SECURITY AGREEMENT
LAURUS MASTER FUND, LTD.
PACIFIC CMA, INC., a Delaware corporation
PACIFIC CMA INTERNATIONAL, LLC, a Colorado limited liability company,
AIRGATE INTERNATIONAL CORPORATION, a New York corporation,
AIRAGATE INTERNATIONAL CORPORATION, an Illinois corporation
and
PARADIGM INTERNATIONAL INC., a Florida corporation
Dated: July 29, 2005
TABLE OF CONTENTS
Page
1. General Definitions and Terms; Rules of Construction..................1
2. Loan Facility.........................................................2
3. Repayment of the Loans................................................4
4. Procedure for Loans...................................................5
5. Interest and Payments.................................................5
6. Security Interest.....................................................6
7. Representations, Warranties and Covenants Concerning the
Collateral............................................................7
8. Payment of Accounts..................................................10
9. Collection and Maintenance of Collateral.............................11
10. Inspections and Appraisals...........................................11
11. Financial Reporting..................................................11
12. Additional Representations and Warranties............................13
13. Covenants............................................................24
14. Further Assurances...................................................31
15. Representations, Warranties and Covenants of Laurus..................31
16. Power of Attorney....................................................33
17. Term of Agreement....................................................34
18. Termination of Lien..................................................34
19. Events of Default....................................................35
20. Remedies.............................................................37
21. Waivers..............................................................38
22. Expenses.............................................................38
23. Assignment By Laurus.................................................39
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Page
24. No Waiver; Cumulative Remedies.......................................39
25. Application of Payments..............................................39
26. Indemnity............................................................40
27. Revival..............................................................40
28. Borrowing Agency Provisions..........................................41
29. Notices..............................................................42
30. Governing Law, Jurisdiction and Waiver of Jury Trial.................43
31. Limitation of Liability..............................................44
32. Entire Understanding.................................................44
33. Severability.........................................................44
34. Captions.............................................................45
35. Counterparts; Telecopier Signatures..................................45
36. Construction.........................................................45
37. Publicity............................................................45
38. Joinder..............................................................45
39. Legends..............................................................45
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SECURITY AGREEMENT
This Security Agreement is made as of July 29, 2005 by and among
LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus"), PACIFIC CMA,
INC., a Delaware 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 to this Agreement are incorporated
herein by reference and taken together with this Agreement constitute but
a single agreement. The words "herein", "hereof" and "hereunder" or other
words of similar import refer to this Agreement as a whole, including the
Exhibits, Addenda, Annexes and Schedules thereto, as the same may be from
time to time amended, modified, restated or supplemented, and not to any
particular section, subsection or clause contained in this Agreement.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural,
and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter. The term "or" is not
exclusive. The term "including" (or any form thereof) shall not be
limiting or exclusive. All references to statutes and related regulations
shall include any amendments of same and any successor statutes and
regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the
corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to this Agreement. All references to any instruments or
agreements, including references to any of this Agreement or the Ancillary
Agreements shall include any and all modifications or amendments thereto
and any and all extensions or renewals thereof.
2. 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
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 and in accordance with reasonable and commercially acceptable business
practices deem proper and necessary from time to time (the "Reserves") and (y)
an amount equal to (I) the Accounts Availability minus (II) the Reserves. The
amount derived at any time from Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall
be referred to as the "Formula Amount." The Companies shall, jointly and
severally, execute and deliver to Laurus on the Closing Date the Revolving Note
and a Minimum Borrowing Note evidencing the Loans funded on the Closing Date.
From time to time thereafter, the Companies shall jointly and severally execute
and deliver to Laurus immediately prior to the final funding of each additional
$2,500,000 tranche of Loans allocated to any Minimum Borrowing Note issued after
the date hereof (calculated on a cumulative basis for each such tranche) an
additional Minimum Borrowing Note evidencing such tranche, substantially in the
form of the Minimum Borrowing Note delivered by the Companies to Laurus on the
Closing Date. Notwithstanding anything herein to the contrary, whenever during
the Term the outstanding balance on the Minimum Borrowing Note shall be less
than the Minimum Borrowing Amount (such amount being referred to herein as the
"Transferable Amount") to the extent that the outstanding balance on the
Revolving Note should equal or exceed $500,000, that portion of the balance of
the Revolving Note that exceeds $500,000, but does not exceed the Transferable
Amount, shall be segregated from the outstanding balance under the Revolving
Note and allocated to and aggregated with the then existing balance of the next
unissued serialized Minimum Borrowing Note (the "Next Unissued Serialized
Note"); provided that such segregated amount shall remain subject to the terms
and conditions of such Revolving Note until a new serialized Minimum Borrowing
Note is issued as set forth below. The Next Unissued Serialized Note shall
remain in book entry form until the balance thereunder shall equal the Minimum
Borrowing Amount, at which time a new serialized Minimum Borrowing Note in the
face amount equal to the Minimum Borrowing Amount will be issued and registered
as set forth in the Registration Rights Agreement (and the outstanding balance
under the Revolving Note shall at such time be correspondingly reduced in the
amount equal to the Minimum Borrowing Amount as a result of the issuance of such
new serialized Minimum Borrowing Note).
(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.
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(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 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 and reasonable 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, 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 reasonable monies expended and all costs and
expenses (including reasonable attorneys' fees and legal expenses) incurred by
Laurus in connection with or as a result of the performance or observance of
such agreements or the taking of such action by Laurus shall be charged to 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) from time to time 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 following the date of receipt by the Company Agent of
each rendered account, 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
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Loans made with respect to such Delinquent Account plus an adjustment fee in an
amount equal to thirty-five hundredths of one percent (0.35%) of the gross face
amount of such Eligible Account or (II) immediately replace such Delinquent
Account with an otherwise Eligible Account; provided that, to the extent that
the aggregate amount of outstanding Loans does not exceed the Formula Amount
after giving effect to a Delinquent Account, the actions set forth in the
preceding clauses (I) and (II) shall not be required to be taken.
(b) Receivables Purchase. Following the occurrence and during the
continuance of an Event of Default, Laurus may, at its option, elect to
convert the credit facility contemplated hereby to an accounts receivable
purchase facility. Upon such election by Laurus (subsequent notice of
which Laurus shall provide to Company Agent), the Companies shall be
deemed to hereby have sold, assigned, transferred, conveyed and delivered
to Laurus, and Laurus shall be deemed to have purchased and received from
the Companies, all right, title and interest of the Companies in and to
all Accounts which shall at any time constitute Eligible Accounts (the
"Receivables Purchase"). All outstanding Loans hereunder shall be deemed
obligations under such accounts receivable purchase facility. The
conversion to an accounts receivable purchase facility in accordance with
the terms hereof shall not be deemed an exercise by Laurus of its secured
creditor rights under Article 9 of the UCC. Immediately following Laurus'
request, the Companies shall execute all such further documentation as may
reasonably be required by Laurus to more fully set forth the accounts
receivable purchase facility herein contemplated, including, without
limitation, Laurus' standard form of accounts receivable purchase
agreement and account debtor notification letters, but any Company's
failure to enter into any such documentation shall not impair or affect
the Receivables Purchase in any manner whatsoever.
(c) Minimum Borrowing Amount. After a registration statement
registering the Registrable Securities (as defined in the Registration
Rights Agreement) has been declared effective by the SEC, conversions of
the Minimum Borrowing Amount into the Common Stock may be initiated as set
forth in the respective Minimum Borrowing Note. From and after the date
upon which any outstanding principal of the Minimum Borrowing Amount (as
evidenced by the first Minimum Borrowing Note) is converted into Common
Stock (the "First Conversion Date"), (i) corresponding amounts of all
outstanding Loans (not attributable to the then outstanding Minimum
Borrowing Amount) existing on or made after the First Conversion Date will
be aggregated in accordance with Section 2(a) and (ii) the Companies will
issue a new (serialized) Minimum Borrowing Note to Laurus in accordance
with Section 2(a), and (iii) the Parent shall prepare and file a
subsequent registration statement with the SEC to register such subsequent
Minimum Borrowing Note as set forth in the Registration Rights Agreement.
3. Repayment of the Loans. The Companies (a) may prepay the
Obligations from time to time in accordance with the terms and provisions of the
Notes (and Section 17 hereof if such prepayment is due to a termination of this
Agreement); (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
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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 Notes (such increased rate, the
"Default Rate"), and all outstanding Obligations, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable hereunder
exceed the maximum rate permitted under any applicable law or regulation, as in
effect from time to time (the "Maximum Legal Rate"), and if any provision of
this Agreement or any Ancillary Agreement is in contravention of any such law or
regulation, interest payable under this Agreement and each Ancillary Agreement
shall be computed on the basis of the Maximum Legal Rate (so that such interest
will not exceed the Maximum Legal Rate).
(v) 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.
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(b) Payments; Certain Closing Conditions.
(i) Closing/Annual Payments. Upon execution of this Agreement by
each Company and Laurus, the Companies shall jointly and severally pay to Laurus
Capital Management, LLC a closing payment in an amount equal to three and
nine-tenths percent (3.90%) of the Capital Availability Amount. Such payment
shall be deemed fully earned on the Closing Date and shall not be subject to
rebate or proration for any reason.
(ii) Overadvance Payment. Without affecting Laurus' rights hereunder
in the event the Loans exceed the Formula Amount (each such event, an
"Overadvance"), all such Overadvances shall bear 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) Financial Information Default. Without affecting Laurus' other
rights and remedies, in the event any Company fails to deliver the financial
information required by Section 11 on or before the date required by this
Agreement, the Companies shall jointly and severally pay Laurus an aggregate fee
in the amount of $200.00 per week (or portion thereof) for each such failure
until such failure is cured to Laurus' satisfaction or waived in writing by
Laurus. All amounts that are incurred pursuant to this Section 5(b)(iii) shall
be due and payable by the Companies monthly, in arrears, on the first business
of each calendar month and upon expiration of the Term, if not previously paid.
(iv) Expenses. The Companies shall jointly and severally reimburse
Laurus for its expenses (including reasonable legal fees and expenses) incurred
in connection with the preparation and negotiation 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)(iv) will be paid on the
Closing Date and shall be $45,000 for all such expenses referred to in this
Section 5(b)(iv).
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
6
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.
(c) Each Company hereby grants to Laurus an irrevocable,
non-exclusive license (exercisable upon the termination of this Agreement
due to an occurrence and during the continuance of an Event of Default
without payment of royalty or other compensation to 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 completion of
the filings and other actions listed on Schedule 7(c) (which, in the case
of all filings and other documents referred to in said Schedule, have been
delivered to Laurus in duly executed form) constitute valid perfected
security interests in all of the Collateral in favor of Laurus as security
for the prompt and complete payment and performance of the Obligations,
enforceable in accordance with the terms hereof against any and all of its
creditors and purchasers and such security interest is prior to all other
Liens in existence on the date hereof.
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(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 $100,000 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. Notwithstanding anything to the contrary
contained in this Section 7(e) or elsewhere, the Companies may transfer
cash to any of their Subsidiaries in jurisdictions outside of the United
States (collectively, the "Non-US Subsidiaries" and each, a "Non-US
Subsidiary"), provided that (x) such transfers are made in the ordinary
course of business and consistent with its business practices and (y) such
transfers are made by a Company to a Non-US Subsidiary for the direct
purpose of reimbursing and/or paying such Non-US Subsidiary for the cost
of (I) shipping expenses and (II) airline carrier expenses, in each case,
incurred by such Non-US Subsidiary for the benefit of such Company.
(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.
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(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 reasonably
requested by Laurus to create and maintain in Laurus' favor a valid
perfected first Lien in all Collateral subject only to Permitted Liens.
(k) 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 as no longer constituting an Eligible Account; (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 Eligible 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, any agreement with any Account Debtor for any
extension of time for the payment of any Eligible 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
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
9
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. Payment of Accounts.
(a) Each Company will irrevocably direct all of its present and
future Account Debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the lockboxes
maintained by such Company (the "Lockboxes") with ▇.▇. ▇▇▇▇▇▇ Chase Bank
in New York and Chicago, and ▇▇▇▇▇ Fargo Bank in Los Angeles, or such
other financial institutions accepted by Laurus in writing as may be
selected by such Company (the "Lockbox Banks") pursuant to the terms of
the certain agreements among one or more Companies, Laurus and/or the
Lockbox Banks. 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,
and the Companies agree to use their best efforts to cause the Account
Debtors to mail payments to the applicable Lockbox Bank. If,
notwithstanding the instructions to Account Debtors, any Company receives
any payments, such Company shall deposit such payments with the applicable
Lockbox Bank within one (1) Business Day after receipt by the applicable
Company. Until so deposited, 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.
(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.
10
9. Collection and Maintenance of Collateral.
(a) Laurus may verify each Company's Accounts from time to time, but
not more often than once every three (3) months, unless an Event of
Default has occurred and is continuing, utilizing an audit control company
or any other agent of Laurus.
(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 Notes, and (ii) use commercially reasonable efforts to 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) automatically on a daily basis. 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, and on at least twenty-four hours prior notice (which notice shall only
be necessary so long as no Event of Default has occurred and is continuing),
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.
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:
(a) As soon as available, and in any event within one hundred five
(105) 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
11
without qualification and shall include each Company's balance sheet as at
the end of such fiscal year and the related statements of each Company's
income, retained earnings and cash flows for the fiscal year then ended,
prepared on a consolidating and consolidated basis to include each
Company, 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;
(b) As soon as available and in any event within fifty (50) days
after the end of each fiscal quarter of the an unaudited/internal balance
sheet and statements of income, retained earnings and cash flows of each
Company 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 each Company, 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 fifteen (15) days
after the end of each calendar month for each Company, (i) an unaudited
profit and loss statement for each Company, (ii) a schedule of aging
accounts receivable for each Company and (iii) a schedule of accounts
payable for each Company, in each case substantially in the form attached
as Exhibit 11(c) hereto 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) 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.
(e) The Parent shall deliver, or cause the applicable Eligible
Subsidiary of the Parent to deliver, such other information as Laurus
shall reasonably request.
12
12. Additional Representations and Warranties. Each Company hereby
represents and warrants to Laurus as follows:
(a) Organization, Good Standing and Qualification. It 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 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 the Notes and the shares of Common Stock
issuable upon conversion of the Notes (the "Note Shares"), (iii) to issue
the Warrants and the shares of Common Stock issuable upon conversion of
the Warrants (the "Warrant 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 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 110,000,000 shares, of which 100,000,000 are shares of Common
Stock, par value $0.01 per share, 25,492,713 shares of which are issued and
outstanding, and 10,000,000 are shares of preferred stock, par value $.001 per
share. Additionally, 10,000 shares of such preferred stock have been designated
as 6% Series A Convertible Preferred Stock of which 5,000 of such shares are
issued and outstanding. The authorized, issued and outstanding capital stock of
each Eligible Subsidiary of each Company is set forth on Schedule 12(c).
(ii) Except as disclosed on Schedule 12(c) or in any of the Parent's
SEC Reports or Exchange Act Filings, other than: (i) the shares reserved for
issuance under the Parent's stock option plans; and (ii) shares which may be
issued pursuant to this Agreement and the Ancillary Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Parent of any
of its securities. Except as disclosed on Schedule 12(c), neither the offer or
issuance of any of the Notes or the Warrants, or the issuance of any of the Note
Shares or the Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Parent outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
13
(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.
(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 Note Shares and the Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and 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 part
(including their respective officers and directors) necessary for the
authorization of this Agreement and the Ancillary Agreements, the
performance of all of its obligations hereunder and under the Ancillary
Agreements on the Closing Date and, the authorization, issuance and
delivery of the Notes and the Warrant has been taken or will be taken
prior to the Closing Date. This Agreement and the Ancillary Agreements,
when executed and delivered and to the extent it is a party thereto, will
be its 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 Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
(e) Liabilities. Neither it nor any of its Subsidiaries has any
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any SEC Reports or Exchange Act
Filings.
(f) Agreements; Action. Except as set forth on Schedule 12(f) or as
disclosed in any SEC Reports or Exchange Act Filings:
(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
14
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 December 31, 2004 (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 capital stock; (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than ordinary course obligations) individually in
excess of $100,000 or, in the case of indebtedness and/or liabilities
individually less than $75,000, in excess of $150,000 in the aggregate; (iii)
made any loans or advances to any Person not in excess, individually or in the
aggregate, of $150,000, 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;
(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;
15
(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 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 SEC Reports or Exchange
Act Filings.
Except as described above, or set forth on Schedule 12(g) or in any of the
Parent's SEC Reports or Exchange Act Filings, none of any Company's officers,
directors or, to the best of its knowledge, key employees or stockholders, any
of its Subsidiaries or any members of their immediate families, are indebted to
(x) such Company in excess of $100,000 in the aggregate or (y) any Non-US
Subsidiary in excess of $100,000 for each such Non-US Subsidiary, 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. 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), the SEC Reports or the Exchange Act Filings, neither it nor any of its
Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person.
16
(h) Changes. Since the Balance Sheet Date, except as disclosed in
any of the Parent's SEC Reports or Exchange Act Filings 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 any of 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;
17
(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 or any 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. 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.
(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.
(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 Notes and the other Securities each pursuant
18
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 Subsidiaries'
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.
(n) Employees. Except as set forth on Schedule 12(n) or in any of
the Parent's SEC Reports or Exchange Act Filings, neither it nor any of
its Subsidiaries have 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 Parent's SEC Reports or 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, deferred
compensation arrangement, bonus plan, incentive plan, profit sharing plan,
retirement agreement or other employee compensation plan or agreement
which, in any such case, provides for compensation in excess of $75,000 in
any calendar year. To its knowledge, none of its or any of its
Subsidiaries' employees, nor any consultant with whom it or any of its
19
Subsidiaries has contracted, is in violation of any term of any employment
contract, proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to
contract with, 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) or except as disclosed in the Parent's SEC Reports or
Exchange Act Filings, 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) or except as
disclosed in the Parent's SEC Reports or 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. 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
20
Subsidiaries has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(q) Environmental and Safety Laws. Neither 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.
21
(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-K for its fiscal year ended December 31, 2004;
and (ii) its Quarterly Reports on Form 10-Q for its fiscal quarter ended
March 31, 2005, and the Form 8-K filings which it has made during its
fiscal year 2005 to date (collectively, the "SEC Reports"). Except as set
forth on Schedule 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.
22
(y) Dilution. It specifically acknowledges that the Parent's
obligation to issue the shares of Common Stock upon conversion of the
Notes and exercise of the Warrants 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.
(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; provided,
however, that Laurus shall only release such confidential information that
it has been advised by counsel is necessary to comply with the requests of
any such authorities.
(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
23
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.
13. Covenants. Each Company, as applicable, covenants and agrees
with Laurus as follows:
(a) Stop-Orders. It 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. It shall promptly secure the listing or quotation, as
applicable, of the shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants on the Principal Market upon which
shares of Common Stock are listed or quoted, as applicable, (subject to
official notice of issuance) and shall maintain such listing or quotation,
as applicable, so long as any other shares of Common Stock shall be so
listed or quoted, as applicable. 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. It 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. It shall timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
24
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.
(e) Use of Funds. It shall use the proceeds of the Loans (x) to
refinance its outstanding indebtedness under its existing senior credit
facility and (y) for general working capital purposes.
(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 at least twenty-four hours prior notice and
during normal business hours, 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, in which case the cost of such access shall be for
the Company's account), 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
(iii) discuss its or any such Subsidiary's affairs, finances and
accounts with its or any such Subsidiary's directors, officers and Accountants.
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. It shall bear the full risk of loss from any loss of
any nature whatsoever with respect to the Collateral. It shall keep its
assets which are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other
risks customarily insured against by companies in similar business
similarly situated as it; and it shall maintain, with financially sound
and reputable insurers, insurance against other hazards and risks and
25
liability to persons and property to the extent and in the manner which it
reasonably believes is customary for companies in similar business
similarly situated as it and to the extent available on commercially
reasonable terms. It will jointly and severally with the other Companies
bear the full risk of loss from any loss of any nature whatsoever with
respect to the assets pledged to Laurus as security for its obligations
hereunder and under the Ancillary Agreements. At its own cost and expense
in amounts and with carriers reasonably acceptable to Laurus, it shall (i)
keep all its insurable properties and properties in which it has an
interest insured against the hazards of fire, flood, sprinkler leakage,
those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies
engaged in businesses similar to it including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the
case of companies engaged in businesses similar to it against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have
access to its or any of its assets or funds either directly or through
governmental authority to draw upon such funds or to direct generally the
disposition of such assets; (iii) maintain public and product liability
insurance against claims for personal injury, death or property damage
suffered by others; (iv) maintain all such worker's compensation or
similar insurance as may be required under the laws of any state or
jurisdiction in which it is engaged in business; and (v) furnish Laurus
with (x) copies of all policies and evidence of the maintenance of such
policies at least thirty (30) days before any expiration date, (y)
excepting its workers' compensation policy, endorsements to such policies
naming Laurus as "co-insured" or "additional insured" and appropriate loss
payable endorsements in form and substance satisfactory to Laurus, naming
Laurus as lenders loss payee, and (z) evidence that as to Laurus the
insurance coverage shall not be impaired or invalidated by any act or
neglect of any Company and the insurer will provide Laurus with at least
thirty (30) days notice prior to cancellation. It shall instruct the
insurance carriers that in the event of any loss thereunder, the carriers
shall make payment for such loss to Laurus and not to any Company and
Laurus jointly. If any insurance losses are paid by check, draft or other
instrument payable to any Company and Laurus jointly, Laurus may endorse,
as applicable, such Company's name thereon and do such other things as
Laurus may deem advisable to reduce the same to cash. Laurus is hereby
authorized to adjust and compromise claims. All loss recoveries received
by Laurus upon any such insurance in excess of $100,000 in the aggregate
after the date hereof may be applied to the Obligations, in such order as
Laurus in its sole discretion shall determine or shall otherwise be
delivered to Company Agent for the benefit of the applicable Company
and/or its Subsidiaries. Any surplus (including any amount that does not
exceed the $100,000 threshold set forth in the immediately preceding
sentence) shall be paid by Laurus to the Company Agent for the benefit of
the applicable Company, so long as such surplus is reinvested by the
applicable Company in same or similar assets, or applied as may be
otherwise required by law. Any deficiency thereon shall be paid, as
applicable, by the Companies to Laurus, on demand.
(i) Intellectual Property. It shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and
26
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 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 at all times comply with
each provision of all leases to which it is a party or under which it
occupies property if the breach of such provision could reasonably be
expected to have a Material Adverse Effect.
(k) Confidentiality. It shall not, and shall not permit any of its
Subsidiaries to, disclose, and will not include in any public
announcement, the name of Laurus, unless expressly agreed to by Laurus or
unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Notwithstanding the foregoing, each Company and its Subsidiaries may
disclose Laurus' identity and the terms of this Agreement to its current
and prospective debt and equity financing sources.
(l) Required Approvals. It shall not, without the prior written
consent of Laurus, (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other
than each Company's indebtedness to Laurus and as set forth on Schedule
13(l)(i) attached hereto and made a part hereof, or disclosed in any of
the Parent's SEC Reports or Exchange Act Filings; (ii) cancel any debt
owing to it in excess of $100,000 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) directly or indirectly declare, pay or
make any dividend or distribution on any class of its Stock (except for
the payment of dividends, in shares of the Parent's Common Stock, with
respect to the Parent's 6% Convertible Series A Preferred Stock issued
prior to the date hereof) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any of its or its
Subsidiaries' Stock outstanding on the date hereof, or issue any preferred
stock; (v) purchase or hold beneficially any Stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in,
any other Person, including any partnership or joint venture, except (x)
travel advances, (y) loans to its and its Subsidiaries' officers and
employees not exceeding at any one time an aggregate of $100,000, 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; (vi) create or permit to exist any Subsidiary organized in
the United
27
States of America, other than any Subsidiary in existence on the date
hereof and listed in Schedule 12(b) unless such new Subsidiary is a
wholly-owned Subsidiary and is designated by Laurus as either a
co-borrower or guarantor hereunder and such Subsidiary shall have entered
into all such documentation required by Laurus, including, without
limitation, to grant to Laurus a first priority perfected security
interest in substantially all of such Subsidiary's assets to secure the
Obligations; (vii) directly or indirectly, prepay any indebtedness (other
than to Laurus and in the ordinary course of business), or repurchase,
redeem, retire or otherwise acquire any indebtedness (other than to Laurus
and in the ordinary course of business) except to make scheduled payments
of principal and interest thereof; (viii) enter into any merger,
consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or Stock of any Person or permit
any other Person to consolidate with or merge with it, unless (1) such
Company is the surviving entity of such merger or consolidation, (2) no
Event of Default shall exist immediately prior to and after giving effect
to such merger or consolidation, (3) such Company shall have provided
Laurus copies of all documentation relating to such merger or
consolidation and (4) such Company shall have provided Laurus with at
least thirty (30) days' prior written notice of such merger or
consolidation; (ix) materially change the nature of the business in which
it is presently engaged; (x) become subject to (including, without
limitation, by way of amendment to or modification of) any agreement or
instrument which by its terms would (under any circumstances) restrict its
right to perform the provisions of this Agreement or any of the Ancillary
Agreements; (xi) change its fiscal year or make any changes in accounting
treatment and reporting practices without prior written notice to Laurus
except as required by GAAP or in the tax reporting treatment or except as
required by law; (xii) enter into any transaction with any employee,
director or Affiliate, involving compensation or other payments by any of
the Companies to such employee, director or Affiliate, in an aggregate
amount after the date hereof in excess of $100,000, except in the ordinary
course on arms-length terms; (xiii) ▇▇▇▇ Accounts under any name except
the present name of such Company; or (xiv) sell, lease, transfer or
otherwise dispose of any of its properties or assets, 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 (x) 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 anything to the contrary
contained in this Section 12(l), Laurus' approval shall not be required
with respect to any transfer of cash to any Non-US Subsidiary, provided
that (x) such transfers are made in the ordinary course of business and
consistent with its business practices and (y) such transfers are made by
a Company to a Non-US Subsidiary for the direct purposing of reimbursing
and/or paying such Non-US Subsidiary for (I) the cost of shipping expenses
and (II) airline carrier expenses, in each case, incurred by such Non-US
Subsidiary for the benefit of such Company.
(m) Reissuance of Securities. Subject to compliance by Laurus or
such other holder with all laws, rules and regulations, and the receipt by
the Parent of all documents reasonably requested by the Parent, and
executed by Laurus or such other holder (in each case solely to the extent
such documents are required by law in connection with the issuance of such
28
securities), the Parent shall reissue certificates representing the
Securities without the legends set forth in Section 40 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.
(n) Opinion. On the Closing Date, it shall deliver to Laurus an
opinion, in the form of Schedule 13(n) annexed hereto, 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 conversion of the Notes and the exercise of the
Warrants.
(o) Legal Name, etc. It shall not, without providing Laurus with
twenty (20) days prior written notice, change (i) its name as it appears
in the official filings in the state of its organization, (ii) the type of
legal entity it is, (iii) its organization identification number, if any,
issued by its state of organization, (iv) its state of organization or (v)
amend its certificate of incorporation, by-laws or other organizational
document.
(p) 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.
(q) 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.
29
(r) 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.
(s) Offering Restrictions. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted
to its employees or directors, neither it nor any of its Subsidiaries
shall, prior to the full repayment or conversion of the Notes (together
with all accrued and unpaid interest and fees related thereto), (x) enter
into any equity line of credit agreement or similar agreement or (y)
issue, or enter into any agreement to issue, any securities with a
variable/floating conversion and/or pricing feature which are or could be
(by conversion or registration) free-trading securities (i.e. common stock
subject to a registration statement).
(t) 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 conversion of the Notes and exercise of the
Warrants.
(u) Financing Right of First Refusal.
(i) It hereby grants to Laurus a right of first refusal to provide
any Additional Financing (as defined below) to be issued by any Company and/or
any of its Subsidiaries (the "Additional Financing Parties"), subject to the
following terms and conditions. From and after the date hereof, prior to the
incurrence of any additional indebtedness and/or the sale or issuance of any
equity interests of the Additional Financing Parties (an "Additional
Financing"), Company Agent shall notify Laurus of such Additional Financing. In
connection therewith, Company Agent shall submit a fully negotiated term sheet
(a "Proposed Term Sheet") to Laurus setting forth the terms, conditions and
pricing of any such Additional Financing (such financing to be negotiated on
"arm's length" terms and the terms thereof to be negotiated in good faith)
proposed to be entered into by the Additional Financing Parties. Laurus shall
have the right, but not the obligation, to deliver to Company Agent its own
proposed term sheet (the "Laurus Term Sheet") setting forth the terms and
conditions upon which Laurus would be willing to provide such Additional
Financing to the Additional Financing Parties. The Laurus Term Sheet shall
contain terms (including the timing of the Additional Financing) no less
favorable to the Additional Financing Parties than those outlined in Proposed
Term Sheet. Laurus shall deliver to Company Agent the Laurus Term Sheet within
five (5) Business Days of receipt of each such Proposed Term Sheet. If the
provisions of the Laurus Term Sheet are at least as favorable to the Additional
Financing Parties as the provisions of the Proposed Term Sheet, the Additional
Financing Parties shall enter into and consummate the Additional Financing
transaction outlined in the Laurus Term Sheet. Notwithstanding anything to the
contrary contained herein, financing obtained by any of the Additional Financing
Parties through the sale or issuance of equity interests and/or debt securities
(excluding debt securities convertible into equity interests) of any of the
Additional Financing Parties to (A) ▇▇▇▇▇▇▇ & Co (UK) Ltd.; (B) ▇▇▇▇ Capital
Partners, LLC; (C) Maxim Group, LLC, and (D) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, along
with any affiliates of the foregoing, shall be exempt from the definition of
30
Additional Financing solely for the purpose of this Section 13(u)(i) and shall
not be subject to the right of first refusal provisions contained herein.
(ii) It shall not, and shall not permit its Subsidiaries to, agree,
directly or indirectly, to any restriction with any Person which limits the
ability of Laurus to consummate an Additional Financing with it or any of its
Subsidiaries.
(v) Prohibition of Amendments to Subordinated Debt
Documentation. It shall not, without the prior written consent of
Laurus, amend, modify or in any way alter the terms of any of the
Subordinated Debt Documentation.
(w) Prohibition of Grant of Collateral for Subordinated Debt
Documentation. It shall not, without the prior written consent of
Laurus, grant to any Person any Collateral of such Company as
security for any obligation arising under the Subordinated Debt
Documentation.
(x) Prohibitions of Payment Under Subordinated Debt
Documentation. It shall not, without the prior written consent of
Laurus, make any payments in respect of the indebtedness evidenced
by the Subordinated Debt Documentation, other than as expressly
permitted by the terms thereof.
14. Further Assurances. At any time and from time to time, upon the
written request of Laurus and at the sole expense of 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.
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.
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(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 Notes to be issued to it under
this Agreement and the Securities acquired by it upon the conversion of
the Notes.
(c) Laurus Bears Economic Risk. Laurus has substantial experience in
evaluating and investing in private placement transactions of securities
in companies similar to 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.
(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 Notes, and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement, and the
Ancillary Agreements. Further, Laurus is aware of no publication of any
advertisement in connection with the transactions contemplated in the
Agreement or the Ancillary Agreements.
(f) Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(g) Shorting. Neither Laurus nor any of its Affiliates or investment
partners has, will, or will cause any Person, to directly engage in "short
sales" of the Parent's Common Stock so long as any Minimum Borrowing Note
or Revolving Note shall be outstanding.
(h) Patriot Act. Laurus certifies that, to the best of Laurus'
knowledge, Laurus has not been designated, and is not owned or controlled,
by a "suspected terrorist" as defined in Executive Order 13224. Laurus
seeks to comply with all applicable laws concerning money laundering and
related activities. In furtherance of those efforts, Laurus hereby
represents, warrants and 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
32
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, Laurus may undertake appropriate actions to ensure compliance
with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in the Parent. Laurus
further understands that the Parent may release 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; provided,
however, that Parent shall only release such confidential information that
it has been advised by counsel is necessary to comply with the requests of
any such authorities.
(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"). The Stock Acquisition Limitation shall
automatically become null and void without any notice to any Company upon
the earlier to occur of either (a) the Parent's delivery to Laurus of a
Notice of Redemption (as defined in the Notes) or (b) the existence of an
Event of Default at a time when the average closing price of the Common
Stock as reported by Bloomberg, L.P. on the Principal Market for the
immediately preceding five trading days is greater than or equal to 150%
of the Fixed Conversion Price (as defined in the Notes).
16. Power of Attorney. Each Company hereby appoints Laurus, or any
other Person whom Laurus may designate as such Company's attorney, with power
to, in the event of the occurrence of an Event of Default which remains uncured
after any applicable cure periods: (i) 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; (ii) 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, verifications of Account and notices to or
33
from Account Debtors; (iii) verify the validity, amount or any other matter
relating to any Account by mail, telephone, telegraph or otherwise with Account
Debtors; (iv) do all things necessary to carry out this Agreement, any Ancillary
Agreement and all related documents; and (v) on or after the occurrence and
during the continuation of an Event of Default, 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 that Laurus complies with all of the terms
and conditions described, 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.
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 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 five (5) Business 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) $200,000 if such payment occurs
prior to the first anniversary of the Closing Date, (2) $150,000 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) $100,000 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 upon termination by acceleration of this
Agreement by Laurus due to the occurrence and continuance of an Event of
Default.
18. Termination of Lien. The Liens and rights granted to Laurus
hereunder and any Ancillary Agreements and the financing statements filed in
connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement or the fact that 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 after
the termination 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.
34
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) days following the date upon which any such payment was due;
(b) failure by any Company 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 books;
(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
thirty (30) days after the occurrence thereof;
(d) any representation, warranty or statement made by any Company
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;
(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, in an aggregate
amount outstanding in excess of $250,000 (including, without limitation,
the indebtedness evidenced by the Subordinated Debt Documentation) 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;
(f) attachments or levies in excess of $100,000 in the aggregate are
made upon the Collateral 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, could reasonably be expected to have a Material Adverse
Effect;
(h) any Lien created hereunder or under any Ancillary Agreement for
any reason ceases to be or is not a valid and perfected Lien having a
first priority interest, unless released pursuant to the provisions of
this Agreement or any of the Ancillary Agreements, or otherwise waived by
Laurus;
(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
35
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 sixty (60) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (vii)
take any action for the purpose of effecting any of the foregoing;
(j) any Company shall admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations
of its present business;
(k) any Company directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any 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 or any other person set forth on Schedule 19(l)
annexed hereto, 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
35% 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, any of their respective
Subsidiaries or ▇▇▇▇▇▇ ▇▇▇ under any criminal statute, or commencement of
criminal or civil proceedings against any Company, any of their respective
Subsidiaries or ▇▇▇▇▇▇ ▇▇▇ pursuant to which statute or proceeding
penalties or remedies sought or available include forfeiture of any of the
property of any Company or any such Subsidiary;
(n) an Event of Default shall occur under and as defined in any Note
or in any other Ancillary Agreement;
(o) any Company 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) and which will have a Material Adverse Effect;
(p) any Company attempts to terminate, or challenges the validity of
this Agreement or any Ancillary Agreement, or any Company brings a
proceeding to challenge the validity or binding effect of any Ancillary
Agreement or any Ancillary Agreement ceases to be a valid, binding and
enforceable obligation of such Company (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 days or
36
five (5) days during a period of ten (10) consecutive days, excluding in
all cases a suspension of all trading on a Principal Market, provided that
the 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;
(r) except if such delivery would violate any applicable law, rule
and/or regulation, the Parent's failure to deliver Common Stock to Laurus
pursuant to and in the form required by the Notes and this Agreement, if
such failure to deliver Common Stock shall not be cured within five (5)
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; or
(s) any Company shall take or participate in any action which would
be prohibited under the provisions of any of the Subordinated Debt
Documentation or make any payment on the indebtedness evidenced by the
Subordinated Debt Documentation to a Person that was not entitled to
receive such payments under the subordination provisions of applicable
Subordinated Debt Documentation.
20. Remedies. Following the occurrence of an Event of Default,
Laurus shall have the right to demand repayment in full of all Obligations,
whether or not otherwise due. Until all Obligations have been fully 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 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 costs and expenses
of sale, including attorneys' fees, and second to the payment (in whatever order
37
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. For purposes hereof, "Liquidation Period" means a period: (i)
beginning on the earliest date of (x) an event referred to in Section 19(i) or
19(j), or (y) the cessation of any Company's business, unless such Company's
business is transferred to and continued by any of the other Companies; and (ii)
ending on the date on which Laurus has actually received all Obligations due and
owing it under this Agreement and the Ancillary Agreements. The Liquidation Fee
shall be paid on the date on which Laurus collects the applicable Account by
deduction from the proceeds thereof. 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.
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 costs and expenses, including reasonable fees and
disbursements of in-house or outside counsel and appraisers, in connection with
the preparation, execution and delivery of this Agreement and the Ancillary
Agreements (the aggregate amount of all such expenses which shall not exceed
$45,000), and in connection with the prosecution or defense of any action,
contest, dispute, suit or proceeding concerning any matter in any way arising
out of, related to or connected with this Agreement or any Ancillary Agreement.
The Companies shall also jointly and severally pay all of Laurus' reasonable
fees, charges, out-of-pocket costs and expenses, including reasonable 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
38
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 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 at any Company'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, the Companies hereby jointly and severally indemnifies and holds 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
Collateral.
23. Assignment By Laurus. Subject to its compliance with all
federal, state and other applicable securities laws, , and the completion and
execution of all applicable documentation (to the extent required by such 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 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. 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 Laurus to exercise
any right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between or among any Company
and Laurus or delay by Laurus in exercising the same, will not operate as a
waiver; no waiver by Laurus will be effective unless it is in writing and then
only to the extent specifically stated. Laurus' rights and remedies under this
Agreement and the Ancillary Agreements will be cumulative and not exclusive of
any other right or remedy which Laurus may have.
25. Application of Payments. Each Company irrevocably waive the
right to direct the application of any and all payments at any time or times
hereafter received by Laurus from or on such Company's behalf and each Company
hereby irrevocably agrees that Laurus shall have the continuing exclusive right
to apply and reapply any and all payments received at any time or times
hereafter against the Obligations hereunder in such manner as Laurus may deem
advisable notwithstanding any entry by Laurus upon any of Laurus' books and
records.
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26. Indemnity.
(a) Indemnity by Companies. Each Company hereby jointly and
severally indemnify and hold Laurus, and its respective affiliates,
employees, attorneys and agents (each, a "Laurus 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 Laurus
Indemnified Person as the result of credit having been extended, suspended
or terminated under this Agreement or any of the Ancillary Agreements or
with respect to the execution, delivery, enforcement, performance and
administration of, or in any other way arising out of or relating to, this
Agreement, the Ancillary Agreements or any other documents or transactions
contemplated by or referred to herein or therein and any actions or
failures to act with respect to any of the foregoing, except to the extent
that any such indemnified liability is finally determined by a court of
competent jurisdiction to have resulted solely from such Indemnified
Person's gross negligence or willful misconduct. NO LAURUS INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY COMPANY OR TO ANY OTHER PARTY
OR TO ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS
AGREEMENT OR ANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY OTHER
TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) Indemnity by Laurus. Laurus hereby indemnifies and holds each
Company, and its respective Affiliates, employees, attorneys and agents
(each, a "Company 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 Company Indemnified Person as the result of any
breach by Laurus of any its representations, warranties, covenants or
material obligations under this Agreement or any of the Ancillary
Agreements or with respect to the execution, delivery, enforcement,
performance and administration of, or in any other way arising out of or
relating to, this Agreement, the Ancillary Agreements or any other
documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing,
except to the extent that any such indemnified liability is finally
determined by a court of competent jurisdiction to have resulted solely
from such Indemnified Person's gross negligence or willful misconduct. NO
COMPANY INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO LAURUS OR TO
ANY OTHER PARTY OR TO ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY
40
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.
(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.
41
(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 three (3) Business Days after the date when
deposited in the mail or with the overnight mail carrier, and, in the case of a
telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
42
If to any Company,
or Company Agent: Pacific CMA, Inc.
c/o Airgate International Corporation
▇▇▇-▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
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.
(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 WHICH 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
43
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 THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES
HERETO WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT,
TORT, OR OTHERWISE BETWEEN LAURUS, 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 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.
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
44
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 deem appropriate, or as required by applicable law.
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 Notes shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
45
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO PACIFIC CMA, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) Any shares of Common Stock issued pursuant to conversion of the
Notes or exercise of the Warrants, shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE,
STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO PACIFIC CMA, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(c) The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO PACIFIC CMA, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
46
IN WITNESS WHEREOF, the parties have executed this Security
Agreement as of the date first written above.
PACIFIC CMA, INC.
By: /s/ ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
---------------------------
Name: ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
Title: Chairman & CEO
PACIFIC CMA INTERNATIONAL, LLC
By: /s/ ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
---------------------------
Name: ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
Title: Chairman & CEO
AIRGATE INTERNATIONAL CORPORATION, a New
York Corporation
By: /s/ ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
---------------------------
Name: ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
Title: Chairman & CEO
AIRAGATE INTERNATIONAL CORPORATION
(CHICAGO), an Illinois corporation
By: /s/ ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
---------------------------
Name: ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
Title: Chairman & CEO
PARADIGM INTERNATIONAL INC., Florida
corporation
By: /s/ ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
---------------------------
Name: ▇▇▇ ▇▇▇▇ ▇▇, ▇▇▇▇▇▇
Title: Chairman & CEO
47
LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ Grin
---------------------------
Name: ▇▇▇▇▇ Grin
Title: Director
48
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 up to 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 or (b) any other
Person who is a director or officer (i) of such Person, (ii) of any Subsidiary
of such Person or (iii) of any Person described in clause (a) above. For the
purposes of this definition, control of a Person shall mean the power (direct or
indirect) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Ancillary Agreements" means the Notes, the Warrants, the
Registration Rights Agreements, each Security Document and all other agreements,
instruments, documents, mortgages, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, trust agreements and
guarantees whether heretofore, concurrently, or hereafter executed by or on
behalf of 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.
"Available Minimum Borrowing" has the meaning given such term in
Section 2(a)(i).
"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 $7,500,000.
"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:
(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;
(h) all Investment Property;
(i) all Stock of the Eligible Subsidiaries owned by any Company;
2
(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 respective
Note.
"Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"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
3
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) does not arise out of progress ▇▇▇▇▇▇▇▇ prior to completion of the order;
(s) the total unpaid Accounts from such Account Debtor does not exceed
twenty-five percent (25%) of all Eligible Accounts; (t) such Company's right to
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever; (u) such Company is able to bring suit and enforce its remedies
against the Account Debtor through judicial process; (v) does not represent
interest payments, late or finance charges owing to such Company, and (w) 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 sole discretion.
"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.
4
"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
5
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.
"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.
"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
6
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) 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, liabilities, condition (financial or otherwise), properties,
operations or prospects of any Company or any of its Subsidiaries (taken
individually and as a whole), (b) any Company's ability to pay or perform the
Obligations in accordance with the terms hereof or any Ancillary Agreement, (c)
the value of the Collateral, the Liens on the Collateral or the priority of any
such Lien or (d) the practical realization of the benefits of Laurus' rights and
remedies under this Agreement and the Ancillary Agreements.
"Minimum Borrowing Amount" means Four Million Dollars
($4,000,000).
"Minimum Borrowing Notes" means that certain Secured Convertible
Minimum Borrowing Note dated as of the Closing Date made by the Companies in
favor of Laurus evidencing the Minimum Borrowing Amount and each other Secured
Convertible Minimum Borrowing Note made by the Companies in favor of Laurus
which evidences the Minimum Borrowing Amount, as each of the same may be
amended, supplemented, restated and/or otherwise modified from time to time.
"NASD" has the meaning given such term in Section 13(b).
"Next Unissued Serialized Note" has the meaning given such term in
Section 2(a).
"Note Shares" has the meaning given such term in Section 12(a).
"Notes" means the Minimum Borrowing Notes and the Revolving Note
made by Companies in favor of Laurus in connection with the transactions
contemplated hereby, as each of the same may be amended, supplemented, restated
and/or otherwise modified from time to time.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by each Company to Laurus (or any
corporation that directly or indirectly controls or is controlled by or is under
common control with Laurus) of every kind and description (whether or not
evidenced by any note or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including any debt, liability or obligation
owing from any Company to others which Laurus may have lawfully obtained by
assignment or otherwise and further including all interest (including interest
accruing at the then applicable rate provided in this Agreement after the
7
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 is required to make
by law or otherwise arising under or as a result of this Agreement, the
Ancillary Agreements or otherwise, together with all reasonable expenses and
reasonable attorneys' fees chargeable to the Companies' 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 and (f)
Liens specified on Schedule 2 hereto.
"Person" means any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Principal Market" means the NASD Over The Counter Bulletin Board,
NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock).
"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
8
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.
"Registration Rights Agreements" means that certain Minimum
Borrowing Note Registration Rights Agreement dated as of the Closing Date by and
between the Parent and Laurus and each other registration rights agreement by
and between the Parent and Laurus, as each of the same may be amended, modified
and supplemented from time to time.
"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
principal amount of $7,500,000, as the same may be amended, supplemented,
restated and/or otherwise modified from time to time.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning given such term in Section 12(u).
"Securities" means the Notes and the Warrants and the shares of
Common Stock which may be issued pursuant to conversion of such Notes in whole
or in part or exercise of such Warrants.
"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 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.
9
"Stock" means all certificated and uncertificated shares, options,
warrants, membership interests, general or limited partnership interests,
participation or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Securities Exchange Act of
1934).
"Subordinated Debt Documentation" means any indebtedness of any
Company that (x) is permitted by the terms of this Agreement and the Ancillary
Agreements to be incurred by such Company and (y) is by its terms subordinated
in right of payment to the Obligations and/or is subject to a subordination
agreement among the creditors with respect to such indebtedness and Laurus,
which subordination agreement is in form and substance satisfactory to Laurus.
"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.
"Transferable Amount" has the meaning given such term in Section
2(a)(i).
"UCC" means the Uniform Commercial Code as the same may, from time
to time be in effect in the State of New York; provided, that in the event that,
by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of, or remedies with respect to, Laurus' Lien on any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "UCC" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions of this Agreement relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions;
provided further, that to the extent that UCC is used to define any term herein
or in any Ancillary Agreement and such term is defined differently in different
Articles or Divisions of the UCC, the definition of such term contained in
Article or Division 9 shall govern.
"Warrant Shares" has the meaning given such term in Section 12(a).
"Warrants" means that certain Common Stock Purchase Warrant dated as
of the Closing Date made by the Parent in favor of Laurus and each other warrant
made by the Parent in favor Laurus, as each of the same may be amended,
restated, modified and/or supplemented from time to time.
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Exhibit A
Eligible Subsidiaries
Pacific CMA International, LLC, a Colorado limited liability company
Airgate International Corporation, a New York corporation
Airgate International Corporation (Chicago), an Illinois corporation
Paradigm International, Inc., a Florida corporation
Exhibit B
Borrowing Base Certificate
[To be inserted]