SECURITY AGREEMENT
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LAURUS MASTER FUND, LTD.
BALL PRODUCTS, INC.
and
BP INTERNATIONAL, INC.
Dated: December 2, 2004
TABLE OF CONTENTS
1. In General...............................................................1
2. Loans....................................................................2
3. Repayment of the Loans...................................................4
4. Procedure for Loans......................................................4
5. Interest and Payments....................................................4
6. Security Interest........................................................6
7. Representations, Warranties and Covenants Concerning the Collateral......7
8. Payment of Accounts......................................................9
9. Collection and Maintenance of Collateral................................10
10. Inspections and Appraisals...........................................11
11. Financial Reporting..................................................11
12. Additional Representations and Warranties............................12
14. Further Assurances...................................................28
15. Representations and Warranties of Laurus.............................28
16. Power of Attorney....................................................29
17. Term of Agreement....................................................30
18. Termination of Lien..................................................30
19. Events of Default....................................................31
20. Remedies.............................................................33
21. Waivers..............................................................33
22. Expenses.............................................................34
23. Assignment By Laurus.................................................35
24. No Waiver; Cumulative Remedies.......................................35
25. Application of Payments..............................................35
26. Indemnity............................................................35
27. Revival..............................................................36
28. Notices..............................................................36
29. Governing Law, Jurisdiction and Waiver of Jury Trial.................37
30. Limitation of Liability..............................................38
31. Entire Understanding.................................................38
32. Severability.........................................................38
33. Captions.............................................................39
34. Counterparts; Telecopier Signatures..................................39
35. Construction.........................................................39
36. Publicity............................................................39
37. Joinder..............................................................39
38. Legends..............................................................39
LIST OF EXHIBITS
Exhibit A- Borrowing Base Certificate 53
SCHEDULES
Schedule 7(c) Lien Filings and Actions 54
Schedule 7(p) Banks and Other Financial Institutions 56
Schedule 12(b) Subsidiaries 57
Schedule 12(c) Capitalization 58
Schedule 12(f) Agreements; Actions 59
Schedule 12(g) Obligations to Related Parties 60
Schedule 12(i) Title to Properties and Assets 61
Schedule 12(l) Litigation 62
Schedule 12(m) Tax Returns and Payments 63
Schedule 12(n) Employees 64
Schedule 12(o) Registration Rights and Voting Rights 65
Schedule 12(q) Environmental and Safety Laws 66
Schedule 12(u) SEC Reports and Financial Statements 67
Schedule 12(bb) Schedule 12(bb) 68
SECURITY AGREEMENT
This Security Agreement is made as of December 2, 2004 by and among LAURUS
MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"), BP INTERNATIONAL,
INC., a Delaware corporation ("Company"), and BALL PRODUCTS, INC., a Florida
corporation ("Ball Products").
BACKGROUND
WHEREAS, the Company has requested that Laurus make advances available to
Company; and
WHEREAS, Laurus has agreed to make such advances to Company on the terms
and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
1. In General
(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 to
them in accordance with GAAP and all financial computations shall be computed,
unless specifically provided herein, in accordance with GAAP consistently
applied.
(c) Other Terms. All other terms used in this Agreement and defined
in the UCC, shall have the meaning given therein unless otherwise defined
herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and
Exhibits hereto or expressly identified to this Agreement are incorporated
herein by reference and taken together with this Agreement constitute but a
single agreement. The words "herein", "hereof" and "hereunder" or other words of
similar import refer to this Agreement as a whole, including the Exhibits,
Addenda, Annexes and Schedules thereto, as the same may be from time to time
amended, modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All references to any instruments or agreements, including
references to any of this Agreement or the Ancillary Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
2. Loans.
(a)(i) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus may make loans (the "Loans") to Company from time
to time during the Term which, in the aggregate at any time outstanding, will
not exceed the lesser of (x) (I) the Capital Availability Amount minus (II) such
reserves as Laurus may reasonably in its good faith judgment deem proper and
necessary from time to time (the "Reserves") and (y) an amount equal to (I) the
Accounts Availability minus (II) the Reserves. The amount derived at any time
from Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall be referred to as the
"Formula Amount". Company shall execute and deliver to Laurus on the Closing
Date a Minimum Borrowing Note and a Revolving Note evidencing the Loans funded
on the Closing Date. From time to time thereafter, Company shall execute and
deliver to Laurus immediately prior to the final funding of each additional
$1,000,000 tranche of Loans allocated to any Minimum Borrowing Note issued by
Company to Laurus 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 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 equal to or less than $500,000 (the difference
of $1,000,000 less the actual balance of the Minimum Borrowing Note, the
"Available Minimum Borrowing"), such portion of the balance of the Revolving
Note as shall equal the Available Minimum Borrowing shall be deemed to be
simultaneously extinguished on the Revolving Note and transferred to, and
evidenced by, the Minimum Borrowing Note.
(ii) Notwithstanding the limitations set forth above, if
requested by Company, Laurus retains the right to lend to Company from time to
time such amounts in excess of such limitations as Laurus may determine in its
sole discretion.
(iii) Company acknowledges that the exercise of Laurus'
discretionary rights hereunder may result during the Term in one or more
increases or decreases in the advance percentages used in determining Accounts
Availability and Company hereby consents to any such increases or decreases
which may limit or restrict advances requested by Company.
(iv) If an Event of Default occurs, and continues to exist,
Laurus is hereby authorized at its discretion to make and charge to Company's
account, a Loan to Company as of such date in an amount equal to any unpaid
interest, fees, costs or charges.
(v) If Company at any time fails to perform or observe any of
the covenants contained in this Agreement or any Ancillary Agreement, Laurus
may, but need not, perform or observe such covenant on behalf and in the name,
place and stead of Company (or, at Laurus' option, in Laurus' name) and may, but
need not, take any and all other actions which Laurus may deem necessary to cure
or correct such failure (including the payment of taxes, the satisfaction of
Liens, the performance of obligations owed to Account Debtors, lessors or other
obligors, the procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and the endorsement
of instruments). The amount of all monies expended and all costs and expenses
(including attorneys' fees and legal expenses) incurred by Laurus in connection
with or as a result of the performance or observance of such agreements or the
taking of such action by Laurus shall be charged to Company's account as a Loan
and added to the Obligations. To facilitate Laurus' performance or observance of
such covenants of Company, Company authorizes Laurus to file financing
statements and, upon an Event of Default which continues to exist, hereby
irrevocably appoints Laurus, or Laurus' delegate, acting alone, as Company's
attorney in fact (which appointment is coupled with an interest) with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of Company any and all
instruments, documents, assignments, security agreements, applications for
insurance and other agreements and writings required to be obtained, executed,
delivered or endorsed by Company.
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(vi) Laurus will account to Company monthly with a statement
of all Loans and other advances, charges and payments made pursuant to this
Agreement, and such account rendered by Laurus shall be deemed final, binding
and conclusive unless Laurus is notified by Company in writing to the contrary
within thirty (30) days of the date each account was rendered specifying the
item or items to which objection is made.
(vii) During the Term, Company may borrow and prepay Loans in
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"), Company shall (i) reimburse Laurus for the amount of the Loans made
with respect to such Delinquent Account plus an adjustment fee in an amount
equal to one-half of one percent (0.50%) of the gross face amount of such
Eligible Account or (ii) immediately replace such Delinquent Account with an
otherwise Eligible Account.
(b) Following the occurrence of an Event of Default, which continues
to exist, Laurus may, at its option, elect to convert the credit facility
contemplated hereby to an accounts receivable purchase facility. Upon such
election by Laurus (subsequent to ten (10) days written notice of which from
Laurus shall provide to the Company), Company shall be deemed to hereby have
sold, assigned, transferred, conveyed and delivered to Laurus, and Laurus shall
be deemed to have purchased and received from Company, all right, title and
interest of Company in and to all Accounts which shall at any time constitute
Eligible Accounts (the "Receivables Purchase"). All outstanding Loans hereunder
shall be deemed obligations under such accounts receivable purchase facility.
The conversion to an accounts receivable purchase facility in accordance with
the terms hereof shall not be deemend an exercise by Laurus of its secured
creditor rights under Article 9 of the UCC. Immediately following Laurus'
request, Company shall execute all such further documentation as may be required
by Laurus to more fully set forth the accounts receivable purchase facility
herein contemplated, including, without limitation, Laurus' standard form of
accounts receivable purchase agreement and account debtor notification letters,
but Company's failure to enter into any such documentation shall not impair or
affect the Receivables Purchase in any manner whatsoever.
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(c) Minimum Borrowing Amount. After a registration statement
registering the Registrable Securities has been declared effective by the SEC,
conversions of the Minimum Borrowing Amount into the Common Stock of 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 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 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 as set
forth in the Registration Rights Agreement.
3. Repayment of the Loans.
Company (a) may prepay the Obligations from time to time in accordance
with the terms and provisions of the Notes (and Section 17 hereof if such
prepayment is due to a termination of this Agreement); and (b) shall repay on
the expiration of the Term (i) the then aggregate outstanding principal balance
of the Loans made by Laurus to Company hereunder, together with accrued and
unpaid interest, fees and charges and (ii) all other amounts owed Laurus under
this Agreement and the Ancillary Agreements. Any payments of principal,
interest, fees or any other amounts payable hereunder or under any Ancillary
Agreement shall be made prior to 12:00 noon (New York time) on the due date
thereof in immediately available funds.
4. Procedure for Loans.
Company may by written notice request a borrowing of Loans prior to 12:00
p.m. (New York time) on the Business Day of its request to incur, on the next
business day, a Loan. Together with each request for a Loan (or at such other
intervals as Laurus may request), Company shall deliver to Laurus a Borrowing
Base Certificate in the form of Exhibit A, which shall be certified as true and
correct by the Chief Executive Officer or Chief Financial Officer of Company
together with all supporting documentation relating thereto. All Loans shall be
disbursed from whichever office or other place Laurus may designate from time to
time and shall be charged to Company's account on Laurus' books. The proceeds of
each Loan made by Laurus shall be made available to Company on the Business Day
following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to Company's operating account maintained with such
bank as Company designated to Laurus. Any and all Obligations due and owing
hereunder may be charged to Company's account and shall constitute Loans.
5. Interest and Payments.
(a) Interest.
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(i) Except as modified by Section 5(a)(iii) below, Company
shall pay interest at the Contract Rate on the unpaid principal balance of each
Loan until such time as such Loan is collected in full in good funds in dollars
of the United States of America.
(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 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, respectively, (such
increased rate, the "Default Rate"), and all outstanding Obligations, including
unpaid interest, shall continue to accrue interest from the date of such Event
of Default at the Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable
hereunder exceed the maximum rate permitted under any applicable law or
regulation, as in effect from time to time (the "Maximum Legal Rate") and if any
provision of this Agreement or any Ancillary Agreement is in contravention of
any such law or regulation, interest payable under this Agreement and each
Ancillary Agreement shall be computed on the basis of the Maximum Legal Rate (so
that such interest will not exceed the Maximum Legal Rate).
(v) Company shall pay principal, interest and all other
amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including any deduction for any set-off or counterclaim.
(b) Payments; Certain Closing Conditions.
(i) Closing/Annual Payments. Upon execution of this Agreement
by Company and Laurus, Company shall pay to Laurus Capital Management, LLC a
closing payment in an amount equal to three and nine-tenths percent (3.90%) of
the Capital Availability Amount. Such payment shall be deemed fully earned on
the Closing Date and shall not be subject to rebate or proration for any reason.
(ii) Unused Line Payment. If, during any month, the average of
the aggregate Loans outstanding during such month (the "Average Loan Amount") do
not equal the Capital Availability Amount, Company shall pay to Laurus at the
end of such month a payment (calculated on a per annum basis) in an amount equal
to one quarter percent (0.25%) of the amount by which the Capital Availability
Amount exceeds the Average Loan Amount. Notwithstanding the foregoing, any such
due and unpaid fee shall come immediately due and payable upon termination of
this Agreement.
(iii) Overadvance Payment. Without affecting Laurus' rights
hereunder in the event the Loans exceed the Formula Amount (each such event, an
"Overadvance"), all such Overadvances shall bear interest at an annual rate
equal to one percent (1.0%) of the amount of such Overadvances for each month or
portion thereof such amounts shall be outstanding and in excess of the Formula
Amount.
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(iv) Financial Information Default. Without affecting Laurus'
other rights and remedies, in the event Company fails to deliver the financial
information required by Section 11 on or before the date required by this
Agreement, Company shall pay Laurus a fee in the amount of $500.00 per week (or
portion thereof) for each such failure until such failure is cured to Laurus'
satisfaction or waived in writing by Laurus. Such fee shall be charged to
Company's account upon the occurrence of each such failure.
(v) Expenses. The Company shall reimburse Laurus for its
reasonable appraisal expenses and other expenses (including legal fees and
expenses) incurred in connection with the preparation and negotiation of this
Agreement and the Ancillary Agreements (as hereinafter defined), and 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 and shall be $44,500 for such
expenses referred to in this Section 5(b)(v).
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 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 Loan and made as of the time of each and every Loan
hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by Company and/or an Eligible
Subsidiary, 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's other assets to anyone other than Laurus and except
for Permitted Liens.
(c) the Liens granted pursuant to this Agreement, upon completion of
the filings and other actions listed on 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.
(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) 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 having an aggregate fair market value of not more than
$25,000 and only to the extent that (i) the proceeds of any such disposition are
used to acquire replacement Equipment which is subject to Laurus' first priority
security interest or are used to repay Loans or to pay general corporate
expenses, or (ii) following the occurrence of an Event of Default which
continues to exist the proceeds of which are remitted to Laurus to be held as
cash collateral for the Obligations.
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(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, and take such actions, including (i) all
actions necessary to grant Laurus "control" of any Investment Property, Deposit
Accounts, Letter-of-Credit Rights or electronic Chattel Paper owned by Company
and each Eligible Subsidiary, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus' request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by 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 prudent 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) each of Company and each Eligible Subsidiary shall place
notations upon its Books and Records and any financial statement of Company and
each Eligible Subsidiary, as the case may be, to disclose Laurus' Lien in the
Collateral.
(i) If either Company and/or any 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."
(j) each of Company and each Eligible Subsidiary shall perform in a
reasonable time all other steps reasonably requested by Laurus to create and
maintain in Laurus' favor a valid perfected first Lien in all Collateral subject
only to Permitted Liens.
(k) 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 granted by Company or any Eligible Subsidiary to any
Account Debtor; (v) of all material adverse information relating to the
financial condition of an Account Debtor; (vi) of any material return of goods;
and (vii) of any loss, damage or destruction of any of the Collateral.
(l) All Eligible Accounts (i) which are billed on a construction
completion basis but not payable until the project is completed, represent
complete bona fide transactions which require no further act under any
circumstances on Company's 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
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.
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(m) each of Company and each Eligible Subsidiary shall keep and
maintain its Equipment in good operating condition, except for ordinary wear and
tear, and shall make all necessary repairs and replacements thereof so that the
value and operating efficiency shall at all times be maintained and preserved.
Neither Company nor any Eligible Subsidiary shall permit any such items to
become a Fixture to real estate or accessions to other personal property.
(n) 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).
(o) 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 any such Eligible Subsidiary may
change such locations or open a new location, provided that Company or any such
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 satisfactory to Laurus.
(p) 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 with any financial institution (other than the accounts
set forth on Schedule 7(p)) without Laurus' prior written consent.
8. Payment of Accounts.
(a) 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 or such other financial institution accepted by Laurus in
writing as may be selected by Company (the "Lockbox Bank") pursuant to the terms
of those certain agreement entered into by the Company, the Eligible
Subsidiaries, Laurus and/or the Lockbox Bank. On or prior to the Closing Date,
each of Company and each Eligible Subsidiary shall and shall cause the Lockbox
Bank to enter into all such documentation acceptable to Laurus pursuant to
which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox on
a daily basis and deposit all checks received therein to an account designated
by Laurus in writing and (b) comply only with the instructions or other
directions of Laurus concerning the Lockbox. 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.
9
(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 in Laurus' account. Any amount received
by Laurus after 12:00 noon (New York time) on any Business Day shall be deemed
received on the next Business Day.
(c) As Laurus receives the proceeds of Accounts of Company or any
Eligible Subsidiary, it shall (i) apply such proceeds, as required, to the
outstanding Obligations, 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 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 until the Obligations
are fully paid.
10. Inspections and Appraisals.
10
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 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 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.
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;
11
(c) Within thirty (30) days after the end of each month (or more
frequently if Laurus so reasonably requests), agings of Company's and each
Eligible Subsidiary's Accounts, unaudited trial balances and their accounts
payable and a 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 hereby represents and warrants to Laurus as follows (which
representations and warranties are supplemented by, and subject to, Company's
filings under the Securities Exchange Act of 1934 made prior to the date of this
Agreement (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 Minimum Borrowing Note (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 50,200,000 shares, of which 50,100,000 are shares of
Common Stock, par value $0.001 per share, 43,911,886 shares of which are issued
and outstanding, and 100,000 are shares of preferred stock, par 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
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.
12
(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 applicable to the Minimum
Borrowing Note issued on the Closing Date and the Warrant Shares have been duly
and validly reserved for issuance. On and after 90 days following the Closing
Date, the Note Shares applicable to all Notes issued under this Agreement and
the Ancillary Agreements shall be 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.
13
(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.
(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 May 31, 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;
14
(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.
Except as described above or set forth on Schedule 12(g), none of the
officers, directors or, to the best of Company'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 May 31, 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;
15
(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;
(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 on the date of the initial borrowing under this Agreement,
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; and
(iii) those that have otherwise arisen in the ordinary course
of business.
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.
16
(j) Intellectual Property.
(i) Each of Company and each of its Subsidiaries owns or
possesses sufficient legal rights to all Intellectual Property 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 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) Company does not believe 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 of its 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. The
execution, delivery and performance of and compliance with this Agreement and
the Ancillary Agreements to which it is a party, and the issuance and sale of
the Note by Company 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.
17
(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.
Company has no 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 knowledge, threatened with respect to Company or any of its
Subsidiaries. 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 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
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. Company is not 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.
18
(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 not
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 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 in violation of any applicable
local, state, federal and/or foreign laws and regulations. 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.
19
(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)
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, 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 but are not a guarantee of future results.
(t) Insurance. Each of Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverage's 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 May 31, 2004; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarter ended August 31, 2004, and the
Form 8-K filings which it has made during its fiscal year 2004 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.
20
(v) Listing. The Company's Common Stock is listed for trading on the
National Association of Securities Dealers Over the Counter Bulletin Board
("NASD OTCBB") and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will not
be eligible to be traded on the NASD OTCBB or that its Common Stock does not
meet all requirements for such trading.
(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. Company certifies that, to the best of Company'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. Company hereby acknowledges that Laurus seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, Company hereby represents, warrants and agrees
that: (i) none of the cash or property that Company 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 Company 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. Company shall promptly notify Laurus if any of these representations
ceases to be true and accurate regarding Company or any of its Subsidiaries.
Company 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. Company 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
or similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in Company. Company further
understands that Laurus may release confidential information about Company and
its Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
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(aa) Schedule 12(aa) sets forth Company's and each Eligible
Subsidiary's name as it appears in official filings 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(bb), 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(bb),
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.
Company covenants and agrees with Laurus as follows:
(a) Stop-Orders. Company 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. Company shall maintain the listing of the shares of
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
on the NASD OTCBB (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 shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.
(d) Reporting Requirements. 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.
22
(e) Use of Funds. Company agrees that it will use the proceeds of
the sale of the Notes and the Warrants for working capital purposes only.
(f) Access to Facilities. Company will, and will cause each of its
Subsidiaries to, permit any representatives designated by Laurus (or any
successor of Laurus), upon reasonable notice and during normal business hours,
at such person's expense and accompanied by a representative of Company or any
such Subsidiary, as the case may be, to:
(i) visit and inspect any of the properties of Company or any
such Subsidiary;
(ii) examine the corporate and financial records of Company or
any of its Subsidiaries (unless such examination is not permitted by federal,
state or local law or by contract) and make copies thereof or extracts
therefrom; and
(iii) discuss the affairs, finances and accounts of Company or
any of its Subsidiaries with the directors, officers and independent accountants
of Company or any of its Subsidiaries.
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.
(g) Taxes. Company 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 the income, profits, property or business of Company or such
Subsidiary, 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 Company
and/or such Subsidiary shall have set aside on its books adequate reserves with
respect thereto, and provided, further, that Company 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.
23
(h) Insurance. Each of Company and each Eligible Subsidiary, as the
case may be, will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. Each of Company and each of its
Subsidiaries 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 as Company and its Subsidiaries; and Company and its
Subsidiaries 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 Company and/or such Subsidiary thereof
reasonably believes is customary for companies in similar business similarly
situated as Company and its Subsidiaries and to the extent available on
commercially reasonable terms. Company and each of its Subsidiaries will jointly
and severally bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to Laurus as security for its obligations
hereunder and under the Ancillary Agreements. At Company's own cost and expense
in amounts and with carriers reasonably acceptable to Laurus, Company and each
of its Subsidiaries shall (i) keep all its insurable properties and properties
in which it has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance and such
other hazards, and for such amounts, as is customary in the case of companies
engaged in businesses similar to Company's or the respective Subsidiary's
including business interruption insurance; (ii) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to
Company's and its Subsidiaries' insuring against larceny, embezzlement or other
criminal misappropriation of insured's officers and employees who may either
singly or jointly with others at any time have access to 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 notice prior to cancellation.
Company shall instruct the insurance carriers that in the event of any loss
thereunder, the carriers shall make payment for such loss to Laurus and not to
Company and/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.
(i) Intellectual Property. Company shall, and shall cause each of
its Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(j) Properties. Company 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 Company 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.
24
(k) Confidentiality. Company agrees that 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. Company may disclose Laurus' identity
and the terms of this Agreement to its current and prospective debt and equity
financing sources.
(l) Required Approvals. Company 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 (x) trade debt
and (y) Purchase Money Indebtedness not to exceed an aggregate principal amount
of $200,000 at any time) whether secured or unsecured other than Company's
indebtedness to Laurus and as set forth on Schedule 13(l)(i) attached hereto and
made a part hereof; (ii) cancel any debt owing to it 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 for deposit or collection or similar transactions in the
ordinary course of business; (iv) directly or indirectly declare, pay or make
any dividend or distribution on any class of its Stock other than to pay
dividends in the form of share of Common Stock or dividends on shares of its
Preferred Stock outstanding on the date hereof or apply any of its funds,
property or assets to the purchase, redemption or other retirement of any Stock
of Company outstanding on the date hereof, or issue any Preferred Stock
manditorily redeemable prior to the sixth month anniversary of the Maturity Date
(as defined in the Notes); (v) purchase or hold beneficially any Stock or other
securities or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in, any
other Person (other than Eligible Subsidiaries), including any partnership or
joint venture, except (x) travel advances and (y) loans to Company's and its
Subsidiaries' officers and employees not exceeding at any one time an aggregate
of $10,000; (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
is the surviving entity of such merger or consolidation, (2) no Event of Default
shall exist immediately prior to and after giving effect to such merger or
consolidation, (3) Company shall have provided Laurus copies of all
documentation relating to such merger or consolidation and (4) Company shall
have provided Laurus with at least thirty (30) days' prior written notice of
such merger or consolidation; (ix) materially change the nature of the business
in which it is presently engaged; (x) become subject to (including, without
limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict the
Company'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; or (xiii) ▇▇▇▇
Accounts under any name except the present name of Company or its existing
Subsidiaries.
25
(m) Reissuance of Securities. Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 38 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.
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 will deliver to Laurus an
opinion acceptable to Laurus from Company's legal counsel. Company will provide,
at Company'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 the Eligible Subsidiary
will, without providing Laurus with 30 days prior written notice, change (i) its
name as it appears in the official filings in the state of its 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.
(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 and 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 reasonably be expected to have singly or in the aggregate, a Material
Adverse Effect; (ii) any change which has had, or could reasonably be expected
to have, a Material Adverse Effect; (iii) any Event of Default or Default; and
(iv) any default or any event which with the passage of time or giving of notice
or both would constitute a default under any agreement for the payment of money
to which 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..
26
(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
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 Minimum Borrowing Note issued on the
Closing Date and the Warrants. On and after the 90th day following the Closing
Date, Company will at all times have authorized and reserved a sufficient number
of shares of Common Stock to provide for the conversion of all Notes and the
exercise of all Warrants.
(u) Financing Right of First Refusal. (i) Company hereby grants to
Laurus a right of first refusal to provide any Additional Financing (as defined
below) to be issued by Company and/or any of its Subsidiaries, subject to the
following terms and conditions. From and after the date hereof, prior to the
incurrence of any additional indebtedness and/or the sale or issuance of any
equity interests of Company or any of its Subsidiaries (an "Additional
Financing"), Company and/or any Subsidiary of Company, as the case may be, shall
notify Laurus of its intention to enter into such Additional Financing. In
connection therewith, Company and/or the applicable Subsidiary thereof shall
submit a fully executed term sheet (a "Proposed Term Sheet") to Laurus setting
forth the terms, conditions and pricing of any such Additional Financing (such
financing to be negotiated on "arm's length" terms and the terms thereof to be
negotiated in good faith) proposed to be entered into by Company and/or such
Subsidiary. Laurus shall have the right, but not the obligation, to deliver its
own proposed term sheet (the "Laurus Term Sheet") setting forth the terms and
conditions upon which Laurus would be willing to provide such Additional
Financing to Company and/or such Subsidiary. The Laurus Term Sheet shall contain
terms no less favorable to Company and/or such Subsidiary than those outlined in
Proposed Term Sheet. Laurus shall deliver such Laurus Term Sheet within ten
business days of receipt of each such Proposed Term Sheet. If the provisions of
the Laurus Term Sheet are at least as favorable to Company and/or such
Subsidiary, as the case may be, as the provisions of the Proposed Term Sheet,
Company and/or such Subsidiary shall enter into and consummate the Additional
Financing transaction outlined in the Laurus Term Sheet. Notwithstanding
anything to the contrary contained in this Section 12(v)(i), (x) the Company's
and its Subsidiaries' obligations under this Section 12(v)(i) shall terminate on
the one year anniversary of the Closing Date and (y) the Company and its
Subsidiaries shall not have any obligation under this Section 12(v)(i) in
respect of any Additional Financing the proceeds of which will be used to repay
all outstanding Obligations in full.
27
(i) Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of Laurus to consummate an Additional Financing with
Company or any of its Subsidiaries.
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.
(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 Note to be purchased by it under this Agreement and the
Securities acquired by it upon the conversion of the Note.
(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.
28
(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 Note,
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, to directly engage in
"short sales" of Company's Common Stock as long as any Minimum Borrowing Note
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
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.
29
The Company and each Eligible Subsidiary hereby appoints Laurus, or any
other Person whom Laurus may designate as Company's and/or such Eligible
Subsidiary's attorney, with power to file financing statements on their behalf
(which financing statements may describe the Collateral as "all assets and all
personal property, whether now owned and/or hereafter acquired"). Upon an Event
of Default, which continues in existence, 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) 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
and other public records, verifications of Account and notices to or from
Account Debtors; (iii) verify the validity, amount or any other matter relating
to any Account by mail, telephone, telegraph or otherwise with Account Debtors;
(iv) do all things necessary to carry out this Agreement, any Ancillary
Agreement and all related documents; and (v) notify the post office authorities
to change the address for delivery of 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 Term. At
Laurus' election following the occurrence and continuance of an Event of
Default, which remains uncured, Laurus may terminate this Agreement by providing
written notice to the Company. 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,
Laurus shall release its security interests after thirty (30) days notice as
promptly as practicable 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 equal to (1) four
percent (4%) of the Capital Availability Amount if such payment occurs prior to
the first anniversary of the Closing Date, (2) three percent (3%) of the Capital
Availability Amount if such payment occurs on or after the first anniversary of
the Closing Date and prior to the second anniversary of the Closing Date and (3)
two percent (2%) of the Capital Availability Amount if such termination occurs
thereafter during the Term; such fee being intended to compensate Laurus for its
costs and expenses incurred in initially approving this Agreement or extending
same. Such early payment fee shall be due and payable by Company to Laurus upon
termination by acceleration of this Agreement by Laurus due to the occurrence
and continuance of an Event of Default.
18. Termination of Lien.
30
The Liens and rights granted to Laurus hereunder and any Ancillary
Agreements and the financing statements filed in connection herewith or
therewith shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Company's account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of Company have been paid or performed in full after the termination
of this Agreement. Laurus shall not be required to send termination statements
to Company or 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 thirty (30) days after the occurrence thereof;
(d) the occurrence of any event of default (or similar term) under
any indebtedness 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;
(f) an attachment or levy is made upon Company's assets having an
aggregate value in excess of $50,000 or a judgment is rendered against Company
or Company's property involving a liability of more than $50,000 which shall not
have been vacated, discharged, stayed or bonded within thirty (30) days from the
entry thereof;
(g) any change in Company's or any of its Subsidiaries' condition or
affairs (financial or otherwise) which has had or 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 except for the Permitted Liens;
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(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 directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any assets of Company or any interest therein, except as permitted
herein;
(l) the occurrence of a change in the controlling ownership of
Company;
(m) the indictment or threatened 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 or threatened 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 unless
sufficiently bonded (as determined in Laurus' reasonable discretion); or
(n) if an Event of Default shall occur under and as defined in any
Note or in any Ancillary Agreement;.
(o) the Company or any of its Subsidiaries shall breach any term or
provision of any Ancillary Agreement to which it is a party which is not cured
within any applicable cure or grace period;
(p) if the Company of any of its Subsidiaries attempts to terminate,
challenges the validity of, or its liability under any Ancillary Agreement;
(q) should the Company or any of its Subsidiaries default in its
obligations under any Ancillary Agreement to which it is a party or if any
proceeding shall be brought to challenge the validity, binding effect of any
Ancillary Agreement to which it is a party or should the Company or any of its
Subsidiaries breach any representation, warranty or covenant contained in 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); or
(r) an SEC stop trade order or Principal Market trading suspension
of the Common Stock shall be in effect for five (5) consecutive days or five (5)
days during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Company shall
not have been able to cure such trading suspension within thirty (30) days of
the notice thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice. The "Principal Market" for the Common Stock, for
the purpose of this clause (r), shall mean the NASD OTC Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).
32
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 an 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 upon reasonable notice. The requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to
Company or any such any such Eligible Subsidiary, as the case may be, at
Company's or such Eligible Subsidiary'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.
33
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 shall pay the fees in Section (5)(iv) and 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 prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matter in any way arising out of, related to or connected with
this Agreement or any Ancillary Agreement. Company shall also pay all of Laurus'
reasonable fees, charges, out-of-pocket costs and expenses, including fees and
disbursements of counsel and appraisers, in connection with (a) the preparation,
execution and delivery of any waiver, any amendment thereto or consent proposed
or executed in connection with the transactions contemplated by this Agreement
or the Ancillary Agreements, (b) Laurus' obtaining performance of the
Obligations under this Agreement and any Ancillary Agreements, including, but
not limited to, the enforcement or defense of Laurus' security interests,
assignments of rights and Liens hereunder as valid perfected security interests,
(c) any attempt to inspect, verify, protect, collect, sell, liquidate or
otherwise dispose of any Collateral, (d) any appraisals or re-appraisals of any
property (real or personal) pledged to Laurus by Company or any of its
Subsidiaries as Collateral for, or any other Person as security for, Company's
Obligations hereunder and (e) any consultations in connection with any of the
foregoing. Company shall also pay Laurus' customary bank charges for all bank
services (including wire transfers) performed or caused to be performed by
Laurus for Company or any of its Subsidiaries at Company's or such Subsidiary's
request or in connection with Company's loan account with Laurus. All such costs
and expenses together with all filing, recording and search fees, taxes and
interest payable by Company to Laurus shall be payable on demand and shall be
secured by the Collateral. If any tax by any Governmental Authority is or may be
imposed on or as a result of any transaction between Company and/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 agrees to indemnify and hold
Laurus harmless in respect of such taxes, and Company will repay to Laurus the
amount of any such taxes which shall be charged to Company's account; and until
Company shall furnish Laurus with indemnity therefor (or supply Laurus with
evidence satisfactory to it that due provision for the payment thereof has been
made), Laurus may hold without interest any balance standing to Company's credit
and Laurus shall retain its Liens in any and all ▇▇▇▇▇▇▇▇▇▇.
▇▇
▇▇. 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 and
any such transferee shall succeed to all of Laurus' rights with respect thereto.
Upon such transfer, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. Company agrees that each such holder may exercise any and all
rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though Company were directly
indebted to such holder in the amount of such participation.
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 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 irrevocably waives the right to direct the application of any and
all payments at any time or times hereafter received by Laurus from or on
Company's behalf and Company hereby irrevocably agrees that Laurus shall have
the continuing exclusive right to apply and reapply any and all payments
received at any time or times hereafter against the Obligations hereunder in
such manner as Laurus may deem advisable notwithstanding any entry by Laurus
upon any of Laurus' books and records.
26. Indemnity.
Company agrees to indemnify and hold Laurus, and its respective
affiliates, employees, attorneys and agents (each, an "Indemnified Person"),
harmless from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses of any kind or nature whatsoever
(including attorneys' fees and disbursements and other costs of investigation or
defense, including those incurred upon any appeal) which may be instituted or
asserted against or incurred by any such Indemnified Person as the result of
credit having been extended, suspended or terminated under this Agreement or any
of the Ancillary Agreements or with respect to the execution, delivery,
enforcement, performance and administration of, or in any other way arising out
of or relating to, this Agreement, the Ancillary Agreements or any other
documents or transactions contemplated by or referred to herein or therein and
any actions or failures to act with respect to any of the foregoing, except to
the extent that any such indemnified liability is finally determined by a court
of competent jurisdiction to have resulted solely from such Indemnified Person's
gross negligence or willful misconduct gross negligence or willful misconduct.
NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO COMPANY OR TO ANY OTHER
PARTY OR TO ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY
ANCILLARY AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED
HEREUNDER OR THEREUNDER.
35
27. Revival.
Company further agrees that to the extent Company makes a payment or
payments to Laurus, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.
28. Notices.
Any notice or request hereunder may be given to Company or Laurus at the
respective addresses set forth below or as may hereafter be specified in a
notice designated as a change of address under this Section. Any notice or
request hereunder shall be given by registered or certified mail, return receipt
requested, hand delivery, overnight mail or telecopy (confirmed by mail).
Notices and requests shall be, in the case of those by hand delivery, deemed to
have been given when delivered to any officer of the party to whom it is
addressed, in the case of those by mail or overnight mail, deemed to have been
given three (3) business days after the date when deposited in the mail or with
the overnight mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
36
If to Company or the Eligible BP International, Inc.
Subsidiary: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as may be designated in writing hereafter in accordance
with this Section 28 by such Person.
29. Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(a) 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 ONE HAND, AND
LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY
OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS, 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 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 AT THE ADDRESS SET FORTH IN
SECTION 28 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.
37
(b) 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 SUSBIDIARY 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.
30. Limitation of Liability.
Company acknowledges and understands that in order to assure repayment of
the Obligations hereunder Laurus may be required to exercise any and all of
Laurus' rights and remedies hereunder and agrees that, except as limited by
applicable law, neither Laurus nor any of Laurus' agents shall be liable for
acts taken or omissions made in connection herewith or therewith except for
actual bad faith or gross negligence.
31. Entire Understanding.
This Agreement and the Ancillary Agreements contain the entire
understanding between Company and Laurus as to the subject matter hereof and
thereof and any promises, representations, warranties or guarantees not herein
contained shall have no force and effect unless in writing, signed by Company's,
the Eligible Subsidiary on the date hereof 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.
32. 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.
38
33. Captions.
All captions are and shall be without substantive meaning or content of
any kind whatsoever.
34. 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.
35. 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.
36. Publicity.
Company hereby authorizes Laurus to make appropriate announcements of the
financial arrangement entered into by and between Company and Laurus, including,
without limitation, announcements which are commonly known as tombstones, in
such publications and to such selected parties as Laurus shall in its sole and
absolute discretion deem appropriate, or as required by applicable law. The
Company is authorized to make disclosures of this Agreement and the Ancillary
Agreement as required by applicable law.
37. 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 Eligible Subsidiary 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.
38. Legends.
The Securities shall bear legends as follows;
(a) The Note shall bear substantially the following legend:
39
"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 BP INTERNATIONAL,
INC. 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 SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO BP INTERNATIONAL, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO BP INTERNATIONAL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.]
40
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
BP INTERNATIONAL, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
BALL PRODUCTS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
LAURUS MASTER FUND, LTD.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
41
ANNEX A - DEFINITIONS
"Account Debtor" means any Person who is or may be obligated with respect
to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section 11(a).
"Accounts" means all "accounts", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including: (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments) (including
any such obligations that may be characterized as an account or contract right
under the UCC); (b) all of such Person's rights in, to and under all purchase
orders or receipts for goods or services; (c) all of such Person's rights to any
goods represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
"Accounts Availability" means the amount of Loans against Eligible
Accounts Laurus may from time to time make available to Company up to ninety
percent (90%) of the net face amount of Eligible Accounts based on Accounts of
Company and the Eligible Subsidiary.
"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 and all other agreements, instruments,
documents, mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, trust agreements and guarantees whether
heretofore, concurrently, or hereafter executed by or on behalf of Company or
any other Person or delivered to Laurus, relating to this Agreement or to the
transactions contemplated by this Agreement or otherwise relating to the
relationship between the Company and Laurus.
"Available Minimum Borrowing" shall have the meaning given such term in
Section 2(a)(i).
42
"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 $4,000,000.
"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 personal, tangible or intangible, and whether now
owned or hereafter acquired, or in which it now has or at any time in the future
may acquire any right, title or interests including all of the following
property in which it now has or at any time in the future may acquire any right,
title or interest:
a) all Inventory;
b) all Equipment;
c) all Fixtures;
d) all General Intangibles;
e) all Accounts;
f) all Deposit Accounts, other bank accounts and all funds on deposit
therein;
g) all Investment Property;
h) all Stock;
i) all Chattel Paper;
j) all Letter-of-Credit Rights;
k) all Instruments;
43
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 (i)
insurance claims against third parties for loss of, damage to, or
destruction of, the foregoing Collateral and (ii) payments due or to
become due under leases, rentals and hires of any or all of the
foregoing and Proceeds payable under, or unearned premiums with
respect to policies of insurance in whatever form.
"Common Stock" the shares of stock representing the Company's common
equity interests.
"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.
44
"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
adverse change in an Account Debtor's financial condition; (g) is documented by
an invoice in a form approved by Laurus and shall not be unpaid more than ninety
(90) days from invoice date; (h) not more than twenty-five percent (25%) of the
unpaid amount of invoices due from such Account Debtor remains unpaid more than
ninety (90) days from invoice date; (i) is not evidenced by chattel paper or an
instrument of any kind with respect to or in payment of the Account unless such
instrument is duly endorsed to and in possession of Laurus or represents a check
in payment of an 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 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 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 sole discretion. In the event
Company requests that Laurus include within Eligible Accounts certain Accounts
of one or more of Company's acquisition targets, Laurus shall at the time of
such request consider such inclusion, but any such inclusion shall be at the
sole option of Laurus and shall at all times be subject to the execution and
delivery to Laurus of all such documentation (including, without limitation,
guaranty and security documentation) as Laurus may require in its sole
discretion.
45
"Eligible Subsidiary" shall mean Ball Products and each other Subsidiary
of the Company consented to in writing by Laurus to be included as an "Eligible
Subsidiary" for the purposes of this Agreement (other than Telas Olefines S.A.
de CV).
"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.
"Event of Default" means the occurrence of any of the events set forth in
Section 19.
"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).
"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,
chooses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now owned
or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.
46
"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.
"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.
"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.
47
"Loans" shall have the meaning set forth in Section 2(a)(i) and shall
include all other extensions of credit hereunder and under any Ancillary
Agreement.
"Material Adverse Effect" means a material adverse effect on (a) 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" shall initially, with respect to the initial
Minimum Borrowing Note, mean $1,000,000, and with respect to each additional
Minimum Borrowing Note, the initial aggregate principal amount of such Minimum
Borrowing Note.
"Minimum Borrowing Notes" shall mean each Secured Convertible Note, which
shall be issued in a series, made by Company in favor of Laurus to evidence the
Minimum Borrowing Amount.
"NASD" shall have the meaning given to such term in Section 13(b).
"NASD OTCBB" shall have the meaning given such term in Section 12(w).
"Note Shares" shall have the meaning given such term in Section 12(a).
"Notes" means each of the Minimum Borrowing Notes and the Revolving Note
made by Company in favor of Laurus in connection with the transactions
contemplated hereby, as the same may be amended, modified and supplemented from
time to time, as applicable.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Company or any 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 or any 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 or any 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 with
Company's or any of its Subsidiary's account whether provided for herein or in
any Ancillary Agreement.
48
"Payment Intangibles" means all "payment intangibles" as such term is
defined in the UCC, now owned or hereafter acquired by any Person, including, a
General Intangible under which the Account Debtor's principal obligation is a
monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of business
securing sums not overdue; (b) Liens incurred in the ordinary course of business
in connection with worker's compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums (i)
not overdue or (ii) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of the
Company or any Subsidiary thereof in conformity with GAAP; (c) Liens in favor of
Laurus; (d) Liens for taxes (i) not yet due or (ii) being diligently contested
in good faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the 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
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.
49
"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.
"Revolving Note" means that secured revolving note made by Company in
favor of Laurus in the aggregate principal amount of ($3,000,000).
"SEC" shall mean the Securities and Exchange Commission.
"SEC Reports" shall have the meaning provided such term in Section 12(u).
"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.
"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.
50
"Stock" means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Securities Exchange Act of
1934).
"Subsidiary" of any Person means (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.
"Term" means the Closing Date through the close of business on the day
immediately preceding the third anniversary of the Closing Date, subject to
acceleration at the option of Laurus upon the occurrence of an Event of Default
hereunder or other termination hereunder.
"UCC" means the Uniform Commercial Code as the same may, from time to time
be in effect in the State of New York; provided, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment, perfection
or priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
"Warrant Shares" shall have the meaning given such term in Section 12(a).
"Warrants" has the meaning set forth in the Registration Rights
Agreements.
51
EXHIBIT A
BORROWING BASE CERTIFICATE
[To be inserted]
52
Schedule 7(c)
Lien Filings and Actions
1. UCC-1 financing statement listing Company as debtor and Laurus as secured
party to be filed in office of the Secretary of State of the State of
Delaware.
2. UCC-1 financing statement listing Ball Products, Inc. as debtor and Laurus
as secured party to be filed in office of the Secretary of State of the
State of Florida.
3. Execution and delivery by the Company of a share pledge agreement dated as
of the date hereof, pledging to Laurus as security for the payment and
performance of the Obligations, all of the issued and outstanding shares
of each Eligible Subsidiary (the "Pledged Shares").
4. Delivery by the Company to Laurus share certificates evidencing the
Pledged Shares, along with stock powers, duly executed in blank.
Schedule 7(p)
Banks and Other Financial Institutions
First Commercial Bank of Florida
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Phone (▇▇▇) ▇▇▇-▇▇▇▇
Fax (▇▇▇) ▇▇▇-▇▇▇▇
Contact: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Holder Name: Ball Products, Inc.
Operating Account - 101350
Money Market Account - 101600
Colonial Bank
▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone (▇▇▇)▇▇▇-▇▇▇▇
Holder Name: Ball Products, Inc.
Lockbox Account - 8034211915
Shared ownership with Textron Financial for depositing Accounts Receivable
payments
2
Schedule 12(b)
Subsidiaries
Percentage Ownership of Percentage Ownership
Name BP International by Others
Ball Products, Inc. 100% --
Telas Olefines S.A. de C.V. 80% 20% (Wolf ▇. ▇. ▇▇▇▇)
3
Schedule 12(c)
Capitalization
Ball Products, Inc.
The authorized capital stock of Ball Products, Inc., as of the date of
this Security Agreement consists of 150,000,000 shares, of which
100,000,000 are shares of Common Stock, par value $0.000001 per share,
43,911,886 shares of which are issued and outstanding, and 50,000,000
are shares of preferred stock, par value $0.000001 per share, 0 shares
of which are issued and outstanding.
Teles Olefines S.A. de C.V.
The authorized capital stock of Teles Olefines S.A. de C.V., as of the
date of this Security Agreement consists of 600 shares, of which 600
are shares of Common Stock, par value $100 pesos per share, 600 shares
of which are issued and outstanding.
4
SCHEDULE 12(F)
AGREEMENTS; ACTIONS
NONE.
5
SCHEDULE 12(G)
OBLIGATIONS TO RELATED PARTIES
NONE
6
Schedule 12(i)
Title to Properties and Assets
NONE
7
Schedule 12(l)
Litigation
NONE
8
Schedule 12(m)
Tax Return and Payments
NONE
9
Schedule 12(n)
Employees
NONE
10
SCHEDULE 12(O)
REGISTRATION RIGHTS AND VOTING RIGHTS
The Company has agreed to register 3,837,790 shares of common stock under
a Registration Statement.
Date of Purchase Funding Price per share Number of shares to
Agreement Amount of stock Shareholder Type Purchaser be delivered
6/22/2004 25,000 0.22 Insider DM Ventures 113,636
6/25/2004 25,000 0.22 Insider DM Ventures 113,637
7/13/2004 50,000 0.22 Insider DM Ventures 227,273
7/20/2004** N/A Insider DM Ventures 137,500
7/20/2004 25,000 0.22 Insider DM Ventures 113,636
7/29/2004 20,000 0.22 Insider ▇▇▇▇▇▇ Enterp. 90,909
7/29/2004 10,000 0.22 Insider DM Ventures 45,456
8/18/2004 25,000 0.15 Insider ▇▇▇▇▇▇ Enterp. 166,667
8/24/2004** N/A Insider DM Ventures 27,500
9/21/2004 50,000 0.15 Insider ▇▇▇▇▇▇ Enterp. 333,333
10/6/2004 150,000 0.15 Insider ▇▇▇▇▇▇ Enterp. 1,000,000
10/28/2004 50,000 0.15 Insider ▇▇▇▇▇▇ Enterp. 333,333
11/08/2004 400,000 0.22 *** ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ 909,910
June 2004 N/A 0.45 PR Firm ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 125,000
November 2004 N/A 0.60 PR Firm CEOCast 100,000
**These two transactions consisted of DM Ventures paying for Public Relations
activity with free trading stock. BPI agreed to "pay back" DM Ventures in the
original amount plus 10% in free trading shares.
*** ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ are personal friends of ▇▇▇▇▇ ▇▇▇▇ who purchased
free trading stock at $0.22 per share. One half of the stock will be restricted
and one half will be free trading. They will be approximately 3.5% owners at the
close of this transaction.
DM Ventures/▇▇▇▇▇▇ Enterprises will be approximately 13% owners based on the
information BPI has as to ownership. We have no way of knowing how many shares
DM Ventures has with a brokerage firm.
All of the above transactions are straight stock purchase agreements.
11
Schedule 12(q)
Environmental and Safety Laws
NONE
12
Schedule 12(u)
SEC Reports and Financial Statements
NONE
13
Schedule 12(bb)
Name Address* State of Organization Type of Entity
Incorporation Identification
Number
BP International, Inc. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Corporation
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Volusia County
Ball Products, Inc. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Corporation
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Volusia County
* Chief executive office, corporate office, warehouse, and location of
Collateral and location where records with respect to Collateral is kept
14
SCHEDULE 13(L)(I)
REQUIRED APPROVALS: INDEBTEDNESS
NONE.
15
SCHEDULE 1(A)
COLLATERAL: COMMERCIAL TORT CLAIMS
NONE.
16
SCHEDULE 2
PERMITTED LIENS
NONE.
17