AMENDED AND RESTATED SECURITY AND PURCHASE AGREEMENT
LAURUS MASTER FUND, LTD.
And
ON THE GO HEALTHCARE, INC.
Dated: January 13, 2006
TABLE OF CONTENTS
ARTICLE 1 GENERAL DEFINITIONS AND TERMS; RULES OF CONSTRUCTION. 1
1.1 General Definitions. 1
1.2 Accounting Terms. 1
1.3 Other Terms. 1
1.4 Rules of Construction. 1
1.5 Currency 2
ARTICLE 2 LOAN FACILITY. 2
2.1 Revolving Loans. 2
2.2 Receivables Purchase. 4
2.3 Minimum Borrowing Amount. 5
2.4 Term Loan. 5
ARTICLE 3 REPAYMENT OF THE LOANS. 5
ARTICLE 4 PROCEDURE FOR REVOLVING LOANS. 5
ARTICLE 5 INTEREST AND PAYMENTS. 6
5.1 Interest. 6
5.2 Payments; Certain Closing Conditions. 7
ARTICLE 6 SECURITY INTEREST. 8
ARTICLE 7 REPRESENTATIONS, WARRANTIES AND COVENANTS 9
7.1 Concerning the Collateral. 9
ARTICLE 8 PAYMENT OF ACCOUNTS. 11
ARTICLE 9 COLLECTION AND MAINTENANCE OF COLLATERAL. 12
ARTICLE 10 INSPECTIONS AND APPRAISALS. 13
ARTICLE 11 FINANCIAL REPORTING. 13
ARTICLE 12 ADDITIONAL REPRESENTATIONS AND WARRANTIES. 14
12.1 Organization, Good Standing and Qualification. 14
12.2 Subsidiaries. 15
12.3 Capitalization; Voting Rights. 15
12.4 Authorization; Binding Obligations. 16
12.5 Liabilities. 16
12.6 Agreements; Action. 16
12.7 Obligations to Related Parties. 18
12.8 Changes. 18
12.9 Title to Properties and Assets; Liens, Etc. 20
12.10 Intellectual Property. 20
12.11 Compliance with Other Instruments. 20
12.12 Litigation. 21
12.13 Tax Returns and Payments. 21
12.14 Employees. 21
12.15 Registration Rights and Voting Rights. 22
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12.16 Compliance with Laws; Permits. 22
12.17 Environmental and Safety Laws. 23
12.18 Valid Offering. 23
12.19 Full Disclosure. 23
12.20 Insurance. 23
12.21 SEC Reports and Financial Statements. 24
12.22 Listing. 24
12.23 No Integrated Offering. 24
12.24 Stop Transfer. 24
12.25 Dilution. 25
12.26 Patriot Act. 25
12.27 Company Name; Locations of Offices,
Records and Collateral. 25
12.28 ERISA. 26
12.29 No Company maintains or contributes to any
Canadian Pension Plan. 26
ARTICLE 13 COVENANTS. 26
13.1 Stop-Orders. 26
13.2 Listing. 26
13.3 Market Regulations. 27
13.4 Reporting Requirements. 27
13.5 Use of Funds. 27
13.6 Access to Facilities. 27
13.7 Taxes. 27
13.8 Insurance. 28
13.9 Intellectual Property. 29
13.10 Properties. 29
13.11 Confidentiality. 29
13.12 Required Approvals. 29
13.13 Reissuance of Securities. 31
13.14 Opinion. 31
13.15 Legal Name, etc. 31
13.16 Compliance with Laws. 31
13.17 Notices. 31
13.18 Margin Stock. 32
13.19 Offering Restrictions. 32
13.20 Authorization and Reservation of Shares. 32
13.21 Financing Right of First Refusal. 32
13.22 Additional Investment. 33
ARTICLE 14 FURTHER ASSURANCES. 33
ARTICLE 15 REPRESENTATIONS, WARRANTIES AND COVENANTS OF LAURUS. 33
15.1 Requisite Power and Authority. 34
15.2 Investment Representations. 34
15.3 Laurus Bears Economic Risk. 34
15.4 Investment for Own Account. 34
15.5 Laurus Can Protect Its Interest. 34
15.6 Accredited Investor. 35
15.7 Shorting. 35
15.8 Patriot Act. 35
15.9 Limitation on Acquisition of Common Stock. 35
ARTICLE 16 POWER OF ATTORNEY. 37
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ARTICLE 17 TERM OF AGREEMENT. 38
ARTICLE 18 TERMINATION OF LIEN. 38
ARTICLE 19 EVENTS OF DEFAULT. 38
ARTICLE 20 REMEDIES. 41
ARTICLE 21 WAIVERS. 43
ARTICLE 22 EXPENSES. 43
ARTICLE 23 ASSIGNMENT BY LAURUS. 44
ARTICLE 24 NO WAIVER; CUMULATIVE REMEDIES. 44
ARTICLE 25 APPLICATION OF PAYMENTS. 44
ARTICLE 26 INDEMNITY. 44
ARTICLE 27 CURRENCY. 45
ARTICLE 28 REVIVAL. 45
ARTICLE 29 NOTICES. 46
ARTICLE 30 GOVERNING LAW, JURISDICTION AND WAIVER OF JURY TRIAL. 47
ARTICLE 31 JUDGMENT CURRENCY. 48
ARTICLE 32 LIMITATION OF LIABILITY. 49
ARTICLE 33 ENTIRE UNDERSTANDING; MAXIMUM INTEREST. 49
ARTICLE 34 SEVERABILITY. 49
ARTICLE 35 SURVIVAL. 49
ARTICLE 36 CAPTIONS. 50
ARTICLE 37 COUNTERPARTS; TELECOPIER SIGNATURES. 50
ARTICLE 38 CONSTRUCTION. 50
ARTICLE 49 PUBLICITY. 50
ARTICLE 40 JOINDER. 50
ARTICLE 41 LEGENDS. 51
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AMENDED AND RESTATED SECURITY AND PURCHASE AGREEMENT
This Amended and Restated Security and Purchase Agreement is made as
of January 24, 2006 by and among LAURUS MASTER FUND, LTD., a Cayman
Islands corporation ("Laurus"), ON THE GO HEALTHCARE, INC., a
Delaware corporation (the "Company).
BACKGROUND
On July 14, 2005, Laurus made certain advances available to the Company
pursuant to the terms of that certain Security and Purchase Agreement
dated as of July 14, 2005 by and between Laurus and the Company
(the "Original Agreement"); and
The Company and Laurus have agreed to amend and restate the Original
Agreement in the form hereof in order to incorporate certain mutually
agreed-to terms;
Laurus has agreed to continue to make such advances on the terms and
conditions set forth in this Amended and Restated Security and
Purchase Agreement (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:
Article 1
GENERAL DEFINITIONS AND TERMS; RULES OF CONSTRUCTION.
1.1 General Definitions.
Capitalized terms used in this Agreement shall have the meanings
assigned to them in Annex A.
1.2 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.
1.3 Other Terms.
All other terms used in this Agreement and defined in the UCC, shall
have the meaning given therein unless otherwise defined herein.
1.4 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
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thereof) shall not be limiting or exclusive. All references to
statutes and related regulations shall include any amendments of same
and any successor statutes and regulations. All references in this
Agreement or in the Schedules, Addenda, Annexes and Exhibits to this
Agreement to sections, schedules, disclosure schedules, exhibits, and
attachments shall refer to the corresponding sections, schedules,
disclosure schedules, exhibits, and attachments of or to this
Agreement. All references to any instruments or agreements,
including references to any of this Agreement or the Ancillary
Agreements shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
1.5 Currency
All principal, interest and other amounts owing under this Agreement
and any Ancillary Agreements, that, in accordance with their terms,
are to be paid in cash shall be paid in US dollars. All amounts
denominated in other currencies shall be converted into the US dollar
equivalent amount in accordance with the Exchange Rate on the date of
calculation. "Exchange Rate" means, in relation to any amount of
currency to be converted into US dollars pursuant to this Agreement
and any Ancillary Agreements, the US dollar exchange rate as published
in the Wall Street Journal on the relevant date of calculation.
Article 2
LOAN FACILITY.
2.1 Revolving Loans.
(a) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus may make revolving loans (the
"Revolving Loans") to Company from time to time during the Term
which, in the aggregate at any time outstanding, will not exceed
the lesser of (x) (I) the Capital Availability Amount minus (II)
such reserves as Laurus may reasonably in its good faith judgment
deem proper and necessary from time to time (the "Reserves") and
(y) an amount equal to (I) the Accounts Availability minus (II)
the Reserves. The amount derived at any time from Section 2.1(a)
(y)(I) minus 2.1(a)(y)(II) shall be referred to as the "Formula
Amount." The Company shall execute and deliver to Laurus on the
Closing Date the Revolving Note and a Minimum Borrowing Note
evidencing the Revolving Loans funded on the Closing Date.
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(b) Notwithstanding the limitations set forth above, if requested by
the Company, Laurus retains the right to lend to the Company from
time to time such amounts in excess of such limitations as Laurus
may determine in its sole discretion.
(c) The Company acknowledges that the exercise of Laurus' discretionary
rights hereunder may result during the Term in one or more
increases or decreases in the advance percentages used in
determining Accounts Availability and the Company hereby consents
to any such increases or decreases which may limit or restrict
advances requested by the Company.
(d) If any interest, fees, costs or charges payable to Laurus hereunder
are not paid when due, the Company shall thereby be deemed to have
requested, and Laurus is hereby authorized at its discretion to
make and charge to the Company' account, a Loan as of such date in
an amount equal to such unpaid interest, fees, costs or charges.
(e) If the Company at any time fails to perform or observe any of the
covenants contained in this Agreement or any Ancillary Agreement,
Laurus may to the extent permissible by state and federal law, but
need not, perform or observe such covenant on behalf and in the
name, place and stead of the Company (or, at Laurus' option, in
Laurus' name) and may, but need not, take any and all other
actions which Laurus may deem necessary to cure or correct such
failure (including the payment of taxes, the satisfaction of
Liens, the performance of obligations owed to Account Debtors,
lessors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and
financing statements, and the endorsement of instruments). The
amount of all monies expended and all reasonable 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 Company' account
as a Loan and added to the Obligations. To facilitate Laurus'
performance or observance of such covenants by the Company,
the Company hereby irrevocably appoints Laurus, or Laurus'
delegate, acting alone, as the 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 the 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 the Company.
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(f) Laurus will account to the Company monthly with a written
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 the Company in writing to the contrary within
thirty (30) days of the date each account was received by the
Company specifying the item or items to which objection is made.
(g) During the Term, the Company may borrow and prepay Loans in
accordance with the terms and conditions hereof.
(h) 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 Company shall(i) reimburse
Laurus for the amount of the Loans made with respect to such
Delinquent Account plus an adjustment fee in an amount equal to
one-half of one percent (0.50%) of the gross face amount of such
Eligible Account or (ii) immediately replace such Delinquent
Account with an otherwise Eligible Account.
2.2 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 Company shall be deemed
to hereby have sold, assigned, transferred, conveyed and delivered
to Laurus, and Laurus shall be deemed to have purchased and received
from the Company, all right, title and interest of the Company in and
to all Accounts which shall at any time constitute Eligible Accounts
(the "Receivables Purchase"). All outstanding Loans hereunder shall
be deemed obligations under such accounts receivable purchase facility.
The conversion to an accounts receivable purchase facility in
accordance with the terms hereof shall not be deemed an exercise by
Laurus of its secured creditor rights under Article 9 of the UCC and
the PPSA. Immediately following Laurus' request, the Company shall
execute all such further documentation as may be required by Laurus to
more fully set forth the accounts receivable purchase facility herein
contemplated, including, without limitation, Laurus' standard form of
accounts receivable purchase agreement and account debtor notification
letters, but the Company's failure to enter into any such documentation
shall not impair or affect the Receivables Purchase in any manner
whatsoever.
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2.3 Term Loan.
Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus shall make a term loan (the "Term Loan")
to the Company (for the benefit of Companies) in an aggregate principal
amount equal to US$500,000. The Term Loan shall be advanced on the
Closing Date and shall be, with respect to principal, payable in
consecutive monthly instalments of principal commencing on
December 1, 2005 and on the first day of each month thereafter, subject
to acceleration upon the occurrence of an Event of Default or
termination of this Agreement. Principal instalments shall each be
in the amount of US$15,625.00 and the final instalment shall be in an
amount equal to the unpaid principal balance of the Term Loan plus all
accrued and unpaid interest thereon. The Term Loan shall be evidenced
by the Secured Convertible Term Note.
Article 3
REPAYMENT OF THE LOANS.
The Company (a) may prepay the Obligations from time to time in
accordance with the terms and provisions of the Notes (and Article 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 2.1(b) and Section 5.2(b) hereof, shall repay
on any day on which the then aggregate outstanding principal balance
of the Loans are in excess of the Formula Amount at such time, Loans
in an amount equal to such excess. Any payments of principal,
interest, fees or any other amounts payable hereunder or under any
Ancillary Agreement shall be made prior to 4:00 pm (New York time)
on the due date thereof in immediately available funds.
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Article 4
PROCEDURE FOR REVOLVING LOANS.
The Company may by written notice request a borrowing of Revolving
Loans prior to 12:00 noon (New York time) on the Business Day of its
request to incur, on the next Business Day, a Revolving Loan.
Together with each request for a Revolving Loan (or at such other
intervals as Laurus may request), the Company 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 the Company together with all
supporting documentation relating thereto. All Revolving Loans shall
be disbursed from whichever office or other place Laurus may designate
from time to time and shall be charged to the Company' account on
Laurus' books. The proceeds of each Revolving Loan made by Laurus
shall be made available to the Company on the Business Day following
the Business Day so requested in accordance with the terms of this
Article 4 by way of credit to the applicable Company's operating
account maintained with such bank as the Company designated to Laurus.
Any and all Obligations due and owing hereunder may be charged to the
Company' account and shall constitute Revolving Loans.
Article 5
INTEREST AND PAYMENTS.
5.1 Interest.
(a) Except as modified by Section 5.1(c) below, the Company shall pay
interest at the Contract Rate on the unpaid principal balance of
each Loan until such time as such Loan is collected in full in
good funds in dollars of the United States of America.
(b) Interest and payments shall be computed on the basis of actual
days elapsed in a year of 360 days. Consistent with the terms of
the Loan, Laurus may charge the Company's account for said
interest.
(c) 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.
(d) 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).
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(e) The Company shall pay principal, interest and all other amounts
payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including any deduction for any set-off or
counterclaim or deduction or withholding for any taxes, levies,
imposts, deductions, charges or withholdings of whatever kind or
nature. If the Company shall be required by law to deduct or
withhold any taxes from or in respect of any sum payable hereunder
to Laurus, then:
(i) the sum payable to Laurus shall be increased as necessary
so that after making all required deductions and
withholdings Laurus receives an amount equal to the sum it
would have received had no such deductions or withholdings
been made;
(ii) the Company shall make such deductions and withholdings;
(iii) the Company shall pay the full amount deducted or
withheld to the relevant taxing authority or other
authority in accordance with applicable law; and
(iv) without duplication of amounts paid under clause (1), the
Company shall also pay to Laurus for the account of
Laurus, at the time interest is paid, all additional
amounts which Laurus specifies as necessary to preserve
the after-tax yield Laurus would have received if such
taxes had not been imposed.
5.2 Payments; Certain Closing Conditions.
(a) Closing/Annual Payments. Upon execution of this Agreement by the
Company and Laurus, the Company shall pay to Laurus Capital
Management, LLC a closing payment in an amount equal to three and
nine tenths (3.90%) percent of the Total Investment Amount. Such
payment shall be deemed fully earned on the Closing Date and shall
not be subject to rebate or proration for any reason.
(b) Overadvance Payment. Without affecting Laurus' rights hereunder
in the event the Revolving Loans exceed the Formula Amount (each
such event, an "Overadvance"), and Laurus elects to exercise its
rights under Section 2.1(b) to make an Overadvance to the Company,
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. Unless otherwise specified by Laurus in
writing, all amounts that are incurred pursuant to this
Section 5.2(b) shall be due and payable by the Company monthly,
in arrears, on the first business day of each calendar month
and upon expiration of the Term.
(c) Financial Information Default. Without affecting Laurus' other
rights and remedies, in the event the Company fails to deliver
the financial information required by Article 11 on or before
the date required by this Agreement, the Company shall pay Laurus
an aggregate fee in the amount of US$500.00 per week (or portion
thereof) for each such failure until such failure is cured to
Laurus' satisfaction or waived in writing by Laurus. All amounts
that are incurred pursuant to this Section 5.2(c) shall be due
and payable by the Company monthly, in arrears, on the first
business of each calendar month and upon expiration of the Term.
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(d) Expenses. The Company shall 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 the Company and its
Subsidiaries and all related matters. Amounts required to be
paid under this Section 5.2(d) will be paid on the Closing Date
and shall not exceed US$52,500 for such expenses referred to in
this Section 5.2(d).
Article 6
SECURITY INTEREST.
(a) To secure the prompt payment to Laurus of the Obligations, the
Company hereby assigns, pledges and grants to Laurus a continuing
security interest in and Lien upon all of the Collateral. All of
the Company's Books and Records relating to the Collateral shall,
until delivered to or removed by Laurus, be kept by the 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 the Company shall be deemed to include the
foregoing grant, whether or not the same appears therein. All
commercial tort claims of the Company are set forth and described
more particularly on Schedule 6(a) hereto.
(b) the Company hereby (i) authorizes Laurus to file any financing
statements, change financing statements, continuation statements
or amendments thereto that (x) indicate the Collateral (1) as all
assets and personal property of the 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 and the PPSA, or (2) as being of an equal or
lesser scope or with greater detail, and (y) contain any other
information required by Part 5 of Article 9 of the UCC and the
PPSA for the sufficiency or filing office acceptance of any
financing statement, change financing statements, 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. The
Company acknowledges that it is not authorized to file any
financing statement, change financing statements, discharge
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 which will not be unreasonably withheld,
subject to the Company's rights under Section 9-509(d)(2) of
the UCC and under the PPSA.
(c) Reserved.
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Article 7
REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 Concerning the Collateral.
The Company represents, warrants (each of which such representations
and warranties shall be deemed repeated upon the making of each request
for a Revolving Loan and made as of the time of each and every
Revolving Loan hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by 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) Schedule 7.1(c) 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 7.1(c)) without Laurus' prior
written consent;
(d) the Liens granted pursuant to this Agreement, upon completion of
the filings and other actions listed on Schedule 7.1(d) (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 favour 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;
(e) 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;
(f) 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 US$50,000 and only to the extent that (i) the proceeds
of any such disposition are used to acquire replacement Equipment
which is subject to Laurus' first priority security interest or
are used to repay Loans or to pay general corporate expenses, or
(ii) following the occurrence of an Event of Default which
continues to exist the proceeds of which are remitted to Laurus to
be held as cash collateral for the Obligations;
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(g) 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;
(h) 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 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;
(i) it shall place notations upon its Books and Records and any of its
financial statements to disclose Laurus' Lien in the Collateral;
(j) 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;
(k) it shall perform in a reasonable time all other steps requested
by Laurus to create and maintain in Laurus' favor a valid perfected
first Lien in all Collateral subject only to Permitted Liens;
(l) 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 the 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 material 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 material loss, damage or destruction of any of the
Collateral;
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(m) (all Eligible Accounts (i) represent complete bona fide
transactions which require no further act under any circumstances
on its part to make such Accounts payable by the Account Debtors,
(ii) are not subject to any present, future contingent offsets or
counterclaims, and (iii) do not represent ▇▇▇▇ and hold sales,
consignment sales, guaranteed sales, sale or return or other
similar understandings or obligations of any Affiliate or
Subsidiary of the 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 Account, any compromise or settlement for
less than the full amount thereof, any release of any Account
Debtor from liability therefor, or any deduction therefrom except
a discount or allowance for prompt or early payment allowed by it
in the ordinary course of its business consistent with historical
practice and as previously disclosed to Laurus in writing;
(n) 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;
(o) it shall maintain and keep all of its Books and Records concerning
the Collateral at its executive offices listed in Schedule 12.27;
(p) it shall maintain and keep the tangible Collateral at the
addresses listed in Article 29 hereof, , provided, that it may
change such locations or open a new location, provided that it
provides Laurus at least thirty (30) days prior written notice
of such changes or new location and (ii) prior to such change or
opening of a new location where Collateral having a value of more
than US$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; and
(q) it and Laurus have not agreed to postpone the time of attachment of
the security interest granted hereunder which shall attach up the
execution of this Agreement and, in the case of Collateral acquired
after the date hereof, when the Company has rights therein.
11
Article 8
PAYMENT OF ACCOUNTS.
(a) The 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 the Company (the "Canadian Lockboxes")
with The Toronto-Dominion Bank or such other financial institution
accepted by Laurus in writing as may be selected by the Company
(the "Canadian Lockbox Bank") pursuant to the terms of the certain
agreements among one or more Companies, Laurus and/or the Canadian
Lockbox Bank dated as of July 14, 2005. On or prior to the Closing
Date, the Company shall and shall cause the Canadian Lockbox Bank
to enter into all such documentation acceptable to Laurus pursuant
to which, among other things, the Canadian Lockbox Bank agrees to:
(a) sweep the Canadian Lockbox as required to pay amounts due and
payable on the Notes, as provided therein, and deposit all checks
received therein to lockboxes maintained by the Company (the "US
Lockboxes") with The Toronto-Dominion Bank or such other financial
institution accepted by Laurus in writing as may be selected by
the Company (the "US Lockbox Bank") pursuant to the terms of the
certain agreements among one or more Companies, Laurus and/or the
US Lockbox Bank dated as of July 14, 2005, and (b) comply only with
the instructions or other directions of Laurus concerning the
Canadian Lockbox. On or prior to the Closing Date, the Company
shall and shall cause the US Lockbox Bank to enter into all such
documentation acceptable to Laurus pursuant to which, among other
things, the US Lockbox Bank agrees to: (a) sweep the US Lockbox
as required to pay amounts due and payable on the Notes, as
provided therein, 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
US Lockbox. All of the Company's invoices, account statements and
other written or oral communications directing, instructing,
demanding or requesting payment of any Account of the Company or
any other amount constituting Collateral shall conspicuously direct
that all payments be made to the Canadian Lockbox or such other
address as Laurus may direct in writing. If, notwithstanding the
instructions to Account Debtors, the Company receives any payments,
the Company shall immediately remit such payments to Laurus in
their original form with all necessary endorsements. Until so
remitted, the 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 the 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.
Article 9
COLLECTION AND MAINTENANCE OF COLLATERAL.
(a) Laurus may verify the 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, or Laurus believes that
such verification is necessary to preserve or protect the
Collateral utilizing an audit control company or any other agent
of Laurus.
12
(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 the Company, it
shall (i) apply such proceeds, as required, to amounts outstanding
under the Notes, and (ii) remit all such remaining proceeds (net of
interest, fees and other amounts then due and owing to Laurus
hereunder) to the Company (for the benefit of the applicable
Companies) upon request (but no more often than twice a week).
Notwithstanding the foregoing, following the occurrence and during
the continuance of an Event of Default, Laurus, at its option, may
(a) apply such proceeds to the Obligations in such order as Laurus
shall elect, (b) hold all such proceeds as cash collateral for the
Obligations and the 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.
Article 10
INSPECTIONS AND APPRAISALS.
At all times during normal business hours, Laurus, and/or any
agent of Laurus shall have the right to (a) have access to, visit,
inspect, review, evaluate and make physical verification and
appraisals of the Company's properties and the Collateral, (b) inspect,
audit and copy (or take originals if necessary) and make extracts
from the Company's Books and Records, including management letters
prepared by the Accountants, and (c) discuss with the Company's
directors, principal officers, and independent accountants, the
Company's business, assets, liabilities, financial condition, results
of operations and business prospects. The Company will deliver to
Laurus any instrument necessary for Laurus to obtain records from any
service bureau maintaining records for the 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 selected by Laurus review
the same. .
Article 11
FINANCIAL REPORTING.
The Company will deliver, or cause to be delivered, to Laurus the
following, which shall be in form and detail acceptable to Laurus:
(a) Within ninety (90) days after the end of each fiscal year of the
Company unless the Company files a NT with the Securities and
Exchange Commission and, in that case, on the date the Company
files its financial statements the SEC, the Company's audited
financial statements with a report of independent certified
public accountants of recognized standing selected by the Company
(the "Accountants"), which annual financial statements shall
comply with the rules and regulations of the SEC and GAAP,
together with (i) if and when available, copies of any management
letters prepared by the Accountants; and (ii) a certificate of
the Company's President, Chief Executive Officer or Chief
Financial Officer stating, to that Officer's knowledge, 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;
13
(b) As soon as available and in any event within forty five (45) days
after the end of each quarter unless the Company files a NT with
the Securities and Exchange Commission and, in that case, on the
date the Company files its financial statements the SEC, an
unaudited/internal balance sheet and statements of income, retained
earnings and cash flows of the Company as at the end of and for
such quarter and for the year to date period then ended, prepared
consistent with the rules and regulations of the SEC and GAAP and
accompanied by a certificate of the Company's President, Chief
Executive Officer or Chief Financial Officer, stating to that
Officer's knowledge (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of
the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable
detail the facts with respect thereto;
(c) Within fifteen (15) days after the end of each month (or more
frequently if Laurus so requests), agings of the Company's
Accounts, unaudited trial balances and their accounts payable and
a calculation of the Company's Accounts, Eligible Accounts,
provided, however, that if Laurus shall request the foregoing
information more often than as set forth in the immediately
preceding clause, the Company shall have fifteen (15) days from
each such request to comply with Laurus' demand; and
(d) Promptly after (i) the filing thereof, copies of the Company's
most recent registration statements and annual, quarterly, monthly
or other regular reports which the Company files with the
Securities and Exchange Commission (the "SEC"), and (ii) the
issuance thereof, copies of such financial statements, reports
and proxy statements as the Company shall send to its
stockholders.
(e) If any documents required to be delivered pursuant to this
Section 11 are filed on ▇▇▇▇▇, they shall be deemed delivered to
Laurus.
14
Article 12
ADDITIONAL REPRESENTATIONS AND WARRANTIES.
The Company hereby represents and warrants to Laurus as follows:
12.1 Organization, Good Standing and Qualification.
The Company and each of its Subsidiaries is a corporation, partnership
or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization. The Company and each of its
Subsidiaries has the corporate, limited liability company or
partnership, as the case may be, power and authority to own and
operate its properties and assets and, insofar as it is or shall be
a party thereto, to (i) execute and deliver this Agreement and the
Ancillary Agreements, (ii) to issue the Notes and the shares of Common
Stock issuable upon conversion of the Minimum Borrowing Note and the
Secured Convertible Term Note (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. The Company and
each of its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation, partnership
or limited liability company, as the case may be, in all jurisdictions
in which the nature or location of its activities and of its
properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so has not had,
or could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
12.2 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 12.2.
12.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of January 12, 2006
consists of 100,000,000 shares of common stock par value US$0.0001,
of which 6,100,393 are issued and outstanding, and 1,000,000 are
shares of preferred stock, par value US$0.01 per share of which
279,134 shares of preferred stock are issued and outstanding.
The authorized, issued and outstanding capital stock of each
Subsidiary of the Company is set forth on Schedule 12.3.
(b) Except as disclosed on Schedule 12.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and
(ii) shares which may be issued pursuant to this Agreement and the
Ancillary Agreements, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of
first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the
Company of any of its securities. Except as disclosed on
Schedule 12.3, 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 Company outstanding, under anti-dilution
or other similar provisions contained in or affecting any such
securities.
15
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid
and nonassessable; and (ii) were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
(d) The rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and the Warrant
Shares have been duly and validly reserved for issuance. When
issued in compliance with the provisions of this Agreement and
the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject
to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws
at the time a transfer is proposed.
12.4 Authorization; Binding Obligations.
All actions on the Company's and its Subsidiaries' part (including
their respective officers and directors) necessary for the
authorization of this Agreement and the Ancillary Agreements, the
performance of all of its and its Subsidiaries' obligations hereunder
and under the Ancillary Agreements on the Closing Date and, the
authorization, issuance and delivery of the 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 each of the Company's and its
Subsidiaries' valid and binding obligations enforceable against the
Company and its Subsidiary 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) general principles of equity that restrict the availability of
equitable or legal remedies.
(c) The issuance of the Notes and the subsequent conversion of the
Minimum Borrowing Note and the Secured Convertible Term Note
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.
16
12.5 Liabilities.
Neither the Company nor any of its Subsidiaries has any liabilities,
except current liabilities incurred in the ordinary course of business
and liabilities disclosed in any Exchange Act Filings.
12.6 Agreements; Action.
Except as set forth on Schedule 12.6 or as disclosed in any Exchange
Act Filings:
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which
the Company or any of its Subsidiaries is a party or to its
knowledge by which it is bound which may involve: (i) obligations
(contingent or otherwise) of, or payments to, the Company or any
of its Subsidiaries in excess of US$50,000 (other than obligations
of, or payments to, the Company or any of its Subsidiaries arising
from purchase or sale agreements entered into in the ordinary
course of business); or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or from 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 the Company's or any
of its Subsidiaries' products or services; or (iv) indemnification
by the Company or any of its Subsidiaries with respect to
infringements of proprietary rights.
(b) Since December 31, 2005 (the "Balance Sheet Date") neither the
Company nor any of its Subsidiaries has: (i) declared or paid any
dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock; (ii)
incurred any indebtedness for money borrowed or any other
liabilities (other than ordinary course obligations) individually
in excess of US$50,000 or, in the case of indebtedness and/or
liabilities individually less than US$50,000, in excess of
US$100,000 in the aggregate; (iii) made any loans or advances to
any Person not in excess, individually or in the aggregate, of
US$100,000, other than ordinary advances for travel expenses;
or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its Inventory in the
ordinary course of business.
(c) For the purposes of subsections (a) and (b) of this Section 12.6,
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.
(d) the Company maintains disclosure controls and procedures
("Disclosure Controls") designed to ensure that information
required to be disclosed by the Company 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.
17
(e) the Company 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:
(i) transactions are executed in accordance with management's
general or specific authorization;
(ii) unauthorized acquisition, use, or disposition of the
Company's assets that could have a material effect on the
financial statements are prevented or timely detected;
(iii) 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
Company's management and board of directors;
(iv) transactions are recorded as necessary to maintain
accountability for assets; and
(v) the recorded accountability for assets is compared with
the existing assets at reasonable intervals, and
appropriate action is taken with respect to any
differences.
(f) To the Company's knowledge, there is no material weakness in any of
the Company's Disclosure Controls or Financial Reporting Controls
that is required to be disclosed in any of the Exchange Act
Filings, except as so disclosed.
12.7 Obligations to Related Parties.
Except as described in the Company's SEC filings or set forth on
Schedule 12.7, neither the Company nor any of its Subsidiaries has
any obligations to their respective officers, directors, stockholders
or employees other than:
(a) for payment of salary for services rendered and for bonus payments;
(b) reimbursement for reasonable expenses incurred on its or its
Subsidiaries' behalf;
(c) 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
18
(d) obligations listed in its and each of its Subsidiary's financial
statements or disclosed in any of the Company's Exchange Act
Filings.
Except as described in the Company's SEC filings or set forth on
Schedule 12.7, none of the Company's officers, directors or, to the
best of its knowledge, key employees or 10% or greater stockholders,
any of its Subsidiaries or any members of their immediate families,
are indebted to it or any of its Subsidiaries, individually or in the
aggregate, in excess of US$60,000 or have any direct or indirect
ownership interest in any Person with which the Company or any of its
Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, other than passive
investments in publicly traded companies (representing less than one
percent (1%) of the Company). Except as described in the Company's SEC
filings or set forth on Schedule 12.7, none of its officers, directors
or 10% or greater stockholders, or any member of their immediate
families, is, directly or indirectly, interested in any material
contract with the Company or any of its Subsidiaries and no agreements,
understandings or proposed transactions are contemplated between the
Company or any of its Subsidiaries and any such Person. Except as
described in the Company's SEC filings or set forth on Schedule 12.7,
neither the Company nor any of its Subsidiaries is a guarantor or
indemnitor of any indebtedness of any other Person.
12.8 Changes.
Since December 31, 2005, except as disclosed in any Exchange Act Filing
or in any Schedule to this Agreement or to any of the Ancillary
Agreements, there has not been:
(a) any change in the Company's 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;
(b) any resignation or termination of any of the Company's or its
Subsidiaries' officers, key employees or groups of employees;
(c) any material change, except in the ordinary course of business,
in the Company's or any of its Subsidiaries' contingent obligations
by way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) 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;
(e) any waiver by the Company's or any of its Subsidiaries of a
valuable right or of a material debt owed to it;
(f) any direct or indirect material loans made by the Company 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;
19
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) any declaration or payment of any dividend or other distribution of
the Company's or any of its Subsidiaries' assets;
(i) any labor organization activity related to the Company or any of
its Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or guaranteed
by the Company or any of its Subsidiaries, except those for
immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(k) any sale, assignment or transfer of any Intellectual Property or
other intangible assets;
(l) any change in any material agreement to which the Company or any
of its Subsidiaries is a party or by which either the Company 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;
(m) 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
(n) any arrangement or commitment by the Company or any of its
Subsidiaries to do any of the acts described in subsection (a)
through (m) of this Section 12.8.
12.9 Title to Properties and Assets; Liens, Etc.
Except as set forth on Schedule 12.9, the Company 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 the Company or any of its Subsidiaries are
in good operating condition and repair and are reasonably fit and
usable for the purposes for which they are being used. Except as set
forth on Schedule 12.9, the Company and each of its Subsidiaries
is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.
12.10 Intellectual Property.
(a) The Company 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 their
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 Company's or any of its Subsidiary's Intellectual
Property, nor is its 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.
20
(b) Neither the Company nor any of its Subsidiaries has received
any communications alleging that the Company or any of its
Subsidiaries has violated any of the Intellectual Property or
other proprietary rights of any other Person, nor is the Company
or any of its Subsidiaries aware of any basis therefor.
(c) Neither the Company 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.
12.11 Compliance with Other Instruments.
Neither the Company 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 hereto and thereto, will not, with or without the passage
of time or giving of notice, result in any such material violation,
or be in conflict with or constitute a default under any such term
or provision, or result in the creation of any Lien upon any of its
or any of its Subsidiary's properties or assets or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to it or any of its
Subsidiaries, their businesses or operations or any of their assets
or properties.
12.12 Litigation.
Except as set forth on Schedule 12.12, there is no action, suit,
proceeding or investigation pending or, to its knowledge, currently
threatened against the Company or any of its Subsidiaries that
prevents the Company or any of its Subsidiaries from entering into
this Agreement or the Ancillary Agreements, or from consummating
the transactions contemplated hereby or thereby, or which has had,
or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect, or could result in any
change in 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 the Company 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 the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to
initiate.
21
12.13 Tax Returns and Payments.
The Company and each of its Subsidiaries has timely filed all tax
returns (federal, state, provincial 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 the
Company and each of its Subsidiaries on or before the Closing
Date, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on Schedule 12.13, neither the
Company nor any of its Subsidiaries has been advised:
(a) that any of its returns, federal, state, provincial or other,
have been or are being audited as of the date hereof; or
(b) of any adjustment, deficiency, assessment or court decision in
respect of its federal, state, provincial or other taxes.
Neither the Company 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.
12.14 Employees.
Except as set forth on Schedule 12.14, neither the Company nor any of
its Subsidiaries has any collective bargaining agreements with any of
its employees. There is no labor union organizing activity pending or,
to its knowledge, threatened with respect to it or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or
on Schedule 12.14, neither the Company nor any of its Subsidiaries
is a party to or bound by any currently effective employment contract,
deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation
plan or agreement for its executive officers. To its knowledge,
none of its or any of its Subsidiaries' employees, nor any consultant
with whom the Company or any of its Subsidiaries has contracted, is in
material 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, the
Company 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 the Company 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 the Company nor any
of its Subsidiaries has received any notice alleging that any
such violation has occurred. Except for employees who have a
current effective employment agreement with it or any of its
Subsidiaries, none of its or any of its Subsidiaries' employees has
been granted the right to continued employment by the Company 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 the Company nor any of its
Subsidiaries is aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with it
or any of its Subsidiaries, as applicable, nor does the Company or
any of its Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of employees.
22
12.15 Registration Rights and Voting Rights.
Except as set forth on Schedule 12.15 and except as disclosed in
Exchange Act Filings, neither the Company nor any of its Subsidiaries
is presently under any obligation, and neither the Company 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 12.15 and except as disclosed in Exchange Act Filings, to its
knowledge, none of its or any of its Subsidiaries' stockholders has
entered into any agreement with respect to its or any of its
Subsidiaries' voting of equity securities.
12.16 Compliance with Laws; Permits.
Neither the Company nor any of its Subsidiaries is in violation,
as applicable, of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, any applicable
Canadian corporate governance law 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. The Company and each of its Subsidiaries has
all material franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by
it, the lack of which could, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
12.17 Environmental and Safety Laws.
Neither the Company 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 12.17, no Hazardous Materials (as defined below) are used
or have been used, stored, or disposed of by the Company 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:
(a) 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
23
(b) any petroleum products or nuclear materials.
12.18 Valid Offering.
Assuming the accuracy of the representations and warranties of
Laurus contained in this Agreement and the securities are issued as
contemplated by 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.
12.19 Full Disclosure.
The Company and each of its Subsidiaries has provided Laurus with
all information requested by Laurus in connection with Laurus'
decision to enter into this Agreement. Neither this Agreement, the
Ancillary Agreements nor the exhibits and schedules hereto and
thereto nor any other document delivered by the Company or any of
its Subsidiaries to Laurus or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit
to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which
they are made, not misleading., Any financial projections and other
estimates provided to Laurus by the Company 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.
12.20 Insurance.
The Company and each of its Subsidiaries has general commercial,
product liability, fire and casualty insurance policies with coverage
which it believes are customary for companies similarly situated to it
and its Subsidiaries in the same or similar business.
12.21 SEC Reports and Financial Statements.
Except as set forth on Schedule 12.21, the Company and each of its
Subsidiaries has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. The
Company has made available or furnished Laurus with copies of:
(i) its Annual Report on Form 10-KSB for its fiscal years ended
July 31, 2005; and (ii) its Quarterly Reports on Form 10-QSB for
its fiscal quarters ended October 31, 2005, and the Form 8-K
filings which it has made during
24
its fiscal year 2006 to date (collectively, the "SEC Reports").
Except as set forth on Schedule 12.21, each SEC Report was, at
the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports,
nor the financial statements (and the notes thereto) included in
the SEC Reports, as of their respective filing dates, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading. Such financial statements have
been prepared in accordance with 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 Company and its
Subsidiaries, on a consolidated basis, as of, and for, the periods
presented in each such SEC Report.
12.22 Listing.
The Company'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 Company shall do all things necessary for the continuation of
such listing or quotation, as applicable. The Company 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.
12.23 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.
12.24 Stop Transfer.
The Securities are restricted securities as of the date of this
Agreement. Neither the Company 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 law.
25
12.25 Dilution.
It specifically acknowledges that the Company's obligation to issue
the shares of Common Stock upon conversion of the Minimum Borrowing
Note and the Secured Convertible Term Note and exercise
of the Warrants is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.
12.26 Patriot Act.
It certifies that, to the best of its knowledge, neither the Company
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 the Company
or any of its Subsidiaries will pay or will contribute to Laurus has
been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or
payment by the Company 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 or the Canadian
Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
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.
12.27 Company Name; Locations of Offices, Records and Collateral.
Schedule 12.27 sets forth the Company's name as it appears in
official filings in the state of its organization, the type of
entity of the Company, the organizational identification number
issued by the Company's state of organization or a statement that
no such number has been issued, the Company's state of organization,
and the location of the 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 12.27, such locations have not changed during the preceding
twelve months. As of the Closing Date, during the prior five years,
except as set forth in Schedule 12.27 or described in its Exchange
Act filings, the Company has not been known as or conducted business
in any other name. The Company is incorporated in Delaware.
26
12.28 ERISA.
To the extent subject thereto, the Company, based upon the Employee
Retirement Income Security Act of 1974 ("ERISA"), and the regulations
and published interpretations thereunder: (i) neither the Company
nor any of its Subsidiaries, to the extent subject thereto, has
engaged in any Prohibited Transactions (as defined in Section 406
of ERISA and Section 4975 of the Code); (ii) to the extent subject
thereto, the Company and each of its Subsidiaries has met all
applicable minimum funding requirements under Section 302 of ERISA
in respect of its plans; (iii) neither the Company 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 the Company 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 the Company 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.
..
12.29 The Company and its Subsidiaries maintains or contributes to any
Canadian Pension Plan.
Article 13
COVENANTS.
The Company covenants and agrees with Laurus as follows:
13.1 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 Company, or of the suspension
of the qualification of the Common Stock of the Companyfor offering
or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
13.2 Listing.
It shall promptly secure the listing or quotation, as applicable, of
the shares of Common Stock issuable upon conversion of the Minimum
Borrowing Note and the Secured Convertible Term Note 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 Companyshall maintain the
listing or quotation, as applicable, of its Common Stock on the
Principal Market, and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws
or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable.
27
13.3 Reserved.
13.4 Reporting Requirements.
It shall timely file with the SEC all reports required to be filed
pursuant to the Exchange Act and refrain from terminating its status
as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would
permit such termination until at least such time as this Agreement
terminates.
13.5 Use of Funds.
It shall use the proceeds of the Loans for general working capital
purposes and to fund an inter-company loan to the Eligible Subsidiary
and to acquire Infinity Technologies Inc. only and to pay off a debt
to Dutchess.
13.6 Access to Facilities.
It shall, and shall cause each of its Subsidiaries to, permit any
representatives designated by Laurus (or any successor of Laurus),
upon reasonable notice and during normal business hours at Company's
expense, and accompanied by a representative of the Company(provided
that no such prior notice shall be required to be given and no such
representative shall be required to accompany Laurus in the event
Laurus believes such access is necessary to preserve or protect the
Collateral or following the occurrence and during the continuance
of an Event of Default), to:
(a) visit and inspect any of its or any such Subsidiary's properties;
(b) 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
(c) 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 the Company 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 and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ laws, under the
federal securities laws.
28
13.7 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.
13.8 Insurance.
It shall bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. The Company and each of its
Subsidiaries 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
its Subsidiaries; and it and its Subsidiaries shall maintain, with
financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent
and in the manner which it and/or such Subsidiary thereof reasonably
believes is customary for companies in similar business similarly
situated as it and its Subsidiaries and to the extent available on
commercially reasonable terms. The Company and each of its
Subsidiaries will cause Laurus to be named as first loss payee or
additional insured on all of the policies of insurance relating 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,
the Company and each of its Subsidiaries shall (i) keep all their
insurable properties and properties in which they have 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 or the respective Subsidiary's
including business interruption insurance; (ii) maintain a bond in
such amounts as is customary in the case of companies engaged in
businesses similar to it and its Subsidiaries' insuring against
larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others
at any time have access to its or any of its Subsidiaries 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
29
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 the Company or any of its Subsidiaries is
engaged in business; and (v) furnish Laurus with (x) copies of all
policies and evidence of the maintenance of such policies at least
thirty (30) days before any expiration date, (y) excepting its and
its Subsidiaries' workers' compensation policy, endorsements to such
policies naming Laurus as "co-insured" or "additional insured" and
appropriate loss payable endorsements in form and substance
satisfactory to Laurus, naming Laurus as 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 the Company or any
of its Subsidiaries 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 the
Company or any of its Subsidiaries and Laurus jointly. If any
insurance losses are paid by check, draft or other instrument payable
to the Company and/or any of its Subsidiaries and Laurus jointly,
Laurus may endorse, as applicable, the Company's and/or any of its
Subsidiaries' name thereon and do such other things as Laurus may
deem advisable to reduce the same to cash. Laurus is hereby authorized
to adjust and compromise claims. All loss recoveries received by
Laurus upon any such insurance may be applied to the Obligations,
in such order as Laurus in its sole discretion shall determine or
shall otherwise be delivered to the Companyfor the benefit of the
applicable Company and/or its Subsidiaries. Any surplus shall be
paid by Laurus to the Companyfor the benefit of the applicable
Company and/or its Subsidiaries, or applied as may be otherwise
required by law. Any deficiency thereon shall be paid, as
applicable, by Companies and their Subsidiaries to Laurus, on demand.
13.9 Intellectual Property.
It shall, and shall cause each of its Subsidiaries to, maintain in
full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct
of its business.
13.10 Properties.
It shall, and shall cause each of its Subsidiaries to, keep its
properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto;
and it shall, and shall cause each of its Subsidiaries to, at all times
comply with each provision of all leases to which it is a party or
under which it occupies property if the breach of such provision could
reasonably be expected to have a Material Adverse Effect.
30
13.11 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, the
Company and its Subsidiaries may disclose Laurus' identity and the
terms of this Agreement to its current and prospective debt and equity
financing sources.
13.12 Required Approvals.
It shall not, and shall not permit any of its Subsidiaries to, without
the prior written consent of Laurus, (i) create, incur, assume or
suffer to exist any indebtedness (exclusive of trade debt) whether
secured or unsecured other than the Company's indebtedness to Laurus
and as set forth on Schedule 13.12 attached hereto and made a part
hereof; (ii) cancel any debt owing to it in excess of US$50,000 in the
aggregate during any 12 month period; (iii) assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except the endorsement of
negotiable instruments by it or its Subsidiaries for deposit or
collection or similar transactions in the ordinary course of business;
(iv) directly or indirectly declare, pay or make any dividend or
distribution on any class of its Stock or apply any of its funds,
property or assets to the purchase, redemption or other retirement of
any of its or its Subsidiaries' Stock outstanding on the date hereof,
or issue any preferred stock; (v) purchase or hold beneficially any
Stock (except stock issued pursuant to the Vital Baby Transaction, upon
the terms and subject to the conditions disclosed to Laurus on the
date hereof and set forth on the Company's 8-K filing dated
July 5, 2005) 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 US$10,000,
and (z) loans to its existing Subsidiaries so long as such
Subsidiaries are designated as either a co-borrower hereunder or
has entered into such guaranty and security documentation required
by Laurus, including, without limitation, to grant to Laurus a
first priority perfected security interest in substantially all
of such Subsidiary's assets to secure the Obligations; (vi) create
or permit to exist any Subsidiary, other than any Subsidiary in
existence on the date hereof and listed in Schedule 12.2 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
31
permit any other Person to consolidate with or merge with it,
unless (1) the 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) the
Company shall have provided Laurus copies of all documentation
relating to such merger or consolidation and (4) the 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 or any of its
Subsidiaries' 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,
except in the ordinary course on arms-length terms; (xiii) ▇▇▇▇
Accounts under any name except the present name of the Company and
its other trade names; or (xiv) sell, lease, transfer or otherwise
dispose of any of its properties or assets, or any of the properties
or assets of its Subsidiaries, except for (1) routine leases in the
ordinary course of business; (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.
13.13 Reissuance of Securities.
The Company shall reissue certificates representing the Securities
without the legends set forth in Article 39 below at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act if the holder
otherwise complies with Rule 144(k); or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with Laurus in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and
its counsel receive the representations and information necessary
for a Rule 144 sale from Laurus and its broker.
32
13.14 Opinion.
On the Closing Date, it shall deliver to Laurus an opinion acceptable
to Laurus from the Company's legal counsel. The Company will
provide such other legal opinions in the future as are reasonably
necessary for the conversion of the Minimum Borrowing Note and the
Secured Convertible Term Note and the exercise of the
Warrants if Laurus provides the appropriate documentation and
representations to support such legal opinions.
13.15 Legal Name, etc.
It shall not, without providing Laurus with 30 days prior written
notice, change (i) its name as it appears in the official filings in
the jurisdiction of its organization, (ii) the type of legal entity
it is, (iii) its organization identification number, if any, issued by
its jurisdiction of organization, (iv) its jurisdiction of organization
or (v) amend its certificate of incorporation, by-laws or other
organizational document.
13.16 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.
13.17 Notices.
The Company and each of its Subsidiaries shall promptly inform Laurus
in writing of: (i) to its knowledge, 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) to the Company's knowledge, any Event of Default
or Default in contracts entered into by the Company or its Subsidiaries
which could reasonably be expected to have a Material Adverse Effect;
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 the Company or any of its
Subsidiaries is a party or by which the Company 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.
13.18 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.
33
13.19 Offering Restrictions.
Except as previously disclosed in the SEC Reports or in the Exchange
Act Filings, or registered or restricted stock or stock options granted
to its employees, directors or consultants, neither the Company nor any
of its Subsidiaries shall, prior to the full repayment or conversion of
the Minimum Borrowing Note and the Secured Convertible Term Note
(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).
13.20 Authorization and Reservation of Shares.
The Company shall at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide for the
conversion of the Minimum Borrowing Note and the Secured Convertible
Term Note and exercise of the Warrants.
13.21 Financing Right of First Refusal.
(a) It hereby grants to Laurus a right of first refusal for two years
from the date of this Agreement to provide any Additional Financing
(as defined below) to be issued by the 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"), the Company shall
notify Laurus of such Additional Financing. In connection
therewith, the Company shall submit a fully negotiated term sheet,
substantially in final form (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 the Company 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 no less favorable to the
Additional Financing Parties than those outlined in Proposed
Term Sheet. Laurus shall deliver to the Company the Laurus
Term Sheet within three (3) 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 the foregoing, the Company shall not be
obligated to enter into any Additional Financing with Laurus or
any third party whether or not Laurus exercises the right of
first refusal, but may instead elect not to consummate any such
Additional Financing.
34
(b) 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.
13.22 Additional Investment.
It agrees and acknowledges that Laurus shall have the right (at its
sole option), on or prior to the date which is 270 calendar days
following the Closing Date, to provide to the Company additional
financing in an aggregate principal amount of up to US$2,200,000 on
the same terms and conditions (including, without limitation, the same
interest rate, the Fixed Conversion Price (as defined in each Note)
then in effect, proportionate warrant coverage (at the same exercise
prices, a proportionate amortization schedule, etc.) set forth in this
Agreement and the Ancillary Agreements. Laurus will notify the Company
in writing fifteen (15) days prior to issuing additional financing
pursuant to this section 13.22.
Article 14
FURTHER ASSURANCES.
At any time and from time to time, upon the written request of Laurus
and at the sole expense of Company, the 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.
Article 15
REPRESENTATIONS, WARRANTIES AND COVENANTS OF LAURUS.
Laurus hereby represents, warrants and covenants to the Company
as follows:
15.1 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 and during the term of this
Agreement, 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.
35
15.2 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 and Warrants to be issued to it
under this Agreement and the Securities acquired by it upon the
conversion Minimum Borrowing Note and the Secured Convertible Term
of the Note and warrants.
15.3 Laurus Bears Economic Risk.
Laurus has substantial experience in evaluating and investing in
private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and
risks of its investment in the Company and has the capacity to protect
its own interests. Laurus will 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. Laurus acknowledges that the
investment contemplated by this Agreement and the Ancillary Agreements
is speculative and involves a high degree of risk.
15.4 Investment for Own Account.
Laurus is acquiring the securities as a principal for its own account
and not with a view to or for distributing or reselling such securities
or any part thereof, has no present intention of distributing any of
such securities and has no arrangement or understanding with any other
persons regarding the distribution of such securities. Laurus is
acquiring the securities hereunder in the ordinary course of its
business. Laurus does not have any agreement or understanding,
directly or indirectly, with any entity or person to distribute
any of the securities.
15.5 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.
15.6 Accredited Investor.
Laurus represents that it is an accredited investor within the
meaning of Regulation D under the Securities Act. Laurus is not
required to be registered as a broker-dealer under Section 15 of
the Exchange Act.
36
15.7 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 Company's Common Stock during the term of this Agreement or
for as long as the Minimum Borrowing Note shall be outstanding,
whichever is longer.
15.8 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 the
Company to the extent within Laurus' control, shall cause Laurus to
be in violation of the United States Bank Secrecy Act, the United
States International Money Laundering Control Act of 1986 or the
United States International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001 or the Canadian Proceeds of
Crime (Money Laundering) and Terrorist Financing Act. Laurus shall
promptly notify the Company if any of these representations ceases
to be true and accurate regarding Laurus. Laurus agrees to provide
the Company any additional information regarding Laurus that the
Company deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities.
Laurus understands and agrees that if at any time it is discovered
that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money
laundering similar activities, Laurus may undertake appropriate
actions to ensure compliance with applicable law or regulation,
including but not limited to segregation and/or redemption of Laurus'
investment in the Company. Laurus further understands that the
Company may release information about Laurus and, if applicable,
any underlying beneficial owners, to proper authorities if the
Company, in its sole discretion, determines that it is in the best
interests of the Company in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
15.9 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 the Company (and/or Subsidiaries or
Affiliates of the Company), Laurus shall not acquire stock in the
Company (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 Company, or otherwise, and such options,
37
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 the 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 the
Company upon the earlier to occur of either (a) the Company'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 Minimum Borrowing
Note and the Secured Convertible Term Note).
15.10 Reserved.
15.11 Laurus acknowledges that the Company has discussed its Vital Baby
Transaction with Laurus and the transaction as contemplated by the
Company will not violate this Agreement or the Ancillary agreements.
Additionally, Laurus waives all notice provisions relating to the
Vital Baby Transaction and by entering into this Agreement acknowledges
that the Vital Baby Transaction will not cause an Event of Default
or other breach of this Agreement of the Ancillary Agreements.
15.12 The execution, delivery and performance of this Agreement by Laurus and
the consummation by Laurus of the transactions contemplated thereby and
hereby do not and will not (i) violate any provision of Laurus' charter
or organizational documents, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage,
deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which Laurus is a party or by which
Laurus' respective properties or assets are bound, or (iii) result
in a violation of any federal, state, local or foreign statute, rule,
regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to Laurus or by which any
property or asset of Laurus is bound or affected, except, in all cases,
other than violations pursuant to clauses (i) or (iii) (with respect
to federal and state securities laws) above, except, for such conflicts,
defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, materially
and adversely affect Laurus' ability to perform its obligations under
this Agreement.
15.13 Laurus understands that the securities issued pursuant to this Agreement
and the Ancillary Agreements must be held as required by applicable
law unless such securities are registered under the Securities Act or
an exemption from registration is available. Laurus acknowledges that
it is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act
("Rule 144"), and that Laurus has been advised that Rule 144 permits
resales only under certain circumstances. Laurus understands that to
the extent that Rule 144 is not available, Laurus will be unable to
sell any securities without either registration under the Securities
Act or the existence of another exemption from such registration
requirement.
38
15.14 Laurus understands that the securities are being offered and sold in
reliance on a transactional exemption from the registration requirements
of federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Laurus set forth herein in order
to determine the applicability of such exemptions and the suitability
of Laurus to acquire the securities.
15.15 Laurus has not employed any broker or finder or incurred any liability
for any brokerage or investment banking fees, commissions, finders'
structuring fees, financial advisory fees or other similar fees in
connection with this Agreement or the Ancillary Agreements.
15.16 Laurus is not purchasing the securities as a result of any advertisement,
article, notice or other communication regarding the securities published
in any newspaper, magazine or similar media or broadcast over television
or radio or presented at any seminar or any other general solicitation or
general advertisement.
15.17 Laurus will comply with Regulation M under the Exchange Act.
Article 16
POWER OF ATTORNEY.
The Company hereby appoints Laurus as the Company's attorney, with
power to: (i) endorse the Company's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or
security that come into Laurus' possession consistent with this
Agreement and the Ancillary Agreements; (ii) sign the 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 relating to any Accounts, verifications of Account
and notices to or from Account Debtors; (iii) verify the validity,
amount or any other matter relating to any Account by mail,
telephone, telegraph or otherwise with Account Debtors, however
Laurus will notify the Company in writing prior to contacting any
of its customers or clients and will use its best efforts to
maintain the Company's goodwill with its customers and clients;
(iv) do all things reasonably 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 the Company's mail to an
address designated by Laurus, and to receive and open mail addressed
to the Company however any mail not relating to the Accounts will
immediately be forwarded to the Company. 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 until the Obligations have been fully
satisfied or the Agreement terminates, whichever is later.
39
Article 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
upon written notice to the Company. The termination of the Agreement
shall not affect any of Laurus' rights hereunder or any Ancillary
Agreement and the provisions hereof and thereof shall continue to be
fully operative until all transactions entered into, rights or
interests created and the Obligations have been irrevocably disposed
of, concluded or liquidated. Notwithstanding the foregoing, Laurus
shall release its security interests at any time after thirty (30) days
notice upon irrevocable payment to it of all Obligations if the
Company shall have (i) provided Laurus with an executed release of
any and all claims which the 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) five percent
(5.0%) of the Total Investment Amount if such payment occurs prior
to the first anniversary of the Closing Date, (2) four percent
(4.0%) of the Total Investment Amount if such payment occurs on or
after the first anniversary of the Closing Date and prior to the
second anniversary of the Closing Date and (3) three percent
(3.0%) of the Total Investment Amount if such termination occurs
thereafter during the Term; such fee being intended to compensate
Laurus for its costs and expenses incurred in initially approving
this Agreement or extending same. Such early payment fee shall be
due and payable jointly and severally by the Company to Laurus
upon termination by acceleration of this Agreement by Laurus due
to the occurrence and continuance of an Event of Default.
Article 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 the 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 the
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.
40
Article 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 three (3) days following the date upon which any
such payment was due;
(b) failure by the Company or any of its Subsidiaries to pay any taxes
when due unless such taxes are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves
have been provided on the Company's and/or such Subsidiary's books;
(c) failure to perform under, and/or committing any breach of, in any
material respect, this Agreement or any covenant contained
herein, which failure or breach shall continue without remedy
for a period of fifteen (15) days after the occurrence thereof;
(d) any representation, warranty or statement made by the Company or
any of its Subsidiaries hereunder, in any Ancillary Agreement, any
certificate, statement or document delivered pursuant to the
terms hereof, or in connection with the transactions contemplated
by this Agreement should prove to be false or misleading in any
material respect on the date as of which made or deemed made;
(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 the Company or any
of its Subsidiaries beyond the period of grace (if any), the
effect of which default is to cause, or permit the holder or
holders of such indebtedness or beneficiary or beneficiaries of
such contingent obligation to cause, such indebtedness to become
due prior to its stated maturity or such contingent obligation to
become payable;
(f) attachments or levies in excess of US$50,000 in the aggregate are
made upon the Company's assets or a judgment is rendered against
the Company's property involving a liability of more than
US$50,000 which shall not have been vacated, discharged, stayed
or bonded within thirty (30) days from the entry thereof;
(g) any change in the 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;
41
(i) the Company or any of its Subsidiaries shall (i) apply for, consent
to or suffer to exist the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) make
a general assignment for the benefit of creditors, (iii) commence
a voluntary case under the Canadian federal (including without
limitation, the Bankruptcy and Insolvency Act (Canada) or the
Company Creditors Arrangement Act) bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to without
challenge within ten (10) days of the filing thereof, or failure
to have dismissed within thirty (30) days, any petition filed
against it in any involuntary case under such bankruptcy laws,
or (vii) take any action for the purpose of effecting any of the
foregoing;
(j) the Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable, to pay its debts as they become
due or cease operations of its present business;
(k) the Company or any of its Subsidiaries directly or indirectly
sells, assigns, transfers, conveys, or suffers or permits to occur
any sale, assignment, transfer or conveyance of any assets of the
Company or any interest therein, except as permitted herein;
(l) any "Person" or "group" (as such terms are defined in Sections
13(d) and 14(d) of the Exchange Act, as in effect on the date
hereof), other than the Holder, is or becomes the "beneficial
owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange
Act), directly or indirectly, of 35% or more on a fully diluted
basis of the then outstanding voting equity interest of the
Company (other than a "Person" or "group" that beneficially
owns 35% or more of such outstanding voting equity interests of
the Company on the date hereof) (ii) the Board of Directors of
the Company shall cease to consist of a majority of the Board of
Directors of the Company 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 Company
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 the Company or any of its Subsidiaries or any
executive officer of the Company or any of its Subsidiaries
under any felony criminal statute, or commencement of criminal
or civil proceeding against the Company or any of its Subsidiaries
or any executive officer of the Company or any of its Subsidiaries
pursuant to which statute or proceeding penalties or remedies
sought or available include forfeiture of any of the property of
the Company or any of its Subsidiaries other than routine
litigation in the ordinary course of business;
(n) an Event of Default (or similar term) shall occur under and as
defined in any Note or in any other Ancillary Agreement;
42
(o) the Company or any of its Subsidiaries shall breach any term or
provision of any Ancillary Agreement to which it is a party, in
any material respect which breach is not cured within any
applicable cure or grace period provided in respect thereof
(if any);
(p) any proceeding shall be brought to challenge the validity,
binding effect of any Ancillary Agreement or any Ancillary
Agreement ceases to be a valid, binding and enforceable
obligation of the Company or any of its Subsidiaries (to the
extent such Persons are a party thereto);
(q) an SEC stop trade order or Principal Market trading suspension
of the Common Stock shall be in effect for five (5) consecutive
days or five (5) days during a period of ten (10) consecutive
days, excluding in all cases a suspension of all trading on a
Principal Market, provided that the Company shall not have
been able to cure such trading suspension within thirty (30)
days of the notice thereof or list the Common Stock on another
Principal Market within sixty (60) days of such notice;
(r) The Company's failure to deliver Common Stock to Laurus pursuant
to and in the form required by the Minimum Borrowing Note and the
Secured Convertible Term Note and this Agreement, if
such failure to deliver Common Stock shall not be cured within
two (2) Business Days or the Company is required to issue a
replacement Note to Laurus and the Company shall fail to deliver
such replacement Note within seven (7) Business Days.
Article 20
REMEDIES.
(a) 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. To the extent applicable, both before and after the
occurrence of an Event of Default, 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, the PPSA 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, collect, demand, ▇▇▇
on, enforce, recover and receive the Collateral, give valid and
binding receipts and discharges therefor and in respect thereof,
to require the 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 the 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
the Company, the Company agrees not to charge Laurus for
storage thereof). 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
43
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 the Company at
Company'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. The
proceeds of sale shall be applied first to all costs and expenses
of sale, including operating the Company's accounts, preparing
and enforcing this Agreement, taking and maintaining custody of,
preserving, repairing, possessing, preparing for disposition and
disposing of Collateral and enforcing or collecting indebtedness
and all such costs, charges and expenses, including legal fees,
and second to the payment (in whatever order Laurus elects) of all
Obligations. After the indefeasible payment and satisfaction in
full of all of the Obligations, and after the payment by Laurus of
any other amount required by any provision of law, including
Section 9 608(a)(1) of the UCC and the PPSA (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 the Company (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 Company shall remain liable to
Laurus for any deficiency. In addition, the Company shall pay
Laurus a liquidation fee ("Liquidation Fee") in the amount of five
percent (5%) of the actual amount collected in respect of each
Account outstanding at any time during a Liquidation Period".
For purposes hereof, "Liquidation Period" means a period:
(i) beginning on the earliest date of (x) an event referred to
in Section Article 19(i) or (j), or (y) the cessation of the
Company's business; and (ii) ending on the date on which Laurus
has actually received all Obligations due and owing it under this
Agreement and the Ancillary Agreements. The Liquidation Fee
shall be paid on the date on which Laurus collects the applicable
Account by deduction from the proceeds thereof. The 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 the 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.
(b) Upon the occurrence of and during the continuance of any Event of
Default, Laurus may appoint or reappoint by instrument in writing,
any person or persons, whether an officer or officers or an
employee or employees of Laurus or not, to be an interim receiver,
receiver or receivers (hereinafter called a "Receiver", which term
when used herein shall include a receiver and manager) of any
Collateral of the Company (including any interest, income or
profits therefrom) and may remove any Receiver so appointed and
appoint another in his/her/its stead. Any such Receiver shall,
so far as concerns responsibility for his/her/its acts, be deemed
the agent of the Company and not Laurus, and Laurus shall not be
in any way responsible for any misconduct, negligence or
non-feasance on the part of any such Receiver or his/her/its
servants, agents or employees. Subject to the provisions of the
instrument appointing him/her/it, any such Receiver shall have
power to take possession of Collateral, to preserve Collateral
or its value, to carry on or concur in carrying on all or any
part of the business of the Company and to sell, lease, license
or otherwise dispose of or concur in selling, leasing, licensing
or otherwise disposing of Collateral. To facilitate the foregoing
44
powers, any such Receiver may, to the exclusion of all others,
including the Company, enter upon, use and occupy all premises
owned or occupied by the Company wherein Collateral may be
situate, maintain Collateral upon such premises, borrow money
on a secured or unsecured basis and use Collateral directly in
carrying on the Company's business or as security for loans or
advances to enable the Receiver to carry on the Company's
business or otherwise, as such Receiver shall, in its discretion,
determine. Except as may be otherwise directed by Laurus, all
money received from time to time by such Receiver in carrying out
his/her/its appointment shall be received in trust for and be
paid over to Laurus. Every such Receiver may, in the discretion
of Laurus, be vested with all or any of the rights and powers of
Laurus.
Article 21
WAIVERS.
To the full extent permitted by applicable law, the 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 the 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. the 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.
Article 22
EXPENSES.
The Company shall pay 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, 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 Company shall also pay all of Laurus' reasonable
fees, charges, out-of-pocket costs and expenses, including fees and
disbursements of counsel and appraisers, in connection with (a) the
preparation, execution and delivery of any waiver, any amendment
thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary
Agreements, (b) Laurus' obtaining performance of the Obligations
under this Agreement and any Ancillary Agreements, including, but
not limited to, the enforcement or defense of Laurus' security
interests, assignments of rights and Liens hereunder as valid
perfected security interests, (c) any attempt to inspect, verify,
protect, collect, sell, liquidate or otherwise dispose of any
Collateral, (d) any appraisals or re appraisals of any property
(real or personal) pledged to Laurus by the Company or any of
its Subsidiaries as Collateral for, or any other Person as security
for, the Obligations hereunder and (e) any consultations in
connection with any of the foregoing. The Company shall also pay
Laurus' customary bank charges for all bank services (including
wire transfers) performed or caused to be performed by Laurus for
45
the Company or any of its Subsidiaries at the Company's or such
Subsidiary's request or in connection with the 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 Company to Laurus shall be payable on demand and shall be
secured by the Collateral. If any tax by any Governmental
Authority is or may be imposed on or as a result of any transaction
between the 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 Company hereby indemnifies and holds Laurus
harmless in respect of such taxes, and the Company will repay to
Laurus the amount of any such taxes which shall be charged to the
Company' account upon written notice to the Company of the amount
and nature of the taxes; and until the Company shall furnish Laurus
with indemnity therefor (or supply Laurus with evidence satisfactory
to it that due provision for the payment thereof has been made),
Laurus may hold without interest any balance standing to the
Company's credit and Laurus shall retain its Liens in any and all
Collateral.
Article 23
ASSIGNMENT BY LAURUS.
Laurus may assign any or all of the Obligations together with any
or all of the security therefor to any Person. Any such assignee shall
succeed to all of Laurus' rights with respect thereto. Laurus shall
not be permitted to effect any such assignment to a competitor of the
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. The 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 the Company were directly indebted to such holder in the amount
of such participation.
Article 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 the Company and Laurus or delay
by Laurus in exercising the same, will not operate as a waiver; no
waiver by Laurus or the Company 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.
46
Article 25
APPLICATION OF PAYMENTS.
The 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 the Company's behalf and the 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.
Article 26
INDEMNITY.
The Company indemnifies and holds Laurus, and its respective
affiliates, employees, attorneys and agents (each, an "Indemnified
Person"), harmless from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses of
any kind or nature whatsoever (including reasonable attorneys' fees
and disbursements and other costs of investigation or defense,
including those incurred upon any appeal) which may be instituted or
asserted against or incurred by any such Indemnified Person as the
result of credit having been extended, suspended or terminated under
this Agreement or any of the Ancillary Agreements or with respect to
the execution, delivery, enforcement, performance and administration
of, or in any other way arising out of or relating to, this Agreement,
the Ancillary Agreements or any other documents or transactions
contemplated by or referred to herein or therein and any actions or
failures to act with respect to any of the foregoing, except to the
extent that any such indemnified liability is finally determined by
a court of competent jurisdiction to have resulted solely from such
Indemnified Person's gross negligence or willful misconduct. NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO THE 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.
47
Article 27
CURRENCY.
If for the purpose of obtaining judgment in any court it is necessary
to convert an amount due hereunder in the currency in which it is due
(the "Original Currency") into another currency (the "Second
Currency"), the rate of exchange applied shall be that at which,
in accordance with normal banking procedures, Laurus could purchase,
in the New York foreign exchange market, the Original Currency with
the Second Currency on the date two (2) Business Days preceding that
on which judgment is given. The Company agrees that its obligation
in respect of any Original Currency due from it to Laurus hereunder
shall, notwithstanding any judgment or payment in such other currency,
be discharged only to the extent that, on the Business Day following
the date Laurus receives payment of any sum so adjudged to be due
hereunder in the Second Currency. Laurus may, in accordance with
normal banking procedures, purchase, in the New York City foreign
exchange market, the Original Currency with the amount of the
Second Currency so paid; and if the amount of the Original Currency
so purchased or could have been so purchased is less than the
amount originally due in the Original Currency. The Company
agrees as a separate obligation and notwithstanding any such payment
or judgment to indemnify Laurus against such loss. The term "rate
of exchange" in this paragraph means the spot rate at which Laurus,
in accordance with normal practices, is able on the relevant date to
purchase the Original Currency with the Second Currency and includes
any premium and costs of exchange payable in connection with such
purchase.
Article 28
REVIVAL.
The Company further agree that to the extent the 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.
Article 29
NOTICES.
Any notice or request hereunder may be given to the Company, the
Company or Laurus at the respective addresses set forth below or as
may hereafter be specified in a notice designated as a change of
address under this Section. Any notice or request hereunder shall
be given by registered or certified mail, return receipt requested,
hand delivery, overnight mail or telecopy (confirmed by mail).
Notices and requests shall be, in the case of those by hand delivery,
deemed to have been given when delivered to any officer of the party
to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given three (3) Business Days after the
date when deposited in the mail or with the overnight mail carrier,
and, in the case of a telecopy, when confirmed.
48
Notices shall be provided as follows:
(a) If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier:(▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
(b) Laurus Master Fund, Ltd.c/o
M&C Corporate Services Limited
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(c) If to the Company: On The Go HealthCare, Inc.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ Business Law
▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and such other address as may be designated in writing hereafter
in accordance with this Section by such Person.
Article 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.
49
(b) THE 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 THE 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 THE 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.
THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN
ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH HEREIN
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 THE 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.
Article 31
JUDGMENT CURRENCY.
(a) If for the purpose of obtaining or enforcing judgment against one
or more of the Companies in any court in any jurisdiction it
becomes necessary to convert into any other currency (such other
currency being hereinafter in this Section referred to as the
"Judgment Currency") an amount due in US dollars under this
Security Agreement, the conversion shall be made at the Exchange
Rate prevailing on the business day immediately preceding:
(i) the date actual payment of the amount due, in the case
of any proceeding in the courts of New York or in the
courts of any other jurisdiction that will give effect
to such conversion being made on such date: or
(ii) the date on which the foreign court determines, in the
case of any proceeding in the courts of any other
jurisdiction (the date as of which such conversion
is made pursuant to this Article being hereinafter
referred to as the "Judgment Conversion Date")
50
(b) If in the case of any proceeding in the court of any jurisdiction
referred to in (a)(ii) above, there is a change in the Exchange
Rate prevailing between the Judgment Conversion Date and the date
of actual payment of the amount due, the applicable party (being
in the case of one or more Companies, the Company on a joint and
several basis) shall pay such adjusted amount as may be necessary
to ensure that the amount paid in the Judgment Currency, when
converted at the Exchange Rate prevailing on the date of payment,
will produce the amount of US dollars which could have been
purchased with the amount of Judgment Currency stipulated in the
judgment or judicial order at the Exchange Rate prevailing on the
Judgment Conversion Date.
(c) Any amount jointly and severally due from the Company under this
provision shall be due as a separate debt and shall not be affected
by judgment being obtained for any other amounts due under or
in respect of this Security Agreement.
Article 32
LIMITATION OF LIABILITY.
The Company acknowledges and understands that in order to assure
repayment of the Obligations hereunder Laurus may be required to
exercise any and all of Laurus' rights and remedies hereunder and
agrees that, except as limited by applicable law, neither Laurus
nor any of Laurus' agents shall be liable for acts taken or
omissions made in connection herewith or therewith except for
actual bad faith or wilful misconduct.
Article 33
ENTIRE UNDERSTANDING; MAXIMUM INTEREST.
This Agreement and the Ancillary Agreements contain the entire
understanding among the 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 the 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 Company to Laurus and thus refunded to the
Company.
51
Article 34
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.
Article 35
SURVIVAL.
The representations, warranties, covenants and agreements made
herein shall survive any investigation made by Laurus and the closing
of the transactions contemplated hereby to the extent provided therein.
All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant
hereto in connection with the transactions contemplated hereby shall
be deemed to be representations and warranties by the Company
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.
Article 36
CAPTIONS.
All captions are and shall be without substantive meaning or content
of any kind whatsoever.
Article 37
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.
Article 38
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.
52
Article 39
PUBLICITY.
The Company hereby authorizes Laurus to make appropriate announcements
of the financial arrangement entered into by and among the Company and
Laurus, including, without limitation, announcements which are commonly
known as tombstones, in such publications and to such selected parties
as Laurus shall in its sole and absolute discretion deem appropriate,
or as required by applicable law.
Article 40
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 the 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.
Article 41
LEGENDS.
The Securities shall bear legends as follows;
(a) The Minimum Borrowing Note and the Secured Convertible Term Note
shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Revolving Note shall bear substantially the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
(c) Any shares of Common Stock issued pursuant to conversion of the
Minimum Borrowing Note and the Secured Convertible Term Note
or exercise of the Warrants, shall bear a legend which shall
be in substantially the following form until such shares are
covered by an effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
53
(d) 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
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
54
IN WITNESS WHEREOF, the parties have executed this Security Agreement as of
the date first written above.
ON THE GO HEALTHCARE, INC.
Per:/s/▇▇▇▇▇▇ ▇▇▇▇
--------------------------
Name:▇▇▇▇▇▇ ▇▇▇▇
Title:CEO
LAURUS MASTER FUND, LTD.
By:/s/▇▇▇▇▇ Grin
-------------------------
Name:▇▇▇▇▇ Grin
Title: Director
55
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 Article 11(a).
"Accounts" means all "accounts", as such term is defined in the UCC and the
PPSA, 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 and the PPSA); (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
the 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
the Company and Laurus, as each of the same may be amended, supplemented,
restated or otherwise modified from time to time.
"Balance Sheet Date" has the meaning given such term in Section 12.6(b).
56
"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 or Canada.
"Canadian Pension Plan" means any plan, program or arrangement (other than
the Canada Pension Plan) that is a pension plan for the purposes of any
applicable pension benefits legislation or any tax laws of Canada or a province
thereof, whether or not registered under any such laws, which is maintained
or contributed to by, or to which there is or may be an obligation to
contribute by, the Company in respect of any Person's employment in Canada
with the Company.
"Canadian Lockbox Bank" has the meaning given such term in Article 8(a).
"Canadian Lockboxes" has the meaning given such term in Article 8(a).
"Capital Availability Amount" means Five Million Dollars lawful of the
currency United States (US$5,000,000).
"Charter" has the meaning given such term in Section 12.3(d).
"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 the 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 15.9.
"Collateral" means all of the Company's property and assets or interest in
property or assets, whether real or personal, tangible or intangible, and
whether now owned or hereafter acquired, or in which it now has or at any
time in the future may acquire any right, title or interests including all
of the following property in which it now has or at any time in the future
may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
57
(f) all Deposit Accounts, other bank accounts and all funds on deposit
therein;
(g) all Investment Property;
(h) all Stock;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
(l) all commercial tort claims set forth on Schedule 6(a) hereto;
(m) all Books and Records;
(n) all Intellectual Property;
(o) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General
Intangibles and Investment Property;
(p) (i) all money, cash and cash equivalents and (ii) all cash held as
cash collateral to the extent not otherwise constituting
Collateral, all other cash or property at any time on deposit
with or held by Laurus for the account of the Company (whether
for safekeeping, custody, pledge, transmission or otherwise); and
(q) all products and Proceeds of all or any of the foregoing, tort
claims and all claims and other rights to payment including
(i) insurance claims against third parties for loss of, damage
to, or destruction of, the foregoing Collateral and (ii) payments
due or to become due under leases, rentals and hires of any or
all of the foregoing and Proceeds payable under, or unearned
premiums with respect to policies of insurance in whatever form.
"Common Stock" means the shares of stock representing the Company's common
equity interests.
"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 Canadian Lockboxes and the US Lockboxes.
"Disclosure Controls" has the meaning given such term in Section 12.6(d).
"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.
58
"Eligible Accounts" means each Account of the Company and each Eligible
Subsidiary that conforms to the following criteria: (a) shipment of the
merchandise or the rendition of services has been completed; (b) no return,
rejection or repossession of the merchandise has occurred; (c) merchandise or
services shall not have been rejected or disputed by the Account Debtor and
there shall not have been asserted any offset, defense or counterclaim;
(d) continues to be in full conformity with the representations and
warranties made by the 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 and Canada; 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 or Canada; (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 the Company ; (m) is payable
to the 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 the Company
is indebted; (o) is net of any returns, discounts, claims, credits and
allowances; (p) if the Account arises out of contracts between the 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, the 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
the Company or work, labor and/or services rendered by the 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) the Company's
right to payment is absolute and not contingent upon the fulfillment of any
condition whatsoever; (u) the 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 the Company ,
and (w) is otherwise satisfactory to Laurus as determined by Laurus in the
exercise of its sole discretion. In the event the Company requests that
Laurus include within Eligible Accounts certain Accounts of one or more of
the 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.
59
"Eligible Subsidiary" means each Subsidiary of the Company set forth on
Exhibit A hereto, as the same may be updated from time to time with Laurus'
written consent.
"Equipment" means all "equipment" as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including any
and all machinery, apparatus, equipment, fittings, furniture, Fixtures,
motor vehicles and other tangible personal property (other than Inventory)
of every kind and description that may be now or hereafter used in such
Person's operations or that are owned by such Person or in which such Person
may have an interest, and all parts, accessories and accessions thereto and
substitutions and replacements therefor.
"ERISA" has the meaning given such term in Section 12.28.
"Event of Default" means the occurrence of any of the events set forth in
Article 19.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Act Filings" means the Company'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 12.6(e).
"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 2.1(a).
"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.
60
"Goods" means all "goods", as such term is defined in the UCC, now owned
or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC,
manufactured homes, standing timber that is cut and removed for sale and
unborn young of animals.
"Goodwill" means all goodwill, trade secrets, proprietary or confidential
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"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.
61
"Lien" means any mortgage, security deed, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim or encumbrance, or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset of any kind
or nature whatsoever including any conditional sale or other title retention
agreement, any lease having substantially the same economic effect as any of
the foregoing, and the filing of, or agreement to give, any financing statement
under the UCC or comparable law of any jurisdiction.
"Loans" means the Revolving Loans, the Term Loan and shall include all other
extensions of credit hereunder and under any Ancillary Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the business,
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of the Company or any of its Subsidiaries (taken individually and
as a whole), (b) the Company's or any of its Subsidiary's ability to pay or
perform the Obligations in accordance with the terms hereof or any Ancillary
Agreement, (c) the value of the Collateral, the Liens on the Collateral or the
priority of any such Lien or (d) the practical realization of the benefits of
Laurus' rights and remedies under this Agreement and the Ancillary Agreements.
"Minimum Borrowing Amount" means Two Million Five Hundred Thousand Dollars
lawful currency of the United States (US$2,500,000).
"Minimum Borrowing Note" means that certain Secured Convertible Minimum
Borrowing Note dated as of the Closing Date made by the Company in favor of
Laurus evidencing the Minimum Borrowing Amount made by the Company 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 13.2.
"Note Shares" has the meaning given such term in Section 12.1.
"Notes" means the Minimum Borrowing Note, the Revolving Note and the
Term Note made by Company 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.
62
"Obligations" means all Loans, all advances, debts, liabilities, obligations,
covenants and duties owing by the Company and each of its Subsidiaries to
Laurus (or any corporation that directly or indirectly controls or is
controlled by or is under common control with Laurus) of every kind and
description (whether or not evidenced by any note or other instrument and
whether or not for the payment of money or the performance or non-performance
of any act), direct or indirect, absolute or contingent, due or to become due,
contractual or tortious, liquidated or unliquidated, whether existing by
operation of law or otherwise now existing or hereafter arising including any
debt, liability or obligation owing from the Company and/or each of its
Subsidiaries to others which Laurus may have obtained by assignment or
otherwise and further including all interest (including interest accruing at
the then applicable rate provided in this Agreement after the maturity of the
Loans and interest accruing at the then applicable rate provided in this
Agreement after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding, whether or not a claim
for post-filing or post-petition interest is allowed or allowable in such
proceeding), charges or any other payments the Company and each of its
Subsidiaries 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 Company' or any of their Subsidiaries' accounts or incurred by Laurus
in connection therewith.
"Payment Intangibles" means all "payment intangibles" as such term is defined
in the UCC, now owned or hereafter acquired by any Person, including, a
General Intangible under which the Account Debtor's principal obligation is
a monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans, bailees,
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (b) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other forms
of governmental insurance or benefits, relating to employees, securing sums
(i) not overdue or (ii) being diligently contested in good faith provided
that adequate reserves with respect thereto are maintained on the books of
the Company 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 Company 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 1(A) 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.
"PPSA" means the Personal Property Security Act (Ontario), as amended from
time to time and any Act substituted therefor.
63
"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 the 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 the 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 the Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present
or future infringement or dilution of any trademark or trademark license or
for injury to the goodwill associated with any trademark, trademark
registration or trademark licensed under any trademark License; (d) any
recoveries by the 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 Company and Laurus and each other registration rights agreement by and
between the Company and Laurus, as each of the same may be amended,
modified and supplemented from time to time.
"Revolving Loans" has the meaning given such term in Section 2.1(a).
"Revolving Note" means that certain Secured Revolving Note dated as of the
Closing Date made by the Company in favor of Laurus in the original
principal amount of means Five Million Dollars United States currency
(US$5,000,000), as the same may be amended, supplemented, restated and/or
otherwise modified from time to time.
64
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning given such term in Section 12.21.
"Securities" means the Notes and the Warrants and the shares of Common
Stock which may be issued pursuant to conversion of the Minimum Borrowing
Note and the Secured Convertible Term Note in whole or in part or
exercise of such Warrants.
"Securities Act" has the meaning given such term in Section 12.18.
"Security Documents" means all security agreements, mortgages, cash
collateral deposit letters, pledges and other agreements which are
executed by the Company or any of its Subsidiaries in favor of Laurus.
"Software" means all "software" as such term is defined in the UCC, now
owned or hereafter acquired by any Person, including all computer programs
and all supporting information provided in connection with a transaction
related to any program.
"Stock" means all certificated and uncertificated shares, options, warrants,
membership interests, general or limited partnership interests, participation
or other equivalents (regardless of how designated) of or in a corporation,
partnership, limited liability company or equivalent entity whether voting
or nonvoting, including common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Securities Exchange Act
of 1934).
"Subsidiary" means, with respect to any Person, (i) any other Person whose
shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the
directors or other governing body of such other Person, are owned, directly
or indirectly, by such Person or (ii) any other Person in which such Person
owns, directly or indirectly, more than 50% of the equity interests at such
time.
"Supporting Obligations" means all "supporting obligations" as such term
is defined in the UCC.
"Term" means the Closing Date through the close of business on the day
immediately preceding the third anniversary of the Closing Date, subject
to acceleration at the option of Laurus upon the occurrence of an Event
of Default hereunder or other termination hereunder.
"Term Note" means that certain Secured Convertible Term Note dated as of
the Closing Date made by Company in favor of Laurus in the original
principal amount of US$500,000, as the same may be amended, supplemented,
restated and/or otherwise modified from time to time.
"Total Investment Amount" means Five Million Five Hundred Thousand Dollars
in the lawful currency of the United States (US$5,500,000).
65
"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.
"US Lockbox Bank" has the meaning given such term in Article 8(a).
"US Lockboxes" has the meaning given such term in Article 8(a).
"Vital Baby Transaction" means the transaction contemplated by the Company
to spin out its baby business.
"Warrant Shares" has the meaning given such term in Section 12.1.
"Warrants" means that certain Common Stock Purchase Warrant dated as of the
Closing Date made by the Company in favor of Laurus and each other warrant
made by the Company in favor of Laurus, as each of the same may be amended,
restated, modified and/or supplemented from time to time.
66
EXHIBIT A
ELIGIBLE SUBSIDIARIES
The International Mount Company Ltd., an Ontario corporation
Infinity Technologies Inc., an Ontario corporation
67
EXHIBIT B
BORROWING BASE CERTIFICATE
[To be inserted]
68
Schedule 1(a) Liens and Other Actions
Reference File No.
& Registration Number Collateral
Secured Party(ies) Debtor (s) (Registration Period) Classification
Honda Canada Consumer Goods,
Finance Inc. On The Go Equipment, Motor
Healthcare Inc. 616110084 - Vehicle, Amount
20050615 1947 1531 3640 Secured $57,635
(4 years) Date of Maturity
20MAY2008,
2005 Acura MDX
GMAC Leaseco
Corporation On The Go Consumer Goods,
HealthCare 614135358 - Equipment, Other
20050412 1453 1530 4027 Motor Vehicle
(4 years) Amount Secured:
$37,693,
2005 Cadillac CTS
Porsche Financial
Services Canada On The Go Consumer Goods,
Healthcare Inc. Motor Vehicle,
▇▇▇▇▇▇ ▇▇▇▇ 611281692 - Amount Secured
20041210 1051 1529 0990 $82,664
(4 years) Date of Maturity
06DEC2008,
2005 Porsche
Cayenne S
Schedule 6(a) Tort Claims
N/A
Schedule 7.1(c) List of Bank Accounts
Name on Account Description Bank . Address Phone No.
On The Go Healthcare, Inc.
On The Go Healthcare CDN$ TD Commercial (1) 905 660-5915
On The Go Healthcare US$ TD Commercial (1) 905 660-5915
* plus the 2 blocked accounts listed in the Blocked Account Agreement
The International Mount Company Ltd
On The Go CDN$ TD Bank (2) 905 889-6204
On The Go US$ TD Bank (2) 905 889-6204
Compuquest CDN$ TD Bank (2) 905 889-6204
Compuquest US$ TD Bank (2) 905 889-6204
Infinity Technologies Inc.
Infinity Technologies CDN$ Royal Bank (3) 905 897-8000
Infinity Technologies US$ Royal Bank (3) 905 897-8000
(1) ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
(2) ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
(3) ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇
69
Schedule 7.1(d)
Debtor Secured Party Max. Amount Subordination Other Action
On The Go
Healthcare GMAC Leasing $37,693 NA Acknowledgement
that GSA is for
Vehicle
(from PPSA)
Honda Canada
Finance $57,635 NA None, PPSA is
limited to
specific
collateral
Porsche financial
Services $82,664 NA None, PPSA is
limited to
specific
collateral
Infinity ▇▇▇ ▇▇▇▇▇▇▇▇ $24,339 NA Acknowledgement
Technologies, 4 vehicles: $57,975
Inc. $53,818
$42,190
Newcourt Financial NA NA Discharge
Business $71,026 NA Pay-off at
Development acquisition by
Bank of Canada OGHC (from funds
in escrow).
Undertaking from
OGHC to make sure
discharge occurs
30 days after
acquisition of
Infinity
Royal Bank of
Canada $650,000
($0 outstanding) NA Undertaking by
Infinity to keep
the line of
credit with RBC
at a $0 balance.
Undertaking by
OGHC to not
borrow on this
facility and to
close the account
and discharge
the security
interest 5 days
from the close
of the
acquisition of
Infinity
70
Toshiba of Canada NA NA Acknowledgement
that security
interest only
references
equipment Toshiba
supplies
The International ▇▇▇▇▇▇ Micro $40,000 Yes Acknowledgement
Mount Company Ltd.
Bank of Nova Scotia NA NA Misfiled PPSA,
have
acknowledgment
from Bank of
Nova Scotia
that there is
no security
interest in The
International
Mount Company
Ltd.
Synnex of Canada
▇▇▇▇▇▇ Micro NA NA Acknowledgement
received and
Officer's
Certification
that the PPSA
related to these
accounts do not
relate to OGHC
or its
subsidiaries
TD Bank Overdraft
Line of Credit $25,000
($0 outstanding) NA Account closed
(7/12/05) and
to be discharged
71
Schedule 12.27 Company Name; Locations of Offices, Records and Collateral
On The Go Healthcare, Inc. ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
The International Mount Company Ltd. ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
Infinity Technologies Inc. ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
ON THE GO HEALTHCARE, INC.
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Type of Entity: Corporation
Organizational ID number: 3263360
State of Organization: Delaware, USA
Schedule 12.28 Tangible Collateral
On The Go Healthcare, Inc. ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
The International Mount Company Ltd. ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
Infinity Technologies Inc. ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ #▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇
Schedule 12.2 Subsidiaries
Subsidiary Direct Owner Owner's Percent
Ownership
The International Mount Company Ltd. On The Go Healthcare, Inc. 100%
Infinity Technologies Inc. On The Go Healthcare, Inc. 100%
72
Schedule 12.3 Subsidiaries Capital Stock
The International Mount Company Ltd. 100 shares Common
1,000 shares Class A
100 shares Class B
Infinity Technologies Inc. 100 shares Common
(upon closing)
Schedule 12.6 Agreements or Actions
N/A
Schedule 12.7 Obligations to Related Parties
None other than standard stock grants, warrants or options given
to employees based on performance.
Schedule 12.9 Title to Properties and Assets
N/A
Schedule 12.12 Litigation
N/A
Schedule 12.13 Tax Returns and Payments
N/A
Schedule 12.14 Employees
N/A
Schedule 12(n)
N/A
73
Schedule 12.15 Registration Rights and Voting Rights
The items below have been issued as indicated:
Name of Shareholder Date Issued Stock Issued Shares
▇▇▇▇▇ ▇▇▇▇▇▇ 05/09/05 RESTRICTED 10,000
▇▇▇▇ ▇▇▇▇▇ 05/09/05 RESTRICTED 25,000
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 05/09/05 RESTRICTED 7,500
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 05/26/05 RESTRICTED 25,000
▇▇▇▇▇▇ ▇▇▇▇▇ 03/23/05 RESTRICTED 2,000
THIRUSENTHIL NAVARATNARAJH 05/09/05 RESTRICTED 5,000
▇▇▇▇ ▇▇▇▇▇▇▇ 03/23/05 RESTRICTED 17,500
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 05/09/05 RESTRICTED 5,000
▇▇▇▇▇ ▇▇▇▇▇ 05/26/05 RESTRICTED 100,000
▇▇▇▇▇ W GOLD 05/26/05 RESTRICTED 75,000
05/26/05 "C" Warrants 75,000
▇▇ ▇▇▇ 05/09/05 RESTRICTED 20,000
05/09/05 "C" Warrants 50,000
▇▇▇▇▇▇ ▇▇▇▇▇ BALL LLP ITF 07/29/05 RESTRICTED 750,000
▇▇▇▇▇▇ ▇▇▇▇▇ BALL LLP ITF 07/29/05 RESTRICTED 250,000
▇▇▇▇▇▇ ▇▇▇▇▇ BALL LLP ITF 07/29/05 RESTRICTED 250,000
▇▇▇▇▇ ▇▇▇▇▇▇ 08/11/05 RESTRICTED 50,000
08/11/05 "C" Warrants 50,000
▇▇▇▇▇▇ ▇▇▇▇▇ BALL LLP ITF 08/11/05 RESTRICTED 200,000
▇▇▇▇ ▇▇▇▇▇▇ 10/24/05 RESTRICTED 25,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 10/24/05 RESTRICTED 25,000
PASADENA CAPITAL PARTNERS 11/11/05 RESTRICTED 23,500
DUTCHESS PRIVATE EQUITIES 12/01/05 RESTRICTED 180,000
SHAZAMSTOCKS INC 12/15/05 RESTRICTED 30,000
DUTCHESS PRIVATE EQUITIES 01/05/06 RESTRICTED 280,000
▇▇▇▇ ▇▇▇▇▇▇▇ 01/09/06 RESTRICTED 7,500
▇▇▇▇ ▇▇▇▇▇▇ 01/09/06 RESTRICTED 475,000
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ 01/09/06 RESTRICTED 10,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 01/09/06 RESTRICTED 475,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 01/09/06 RESTRICTED 100,000
▇▇▇▇▇ RICALIS 01/09/06 RESTRICTED 37,500
▇▇▇▇ ▇▇▇ 01/09/06 RESTRICTED 5,000
Shares that may be required for Dutchess Private Equities ELOC or any
subsequent financing Laurus waives their rights in.
Schedule 12.17 Environmental and Safety Laws
N/A
Schedule 12.21 SEC Reports and Financial Statements
N/A
Schedule 13.12 Required Approvals
N/A
74