be in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing Act
of 2001. Laurus shall promptly notify the Company if any of these
representations ceases to be true and accurate regarding Laurus. Laurus agrees
29
to provide the Company any additional information regarding Laurus that the
Company deems necessary or convenient to ensure compliance with all applicable
laws concerning money laundering and similar activities. Laurus understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, Laurus may undertake
appropriate actions to ensure compliance with applicable law or regulation,
including but not limited to segregation and/or redemption of Laurus' investment
in the Company. Laurus further understands that the Company may release
information about Laurus and, if applicable, any underlying beneficial owners,
to proper authorities if the Company, in its sole discretion, determines that it
is in the best interests of the Company in light of relevant rules and
regulations under the laws set forth in subsection (ii) above.
16. Power of Attorney. Each of Company and each Eligible Subsidiary
hereby appoints Laurus, or any other Person whom Laurus may designate as
Company's and/or any Eligible Subsidiary's attorney, with power to: (i) endorse
Company's and each Eligible Subsidiary's name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come into
Laurus' possession; (ii) on or after occurrence and during continuation of an
Event of Default sign Company's and each Eligible Subsidiary's name on any
invoice or ▇▇▇▇ 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) on or after occurrence and during continuation of an Event of
Default do all things necessary to carry out this Agreement, any Ancillary
Agreement and all related documents; and (v) on or after the occurrence and
continuation of an Event of Default, notify the post office authorities to
change the address for delivery of Company's and each Eligible Subsidiary's mail
to an address designated by Laurus, and to receive, open and dispose of all mail
addressed to Company or any Eligible Subsidiary. Each of Company and each
Eligible Subsidiary hereby ratifies and approves all acts of the attorney.
Neither Laurus, nor the attorney will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law, except for gross negligence or
willful misconduct. This power, being coupled with an interest, is irrevocable
so long as Laurus has a security interest and until the Obligations have been
fully satisfied.
17. Term of Agreement. Laurus' agreement to make Loans and extend
financial accommodations under and in accordance with the terms of this
Agreement or any Ancillary Agreement shall continue in full force and effect
until the expiration of the Initial Term. At Laurus' election following the
occurrence of an Event of Default, Laurus may terminate this Agreement. The
termination of the Agreement shall not affect any of Laurus' rights hereunder or
any Ancillary Agreement and the provisions hereof and thereof shall continue to
be fully operative until all transactions entered into, rights or interests
created and the Obligations have been irrevocably disposed of, concluded or
liquidated. Notwithstanding the foregoing and subject to the terms of the GO
Software Sale Letter Agreement, Laurus shall release its security interests at
any time after thirty (30) days notice upon irrevocable payment to it of all
Obligations if Company and each Eligible Subsidiary shall have (i) provided
Laurus with an executed release of any and all claims which Company or any
Eligible Subsidiary may have or thereafter have under this Agreement and all
Ancillary Agreements and (ii) paid to Laurus an early payment fee in an amount
30
equal to (1) five percent (5%) of the Total Investment Amount if such payment
occurs prior to the first anniversary of the Initial Term or any applicable
renewal term, (2) four percent (4%) of the Total Investment 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 (3) three
percent (3%) of the Total Investment Amount 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 and
each Eligible Subsidiary to Laurus upon termination by acceleration of this
Agreement by Laurus due to the occurrence and continuance of an Event of
Default.
18. Termination of Lien. The Liens and rights granted to Laurus
hereunder and any Ancillary Agreements and the financing statements filed in
connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that Company's or
any Eligible Subsidiary's account may from time to time be temporarily in a zero
or credit position, until (a) all of the Obligations of Company or any Eligible
Subsidiary have been paid or performed in full at the time of or after the
termination of this Agreement. Laurus shall not be required to send termination
statements to Company or any Eligible Subsidiary, or to file them with any
filing office, unless and until this Agreement and the Ancillary Agreements
shall have been terminated in accordance with their terms and all Obligations
paid in full in immediately available funds.
19. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default":
(a) failure to make payment of any of the Obligations when required
hereunder;
(b) failure by the Company or any of its Subsidiaries to pay any taxes
when due unless such taxes are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been provided on
Company's and/or such Subsidiary's books;
(c) failure to perform under, and/or committing any breach of, in any
material respect, this Agreement or any Ancillary Agreement or any other
agreement between Company and/or any Subsidiary thereof, on the one hand, and
Laurus, on the other hand, which failure or breach shall continue for a period
of twenty (20) days after the occurrence thereof or such longer grace period as
shall expressly be set forth in any Ancillary Agreement;
(d) the occurrence of any event of default (or similar term) under any
indebtedness (including, without limitation, the indebtedness evidenced by the
Subordinated Debt Documentation) which Company or any of its Subsidiaries is a
party with third parties;
(e) any representation, warranty or statement made by Company or any of
its Subsidiaries hereunder, in any Ancillary Agreement, any certificate,
statement or document delivered pursuant to the terms hereof, or in connection
with the transactions contemplated by this Agreement should at any time be false
or misleading in any material respect;
31
(f) an attachment or levy is made upon Company's or any Eligible
Subsidiary's assets having an aggregate value in excess of $100,000 or a
judgment is rendered against Company or any Eligible Subsidiary or Company's or
any Eligible Subsidiary's property involving a liability of more than $100,000
which shall not have been vacated, discharged, stayed or bonded within forty
(40) days from the entry thereof;
(g) any change in Company's or any of its Subsidiaries' condition or
affairs (financial or otherwise) which in Laurus' reasonable, good faith
opinion, could reasonably be expected to have a Material Adverse Effect;
(h) any Lien created hereunder or under any Ancillary Agreement for any
reason ceases to be or is not a valid and perfected Lien having a first priority
interest;
(i) if Company or any of its Subsidiaries shall (i) apply for, consent
to or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any of
the foregoing;
(j) Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable to pay its debts as they become due or cease
operations of its present business;
(k) Company or any Eligible Subsidiary 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 Eligible
Subsidiary or any interest therein, except as permitted herein or in the GO
Software Side Letter Agreement;
(l) the occurrence of a Change of Control or change in the senior
management of Company or any Eligible Subsidiary;
(m) the indictment of Company or any of its Subsidiaries or any
executive officer of Company or any of its Subsidiaries under any criminal
statute, or commencement of criminal or civil proceeding against Company or any
of its Subsidiaries or any executive officer of Company or any of its
Subsidiaries pursuant to which statute or proceeding penalties or remedies
sought or available include forfeiture of any of the property of Company or any
of its Subsidiaries; or
(n) if an Event of Default shall occur under and as defined in any Note
or in any Ancillary Agreement;.
(o) if the Company of any of its Subsidiaries attempts to terminate,
challenges the validity of, or its liability under any Ancillary Agreement;
32
(p) failure of the Company and each Eligible Subsidiary to enter into
the lockbox arrangements contemplated by Section 8(a) within forty-five (45)
days following the Closing Date; or
(q) if any proceeding shall be brought to challenge the validity,
binding effect of any Ancillary Agreement to which it is a party or should any
Ancillary Agreement cease to be a valid, binding and enforceable obligation of
the Company of any of its Subsidiaries (to the extent such Persons are a party
thereto).
20. Remedies. Following the occurrence of an Event of Default, Laurus
shall have the right to demand repayment in full of all Obligations, whether or
not otherwise due. Until all Obligations have been fully 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 and/or each
Eligible Subsidiary to assemble the Collateral, at Company's and each Eligible
Subsidiaries' joint and several expense, and to make it available to Laurus at a
place designated by Laurus which is reasonably convenient to both parties and to
enter any of the premises of Company or any Eligible Subsidiary or wherever the
Collateral shall be located, with or without force or process of law, and to
keep and store the same on said premises until sold (and if said premises be the
property of Company or any Eligible Subsidiary, Company agrees not to charge
Laurus for storage thereof), and the right to apply for the appointment of a
receiver for Company's and each Eligible Subsidiary's property. Further, Laurus
may, at any time or times after the occurrence of an Event of Default, sell and
deliver all Collateral held by or for Laurus at public or private sale for cash,
upon credit or otherwise, at such prices and upon such terms as Laurus, in
Laurus' sole discretion, deems advisable or Laurus may otherwise recover upon
the Collateral in any commercially reasonable manner as Laurus, in its sole
discretion, deems advisable. The requirement of reasonable notice shall be met
if such notice is mailed postage prepaid to Company Agent at Company Agent's
address as shown in Laurus' records, at least ten (10) days before the time of
the event of which notice is being given. Laurus may be the purchaser at any
sale, if it is public. In connection with the exercise of the foregoing
remedies, Laurus is granted permission to use all of Company's and each Eligible
Subsidiary's trademarks, tradenames, tradestyles, patents, patent applications,
licenses, franchises and other proprietary rights. The proceeds of sale shall be
applied first to all costs and expenses of sale, including attorneys' fees, and
second to the payment (in whatever order Laurus elects) of all Obligations.
After the indefeasible payment and satisfaction in full in cash of all of the
Obligations, and after the payment by Laurus of any other amount required by any
provision of law, including Section 608(a)(1) of the Code (but only after Laurus
has received what Laurus considers reasonable proof of a subordinate party's
security interest), the surplus, if any, shall be paid to Company, such Eligible
Subsidiary or its representatives or to whosoever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may direct. Each of
Company and each Eligible Subsidiary shall remain jointly and severally liable
to Laurus for any deficiency. In addition, each of Company and each Eligible
Subsidiary shall pay Laurus a liquidation fee ("Liquidation Fee") in the amount
of five percent (5%) of the actual amount collected in respect of each Account
outstanding at any time during a "liquidation period". For purposes hereof,
"liquidation period" means a period: (i) beginning on the earliest date of (x)
an event referred to in Section 19(i) or 19(j), or (y) the cessation of
33
Company's of any Eligible such Subsidiary's business; and (ii) ending on the
date on which Laurus has actually received all Obligations due and owing it
under this Agreement and the Ancillary Agreements. The Liquidation Fee shall be
paid on the date on which Laurus collects the applicable Account by deduction
from the proceeds thereof. Company, Eligible Subsidiaries 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, Eligible
Subsidiaries and Laurus have agreed that the fees and obligations set forth in
this Section and in this Agreement would constitute fair and appropriate
liquidated damages in the event of any such termination.
21. Waivers. To the full extent permitted by applicable law, each of
Company and each Eligible Subsidiary hereby waives (a) presentment, demand and
protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all of this Agreement and the
Ancillary Agreements or any other notes, commercial paper, Accounts, contracts,
Documents, Instruments, Chattel Paper and guaranties at any time held by Laurus
on which Company or any such Eligible Subsidiary may in any way be liable, and
hereby ratifies and confirms whatever Laurus may do in this regard; (b) all
rights to notice and a hearing prior to Laurus' taking possession or control of,
or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Each of Company and each Eligible Subsidiary acknowledges
that it has been advised by counsel of its choices and decisions with respect to
this Agreement, the Ancillary Agreements and the transactions evidenced hereby
and thereby.
22. Expenses. Company and each Eligible Subsidiary shall jointly and
severally 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 and each Eligible Subsidiary shall also jointly
and severally pay all of Laurus' reasonable fees, charges, out-of-pocket costs
and expenses, including fees and disbursements of counsel and appraisers, in
connection with (a) the preparation, execution and delivery of any waiver, any
amendment thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements, (b)
Laurus' obtaining performance of the Obligations under this Agreement and any
Ancillary Agreements, including, but not limited to, the enforcement or defense
of Laurus' security interests, assignments of rights and Liens hereunder as
valid perfected security interests, (c) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any Collateral, (d) any
appraisals or re-appraisals of any property (real or personal) pledged to Laurus
by Company or any of its Subsidiaries as Collateral for, or any other Person as
security for, the Obligations hereunder and (e) any consultations in connection
with any of the foregoing. Company and each Eligible Subsidiary shall also
jointly and severally pay Laurus' customary bank charges for all bank services
(including wire transfers) performed or caused to be performed by Laurus for
Company or any of its Subsidiaries at Company's or such Subsidiary's request or
in connection with Company's and/or any Eligible Subsidiary's loan account with
Laurus. All such costs and expenses together with all filing, recording and
34
search fees, taxes and interest payable by Company and each Eligible Subsidiary
to Laurus shall be payable on demand and shall be secured by the Collateral. If
any tax by any Governmental Authority is or may be imposed on or as a result of
any transaction between Company and/or any Subsidiary thereof, on the one hand,
and Laurus on the other hand, which Laurus is or may be required to withhold or
pay, Company and each Eligible Subsidiary agree to jointly and severally
indemnify and hold Laurus harmless in respect of such taxes, and Company and
each Eligible Subsidiary will repay to Laurus the amount of any such taxes which
shall be charged to Company's and each Eligible Subsidiary's account; and until
Company and each Eligible Subsidiary 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 and each Eligible Subsidiary's credit and Laurus
shall retain its Liens in any and all Collateral.
23. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person
which is not a competitor of Company or any Subsidiary of Company and any such
transferee shall succeed to all of Laurus' rights with respect thereto. Upon
such transfer, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. Company and each Eligible Subsidiary agree 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
and/or such Eligible Subsidiary were directly indebted to such holder in the
amount of such participation.
24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise any
right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between Company, any
Eligible Subsidiary and Laurus or delay by Laurus in exercising the same, will
not operate as a waiver; no waiver by Laurus will be effective unless it is in
writing and then only to the extent specifically stated. Laurus' rights and
remedies under this Agreement and the Ancillary Agreements will be cumulative
and not exclusive of any other right or remedy which Laurus may have.
25. Application of Payments. Company and each Eligible Subsidiary
irrevocably waive the right to direct the application of any and all payments at
any time or times hereafter received by Laurus from or on Company's and/or any
Eligible Subsidiary's behalf and Company and each Eligible Subsidiary hereby
irrevocably agree that Laurus shall have the continuing exclusive right to apply
and reapply any and all payments received at any time or times hereafter against
the Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus' books and records.
26. Indemnity. Company and each Eligible Subsidiary agree to jointly
and severally indemnify and hold Laurus, and its respective affiliates,
employees, attorneys and agents (each, an "Indemnified Person"), harmless from
and against any and all suits, actions, proceedings, claims, damages, losses,
liabilities and expenses of any kind or nature whatsoever (including attorneys'
fees and disbursements and other costs of investigation or defense, including
35
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, ANY ELIGIBLE SUBSIDIARY 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. Notwithstanding anything contained in this Section 26 to the
contrary, in the event the indemnification provisions of Section 5 of the
Registration Rights Agreement (the "Registration Rights Indemnification
Provisions") conflict with the provisions of this Section 26, then, solely as
respects the matters covered by the Registration Rights Agreement, the
Registration Rights Indemnification Provisions shall control.
27. Revival. Company and each Eligible Subsidiary further agree that to
the extent Company or any Eligible Subsidiary makes a payment or payments to
Laurus, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.
28. Borrowing Agency Provisions.
(a) Each of Company and each Eligible Subsidiary hereby irrevocably
designates Company Agent to be its attorney and agent and in such capacity to
borrow, sign and endorse notes, and execute and deliver all instruments,
documents, writings and further assurances now or hereafter required hereunder,
on behalf of such Company or Eligible Subsidiary, and hereby authorizes Laurus
to pay over or credit all loan proceeds hereunder in accordance with the request
of Company Agent.
(b) The handling of this credit facility as a co-borrowing facility
with a borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to Company and each Eligible Subsidiary and at their request.
Laurus shall not incur any liability to Company or any Eligible Subsidiary as a
result thereof. To induce Laurus to do so and in consideration thereof, each of
Company and each Eligible Subsidiary hereby indemnifies Laurus and holds Laurus
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Laurus by any Person arising from or
incurred by reason of the handling of the financing arrangements of Company and
36
each Eligible Subsidiary as provided herein, reliance by Laurus on any request
or instruction from Company Agent or any other action taken by Laurus with
respect to this Paragraph 28.
(c) All Obligations shall be joint and several, and each of Company and
each Eligible Subsidiary shall make payment upon the maturity of the Obligations
by acceleration or otherwise, and such obligation and liability on the part of
Company and each Eligible Subsidiary shall in no way be affected by any
extensions, renewals and forbearance granted by Laurus to Company or any
Eligible Subsidiary, failure of Laurus to give Company or any Eligible
Subsidiary notice of borrowing or any other notice, any failure of Laurus to
pursue to preserve its rights against Company or any Eligible Subsidiary, the
release by Laurus of any Collateral now or thereafter acquired from Company or
any Eligible Subsidiary, and such agreement by Company or any Eligible
Subsidiary to pay upon any notice issued pursuant thereto is unconditional and
unaffected by prior recourse by Laurus to Company or any Eligible Subsidiary or
any Collateral for Company's or any Eligible Subsidiary's Obligations or the
lack thereof.
(d) Each of Company and each Eligible Subsidiary expressly waives any
and all rights of subrogation, reimbursement, indemnity, exoneration,
contribution or any other claim which Company and such Eligible Subsidiary may
now or hereafter have against the other or other person or entity directly or
contingently liable for the Obligations, or against or with respect to any
other's property (including, without limitation, any property which is
Collateral for the Obligations), arising from the existence or performance of
this Agreement, until all Obligations have been paid in full and this Agreement
has been irrevocably terminated.
(e) Each of Company and each Eligible Subsidiary represents and
warrants to Laurus that (i) Company and each Eligible Subsidiary have one or
more common shareholders, directors and officers, (ii) the businesses and
corporate activities of the Company and each Eligible Subsidiary are closely
related to, and substantially benefit, the business and corporate activities of
Company and each Eligible Subsidiary, (iii) the financial and other operations
of Company and each Eligible Subsidiary are performed on a combined basis as if
Company and each Eligible Subsidiary constituted a consolidated corporate group,
(iv) Company and each Eligible Subsidiary will receive a substantial economic
benefit from entering into this Agreement and will receive a substantial
economic benefit from the application of each Loan hereunder, in each case,
whether or not such amount is used directly by Company or any such Eligible
Subsidiary and (v) all requests for Loans hereunder by the Company Agent are for
the exclusive and indivisible benefit of Company and each Eligible Subsidiary as
though, for purposes of this Agreement, Company and each Eligible Subsidiary
constituted a single entity.
29. Notices. Any notice or request hereunder may be given to Company,
Company Agent, any Eligible Subsidiary 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.
37
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Loeb & Loeb LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to Company,
Company Agent or any
Eligible Subsidiary: Return on Investment Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as may be designated in writing hereafter in accordance
with this Section 29 by such Person.
30. Governing Law, Jurisdiction and Waiver of Jury Trial. (a) THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(b) COMPANY AND EACH ELIGIBLE SUBSIDIARY HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW
YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN COMPANY AND/OR EACH ELIGIBLE SUBSIDIARY, ON THE ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇
▇▇▇▇▇▇, ▇▇ THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS, EACH ELIGIBLE SUBSIDIARY AND
COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER
PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
LAURUS. EACH OF COMPANY AND EACH ELIGIBLE SUBSIDIARY EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND COMPANY AND EACH ELIGIBLE SUBSIDIARY HEREBY WAIVES ANY OBJECTION
WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. EACH OF COMPANY AND EACH ELIGIBLE SUBSIDIARY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AGENT
AT THE ADDRESS SET FORTH IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF COMPANY'S OR SUCH ELIGIBLE SUBSIDIARY'S, AS THE
CASE MAY BE, ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS, ANY
ELIGIBLE SUBSIDIARY AND/OR COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO.
31. Limitation of Liability. Each of Company and each Eligible
Subsidiary 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.
39
32. Entire Understanding. This Agreement and the Ancillary Agreements
contain the entire understanding among Company, each Eligible Subsidiary and
Laurus as to the subject matter hereof and thereof and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by Company's, each Eligible
Subsidiary's and Laurus' respective officers. Neither this Agreement, the
Ancillary Agreements, nor any portion or provisions thereof may be changed,
modified, amended, waived, supplemented, discharged, cancelled or terminated
orally or by any course of dealing, or in any manner other than by an agreement
in writing, signed by the party to be charged.
33. Severability. Wherever possible each provision of this Agreement or
the Ancillary Agreements shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.
34. Captions. All captions are and shall be without substantive meaning
or content of any kind whatsoever.
35. Counterparts; Telecopier Signatures. This Agreement may be executed
in one or more counterparts, each of which shall constitute an original and all
of which taken together shall constitute one and the same agreement. Any
signature delivered by a party via telecopier transmission shall be deemed to be
any original signature hereto.
36. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
37. Publicity. Each of Company and each Eligible Subsidiary hereby
authorizes Laurus to make appropriate announcements of the financial arrangement
entered into by and among Company, each Eligible Subsidiary 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.
38. Joinder. It is understood and agreed that any person or entity that
desires to become an Eligible Subsidiary hereunder, or is required to execute a
counterpart of this Agreement after the date hereof pursuant to the requirements
of this Agreement or any Ancillary Agreement, shall become an Eligible
Subsidiary hereunder by (x) executing a Joinder Agreement in form and substance
satisfactory to Laurus, (y) delivering supplements to such exhibits and annexes
to this Agreement and the Ancillary Agreements as Laurus shall reasonably
request and (z) taking all actions as specified in this Agreement as would have
been taken by such Assignor had it been an original party to this Agreement, in
each case with all documents required above to be delivered to Laurus and with
all documents and actions required above to be taken to the reasonable
satisfaction of Laurus.
40
39. 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 RETURN ON INVESTMENT 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 RETURN ON INVESTMENT
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
41
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO RETURN ON
INVESTMENT CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
42
IN WITNESS WHEREOF, the parties have executed this Security Agreement
as of the date first written above.
RETURN ON INVESTMENT CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Financial Officer
GO SOFTWARE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Financial Officer
TECTONIC SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: Chief Financial Officer
LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Associate
43
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated
with respect to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section
11(a).
"Accounts" means all "accounts", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, including: (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper or
Instruments) (including any such obligations that may be characterized as an
account or contract right under the UCC); (b) all of such Person's rights in, to
and under all purchase orders or receipts for goods or services; (c) all of such
Person's rights to any goods represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (d) all rights
to payment due to such Person for Goods or other property sold, leased,
licensed, assigned or otherwise disposed of, for a policy of insurance issued or
to be issued, for a secondary obligation incurred or to be incurred, for energy
provided or to be provided, for the use or hire of a vessel under a charter or
other contract, arising out of the use of a credit card or charge card, or for
services rendered or to be rendered by such Person or in connection with any
other transaction (whether or not yet earned by performance on the part of such
Person); and (e) all collateral security of any kind given by any Account Debtor
or any other Person with respect to any of the foregoing.
"Accounts Availability" means the amount of Revolving Loans
against Eligible Accounts Laurus may from time to time make available to Company
Agent up to ninety percent (90%) of the net face amount of Eligible Accounts
based on Accounts of Company and the Eligible Subsidiaries.
"Affiliate" of any Person means (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Ancillary Agreements" means, the Notes, the Warrants, the
Registration Rights Agreements, each Security Document, the GO Software Sale
Letter 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, any Eligible Subsidiary 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, any Eligible Subsidiary and Laurus.
"Available Minimum Borrowing" shall have the meaning given
such term in Section 2(a)(i).
44
"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 $1,500,000.
"Change of Control" shall mean (a) with respect to Company,
(i) the acquisition by any Person, or two or more Persons acting in concert, of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of 50% or more of
the outstanding shares of voting stock of Borrower or (ii) Persons who are
currently directors of Borrower plus Persons who are nominated by a majority of
Persons who are currently members of the Board of Directors of Borrower shall
cease to constitute at least a majority of the members of the Board of Directors
of Borrower and (b) with respect to any Eligible Subsidiary, the occurrence of
any event which results in less than 100% in the aggregate of the voting stock
or other voting equity interests of such Eligible Subsidiary to be directly or
indirectly owned or controlled by Company.
"Charter" shall have the meaning given such term in Section
12(c)(iv).
"Chattel Paper" means all "chattel paper," as such term is
defined in the UCC, including electronic chattel paper, now owned or hereafter
acquired by any Person.
"Closing Date" means the date on which Company shall first
receive proceeds of the initial Loans or the date hereof, if no Loan is made
under the facility on the date hereof.
"Collateral" means all of Company's and each Eligible
Subsidiary's property and assets, whether real or personal, tangible or
intangible, and whether now owned or hereafter acquired, or in which it now has
or at any time in the future may acquire any right, title or interests including
all of the following property in which it now has or at any time in the future
may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
45
(f) all Deposit Accounts, other bank accounts and all funds on
deposit therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
(l) all commercial tort claims set forth on Schedule 1(A);
(m) all Books and Records;
(n) all Intellectual Property;
(o) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
(p) (i) all money, cash and cash equivalents and (ii) all cash
held as cash collateral to the extent not otherwise constituting Collateral, all
other cash or property at any time on deposit with or held by Laurus for the
account of Company and/or any Eligible Subsidiary (whether for safekeeping,
custody, pledge, transmission or otherwise); and
(q) all products and Proceeds of all or any of the foregoing,
tort claims and all claims and other rights to payment including 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.
Notwithstanding the foregoing, the term "Collateral" shall not
include any General Intangibles consisting of contracts, licenses or other
agreements (collectively, the "Specified General Intangibles") of Company or
Eligible Subsidiary to the extent that (but only to the extent that) (i) they
are not assignable or capable of being encumbered as a matter of law or under
the terms thereof (but solely to the extent that any such restriction shall be
enforceable under applicable law) without the consent of the licensor thereof or
other applicable party thereto, and (ii) such consent has not been obtained;
provided, however, that the foregoing grant of a security interest shall extend
to, and the term "Collateral" shall include, each of the following: (A) any
Specified General Intangible which is in the nature of an Account or a right to
the payment of money or a proceed of, or otherwise related to the enforcement or
collection of, any Account or right to the payment of money, or goods which are
the subject of any Account or right to the payment of money, (B) any and all
proceeds of any Specified General Intangible and (C) upon obtaining the consent
of any such licensor or other applicable party with respect to any such
otherwise excluded Specified General Intangible, such Specified General
Intangible as well as any and all proceeds thereof that might theretofore have
been excluded from such grant of a security interest and from the term
"Collateral."
46
"Common Stock" the shares of stock representing the Company's
common equity interests.
"Company Agent" means Return on Investment Corporation.
"Contract Rate" shall have the meaning set forth in the
respective Note.
"Default" means any act or event which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Default Rate" has the meaning given to such term in Section
5(a)(iii).
"Deposit Accounts" means all "deposit accounts" as such term
is defined in the UCC, now or hereafter held in the name of any Person,
including, without limitation, the Lockbox Account(s).
"Documents" means all "documents", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all bills of lading, dock warrants, dock receipts, warehouse receipts,
and other documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" means and includes each Account of the
Company and each Eligible Subsidiary which conforms to the following criteria:
(a) 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 and each Eligible Subsidiary to Laurus with
respect thereto; (e) Laurus is, and continues to be, satisfied with the credit
standing of the Account Debtor in relation to the amount of credit extended; (f)
there are no facts existing or threatened which are likely to result in any
material adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus in its reasonable
discretion 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 or any
Eligible Subsidiary; (m) is payable to Company or any Eligible Subsidiary; (n)
does not arise out of a ▇▇▇▇ and hold sale prior to shipment and does not arise
out of a sale to any Person to which Company or any Eligible Subsidiary is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between Company and/or any Eligible
47
Subsidiary, on the one hand, and the United States, on the other hand, any
state, or any department, agency or instrumentality of any of them, Company
and/or such Eligible Subsidiary, as the case may be, has so notified Laurus, in
writing, prior to the creation of such Account, and there has been compliance
with any applicable 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 any Eligible Subsidiary or work, labor
and/or services rendered by Company or any Eligible Subsidiary; (r) does not
arise out of progress ▇▇▇▇▇▇▇▇ 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 or such Eligible Subsidiary's
right to payment is absolute and not contingent upon the fulfillment of any
condition whatsoever; (u) Company or such Eligible Subsidiary, as the case may
be, is able to bring suit and enforce its remedies against the Account Debtor
through judicial process; (v) does not represent interest payments, late or
finance charges owing to Company or such Eligible Subsidiary, as the case may
be, and (w) is otherwise satisfactory to Laurus as determined by Laurus in the
exercise of its reasonable discretion. In the event Company requests that Laurus
include within Eligible Accounts certain Accounts of one or more of Company's
acquisition targets, Laurus shall at the time of such request consider such
inclusion, but any such inclusion shall be at the sole option of Laurus and
shall at all times be subject to the execution and delivery to Laurus of all
such documentation (including, without limitation, guaranty and security
documentation) as Laurus may require in its sole discretion.
"Eligible Subsidiary" shall mean GO Software, Tectonic
Solutions and each other Subsidiary of the Company consented to in writing by
Laurus to be included as and "Eligible Subsidiary" for the purposes of this
Agreement.
"Equipment" means all "equipment" as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including any and all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal property (other than
Inventory) of every kind and description that may be now or hereafter used in
such Person's operations or that are owned by such Person or in which such
Person may have an interest, and all parts, accessories and accessions thereto
and substitutions and replacements therefor.
"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.
"Excepted Issuances" shall have the meaning given such term in
Section 13(t).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Act Filings" shall have the meaning given to such
term in Section 12.
"Exclusion Period" shall have the meaning given such term in
Section 13(t).
48
"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.
"GO Software Sale" means the sale by ROIE of all of the stock
of GO Software or the sale by GO Software of substantially all of the assets of
GO Software, as applicable.
"GO Software Sale Letter Agreement" means the letter agreement
dated the date hereof among Company, the Eligible Subsidiaries and Laurus which
sets forth, among other things, the conditions under which Laurus will release
its Lien on the assets of GO Software in connection with the GO Software Sale.
"Goods" means all "goods", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including
embedded software to the extent included in "goods" as defined in the UCC,
manufactured homes, standing timber that is cut and removed for sale and unborn
young of animals.
"Goodwill" means all goodwill, trade secrets, proprietary or
confidential information, technical information, procedures, formulae, quality
control standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
49
"Hazardous Materials" shall have the meaning given such term
in Section 12(q).
"Indemnified Person" shall have the meaning given to such term
in Section 26.
"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 patents, trademarks,
service marks, trade names, copyrights, trade secrets, Licenses, information and
other proprietary rights and processes
"Inventory" means all "inventory", as such term is defined in
the UCC, now owned or hereafter acquired by any Person, wherever located,
including all inventory, merchandise, goods and other personal property that are
held by or on behalf of such Person for sale or lease or are furnished or are to
be furnished under a contract of service or that constitute raw materials, work
in process, finished goods, returned goods, or materials or supplies of any
kind, nature or description used or consumed or to be used or consumed in such
Person's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including all supplies and embedded software.
"Investment Property" means all "investment property", as such
term is defined in the UCC, now owned or hereafter acquired by any Person,
wherever located.
"Letter-of-Credit Rights" means "letter-of-credit rights" as
such term is defined in the UCC, now owned or hereafter acquired by any Person,
including rights to payment or performance under a letter of credit, whether or
not such Person, as beneficiary, has demanded or is entitled to demand payment
or performance.
"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.
50
"Loans" means the Revolving Loans, the Term Loan and all other
extensions of credit hereunder and under any Ancillary Agreement.
"Material Adverse Effect" means a material adverse effect on
(a) a material adverse effect on the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of Company or any
of its Subsidiaries (taken individually or as a whole), (b) Company's or any of
its Subsidiary's ability to pay or perform the Obligations in accordance with
the terms hereof or any Ancillary Agreement, (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 $500,000, which such
aggregate amount shall be evidenced by Minimum Borrowing Notes.
"Minimum Borrowing Notes" shall mean each Secured Convertible
Note, which shall be issued in a series, made by Company and each Eligible
Subsidiary in favor of Laurus to evidence the Minimum Borrowing Amount.
"NASD" shall have the meaning given to such term in Section
13(b).
"Note Shares" shall have the meaning given such term in
Section 12(a).
"Notes" means each of the Minimum Borrowing Notes, the
Revolving Note and the Secured Convertible Term Note made by Company and each
Eligible Subsidiary 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 and each of its
Subsidiaries to Laurus (or any corporation that directly or indirectly controls
or is controlled by or is under common control with Laurus) of every kind and
description (whether or not evidenced by any note or other instrument and
whether or not for the payment of money or the performance or non-performance of
any act), direct or indirect, absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, whether existing by
operation of law or otherwise now existing or hereafter arising including any
debt, liability or obligation owing from Company and/or each of its Subsidiaries
to others which Laurus may have obtained by assignment or otherwise and further
including all interest (including interest accruing at the then applicable rate
provided in this Agreement after the maturity of the Loans and interest accruing
at the then applicable rate provided in this Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), charges or any other payments Company
and/or each of its Subsidiaries is required to make by law or otherwise arising
under or as a result of this Agreement and the Ancillary Agreements, together
with all reasonable expenses and reasonable attorneys' fees chargeable to
Company's or any of its Subsidiary's account or incurred by Laurus in connection
51
with Company's or any of its Subsidiary'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 (i) not overdue or (ii) being diligently contested in
good faith provided that adequate reserves with respect thereto are maintained
on the books of the Company 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; (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,
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; (c) Liens in
favor of Laurus; (d) Liens for taxes (i) not yet due or (ii) being diligently
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the Company or any
Subsidiary thereof in conformity with GAAP provided, that, the Lien shall have
no effect on the priority of Liens in favor of Laurus or the value of the assets
in which Laurus has a Lien; (e) Purchase Money Liens securing Purchase Money
Indebtedness to the extent permitted in this Agreement and (f) Liens specified
on Schedule 2 hereto.
"Person" means any individual, sole proprietorship,
partnership, limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"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, any Eligible Subsidiary or
any other Person from time to time with respect to any Collateral; (b) any and
all payments (in any form whatsoever) made or due and payable to Company or any
Eligible Subsidiary from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, governmental authority, bureau or agency (or any person
acting under color of governmental authority); (c) any claim of Company or any
Eligible Subsidiary against third parties (i) for past, present or future
infringement of any Intellectual Property or (ii) for past, present or future
infringement or dilution of any trademark or trademark license or for injury to
the goodwill associated with any trademark, trademark registration or trademark
licensed under any trademark License; (d) any recoveries by Company or any
Eligible Subsidiary against third parties with respect to any litigation or
52
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.
"Receivables Purchase" shall have the meaning given such term
in Section 2(b).
"Registration Rights Agreements" means those registration
rights agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.
"Restricted Account" means those deposit accounts from time to
time maintained by Company or an Eligible Subsidiary with North Fork Bank which
are subject to Laurus' first priority perfected security interest pursuant to a
control or similar agreement among Company or such Eligible Subsidiary, as
applicable, Laurus and North Fork Bank.
"Revolving Note" means that secured revolving note made by
Company and each Eligible Subsidiary in favor of Laurus in the aggregate
principal amount of One Million Five Hundred Thousand Dollars ($1,500,000).
"SEC" shall mean the Securities and Exchange Commission.
"SEC Reports" shall have the meaning provided such term in
Section 12(u).
"Secured Convertible Term Note" means the secured convertible
term note made by Company and each Eligible Subsidiary in favor of Laurus in the
aggregate principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000).
"Securities" means the Notes and the Warrants being issued by
Company to Laurus pursuant to this Agreement and the Ancillary Agreements and
the shares of the common stock of Company which may be issued pursuant to
conversion of such Notes in whole or in part or exercise of such Warrants.
53
"Securities Act" shall have the meaning given such term in
Section 12(r).
"Security Documents" means all security agreements, mortgages,
cash collateral deposit letters, pledges and other agreements which are executed
by the Company or any of its Subsidiaries in favor of Laurus.
"Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by any Person, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.
"Specified Subordinated Debt" means the Company's outstanding
Subordinated Second Secured Convertible Promissory Notes due February 1, 2005
which shall be paid in full on the Closing Date.
"Stock" means all certificated and uncertificated shares,
options, warrants, membership interests, general or limited partnership
interests, participation or other equivalents (regardless of how designated) of
or in a corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including common stock, preferred stock, or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the SEC under the Securities Exchange Act
of 1934).
"Subordinated Debt Documentation" means (i) the Promissory
Note dated December 12, 2003 in the original principal amount of $50,000 made by
Company in favor of ▇▇▇▇▇▇▇ ▇▇▇▇, (ii) the Promissory Note dated December 29,
2003 in the original principal amount of $20,000 made by Company in favor of
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (iii) the Promissory Note dated December 29, 2003 in the
original principal amount of $125,000 made by Company in favor of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, (iv) the Promissory Note dated June 25, 2004 in the original
principal amount of $100,000 made by Company in favor of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, (v)
the Promissory Note dated July 28, 2004 in the original principal amount of
$70,000 made by Company in favor of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, (vi) the Promissory Note
dated October 26, 2004 in the original principal amount of $20,000 made by
Company in favor of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, (vii) the Promissory Note dated January 2,
2004 in the original principal amount of $360,000 made by Company in favor of
▇▇▇▇ ▇▇▇▇▇, (viii) the Promissory Note dated January 2, 3004 in the original
principal amount of $533,500 made by Company in favor of ▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc.
and (ix) all subordination agreements entered into in connection with each of
the foregoing, as each of the same may be amended, modified and supplemented
from time to time.
"Subsidiary" of any Person means (i) a corporation or other
entity whose shares of stock or other ownership interests having ordinary voting
power (other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other persons or entities performing similar functions
for such person or entity, are owned, directly or indirectly, by such person or
entity or (ii) a corporation or other entity in which such person or entity
owns, directly or indirectly, more than 50% of the equity interests at such
time.
"Supporting Obligations" means all "supporting obligations" as
such term is defined in the UCC.
54
"Term" means, as applicable, the Initial Term and any Renewal
Term.
"Total Investment Amount" means $5,500,000.
"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.
"Warrant Shares" shall have the meaning given such term in
Section 12(a).
"Warrants" has the meaning set forth in the Registration
Rights Agreements.
55
Exhibit A
Borrowing Base Certificate
[To be inserted]
--------------------------------
56
LAURUS MASTER FUND, LTD.
RETURN ON INVESTMENT CORPORATION
GO SOFTWARE, INC.
and
TECTONIC SOLUTIONS, INC.
Dated: January 10, 2005
TABLE OF CONTENTS
PAGE
----
1. General Definitions and Terms; Rules of Construction.......................1
2. Revolving Loans............................................................2
3. Repayment of the Loans.....................................................5
4. Procedure for Revolving Loans..............................................5
5. Interest and Payments......................................................5
(a) Interest...............................................................5
(b) Payments; Certain Closing Conditions...................................6
6. Security Interest..........................................................7
7. Representations, Warranties and Covenants Concerning the Collateral........8
8. Payment of Accounts.......................................................10
9. Collection and Maintenance of Collateral..................................11
10. Inspections and Appraisals. .............................................11
11. Financial Reporting.......................................................12
12. Additional Representations and Warranties.................................13
13. Covenants.................................................................23
14. Further Assurances........................................................28
15. Representations and Warranties of Laurus..................................28
16. Power of Attorney.........................................................30
17. Term of Agreement.........................................................30
18. Termination of Lien.......................................................31
19. Events of Default.........................................................31
20. Remedies..................................................................33
21. Waivers...................................................................34
22. Expenses..................................................................34
i
PAGE
----
23. Assignment By Laurus......................................................35
24. No Waiver; Cumulative Remedies............................................35
25. Application of Payments...................................................35
26. Indemnity.................................................................35
27. Revival...................................................................36
28. Borrowing Agency Provisions...............................................36
29. Notices...................................................................37
30. Governing Law, Jurisdiction and Waiver of Jury Trial......................38
31. Limitation of Liability...................................................39
32. Entire Understanding......................................................40
33. Severability..............................................................40
34. Captions..................................................................40
35. Counterparts; Telecopier Signatures.......................................40
36. Construction..............................................................40
37. Publicity.................................................................40
38. Joinder...................................................................40
39. Legends...................................................................41
LIST OF EXHIBITS
Exhibit A-Borrowing Base Certificate
ii