SECURITY AGREEMENT LAURUS MASTER FUND, LTD. SPACEDEV, INC. STARSYS, INC. Dated: September 29, 2006
EXHIBIT
99.2
LAURUS
MASTER FUND, LTD.
SPACEDEV,
INC.
STARSYS,
INC.
Dated:
September 29, 2006
TABLE
OF CONTENTS
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1.
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General
Definitions and Terms; Rules of Construction.
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1
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2.
|
Loan
Facility.
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2
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3.
|
Repayment
of the Loans.
|
4
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4.
|
Procedure
for Loans.
|
4
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5.
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Interest
and Payments.
|
4
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6.
|
Security
Interest.
|
5
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7.
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Representations,
Warranties and Covenants Concerning the Collateral.
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6
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8.
|
Payment
of Accounts.
|
9
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9.
|
Collection
and Maintenance of Collateral.
|
9
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|
10.
|
Inspections
and Appraisals.
|
10
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11.
|
Financial
Reporting.
|
10
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12.
|
Additional
Representations and Warranties.
|
12
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13.
|
Covenants.
|
23
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14.
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Further
Assurances.
|
28
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15.
|
Representations,
Warranties and Covenants of Laurus.
|
28
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16.
|
Power
of Attorney.
|
30
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17.
|
Term
of Agreement.
|
31
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18.
|
Termination
of Lien.
|
31
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19.
|
Events
of Default.
|
31
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20.
|
Remedies.
|
34
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21.
|
Waivers.
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34
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22.
|
Expenses.
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35
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23.
|
Assignment
By Laurus.
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36
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24.
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No
Waiver; Cumulative Remedies.
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36
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25.
|
Application
of Payments.
|
36
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26.
|
Indemnity.
|
36
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|
27.
|
Revival.
|
37
|
|
28.
|
Borrowing
Agency Provisions.
|
37
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|
29.
|
Notices.
|
38
|
|
30.
|
Governing
Law, Jurisdiction and Waiver of Jury Trial.
|
39
|
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31.
|
Limitation
of Liability.
|
40
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|
32.
|
Entire
Understanding; Maximum Interest.
|
40
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33.
|
Severability.
|
41
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34.
|
Survival.
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41
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35.
|
Captions.
|
41
|
|
36.
|
Counterparts;
Telecopier Signatures.
|
41
|
|
37.
|
Construction.
|
41
|
|
38.
|
Publicity.
|
41
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39.
|
Joinder.
|
42
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40.
|
Legends.
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42
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This
Security Agreement is made as of September 29, 2006 by and among LAURUS MASTER
FUND, LTD., a Cayman Islands company (“Laurus”),
SPACEDEV, INC., a Colorado corporation (“the
Parent”),
and
each party listed on Exhibit
A
attached
hereto (each an “Eligible
Subsidiary”
and
collectively, the “Eligible
Subsidiaries”)
the
Parent and each Eligible Subsidiary, each a “Company” and collectively, the
“Companies”).
BACKGROUND
The
Companies have requested that Laurus make advances available to the Companies;
and
Laurus
has agreed to make such advances on the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual covenants and undertakings and the
terms and conditions contained herein, the parties hereto agree as
follows:
1. General
Definitions and Terms; Rules of Construction.
(a) General
Definitions.
Capitalized terms used in this Agreement shall have the meanings assigned to
them in Annex
A.
(b) Accounting
Terms.
Any
accounting terms used in this Agreement which are not specifically defined
shall
have the meanings customarily given them in accordance with GAAP and all
financial computations shall be computed, unless specifically provided herein,
in accordance with GAAP consistently applied.
(c) Other
Terms.
All
other terms used in this Agreement and defined in the UCC, shall have the
meaning given therein unless otherwise defined herein.
(d) Rules
of Construction.
All
Schedules, Addenda, Annexes and Exhibits hereto or expressly identified in
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.
1
2. Loan
Facility.
(a) Loans.
(i) Subject
to the terms and conditions set forth herein and in the Ancillary Agreements,
Laurus may make loans (the “Loans”)
to the
Companies 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 plus (II) the Inventory
Availability, minus (III) the Reserves. The amount derived at any time from
Section 2(a)(i)(y)(I) plus Section 2(a)(i)(y)(II) minus 2(a)(i)(y)(III)
shall be referred to as the “Formula
Amount.”
The
Companies shall, jointly and severally, execute and deliver to Laurus on the
Closing Date the Note evidencing the Loans funded on the Closing Date.
The
Companies hereby each acknowledge and agree that Laurus’ obligation to
purchase
the Note
from the Companies on the Closing Date shall be contingent upon the satisfaction
(or waiver by Laurus) of the items and matters set forth in the closing
checklist provided by Laurus to the Companies on or prior to the Closing Date.
The Companies hereby each further acknowledge and agree that, immediately prior
to each borrowing hereunder and immediately after giving effect thereto, the
Companies shall be deemed to have certified to Laurus that at the time of each
such proposed borrowing and also after giving effect thereto (i) there shall
exist no Event of Default, (ii) all representations, warranties and covenants
made by the Companies in connection with this Agreement and the Ancillary
Agreements are true, correct and complete and (iii) all of each Company’s and
its respective Subsidiaries’ covenant requirements under this Agreement and the
Ancillary Agreements have been met. The Companies hereby agree to provide a
certificate confirming the foregoing concurrently with each request for a
borrowing hereunder.
(ii) Notwithstanding
the limitations set forth above, if requested by any Company, Laurus retains
the
right to lend to such Company from time to time such amounts in excess of such
limitations as Laurus may determine in its sole discretion. In connection with
each such request by one or more Companies, the Companies shall be deemed to
have certified, as of the time of such proposed borrowing and immediately after
giving effect thereto, to the satisfaction of all Overadvance Conditions. For
purposes hereof, “Overadvance Conditions” means (i) no Event of Default shall
exist and be continuing as of such date; and (ii) all representations,
warranties and covenants made by the Companies in connection with the Security
Agreement and the Ancillary Agreements shall be true, correct and complete
as of
such date. The Companies hereby agree to provide a certificate confirming the
satisfaction of the Overadvance Conditions concurrently with the request for
same.
2
(iii) The
Companies acknowledge that the exercise of Laurus’ discretionary rights
hereunder may result during the Term in one or more increases or decreases
in
the advance percentages used in determining Accounts Availability and/or
Inventory Availability and each of the Companies hereby consent to any such
increases or decreases which may limit or restrict advances requested by the
Companies.
(iv) If
any
interest, fees, costs or charges payable to Laurus hereunder are not paid when
due, each of the Companies shall thereby be deemed to have requested, and Laurus
is hereby authorized at its discretion to make and charge to the Companies’
account, a Loan as of such date in an amount equal to such unpaid interest,
fees, costs or charges.
(v) If
any
Company at any time fails to perform or observe any of the covenants contained
in this Agreement or any Ancillary Agreement, and such failure matures into
an
uncured Event of Default hereunder, Laurus may, but need not, perform or observe
such covenant on behalf and in the name, place and stead of such Company (or,
at
Laurus’ option, in Laurus’ name) and may, but need not, take any and all other
actions which Laurus may deem necessary to cure or correct such failure
(including the payment of taxes, the satisfaction of Liens, the performance
of
obligations owed to Account Debtors, lessors or other obligors, the procurement
and maintenance of insurance, the execution of assignments, security agreements
and financing statements, and the endorsement of instruments). The amount of
all
monies expended and all costs and expenses (including attorneys’ fees and legal
expenses) incurred by Laurus in connection with or as a result of the
performance or observance of such agreements or the taking of such action by
Laurus shall be charged to the Companies’ account as a Loan and added to the
Obligations. To facilitate Laurus’ performance or observance of such covenants
by each Company, each Company hereby irrevocably appoints Laurus, or Laurus’
delegate, acting alone, as such Company’s attorney in fact (which appointment is
coupled with an interest) with the right (but not
the
duty), in the event of an uncured Event of Default or otherwise to protect
its
interest in the Collateral, to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of such Company any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by such Company.
(vi) Laurus
will account to Company Agent monthly with a statement of all Loans and other
advances, charges and payments made pursuant to this Agreement, and such account
rendered by Laurus shall be deemed final, binding and conclusive unless Laurus
is notified by Company Agent in writing to the contrary within thirty (30)
days
of the date each account was rendered specifying the item or items to which
objection is made.
(vii) During
the Term, the Companies 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”),
the
Companies shall jointly and severally (i) reimburse Laurus for the amount of
the
Loans made with respect to such Delinquent Account or
(ii)
immediately replace such Delinquent Account with an otherwise Eligible
Account.
3
3. Repayment
of the Loans.
The
Companies (a) may prepay the Obligations from time to time in accordance with
the terms and provisions of the Note (and Section 17 hereof if such prepayment
is due to a termination of this Agreement); (b) shall repay on the expiration
of
the Term (i) the then aggregate outstanding principal balance of the Loans
together with accrued and unpaid interest, fees and charges and; (ii) all other
amounts owed Laurus under this Agreement and the Ancillary Agreements; and
(c)
subject to Section 2(a)(ii), shall repay on any day on which the then aggregate
outstanding principal balance of the Loans are in excess of the Formula Amount
at such time, Loans in an amount equal to such excess. Any payments of
principal, interest, fees or any other amounts payable hereunder or under any
Ancillary Agreement shall be made prior to 12:00 noon (New York time) on the
due
date thereof in immediately available funds.
4. Procedure
for Loans.
Company
Agent may by written notice request a borrowing of Loans prior to 12:00 noon
(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 Agent shall deliver to Laurus a
Borrowing Base Certificate in the form of Exhibit
B
attached
hereto, which shall be certified as true and correct by the Chief Executive
Officer or Chief Financial Officer of Company Agent together with all supporting
documentation relating thereto. All Loans shall be disbursed from whichever
office or other place Laurus may designate from time to time and shall be
charged to the Companies’ account on Laurus’ books. The proceeds of each Loan
made by Laurus shall be made available to Company Agent on the Business Day
following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to the applicable Company’s operating account
maintained with such bank as Company Agent designated to Laurus. Any and all
Obligations due and owing hereunder may be charged to the Companies’ account and
shall constitute Loans.
5. Interest
and Payments.
(a) Interest.
(i) Except
as
modified by Section 5(a)(iii) below, the Companies shall jointly and severally
pay interest at the Contract Rate on the unpaid principal balance of each Loan
until such time as such Loan is collected in full in good
funds in
dollars of the United States of America.
(ii) Interest
and payments shall be computed on the basis of actual days elapsed in a year
of
360 days. At Laurus’ option, Laurus may charge the Companies’ account for said
interest.
(iii) Effective
upon the occurrence of any Event of Default and for so long as any Event of
Default shall be continuing, the Contract Rate shall automatically be increased
as set forth in the Note (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 or under the Note 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).
4
(v) The
Companies shall jointly and severally pay principal, interest and all other
amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including any deduction for any set-off or
counterclaim.
(b) Payment;
Certain Closing Conditions.
(i) Payment.
Upon
execution of this Agreement by each Company and Laurus, the Companies shall
jointly and severally pay to Laurus Capital Management, LLC, the investment
advisor of Laurus (“LCM”), a non-refundable payment in an amount equal to three
and one-half percent (3.50%) of the Capital Availability Amount. The foregoing
payment is referred to herein as the “LCM Payment.” Such payment shall be deemed
fully earned on the Closing Date and shall not be subject to rebate or proration
for any reason.
(ii) Overadvance
Payment.
Without
affecting Laurus’ rights hereunder, and subject to the restrictions in Section
5(a)(iv) hereof, in the event the Loans exceed the Formula Amount (each such
event, an “Overadvance”),
all
such Overadvances shall bear additional interest at a rate equal to two percent
(2%) per month of the amount of such Overadvances for all times such amounts
shall be in excess of the Formula Amount. All amounts that are incurred pursuant
to this Section 5(b)(ii) shall be due and payable by the Companies monthly,
in
arrears, on the first business day of each calendar month and upon expiration
of
the Term.
(iii) Expenses.
The
Companies shall jointly and severally reimburse Laurus for its expenses
(including reasonable legal fees and expenses) incurred in connection with
the
entering into of this Agreement and the Ancillary Agreements, and expenses
incurred in connection with Laurus’ due diligence review of each Company and its
Subsidiaries and all related matters. Amounts required to be paid under this
Section 5(b)(iii) will be paid on the Closing Date and shall be $7,500 for
such
expenses referred to in this Section 5(b)(iii).
6. Security
Interest.
(a) To
secure
the prompt payment to Laurus of the Obligations, each Company hereby assigns,
pledges and grants to Laurus a continuing security interest in and Lien upon
all
of the Collateral. All of each Company’s Books and Records relating to the
Collateral shall, until delivered to or removed by Laurus, be kept by such
Company in trust for Laurus until all Obligations have been paid in full. Each
confirmatory assignment schedule or other form of assignment hereafter executed
by each Company shall be deemed to include the foregoing grant, whether or
not
the same appears therein.
(b) Each
Company hereby (i) authorizes Laurus to file any financing statements,
continuation statements or amendments thereto that (x) indicate the Collateral
(1) as all assets and personal property of such Company or words of similar
effect, regardless of whether any particular asset comprised in the Collateral
falls within the scope of Article 9 of the UCC of such jurisdiction, or (2)
as
being of an equal or lesser scope or with greater detail, and (y) contain any
other information required by Part 5 of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement, continuation statement
or amendment and (ii) ratifies its authorization for Laurus to have filed any
initial financial statements, or amendments thereto if filed prior to the date
hereof. Each Company acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement without the prior written consent of Laurus and agrees
that
it will not do so without the prior written consent of Laurus, subject to such
Company’s rights under Section 9-509(d)(2) of the UCC.
5
(c) Subject
to certain existing non-exclusive licenses granted to government agency
customers and patents which are jointly held with government agency and other
customers or employees, each Company hereby grants to Laurus a non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and during the continuance of an Event of Default without payment of royalty
or
other compensation to such Company) to use, transfer, license or sublicense
any
Intellectual Property now owned, licensed to, or hereafter acquired by such
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for
the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate
on the termination of this Agreement and the payment in full of all
Obligations.
7. Representations,
Warranties and Covenants Concerning the Collateral.
Each
Company represents, warrants (each of which such representations and warranties
shall be deemed repeated upon the making of each request for a 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 it free and clear of all Liens (including any
claims of infringement) except those in Laurus’ favor and
Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a Lien or requiring notice of or consent to the granting of a
Lien.
(b) it
shall
not encumber, mortgage, pledge, assign or grant any Lien in any Collateral
or
any other assets to anyone other than Laurus and except for Permitted
Liens.
(c) the
Liens
granted pursuant to this Agreement, upon due completion of the filings of UCC-1
financing statements in respect of each grantor of such Liens in the applicable
filing offices of the states of organization of such grantor and the completion
of the other filings and 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 of its creditors and
purchasers and such security interest is prior to all other Liens in existence
on the date hereof.
6
(d) no
effective security agreement, mortgage, deed of trust, financing statement,
equivalent security or Lien instrument or continuation statement covering all
or
any part of the Collateral is or will be on file or of record in any public
office, except those relating to Permitted Liens.
(e) it
shall
not dispose of any of the Collateral whether by sale, lease or otherwise except
for the sale of Inventory in the ordinary course of business and for the
disposition or transfer in the ordinary course of business during any fiscal
year of obsolete and worn-out Equipment having an aggregate fair market value
of
not more than $25,000 and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Laurus’ first priority security interest or are used to repay Loans or to pay
general corporate expenses, or (ii) following the occurrence of an Event of
Default which continues to exist the proceeds of which are remitted to Laurus
to
be held as cash collateral for the Obligations.
(f) it
shall
defend the right, title and interest of Laurus in and to the Collateral against
the claims and demands of all Persons whomsoever, and take such actions,
including (i) all actions necessary to grant Laurus “control” of any
Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper owned by it, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus’ request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents
and
certificated Stock owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank), (iii) notification
of Laurus’ interest in Collateral at Laurus’ request, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect
and
preserve its and/or Laurus’ respective and several interests in the Collateral.
(g) it
shall
promptly, and in any event within five (5) Business Days after the same is
acquired by it, notify Laurus of any commercial tort claim (as defined in the
UCC) acquired by it and unless otherwise consented by Laurus, it shall enter
into a supplement to this Agreement granting to Laurus a Lien in such commercial
tort claim.
(h) it
shall
place notations upon its Books and Records and any of its financial statements
to disclose Laurus’ Lien in the Collateral.
(i) if
it
retains possession of any Chattel Paper or Instrument with Laurus’ consent, upon
Laurus’ request such Chattel Paper and Instruments shall be marked with the
following legend: “This writing and obligations evidenced or secured hereby are
subject to the security interest of Laurus Master Fund, Ltd.” Notwithstanding
the foregoing, upon the reasonable request of Laurus, such Chattel Paper and
Instruments shall be delivered to Laurus.
(j) it
shall
perform in a reasonable time all other steps requested by Laurus to create
and
maintain in Laurus’ favor a valid perfected first Lien in all Collateral subject
only to Permitted Liens.
7
(k) it
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 its
knowledge, would cause Laurus to consider any then existing Account and/or
Inventory as no longer constituting an Eligible Account or Eligible Inventory,
as the case may be; (ii) of any material delay in its 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 it 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) represent complete bona fide transactions which require
no
further act under any circumstances on its 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 such Company.
It
has not made, nor will it make, except in the ordinary course of its business,
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 it in the ordinary course of its business consistent with historical
practice and as previously disclosed to Laurus in writing.
(m) it
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. It shall not permit any such items to become a Fixture to real estate
or accessions to other personal property.
(n) it
shall
maintain and keep all of its Books and Records concerning the Collateral at
its
executive offices listed in Schedule
12(aa).
(o) it
shall
maintain and keep the tangible Collateral at the addresses listed in
Schedule
12(aa),
provided, that it may change such locations or open a new location, provided
that it provides Laurus at least thirty (30) days prior written notice of such
changes or new location and (ii) prior to such change or opening of a new
location where Collateral having a value of more than $50,000 will be located,
it executes and delivers to Laurus such agreements deemed reasonably necessary
or prudent by Laurus, including landlord agreements, mortgagee agreements and
warehouse agreements, each in form and substance satisfactory to Laurus, to
adequately protect and maintain Laurus’ security interest in such
Collateral.
(p) Schedule
7(p)
lists
all banks and other financial institutions at which it maintains deposits and/or
other accounts, and such Schedule correctly identifies the name, address and
telephone number of each such depository, the name in which the account is
held,
a description of the purpose of the account, and the complete account number.
It
shall not establish any depository or other bank account with any financial
institution (other than the accounts set forth on Schedule
7(p))
without
Laurus’ prior written consent.
8
(q) All
Inventory manufactured by it in the United States of America shall be produced
in accordance with the requirements of the Federal Fair Labor Standards Act
of
1938, as amended and all rules, regulations and orders related thereto or
promulgated thereunder.
8. Payment
of Accounts.
(a) Each
Company will, during the Term, direct all of its present and future Account
Debtors and other Persons obligated to make payments constituting Collateral
to
make such payments directly to the lockboxes maintained by such Company (the
“Lockboxes”)
with
North Fork Bank or such other financial institution accepted by Laurus in
writing as may be selected by such Company (the “Lockbox
Bank”)
pursuant to the terms of the certain agreements among one or more Companies,
Laurus and/or the Lockbox Bank dated as of June 3, 2003. On or prior to the
Closing Date, each Company shall and shall cause the Lockbox Bank to enter
into
all such documentation acceptable to Laurus pursuant to which, among other
things, the Lockbox Bank agrees to: (a) sweep the Lockbox on a daily basis
and deposit all checks received therein to an account designated by Laurus
in
writing and (b) comply only with the instructions or other directions of Laurus
concerning the Lockbox. All of each Company’s invoices, account statements and
other written or oral communications directing, instructing, demanding or
requesting payment of any Account of any Company or any other amount
constituting Collateral shall conspicuously direct that all payments be made
to
the Lockbox or such other address as Laurus may direct in writing. If,
notwithstanding the instructions to Account Debtors, any Company receives any
payments from Account Debtors, such Company shall immediately remit such
payments to Laurus in their original form with all necessary endorsements.
Until
so remitted, such Company shall hold all such payments in trust for and as
the
property of Laurus and shall not commingle such payments with any of its other
funds or property. Nothing in this Section 8(a) is intended to require or does
require any Company to submit Refundable Deposits received by it from customers
or potential customers to Laurus or to cause such Refundable Deposits to be
made
to the Lockboxes.
(b) At
Laurus’ election, following the occurrence of an Event of Default which is
continuing, Laurus may notify each Company’s Account Debtors of Laurus’ security
interest in the Accounts, collect them directly and charge the collection costs
and expenses thereof to Company’s and the Eligible Subsidiaries’ joint and
several account.
9. Collection
and Maintenance of Collateral.
(a) Laurus
may verify each Company’s Accounts from time to time, but not more often than
twice every calendar year and not more than once in any consecutive six-month
period, unless an Event of Default has occurred and is continuing, utilizing
an
audit control company or any other agent of Laurus. Any audit of any Company’s
Accounts shall be done following five (5) days prior written notice from Laurus
during regular business hours and will be conducted in a manner that does not
unreasonably interfere with such Company’s business activities. No Company shall
provide any material, non-public information to Laurus during such audit unless
Laurus first signs a confidentially agreement and otherwise complies with
Regulation FD, under the federal securities laws.
9
(b) Proceeds
of Accounts received by Laurus will be deemed received on the Business Day
after
Laurus’ receipt of such proceeds in good funds in dollars of the United States
of America to an account designated by Laurus. Any amount received by Laurus
after 12:00 noon (New York time) on any Business Day shall be deemed
received on the next Business Day.
(c) As
Laurus
receives the proceeds of Accounts of any Company, it shall (i) apply such
proceeds, as required, to amounts outstanding under the Note, and (ii) remit
all
such remaining proceeds (net of interest, fees and other amounts then due and
owing to Laurus hereunder) to Company Agent (for the benefit of the applicable
Companies) upon request (but no more often than twice a week). Notwithstanding
the foregoing, following the occurrence and during the continuance of an Event
of Default, Laurus, at its option, may (a) apply such proceeds to the
Obligations in such order as Laurus shall elect, (b) hold all such proceeds
as
cash collateral for the Obligations and each Company
hereby grants to Laurus a security interest in such cash collateral amounts
as
security for the Obligations and/or (c) do any combination of the
foregoing.
10. Inspections
and Appraisals.
At all
times during normal business hours, Laurus, and/or any agent of Laurus shall
have the right to (a) have access to, visit, inspect, review, evaluate and
make
physical verification and appraisals of each Company’s properties and the
Collateral, (b) inspect, audit and copy (or take originals if necessary) and
make extracts from each Company’s Books and Records, including management
letters prepared by the Accountants, and (c) discuss with each Company’s
directors, principal officers, and independent accountants, each Company’s
business, assets, liabilities, financial condition, results of operations and
business prospects. Each Company will deliver to Laurus any instrument necessary
for Laurus to obtain records from any service bureau maintaining records for
such Company. If any internally prepared financial information, including that
required under this Section is unsatisfactory in any manner to Laurus, Laurus
may request that the Accountants review the same. Any
inspection or appraisal performed under this Section 10 shall be done following
five (5) days prior written notice from Laurus during regular business hours
and
will be conducted in a manner that does not unreasonably interfere with such
Company’s business activities. No Company shall provide any material, non-public
information to Laurus during such inspection or appraisal unless Laurus first
signs a confidentially agreement and otherwise complies with Regulation FD,
under the federal securities laws.
11. Financial
Reporting.
Company
Agent will deliver, or cause to be delivered, to Laurus each of the following,
which shall be in form and detail acceptable to Laurus; provided that no
Company
shall provide any material, non-public information to Laurus during such
inspection or appraisal unless Laurus first signs a confidentially agreement
and
otherwise complies with Regulation FD, under the federal securities
laws:
(a) As
soon
as available, and in any event within ninety (90) days after the end of each
fiscal year of the Parent, each Company’s audited financial statements with a
report of independent certified public accountants of recognized standing
selected by the Parent and acceptable to Laurus (the “Accountants”),
which
annual financial statements shall be without qualification and shall include
each of
the
Parent’s and each of its Subsidiaries’ balance
sheet as at the end of such fiscal year and the related statements of each
of
the Parent’s and each of its Subsidiaries’ income, retained earnings
and cash
flows for the fiscal year then ended, prepared on a consolidating and
consolidated basis to include the Parent, each Subsidiary of the Parent and
each
of their respective affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) if and when available, copies of any
management letters prepared by the Accountants; and (ii) a certificate of the
Parent’s President, Chief Executive Officer or Chief Financial Officer stating
that such financial statements have been prepared in accordance with GAAP and
whether or not such officer has knowledge of the occurrence of any Default
or
Event of Default hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
10
(b) As
soon
as available and in any event within forty five (45) days after the end of
each
fiscal quarter of the Parent, an unaudited/internal balance sheet and statements
of income, retained earnings and cash flows of each
of
the
Parent’s and each of its Subsidiaries’ as at the end of and for such quarter and
for the year to date period then ended, prepared on a consolidating and
consolidated basis to include the Parent, each Subsidiary of the Parent and
each
of their respective affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous year,
all prepared in accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of the Parent’s President, Chief Executive Officer
or Chief Financial Officer, stating (i) that such financial statements have
been
prepared in accordance with GAAP, subject to year-end audit adjustments, and
(ii) whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder not theretofore reported and remedied and, if
so,
stating in reasonable detail the facts with respect thereto
(c) As
soon
as available and in any event within thirty (30) days after the end of each
calendar month, an unaudited/internal balance sheet and statements of income,
retained earnings and cash flows of each of the Parent and its Subsidiaries
as
at the end of and for such month and for the year to date period then ended,
prepared on a consolidating and consolidated basis to include the Parent, each
Subsidiary of the Parent and each of their respective affiliates, in reasonable
detail and stating in comparative form the figures for the corresponding date
and periods in the previous year, subject to year-end adjustments and
accompanied by a certificate of the Parent’s President, Chief Executive Officer
or Chief Financial Officer, stating 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;
(d) Within
fifteen (15) days after the end of each month (or more frequently if Laurus
so
requests), agings of each Company’s Accounts, unaudited trial balances and their
accounts payable and a calculation of each Company’s Accounts, Eligible
Accounts, Inventory and/or Eligible Inventory, provided, however, that if Laurus
shall request the foregoing information more often than as set forth in the
immediately preceding clause, each Company shall have fifteen (15) days from
each such request to comply with Laurus’ demand;
(e) Promptly
after (i) the filing thereof,
copies of the Parent’s most recent registration statements and annual,
quarterly, monthly or other regular reports which the Parent files with the
Securities and Exchange Commission (the “SEC”),
and
(ii) the issuance thereof, copies of such financial statements, reports and
proxy statements as the Parent shall send to its stockholders.
11
12. Additional
Representations and Warranties.
Each
Company hereby represents and warrants to Laurus as follows:
(a) Organization,
Good Standing and Qualification.
It and
each of its Subsidiaries is a corporation, partnership or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. It and each of
its
Subsidiaries has the corporate, limited liability
company
or partnership, as the case may be, power and authority to own and operate
its
properties and assets and, insofar as it is or shall be a party thereto, to
(i)
execute and deliver this Agreement and the Ancillary Agreements, (ii) to issue
and sell the Note, (iii) to issue and sell the Grant Shares and Additional
Grant
Shares, and to (iv) carry out the provisions of this Agreement and the Ancillary
Agreements and to carry on its business as presently conducted. It and each
of
its Subsidiaries is duly qualified and is authorized to do business and is
in
good standing as a foreign corporation, partnership or limited liability
company, as the case may be, in all jurisdictions in which the nature or
location of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure
to
do so has not had, or could not reasonably be expected to have, individually
or
in the aggregate, a Material Adverse Effect.
(b) Subsidiaries.
Each of
its direct and indirect Subsidiaries, the direct owner of each such Subsidiary
and its percentage ownership thereof, is set forth on Schedule
12(b).
(c) Capitalization;
Voting Rights.
(i) The
authorized capital stock of the Parent, as of the date hereof consists of
1,000,000 shares of Common Stock, par value $0.0001 per share, of which
29,172,635 are issued and outstanding[, and 10,000,000 shares of preferred
stock, par value $0.001 per share, of which 248,460 shares are issued and
outstanding as Series C Preferred Stock, par value $0.001 per share, and 4,884
shares are issued and outstanding as Series D-1 Preferred Stock, par value
$0.001 per share are issued and outstanding]. The authorized, issued and
outstanding capital stock of each Subsidiary of each Company is set forth on
Schedule
12(c).
(ii) Except
as
disclosed on Schedule
12(c),
other
than: (i) the shares reserved for issuance under the Parent’s stock option and
employee stock purchase plans; and (ii) shares which may be issued pursuant
to
this Agreement and the Ancillary Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal), proxy or stockholder agreements, or arrangements or agreements of
any
kind for the purchase or acquisition from the Parent of any of its securities.
Except as disclosed on Schedule
12(c),
neither
the offer or issuance of any of the Note, or the issuance of any of the Grant
Shares or Additional Grant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Parent outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
(iii) All
issued and outstanding shares of the Parent’s Common Stock: (i) have been duly
authorized and validly issued and are fully paid and nonassessable; and
(ii) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities.
12
(iv) The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Parent’s Certificate of Incorporation (the
“Charter”).
The
Grant Shares and the Additional Grant Shares have been duly and validly reserved
for issuance. When issued in compliance with the provisions of this Agreement
and the Parent’s Charter, the Securities will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided,
however,
that
the Securities may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by such
laws at the time a transfer is proposed.
(d) Authorization;
Binding Obligations.
All
corporate, partnership or limited liability company, as the case may be, action
on its and its Subsidiaries’ part (including their respective officers and
directors) necessary for the authorization of this Agreement and the Ancillary
Agreements, the performance of all of its and its Subsidiaries’ obligations
hereunder and under the Ancillary Agreements on the Closing Date and, the
authorization, issuance and delivery of the Note and the Grant Shares and the
Additional Grant Shares 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 its and its Subsidiaries’ valid
and binding obligations enforceable against each such Person in accordance
with
their terms, except:
(i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and
(ii) general
principles of equity that restrict the availability of equitable or legal
remedies.
The
issuance of the Note is 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 Grant Shares and the Additional Grant Shares are not and will
not be subject to any preemptive rights or rights of first refusal that have
not
been properly waived or complied with.
(e) Liabilities;
Solvency.
(i)
Neither it nor any of its Subsidiaries has any liabilities, except current
liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
(ii) Both
before and after giving effect to (a) the Loans incurred on the Closing Date
or
such other date as Loans requested hereunder are made or incurred, (b) the
disbursement of the proceeds of, or the assumption of the liability in respect
of, such Loans pursuant to the instructions or agreement of any Company, (c)
the
payment and accrual of all transaction costs in connection with the foregoing,
and (d) the consummation of the transactions contemplated herein and in the
Ancillary Agreements, each Company and each Subsidiary of each Company, is
and
will be, Solvent.
(f) Agreements;
Action.
Except
as set forth on Schedule
12(f)
or as
disclosed in any Exchange Act Filings:
13
(i) There
are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which it or any of its Subsidiaries
is a
party or to its knowledge by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, it or any of its
Subsidiaries in excess of $100,000 (other than obligations of, or payments
to,
it or any of its Subsidiaries arising from purchase or sale agreements entered
into in the ordinary course of business); or (ii) the transfer or license of
any
patent, copyright, trade secret or other proprietary right to or from it (other
than licenses arising from the purchase of “off the shelf” or other standard
products); or (iii) provisions restricting the development, manufacture or
distribution of its or any of its Subsidiaries’ products or services; or (iv)
indemnification by it or any of its Subsidiaries with respect to infringements
of proprietary rights.
(ii) Since
June 30, 2006 (the “Balance
Sheet Date”)
neither it nor any of its Subsidiaries has: (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its common 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), all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same Person (including Persons it or any of its
applicable Subsidiaries has reason to believe are affiliated therewith or with
any Subsidiary thereof) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
(iv) the
Parent maintains disclosure controls and procedures (“Disclosure
Controls”)
designed to ensure that information required to be disclosed by the Parent
in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods specified in the
rules and forms of the SEC.
(v) The
Parent makes and keeps books, records, and accounts, that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of its assets.
It maintains internal control over financial reporting (“Financial
Reporting Controls”)
designed by, or under the supervision of, its principal executive and principal
financial officers, and effected by its board of directors, management, and
other personnel, to provide reasonable assurance regarding the reliability
of
financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP, including that:
(1) transactions
are executed in accordance with management’s general or specific
authorization;
(2) unauthorized
acquisition, use, or disposition of the Parent’s assets that could have a
material effect on the financial statements are prevented or timely
detected;
14
(3) transactions
are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that its receipts and expenditures are being made
only
in accordance with authorizations of the Parent’s management and board of
directors;
(4) transactions
are recorded as necessary to maintain accountability for assets;
and
(5) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals, and appropriate action is taken with respect to any
differences.
(vi) There
is
no weakness in any of its Disclosure Controls or Financial Reporting Controls
that is required to be disclosed in any of the Exchange Act Filings, except
as
so disclosed.
(g) Obligations
to Related Parties.
Except
as set forth on Schedule
12(g),
neither
it nor any of its Subsidiaries has any obligations to their respective officers,
directors, stockholders or employees other than:
(i) for
payment of salary for services rendered and for bonus payments;
(ii) reimbursement
for reasonable expenses incurred on its or its Subsidiaries’
behalf;
(iii) for
other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option or stock purchase
plan approved by its and its Subsidiaries’ Board of Directors, as applicable);
and
(iv) obligations
listed in its and each of its Subsidiary’s financial statements or disclosed in
any of the Parent’s Exchange Act Filings.
Except
as
described above or set forth on Schedule
12(g),
none of
its officers, directors or, to the best of its knowledge or stockholders, any
of
its Subsidiaries or any members of their immediate families, are indebted to
it
or any of its Subsidiaries, individually or in the aggregate, in excess of
$50,000 or have any direct or indirect ownership interest in any Person with
which it or any of its Subsidiaries is affiliated or with which it or any of
its
Subsidiaries has a business relationship, or any Person which competes with
it
or any of its Subsidiaries, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company) which may
compete with it or any of its Subsidiaries. Except as described above, none
of
its officers, directors or stockholders, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
it or any of its Subsidiaries and no agreements, understandings or proposed
transactions are contemplated between it or any of its Subsidiaries and any
such
Person. Except as set forth on Schedule
12(g),
neither
it nor any of its Subsidiaries is a guarantor or indemnitor of any indebtedness
of any other Person.
15
(h) Changes.
Since
the Balance Sheet Date, except as disclosed in any Exchange Act Filing or in
any
Schedule to this Agreement or to any of the Ancillary Agreements, there has
not
been:
(i) any
change in its or any of its Subsidiaries’ business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects, which,
individually or in the aggregate, has had, or could reasonably be expected
to
have, a Material Adverse Effect;
(ii) any
resignation or termination of any of its or its Subsidiaries’ officers, key
employees or groups of employees;
(iii) any
material change, except in the ordinary course of business, in its or any of
its
Subsidiaries’ contingent obligations by way of guaranty, endorsement, indemnity,
warranty or otherwise;
(iv) any
damage, destruction or loss, whether or not covered by insurance, which has
had,
or could reasonably be expected to have, individually or in the aggregate,
a
Material Adverse Effect;
(v) any
waiver by it or any of its Subsidiaries of a valuable right or of a material
debt owed to it;
(vi) any
direct or indirect material loans made by it or any of its Subsidiaries to
any
of its or any of its Subsidiaries’ stockholders, employees, officers or
directors, other than advances made in the ordinary course of
business;
(vii) any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;
(viii) any
declaration or payment of any dividend or other distribution of its or any
of
its Subsidiaries’ assets;
(ix) any
labor
organization activity related to it or any of its Subsidiaries;
(x) any
debt,
obligation or liability incurred, assumed or guaranteed by it or any of its
Subsidiaries, except those for immaterial amounts and for current liabilities
incurred in the ordinary course of business;
(xi) any
sale,
assignment or transfer of any Intellectual Property or other intangible
assets;
(xii) any
change in any material agreement to which it or any of its Subsidiaries is
a
party or by which either it or any of its Subsidiaries is bound which, either
individually or in the aggregate, has had, or could reasonably be expected
to
have, individually or in the aggregate, a Material Adverse Effect;
16
(xiii) any
other
event or condition of any character that, either individually or in the
aggregate, has had, or could reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect; or
(xiv) any
arrangement or commitment by it or any of its Subsidiaries to do any of the
acts
described in subsection (i) through (xiii) of this Section 12(h).
(i) Title
to Properties and Assets; Liens, Etc.
Except
as set forth on Schedule 12(i),
it and
each of its Subsidiaries has good and marketable title to their respective
properties and assets, and good title to its leasehold interests, in each case
subject to no Lien, other than Permitted Liens. All facilities, Equipment,
Fixtures, vehicles and other properties owned, leased or used by it or any
of
its Subsidiaries are in good operating condition and repair and are reasonably
fit and usable for the purposes for which they are being used. Except as set
forth on Schedule
12(i),
it and
each of its Subsidiaries is in compliance with all material terms of each lease
to which it is a party or is otherwise bound.
(j) Intellectual
Property.
(i) It
and
each of its Subsidiaries owns or possesses sufficient legal rights to all
Intellectual Property necessary for their respective businesses as now conducted
and, to its knowledge as presently proposed to be conducted, without any known
infringement of the rights of others. Other than non-exclusive licenses to
government agency customers and patents which are jointly-owned with customers
or employees, there are no outstanding options, licenses or agreements of any
kind relating to its or any of its Subsidiary’s Intellectual Property, nor is it
or any of its Subsidiaries bound by or a party to any options, licenses or
agreements of any kind with respect to the Intellectual Property of any other
Person other than such licenses or agreements arising from the purchase of
“off
the shelf” or standard products; provided, however, that it or its Subsidiaries
may, in the future, enter into certain non-exclusive licenses with customers,
or
joint venture or co-invention agreements, among other forms of agreement
(collectively, the "Specified Agreements"), which may result in the
joint-ownership of the Intellectual Property with customers, employees,
consultants or team members, if any , so long as (a) the Company and its
Subsidiaries, as applicable, provide to the Purchaser, prior to the execution
thereof, final forms of all such Specified Agreements (with fully executed
copies thereof following the execution thereof) and (b) such nonexclusive
licenses or joint ownership of Intellectual Property as contemplated by the
Specified Agreements do not diminish the value of, or impair the practical
realization upon the Intellectual Property constituting Collateral in existence
as of the Closing Date as determined by Laurus in the good faith exercise of
its
reasonable discretion.
(ii) Neither
it nor any of its Subsidiaries has received any communications alleging that
it
or any of its Subsidiaries has violated any of the Intellectual Property or
other proprietary rights of any other Person, nor is it or any of its
Subsidiaries aware of any basis therefor.
(iii) Neither
it nor any of its Subsidiaries believes it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by it or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to it or any of its Subsidiaries.
17
(k) Compliance
with Other Instruments.
Neither
it nor any of its Subsidiaries is in violation or default of (x) any term of
its
Charter or Bylaws, or (y) any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by which
it
is bound or of any judgment, decree, order or writ, which violation or default,
in the case of this clause (y), has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Ancillary Agreements to which it is a party, and the issuance of the Note
and the other Securities each pursuant hereto and thereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term
or
provision, or result in the creation of any Lien upon any of its or any of
its
Subsidiary’s properties or assets or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to it or any of its Subsidiaries, their businesses or operations
or
any of their assets or properties.
(l) Litigation.
Except
as set forth on Schedule
12(l),
there
is no action, suit, proceeding or investigation pending or, to its knowledge,
currently threatened against it or any of its Subsidiaries that prevents it
or
any of its Subsidiaries from entering into this Agreement or the Ancillary
Agreements, or from consummating the transactions contemplated hereby or
thereby, or which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, or could result
in
any change in its or any of its Subsidiaries’ current equity ownership, nor is
it aware that there is any basis to assert any of the foregoing. Neither it
nor
any of its Subsidiaries is a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by it
or
any of its Subsidiaries currently pending or which it or any of its Subsidiaries
intends to initiate.
(m) Tax
Returns and Payments.
It and
each of its Subsidiaries has timely filed all tax returns (federal, state and
local) required to be filed by it. All taxes shown to be due and payable on
such
returns, any assessments imposed, and all other taxes due and payable by it
and
each of its Subsidiaries on or before the Closing Date, have been paid or will
be paid prior to the time they become delinquent. Except as set forth on
Schedule
12(m),
neither
it nor any of its Subsidiaries has been advised:
(i) that
any
of its returns, federal, state or other, have been or are being audited as
of
the date hereof; or
(ii) of
any
adjustment, deficiency, assessment or court decision in respect of its federal,
state or other taxes.
Neither
it nor any of its Subsidiaries has any knowledge of any liability of any tax
to
be imposed upon its properties or assets as of the date of this Agreement that
is not adequately provided for.
18
(n) Employees.
Except
as set forth on Schedule
12(n),
neither
it nor any of its Subsidiaries has any collective bargaining agreements with
any
of its employees. There is no labor union organizing activity pending or, to
its
knowledge, threatened with respect to it or any of its Subsidiaries. Except
as
disclosed in the Exchange Act Filings or on Schedule
12(n),
neither
it nor any of its Subsidiaries is a party to or bound by any currently effective
employment contract with any executive officer, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan or retirement
agreement. To its knowledge, none of its or any of its Subsidiaries’ employees
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, it or any of its Subsidiaries because
of
the nature of the business to be conducted by it or any of its Subsidiaries;
and
to its knowledge the continued employment by it and its Subsidiaries of their
present employees, and the performance of its and its Subsidiaries contracts
with its independent contractors, will not result in any such violation. Neither
it nor any of its Subsidiaries is aware that any of its or any of its
Subsidiaries’ employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that would
interfere with their duties to it or any of its Subsidiaries. Neither it nor
any
of its Subsidiaries has received any notice alleging that any such violation
has
occurred. Except for employees who have a current effective employment agreement
with it or any of its Subsidiaries, none of its or any of its Subsidiaries’
employees has been granted the right to continued employment by it or any of
its
Subsidiaries or to any material compensation following termination of employment
with it or any of its Subsidiaries. Except as set forth on Schedule 12(n),
neither
it nor any of its Subsidiaries is aware that any officer, key employee or group
of employees intends to terminate his, her or their employment with it or any
of
its Subsidiaries, as applicable, nor does it or any of its Subsidiaries have
a
present intention to terminate the employment of any officer, key employee
or
group of employees.
(o) Registration
Rights and Voting Rights.
Except
as set forth on Schedule 12(o)
and
except as disclosed in Exchange Act Filings or pursuant to any existing
agreement between Laurus and Company, neither it nor any of its Subsidiaries
is
presently under any obligation, and neither it nor any of its Subsidiaries
has
granted any rights, to register any of its or any of its Subsidiaries’ presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 12(o)
and
except as disclosed in Exchange Act Filings, to its knowledge, none of its
or
any of its Subsidiaries’ stockholders has entered into any agreement with
respect to its or any of its Subsidiaries’ voting of equity
securities.
(p) Compliance
with Laws; Permits.
To its
knowledge, neither it nor any of its Subsidiaries is in violation of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 or any SEC related regulation or rule or any rule
of
the Principal Market promulgated thereunder or any other applicable statute,
rule, regulation, order or restriction of any domestic or foreign government
or
any instrumentality or agency thereof in respect of the conduct of its business
or the ownership of its properties which has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement or any Ancillary Agreement and the issuance of any of the Securities,
except such as have been duly and validly obtained or filed, or with respect
to
any filings that must be made after the Closing Date, as will be filed in a
timely manner. It and each of its Subsidiaries has all material franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could, either
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
19
(q) Environmental
and Safety Laws.
Neither
it nor any of its Subsidiaries is in violation of any applicable statute, law
or
regulation relating to the environment or occupational health and safety, and
to
its knowledge, no 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 it or any of its Subsidiaries or, to its knowledge, by any other
Person on any property owned, leased or used by it or any of its Subsidiaries.
For the purposes of the preceding sentence, “Hazardous
Materials”
shall
mean:
(i) materials
which are listed or otherwise defined as “hazardous” or “toxic” under any
applicable local, state, federal and/or foreign laws and regulations that govern
the existence and/or remedy of contamination on property, the protection of
the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials;
and
(ii) any
petroleum products or nuclear materials.
(r) Valid
Offering.
Assuming the accuracy of the representations and warranties of Laurus contained
in this Agreement, the offer and issuance of the Securities will be exempt
from
the registration requirements of the Securities Act of 1933, as amended (the
“Securities
Act”),
and
will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements
of
all applicable state securities laws.
(s) Full
Disclosure.
It and
each of its Subsidiaries has provided Laurus with all information requested
by
Laurus in connection with Laurus’ decision to enter into this Agreement,
including all information each Company and its Subsidiaries believe is
reasonably necessary to make such investment decision. Neither this Agreement,
the Ancillary Agreements nor the exhibits and schedules hereto and thereto
nor
any other document delivered by it or any of its Subsidiaries to Laurus or
its
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material
fact
nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading. Any financial projections and other estimates provided
to
Laurus by it or any of its Subsidiaries were based on its and its Subsidiaries’
experience in the industry and on assumptions of fact and opinion as to future
events which it or any of its Subsidiaries, at the date of the issuance of
such
projections or estimates, believed to be reasonable.
(t) Insurance.
It and
each of its Subsidiaries has general commercial, product liability, fire and
casualty insurance policies with coverages which it believes are customary
for
companies similarly situated to it and its Subsidiaries in the same or similar
business.
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(u) SEC
Reports and Financial Statements.
Except
as set forth on Schedule 12(u),
it and
each of its Subsidiaries has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. The Parent has
furnished Laurus with copies of: (i) its Annual Report on Form 10-KSB for its
fiscal year ended December 31, 2005; and (ii) its Quarterly Reports on Form
10-QSB for its fiscal quarters ended March 31, 2006 and June 30, 2006, and
the
Form 8-K filings which it has made during its fiscal year ending December 31,
2006 to date (collectively, the “SEC
Reports”).
Except as set forth on Schedule
12(u),
each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as
of
their respective filing dates, contained any untrue statement of a material
fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and cash
flows of the Parent and its Subsidiaries, on a consolidated basis, as of, and
for, the periods presented in each such SEC Report.
(v) Listing.
The
Parent’s Common Stock is listed or quoted, as applicable, on the Principal
Market and satisfies all requirements for the continuation of such listing
or
quotation, as applicable, and the Parent shall do all things necessary for
the
continuation of such listing or quotation, as applicable. The Parent has not
received any notice that its Common Stock will be delisted from, or no longer
quoted on, as applicable, the Principal Market or that its Common Stock does
not
meet all requirements for such listing or quotation, as applicable.
(w) No
Integrated Offering.
Neither
it, nor any of its Subsidiaries nor any of its Affiliates, nor any Person acting
on its or their behalf, has directly or indirectly made any offers or sales
of
any security or solicited any offers to buy any security under circumstances
that would cause the offering of the Securities pursuant to this Agreement
or
any Ancillary Agreement to be integrated with prior offerings by it for purposes
of the Securities Act which would prevent it from issuing the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will it or any of its
Affiliates or Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.
(x) Stop
Transfer.
The
Securities are restricted securities as of the date of this Agreement. Neither
it nor any of its Subsidiaries will issue any stop transfer order or other
order
impeding the sale and delivery of any of the Securities at such time as the
Securities are registered for public sale or an exemption from registration
is
available, except as required by state and federal securities laws.
(y) Dilution.
It
specifically acknowledges that the Parent’s obligation to issue the shares of
the Grant Shares and the Additional Grant Shares is binding upon the Parent
and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Parent.
21
(z) Patriot
Act.
It
certifies that, to the best of its knowledge, neither it nor any of its
Subsidiaries has been designated, nor is or shall be owned or controlled, by
a
“suspected terrorist” as defined in Executive Order 13224. It hereby
acknowledges that Laurus seeks to comply with all applicable laws concerning
money laundering and related activities. In furtherance of those efforts, it
hereby represents, warrants and covenants that: (i) none of the cash or property
that it or any of its Subsidiaries will pay or will contribute to Laurus has
been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by it
or
any of its Subsidiaries to Laurus, to the extent that they are within its or
any
such Subsidiary’s control shall cause Laurus to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly notify
Laurus if any of these representations, warranties and covenants ceases to
be
true and accurate regarding it or any of its Subsidiaries. It shall provide
Laurus with any additional information regarding it and each Subsidiary thereof
that Laurus deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. It
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties and covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus’ investment in it. It further
understands that Laurus may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the
best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
(aa) Company
Name; Locations of Offices, Records and Collateral.
Schedule 12(aa)
sets
forth each Company’s name as it appears in official filings in the state of its
organization, the type of entity of each Company, the organizational
identification number issued by each Company’s state of organization or a
statement that no such number has been issued, each Company’s state of
organization, and the location of each Company’s chief executive office,
corporate offices, warehouses, other locations of Collateral and locations
where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as set forth in such Schedule
12(aa),
such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth in Schedule
12(aa),
no
Company has been known as or conducted business in any other name (including
trade names). Each Company has only one state of organization.
(bb) ERISA.
Based
upon the Employee Retirement Income Security Act of 1974 (“ERISA”),
and
the regulations and published interpretations thereunder: (i) neither it nor
any
of its Subsidiaries has engaged in any Prohibited Transactions (as defined
in
Section 406 of ERISA and Section 4975 of the Code); (ii) it and each of its
Subsidiaries has met all applicable minimum funding requirements under Section
302 of ERISA in respect of its plans; (iii) neither it nor any of its
Subsidiaries has any knowledge of any event or occurrence which would cause
the
Pension Benefit Guaranty Corporation to institute proceedings under Title IV
of
ERISA to terminate any employee benefit plan(s); (iv) neither it nor any of
its
Subsidiaries has any fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than its or such
Subsidiary’s employees; and (v) neither it nor any of its Subsidiaries has
withdrawn, completely or partially, from any multi-employer pension plan so
as
to incur liability under the Multiemployer Pension Plan Amendments Act of
1980.
22
13. Covenants.
Each
Company, as applicable, covenants and agrees with Laurus as
follows:
(a) Stop-Orders.
The
Parent shall advise Laurus promptly after it receives notice of issuance by
the
SEC, any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Parent, or of the suspension of the qualification of the
Common Stock of the Parent for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
(b) Listing.
The
Parent shall maintain the listing or quotation, as applicable, of its Common
Stock on the Principal Market, and will comply in all material respects with
the
Parent’s reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers (“NASD”)
and
such exchanges, as applicable.
(c) Market
Regulations.
The
Parent 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.
The
Parent shall timely file with the SEC all reports required to be filed pursuant
to the Exchange Act and refrain from terminating its status as an issuer
required by the Exchange Act to file reports thereunder even if the Exchange
Act
or the rules or regulations thereunder would permit such termination without
the
prior written consent of Laurus.
(e) Use
of
Funds.
It
shall use the proceeds of the Loans for general working capital purposes
only.
(f) Access
to Facilities.
It
shall, and shall cause each of its Subsidiaries to, permit any representatives
designated by Laurus (or any successor of Laurus), upon reasonable notice and
during normal business hours, at Company’s expense and accompanied by a
representative of Company Agent (provided that no such prior notice shall be
required to be given and no such representative shall be required to accompany
Laurus in the event Laurus believes such access is necessary to preserve or
protect the Collateral or following the occurrence and during the continuance
of
an Event of Default), to:
(i) visit
and
inspect any of its or any such Subsidiary’s properties;
(ii) examine
its or any such Subsidiary’s corporate and financial records (unless such
examination is not permitted by federal, state or local law or by contract)
and
make copies thereof or extracts therefrom; and
23
(iii) discuss
its or any such Subsidiary’s affairs, finances and accounts with its or any such
Subsidiary’s directors, officers and Accountants.
Any
inspection under this Section 12(f) will be conducted in a manner that does
not
unreasonably interfere with the Company’s business activities. Notwithstanding
the foregoing, neither it nor any of its Subsidiaries shall provide any
material, non-public information to Laurus unless Laurus signs a confidentiality
agreement and otherwise complies with Regulation FD, under the federal
securities laws.
(g) Taxes.
It
shall, and shall cause each of its Subsidiaries to, promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon it and its
Subsidiaries’ income, profits, property or business, as the case may be;
provided, however, that any such tax, assessment, charge or levy need not be
paid currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall have no effect on the Lien priority of Laurus in the
Collateral, and (iii) if it and/or such Subsidiary, as applicable, shall have
set aside on its and/or such Subsidiary’s books adequate reserves with respect
thereto in accordance with GAAP; and provided, further, that it shall, and
shall
cause each of its Subsidiaries to, pay all such taxes, assessments, charges
or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
(h) Insurance.
(i) It
shall bear the full risk of loss from any loss of any nature whatsoever with
respect to the Collateral and it and each of its Subsidiaries will, jointly
and
severally, bear the full risk of loss from any loss of any nature whatsoever
with respect to the assets pledged to Laurus as security for the Obligations.
Furthermore,
it will insure or cause the Collateral to be insured in Laurus’ name as an
additional insured and lender loss payee, with an appropriate loss payable
endorsement in form and substance satisfactory to Laurus, against loss or damage
by fire, flood, sprinkler leakage, theft, burglary, pilferage, loss in transit
and other risks customarily insured against by companies in similar business
similarly situated as it and its Subsidiaries including but not limited to
workers compensation, public and product liability and business interruption,
and such other hazards in amounts and under insurance policies and bonds by
insurers reasonably acceptable in the industry and all premiums thereon shall
be
paid by such Company and the policies delivered to Laurus. If any such Company
fails to obtain the insurance and in such amounts of coverage as otherwise
required pursuant to this Section (h), Laurus may procure such insurance and
the
cost thereof shall be promptly reimbursed by the Companies, jointly and
severally, and shall constitute Obligations.
(ii) No
Company’s insurance coverage shall be impaired or invalidated by any act or
neglect of any Company or any of its Subsidiaries and the insurer will provide
Laurus with no less than thirty (30) days notice prior of
cancellation;
(iii) Laurus,
in connection with its status as a lender loss payee, will be assigned at all
times to a first lien position until such time as the Obligations have been
indefeasibly satisfied in full.
24
(i) Intellectual
Property.
It
shall, and shall cause each of its Subsidiaries to, maintain in full force
and
effect its corporate existence, rights and franchises and all licenses and
other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.
(j) Properties.
It
shall, and shall cause each of its Subsidiaries to, keep its properties in
good
repair, working order and condition, reasonable wear and tear excepted, and
from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and it shall, and shall cause each of its
Subsidiaries to, at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could reasonably be expected to have a Material Adverse
Effect.
(k) Required
Approvals.
It
shall not, and shall not permit any of its Subsidiaries to, without the prior
written consent of Laurus, which shall not be unreasonably withheld, (i) except
for operating leases in the ordinary course of its or its Subsidiaries’
business, create, incur, assume or suffer to exist any indebtedness in excess
of
$250,000 (exclusive of trade debt), whether secured or unsecured other than
each
Company’s indebtedness to Laurus and as set forth on Schedule 13(l)(i)
attached
hereto and made a part hereof; (ii) cancel any debt owing to it 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 it or its Subsidiaries for deposit or collection or similar
transactions in the ordinary course of business; (iv),
purchase or hold beneficially any Stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or advances to, or make
any
investment or acquire any interest whatsoever in, any other Person, including
any partnership or joint venture in excess of $250,000, except (x) travel
advances, (y) loans to its and its Subsidiaries’ officers and employees not
exceeding at any one time an aggregate of $10,000, and (z) loans to its existing
Subsidiaries so long as such Subsidiaries are designated as either a co-borrower
hereunder or has entered into such guaranty and security documentation required
by Laurus, including, without limitation, to grant to Laurus a first priority
perfected security interest in substantially all of such Subsidiary’s assets to
secure the Obligations;
(v)
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; (vi)
materially change the nature of the business in which it is presently engaged;
(vii) become subject to (including, without limitation, by way of amendment
to
or modification of) any agreement or instrument which by its terms would (under
any circumstances) restrict its or any of its Subsidiaries’ right to perform the
provisions of this Agreement or any of the Ancillary Agreements; (viii) enter
into any transaction with any employee, director or Affiliate, except in the
ordinary course on arms-length terms; (ix) ▇▇▇▇ Accounts under any name except
the present name of such Company; or (x) sell, lease, transfer or otherwise
dispose of any of its properties or assets, or any of the properties or assets
of its Subsidiaries, except for (1) sales, leases, transfer or dispositions
by
any Company to any other Company, (2) the sale of Inventory in the ordinary
course of business and (3) the disposition or transfer in the ordinary course
of
business during any fiscal year of obsolete and worn-out Equipment and only
to
the extent that (xi) 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
(y)
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. Notwithstanding the foregoing, neither it nor any of its
Subsidiaries shall provide any material, non-public information to Laurus unless
Laurus signs a confidentiality agreement and otherwise complies with Regulation
FD, under the federal securities laws.
25
(l) Reissuance
of Securities.
The
Parent shall reissue certificates representing the Securities without the
legends set forth in Section 39 below at such time as:
(i) the
holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or
(ii) upon
resale subject to an effective registration statement after such Securities
are
registered under the Securities Act.
The
Parent agrees to cooperate with Laurus in connection with all resales pursuant
to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to allow
such resales provided the Parent and its counsel receive reasonably requested
representations from Laurus and broker, if any.
(m) Opinion.
On the
Closing Date, it shall deliver to Laurus an opinion acceptable to Laurus from
each Company’s legal counsel. Each Company will provide, at the Companies’ joint
and several expense, such other legal opinions in the future as are reasonably
necessary for the sale of the Grant Shares and the Additional Grant
Shares.
(n) Compliance
with Laws.
The
operation of each of its and each of its Subsidiaries’ business is and shall
continue to be in compliance in all material respects with all applicable
federal, state and local laws, rules and ordinances, including to all laws,
rules, regulations and orders relating to taxes, payment and withholding of
payroll taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee health and safety
and environmental matters.
(o) Notices.
It and
each of its Subsidiaries shall promptly inform Laurus in writing of: (i) the
commencement of all proceedings and investigations by or before and/or the
receipt of any notices from, any governmental or nongovernmental body and all
actions and proceedings in any court or before any arbitrator against or in
any
way concerning any event which could reasonably be expected to have singly
or in
the aggregate, a Material Adverse Effect; (ii) any change which has had, or
could reasonably be expected to have, a Material Adverse Effect; (iii) any
Event
of Default or Default; and (iv) any default or any event which with the passage
of time or giving of notice or both would constitute a default under any
agreement for the payment of money to which it or any of its Subsidiaries is
a
party or by which it or any of its Subsidiaries or any of its or any such
Subsidiary’s properties may be bound the breach of which would have a Material
Adverse Effect.
(p) Margin
Stock.
It
shall not permit any of the proceeds of the Loans made hereunder to be used
directly or indirectly to “purchase” or “carry” “margin stock” or to repay
indebtedness incurred to “purchase” or “carry” “margin stock” within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.
26
(q) Authorization
and Reservation of Shares.
The
Parent shall at all times have authorized and reserved a sufficient number
of
shares of Common Stock to provide for the issuance of the Grant Shares and
the
Additional Grant Shares.
(r) FIRPTA.
Neither
it, nor any of its Subsidiaries, is a “United
States real property holding corporation” as such term is
defined in Section 897(c)(2) of the Code and Treasury
Regulation Section 1.897-2 promulgated thereunder and it and each of its
Subsidiaries shall at no time take any action or otherwise acquire any interest
in any asset or property to the extent the effect of which shall cause it and/or
such Subsidiary, as the case may be, to be a “United States real property
holding corporation” as such term is defined in Section 897(c)(2) of the Code
and Treasury Regulation Section 1.897-2 promulgated thereunder.
(s) Issuance
of Additional Grant Shares.
Prior to
the expiration of termination of this Agreement, the Parent shall, upon each
anniversary of the date hereof, issue such additional number of shares of its
restricted Common Stock to Laurus as shall be equal to the sum of $200,000
divided by the average closing price for the Common Stock for the ten (10)
trading days prior to the respective anniversary date (“Additional Grant
Shares”).
(t) Piggy
back Registration Rights.
If at
any time after the date hereof there is not an effective registration statement
covering all of the Securities and the Company shall determine to prepare and
file with the Commission a registration statement relating to an offering for
its own account or the account of others under the Securities Act of any of
its
equity securities, other than on Form S-4 or Form S-8 (each as promulgated
under
the Securities Act) or their then equivalents relating to equity securities
to
be issued solely in connection with any acquisition of any entity or business
or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of
such
determination and, if within fifteen (15) days after receipt of such notice,
any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Securities such Holder requests
to be registered to the extent the Company may do so without violating
registration rights of others which exist as of the date of this Agreement,
subject to customary underwriter cutbacks applicable to all holders of
registration rights and subject to obtaining any required consent of any selling
stockholder(s) to such inclusion under such registration statement.
(u) Merger,
Consolidation or Other Reorganization.
Neither
it nor any of its Subsidiaries will enter
into any merger, consolidation or other reorganization with or into any other
Person or acquire all or a portion of the assets or Stock of any Person or
permit any other Person to consolidate with or merge with it, unless
(1) such Company is the surviving entity of such merger or consolidation,
and (2) the transaction will either not have a Material Adverse Effect on
Laurus’ interest in the Collateral or rights and obligations hereunder, or the
Obligations shall have been or will be, as a result of such transaction,
satisfied in full under the terms and conditions of this Agreement and the
Ancillary Agreements.
27
(v) Transfers
to Subsidiaries.
Until
all Obligations have been indefeasibly paid or performed in full and this
Agreement has been terminated in accordance with the terms of this Agreement,
neither it nor any of its Subsidiaries shall transfer any property to a
non-Eligible Subsidiary which transfer would result in a Material Adverse Effect
hereunder.
14. Further
Assurances.
At any
time and from time to time, upon the written request of Laurus and at the sole
expense of Companies, each Company shall promptly and duly execute and deliver
any and all such further instruments and documents and take such further action
as Laurus may request (a) to obtain the full benefits of this Agreement and
the
Ancillary Agreements, (b) to protect, preserve and maintain Laurus’ rights in
the Collateral and under this Agreement or any Ancillary Agreement, and/or
(c)
to enable Laurus to exercise all or any of the rights and powers herein granted
or any Ancillary Agreement. Notwithstanding
the foregoing, neither it nor any of its Subsidiaries shall provide any
material, non-public information to Laurus unless Laurus signs a confidentiality
agreement and otherwise complies with Regulation FD, under the federal
securities laws.
15. Representations,
Warranties and Covenants of Laurus.
Laurus
hereby represents, warrants and covenants to each Company as
follows:
(a) Requisite
Power and Authority.
Laurus
has all necessary power and authority under all applicable provisions of law
to
execute and deliver this Agreement and the Ancillary Agreements and to carry
out
their provisions. All corporate action on Laurus’ part required for the lawful
execution and delivery of this Agreement and the Ancillary Agreements have
been
or will be effectively taken prior to the Closing
Date.
Upon their execution and delivery, this Agreement and the Ancillary Agreements
shall be valid and binding obligations of Laurus, enforceable in accordance
with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors’ rights, and (b) as limited by general principles of
equity that restrict the availability of equitable and legal
remedies.
(b) Investment
Representations.
Laurus
understands that the Securities are being offered pursuant to an exemption
from
registration contained in the Securities Act based in part upon Laurus’
representations contained in this Agreement, including, without limitation,
that
Laurus is an “accredited investor” within the meaning of Regulation D under the
Securities Act. Laurus has received or has had full access to all the
information it considers necessary or appropriate to make an informed investment
decision with respect to the Note to be issued to it under this Agreement and
the Grant Shares and the Additional Grant Shares acquired by it
hereunder.
(c) Laurus
Bears Economic Risk.
Laurus
has substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Parent so that it is
capable of evaluating the merits and risks of its investment in the Parent
and
has the capacity to protect its own interests. Laurus must bear the economic
risk of this investment until the Securities are sold pursuant to (i) an
effective registration statement under the Securities Act, or (ii) an exemption
from registration is available.
28
(d) Investment
for Own Account.
The
Securities are being issued to Laurus for its own account for investment only,
and not as a nominee or agent and not with a view towards or for resale in
connection with their distribution.
(e) Laurus
Can Protect Its Interest.
Laurus
represents that by reason of its, or of its management’s, business and financial
experience, Laurus has the capacity to evaluate the merits and risks of its
investment in the 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, to directly engage in “short sales” of the Parent’s Common Stock as
long as any amounts under the Note shall remain outstanding.
(h) Patriot
Act.
Laurus
certifies that, to the best of Laurus’ knowledge, Laurus has not been
designated, and is not owned or controlled, by a “suspected terrorist” as
defined in Executive Order 13224. Laurus seeks to comply with all applicable
laws concerning money laundering and related activities. In furtherance of
those
efforts, Laurus hereby represents, warrants and covenants that: (i) none of
the
cash or property that Laurus will use to make the Loans has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no disbursement by Laurus to any Company to the extent
within Laurus’ control, shall cause Laurus to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. Laurus shall promptly notify
the Company Agent if any of these representations ceases to be true and accurate
regarding Laurus. Laurus agrees to provide the Company 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, each Company may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus’ investment in the Parent. Laurus
further understands that the Parent may release confidential information about
Laurus and, if applicable, any underlying beneficial owners, to proper
authorities if the Parent, in its sole discretion, determines that it is in
the
best interests of the Parent in light of relevant rules and regulations under
the laws set forth in subsection (ii) above.
(i) Limitation
on Acquisition of Common Stock.
Notwithstanding anything to the contrary contained in this Agreement, any
Ancillary Agreement, or any document, instrument or agreement entered into
in
connection with any other transaction entered into by and between Laurus and
any
Company (and/or Subsidiaries or Affiliates of any Company), Laurus shall not
acquire stock in the Parent
(including, without limitation, pursuant to a contract to purchase, by
exercising an option or warrant, by converting any other security or instrument,
by acquiring or exercising any other right to acquire, shares of stock or other
security convertible into shares of stock in the Parent, or otherwise, and
such
options, warrants, conversion or other rights shall not be exercisable) to
the
extent such stock acquisition would cause any interest (including any original
issue discount) payable by any Company to Laurus not to qualify as portfolio
interest, within the meaning of Section 881(c)(2) of the Internal Revenue Code
of 1986, as amended (the “Code”)
by
reason of Section 881(c)(3) of the Code, taking into account the constructive
ownership rules under Section 871(h)(3)(C) of the Code (the “Stock
Acquisition Limitation”).
29
(j) Lockup.For
a
period of one year from the Closing Date, Laurus shall not sell or attempt
to
sell, transfer or assign the Grant Shares, and thereafter, Laurus shall not,
on
any trading day, sell the Grant Shares or the Additonal Grant Shares in an
amount that exceeds 10 percent (10.0%) of the daily trading volume of the Common
Stock on the Principal Market or such lesser percentage as shall be allowed
under Rule 144(d) of the Securities Act.
16. Power
of Attorney.
Upon
the occurrence and during the continuance of an Event of Default, each Company
hereby appoints Laurus, or any other Person whom Laurus may designate as such
Company’s attorney, with power to: (a)(i) execute
any security related documentation on such Company’s behalf and to supply any
omitted information and correct patent errors in any documents executed by
such
Company or on such Company’s behalf; (ii) to file financing statements against
such Company covering the Collateral (and, in connection with the filing of
any
such financing statements, describe the Collateral as “all assets and all
personal property, whether now owned and/or hereafter acquired” (or any
substantially similar variation thereof)); (iii) sign
such
Company’s name on any invoice or ▇▇▇▇ of lading relating to any Accounts, drafts
against Account Debtors, schedules and assignments of Accounts, notices of
assignment, financing statements and other public records necessary or
reasonably related to Laurus’ practical realization upon the Collateral securing
the Obligations, verifications of Account and notices to or from Account
Debtors; and
(iv)
to do all other things Laurus deems necessary to carry out the terms of Section
6 of this Security Agreement and (b) upon
the
occurrence and during the continuance of an Event of Default; (v) endorse such
Company’s name on any checks, notes, acceptances, money orders, drafts or other
forms of payment or security that may come into Laurus’ possession; (vi) verify
the validity, amount or any other matter relating to any Account by mail,
telephone, telegraph or otherwise with Account Debtors; (vii) do all other
things necessary to carry out this Agreement, any Ancillary Agreement and all
related documents; and (viii) notify the post office authorities to change
the
address for delivery of such Company’s mail to an address designated by Laurus,
and to receive, open and dispose of all mail addressed to such Company;
provided, however, that Laurus shall give the each Company written notice of
the
change in address at least two (2) Business days prior to the date such change
takes effect and shall hold all mail not related to the practical realization
upon the Collateral in trust and shall deliver such mail to the respective
Company by overnight delivery within forty-eight (48) hours following receipt
thereof by Laurus. Each Company hereby ratifies and approves all acts of the
attorney. Neither Laurus, nor the attorney will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law, except for
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable so long as Laurus has a security interest and until
the
Obligations have been fully satisfied.
30
17. Term
of Agreement.
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 of an uncured Event of Default, Laurus may
terminate this Agreement. The termination of the Agreement shall not affect
any
of Laurus’ rights hereunder or any Ancillary Agreement and the provisions hereof
and thereof shall continue to be fully operative until all transactions entered
into, rights or interests created and the Obligations have been irrevocably
disposed of, concluded or liquidated. Notwithstanding the foregoing, Laurus
shall release its security interests at any time after thirty (30) days notice
upon irrevocable payment to it of all Obligations if each Company shall have
(i)
provided Laurus with an executed release of any and all claims which such
Company may have or thereafter have under this Agreement and all Ancillary
Agreements and (ii) paid to Laurus an early payment fee in an amount equal
to
(1) two percent (2.0%) of the Capital Availability Amount if such payment occurs
prior to the first anniversary of the Closing Date, (2) one percent (1.0%)
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) no early payment fee shall be due 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 jointly and
severally by the Companies to Laurus also upon termination by acceleration
of
this Agreement by Laurus due to the occurrence
and continuance of an Event of Default;
provided that,
in the
event of termination by acceleration on account of the occurrence and
continuance of an Event of Default, the lesser of (x) the applicable early
payment fee and (y) the remainder of (I) the aggregate amount of the Default
Payments (as defined in the Note) less (II) the then outstanding principal
balance of the Note, shall be waived by Laurus.
18. Termination
of Lien.
The
Liens and rights granted to Laurus hereunder and any Ancillary Agreements and
the financing statements filed in connection herewith or therewith shall
continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that any Company’s account may from time to time be
temporarily in a zero or credit position, until all of the Obligations have
been
indefeasibly paid or performed in full and this Agreement has been terminated
in
accordance with the terms of this Agreement. Laurus shall not be required to
send termination statements to any Company, or to file them with any filing
office, unless and until this Agreement and the Ancillary Agreements shall
have
been terminated in accordance with their terms and all Obligations indefeasibly
paid in full in immediately available funds.
19. Events
of Default.
The
occurrence of any of the following shall constitute an “Event
of Default”:
(a) failure
to make payment of any of the Obligations when required hereunder, and, in
any
such case, such failure shall continue for a period of five (5) Business Days
following the date upon which any such payment was due;
(b) failure
by any Company or any of its Subsidiaries to pay any taxes when due unless
such
taxes are being contested in good faith
by
appropriate proceedings and with respect to which adequate reserves have been
provided on such Company’s and/or such Subsidiary’s books; provided that, in the
event such failure is curable, such Company shall have ten (10) Business Days
after the occurrence thereof to cure the failure;
31
(c) failure
to perform under, and/or committing any breach of, in any material respect,
this
Agreement or any covenant contained herein, which failure or breach shall
continue without remedy for a period of fifteen (15) days after receipt of
Laurus’s written notice thereof;
(d) any
representation, warranty or statement made by any Company or any of its
Subsidiaries hereunder, in any Ancillary Agreement, any certificate, statement
or document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Agreement should prove to be false or
misleading in any material respect on the date as of which made or deemed made;
provided that, in the event such failure is curable, such Company shall have
fifteen (15) Business Days after Laurus’s written notice thereof to cure such
breach;
(e) the
occurrence of any default (or similar term) in the observance or performance
of
any other agreement or condition relating to any indebtedness or contingent
obligation of any Company or any of its Subsidiaries beyond the period of grace
(if any), the effect of which default is to cause, or permit the holder or
holders of such indebtedness or beneficiary or beneficiaries of such contingent
obligation to cause, such indebtedness to become due prior to its stated
maturity or such contingent obligation to become payable;
provided
that, in the event such failure is curable, such Company shall have ten (10)
Business Days after Laurus’s written notice thereof to cure such
breach;
(f) attachments
or levies in excess of $100,000 in the aggregate are made upon any Company’s
assets or a judgment is rendered against any Company’s property involving a
liability of more than $100,000 which shall not have been vacated, discharged,
stayed or bonded within thirty (30) days from the entry thereof;
(g) any
change in any Company’s or any of its Subsidiary’s condition or affairs
(financial or otherwise) which, in Laurus’ reasonable, good faith opinion,
impairs
the Collateral or the ability of the Company to perform its
Obligations;
provided that, in the event such failure is curable, such Company shall have
twenty (20) Business Days after Laurus’ written notice thereof to cure such
breach;
(h) any
Lien
created hereunder or under any Ancillary Agreement for any reason ceases to
be
or is not a valid and perfected Lien having a first priority
interest;
(i) any
Company or any of its Subsidiaries shall (i) apply for, consent to or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part
of
its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file
a
petition seeking to take advantage of any other law providing for the relief
of
debtors, (vi) acquiesce to without challenge within ten (10) days of the filing
thereof, or failure to have dismissed within 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;
32
(j) any
Company or any of its Subsidiaries shall admit in writing its inability, or
be
generally unable, to pay its debts as they become due or cease operations of
its
present business;
(k) any
Company or any of its Subsidiaries directly or indirectly sells, assigns,
transfers, conveys, or suffers or permits to occur any sale, assignment,
transfer or conveyance of all or substantially all assets of such Company or
any
interest therein, except as permitted herein;
(l) any
“Person” or “group” (as such terms are defined in Sections 13(d) and 14(d) of
the Exchange Act, as in effect on the date hereof), other than the Holder,
is or
becomes the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under
the Exchange Act), directly or indirectly, of 50% or more on a fully diluted
basis of the then outstanding voting equity interest of the Parent, (ii) the
Board of Directors of the Parent shall cease to consist of a majority of the
Board of Directors of the Parent on the date hereof (or directors appointed
by a
majority of the board of directors in effect immediately prior to such
appointment)
or (iii)
the Parent or any of its Subsidiaries merges or consolidates with, or sells
all
or substantially all of its assets to, any other person or entity;
(m) the
indictment of any Company or any of its Subsidiaries or any executive officer
of
any Company or any of its Subsidiaries under any criminal statute, or
commencement or threatened commencement of criminal or civil proceeding by
any
governmental agency against any Company or any of its Subsidiaries or any
executive officer of any Company or any of its Subsidiaries pursuant to which
statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of any Company or any of its Subsidiaries;
(n) an
Event
of Default shall occur under and as defined in the Note or in any other
Ancillary Agreement and has not been cured within the applicable cure or grace
period;
(o) any
Company or any of its Subsidiaries shall breach any term or provision of any
Ancillary Agreement to which it is a party, in any material respect which breach
is not cured within any applicable cure or grace period provided in respect
thereof (if any);
(p) any
Company or any of its Subsidiaries attempts to terminate, challenges the
validity of, or its liability under this Agreement or any Ancillary Agreement,
or any proceeding shall be brought to challenge the validity, binding effect
of
any Ancillary Agreement or any Ancillary Agreement ceases to be a valid, binding
and enforceable obligation of such Company or any of its Subsidiaries (to the
extent such Persons are a party thereto);
(q) an
SEC
stop trade order or Principal Market trading suspension of the Common Stock
shall be in effect for five (5) consecutive trading days or five (5) trading
days during a period of ten (10) consecutive trading days, excluding in all
cases a suspension of all trading on a Principal Market, provided that the
Parent shall not have been able to cure such trading suspension within thirty
(30) days of the notice thereof or list the Common Stock on another Principal
Market within sixty (60) days of such notice; or
(r) The
Parent’s failure to deliver Grant Shares or Additional Grant Shares to Laurus
pursuant to and in the form required by this Agreement, if such failure to
deliver Common Stock shall not be cured within two (2) Business Days or any
Company is required to issue a replacement Note to Laurus and such Company
shall
fail to deliver such replacement Note within seven (7) Business Days.
33
20. Remedies.
Following the occurrence of an uncured Event of Default, Laurus shall have
the
right to demand repayment in full of all Obligations, whether or not otherwise
due. Until all Obligations have been fully and
indefeasibly satisfied, Laurus shall retain its Lien in all Collateral. Laurus
shall have, in addition to all other rights provided herein and in each
Ancillary Agreement, the rights and remedies of a secured party under the UCC,
and under other applicable law, all other legal and equitable rights to which
Laurus may be entitled, including the right to take immediate possession of
the
Collateral, to require each Company to assemble the Collateral, at Companies’
joint and several expense, and to make it available to Laurus at a place
designated by Laurus which is reasonably convenient to both parties and to
enter
any of the premises of any Company or wherever the Collateral shall be located,
with or without force or process of law, and to keep and store the same on
said
premises until sold (and if said premises be the property of any Company, such
Company agrees not to charge Laurus for storage thereof), and the right to
apply
for the appointment of a receiver for such Company’s property. Further, Laurus
may, at any time or times after the occurrence of an uncured Event of Default,
sell and deliver all Collateral held by or for Laurus at public or private
sale
for cash, upon credit or otherwise, at such prices and upon such terms as
Laurus, in Laurus’ sole discretion, deems advisable or Laurus may otherwise
recover upon the Collateral in any commercially reasonable manner as Laurus,
in
its sole discretion, deems advisable. The requirement of reasonable notice
shall
be met if such notice is mailed postage prepaid to Company Agent at Company
Agent’s address as shown in Laurus’ records, at least ten (10) days before the
time of the event of which notice is being given. Laurus may be the purchaser
at
any sale, if it is public. In connection with the exercise of the foregoing
remedies, Laurus is granted permission to use all of each Company’s Intellectual
Property. The proceeds of sale shall be applied first to all reasonable costs
and expenses of sale, including reasonable attorneys’ fees, and second to the
payment (in whatever order Laurus elects) of all Obligations. After the
indefeasible payment and satisfaction in full of all of the Obligations, and
after the payment by Laurus of any other amount required by any provision of
law, including Section 9-608(a)(1) of the UCC (but only after Laurus has
received what Laurus considers reasonable proof of a subordinate party’s
security interest), the surplus, if any, shall be paid to Company Agent (for
the
benefit of the applicable Companies) or its representatives or to whosoever
may
be lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct. The Companies shall remain jointly and severally liable
to Laurus for any deficiency. Each Company and Laurus acknowledge that the
actual damages that would be incurred by Laurus after the occurrence of an
Event
of Default would be difficult to quantify and that such Company and Laurus
have
agreed that the fees and obligations set forth in this Section and in this
Agreement would constitute fair and appropriate liquidated damages in the event
of any such termination. The parties hereto each hereby agree that the exercise
by any party hereto of any right granted to it or the exercise by any party
hereto of any remedy available to it (including, without limitation, the
issuance of a notice of redemption, a borrowing request and/or a
notice of default), in each case, hereunder or under any Ancillary
Agreement shall not constitute confidential information and
no party shall have any duty to the other party to maintain such
information as confidential.
34
21. Waivers.
To the
full extent permitted by applicable law, each Company hereby waives (a)
presentment, demand and protest, and notice of presentment, dishonor, intent
to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all of this Agreement
and
the Ancillary Agreements or any other notes, commercial paper, Accounts,
contracts, Documents, Instruments, Chattel Paper and guaranties at any time
held
by Laurus on which such Company may in any way be liable, and hereby ratifies
and confirms whatever Laurus may do in this regard; (b) all rights to notice
and
a hearing prior to Laurus’ taking possession or control of, or to Laurus’
replevy, attachment or levy upon, any Collateral or any bond or security that
might be required by any court prior to allowing Laurus to exercise any of
its
remedies; and (c) the benefit of all valuation, appraisal and exemption laws.
Each Company acknowledges that it has been advised by counsel of its choices
and
decisions with respect to this Agreement, the Ancillary Agreements and the
transactions evidenced hereby and thereby.
22. Expenses.
The
Companies shall jointly and severally pay all of Laurus’ out-of-pocket
reasonable costs and expenses, including reasonable fees and disbursements
of
in-house or outside counsel and appraisers, in connection with (x) subject
to
the limitations set forth in Section 5(b)(iii), the preparation, execution
and
delivery of this Agreement and the Ancillary Agreements, and (y) in connection
with the prosecution or defense of any action, contest, dispute, suit or
proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. The Companies shall
also jointly and severally pay all of Laurus’ reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of counsel
and appraisers, in connection with (a) the preparation, execution and delivery
of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by this Agreement or the Ancillary
Agreements, (b) Laurus’ obtaining performance of the Obligations under this
Agreement and any Ancillary Agreements, including, but not limited to, the
enforcement or defense of Laurus’ security interests, assignments of rights and
Liens hereunder as valid perfected security interests, (c) any attempt to
inspect, verify, protect, collect, sell, liquidate or otherwise dispose of
any
Collateral, (d) any appraisals or re-appraisals of any property (real or
personal) pledged to Laurus by any Company or any of its Subsidiaries as
Collateral for, or any other Person as security for, the Obligations hereunder
and (e) any consultations in connection with any of the foregoing. The Companies
shall also jointly and severally pay Laurus’ customary bank charges for all bank
services (including wire transfers) performed or caused to be performed by
Laurus for any Company or any of its Subsidiaries at any Company’s or such
Subsidiary’s request or in connection with any Company’s loan account with
Laurus. All such costs and expenses together with all filing, recording and
search fees, taxes and interest payable by the Companies to Laurus shall be
payable on demand and shall be secured by the Collateral. If any tax by any
Governmental Authority is or may be imposed on or as a result of any transaction
between any Company and/or any Subsidiary thereof, on the one hand, and Laurus
on the other hand, which Laurus is or may be required to withhold or pay
(including, without limitation, as a result of a breach by any Company or any
of
its Subsidiaries of Section 13(u) herein), the Companies hereby jointly and
severally indemnify and hold Laurus harmless in respect of such taxes, and
the
Companies will repay to Laurus the amount of any such taxes which shall be
charged to the Companies’ account; and until the Companies shall furnish Laurus
with indemnity therefor (or supply Laurus with evidence satisfactory to it
that
due provision for the payment thereof has been made), Laurus may hold without
interest any balance standing to each Company’s credit and Laurus shall retain
its Liens in any and all ▇▇▇▇▇▇▇▇▇▇.
▇▇
▇▇. Assignment
By Laurus.
Subject
to applicable provisions of the federal and state securities laws, Laurus may
assign any or all of the Obligations together with any or all of the security
therefor to any Person and any such assignee shall succeed to all of Laurus’
rights with respect thereto; provided that (a) Laurus shall not be permitted
to
effect any such assignment to a competitor of any Company unless an Event of
Default has occurred and is continuing, and (b) Laurus shall give the Companies
ten (10) business days’ prior written notice of its intent to assign any or all
of the Obligations and the Companies shall have the option, but not the
obligation, within such period to prepay all Obligations proposed to be assigned
by Laurus without penalty notwithstanding any other provisions of this Agreement
or any Ancillary Agreement to the contrary. Upon such assignment, Laurus shall
be released from all responsibility for the Collateral to the extent same is
assigned to any transferee. Laurus may from time to time sell or otherwise
grant
participations in any of the Obligations and the holder of any such
participation shall, subject to the terms of any agreement between Laurus and
such holder, be entitled to the same benefits as Laurus with respect to any
security for the Obligations in which such holder is a participant. Each Company
agrees that each such holder may exercise any and all rights of banker’s lien,
set-off and counterclaim with respect to its participation in the Obligations
as
fully as though such Company were directly indebted to such holder in the amount
of such participation.
24. No
Waiver; Cumulative Remedies.
Failure
by either party to exercise any right, remedy or option under this Agreement,
any Ancillary Agreement or any supplement hereto or thereto or any other
agreement between or among any Company and Laurus or delay by such party in
exercising the same, will not operate as a waiver; no waiver by any party will
be effective unless it is in writing and then only to the extent specifically
stated. The rights and remedies of the parties under this Agreement and the
Ancillary Agreements will be cumulative and not exclusive of any other right
or
remedy which such parties may have.
25. Application
of Payments.
Each
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 such
Company’s behalf; provided that all payments shall be applied first
to
any fees due and payable to Laurus under this Agreement or any Ancillary
Agreement, then to accrued and unpaid interest and then to the outstanding
principal balance of the Loans as each shall be due under this Agreement or
any
Ancillary Agreement.
26. Indemnity.
(a)
Each Company hereby jointly and severally indemnifies and holds 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.
36
(b) Laurus
shall
indemnify, defend (at the Companies’ election) and hold harmless each Company,
and each of its officers, directors, members, employees, agents, affiliates,
customers, licensees and sublicenses, from any claim, liability, loss damage
or
expense, including reasonable attorneys’ fees and disbursements, caused by or
arising out of any breach or alleged breach of any representation, warranty,
covenant, obligation or agreement of Laurus pursuant to this Agreement or any
Ancillary Agreement. Such Company shall notify Laurus in writing of any claim
or
litigation to which this indemnification applies, and Laurus shall have the
right to assume the defense of any such claim or litigation, provided that
such
Company shall have the right to participate in such defense at its own expense.
Laurus shall have the right to approve or disapprove the settlement or
disposition of any such claim or litigation proposed by such Company, which
right shall expire twenty (20) business days following Laurus’ receipt of
written notice with respect thereto.
(c) NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY INDEMNIFYING PARTY
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.
27. Revival.
The
Companies further agree that to the extent any Company makes a payment or
payments to Laurus, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under
any
bankruptcy act, state or federal law, common law or equitable cause, then,
to
the extent of such payment or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as
if
said payment had not been made.
28. Borrowing
Agency Provisions.
(a) Each
Company hereby irrevocably designates Company Agent to be its attorney and
agent
and in such capacity to borrow, sign and endorse notes, and execute and deliver
all instruments, documents, writings and further assurances now or hereafter
required hereunder, on behalf of such Company, and hereby authorizes Laurus
to
pay over or credit all loan proceeds hereunder in accordance with the request
of
Company Agent.
(b) The
handling of this credit facility as a co-borrowing facility with a borrowing
agent in the manner set forth in this Agreement is solely as an accommodation
to
the Companies and at their request. Laurus shall not incur any liability to
any
Company as a result thereof. To induce Laurus to do so and in consideration
thereof, each Company hereby indemnifies Laurus and holds Laurus harmless from
and against any and all liabilities, expenses, losses, damages and claims of
damage or injury asserted against Laurus by any Person arising from or incurred
by reason of the handling of the financing arrangements of the Companies as
provided herein, reliance by Laurus on any request or instruction from Company
Agent or any other action taken by Laurus with respect to this Paragraph
28.
37
(c) All
Obligations shall be joint and several, and the Companies shall make payment
upon the maturity of the Obligations by acceleration or otherwise, and such
obligation and liability on the part of the Companies shall in no way be
affected by any extensions, renewals and forbearance granted by Laurus to any
Company, failure of Laurus to give any Company notice of borrowing or any other
notice, any failure of Laurus to pursue to preserve its rights against any
Company, the release by Laurus of any Collateral now or thereafter acquired
from
any Company, and such agreement by any Company to pay upon any notice issued
pursuant thereto is unconditional and unaffected by prior recourse by Laurus
to
any Company or any Collateral for such Company’s Obligations or the lack
thereof.
(d) Each
Company expressly waives any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution or any other claim which such Company
may
now or hereafter have against the other or other Person directly or contingently
liable for the Obligations, or against or with respect to any other’s property
(including, without limitation, any property which is Collateral for the
Obligations), arising from the existence or performance of this Agreement,
until
all Obligations have been indefeasibly paid in full and this Agreement has
been
irrevocably terminated.
(e) Each
Company represents and warrants to Laurus that (i) Companies have one or more
common shareholders, directors and officers, (ii) the businesses and corporate
activities of Companies are closely related to, and substantially benefit,
the
business and corporate activities of Companies, (iii) the financial and other
operations of Companies are performed on a combined basis as if Companies
constituted a consolidated corporate group, (iv) Companies will receive a
substantial economic benefit from entering into this Agreement and will receive
a
substantial economic benefit from the application of each Loan hereunder, in
each case, whether or not such amount is used directly by any Company and (v)
all requests for Loans hereunder by the Company Agent are for the exclusive
and
indivisible benefit of the Companies as though, for purposes of this Agreement,
the Companies constituted a single entity.
29. Notices.
Any
notice or request hereunder may be given to any Company, Company Agent or Laurus
at the respective addresses set forth below or as may hereafter be specified
in
a notice designated as a change of address under this Section. Any notice or
request hereunder shall be given by registered or certified mail, return receipt
requested, hand delivery, overnight mail 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 five (5) 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.
38
Notices
shall be provided as follows:
If
to
Laurus: Laurus
Master Fund, Ltd.
c/o
M&C Corporate Services Limited
▇.▇.
▇▇▇
▇▇▇ ▇▇
▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇
South
Church Street
Grand
Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With
a copy
to:
Laurus
Capital Management, LLC
▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇.
▇▇▇
▇▇▇▇,
▇▇▇
▇▇▇▇
▇▇▇▇▇
Attention: Portfolio
Services
Telephone: (▇▇▇)
▇▇▇-▇▇▇▇
Telecopier: (▇▇▇)
▇▇▇-▇▇▇▇
If
to any
Company, or
Company Agent:
SpaceDev,
Inc.
▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇)
▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
With
a copy
to:
Law
Offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, APC
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇
▇▇▇▇▇, Esq.
Telephone: (▇▇▇)
▇▇▇-▇▇▇▇
Facsimile: (▇▇▇)
▇▇▇-▇▇▇▇
or
such
other address as may be designated in writing hereafter in accordance with
this
Section 29 by such Person.
30. Governing
Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS
AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
39
(b) EACH
COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED
IN
THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION
TO
HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY, ON THE ONE HAND,
AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED,
THAT
LAURUS AND EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE
TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF
NEW
YORK; AND FURTHER PROVIDED,
THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT
THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS.
EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION
IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY HEREBY WAIVES
ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM
NON CONVENIENS.
EACH
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL
ADDRESSED TO COMPANY AGENT AT THE ADDRESS SET FORTH IN SECTION 29 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY AGENT’S
ACTUAL RECEIPT THEREOF OR TEN (10) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID.
(c) THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHTS
TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS, AND/OR ANY
COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
31. Limitation
of Liability.
Each
Company acknowledges and understands that in order to assure repayment of the
Obligations hereunder Laurus may be required to exercise any and all of Laurus’
rights and remedies hereunder and agrees that, except as limited by applicable
law, neither Laurus nor any of Laurus’ agents shall be liable for acts taken or
omissions made in connection herewith or therewith except for actual bad
faith.
32. Entire
Understanding; Maximum Interest.
This
Agreement and the Ancillary Agreements, including all Schedules and Exhibits
hereto or thereto, contain the entire understanding among each Company and
Laurus as to the subject matter hereof and thereof and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by each Company’s and Laurus’
respective officers. Neither this Agreement, the Ancillary Agreements, nor
any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by
the
party to be charged. Nothing contained in this Agreement, any Ancillary
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid
or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by
the
Companies to Laurus and thus refunded to the Companies.
40
33. Severability.
Wherever possible each provision of this Agreement or the Ancillary Agreements
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the Ancillary
Agreements shall be prohibited by or invalid under applicable law such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
thereof.
34. Survival.
The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by Laurus and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to factual
matters contained in any certificate or other instrument delivered by
or
on
behalf of the Companies pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by
the
Companies hereunder solely as of the date of such certificate or instrument.
All
indemnities set forth herein shall survive the execution, delivery and
termination of this Agreement and the Ancillary Agreements and the making and
repaying of the Obligations.
35. Captions.
All
captions are and shall be without substantive meaning or content of any kind
whatsoever.
36. Counterparts;
Telecopier Signatures.
This
Agreement may be executed in one or more counterparts, each of which shall
constitute an original and all of which taken together shall constitute one
and
the same agreement. Any signature delivered by a party via telecopier
transmission shall be deemed to be any original signature hereto.
37. Construction.
The
parties acknowledge that each party and its counsel have reviewed this Agreement
and that the normal rule of construction to the effect that any ambiguities
are
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments, schedules or exhibits
thereto.
38. Publicity.
Each
Company hereby authorizes Laurus to make appropriate announcements of the
financial arrangement entered into by and among each Company and Laurus,
including, without limitation, announcements which are commonly known as
tombstones, in such publications and to such selected parties as Laurus shall
in
its sole and absolute discretion deem appropriate, or as required by applicable
law.
41
39. Joinder.
It is
understood and agreed that any Person that desires to become a Company
hereunder, or is required to execute a counterpart of this Agreement after
the
date hereof pursuant to the requirements of this Agreement or any Ancillary
Agreement, shall become a Company hereunder by (a) executing a Joinder Agreement
in form and substance satisfactory to Laurus, (b) delivering supplements to
such
exhibits and annexes to this Agreement and the Ancillary Agreements as Laurus
shall reasonably request and (c) taking all actions as specified in this
Agreement as would have been taken by such Company had it been an original
party
to this Agreement, in each case with all documents required above to be
delivered to Laurus and with all documents and actions required above to be
taken to the reasonable satisfaction of Laurus.
40. Legends.
The
Securities shall bear legends as follows;
(a) The
Note
shall bear substantially the following legend:
“THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR
ANY APPLICABLE STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SPACEDEV, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.”
(b) Any
shares of Common Stock issued as Grant Shares or Additional Grant Shares, shall
bear a legend which shall be in substantially the following form until such
shares are covered by an effective registration statement filed with the
SEC:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE 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 SPACEDEV, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.”
[Balance
of page intentionally left blank; signature page follows.]
42
IN
WITNESS WHEREOF, the parties have executed this Security Agreement as of the
date first written above.
SPACEDEV,
INC.
By: /s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇
▇.
▇▇▇▇▇▇▇
Title:
Chief
Financial Officer
STARSYS,
INC.
By: /s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇
▇.
▇▇▇▇▇▇▇
Title:
Chief
Financial Officer
LAURUS
MASTER FUND, LTD.
By: /s/
▇▇▇▇▇▇
Grin
Name: ▇▇▇▇▇▇
Grin
Title:
Director
43
Annex
A - Definitions
“Account
Debtor”
means
any Person who is or may be obligated with respect to, or on account of, an
Account.
“Accountants”
has
the
meaning given to such term in Section 11(a).
“Accounts”
means
all “accounts”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person, including: (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper or Instruments) (including any such
obligations that may be characterized as an account or contract right under
the
UCC); (b) all of such Person’s rights in, to and under all purchase orders or
receipts for goods or services; (c) all of such Person’s rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to
such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising
out
of the use of a credit card or charge card, or for services rendered or to
be
rendered by such Person or in connection with any other transaction (whether
or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
“Accounts
Availability”
means
ninety percent (90%) of the net face amount of Eligible Accounts.
“Affiliate”
means,
with respect to any Person, (a) any other Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person, (b) any other Person that, directly or
indirectly, owns or controls, whether beneficially, or as trustee, guardian
or
other fiduciary, 25% or more of the Stock having ordinary voting power in the
election of directors of such Person, (c) any other Person who is a director,
officer, joint venturer or partner (i) of such Person, (ii) of any Subsidiary
of
such Person or (iii) of any Person described in clause (a) above or (d) in
the
case of the Companies, the immediate family members, spouses and lineal
descendants of individuals who are Affiliates of such Companies. 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; provided however,
that
the term “Affiliate” shall specifically exclude Laurus.
“Ancillary
Agreements”
means
the Note, the Grant Shares, the Additional Grant Shares, each Security Document
and all other agreements, instruments, documents, mortgages, pledges, powers
of
attorney, consents, assignments, contracts, notices, security agreements, trust
agreements and guarantees whether heretofore, concurrently, or hereafter
executed by or on behalf of any Company, any of its Subsidiaries or any other
Person or delivered to Laurus, relating to this Agreement or to the transactions
contemplated by this Agreement or otherwise relating to the relationship between
or among any Company and Laurus, as each of the same may be amended,
supplemented, restated or otherwise modified from time to time.
“Balance
Sheet Date”
has
the
meaning given such term in Section 12(f)(ii).
“Books
and Records”
means
all books, records, board minutes, contracts, licenses, insurance policies,
environmental audits, business plans, files, computer files, computer discs
and
other data and software storage and media devices, accounting books and records,
financial statements (actual and pro forma), filings with Governmental
Authorities and any and all records and instruments relating to the Collateral
or otherwise necessary or helpful in the collection thereof or the realization
thereupon.
“Business
Day”
means
a
day on which Laurus is open for business and that is not a Saturday, a Sunday
or
other day on which banks are required or permitted to be closed in the State
of
New York.
“Capital
Availability Amount”
means
$5,000,000.
“Charter”
has
the
meaning given such term in Section 12(c)(iv).
“Chattel
Paper”
means
all “chattel paper,” as such term is defined in the UCC, including electronic
chattel paper, now owned or hereafter acquired by any Person.
“Closing
Date”
means
the date on which any Company shall first receive proceeds of the initial Loans
or the date hereof, if no Loan is made under the facility on the date
hereof.
“Code”
has
the
meaning given such term in Section 15(i).
“Collateral”
means
all of each Company’s property and assets, whether real or personal, tangible or
intangible, and whether now owned or hereafter acquired, or in which it now
has
or at any time in the future may acquire any right, title or interests including
all of the following property in which it now has or at any time in the future
may acquire any right, title or interest; provided, however, that nothing
contained in this definition, in this Agreement or in any Ancillary Agreement
shall be interpreted to include any property of whatever nature belonging to
any
customer of such Company which is located on such Company’s premises, including
but not limited to any Government Furnished Equipment (as that term is defined
by applicable government regulations):
(a) all
Inventory;
(b) all
Equipment;
(c) all
Fixtures;
(d) all
Goods;
(e) all
General Intangibles;
(f) all
Accounts;
(g) all
Deposit Accounts, other bank accounts and all funds on deposit therein
other
than Refundable Deposits;
(h) all
Investment Property;
(i) all
Stock;
(j) all
Chattel Paper;
(k) all
Letter-of-Credit Rights;
(l) all
Instruments;
(m) all
commercial tort claims set forth on Schedule
1(A);
(n) all
Books
and Records;
(o) all
Intellectual Property;
(p) all
Supporting Obligations including letters of credit and guarantees issued in
support of Accounts, Chattel Paper, General Intangibles and Investment
Property;
(q) (i)
all
money, cash and cash equivalents and (ii) all cash held as cash collateral
to
the extent not otherwise constituting Collateral, all other cash or property
at
any time on deposit with or held by Laurus for the account of any Company
(whether for safekeeping, custody, pledge, transmission or otherwise);
and
(r) all
products and Proceeds of all or any of the foregoing, tort claims and all claims
and other rights to payment including (i) insurance claims against third parties
for loss of, damage to, or destruction of, the foregoing Collateral and (ii)
payments due or to become due under leases, rentals and hires of any or all
of
the foregoing and Proceeds payable under, or unearned premiums with respect
to
policies of insurance in whatever form.
“Common
Stock”
means
the shares of stock representing the Parent’s common equity
interests.
“Company
Agent”
means
the Parent.
“Contract
Rate”
has
the
meaning given such term in the 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.
“Deposit
Accounts”
means
all “deposit accounts” as such term is defined in the UCC, now or hereafter held
in the name of any Person, including, without limitation, the
Lockboxes.
“Disclosure
Controls”
has
the
meaning given such term in Section 12(f)(iv).
“Documents”
means
all “documents”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including all bills of lading, dock
warrants, dock receipts, warehouse receipts, and other documents of title,
whether negotiable or non-negotiable.
“Eligible
Accounts”
means
each Account of each Company 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 such Company to Laurus with respect thereto; (e) Laurus
is, and continues to be, satisfied with the credit standing of the Account
Debtor in relation to the amount of credit extended; (f) there are no facts
existing or threatened which are likely to result in any adverse change in
an
Account Debtor’s financial condition; (g) is documented by an invoice in a form
approved by Laurus and shall not be unpaid more than ninety (90) days from
invoice date; (h) not more than twenty-five percent (25%) of the unpaid amount
of invoices due from such Account Debtor remains unpaid more than ninety (90)
days from invoice date; (i) is not evidenced by chattel paper or an instrument
of any kind with respect to or in payment of the Account unless such instrument
is duly endorsed to and in possession of Laurus or represents a check in payment
of 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 any Company;
(m) is payable to such Company; (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 such
Company is indebted; (o) is net of any returns, discounts, claims, credits
and
allowances; (p) if the Account arises out of contracts between such Company,
on
the one hand, and the United States, on the other hand, any state, or any
department, agency or instrumentality of any of them, such Company has so
notified Laurus, in writing, prior to the creation of such Account, and there
has been compliance with any governmental notice or approval requirements,
including compliance with the Federal Assignment of Claims Act; (q) is a good
and valid account representing an undisputed bona fide indebtedness incurred
by
the Account Debtor therein named, for a fixed sum as set forth in the invoice
relating thereto with respect to an unconditional sale and delivery upon the
stated terms of goods sold by such Company or work, labor and/or services
rendered by such Company; (r) the total unpaid Accounts from such Account Debtor
does not exceed twenty-five percent (25%) of all Eligible Accounts; (s) such
Company’s right to payment is absolute and not contingent upon the fulfillment
of any condition whatsoever; (t) such Company is able to bring suit and enforce
its remedies against the Account Debtor through judicial process; (u) does
not
represent interest payments, late or finance charges owing to such Company,
and
(v) is otherwise satisfactory to Laurus as determined by Laurus in the exercise
of its sole discretion. In the event any Company requests that Laurus include
within Eligible Accounts certain Accounts of one or more of such 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 reasonable discretion.
“Eligible
Inventory”
means
Inventory owned by a Company which Laurus, in its sole and absolute discretion,
determines: (a) is subject to a first priority perfected Lien in favor of Laurus
and is subject to no other Liens whatsoever (other than Permitted Liens); (b)
is
located on premises with respect to which Laurus has received a landlord or
mortgagee waiver acceptable in form and substance to Laurus; (c) is not in
transit; (d) is in good condition and meets all standards imposed by any
governmental agency, or department or division thereof having regulatory
Governmental Authority over such Inventory, its use or sale including the
Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations
and orders thereunder; (e) is currently either usable or salable in the normal
course of such Company’s business; (f) is not placed by such Company on
consignment or held by such Company on consignment from another Person; (g)
is
in conformity with the representations and warranties made by such Company
to
Laurus with respect thereto; (h) is not subject to any licensing, patent,
royalty, trademark, trade name or copyright agreement with any third parties;
(i) does not require the consent of any Person for the completion of
manufacture, sale or other disposition of such Inventory and such completion,
manufacture or sale does not constitute a breach or default under any contract
or agreement to which such Company is a party or to which such Inventory is
or
may be subject; (j) is not work-in-process, except to the extent expressly
allowed by this Agreement; (k) is covered by casualty insurance acceptable
to
Laurus and under which Laurus has been named as a lender’s loss payee and
additional insured; and (l) not to be ineligible for any other
reason.
“Eligible
Subsidiary”
means
each Subsidiary of the Parent set forth on Exhibit
A hereto,
as the same may be updated from time to time with Laurus’ written
consent.
“Equipment”
means
all “equipment” as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including any and all machinery,
apparatus, equipment, fittings, furniture, Fixtures, motor vehicles and other
tangible personal property (other than Inventory) of every kind and description
that may be now or hereafter used in such Person’s operations or that are owned
by such Person or in which such Person may have an interest, and all parts,
accessories and accessions thereto and substitutions and replacements
therefor.
“ERISA”
has
the
meaning given such term in Section 12(bb).
“Event
of Default”
means
the occurrence of any of the events set forth in Section 19.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Exchange
Act Filings”
means
the Parent’s filings under the Exchange Act made prior to the date of this
Agreement.
“Financial
Reporting Controls”
has
the
meaning given such term in Section 12(f)(v).
“Fixtures”
means
all “fixtures” as such term is defined in the UCC, now owned or hereafter
acquired by any Person.
“Formula
Amount”
has
the
meaning given such term in Section 2(a)(i).
“GAAP”
means
generally accepted accounting principles, practices and procedures in effect
from time to time in the United States of America.
“General
Intangibles”
means
all “general intangibles” as such term is defined in the UCC, now owned or
hereafter acquired by any Person including all right, title and interest that
such Person may now or hereafter have in or under any contract, all Payment
Intangibles, customer lists, Licenses, Intellectual Property, interests in
partnerships, joint ventures and other business associations, permits,
proprietary or confidential information, inventions (whether or not patented
or
patentable), technical information, procedures, designs, knowledge, know-how,
Software, data bases, data, skill, expertise, experience, processes, models,
drawings, materials, Books and Records, Goodwill (including the Goodwill
associated with any Intellectual Property), all rights and claims in or under
insurance policies (including insurance for fire, damage, loss, and casualty,
whether covering personal property, real property, tangible rights or intangible
rights, all liability, life, key-person, and business interruption insurance,
and all unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments, rights to received
dividends, distributions, cash, Instruments and other property in respect of
or
in exchange for pledged Stock and Investment Property, and rights of
indemnification.
“Goods”
means
all “goods”, as such term is defined in the UCC, now owned or hereafter acquired
by any Person, wherever located, including embedded software to the extent
included in “goods” as defined in the UCC, manufactured homes, Fixtures,
standing timber that is cut and removed for sale and unborn young of
animals.
“Goodwill”
means
all goodwill, trade secrets, proprietary or confidential information, technical
information, procedures, formulae, quality control standards, designs, operating
and training manuals, customer lists, and distribution agreements now owned
or
hereafter acquired by any Person.
“Grant
Shares”
means
the number
of
shares of the Parent’s restricted Common Stock to be issued to Laurus on the
Closing Date in such amount as shall be equal to the sum of $350,000 divided
by
the average closing price for the Common Stock for the ten (10) trading days
prior to the Closing Date.
“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.
“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.
“Inventory
Availability”
means
the lesser of (a) fifty percent (50%) of the fair salable value of Companies’
Eligible Inventory (calculated on the basis of the lower of cost or market,
on a
first-in first-out basis) and (b) $1,000,000, provided, however, that no more
than $500,000 of salable value of such Eligible Inventory may be in the form
of
Work in Process Inventory.
“Investment
Property”
means
all “investment property”, as such term is defined in the UCC, now owned or
hereafter acquired by any Person, wherever located.
“Letter-of-Credit
Rights”
means
“letter-of-credit rights” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including rights to payment or performance
under a letter of credit, whether or not such Person, as beneficiary, has
demanded or is entitled to demand payment or performance.
“License”
means
any rights under any written agreement now or hereafter acquired by any Person
to use any trademark, trademark registration, copyright, copyright registration
or invention for which a patent is in existence or other license of rights
or
interests now held or hereafter acquired by any Person.
“Lien”
means
any mortgage, security deed, deed of trust, pledge, hypothecation, assignment,
security interest, lien (whether statutory or otherwise), charge, claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement held or asserted in respect of any asset of any kind or nature
whatsoever including any conditional sale or other title retention agreement,
any lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement under the
UCC
or comparable law of any jurisdiction.
“Loans”
has
the
meaning given such term in Section 2(a)(i) and shall include all other
extensions of credit hereunder and under any Ancillary Agreement.
“Lockboxes”
has
the
meaning given such term in Section 8(a).
“Material
Adverse Effect”
means
a
material adverse effect on (a) the business, assets (but only to the extent
that
it results in a change of 15% or more of the value of such assets), liabilities,
financial condition or results of operation or properties of any Company or
any
of its Subsidiaries (taken individually and as a whole), (b) any Company’s or
any of its Subsidiary’s ability to pay or perform the Obligations in accordance
with the terms hereof or any Ancillary Agreement, (c) the sufficiency and/or
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.
“NASD”
has
the
meaning given such term in Section 13(b).
“Note”
means
the Secured Revolving Note.
“Obligations”
means
all Loans, all advances, debts, liabilities, obligations, covenants and duties
owing by each Company and each of its Subsidiaries under this Agreement or
the
Ancillary Agreements to Laurus (or any corporation that directly or indirectly
controls or is controlled by or is under common control with Laurus) of every
kind and description (whether or not evidenced by any note or other instrument
and whether or not for the payment of money or the performance or
non-performance of any act), direct or indirect, absolute or contingent, due
or
to become due, contractual or tortious, liquidated or unliquidated, whether
existing by operation of law or otherwise now existing or hereafter arising
including any debt, liability or obligation owing from any Company and/or each
of its Subsidiaries to others which Laurus may have obtained by assignment
or
otherwise and further including all interest (including interest accruing at
the
then applicable rate provided in this Agreement after the maturity of the Loans
and interest accruing at the then applicable rate provided in this Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, whether or not a claim for
post-filing or post-petition interest is allowed or allowable in such
proceeding), charges or any other payments each Company and each of its
Subsidiaries is required to make by law or otherwise arising under or as a
result of this Agreement or the Ancillary Agreements, together with all
reasonable expenses and reasonable attorneys’ fees chargeable to the Companies’
or any of their Subsidiaries’ accounts or incurred by Laurus in connection
therewith.
“Payment
Intangibles”
means
all “payment intangibles” as such term is defined in the UCC, now owned or
hereafter acquired by any Person, including, a General Intangible under which
the Account Debtor’s principal obligation is a monetary obligation.
“Permitted
Liens”
means
(a) Liens of carriers, warehousemen, artisans, bailees, mechanics and
materialmen incurred in the ordinary course of business securing sums not
overdue; (b) Liens incurred in the ordinary course of business in connection
with worker’s compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (i)
not
overdue or (ii) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of the Companies
and
their Subsidiaries, as applicable, in conformity with GAAP; (c) Liens in
favor of Laurus; (d) Liens for taxes (i) not yet due or (ii) being diligently
contested in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the Companies
and
their Subsidiaries, as applicable, in conformity with GAAP; and which have
no
effect on the priority of Liens in favor of Laurus or the value of the assets
in
which Laurus has a Lien; (e) Purchase Money Liens securing Purchase Money
Indebtedness to the extent permitted in this Agreement; (f) Liens imposed by
government agency clients or applicable regulations under which the Company’s
relationships with government agency clients are contracted; and (g) 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.
“Principal
Market”
means
the NASD Over The Counter Bulletin Board, NASDAQ Capital Market, NASDAQ National
Market System, American Stock Exchange or New York Stock Exchange (whichever
of
the foregoing is at the time the principal trading exchange or market for the
Common Stock).
“Proceeds”
means
“proceeds”, as such term is defined in the UCC and, in any event, shall include:
(a) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to any Company or any other Person from time to time with respect to
any
Collateral; (b) any and all payments (in any form whatsoever) made or due and
payable to any Company from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any Collateral by any
governmental body, governmental authority, bureau or agency (or any person
acting under color of governmental authority); (c) any claim of any Company
against third parties (i) for past, present or future infringement of any
Intellectual Property or (ii) for past, present or future infringement or
dilution of any trademark or trademark license or for injury to the goodwill
associated with any trademark, trademark registration or trademark licensed
under any trademark License; (d) any recoveries by any Company against third
parties with respect to any litigation or dispute concerning any Collateral,
including claims arising out of the loss or nonconformity of, interference
with
the use of, defects in, or infringement of rights in, or damage to, Collateral;
(e) all amounts collected on, or distributed on account of, other Collateral,
including dividends, interest, distributions and Instruments with respect to
Investment Property and pledged Stock; and (f) any and all other amounts, rights
to payment or other property acquired upon the sale, lease, license, exchange
or
other disposition of Collateral and all rights arising out of
Collateral.
“Purchase
Money Indebtedness”
means
(a) any indebtedness incurred for the payment of all or any part of the purchase
price of any fixed asset, including indebtedness under capitalized leases,
(b)
any indebtedness incurred for the sole purpose of financing or refinancing
all
or any part of the purchase price of any fixed asset, and (c) any renewals,
extensions or refinancings thereof (but not any increases in the principal
amounts thereof outstanding at that time).
“Purchase
Money Lien”
means
any Lien upon any fixed assets that secures the Purchase Money Indebtedness
related thereto but only if such Lien shall at all times be confined solely
to
the asset the purchase price of which was financed or refinanced through the
incurrence of the Purchase Money Indebtedness secured by such Lien and only
if
such Lien secures only such Purchase Money Indebtedness.
“Refundable
Deposits”
means
any deposits of cash received by any Company provided that such deposits are
not
booked as accounts receivable or as revenue by any Company and are subject
to
refund to the depositor.
“SEC”
means
the Securities and Exchange Commission.
“SEC
Reports”
has
the
meaning given such term in Section 12(u).
“Secured
Revolving Note”
means
that certain Secured Revolving Note dated as of the Closing Date made by the
Companies in favor of Laurus in the original face amount of $5,000,000, as
the
same may be amended, supplemented, restated and/or otherwise modified from
time
to time.
“Securities”
means
the Grant Shares and Additional Grant Shares.
“Securities
Act”
has
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 any Company or any of its Subsidiaries
in
favor of Laurus.
“Software”
means
all “software” as such term is defined in the UCC, now owned or hereafter
acquired by any Person, including all computer programs and all supporting
information provided in connection with a transaction related to any
program.
“Solvent”
means,
with respect to any Person on a particular date, that on such date (a) the
fair
value of the property of such Person is greater than the total amount of
liabilities, including contingent liabilities, of such Person; (b) the present
fair salable value of the assets of such Person is not less than the amount
that
will be required to pay the probable liability of such Person on its debts
as
they become absolute and matured; (c) such Person does not intend to, and does
not believe that it will, incur debts or liabilities beyond such Person’s
ability to pay as such debts and liabilities mature; and (d) such Person is
not
engaged in a business or transaction, and is not about to engage in a business
or transaction, for which such Person’s property would constitute and
unreasonably small capital. The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected
to
become an actual or matured liability.
“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”
means,
with respect to any Person, (i) any other Person whose shares of stock or other
ownership interests having ordinary voting power (other than stock or other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors or other governing body of
such other Person, are owned, directly or indirectly, by such Person or (ii)
any
other Person in which such Person owns, directly or indirectly, more than 50%
of
the equity interests at such time.
“Supporting
Obligations”
means
all “supporting obligations” as such term is defined in the UCC.
“Term”
means
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.
“Work
in Process Inventory
means
the work undergoing a manufacturing process (e.g., parts and subassemblies
in
the process of becoming completed assembly components or finished goods) or
the
work undergoing a development process (e.g., labor, material and overhead
accumulated toward customer milestones and released to finished goods/cost
of
sales upon milestone completion.
Exhibit
A
Eligible
Subsidiaries
Starsys,
Inc. a Colorado corporation
SpaceDev
Oklahoma, Inc. an Oklahoma corporation
Dream
Chaser, Inc., a Delaware corporation
|
Exhibit
B
Borrowing
Base Certificate
As
of __________ __, 200__
|
|||||
|
|
|
|
|
|
|
|
ACCOUNTS
RECEIVABLE per __________ Aging
|
0.00
|
||||
|
Ineligible
Accounts:
|
|||||
|
Accounts
over 90 days from Invoice Date
|
0.00
|
||||
|
Credit
Balances Over 90 days from Invoice Date
|
0.00
|
||||
|
Intercompany
and Affiliate Accounts
|
0.00
|
||||
|
__%
Concentration Cap
|
0.00
|
||||
|
Contra
Accounts
|
0.00
|
||||
|
Cash
Sales and COD Accounts
|
0.00
|
||||
|
Foreign
Receivables
|
0.00
|
||||
|
Government
Receivables (without Assignment of Claims)
|
0.00
|
||||
|
Discounts,
Credits and Allowances
|
0.00
|
||||
|
Cross-age
(__% Past Due)
|
0.00
|
||||
|
▇▇▇▇
and Hold Invoices
|
0.00
|
||||
|
Finance/Service/Late
Charges
|
0.00
|
||||
|
Other:
|
0.00
|
0.00
|
|||
|
ELIGIBLE
ACCOUNTS RECEIVABLE
|
0.00
|
||||
|
Accounts
Receivable Advance Rate
|
90%
|
||||
|
ACCOUNTS
RECEIVABLE AVAILABILITY
|
0.00
|
||||
|
|
|
|
|
|
|
|
INVENTORY
per __________ Balance Sheet
|
0.00
|
||||
|
Ineligible
Inventory:
|
|||||
|
Work-in-Process
|
0.00
|
||||
|
Excess/Slow
Moving
|
0.00
|
||||
|
Supplies/Packaging
|
0.00
|
||||
|
Damaged
|
0.00
|
||||
|
Other:
|
0.00
|
0.00
|
|||
|
ELIGIBLE
INVENTORY
|
0.00
|
||||
|
Inventory
Advance Rate
|
50%
|
||||
|
Inventory
Cap
|
[1,000,000.00]
|
||||
|
INVENTORY
AVAILABILITY
|
0.00
|
||||
|
TOTAL
AVAILABILITY
|
0.00
|
||||
|
Less
Reserves
|
0.00
|
||||
|
NET
AVAILABILITY
|
0.00
|
||||
|
REVOLVING
CREDIT LINE
|
0.00
|
||||
|
MINIMUM
BORROWING NOTE
|
0.00
|
||||
|
NET
BORROWING AVAILABILITY (Lesser of Line or Net
Availability)
|
0.00
|
||||
|
Less:
Laurus Loans
|
0.00
|
||||
|
EXCESS/(DEFICIT)
AVAILABILITY
|
0.00
|
||||
The
undersigned hereby certifies that all of the foregoing information regarding
the
Eligible Accounts and Eligible Inventory are true and correct on the date hereof
and all such Accounts and Inventory listed as Eligible are Eligible within
the
meaning given such term in the Security Agreement dated __/__/200_ among
Borrower, the other companies named therein and Laurus Master Fund,
Ltd.
_____________,
Borrowing Agent
By:
___________________________________
Name:
Title: