EXHIBIT 10.8
SUBSIDIARY SECURITY AGREEMENT
-----------------------------
THIS SUBSIDIARY SECURITY AGREEMENT (the "Agreement"), is entered into and
---------
made effective as of November __, 2005, by and among CANONLINE GLOBAL MEDIA,
INC., a Washington corporation (the "Subsidiary"), and Cornell Capital Partners,
----------
LP (the "Secured Party").
--------------
WHEREAS, the Subsidiary is a wholly-owned subsidiary of NS8 Corporation
(the "Parent");
------
WHEREAS, on the date hereof, the Parent shall issue and sell to the Secured
Party, as provided in the Securities Purchase Agreement dated the date hereof,
and the Secured Party shall purchase up to Three Million One Hundred Sixty Three
Thousand Four Hundred Thirty Dollars ($3,163,430) of ten percent (10%) secured
convertible debentures (the "Convertible Debentures"), which shall be
-----------------------
convertible into shares of common stock of the Parent, par value $0.0001 (the
"Common Stock") (as converted, the "Conversion Shares"), in the respective
------------ ------------------
amounts set forth opposite each Buyer(s) name on Schedule I attached to the
Securities Purchase Agreement;
WHEREAS, the Subsidiary shall benefit from the sale of the Convertible
Debentures by the Parent to the Secured Party;
WHEREAS, to induce the Secured Party to enter into the transaction
contemplated by the Securities Purchase Agreement, the Secured Convertible
Debenture, the Investor Registration Rights Agreement, the Irrevocable Transfer
Agent Instructions, and the Escrow Agreement (collectively referred to as the
"Transaction Documents"), the Subsidiary hereby grants to the Secured Party a
---------------
security interest in and to the pledged property identified on Exhibit "A"
-----------
hereto (collectively referred to as the "Pledged Property") until the
-----------------
satisfaction of the Obligations, as defined herein below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATIONS
-------------------------------
Section 1.1. Recitals.
--------
EX-111
The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.
Section 1.2. Interpretations.
---------------
Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.
Section 1.3. Obligations Secured.
--------------------
The obligations secured hereby are any and all obligations of the
Subsidiary or the Parent now existing or hereinafter incurred to the Secured
Party, whether oral or written and whether arising before, on or after the date
hereof including, without limitation, those obligations of the Parent to the
Secured Party under the Securities Purchase Agreement, the Secured Convertible
Debenture, the Investor Registration Rights Agreement and Irrevocable Transfer
Agent Instructions, and any other amounts now or hereafter owed to the Secured
Party by the Parent thereunder or hereunder (collectively, the "Obligations").
-----------
ARTICLE 2.
PLEDGED COLLATERAL, ADMINISTRATION OF COLLATERAL AND TERMINATION OF SECURITY
----------------------------------------------------------------------------
INTEREST
--------
Section 2.1. Pledged Property.
-----------------
(a) The Subsidiary hereby pledges to the Secured Party, and creates in
the Secured Party for its benefit, a security interest for such time until the
Obligations are paid in full, in and to all of the property of the Subsidiary as
set forth in Exhibit "A" attached hereto (collectively, the "Pledged Property"):
----------- ----------------
The Pledged Property, as set forth in Exhibit "A" attached hereto, and the
-----------
products thereof and the proceeds of all such items are hereinafter collectively
referred to as the "Pledged Collateral."
-------------------
(b) Simultaneously with the execution and delivery of this Agreement,
the Subsidiary shall make, execute, acknowledge, file, record and deliver to the
Secured Party any documents reasonably requested by the Secured Party to perfect
its security interest in the Pledged Property. Simultaneously with the
execution and delivery of this Agreement, the Subsidiary shall make, execute,
acknowledge and deliver to the Secured Party such documents and instruments,
including, without limitation, financing statements, certificates, affidavits
and forms as may, in the Secured Party's reasonable judgment, be necessary to
effectuate, complete or perfect, or to continue and preserve, the security
interest of the Secured Party in the Pledged Property, and the Secured Party
shall hold such documents and instruments as secured party, subject to the terms
and conditions contained herein.
Section 2.2. Rights; Interests; Etc.
-------------------------
(a) So long as no Event of Default (as hereinafter defined) shall have
occurred and be continuing:
EX-112
(i) the Subsidiary shall be entitled to exercise any and all rights
pertaining to the Pledged Property or any part thereof for any purpose not
inconsistent with the terms hereof; and
(ii) the Subsidiary shall be entitled to receive and retain any and all
payments paid or made in respect of the Pledged Property.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of the Subsidiary to exercise the rights which it would
otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to
receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Collateral
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Collateral pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and
(ii) All interest, dividends, income and other payments and distributions
which are received by the Subsidiary contrary to the provisions of Section
2.2(b)(i) hereof shall be received in trust for the benefit of the Secured
Party, shall be segregated from other property of the Subsidiary and shall be
forthwith paid over to the Secured Party; or
(iii) The Secured Party in its sole discretion shall be authorized to sell
any or all of the Pledged Property at public or private sale in order to recoup
all of the outstanding principal plus accrued interest owed pursuant to the
Convertible Debenture as described herein.
(c) Each of the following events shall constitute a default under this
Agreement (each an "Event of Default"):
------------------
(i) any default, whether in whole or in part, shall occur in the
payment to the Secured Party of principal, interest or other item comprising the
Obligations as and when due or with respect to any other debt or obligation of
the Subsidiary or the Parent to a party other than the Secured Party;
(ii) any default, whether in whole or in part, shall occur in the due
observance or performance of any obligations or other covenants, terms or
provisions to be performed under this Agreement or the Transaction Documents;
(iii) the Subsidiary or the Parent shall: (1) make a general assignment for
the benefit of its creditors; (2) apply for or consent to the appointment of a
receiver, trustee, assignee, custodian, sequestrator, liquidator or similar
official for itself or any of its assets and properties; (3) commence a
voluntary case for relief as a debtor under the United States Bankruptcy Code;
(4) file with or otherwise submit to any governmental authority any petition,
EX-113
answer or other document seeking: (A) reorganization, (B) an arrangement with
creditors or (C) to take advantage of any other present or future applicable law
respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief
of debtors, dissolution or liquidation; (5) file or otherwise submit any answer
or other document admitting or failing to contest the material allegations of a
petition or other document filed or otherwise submitted against it in any
proceeding under any such applicable law, or (6) be adjudicated a bankrupt or
insolvent by a court of competent jurisdiction;
(iv) any case, proceeding or other action shall be commenced against the
Subsidiary or the Parent for the purpose of effecting, or an order, judgment or
decree shall be entered by any court of competent jurisdiction approving (in
whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any
receiver, trustee, assignee, custodian, sequestrator, liquidator or other
official shall be appointed with respect to the Subsidiary or the Parent, or
shall be appointed to take or shall otherwise acquire possession or control of
all or a substantial part of the assets and properties of the Subsidiary or the
Parent, and any of the foregoing shall continue unstayed and in effect for any
period of thirty (30) days; or
(v) Any obligation of Company in excess of $100,000 (other than its
Obligations under this Agreement) for the payment of borrowed money is not paid
when due or within any applicable grace period, or such obligation becomes or is
declared to be due and payable before the expressed maturity of the obligation,
or there shall have occurred an event that, with the giving of notice or lapse
of time, or both, would cause any such obligation to become, or allow any such
obligation to be declared to be, due and payable.
(vi) A breach by the Subsidiary of any material contract that would have a
material adverse affect upon the business of the Subsidiary.
ARTICLE 3.
ATTORNEY-IN-FACT; PERFORMANCE
-----------------------------
Section 3.1. Secured Party Appointed Attorney-In-Fact.
-------------------------------------------
Upon the occurrence of an Event of Default, the Subsidiary hereby appoints
the Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Subsidiary and in the name of the Subsidiary or otherwise, from
time to time in the Secured Party's discretion to take any action and to execute
any instrument which the Secured Party may reasonably deem necessary to
accomplish the purposes of this Agreement, including, without limitation, to
receive and collect all instruments made payable to the Subsidiary representing
any payments in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same. The Secured Party may demand, collect,
receipt for, settle, compromise, adjust, ▇▇▇ for, foreclose, or realize on the
Pledged Property as and when the Secured Party may determine. To facilitate
collection from and after the occurrence of an Event of Default, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Collateral to make payments directly to the Secured Party.
EX-114
Section 3.2. Secured Party May Perform.
----------------------------
If the Subsidiary fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Subsidiary under Section 8.3.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1. Authorization; Enforceability.
------------------------------
Each of the parties hereto represents and warrants that it has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby; and upon execution and
delivery, this Agreement shall constitute a valid and binding obligation of the
respective party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights or by the principles
governing the availability of equitable remedies.
Section 4.2. Ownership of Pledged Property.
--------------------------------
The Subsidiary warrants and represents that it is the legal and beneficial
owner of the Pledged Property free and clear of any lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement.
ARTICLE 5.
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
----------------------------------------
Section 5.1. Default and Remedies.
----------------------
(a) If an Event of Default described in Section 2.2(c)(i) and (ii)
occurs, then in each such case the Secured Party may declare the Obligations to
be due and payable immediately, by a notice in writing to the Subsidiary, and
upon any such declaration, the Obligations shall become immediately due and
payable. If an Event of Default described in Sections 2.2(c)(iii) or (iv)
occurs and is continuing for the period set forth therein, then the Obligations
shall automatically become immediately due and payable without declaration or
other act on the part of the Secured Party.
(b) Upon the occurrence of an Event of Default, the Secured Party shall:
(i) be entitled to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party.
EX-115
Section 5.2. Method of Realizing Upon the Pledged Property; Other
---------------------------------------------------------
Remedies.
--------
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:
(a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Subsidiary ten (10) days' prior written notice of the time
and place or of the time after which a private sale may be made (the "Sale
----
Notice")), which notice period shall in any event is hereby agreed to be
------
commercially reasonable. At any sale or sales of the Pledged Property, the
Subsidiary may bid for and purchase the whole or any part of the Pledged
Property and, upon compliance with the terms of such sale, may hold, exploit and
dispose of the same without further accountability to the Secured Party. The
Subsidiary will execute and deliver, or cause to be executed and delivered, such
instruments, documents, assignments, waivers, certificates, and affidavits and
supply or cause to be supplied such further information and take such further
action as the Secured Party reasonably shall require in connection with any such
sale.
(b) Any cash being held by the Secured Party as Pledged Collateral and all
cash proceeds received by the Secured Party in respect of, sale of, collection
from, or other realization upon all or any part of the Pledged Collateral shall
be applied as follows:
(i) to the payment of all amounts due the Secured Party for the
expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
(ii) to the payment of the Obligations then due and unpaid.
(iii) the balance, if any, to the person or persons entitled thereto,
including, without limitation, the Subsidiary.
(c) In addition to all of the rights and remedies which the Secured
Party may have pursuant to this Agreement, the Secured Party shall have all of
the rights and remedies provided by law, including, without limitation, those
under the Uniform Commercial Code, as in effect in the State of New Jersey.
(i) If the Subsidiary fails to pay such amounts due upon the occurrence
of an Event of Default which is continuing, then the Secured Party may institute
a judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Subsidiary and collect the monies adjudged or decreed to be payable
in the manner provided by law out of the property of Company, wherever situated.
The Secured Party may proceed against the Subsidiary without proceeding first
against any other party, including, without limitation, the Parent.
(ii) The Subsidiary agrees that it shall be liable for any reasonable fees,
expenses and costs incurred by the Secured Party in connection with enforcement,
collection and preservation of the Transaction Documents, including, without
EX-116
limitation, reasonable legal fees and expenses, and such amounts shall be deemed
included as Obligations secured hereby and payable as set forth in Section 8.3
hereof.
Section 5.3. Proofs of Claim.
-----------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Subsidiary or the property of the Subsidiary
or of such other obligor or its creditors, the Secured Party (irrespective of
whether the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Subsidiary for the payment of the Obligations),
subject to the rights of Previous Security Holders, shall be entitled and
empowered, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the Obligations
and to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Secured Party (including any claim for the
reasonable legal fees and expenses and other expenses paid or incurred by the
Secured Party permitted hereunder and of the Secured Party allowed in such
judicial proceeding), and
(ii) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by the Secured Party to
make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments directed to the Secured Party, to
pay to the Secured Party any amounts for expenses due it hereunder.
Section 5.4. Duties Regarding Pledged Collateral.
--------------------------------------
The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.
ARTICLE 6.
AFFIRMATIVE COVENANTS
---------------------
The Subsidiary covenants and agrees that, from the date hereof and until
the Obligations have been fully paid and satisfied, unless the Secured Party
shall consent otherwise in writing (as provided in Section 8.4 hereof):
Section 6.1. Existence, Properties, Etc.
-----------------------------
(a) The Subsidiary shall do, or cause to be done, all things, or
proceed with due diligence with any actions or courses of action, that may be
reasonably necessary (i) to maintain Company's due organization, valid existence
and good standing under the laws of its state of incorporation, and (ii) to
EX-117
preserve and keep in full force and effect all qualifications, licenses and
registrations in those jurisdictions in which the failure to do so could have a
Material Adverse Effect (as defined below); and (b) the Subsidiary shall not do,
or cause to be done, any act impairing the Subsidiary's corporate power or
authority (i) to carry on the Subsidiary's business as now conducted, and (ii)
to execute or deliver this Agreement or any other document delivered in
connection herewith, including, without limitation, any UCC-1 Financing
Statements required by the Secured Party (which other loan instruments
collectively shall be referred to as the "Loan Instruments") to which it is or
----------------
will be a party, or perform any of its obligations hereunder or thereunder. For
purpose of this Agreement, the term "Material Adverse Effect" shall mean any
-----------------------
material and adverse affect as determined by Secured Party in its reasonable
discretion, whether individually or in the aggregate, upon (a) the Subsidiary's
assets, business, operations, properties or condition, financial or otherwise;
(b) the Subsidiary's to make payment as and when due of all or any part of the
Obligations; or (c) the Pledged Property.
Section 6.2. Financial Statements and Reports.
-----------------------------------
The Subsidiary shall provide the Security Party with such financial data as
the Secured Party may reasonably request, within a reasonable time after any
such request, including, without limitation the following financial data:
(a) The balance sheet of the Subsidiary as of the close of each fiscal
year, the statement of earnings and retained earnings of the Subsidiary as of
the close of such fiscal year, and statement of cash flows for the Subsidiary
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles consistently applied, certified by the
chief executive and chief financial officers of the Subsidiary as being true and
correct and accompanied by a certificate of the chief executive and chief
financial officers of the Subsidiary, stating that the Subsidiary has kept,
observed, performed and fulfilled each covenant, term and condition of this
Agreement and the other Loan Instruments during such fiscal year and that no
Event of Default hereunder has occurred and is continuing, or if an Event of
Default has occurred and is continuing, specifying the nature of same, the
period of existence of same and the action the Subsidiary proposes to take in
connection therewith; and
EX-118
(b) Copies of all accountants' reports and accompanying financial reports
submitted to the Subsidiary by independent accountants in connection with each
annual examination of the Subsidiary.
Section 6.3. Accounts and Reports.
----------------------
The Subsidiary shall maintain a standard system of accounting in accordance
with generally accepted accounting principles consistently applied and provide,
at its sole expense, to the Secured Party the following:
(a) as soon as available, a copy of any notice or other communication
alleging any nonpayment or other material breach or default, or any foreclosure
or other action respecting any material portion of its assets and properties,
received respecting any of the indebtedness of the Subsidiary in excess of
$100,000 (other than the Obligations), or any demand or other request for
payment under any guaranty, assumption, purchase agreement or similar agreement
or arrangement respecting the indebtedness or obligations of others in excess of
$100,000, including any received from any person acting on behalf of the Secured
Party or beneficiary thereof; and
(b) within fifteen (15) days after the making of each submission or filing,
a copy of any report, financial statement, notice or other document, whether
periodic or otherwise, submitted to the shareholders of the Subsidiary, or
submitted to or filed by the Subsidiary with any governmental authority
involving or affecting (i) the Subsidiary that could have a Material Adverse
Effect; (ii) the Obligations; (iii) any part of the Pledged Collateral; or (iv)
any of the transactions contemplated in this Agreement or the Loan Instruments.
Section 6.4. Maintenance of Books and Records; Inspection.
-------------------------------------------------
The Subsidiary shall maintain its books, accounts and records in accordance
with generally accepted accounting principles consistently applied, and permit
the Secured Party, its officers and employees and any professionals designated
by the Secured Party in writing, at any time to visit and inspect during normal
business hours with reasonable prior notice to the Subsidiary any of its
properties (including but not limited to the collateral security described in
the Transaction Documents and/or the Loan Instruments), corporate books and
financial records, and to discuss its accounts, affairs and finances with any
employee, officer or director thereof.
Section 6.5. Maintenance and Insurance.
---------------------------
(a) The Subsidiary shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
subject to ordinary wear and tear, making all necessary repairs thereto and
renewals and replacements thereof.
(b) The Subsidiary shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Subsidiary deems reasonably necessary to the Subsidiary's business, (i)
adequate to insure all assets and properties of the Subsidiary, which assets and
properties are of a character usually insured by persons engaged in the same or
similar business against loss or damage resulting from fire or other risks
included in an extended coverage policy; (ii) against public liability and other
tort claims that may be incurred by the Subsidiary; (iii) as may be required by
the Transaction Documents and/or the Loan Instruments or applicable law and (iv)
as may be reasonably requested by Secured Party, all with adequate, financially
sound and reputable insurers.
Section 6.6. Contracts and Other Collateral.
---------------------------------
The Subsidiary shall perform all of its obligations under or with respect
to each instrument, receivable, contract and other intangible included in the
Pledged Property to which the Subsidiary is now or hereafter will be party on a
timely basis and in the manner therein required, including, without limitation,
this Agreement.
Section 6.7. Defense of Collateral, Etc.
------------------------------
The Subsidiary shall defend and enforce its right, title and interest in
and to any part of: (a) the Pledged Property; and (b) if not included within
EX-119
the Pledged Property, those assets and properties whose loss could have a
Material Adverse Effect, the Subsidiary shall defend the Secured Party's right,
title and interest in and to each and every part of the Pledged Property, each
against all manner of claims and demands on a timely basis to the full extent
permitted by applicable law.
Section 6.8. Payment of Debts, Taxes, Etc.
---------------------------------
The Subsidiary shall pay, or cause to be paid, all of its indebtedness and
other liabilities and perform, or cause to be performed, all of its obligations
in accordance with the respective terms thereof, and pay and discharge, or cause
to be paid or discharged, all taxes, assessments and other governmental charges
and levies imposed upon it, upon any of its assets and properties on or before
the last day on which the same may be paid without penalty, as well as pay all
other lawful claims (whether for services, labor, materials, supplies or
otherwise) as and when due
Section 6.9. Taxes and Assessments; Tax Indemnity.
----------------------------------------
The Subsidiary shall (a) file all tax returns and appropriate schedules
thereto that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Subsidiary, upon its income and profits or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Subsidiary in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.
Section 6.10. Compliance with Law and Other Agreements.
---------------------------------------------
The Subsidiary shall maintain its business operations and property owned or
used in connection therewith in compliance with (a) all applicable federal,
state and local laws, regulations and ordinances governing such business
operations and the use and ownership of such property, and (b) all agreements,
licenses, franchises, indentures and mortgages to which the Subsidiary is a
party or by which the Subsidiary or any of its properties is bound. Without
limiting the foregoing, the Subsidiary shall pay all of its indebtedness
promptly in accordance with the terms thereof.
Section 6.11. Notice of Default.
-------------------
The Subsidiary shall give written notice to the Secured Party of the
occurrence of any default or Event of Default under this Agreement, the
Transaction Documents or any other Loan Instrument or any other agreement of
Company for the payment of money, promptly upon the occurrence thereof.
Section 6.12. Notice of Litigation.
----------------------
The Subsidiary shall give notice, in writing, to the Secured Party of (a)
any actions, suits or proceedings wherein the amount at issue is in excess of
EX-120
$50,000, instituted by any persons against the Subsidiary, or affecting any of
the assets of the Subsidiary, and (b) any dispute, not resolved within fifteen
(15) days of the commencement thereof, between the Subsidiary on the one hand
and any governmental or regulatory body on the other hand, which might
reasonably be expected to have a Material Adverse Effect on the business
operations or financial condition of the Subsidiary.
ARTICLE 7.
NEGATIVE COVENANTS
------------------
The Subsidiary covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Subsidiary shall not, unless
the Secured Party shall consent otherwise in writing, which consent shall not be
unreasonably withheld:
Section 7.1. Liens and Encumbrances.
------------------------
The Subsidiary shall not directly or indirectly make, create, incur, assume
or permit to exist any assignment, transfer, pledge, mortgage, security interest
or other lien or encumbrance of any nature in, to or against any part of the
Pledged Property or of the Subsidiary's capital stock, or offer or agree to do
so, or own or acquire or agree to acquire any asset or property of any character
subject to any of the foregoing encumbrances (including any conditional sale
contract or other title retention agreement), or assign, pledge or in any way
transfer or encumber its right to receive any income or other distribution or
proceeds from any part of the Pledged Property or the Subsidiary's capital
stock; or enter into any sale-leaseback financing respecting any part of the
Pledged Property as lessee, or cause or assist the inception or continuation of
any of the foregoing.
Section 7.2. Articles, By-Laws, Mergers, Consolidations, Acquisitions
---------------------------------------------------------
and Sales.
----------
Without the prior express written consent of the Secured Party, which
consent shall not be unreasonably withheld, the Subsidiary shall not: (a) Amend
its Articles of Incorporation or By-Laws; (b) be a party to any merger,
consolidation or corporate reorganization, (c) purchase or otherwise acquire all
or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, (d) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (e) create any subsidiaries nor convey any of its assets to any
subsidiary in excess of $200,000 in the aggregate.
Section 7.3. Management, Ownership.
----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall remain employed by the Subsidiary in his current
capacity. This provision is a material factor in the Secured Party's
willingness to institute and maintain a lending relationship with the
Subsidiary.
Section 7.4. Dividends, Etc.
---------------
Except for dividends payable to the Parent, the Subsidiary shall not
declare or pay any dividend of any kind, in cash or in property, on any class of
its capital stock, nor purchase, redeem, retire or otherwise acquire for value
EX-121
any shares of such stock, nor make any distribution of any kind in respect
thereof, nor make any return of capital to shareholders, nor make any payments
in respect of any pension, profit sharing, retirement, stock option, stock
bonus, incentive compensation or similar plan (except as required or permitted
hereunder), without the prior written consent of the Secured Party, which
consent shall not be unreasonably withheld.
Section 7.5. Conduct of Business.
---------------------
The Subsidiary will continue to engage, in an efficient and economical
manner, in a business of the same general type as conducted by it on the date of
this Agreement.
Section 7.6. Places of Business.
--------------------
The location of the Subsidiary's chief place of business is ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. The Subsidiary shall not change the
location of its chief place of business, chief executive office or any place of
business disclosed to the Secured Party or move any of the Pledged Property from
its current location without thirty (30) days prior written notice to the
Secured Party in each instance.
ARTICLE 8.
MISCELLANEOUS
-------------
Section 8.1. Notices.
-------
All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:
If to the Secured Party: Cornell Capital Partners, LP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Portfolio Manager
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
EX-122
And if to Subsidiary: CanOnline Global Media, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Telephone:
Facsimile:
Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
Section 8.2. Severability.
------------
If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.
Section 8.3. Expenses.
--------
In the event of an Event of Default, the Subsidiary will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Subsidiary to perform or observe any of the material provisions
hereof.
Section 8.4. Waivers, Amendments, Etc.
---------------------------
The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
covenants shall not waiver, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Subsidiary contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
EX-123
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
Section 8.5. Continuing Security Interest.
------------------------------
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; and (ii) be binding upon the Subsidiary and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Subsidiary shall be entitled to the return, at its expense, of such of the
Pledged Property as shall not have been sold in accordance with Section 5.2
hereof or otherwise applied pursuant to the terms hereof.
Section 8.6. Independent Representation.
---------------------------
Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.
Section 8.7. Applicable Law: Jurisdiction.
------------------------------
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New Jersey without regard to the principles of conflict of
laws. The parties further agree that any action between them shall be heard in
▇▇▇▇▇▇ County, New Jersey, and expressly consent to the jurisdiction and venue
of the Superior Court of New Jersey, sitting in ▇▇▇▇▇▇ County and the United
States District Court for the District of New Jersey sitting in Newark, New
Jersey for the adjudication of any civil action asserted pursuant to this
Paragraph.
Section 8.8. Waiver of Jury Trial.
-----------------------
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE SUBSIDIARIES, THE SUBSIDIARY
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY
WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS
TRANSACTION.
Section 8.9. Entire Agreement.
-----------------
This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
EX-124
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SUBSIDIARY:
CANONLINE GLOBAL MEDIA, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
SECURED PARTY:
CORNELL CAPITAL PARTNERS, LP
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: Portfolio Manager
EX-125
EXHIBIT A
DEFINITION OF PLEDGED PROPERTY
For the purpose of securing prompt and complete payment and performance by
the Subsidiary of all of the Obligations, the Subsidiary unconditionally and
irrevocably hereby grants to the Secured Party a continuing security interest in
and to, and lien upon, the following Pledged Property of the Subsidiary:
(a) all goods of the Subsidiary, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Subsidiary or in which the Subsidiary may have or may
hereafter acquire any interest, and all replacements, additions, accessions,
substitutions and proceeds thereof, arising from the sale or disposition
thereof, and where applicable, the proceeds of insurance and of any tort claims
involving any of the foregoing;
(b) all inventory of the Subsidiary, including, but not limited to, all
goods, wares, merchandise, parts, supplies, finished products, other tangible
personal property, including such inventory as is temporarily out of Company's
custody or possession and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing;
(c) all contract rights and general intangibles of the Subsidiary,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
(d) all documents, warehouse receipts, instruments and chattel paper of the
Subsidiary whether now owned or hereafter created;
(e) all accounts and other receivables, instruments or other forms of
obligations and rights to payment of the Subsidiary (herein collectively
referred to as "Accounts"), together with the proceeds thereof, all goods
--------
represented by such Accounts and all such goods that may be returned by the
Subsidiary's customers, and all proceeds of any insurance thereon, and all
guarantees, securities and liens which the Subsidiary may hold for the payment
of any such Accounts including, without limitation, all rights of stoppage in
transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of
which the Subsidiary represents and warrants will be bona fide and existing
obligations of its respective customers, arising out of the sale of goods by the
Subsidiary in the ordinary course of business;
(f) to the extent assignable, all of the Subsidiary's rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities;
(g) all products and proceeds (including, without limitation, insurance
proceeds) from the above-described Pledged Property.
EX-126