Exhibit 10.20.1
SECURITY AGREEMENT
This Security Agreement is made as of December 30, 2003 by and between
LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus") and INYX,
INC., a Nevada corporation (the "Company"), and INYX PHARMA LTD., a corporation
established under the law of England and Wales (the "UK Subsidiary"). (The
Company and the UK Subsidiary are collectively referred to herein as the
"Borrower".)
BACKGROUND
Borrower has requested that Laurus make advances available to Borrower;
and
Laurus has agreed to make such advances to Borrower on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. (a) General Definitions. Capitalized terms used in this Agreement
shall have the meanings assigned to them in Annex A.
(b) Accounting Terms. Any accounting terms used in this Agreement which
are not specifically defined shall have the meanings customarily given them in
accordance with GAAP and all financial computations shall be computed, unless
specifically provided herein, in accordance with GAAP consistently applied.
(c) Other Terms. All other terms used in this Agreement and defined in
the UCC, shall have the meaning given therein unless otherwise defined herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and Exhibits
hereto or expressly identified to this Agreement are incorporated herein by
reference and taken together with this Agreement constitute but a single
agreement. The words "herein", hereof" and "hereunder" or other words of similar
import refer to this Agreement as a whole, including the Exhibits, Addenda,
Annexes and Schedules thereto, as the same may be from time to time amended,
modified, restated or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
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neuter. The term "or" is not exclusive. The term "including" (or any form
thereof) shall not be limiting or exclusive. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. All references in this Agreement or in the Schedules,
Addenda, Annexes and Exhibits to this Agreement to sections, schedules,
disclosure schedules, exhibits, and attachments shall refer to the corresponding
sections, schedules, disclosure schedules, exhibits, and attachments of or to
this Agreement. All references to any instruments or agreements, including
references to any of this Agreement or the Ancillary Agreements shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof.
2. Loans. (a)(i) Subject to the terms and conditions set forth herein
and in the Ancillary Agreements, Laurus may make loans (the "Loans") to the
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") or (y) an
amount equal to (I) the Accounts Availability minus (II) the Reserves. The
amount derived at any time from Section 2(a)(i)(y)(I) minus 2(a)(i)(y)(II) shall
be referred to as the "Formula Amount". Company shall execute and deliver to
Laurus on the Closing Date a Minimum Borrowing Note and a Secured Revolving Note
evidencing the Loans funded on the Closing Date. From time to time thereafter,
Company shall execute and deliver to Laurus immediately prior to the final
funding of each additional USD$1,000,000 tranche of Loans (calculated on a
cumulative basis for each such tranche) an additional Minimum Borrowing Note
evidencing such tranche, in the form of Note delivered by Company to Laurus on
the Closing Date. Notwithstanding anything herein to the contrary, whenever
during the Term the outstanding balance on the Revolving Note should equal or
exceed USD$2,500,000, to the extent that the outstanding balance on Minimum
Borrowing Note shall be less than USD$1,000,000 (the difference of USD$1,000,000
less the actual balance of the Minimum Borrowing Note, the "Available Minimum
Borrowing"), such portion of the balance of the Revolving Note as shall equal
the Available Minimum Borrowing shall be deemed to be simultaneously
extinguished on the Revolving Note and transferred to, and evidenced by, the
Minimum Borrowing Note.
(ii) Notwithstanding the limitations set forth above, if requested by
the Company, Laurus retains the right to lend to Company from time to time such
amounts in excess of such limitations as Laurus may determine in its sole
discretion.
(iii) Company acknowledges that the exercise of Laurus' discretionary
rights hereunder may result during the Term in one or more increases or
decreases in the advance percentages used in determining Accounts Availability
and Company hereby consents to any such increases or decreases which may limit
or restrict advances requested by Company.
(iv) If Company does not pay any interest, fees, costs or charges to
Laurus when due, Company shall thereby be deemed to have requested, and Laurus
is hereby authorized at its discretion to make and charge to Company's account,
a Loan to Company as of such date in an amount equal to such unpaid interest,
fees, costs or charges.
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(v) If Borrower at any time fails to perform or observe any of the
covenants contained in this Agreement or any Ancillary Agreement, Laurus may,
but need not, perform or observe such covenant on behalf and in the name, place
and stead of Borrower (or, at Laurus' option, in Laurus' name) and may, but need
not, take any and all other actions which Laurus may deem necessary to cure or
correct such failure (including the payment of taxes, the satisfaction of Liens,
the performance of obligations owed to Account Debtors, lessors or other
obligors, the procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and the endorsement
of instruments). The amount of all monies expended and all costs and expenses
(including attorneys' fees and legal expenses) incurred by Laurus in connection
with or as a result of the performance or observance of such agreements or the
taking of such action by Laurus shall be charged to Company's account as a Loan
and added to the Obligations. To facilitate Laurus' performance or observance of
such covenants of Borrower, Borrower hereby irrevocably appoints Laurus, or
Laurus' delegate, acting alone, as Borrower'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 Borrower 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 Borrower.
(vi) Laurus will account to Company monthly with a statement of all
Loans and other advances, charges and payments made pursuant to this Agreement,
and such account rendered by Laurus shall be deemed final, binding and
conclusive unless Laurus is notified by Company in writing to the contrary
within thirty (30) days of the date each account was rendered specifying the
item or items to which objection is made.
(vii) During the Term, Company may borrow and prepay Loans in excess of
the Minimum Borrowing Amount, all in accordance with the terms and conditions
hereof.
(viii) If any Eligible Account is not paid by the Account Debtor within
ninety (90) days after the date that such Eligible Account was invoiced or if
any Account Debtor asserts a deduction, dispute, contingency, set-off, or
counterclaim with respect to any Eligible Account, (a "Delinquent Account"), the
Company shall (i) reimburse Laurus for the amount of the Revolving Credit
Advance made with respect to such Delinquent Account plus an adjustment fee in
an amount equal to one-half of one percent (0.50%) of the gross face amount of
such Eligible Account or (ii) immediately replace such Delinquent Account with
an otherwise Eligible Account.
(b) Following the occurrence of an Event of Default which continues to
exist, Laurus may, at its option, elect to convert the credit facility
contemplated hereby to an accounts receivable purchase facility. Upon such
election by Laurus (subsequent notice of which Laurus shall provide to Company),
Borrower 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 Borrower, all right, title and interest of Borrower 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
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deemed an exercise by Laurus of its secured creditor rights under Article 9 of
the UCC. Immediately following Laurus' request, Borrower 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 Borrower's failure to enter into any
such documentation shall not impair or affect the Receivables Purchase in any
manner whatsoever.
(c) Minimum Borrowing Amount. After a registration statement
registering the Registrable Securities has been declared effective by the SEC,
conversions of the Minimum Borrowing Amount into the Common Stock of the Company
may be initiated as set forth in the Note. From and after the date upon which
any outstanding principal of the Minimum Borrowing Amount (as evidenced by the
first Minimum Borrowing Note) is converted into Common Stock (the "First
Conversion Date"), (i) corresponding amounts of all outstanding Loans (not
attributable to the then outstanding Minimum Borrowing Amount) existing on or
made after the First Conversion Date will be aggregated until they reach the sum
of $1,000,000 and (ii) the Company will issue a new (serialized) Minimum
Borrowing Note to Laurus in respect of such $1,000,000 aggregation, and (iii)
the Company shall prepare and file a subsequent registration statement with the
SEC to register such subsequent Minimum Borrowing Note as set forth in the
Registration Rights Agreement.
3. Repayment of the Loans. Company (a) may prepay the Obligations in
excess of the Minimum Borrowing Amount from time to time in accordance with the
terms and provisions of the Notes (and Section 16 hereof if such prepayment is
due to a termination of this Agreement); and (b) shall repay on the expiration
of the Term (i) the then aggregate outstanding principal balance of the Loans
made by Laurus to Company hereunder together with accrued and unpaid interest,
fees and charges and (ii) all other amounts owed Laurus under this Agreement and
the Ancillary Agreements. Any payments of principal, interest, fees or any other
amounts payable hereunder or under any Ancillary Agreement shall be made prior
to 12:00 noon (New York time) on the due date thereof in immediately available
funds.
4. Procedure for Loans. Company may by written notice request a
borrowing of Loans prior to 12:00 p.m.. (New York time) on the Business Day of
its request to incur, on the next business day, a Loan but no more than twice
per week. Together with each request for a Loan (or at such other intervals as
Laurus may request), Company shall deliver to Laurus a Borrowing Base
Certificate in the form of Exhibit A, which shall be certified as true and
correct by the Chief Executive Officer or Chief Financial Officer of Company
together with all supporting documentation relating thereto. All Loans shall be
disbursed from whichever office or other place Laurus may designate from time to
time and shall be charged to Company's account on Laurus' books. The proceeds of
each Loan made by Laurus shall be made available to Company on the Business Day
following the Business Day so requested in accordance with the terms of this
Section 4 by way of credit to Company's operating account maintained with such
bank as Company designated to Laurus. Any and all Obligations due and owing
hereunder may be charged to Company's account and shall constitute Loans.
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5. Interest and Payments.
(a) Interest.
(i) Except as modified by Section 5(a)(iii) below, Company shall pay
interest at the Contract Rate on the unpaid principal balance of each Loan until
such time as such Loan is collected in full in good funds in dollars of the
United States of America.
(ii) Interest and payments shall be computed on the basis of actual
days elapsed in a year of 360 days. At Laurus' option, Laurus may charge Company
account for said interest.
(iii) Effective upon the occurrence of any Event of Default and for so
long as any Event of Default shall be continuing, the Contract Rate shall
automatically be increased by five percent (5%) per annum (such increased rate,
the "Default Rate"), and all outstanding Obligations, including unpaid interest,
shall continue to accrue interest from the date of such Event of Default at the
Default Rate applicable to such Obligations.
(iv) In no event shall the aggregate interest payable hereunder exceed
the maximum rate permitted under any applicable law or regulation, as in effect
from time to time (the "Maximum Legal Rate") and if any provision of this
Agreement or any Ancillary Agreement is in contravention of any such law or
regulation, interest payable under this Agreement and each Ancillary Agreement
shall be computed on the basis of the Maximum Legal Rate (so that such interest
will not exceed the Maximum Legal Rate).
(v) Company shall pay principal, interest and all other amounts payable
hereunder, or under any Ancillary Agreement, without any deduction whatsoever,
including any deduction for any set-off or counterclaim.
(b) Payments.
(i) Closing/Annual Payments. Upon execution of this Agreement by
Borrower and Laurus, Company shall pay to Laurus Capital Management, LLC a
closing payment in an amount equal to three and one-half percent (3.50%) of the
Capital Availability Amount and each subsequent anniversary an amount equal to
one percent (1.00%) of the Capital Availability Amount. Such payment shall be
deemed fully earned on the Closing Date and shall not be subject to rebate or
proration for any reason.
(ii) Unused Line Payment. If, for any month, the average outstanding
Loans (the "Average Loan Amount") do not equal the Capital Availability Amount,
Company shall pay to Laurus at the end of such month a payment (calculated on a
per annum basis) in an amount equal to one half percent (0.5%) of the amount by
which the Capital Availability Amount exceeds the Average Loan Amount.
Notwithstanding the foregoing, any unpaid fee shall be immediately due and
payable upon termination of this Agreement.
(iii) Overadvance Payment. Without affecting Laurus' rights hereunder
in the event the Loans exceed the amounts permitted by Section 2
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("Overadvances"), in the event an Overadvance occurs or is made by Laurus, all
such Overadvances shall bear interest at an annual rate equal to five percent
(5%) of the amount of such Overadvances for each month or portion thereof as
such amounts shall be outstanding.
(iv) Financial Information Default. Without affecting Laurus' other
rights and remedies, in the event Borrower fails to deliver the financial
information required by Section 11 on or before the date required by this
Agreement, Company shall pay Laurus a fee in the amount of $500.00 per week (or
portion thereof) for each such failure until such failure is cured to Laurus'
satisfaction or waived in writing by Laurus. Such fee shall be charged to
Company's account upon the occurrence of each such failure.
6. Security Interest.
(a) To secure the prompt payment to Laurus of the Obligations, Borrower
hereby jointly and severally assigns, pledges and grants to Laurus a continuing
security interest in and Lien upon all of the Collateral. All of Borrower's
Books and Records relating to the Collateral shall, until delivered to or
removed by Laurus, be kept by Borrower in trust for Laurus until all Obligations
have been paid in full. Each confirmatory assignment schedule or other form of
assignment hereafter executed by Borrower shall be deemed to include the
foregoing grant, whether or not the same appears therein.
(b) Borrower hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral (1) as all assets of Borrower or words of similar effect, regardless
of whether any particular asset comprised in the Collateral falls within the
scope of Article 9 of the UCC of such jurisdiction, or (2) as being of an equal
or lesser scope or with greater detail, and (y) contain any other information
required by Part 5 of Article 9 of the UCC for the sufficiency or filing office
acceptance of any financing statement, continuation statement or amendment and
(ii) ratifies its authorization for Laurus to have filed any initial financial
statements, or amendments thereto if filed prior to the date hereof. Borrower
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
without the prior written consent of Laurus and agrees that it will not do so
without the prior written consent of Laurus, subject to Borrower's rights under
Section 9-509(d)(2) of the UCC.
(c) Borrower hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to Borrower) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by Borrower,
and wherever the same may be located, and including in such license access to
all media in which any of the licensed items may be recorded or stored and to
all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this Agreement and the payment in
full of all Obligations.
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7. Representations, Warranties and Covenants Concerning the Collateral.
Borrower represents, warrants (each of which such representations and warranties
shall be deemed repeated upon the making of each request for a Loan and made as
of the time of each and every Loan hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by Borrower 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) Borrower shall not encumber, mortgage, pledge, assign or grant any
Lien in any Collateral of Borrower or any of Borrower's other assets to anyone
other than Laurus and except for Permitted Liens.
(c) The Liens granted pursuant to this Agreement, upon completion of
the filings and other actions listed on Exhibit 7(c) (which, in the case of all
filings and other documents referred to in said Exhibit, have been delivered to
Laurus in duly executed form) constitute valid perfected security interests in
all of the Collateral in favor of Laurus as security for the prompt and complete
payment and performance of the Obligations, enforceable in accordance with the
terms hereof against any and all creditors of and any purchasers from Borrower
and such security interest is prior to all other Liens in existence on the date
hereof.
(d) No effective security agreement, mortgage, deed of trust, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those relating to Permitted Liens.
(e) Borrower 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 $75,000 and only to the extent that
(i) the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to Laurus' first priority security interest or are
used to repay Loans or to pay general corporate expenses, or (ii) following the
occurrence of an Event of Default which continues to exist the proceeds of which
are remitted to Laurus to be held as cash collateral for the Obligations.
(f) Borrower 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 Borrower, 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 the Borrower (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'
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request, and (iv) the institution of litigation against third parties as shall
be prudent in order to protect and preserve Borrower's and Laurus' respective
and several interests in the Collateral.
(g) Borrower shall promptly, and in any event within five (5) Business
Days after the same is acquired by it, notify Laurus of any commercial tort
claim (as defined in the UCC) acquired by it and unless otherwise consented by
Laurus, Borrower shall enter into a supplement to this Agreement granting to
Laurus a Lien in such commercial tort claim.
(h) Borrower shall place notations upon its Books and Records and any
financial statement of Borrower to disclose Laurus' Lien in the Collateral.
(i) If Borrower retains possession of any Chattel Paper or Instrument
with Laurus' consent, upon Laurus' request such Chattel Paper and Instruments
shall be marked with the following legend: "This writing and obligations
evidenced or secured hereby are subject to the security interest of Laurus
Master Fund, Ltd."
(j) Borrower 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.
(k) Borrower 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 Borrower's knowledge would
cause Laurus to consider any then existing Account as no longer constituting an
Eligible Account; (ii) of any material delay in Borrower's performance of any of
its obligations to any Account Debtor; (iii) of any assertion by any Account
Debtor of any material claims, offsets or counterclaims; (iv) of any allowances,
credits and/or monies granted by Borrower to any Account Debtor; (v) of all
material adverse information relating to the financial condition of an Account
Debtor; (vi) of any material return of goods; and (vii) of any loss, damage or
destruction of any of the Collateral. (l) All Eligible Accounts (i) which are
billed on a construction completion basis but not payable until the project is
completed, represent complete bona fide transactions which require no further
act under any circumstances on Borrower's part to make such Accounts payable by
the Account Debtors, (ii) are not subject to any present, future contingent
offsets or counterclaims, and (iii) do not represent bill and hold sales,
consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of Borrower.
Borrower has not made, and will not 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 Borrower in the ordinary course
of its business consistent with historical practice and as previously disclosed
to Laurus in writing.
(m) Borrower shall keep and maintain its Equipment in good operating
condition, except for ordinary wear and tear, and shall make all necessary
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repairs and replacements thereof so that the value and operating efficiency
shall at all times be maintained and preserved. Borrower shall not permit any
such items to become a Fixture to real estate or accessions to other personal
property.
(n) Borrower shall maintain and keep all of its Books and Records
concerning the Collateral at Company's executive offices listed in Exhibit
12(d).
(o) Borrower shall maintain and keep the tangible Collateral at the
addresses listed in Exhibit 12(d), provided, that Borrower may change such
locations or open a new location, provided that Borrower provides Laurus at
least thirty (30) days prior written notice of such changes or new location and
(ii) prior to such change or opening of a new location where Collateral having a
value of more than $50,000 will be located, Borrower executes and delivers to
Laurus such agreements as Laurus may request, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus.
(p) Exhibit 7(p) lists all banks and other financial institutions at
which Borrower maintains deposits and/or other accounts, and such Exhibit
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. The Borrower shall not
establish any depository or other bank account of any with any financial
institution (other than the accounts set forth on Exhibit 7(p)) without Laurus'
prior written consent.
8. Payment of Accounts.
(a) UK Subsidiary will irrevocably direct all of its present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the lockbox maintained by UK
Subsidiary (the "Lockbox") with Barclays Bank (the "Lockbox Bank") pursuant to
the terms of the Clearing Account Agreement dated December 30, 2003 or such
other financial institution accepted by Laurus in writing as may be selected by
Company. The Company shall open a clearing account with Northfork Bank pursuant
to the terms of the Clearing Account Agreement dated December 30, 2003 (the
"Northfork Account"). On or prior to the Closing Date, UK Subsidiary shall and
shall cause the Lockbox Bank to enter into all such documentation acceptable to
Laurus pursuant to which, among other things, the Lockbox Bank agrees to: (a)
sweep the Lockbox on a daily basis and deposit all checks, wires and all other
amounts received therein to the Northfork Account and (b) comply only with the
instructions or other directions of Laurus concerning the Lockbox and the
proceeds thereof. All of UK Subsidiary's invoices, account statements and other
written or oral communications directing, instructing, demanding or requesting
payment of any Account of UK Subsidiary or any other amount constituting
Collateral shall conspicuously direct that all payments be made to the Lockbox
or such other address as Laurus may direct in writing. If, notwithstanding the
instructions to Account Debtors, Borrower receives any payments from Account
Debtors, Borrower shall immediately remit such payments to Laurus in their
original form with all necessary endorsements. Until so remitted, Borrower 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.
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(b) At Laurus' election, following the occurrence of an Event of
Default which is continuing, Laurus may notify UK Subsidiary's Account Debtors
of Laurus' security interest in the Accounts, collect them directly and charge
the collection costs and expenses thereof to Company's account.
9. Collection and Maintenance of Collateral.
(a) Laurus may verify UK Subsidiary's Accounts from time to time, but
not more often than once every three (3) months unless an Event of Default has
occurred and is continuing, utilizing an audit control company or any other
agent of Laurus.
(b) Proceeds of the Accounts of the UK Subsidiary received by Laurus in
the Northfork Account will be deemed received on the Business Day after Laurus'
receipt of such proceeds in good funds in US Dollars in Laurus' account . The
Company shall convert the proceeds of the Accounts of the UK Subsidiary received
in Lockbox into US dollars for daily deposit in to the Northfork Account, but in
no event shall such conversion be at a rate lower than then prevailing
conversion rate on Great British Pounds Sterling to US dollars (as such rate is
quoted in the Wall Street Journal) on the date such funds are transferred from
the Lockbox to the Northfork Account. Any amount received by Laurus after 12:00
noon (New York time) on any Business Day shall be deemed received on the next
Business Day.
(c) As Laurus receives the proceeds of the Accounts of the UK
Subsidiary, it shall remit all such proceeds (net of interest, fees and other
amounts then due and owing to Laurus hereunder) to Company 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 such proceeds as cash collateral for the Obligations and
UK Subsidiary hereby grants to Laurus a security interest in such cash
collateral amounts as security for the Obligations and/or (c) do any combination
of the foregoing.
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 Borrower's properties and the Collateral, (b) inspect, audit and
copy (or take originals if necessary) and make extracts from Borrower's Books
and Records, including management letters prepared by independent accountants,
and (c) discuss with Borrower's principal officers, and independent accountants,
Borrower's business, assets, liabilities, financial condition, results of
operations and business prospects. Borrower will deliver to Laurus any
instrument necessary for Laurus to obtain records from any service bureau
maintaining records for Borrower. If any internally prepared financial
information, including that required under this Section is unsatisfactory in any
manner to Laurus, Laurus may request that the Accountants review the same.
11. Financial Reporting. Borrower will deliver, or cause to be
delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
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(a) As soon as available, and in any event within ninety (90) days
after the end of each fiscal year of Borrower, Borrower's audited financial
statements with a report of independent certified public accountants of
recognized standing selected by Borrower and acceptable to Laurus (the
"Accountants"), which annual financial statements shall include Borrower's
balance sheet as at the end of such fiscal year and the related statements of
Borrower's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if Laurus so requests, on a consolidated basis to include all
Subsidiaries and Affiliates, all in reasonable detail and prepared in accordance
with GAAP, together with (i) if and when available, copies of any management
letters prepared by such accountants; and (ii) a certificate of Borrower's
President, Chief Executive Officer or Chief Financial Officer stating that such
financial statements have been prepared in accordance with GAAP and whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) As soon as available and in any event within forty five (45) days
after the end of each quarter, an unaudited/internal balance sheet and
statements of income, retained earnings and cash flows of Borrower as at the end
of and for such quarter and for the year to date period then ended, prepared, if
Laurus so requests, on a consolidated basis to include all Subsidiaries and
Affiliates, in reasonable detail and stating in comparative form the figures for
the corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end adjustments and accompanied by a
certificate of Borrower's President, Chief Executive Officer or Chief Financial
Officer, stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and (ii) whether or
not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
(c) Within thirty (30) days after the end of each month (or more
frequently if Laurus so requests), agings of UK Subsidiary's Accounts, unaudited
trial balances and their accounts payable and a calculation of UK Subsidiary's
Accounts, Eligible Accounts and thirty (30) days after the end of each fiscal
quarter for Inventory ledger as at the end of such month or shorter time period,
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 thirty days from each such request to comply with Laurus' demand; and
(d) Promptly after (i) the filing thereof, copies of Company's most
recent registration statements and annual, quarterly, monthly or other regular
reports which Company files with the Securities and Exchange Commission (the
"SEC"), and (ii) the issuance thereof, copies of such financial statements,
reports and proxy statements as Company shall send to its stockholders.
12. Additional Representations and Warranties. Each of the Company and
the UK Subsidiary hereby jointly and severally represents and warrants, as
applicable, (each of which such representations and warranties shall be deemed
repeated upon the making of a request for a Loan and made as of the time of each
Loan made hereunder), as follows:
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(a) Each of the Company and UK Subsidiary is a corporation duly
incorporated and validly existing under the laws of the jurisdiction of its
incorporation and duly qualified and in good standing in every other
jurisdiction in which the nature of its' business requires such qualification.
(b) The execution, delivery and performance of this Agreement and the
Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of Company's or the UK Subsidiary's certificate of incorporation,
by-laws or equivalent, or of any indenture, agreement or undertaking to which
Company or the UK Subsidiary is a party or by which Company or the UK Subsidiary
is bound and (iii) are within Company's and the UK Subsidiary's corporate
powers.
(c) This Agreement and the Ancillary Agreements executed and delivered
by Company constitute the legal, valid and binding obligations, of each of the
Company and the UK Subsidiary to which it is a signatory, enforceable in
accordance with their terms.
(d) Exhibit 12(d) sets forth each of the Company's and the UK
Subsidiary's name as it appears in official filing in the jurisdiction of its
incorporation, the type of entity established, the organizational identification
number issued, or a statement that no such number has been issued, Borrower's
respective jurisdictions of incorporation, and the location of Borrower'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 Exhibit
12(d), 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 Exhibit
12(d), Borrower has not been known as or conducted business in any other name
(including trade names). Each of Company and UK Subsidiary has only one
jurisdiction of incorporation.
(e) Based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i)
Company has not engaged in any Prohibited Transactions as defined in Section 406
of ERISA and Section 4975 of the Internal Revenue Code, as amended; (ii) Company
has met all applicable minimum funding requirements under Section 302 of ERISA
in respect of its plans; (iii) Company has no 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) Company has no fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than Company's
employees; and (v) except as disclosed in Exhibit 12(e) attached hereto, Company
has not withdrawn, completely or partially, from any multi-employer pension plan
so as to incur liability under the Multiemployer Pension Plan Amendments Act of
1980.
(f) There is no pending or threatened litigation, court order,
judgment, writ, suit, action or proceeding which could reasonably be expected to
have a Material Adverse Effect.
(g) All balance sheets and income statements which have been delivered
to Laurus fairly, accurately and properly state Borrower's financial condition
on a basis consistent with that of previous financial statements and except as
12
reflected in such financial statements there has been no material adverse change
in Borrower's financial condition as reflected in such statements since the
balance sheet date of the statements last delivered to Laurus and such
statements do not fail to disclose any fact or facts which might have a Material
Adverse Effect on Borrower's financial condition.
(h) Borrower possesses or has licenses to use all of the Intellectual
Property necessary to conduct its business. There has been no assertion or claim
of violation or infringement with respect to any Intellectual Property. Exhibit
12(i) describes all Intellectual Property of Borrower.
(i) Neither this Agreement, the exhibits and schedules hereto, the
Ancillary Agreements nor any other document delivered by Company or UK
Subsidiary 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. The issuance of the Notes
and the Warrants and the shares of common stock issued upon conversion of the
Notes and exercise of the Warrants 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. Neither Borrower nor any of Affiliates,
nor any person acting on its or their behalf, has engaged in any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) in connection with the offer or sale of the Securities.
(j) The common stock of the Company is registered pursuant to Section
15(d) of the Exchange Act and, except with respect to certain matters set forth
on Exhibit 12(j) attached hereto, the Company has timely filed all proxy
statements, reports, schedules, forms, statements and other documents required
to be filed by it under the Exchange Act. The Company has filed (i) its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2002 and (ii) its
Quarterly Report on Form 10-QSB for the fiscal quarters ended June 30, 2003 and
September 30, 2003 (collectively, the "SEC Reports"). 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. The financial statements of the Company included in the SEC Reports
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed) and fairly present in all material
respects the financial condition, the results of operations and the cash flows
of the Company and its subsidiaries, on a consolidated basis, as of, and for,
the periods presented in each such SEC Report.
13
(k) The common stock of the Company is tradedon the NASD Over the
Counter Bulletin Board ("OTCBB") and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
common stock will be ineligible to trade on the OTCBB or that the common stock
does not meet all requirements for the continuation of such trading .
(l) Neither the Borrower, 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 and the Ancillary Agreements to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its Affiliates or Subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other offerings
(other than such concurrent offering to Laurus).
(m) The Securities are all restricted securities under the Securities
Act as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of any of the
Securities at such time as such Securities are registered for public sale or an
exemption from registration is available, except as required by federal or state
securities laws.
(n) The Company understands the nature of the Securities issuable under
the Ancillary Agreements and recognizes that the issuance of such Securities may
have a potential dilutive effect. The Company specifically acknowledges that its
obligation to issue the Securities 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.
(o) Except for agreements made in the ordinary course of business,
there is no agreement that has not been filed with the Commission as an exhibit
to a registration statement or to a form required to be filed by the Company
under the Exchange Act, the breach of which could reasonably be expected to have
a Material Adverse Effect or would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement the Registration Rights Agreement executed by Company in favor of
Laurus in any material respect.
12A. REPRESENTATIONS AND WARRANTIES OF LAURUS.
Laurus hereby represents and warrants to the Borrower as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement:
14
12A.1 No Shorting. Laurus or any of its affiliates and investment
partners will not and will not cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Common Stock for so long
as the Note shall be outstanding or such persons hold more than two and one half
percent (2.5%) of the then outstanding Common Stock of the Company.
12A.2 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 Related 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 Related Agreements have been or will be effectively
taken prior to the Closing. Upon their execution and delivery, this Agreement
and the Related Agreements will be valid and binding obligations of Laurus,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, and (b) as limited by
general principles of equity that restrict the availability of equitable and
legal remedies.
12A.3 Investment Representations. Laurus understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Laurus's representations
contained in the Agreement, including, without limitation, that Laurus is an
"accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). Laurus confirms that it has
received or has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the Note and
the Warrant to be purchased by it under this Agreement and the Note Shares and
the Warrant Shares acquired by it upon the conversion of the Note and the
exercise of the Warrant, respectively. Laurus further confirms that it has had
an opportunity to ask questions and receive answers from the Company regarding
the Company's business, management and financial affairs and the terms and
conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to Laurus or to which Laurus had
access.
12A.4 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 must bear the economic risk of this investment until the
Securities are sold pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available with
respect to such sale.
12A.5 Acquisition for Own Account. Laurus is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for Laurus' own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.
15
12A.6 Laurus Can Protect Its Interest. Laurus represents that by reason
of its, or of its management's, business and financial experience, Laurus has
the capacity to evaluate the merits and risks of its investment in the Note, the
Warrant and the Securities and to protect its own interests in connection with
the transactions contemplated in this Agreement, and the Related Agreements.
Further, Laurus is aware of no publication of any advertisement in connection
with the transactions contemplated in the Agreement or the Related Agreements.
12A.7 Accredited Investor. Laurus represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
12A.8 Legends.
(a) Each of the Minimum Borrowing Notes and the Revolving 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 INYX, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
The Note Shares and the Warrant Shares, if not issued by DWAC system
(as hereinafter defined), 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 LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO INYX, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
16
(b) The Warrant 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 INYX,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
13. Covenants. Borrower covenants as follows:
(a) Borrower will not, without the prior written consent of Laurus,
change (i) its name as it appears in the official filings in the state of its
incorporation or formation, (ii) the type of legal entity it is, (iii) its
organization identification number, if any, issued by its state of
incorporation, (iv) its state of incorporation or (v) amend its certificate of
incorporation, by-laws or other organizational document.
(b) The operation of Borrower's business is and will continue to be in
compliance in all material respects with all applicable federal, state and local
laws, rules and ordinances, including to all laws, rules, regulations and orders
relating to taxes, payment and withholding of payroll taxes, employer and
employee contributions and similar items, securities, employee retirement and
welfare benefits, employee health safety and environmental matters.
(c) Borrower will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon Borrower or any of the Collateral
unless such amounts are being diligently contested in good faith by appropriate
proceedings provided that (i) adequate reserves with respect thereto are
maintained on the books of Borrower in conformity with GAAP and (ii) the related
Lien shall have no effect on the priority of the Liens in favor of Laurus or the
value of the assets in which Laurus has a Lien.
(d) Borrower will promptly inform Laurus in writing of: (i) the
commencement of all proceedings and investigations by or before and/or the
receipt of any notices from, any governmental or nongovernmental body and all
actions and proceedings in any court or before any arbitrator against or in any
way concerning any event which could reasonable be expected to have singly or in
the aggregate, a Material Adverse Effect; (ii) any amendment of Borrower's
certificate of incorporation, by-laws or other organizational document; (iii)
any change which has had or could reasonably be expected to have a Material
Adverse Effect; (iv) any Event of Default or Default; (v) any default or any
17
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
Borrower is a party or by which Borrower or any of Borrower's properties may be
bound the breach of which would have a Material Adverse Effect and (vi) any
change in Company's or UK Subsidiary's name or any other name used in its
respective business.
(e) The Borrower will not (i) create, incur, assume or suffer to exist
any indebtedness (exclusive of trade debt) whether secured or unsecured other
than Borrower's indebtedness to Laurus and as set forth on Exhibit 13(e)(i)
attached hereto and made a part hereof; (ii) cancel any debt owing to it in
excess of $50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by a Borrower for deposit or collection or similar
transactions in the ordinary course of business; (iv) directly or indirectly
declare, pay or make any dividend or distribution on any class of its Stock
other than to pay dividends on shares of its outstanding Preferred Stock or
apply any of its funds, property or assets to the purchase, redemption or other
retirement of any Stock of the Borrower except as required under the terms of
the Borrower's outstanding Preferred Stock issued and outstanding on the date
hereof; (v) purchase or hold beneficially any Stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including any partnership or joint venture, except (x) travel advances, (y)
loans to Borrower's officers and employees not exceeding at any one time an
aggregate of $10,000, and (z) existing Subsidiaries of the Company, except if
such indebtedness is created, incurred, assumed or suffered to exist directly in
connection with Loans made to Borrower hereunder; (vi) create or permit to exist
any Subsidiary, other than any Subsidiary in existence on the date hereof and
listed in Exhibit 13(e)(ii) unless such new Subsidiary 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 to grant to Laurus a
first priority perfected security interest in such Subsidiary's assets to secure
the Obligations; (vii) directly or indirectly, prepay any indebtedness (other
than to Laurus and in the ordinary course of business), or repurchase, redeem,
retire or otherwise acquire any indebtedness (other than to Laurus and in the
ordinary course of business) except to make scheduled payments of principal and
interest thereof; (viii) enter into any merger, consolidation or other
reorganization with or into any other Person or acquire all or a portion of the
assets or Stock of any Person or permit any other Person to consolidate with or
merge with it, unless (1) Company is the surviving entity of such merger or
consolidation, (2) no Event of Default shall exist immediately prior to and
after giving effect to such merger or consolidation, (3) Company shall have
provided Laurus copies of all documentation relating to such merger or
consolidation and (4) Company shall have provided Laurus with at least thirty
(30) days' prior written notice of such merger or consolidation; (ix) materially
change the nature of the business in which it is presently engaged; (x) 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; (xi) enter into any
transaction with any employee, director or Affiliate, except in the ordinary
course on arms-length terms; or (xii) bill Accounts under any name except the
present name of Company or its existing Subsidiaries.
18
(f) None of the proceeds of the Loans hereunder will 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.
(g) Borrower will bear the full risk of loss from any loss of any
nature whatsoever with respect to the Collateral. At Borrower's own cost and
expense in amounts and with carriers acceptable to Laurus, Borrower shall (i)
keep all its insurable properties and properties in which it has an interest
insured against the hazards of fire, 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 Borrower'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
Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through Governmental Authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which Borrower is engaged in business; and (v) furnish Laurus
with (x) certificates as to all such insurance coverages and evidence of the
maintenance of such policies at least thirty (30) days before any expiration
date, (y) endorsements to such policies naming Laurus as "co-insured" or
"additional insured" and appropriate loss payable endorsements in form and
substance satisfactory to Laurus, naming Laurus as loss payee, and (z) evidence
that as to Laurus the insurance coverage shall not be impaired or invalidated by
any act or neglect of Borrower and the insurer will provide Laurus with at least
thirty (30) days notice prior to cancellation or expiration thereof. Borrower
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 Borrower and
Laurus jointly. If any insurance losses are paid by check, draft or other
instrument payable to Borrower and Laurus jointly, Laurus may endorse Borrower's
name thereon and do such other things as Laurus may deem advisable to reduce the
same to cash. Laurus is hereby authorized to adjust and compromise claims. All
loss recoveries received by Laurus upon any such insurance may be applied to the
Obligations, in such order as Laurus in its sole discretion shall determine or
shall otherwise be delivered to the Borrower. Any surplus shall be paid by
Laurus to Borrower or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by Borrower to Laurus, on demand.
(h) Company will at all times have authorized and reserved a sufficient
number of shares of Common Stock to provide for the conversion of the Notes and
exercise of the Warrants.
(i) Company owns 100% of the issued and outstanding shares of the UK
Subsidiary and will not sell, assign, transfer, pledge, hypothecate or otherwise
dispose of or encumber such shares as long as the Obligations remain
outstanding.
19
14. Further Assurances. At any time and from time to time, upon the
written request of Laurus and at the sole expense of Borrower, Borrower shall
promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Laurus may request (a) to obtain the
full benefits of this Agreement and the Ancillary Agreements, (b) to protect,
preserve and maintain Laurus' rights in the Collateral and under this Agreement
or any Ancillary Agreement, or (c) to enable Laurus to exercise all or any of
the rights and powers herein granted or any Ancillary Agreement.
15. Power of Attorney. Borrower hereby appoints Laurus, or any other
Person whom Laurus may designate as Borrower's attorney, with power to: (i)
endorse Borrower's name on any checks, notes, acceptances, money orders, drafts
or other forms of payment or security that may come into Laurus' possession;
(ii) sign Borrower's name on any invoice or bill of lading relating to any
Accounts, drafts against Account Debtors, schedules and assignments of Accounts,
notices of assignment, financing statements and other public records,
verifications of Account and notices to or from Account Debtors; (iii) verify
the validity, amount or any other matter relating to any Account by mail,
telephone, telegraph or otherwise with Account Debtors; (iv) do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (v) on or after the occurrence and continuation of an Event of
Default, notify the post office authorities to change the address for delivery
of Borrower's mail to an address designated by Laurus, and to receive, open and
dispose of all mail addressed to Borrower. Borrower hereby ratifies and approves
all acts of the attorney. Neither Laurus, nor the attorney will be liable for
any acts or omissions or for any error of judgment or mistake of fact or law,
except for gross negligence or willful misconduct. This power, being coupled
with an interest shall become effective only upon the occurrence of an Event of
Default hereunder, and is irrevocable so long as Laurus has a security interest
and until the Obligations have been fully satisfied.
16. 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 Initial Term. At Laurus' election following the
occurrence of an Event of Default, Laurus may terminate this Agreement. The
termination of the Agreement shall not affect any of Laurus' rights hereunder or
any Ancillary Agreement and the provisions hereof and thereof shall continue to
be fully operative until all transactions entered into, rights or interests
created and the Obligations have been disposed of, concluded or liquidated.
Notwithstanding the foregoing, Laurus shall release its security interests at
any time after thirty (30) days notice upon payment to it of all Obligations if
Companies shall have (i) provided Laurus with an executed release of any and all
claims which Companies 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) three percent (3%) of the Capital Availability Amount if such
payment occurs prior to the first anniversary of the Initial Term or any
applicable renewal term, and (2) two (2%) of the Capital Availability Amount if
such payment occurs on or after the first anniversary and prior to the second
anniversary of the Initial Term or any applicable renewal term and one percent
(1%) if such termination occurs thereafter during the Initial Term; such fee
20
being intended to compensate Laurus for its costs and expenses incurred in
initially approving this Agreement or extending same. Such early payment fee
shall be due and payable by Borrower to Laurus upon termination by acceleration
of this Agreement by Laurus due to the occurrence and continuance of an Event of
Default.
17. 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 Borrower's
account may from time to time be temporarily in a zero or credit position, until
(a) all of the Obligations of Borrower have been paid or performed in full after
the termination of this Agreement. Laurus shall not be required to send
termination statements to Borrower, or to file them with any filing office,
unless and until this Agreement and the Ancillary Agreements shall have been
terminated in accordance with their terms and all Obligations paid in full in
immediately available funds.
18. Events of Default. The occurrence of any of the following shall
constitute an Event of Default:
(a) failure to make payment of any of the Obligations when required
hereunder;
(b) failure 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 Borrower's books;
(c) failure to perform under and/or committing any breach of this
Agreement or any Ancillary Agreement or any other agreement between Borrower and
Laurus which shall continue for a period of fifteen (15) days after the
occurrence thereof;
(d) the occurrence of a default under any agreement to which Borrower
is a party with third parties which has a Material Adverse Effect;
(e) any representation, warranty or statement made by Borrower
hereunder, in any Ancillary Agreement, any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in any
material respect;
(f) an attachment or levy is made upon Borrower's assets having an
aggregate value in excess of $100,000 or a judgment is rendered against Borrower
or Borrower's property involving a liability of more than $100,000 which shall
not have been vacated, discharged, stayed or bonded pending appeal within thirty
(30) days from the entry thereof;
(g) any change in Borrower'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 in favor of Laurus or a Permitted Lien;
21
(i) if Borrower shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within forty five (45) 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) Borrower shall admit in writing its inability, or be generally
unable to pay its debts as they become due or cease operations of its present
business;
(k) any Affiliate or Subsidiary of the Borrower shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under the federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws or
(viii) take any action for the purpose of effecting any of the foregoing;
(l) Borrower directly or indirectly sells, assigns, transfers, conveys,
or suffers or permits to occur any sale, assignment, transfer or conveyance of
any assets of Borrower or any interest therein, except as permitted herein;
(m) the occurrence of a change in the controlling ownership of the
Borrower;
(n) a default by Borrower in the payment, when due, of any principal of
or interest on any other indebtedness for money borrowed in an amount greater
than $50,000, which is notcured within any applicable cure or grace period, or
being contested in good faith by the Borrower;
(o) the indictment or threatened indictment of Borrower or any
executive officer of Borrower under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against Borrower or any
executive officer of Borrower pursuant to which statute or proceeding penalties
or remedies sought or available include forfeiture of any of the property of
Borrower; or
(p) if an Event of Default shall occur under and as defined in any
Note.
19. Remedies. Following the occurrence of an Event of Default, Laurus
shall have the right to demand repayment in full of all Obligations, whether or
not otherwise due. Until all Obligations have been fully satisfied, Laurus shall
retain its Lien in all Collateral. Laurus shall have, in addition to all other
22
rights provided herein and in each Ancillary Agreement, the rights and remedies
of a secured party under the UCC, and under other applicable law, all other
legal and equitable rights to which Laurus may be entitled, including the right
to take immediate possession of the Collateral, to require Borrower to assemble
the Collateral, at Borrower's 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 Borrower 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 Borrower,
Borrower agrees not to charge Laurus for storage thereof), and the right to
apply for the appointment of a receiver for Borrower's property. Further, Laurus
may, at any time or times after the occurrence of an Event of Default, sell and
deliver all Collateral held by or for Laurus at public or private sale for cash,
upon credit or otherwise, at such prices and upon such terms as Laurus, in
Laurus' sole discretion, deems advisable or Laurus may otherwise recover upon
the Collateral in any commercially reasonable manner as Laurus, in its sole
discretion, deems advisable. The requirement of reasonable notice shall be met
if such notice is mailed postage prepaid to Borrower at Borrower's address as
shown in Laurus' records, at least ten (10) days before the time of the event of
which notice is being given. Laurus may be the purchaser at any sale, if it is
public. In connection with the exercise of the foregoing remedies, Laurus is
granted permission to use all of Borrower's trademarks, tradenames, tradestyles,
patents, patent applications, licenses, franchises and other proprietary rights.
The proceeds of sale shall be applied first to all costs and expenses of sale,
including attorneys' fees, and second to the payment (in whatever order Laurus
elects) of all Obligations. After the indefeasible payment and satisfaction in
full in cash of all of the Obligations, and after the payment by Laurus of any
other amount required by any provision of law, including Section 608(a)(1) of
the Code (but only after Laurus has received what Laurus considers reasonable
proof of a subordinate party's security interest), the surplus, if any, shall be
paid to Borrower or its representatives or to whosoever may be lawfully entitled
to receive the same, or as a court of competent jurisdiction may direct.
Borrower shall remain liable to Laurus for any deficiency. In addition, Borrower
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 18(i) or 18(j), or (y) the cessation of
Borrower'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..
Borrower 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 Borrower 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.
20. Waivers. To the full extent permitted by applicable law, Borrower
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 Borrower may in any way be liable, and hereby
23
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. Borrower 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.
21. Expenses. Borrower shall pay all of Laurus' reasonable
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with the 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. Borrower 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 Borrower as Collateral for, or
any other Person as security for, Borrower's Obligations hereunder and (e) any
consultations in connection with any of the foregoing. Borrower shall also pay
Laurus' customary bank charges for all bank services (including wire transfers)
performed or caused to be performed by Laurus for Borrower at Borrower's request
or in connection with Borrower's loan account with Laurus. All such costs and
expenses together with all filing, recording and search fees, taxes and interest
payable by Borrower to Laurus (expressly excluding any federal income tax to
which Laurus may be subject in connection with Loans made hereunder or any state
franchise taxes to which Laurus may be subject) 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 Borrower and
Laurus which Laurus is or may be required to withhold or pay, Borrower agrees to
indemnify and hold Laurus harmless in respect of such taxes, and Borrower will
repay to Laurus the amount of any such taxes which shall be charged to
Borrower's account; and until Borrower 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 Borrower's credit and Laurus shall retain its Liens in any
and all Collateral.
22. Assignment By Laurus. Laurus may assign any or all of the
Obligations together with any or all of the security therefor to any Person
which is not a competitor of the Borrower and any such transferee shall succeed
to all of Laurus' rights with respect thereto. Upon such transfer, Laurus shall
be released from all responsibility for the Collateral to the extent same is
assigned to any transferee. Laurus may from time to time sell or otherwise grant
participations in any of the Obligations and the holder of any such
24
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. Borrower
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 Borrower were directly indebted to such holder in the amount of
such participation.
23. 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 Borrower and Laurus
or delay by Laurus in exercising the same, will not operate as a waiver; no
waiver by Laurus will be effective unless it is in writing and then only to the
extent specifically stated. Laurus' rights and remedies under this Agreement and
the Ancillary Agreements will be cumulative and not exclusive of any other right
or remedy which Laurus may have.
24. Application of Payments. Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times hereafter
received by Laurus from or on Borrower's behalf and Borrower 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.
25. Indemnity. Borrower agrees to indemnify and hold Laurus, and its
respective affiliates, employees, attorneys and agents (each, an "Indemnified
Person"), harmless from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses of any kind or nature
whatsoever (including attorneys' fees and disbursements and other costs of
investigation or defense, including those incurred upon any appeal) which may be
instituted or asserted against or incurred by any such Indemnified Person as the
result of credit having been extended, suspended or terminated under this
Agreement or any of the Ancillary Agreements or with respect to the execution,
delivery, enforcement, performance and administration of, or in any other way
arising out of or relating to, this Agreement, the Ancillary Agreements or any
other documents or transactions contemplated by or referred to herein or therein
and any actions or failures to act with respect to any of the foregoing, except
to the extent that any such indemnified liability is finally determined by a
court of competent jurisdiction to have resulted solely from such Indemnified
Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO BORROWER 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.
26. Revival. Borrower further agrees that to the extent Borrower 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
25
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.
27. Notices. Any notice or request hereunder may be given to Borrower
or Laurus at the respective addresses set forth below or as may hereafter be
specified in a notice designated as a change of address under this Section. Any
notice or request hereunder shall be given by registered or certified mail,
return receipt requested, hand delivery, overnight mail or telecopy (confirmed
by mail). Notices and requests shall be, in the case of those by hand delivery,
deemed to have been given when delivered to any officer of the party to whom it
is addressed, in the case of those by mail or overnight mail, deemed to have
been given three (3) business days after the date when deposited in the mail or
with the overnight mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus: Laurus Master Fund, Ltd.
c/o Laurus Capital Management, LLC
825 Third Avenue 14th Fl.
New York, New York 10022
Attention: John E. Tucker, Esq.
Telephone: (212) 541-4434
Telecopier: (212) 541-5800
If to Company: INyX, Inc
801 Brickell Avenue - 9th Floor
Miami, FL 33131
Attention: Chief Financial Officer
Telephone:
Telecopier: (416) 250-2663
With a copy to: Ronald L. Brown, Esq.
Andrews Kurth LLP
1717 Main Street, Suite 3700
Dallas, TX 75201
Tel: 214.659.4469
Fax: 214.659.4819
or such other address as may be designated in writing hereafter in accordance
with this Section 27 by such Person.
26
28. 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.
(b) BORROWER 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 BORROWER AND
LAURUS 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 BORROWER 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. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH IT
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS. BORROWER 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 BORROWER AT THE ADDRESS SET FORTH IN SECTION 27 AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'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
BORROWER ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO.
29. Limitation of Liability. Borrower acknowledges and understands that
in order to assure repayment of the Obligations hereunder Laurus may be required
27
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.
30. Entire Understanding. This Agreement and the Ancillary Agreements
contain the entire understanding between Borrower 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 Borrower'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.
31. 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.
32. Captions. All captions are and shall be without substantive meaning
or content of any kind whatsoever.
33. 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.
34. 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.
35. Publicity. Borrower hereby authorizes Laurus to make appropriate
announcements of the financial arrangement entered into by and between Borrower
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.
36. Legends. The Securities shall bear legends as follows;
(a) The 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
28
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 INYX, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(b) Any shares of Common Stock issued pursuant to conversion of the
Note or exercise of the Warrants, shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO INYX, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED."
(c) The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF
COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO INYX,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
29
IN WITNESS WHEREOF, the parties have executed this Security Agreement
as of the date first written above.
COMPANY: UK SUBSIDIARY:
INYX, INC. INYX PHARMA, LTD.
By: /s/ Jack Kachkar By: /s/ Steven Handley
------------------------- --------------------------
Jack Kachkar, Chairman Steven Handley, President
LAURUS MASTER FUND, LTD.
By: /s/ Eugene Grim
-------------------------
Eugene Grim, Director
30
Annex A - Definitions
"Account Debtor" means any Person who is or may be obligated with
respect to, or on account of, an Account.
"Accountants" has the meaning given to such term in Section 11(a).
"Accounts" means all "accounts", as such term is defined in the UCC or
its equivalent under the law of England and Wales, now owned or hereafter
acquired by any Person, including: (a) all accounts receivable, other
receivables, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper or Instruments) (including any such
obligations that may be characterized as an account or contract right under the
UCC); (b) all of such Person's rights in, to and under all purchase orders or
receipts for goods or services; (c) all of such Person's rights to any goods
represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods); (d) all rights to payment due to such
Person for Goods or other property sold, leased, licensed, assigned or otherwise
disposed of, for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be provided,
for the use or hire of a vessel under a charter or other contract, arising out
of the use of a credit card or charge card, or for services rendered or to be
rendered by such Person or in connection with any other transaction (whether or
not yet earned by performance on the part of such Person); and (e) all
collateral security of any kind given by any Account Debtor or any other Person
with respect to any of the foregoing.
"Accounts Availability" means the amount of Loans against Eligible
Accounts Laurus may from time to time make available to Company ninety percent
(90%) of the net face amount of Eligible Accounts based on Accounts of Company.
"Affiliate" of any Person means (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.
"Ancillary Agreements" means, the Notes, Warrants, Registration Rights
Agreement, 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 Borrower or any other Person or delivered
to Laurus, relating to this Agreement or to the transactions contemplated by
this Agreement or otherwise relating to the relationship between the Borrower
and Laurus.
"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
31
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.
"Borrower" means each of the Company and the UK Subsidiary, whose
obligations hereunder shall be joint and several.
"Business Day" means a day on which Laurus is open for business and
that is not a Saturday, a Sunday or other day on which banks are required or
permitted to be closed in the State of New York.
"Capital Availability Amount" means $3,500,000.
"Chattel Paper" means all "chattel paper," as such term is defined in
the UCC, including electronic chattel paper, now owned or hereafter acquired by
any Person.
"Closing Date" means the date on which Company shall first receive
proceeds of the initial Loans.
"Collateral" means all of Borrower's property and assets, whether real
or personal, tangible or intangible, and whether now owned or hereafter
acquired, or in which it now has or at any time in the future may acquire any
right, title or interests including all of the following property in which it
now has or at any time in the future may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all General Intangibles;
(e) all Accounts;
(f) all Deposit Accounts, other bank accounts and all funds on deposit
therein;
(g) all Investment Property;
(h) all Stock of INYX Pharma Ltd.;
(i) all Chattel Paper;
(j) all Letter-of-Credit Rights;
(k) all Instruments;
(l) all commercial tort claims set forth on Exhibit 1(A);
32
(m) all Books and Records;
(n) all Supporting Obligations including letters of credit and
guarantees issued in support of Accounts, Chattel Paper, General Intangibles and
Investment Property;
(o) (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 Borrower (whether for safekeeping, custody, pledge, transmission or
otherwise); and
(p) all products and Proceeds of all or any of the foregoing, tort
claims and all claims and other rights to payment including insurance claims
against third parties for loss of, damage to, or destruction of, 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.
"Contract Rate" means an interest rate per annum equal to the Prime
Rate plus three percent (3.00%) per annum, but subject to the immediately
following sentence, the Contract Rate shall not be less than seven percent
(7.00%). The Contract Rate shall be subject to adjustment if (i) the Company
shall have registered the shares of the Company's common stock underlying the
conversion of all the Minimum Borrowing Notes issued by the Company to Laurus
and that certain warrant issued to Laurus on a registration statement declared
effective by the SEC, and (ii) the volume weighted average price of the Common
Stock as reported by Bloomberg, L.P. on the principal market for any of the ten
(10) trading days immediately preceding an interest payment date exceeds the
then applicable Fixed Conversion Price in such percentages as outlined in the
table below, the Contract Rate for the succeeding calendar month shall
automatically be adjusted:
-------------------------------------------------- --------------------
Contract Rate
-------------------------------------------------- --------------------
125% of the Fixed Conversion Price Prime plus 2.75%
-------------------------------------------------- --------------------
150% of the Fixed Conversion Price Prime plus 2.5%
-------------------------------------------------- --------------------
175% of the Fixed Conversion Price Prime plus 2.25%
-------------------------------------------------- --------------------
For each incremental 25% increase such Contract Rate shall be reduced
by an additional 25 basis points.
-----------------------------------------------------------------------
In no event shall the Contract Rate be less than zero (0.00%).
"Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Rate" has the meaning given to such term in Section 5(a)(iii).
"Deposit Accounts" means all "deposit accounts" as such term is defined
in the UCC, now or hereafter held in the name of any Person, including, without
limitation, the Lockbox Account.
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"Documents" means all "documents", as such term is defined in the UCC,
now owned or hereafter acquired by any Person, wherever located, including all
bills of lading, dock warrants, dock receipts, warehouse receipts, and other
documents of title, whether negotiable or non-negotiable.
"Eligible Accounts" means and includes each Account of the UK
Subsidiary which conforms to the following criteria: (a) shipment of the
merchandise or the rendition of services has been completed; (b) no return,
rejection or repossession of the merchandise has occurred; (c) merchandise or
services shall not have been rejected or disputed by the Account Debtor and
there shall not have been asserted any offset, defense or counterclaim; (d)
continues to be in full conformity with the representations and warranties made
by Borrower 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 a Account; (j) the
Account Debtor is located in the United Kingdom and is invoiced in British
Pounds Sterling; 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 Kingdom; (k) Laurus has a first priority
perfected Lien in such Account and such Account is not subject to any Lien other
than Permitted Liens; (l) does not arise out of transactions with any employee,
officer, director, stockholder or Affiliate of Company; (m) is payable to
Company; (n) does not arise out of a bill and hold sale prior to shipment and
does not arise out of a sale to any Person to which Company is indebted; (o) is
net of any returns, discounts, claims, credits and allowances; (p) does not
arise out of government contracts or any department, agency or instrumentality
of the government; (q) is a good and valid account representing an undisputed
bona fide indebtedness incurred by the Account Debtor therein named, for a fixed
sum as set forth in the invoice relating thereto with respect to an
unconditional sale and delivery upon the stated terms of goods sold by Company
or work, labor and/or services rendered by Company; (r) does not arise out of
progress billings prior to completion of the order; (s) the total unpaid
Accounts from such Account Debtor does not exceed twenty-five percent (25%) of
all Eligible Accounts; (t) Company's right to payment is absolute and not
contingent upon the fulfillment of any condition whatsoever; (u) 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 Company and (w) is otherwise satisfactory to Laurus as
determined by Laurus in the exercise of its sole discretion. In the event
Company requests that Laurus include within Eligible Accounts certain Accounts
of one or more of Company's acquisition targets, Laurus shall at the time of
such request consider such inclusion, but any such inclusion shall be at the
sole option of Laurus and shall at all times be subject to the execution and
delivery to Laurus of all such documentation (including, without limitation,
guaranty and security documentation) as Laurus may require in its sole
discretion.
34
"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" shall have the meaning given to such term in Section 12(g).
"Event of Default" means the occurrence of any of the events set forth
in Section 18.
"Fixed Conversion Price" has the meaning given such term in the Minimum
Borrowing Note.
"Fixtures" means all "fixtures" as such term is defined in the UCC, now
owned or hereafter acquired by any Person.
"Formula Amount" has the meaning set forth in Section 2(a)(i).
"GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time in the United States of America.
"General Intangibles" means all "general intangibles" as such term is
defined in the UCC, now owned or hereafter acquired by any Person including all
right, title and interest that such Person may now or hereafter have in or under
any contract, all Payment Intangibles, customer lists, Licenses, Intellectual
Property, interests in partnerships, joint ventures and other business
associations, permits, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, Software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials, Books and Records, Goodwill
(including the Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key-person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now
owned or hereafter acquired by any Person, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC, manufactured
homes, 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.
35
"Guarantor" means and any Person who may guarantee payment of
performance of the whole or any part of the Obligations.
"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.
"Indemnified Person" shall have the meaning given to such term in
Section 25.
"Initial Term" means the Closing Date through the close of business on
the day immediately preceding the second 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.
"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 Licenses, patents, patent
registrations, copyrights, copyright registrations, trademarks, trademark
registrations, trade secrets and customer lists.
"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.
36
"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" shall have the meaning set forth in Section 2(a)(i) and shall
include all other extensions of credit hereunder and under any Ancillary
Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
condition, operations, assets, business or prospects of Company, (b) Company's
ability to pay or perform the Obligations in accordance with the terms hereof or
any Ancillary Agreement, (c) the value of the Collateral, the Liens on the
Collateral or the priority of any such Lien or (d) the practical realization of
the benefits of Laurus' rights and remedies under this Agreement and the
Ancillary Agreements.
"Maximum Legal Rate" shall have the meaning given to such term in
Section 5(a)(iv).
"Minimum Borrowing Amount" means One Million Dollars ($1,000,000),
which such aggregate amount shall be evidenced by Minimum Borrowing Notes.
"Minimum Borrowing Notes" shall mean each Secured Convertible Note,
which shall be issued in a series, made by the Company in favor of Laurus to
evidence the Minimum Borrowing Amount.
"Notes" means each of the Minimum Borrowing Notes and the Revolving
Note made by Company in favor of Laurus in connection with the transactions
contemplated hereby, as the same may be amended, modified and supplemented from
time to time, as applicable.
"Obligations" means all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Company to Laurus (or any corporation
that directly or indirectly controls or is controlled by or is under common
control with Laurus) of every kind and description (whether or not evidenced by
any note or other instrument and whether or not for the payment of money or the
performance or non-performance of any act), direct or indirect, absolute or
contingent, due or to become due, contractual or tortious, liquidated or
unliquidated, whether existing by operation of law or otherwise now existing or
hereafter arising including any debt, liability or obligation owing from Company
to others which Laurus may have obtained by assignment or otherwise and further
including all interest (including interest accruing at the then applicable rate
provided in this Agreement after the maturity of the Loans and interest accruing
at the then applicable rate provided in this Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), charges or any other payments Company
is required to make by law or otherwise arising under or as a result of this
37
Agreement and the Ancillary Agreements, together with all reasonable expenses
and reasonable attorneys' fees chargeable to Company's account or incurred by
Laurus in connection with Company's account whether provided for herein or in
any Ancillary Agreement.
"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 workmen'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
applicable Company 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 applicable Company in conformity with GAAP
provided, that, the Lien shall have no effect on the priority of Liens in favor
of Laurus or the value of the assets in which Laurus has a Lien; (e) Purchase
Money Liens securing Purchase Money Indebtedness to the extent permitted in this
Agreement and (f) Liens specified on Exhibit 2 hereto.
"Person" means any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether federal, state,
county, city, municipal or otherwise, including any instrumentality, division,
agency, body or department thereof), and shall include such Person's successors
and assigns.
"Prime Rate" means the "prime rate" published in The Wall Street
Journal from time to time. The Prime Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in such rate.
"Proceeds" means "proceeds", as such term is defined in the UCC and, in
any event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Company or any other Person from time to time
with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to Company from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of any
Collateral by any governmental body, governmental authority, bureau or agency
(or any person acting under color of governmental authority); (c) any claim of
Company against third parties (i) for past, present or future infringement of
any Intellectual Property or (ii) for past, present or future infringement or
dilution of any trademark or trademark license or for injury to the goodwill
associated with any trademark, trademark registration or trademark licensed
under any trademark License; (d) any recoveries by Company 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
38
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 those registration rights
agreements from time to time entered into between Company and Laurus, as
amended, modified and supplemented from time to time.
"Revolving Note" means that secured revolving note made by the Company
in favor of Laurus in the aggregate principal amount of up to Two Million Five
Hundred Thousand United States Dollars (USD$2,500,000).
"Securities" means the Notes and the Warrants being issued by the
Company to Laurus pursuant to this Agreement and the Ancillary Agreements and
the shares of the common stock of the Company which may be issued pursuant to
conversion of such Notes in whole or in part or exercise of such Warrants.
"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" of any Person means a corporation or other entity whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
39
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Supporting Obligations" means all "supporting obligations" as such
term is defined in the UCC.
"Term" means, as applicable, the Initial Term and any Renewal Term.
"UCC" means the Uniform Commercial Code as the same may, from 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.
"Warrants" has the meaning set forth in the Registration
Rights Agreements.
40