-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NNJLNmxNM5YyUJsMm4xvABKLgMBcJJyyryytyGKlYGmNAHX6lqLboXVQOz4j1qsA miV6cRYhADcmcGdNDG/37A== 0000930413-03-003590.txt : 20031210 0000930413-03-003590.hdr.sgml : 20031210 20031210171718 ACCESSION NUMBER: 0000930413-03-003590 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VENTURES NATIONAL INC CENTRAL INDEX KEY: 0000770471 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 870433444 STATE OF INCORPORATION: UT FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-32847 FILM NUMBER: 031047958 BUSINESS ADDRESS: STREET 1: 5525 SOUTH 900 EAST STREET 2: #110 CITY: SALT LAKE CITY STATE: UT ZIP: 84117 BUSINESS PHONE: 8133281002 MAIL ADDRESS: STREET 1: 5525 SOUTH 900 EAST STREET 2: #110 CITY: SALT LAKE CITY STATE: UT ZIP: 84117 10KSB 1 c30085_10ksb.txt ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 10-KSB ------------- (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended August 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- ------------ Commission File Number 000-32847 ------------- VENTURES-NATIONAL INCORPORATED (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) ------------- UTAH 87-0433444 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 44358 OLD WARM SPRINGS BOULEVARD FREMONT, CALIFORNIA 94538 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 824-1240 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.001 PAR VALUE ------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of November 17, 2003 the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $4,311,973, based upon the closing sales price on the Nasdaq Stock Market for that date. As of November 17, 2003, the number of issued and outstanding shares of the registrant's Common Stock, par value $0.01 per share, was 15,724,687. Transitional small business disclosure format (check one) Yes [ ] No [X] ================================================================================ VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.) ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED AUGUST 31, 2003 TABLE OF CONTENTS
PART I PAGE ---- Item 1. Business................................................................................... 1 Item 2. Properties................................................................................. 18 Item 3. Legal Proceedings.......................................................................... 19 Item 4. Submission of Matters to a Vote of Security Holders........................................ 19 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 19 Item 6. Management's Discussion and Analysis of Financial Condition and Results Of Operations...... 20 Item 7. Financial Statements and Supplementary Data................................................ 34 Item 8. Changes in and Disagreements with Accountants on Auditing and Financial Disclosure......... 57 Item 8A. Controls and Procedures ................................................................... 57 PART III Item 9. Directors and Executive Officers of the Registrant......................................... 57 Item 10. Executive Compensation..................................................................... 59 Item 11. Security Ownership of Certain Beneficial Owners and Management............................. 63 Item 12. Certain Relationships and Related Transactions............................................. 65 Item 13. Exhibits and Reports on Form 8-K .......................................................... 67 Signatures ........................................................................................... 68
2 PART I ITEM 1. BUSINESS Unless otherwise described therein, or unless the context otherwise requires, references to "the Company", "Titan", "it", "we", "our" or "its", refer to the Company, together with its subsidiaries and affiliates, and their respective predecessors. GENERAL We are a fabrication service provider of time sensitive, high tech, prototype and pre-production printed circuit boards ("PCBs") through our wholly-owned subsidiaries Titan PCB West, Inc. ("Titan PCB West") (formerly Titan EMS, Inc.), which we acquired through a merger (the "Merger") on August 30, 2002, and Titan PCB East, Inc. ("Titan PCB East"), the assets of which we acquired from Eastern Manufacturing Corporation's secured creditor on February 28, 2003. We provide time-critical PCB manufacturing services to original equipment manufacturers, contract manufacturers and electronic manufacturing services providers. Our prototype PCBs serve as the foundation in many electronic products used in telecommunications, medical devices, automotive, military applications, aviation components, networking and computer equipment. Our time sensitive and high quality manufacturing services enable our customers to shorten the time it takes them to get their products from the research and development phase to the production phase, thus increasing their competitive position. Our focus is on high quality niche Rigid and HVR Flex(TM) (rigid flex) PCBs consisting of complex, multi-layered, fine-lines and high-performance materials with delivery cycles between 24 hours and standard 14 day lead times at a value-added price. We were incorporated in Utah in 1985 for the purpose of seeking potential business enterprises. In 1987, we acquired the business operations of Woroner Technology and engaged in the manufacturing and sale of products in military and consumer markets until 1990, when these operations were discontinued. After 1990, we were largely inactive until August 30, 2002 when we acquired the business operations of Titan PCB West through the issuance of 6,880,490 shares of common stock which at the time represented approximately 81% of our outstanding common stock. Beginning in 2001, SVPC Partners LLC, a Delaware limited liability company that commenced its operations in July 2001 ("SVPC"), began acquiring cutting edge technology equipment, processes, customer lists and orders from competitors unable to remain in business principally due to a severe market downturn and excessive levels of indebtedness. On July 16, 2001, SVPC acquired all of the assets of SVPC Circuit Systems, Inc. and certain assets of Circuit Systems, Inc. ("CSI") pursuant to a combined approved bankruptcy court sale. After these acquisitions, SVPC acquired certain system integration division assets out of bankruptcy from creditors of Paragon Electronic Systems, Inc. On August 6, 2002, Titan PCB West acquired all of the non-real estate assets and assumed all of the non-term loan liabilities of SVPC in exchange for the issuance to SVPC of 800,000 shares of Titan PCB West common stock, pursuant to the terms and conditions of a Contribution Agreement and Assignment and Assumption of Liabilities dated August 6, 2002. Beginning in the year 2001, Titan began acquiring cutting edge technology equipment and processes from competitors unable to remain in business due to a severe market downturn and overwhelming debt. Titan has also obtained customer lists and orders from several of these firms, resulting in new business opportunities. HISTORY OF THE COMPANY We were organized under the laws of the State of Utah on March 1, 1985, with an initial authorized capital of $100,000, consisting of 100,000,000 shares of one mill ($0.001) par value common voting stock ("Common Stock"). We were formed for the primary purpose of seeking potential business enterprises which in the opinion of our management would prove profitable. We filed an S-18 Registration Statement with the Securities and Exchange Commission on May 30, 1985. The Registration Statement became effective on November 15, 1985, and we completed a public offering of certain of our securities on or about March 13, 1986. 1 On August 12, 1985, our Articles of Incorporation were amended to increase authorized capital to $500,000, consisting of 500,000,000 shares of Common Stock. The Articles of Incorporation were also amended on August 26, 1985, to expand the purposes for which we were organized to include various types of investments. In December 1986, we executed a Letter of Intent with Woroner Technology Corporation of Florida, a Florida corporation and manufacturing and marketing firm of electronic systems and non-electronic products for the military and consumer markets world-wide ("Woroner Technology"). The Articles of Incorporation were again amended on May 1, 1987, to increase our authorized capital to $950,000, consisting of 950,000,000 shares of Common Stock. On May 14, 1987, we acquired all of the outstanding common stock of Woroner Technology through an exchange of our Common Stock pursuant to an Agreement and Plan of Merger. We succeeded to the business operations of Woroner Technology and were subsequently involved in the manufacturing and sale of these products in military and consumer markets until 1990, when these operations proved to be unsuccessful and were discontinued. We were inactive from 1990 until a court ordered annual meeting of the stockholders was duly called and held on March 9, 2000, at which a new Board of Directors was elected. At a special meeting of the newly constituted Board of Directors held April 20, 2000, the fiscal year of we also changed from February 28 in each year to June 30 in each year; and we once again became a developmental stage company, following our reinstatement as a corporation in good standing under the laws of the State of Utah. Effective February 22, 2002, we effected a reverse split of our outstanding Common Stock on a basis of one for 6,000, reducing our 590,221,925 then outstanding shares of Common Stock to 99,211 shares. On June 28, 2002, we entered into a letter of intent with Titan PCB West , a manufacturer of time sensitive, high tech, prototype and pre-production printed circuit boards. Effective August 30, 2002 (the "Effective Time"), through our wholly-owned subsidiary Titan EMS Acquisition Corp., a Delaware corporation ("AcquisitionCo"), we acquired all of the capital stock of Titan PCB West through an exchange of our Common Stock pursuant to an Agreement and Plan of Merger (the "Merger"). In connection with the Merger, our fiscal year was also changed from June 30 to August 31. We transmitted the information required by Rule 14f-1 under the Securities Exchange Act of 1934, as amended, to our holders of record on September 5, 2002. Since the recommencement of our developmental stage in March 2000, and until completion of our acquisition of Titan PCB West in August 2002, we did not engage in any material business operations other than seeking potential acquisition or merger candidates, and as of August 30, 2002, we had no assets and had liabilities of $9,660. In connection with the Merger, AcquisitionCo merged with and into Titan PCB West through the exchange of 6,880,490 shares of our Common Stock for all of Titan PCB West's outstanding shares of common stock. Upon the effectiveness of the Merger, the former executive officers resigned from their respective positions with us and the executive officers of Titan were duly elected as their successors as follows: David M. Marks, Chairman of the Board, and Louis J. George - President, Chief Executive Officer and Acting Treasurer. Our directors immediately prior to the Effective Time irrevocably resigned effective as of the close of business on September 15, 2002 and the following directors of Titan PCB West at the Effective Time were elected as our directors commencing at the close of business on September 15, 2002, each to serve until their respective successors shall have been elected and qualified: Mr. Marks, Mr. George, Gregory B. Jacobs, and Robert I. Weisberg. 2 On August 26, 2002, Forest Home Investors I, LLC ("Forest Home") and Phoenix Business Trust ("Phoenix Trust"), lenders of Titan PCB West, converted indebtedness owed by Titan PCB West into shares of Titan PCB West common stock at the conversion price of $1.50 per share, which resulted in the issuance of 6,667 shares and 123,823 shares to Forest Home and Phoenix Trust, respectively. Immediately after the effective date of the agreement, each of Ohio Investors of Wisconsin LLC ("Ohio Investors") and Irrevocable Children's Trust ("ICT") converted certain outstanding indebtedness of Titan PCB West into shares of our Common Stock at a conversion price of $1.50 per share, resulting in the issuance of 1,160,764 shares of Common Stock to Ohio Investors and 68,667 shares of Common Stock to ICT. The conversion price at which Ohio Investors and ICT agreed to convert our indebtedness into shares of Common Stock was initially determined by reference to our then contemplated offering price of Units (as defined below) to be issued in a private placement. On October 28, 2002, we revised the offering price to $0.75 per share of Common Stock. Accordingly, on December 9, 2002, we entered into a letter agreement with each of ICT and Ohio Investors to provide for the issuance of 1,160,764 additional shares to Ohio Investors and 68,667 additional shares of Common Stock to ICT, to reflect a corresponding adjustment of the conversion price to $0.75 from $1.50. The Shares related to the conversion of these debts were issued subsequent to August 31, 2002 include the corresponding effect of the translation. Upon the effectiveness of the Merger, we commenced a private placement (the "Private Placement") offering of units (each, a "Unit"), each Unit being comprised of one share of Common Stock and a 5-year warrant to purchase one share of Common Stock at an exercise price of $1.50 per share. Effective October 28, 2002, we amended the offering structure to provide for, inter alia, the offering of shares of Common Stock (without Common Stock purchase warrants) at $0.75 per share, reduced from the previous offering price of $1.50 per Unit (the "Repricing"). Each investor in the private placement who had purchased Units prior to October 28, 2002 agreed to surrender their rights to Units and to apply their respective investment amounts toward the purchase of shares of Common Stock at $0.75 per share. During the year 2003, we sold 3,059,233 shares of Common Stock in the Private Placement for aggregate gross proceeds of $2,294,425. During the year, the Company also issued 428,288 shares as a self imposed penalty for the untimely filing of our registration statement. HISTORY OF TITAN AND ITS PREDECESSOR SVPC PARTNERS, LLC Titan is a manufacturer of time sensitive, high tech, prototype and pre-production printed circuit boards with the equipment capability for expansion to include backplane assembly. Beginning in 2001, Titan, through its predecessor SVPC Partners LLC, a Delaware limited liability company that commenced its operations in July 2001 ("SVPC"), began acquiring cutting edge technology equipment, processes, customer lists and orders from competitors unable to remain in business principally due to a severe market downturn and excessive levels of indebtedness. On July 16, 2001, SVPC acquired all of the assets of SVPC Circuit Systems, Inc. and certain assets of Circuit Systems, Inc. ("CSI") pursuant to a combined approved bankruptcy court sale. After acquiring SVPC Circuit Systems, Inc. and certain assets of CSI, Titan acquired certain system integration division assets out of bankruptcy from creditors of Paragon Electronic Systems, Inc. On August 12, 2002, Titan acquired all of the non-real estate assets and assumed all of the non-term loan liabilities of SVPC in exchange for the issuance to SVPC of 800,000 shares of Titan PCB West common stock, pursuant to the terms and conditions of a Contribution Agreement and Assignment and Assumption of Liabilities. In connection with the contribution, certain consents had not been received as of the closing date. Titan PCB West and SVPC have agreed that if such agreements are not received or they are such that the value of the contribution is detrimentally affected, SVPC will return shares in an amount equal to the resulting damages based on a value of $1.50 per share. We expect to be able to obtain all requisite consents. On August 12, 2002, Titan PCB West acquired certain intangible assets contributed by Louis George, our President and Chief Executive Officer, in exchange for 50,000 shares of Titan common stock valued at $1.50 per share, pursuant to the terms and conditions of a Contribution Agreement and Assignment and Assumption of Liabilities. 3 On February 27, 2003, through our subsidiary, Titan PCB East, we acquired substantially all of the assets of Eastern Manufacturing Corporation, an Amesbury, Massachusetts-based manufacturer of rigid-flex printed circuits using a patented manufacturing process (the "HVR Flex(TM) Process"), for approximately $500,000 in a foreclosure sale from Eastern Manufacturing Corporation's secured lender Eastern Bank. The acquired assets included equipment, work-in-progress, inventory, technology, technology and patent licenses and customer lists. In connection with this acquisition, we were assigned Eastern Manufacturing Corporation's rights under a license agreement with Coesen Inc. Inc., a New Hampshire corporation ("Coesen Inc."), to manufacture PCBs using the HVR Flex(TM) Process and Titan PCB East was granted an option to purchase certain real estate assets. We also entered into a lease for the facility in Amesbury, Massachusetts previously leased by Eastern Manufacturing Corporation. We financed the acquisition of Eastern Manufacturing Corporation's assets through the issuance and sale on February 27, 2003 of secured promissory notes by Titan PCB East to a limited number of accredited investors in a private placement. The promissory notes have an aggregate face amount equal to $640,000, bear interest at the rate of 24% per annum, payable quarterly, and have an expiration date of February 27, 2004. The promissory notes are secured by the equipment assets of Titan PCB West and against an option to purchase certain real estate held by Titan PCB East. We expect to repay the promissory notes with the proceeds from the issuance of other short-term promissory notes with more favorable terms, additional equity, or from the ability to enter into a sale-leaseback transaction on the real estate optioned by Titan PCB East. In connection with the issuance of the promissory notes, the investors were issued an aggregate of 320,000 shares of common stock, pro rata according to their respective investment amounts. Effective March 5, 2003, we purchased shares of common stock of Coesen Inc. representing 33.3% of its issued and outstanding shares of common stock from Mr. Howard Doane, the principal stockholder and an officer and director of Eastern Manufacturing Corporation, in exchange for 30,000 shares of common stock and $5,000 in cash. In connection with the share purchase, David M. Marks, one of our Directors, was elected to the Board of Directors of Coesen Inc. and Mr. Doane resigned as a director of Coesen Inc.. In addition, Mr. Doane and the two other stockholders of Coesen Inc. entered into a stockholders agreement with Coesen Inc. dated as of March 5, 2003 pursuant to which they agreed not to take actions not in the ordinary course of business without our prior written consent. In consideration for the license rights to the proprietary technology of Coesen Inc., we have agreed to pay Coesen Inc. a royalty in the amount of 2.0% of revenues derived from our sale of products using this technology, payable on a quarterly basis, subject to Coesen Inc. forgiving the royalty payment should certain directors of Coesen Inc. be under employment contracts with us. Our corporate offices and operations are located at 44358 Old Warm Springs Boulevard, Fremont, California 94538. Our telephone number is (510) 824-1200. We have two active wholly-owned subsidiaries, Titan PCB West and Titan PCB East, each of which maintains business offices at our principal business office in Fremont, California. BUSINESS OF TITAN Titan is a manufacturer of time sensitive, high tech, prototype and pre-production printed circuit boards with the equipment capability for expansion to include backplane assembly. Titan provides time-critical printed circuit board manufacturing services to original equipment manufacturers and electronic manufacturing services providers. Titan's prototype printed circuit boards serve as the foundation in many electronic products used in telecommunications, medical devices, automotive, military applications, aviation components, networking and computer equipment. Titan's time-to-market manufacturing services enable its customers to shorten their cycle time throughout the development, introduction and ramp-up phases of bringing their products to the market. Titan is able to produce high technology printed circuit boards with surface finishes consisting of tin/lead, organic solderability coating also known as OSP, electrolytic soft and hard gold and tin/nickel finishes. Titan's printed circuit boards are also engineered to support electrical characteristics for high-speed digital designs consisting of controlled impedance. 4 Titan's bare-board manufacturing operations provide time sensitive printed circuit boards to the electronics industry at a competitive price. Titan's focus is on niche printed circuit boards consisting of complex high layer count, fine-lines and high-performance materials with capabilities to deliver in 24 hours at a premium to a 10-day delivery period. Titan's standard panel sizes range from 12" x 18" to an oversize panel of 24" x 30". The base cost of a printed circuit board is primarily determined by the amount of boards that can be placed on manufacturing process panel. Titan has the capability to produce up to 34 layer circuit boards with finished hole aspect ratios up to 15 to 1 (15:1). The number of layers of a printed circuit board can affect Titan's weekly manufacturing capacity. For example, an order representing a higher number of layers, 12 or more, will decrease overall capacity, whereas an order for printed circuit boards with less than 12 layers will increase overall capacity. However, we expect that any decreases in capacity caused by the manufacture of printed circuit boards with a greater number of layers would be offset by a higher average panel price. INDUSTRY BACKGROUND Printed circuit boards serve as the foundation of most complex electronic products. The printed circuit board manufacturing industry has benefited from the proliferation of electronic products in a variety of applications, ranging from consumer products, such as cellular telephones, to high-end commercial electronic products, such as communications and computer networking equipment. Printed circuit boards are manufactured from sheets of laminated base material purchased from various laminate suppliers. Each sheet (also known as a manufacturing process panel) typically consists of multiple printed circuit boards, while each board contains its own identity consisting of electrical circuitry etched from copper to provide an electrical connection between the components mounted to it. Products that utilize printed circuit boards have high levels of complexity and short life cycles as original equipment manufacturers continually develop new and increasingly sophisticated products. Titan believes these characteristics benefit printed circuit board manufacturers that can assist original equipment manufacturers in bringing a product to market faster by providing the engineering expertise, process controls and execution capabilities to accelerate product development and quickly proceed to volume production. Manufacturers of complex electronics products in high-growth markets, including consumer electronics, the computer and networking industry, medical devices, military contracts, automobiles, aviation and the telecommunications industry are continually under pressure to bring their products to market faster. The success of these industries is dependent on, among other things, technological advancements, demand for a wider variety of product applications, and increasingly powerful electronic components. Titan believes that the time-critical and highly complex nature of the new and emerging markets will further increase the demand for rapid production of complex printed circuit boards. Titan sees several trends in the printed circuit board manufacturing industry. These include: IMPORTANCE OF PROTOTYPE PRINTED CIRCUIT BOARD PRODUCTION. Original equipment manufacturers are placing increased emphasis on the prototype stage of printed circuit board production in order to accelerate product development. Domestically, higher volume production of printed circuit boards is becoming increasingly more competitive, as much of such production is exported to countries overseas for low cost manufacturing. We believe in placing a stronger emphasis towards the small volume, highly complex, multi-layer prototype printed circuit boards for original equipment manufacturers in research and development companies headquartered in areas such as Silicon Valley, while the production volumes are mass-produced at other locations. SHORTER ELECTRONIC PRODUCT LIFE CYCLES. Rapid changes in technology are shortening the life cycles of complex electronic products and reducing the period during which products are profitable, placing greater pressure on original equipment manufacturers to bring new products to market faster. The rapid adoption of innovative electronic products is heightening the need for original equipment manufacturers to minimize the time required to advance products from prototype design to 5 product introduction. We believe these time-to-market requirements are causing original equipment manufacturers to increasingly rely on printed circuit board manufacturers who have the capability to meet the technology demands of compressed product life cycles. INCREASING COMPLEXITY OF ELECTRONIC PRODUCTS. The increasing complexity of electronic products is driving technological advancements in printed circuit boards. Original equipment manufacturers are continually designing more complex and higher performance electronic products, which require printed circuit boards that can accommodate higher speeds and component densities. We believe that original equipment manufacturers are increasingly relying upon prototype printed circuit board manufacturers who invest in advanced manufacturing process technologies and sophisticated engineering staff to accelerate product development. SERVICES Titan provides its customers with a competitive prototype manufacturing solution from prototype through pre-production development. Titan's services include: QUICK TURN PRODUCTION. Our clients are typically product and chip designers that need high quality prototype printed circuit boards on an expedited basis. We produce prototype printed circuit boards of various types and complexities based on our clients specifications, with delivery times ranging between 24 hours and a standard lead time of 10 days. Because we process customer orders on a "quick-turn" basis, we do not typically have more than a two-week backlog of customer orders at any one time. PROCESS DEVELOPMENT. Our clients are concerned with the manufacturing yields that are generally reflected in each volume production run of a market ready printed circuit board. We work closely with our customers' engineering departments to develop "Design for Manufacturing" standards for future high volume production. The purpose of Titan's design assistance efforts is to determine efficient layouts of printed circuit boards to improve production yields and decrease volume production costs of a market ready printed circuit board. SYSTEM TESTING. We have the capability to perform several methods of electrical testing on a finished printed circuit board. One method is using a custom test fixture that is manufactured internally and attached to a universal grid test machine. The pins in the test fixture will establish continuity between the universal grid and the exposed metal on the surface of the printed circuit board. When a test is performed, the test fixture will verify that a circuit board's electrical continuity and electrical characteristics are performing properly. Due to the cost of these custom test fixtures, this option is best used on larger quantity orders. The other method of testing is known as fixtureless testing, which is more time consuming as it tests each printed circuit board, but more cost effective as it eliminates the need for test fixtures. Fixtureless testers, also known as flying-probes, utilize a series of pointed pins that float around the surface of the circuit board to verify electrical continuity and characteristics. Both methods can be operated through an industry electrical test format known IPC 356. Titan's combination of equipment and software provides the added flexibility for time sensitive manufacturing and a reliable electrical test at competitive prices for prototype and pre-production orders. 6 TECHNOLOGY The market for our products is characterized by rapidly evolving technology. In recent years, the trend in the electronic products industry has been to increase the speed, complexity and performance of components while reducing their size and cost. Although none of our technology is proprietary, we believe our technological capabilities allow us to address the needs of manufacturers who need to bring complicated electronic products to market faster. Printed circuit boards serve as the foundation of products in electrical devices, large and small. To manufacture printed circuit boards, we generally receive circuit designs directly from our customers in the form of computer data files, which are reviewed to ensure data accuracy, product manufacturability and design evaluation. Processing these computer files with computer aided design technology, we generate images of the circuit patterns on individual layers using advanced photographic processes. Through a variety of plating and etching processes, we selectively add and remove conductive materials to form horizontal layers of thin circuits called traces, which are separated by insulating material. A finished multilayer circuit board laminates together to form a number of circuitry layers, using intense heat and pressure under vacuum. Vertical connections between layers are achieved by plating through small holes called vias. Vias are made by highly specialized drilling equipment capable of achieving extremely tight tolerances with high accuracy. We specialize in high layer prototype printed circuit boards with extremely fine geometries and tolerances, and uses automated optical inspection systems to ensure consistent quality. We also intend to use clean rooms for production purposes in the Fremont, California manufacturing facility, which will minimize particles that create manufacturing defects. We believe the highly specialized equipment we use is among the most advanced in the prototype and pre-production industry. We provide a number of advanced technology solutions, including: 30+ LAYER PRINTED CIRCUIT BOARDS. Manufacturing printed circuit boards exceeding 12 layers is more difficult to accomplish due to the greater number of processes required. We reliably manufacture printed circuit boards up to 34 layers in a time-critical manner. BLIND AND BURIED VIAS. Vias are drilled holes which provide electrical connectivity between layers of circuitry in a printed circuit board. They typically extend all the way through the circuit board, providing connections to external features. As the demand for wiring density in a circuit board increases, vias may block channels that are needed for circuitry. As an alternative to the difficult task of adding more layers, blind and buried via technology is employed. Blind vias connect the surface layer of the printed circuit board to the nearest inner layer. Buried vias are holes that do not reach either surface of the printed circuit board but allow inner layers to be interconnected. Since blind and buried vias only extend through the layers of the printed circuit board in which they are required, more space is available on unpierced layers. Products with blind and buried vias can be made thinner, smaller, lighter and with more functionality than products with traditional vias. SEQUENTIAL LAMINATION. When using blind and/or buried via technology in a multi-layer printed circuit board, we often incorporate sequential lamination manufacturing processes. Sequential lamination uses a multiple printed circuit board construction approach that generally increases the complexity of manufacturing due to an increase in the number of production steps. We use sequential lamination when there is a requirement for multiple sets of laminated, drilled and plated via assemblies. ..003" TRACES AND SPACES WIDTHS. Traces are the connecting copper lines between the different components of the printed circuit board and spaces are the distances between traces. The smaller the traces and tighter the spaces, the higher the density on the printed circuit board and the greater the expertise required to achieve a desired final yield on an order. 7 ASPECT RATIOS OF UP TO 15:1. The aspect ratio is the ratio between the thickness of the printed circuit board to the diameter of a drilled hole. The higher the ratio, the greater the difficulty to reliably form, electroplate and finish all the holes on a printed circuit board. We can drill holes using a .013" drill bit on backpanels measuring .200" thick. THIN CORE PROCESSING. A core is the basic inner-layer building block material from which printed circuit boards are constructed. A core consists of a flat sheet of material comprised of glass-reinforced resin with copper foil on either side. The thickness of inner-layer cores is determined by the overall thickness of the printed circuit board and the number of layers required. The demand for thinner cores derives from requirements of thinner printed circuit boards, higher layer counts and various electrical parameters. Internal core thickness in our printed circuit boards range from as little as 0.002 inches up to 0.039 inches. By comparison, the average human hair is 0.004 inches in diameter. MICRO BALL GRID ARRAY/CHIP-ON-BOARD FEATURES. A ball grid array is a method of mounting an integrated circuit or other component to a printed circuit board. Rather than using pins, also called leads, the component is attached with small balls of solder at each contact. This array method allows for greater input/output density and requires printed circuit boards with higher layer counts and tighter lines and spaces. CONTROLLED IMPEDANCE. High speed digital requirements demand accurate timing and high signal speeds. Differential and single ended controlled impedance printed circuit boards are manufactured to specific tolerances to meet these specifications. These customer specified impedance values are then verified prior to shipment using our specialized impedance test equipment. COMPUTER AIDED MANUFACTURING. Titan utilizes Orbotech equipment and software, the worldwide leader in printed circuit board manufacturing equipment and computer aided manufacturing software. These enhancements allow the software to automate many of the tasks that were handled manually by a technician, reducing overhead and costly operator errors. We believe that utilizing CAD generated data from the customer at our automated optical inspection machines and final electrical test will enhance yields and reduce scrap. CUSTOMERS AND MARKETS Our customers include printed circuit board design companies, original equipment manufacturers and contract manufacturers that serve the rapidly changing electronics industry. We measure customers as those companies that place at least two orders in a 12-month period. Our current customers come from several different industries including the security industry, chip and semiconductor industries, contract manufacturing, telecommunication and bio-medical industries. Our top ten customers accounted for 30% and 41% of our sales for the years ended August 31, 2003 and August 31, 2002, respectively. SALES AND MARKETING Our marketing strategy focuses on establishing long-term relationships with our customers' engineering staff and new product introduction personnel early in the product development phase. 8 Our engineers, application support and managers provide support to our sales representatives in advising customers with respect to manufacturing feasibility, design review and technology limits through direct customer communication, e-mail and customer visits. In an effort to establish individual salesperson accountability for each client and the development of long term relationships, each customer is assigned one internal account manager and an outside sales representative. We market our services through direct and independent sales representatives, supervised by our Vice-President of Sales. We believe there are significant opportunities for us to increase our market penetration throughout the United States through further expansion of our direct and independent sales representatives. SUPPLIERS The primary raw materials used in our manufacture of printed circuit boards include copper-clad layers of fiberglass of varying thickness impregnated with bonding materials, chemical solutions such as copper and gold for plating operations, photographic film, carbide drill bits and plastic for testing fixtures. We utilize just-in-time procurement practices to maintain our raw materials inventory at low levels and works closely with our suppliers to obtain technologically advanced raw materials. Although we have preferred suppliers for some raw materials, the materials we use are generally readily available in the open market through numerous suppliers with the exception of one supplier of laminate material requested for use by our customers in less than 25% of our production. In addition, we periodically seek alternative supply sources to ensure that we are receiving competitive pricing and service. Adequate amounts of all raw materials have been available in the past and we believe this availability will continue in the foreseeable future. COMPETITION The printed circuit board industry is highly fragmented and characterized by intense competition. Our principal competitors include: DDI, Cirrexx, Harbor, Sanmina and Tyco. We believe we compete favorably on the following competitive factors: o competitive pricing; o capability and flexibility to produce customized complex products; o ability to offer time-to-market capabilities; o ability to offer time sensitive printed circuit board manufacturing capabilities; o consistently high-quality product; and o outstanding customer service. In addition, we believe that our continuous evaluation and early adoption of new or revised manufacturing and production technologies also gives us a competitive advantage. We believe that manufacturers like us, who have the ability to manufacture printed circuit boards using advanced technologies such as blind and buried vias, higher layer count, larger panel size and finer traces and spaces widths have a competitive advantage over manufacturers who do not possess these technological capabilities. We believe these advanced manufacturing and production technologies are increasingly replacing and making obsolete older technologies that do not provide the same benefits. Our future success will depend in large part on whether we are able to maintain and enhance our manufacturing capabilities as new manufacturing and production technologies gain market share. Some of our competitors are likely to enjoy substantial competitive advantages, including: 9 o greater financial and manufacturing resources that can be devoted to the development, production and sale of their products; o more established and broader sales and marketing channels; o more manufacturing facilities worldwide, some of which are closer in proximity to our customers; o manufacturing facilities which are located in countries with lower production costs; and o greater name recognition. GOVERNMENTAL REGULATION Our operations are subject to federal, state and local regulatory requirements relating to environmental compliance and site cleanups, waste management and health and safety matters. In particular, we are subject to regulations promulgated by: o the Occupational Safety and Health Administration pertaining to health and safety in the workplace; o the Environmental Protection Agency pertaining to the use, storage, discharge and disposal of hazardous chemicals used in the manufacturing processes; and o corresponding state agencies. To date, the costs of compliance and environmental remediation have not been material to us. Nevertheless, additional or modified requirements may be imposed in the future. If such additional or modified requirements are imposed on us, or if conditions requiring remediation were found to exist, we may be required to incur substantial additional expenditures. EMPLOYEES As of August 31, 2003, the Company had 106 employees. These employees include 84 in manufacturing and engineering, 15 in sales and marketing and 7 in administration. No employees are currently covered under collective bargaining arrangements. FORWARD LOOKING INFORMATION/RISK FACTORS STATEMENTS IN THIS REPORT CONCERNING THE FUTURE REVENUES, EXPENSES, PROFITABILITY, FINANCIAL RESOURCES, PRODUCT MIX, MARKET DEMAND, PRODUCT DEVELOPMENT AND OTHER STATEMENTS IN THIS REPORT CONCERNING THE FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION AND BUSINESS OF VENTURES- NATIONAL INCORPORATED ARE "FORWARD-LOOKING" STATEMENTS AS DEFINED IN THE SECURITIES ACT OF 1933 AND SECURITIES EXCHANGE ACT OF 1934. INVESTORS ARE CAUTIONED THAT THE COMPANY'S ACTUAL RESULTS IN THE FUTURE MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS DUE TO RISKS AND UNCERTAINTIES THAT EXIST IN THE COMPANY'S OPERATIONS AND BUSINESS ENVIRONMENT, INCLUDING: WE HAVE LIMITED OPERATING HISTORY. We were incorporated in 1985 had no material operations between 1990 and early 2000. We recommenced our development stage in early 2000, and had no material operations from such time until the Merger. Titan PCB West's predecessor, SVPC, commenced its operations in July 2001. Accordingly, we have a limited operating history. Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets such as the printed circuit board industry. Such risks include the following: o competition; 10 o need for increased acceptance of products; o ability to continue to develop and extend our brand identity; o ability to anticipate and adapt to a competitive market; o ability to effectively manage rapidly expanding operations; o amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; o ability to provide superior customer service; and o dependence upon key personnel. We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations could be materially and adversely affected. Information regarding all our past operations prior to the Merger can be found in our reports/registration statements that have been previously filed with the Securities and Exchange Commission. WE DO NOT HAVE A HISTORY OF PROFITABILITY AND, CONSEQUENTLY, CANNOT PREDICT WHETHER WE WILL EVER REACH PROFITABILITY. Since recommencing our development stage activities, and Titan PCB West, since inception, have not generated profits. Moreover, we will need to increase significantly our operating expenses to implement our business plan. As a result of the foregoing factors, we could incur significant losses on a quarterly and annual basis for the foreseeable future. Our ability to generate revenues and profits in the long term will depend primarily upon the successful implementation of our business plan. No assurance can be given that we will be successful in implementing our business plan or that we will generate sufficient revenues to achieve profitability. If the anticipated cash generated by our operations are insufficient to fund requirements and losses, we will need to obtain additional funds. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. WE BELIEVE THAT WE WILL REQUIRE ADDITIONAL FINANCING TO IMPLEMENT OUR BUSINESS PLAN. We anticipate that we will require additional financing in order to implement our business plan. Such financing may be in the form of equity, debt or bank financing. Particularly in light of our limited operating history, there can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all. In any of such events, our business, prospects, financial condition, and results of operations would be materially and adversely affected. As a result of any such financing, the holders of our Common Stock may experience substantial dilution. FLUCTUATIONS IN OPERATING RESULTS MAY AFFECT OUR STOCK PRICE. Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control. These factors include: (i) the amount and timing of capital expenditures and other costs relating to the implementation of our business plan, including acquisitions of, and investments in, competing or complementary companies or technologies; (ii) our introduction of new products or services or by our competitors; (iii) pricing changes in the printed circuit board manufacturing or assembly industries; (iv) technical difficulties with respect to the use of our products; (v) regulatory changes; and (vi) general economic conditions and economic conditions specific to the printed circuit board manufacturing industry. As a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service, or marketing decisions or acquisitions that could have a material adverse effect on our business, prospects, financial condition, and results of operations. WE DO NOT EXPECT TO PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE. We have not paid dividends or other distributions and do not intend to pay dividends or other distributions for the foreseeable future, and we intend to reinvest all of our earnings in the development of our business. In addition, we may enter into agreements with lenders or other 11 financing parties that restrict or prohibit the payment of dividends or other distributions. Accordingly, no assurance can be given that we will pay any dividend or other distributions to the holders of our capital stock. WE ARE HEAVILY DEPENDENT UPON THE ELECTRONICS INDUSTRY, AND EXCESS CAPACITY OR DECREASED DEMAND FOR PRODUCTS PRODUCED BY THIS INDUSTRY COULD RESULT IN INCREASED PRICE COMPETITION AS WELL AS A DECREASE IN OUR GROSS MARGINS AND UNIT VOLUME SALES. Our business is heavily dependent on the electronics industry. A majority of the our revenues are generated from the networking, high-end computing and computer peripherals segments of the electronics industry, which is characterized by intense competition, relatively short product life-cycles and significant fluctuations in product demand. Furthermore, these segments are subject to economic cycles and have experienced in the past, and are likely to experience in the future, recessionary periods. A recession or any other event leading to excess capacity or a downturn in these segments of the electronics industry could result in intensified price competition, a decrease in our gross margins and unit volume sales and materially affect our business, prospects, financial condition and results of operations. IF WE ARE UNABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. The market for our products is characterized by rapidly changing technology and continual implementation of new production processes. The future success of our business will depend in large part upon our ability to maintain and enhance our technological capabilities, to develop and market products that meet changing customer needs and to successfully anticipate or respond to technological changes on a cost-effective and timely basis. We expect that the investment necessary to maintain our technological position will increase as customers make demands for products and services requiring more advanced technology on a quicker turnaround basis. We may not be able to borrow additional funds in order to respond to technological changes as quickly as our competitors. In addition, the printed circuit board industry could encounter competition from new or revised manufacturing and production technologies that render existing manufacturing and production technology less competitive or obsolete. We may not respond effectively to the technological requirements of the changing market. If we need new technologies and equipment to remain competitive, the development, acquisition and implementation of those technologies and equipment may require us to make significant capital investments. In the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations would be materially and adversely affected. WE ARE DEPENDENT UPON A SMALL NUMBER OF CUSTOMERS FOR A LARGE PORTION OF OUR NET SALES, AND A DECLINE IN SALES TO MAJOR CUSTOMERS COULD MATERIALLY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS. A relatively small number of customers is responsible for a significant portion of our net sales. For the years ended August 31, 2003 and August 31, 2002, ten customers accounted for 30% and 41%, respectively, of our sales. Our principal customers may not continue to purchase products from us at past levels and we expect a significant portion of our net sales will continue to be generated by a small number of customers. Our customer concentration could increase or decrease depending on future customer requirements, which will depend in large part on market conditions in the electronics industry segments in which our customers participate. The loss of one or more major customers or a decline in sales to our major customers could significantly harm our business and results of operations. In addition, we generate significant accounts receivable in connection with providing services to our customers. If one or more of our significant customers were to become insolvent or were otherwise unable to pay for the services provided by us, our business, prospects, financial condition and results of operations will be materially and adversely affected. OUR RESULTS OF OPERATIONS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY, AND BECAUSE MANY OF OUR OPERATING COSTS ARE FIXED, EVEN SMALL REVENUE SHORTFALLS WOULD MATERIALLY DECREASE OUR GROSS MARGINS. Our results of operations vary for a variety of reasons, including: o timing of orders from and shipments to major customers; o the levels at which we utilize our manufacturing capacity; o changes in the pricing of our products or those of our competitors; o changes in our mix of revenues generated from quick-turn versus standard lead time production; 12 o expenditures or write-offs related to acquisitions; and o expenses relating to expanding the existing manufacturing facility. A significant portion of our operating expenses is relatively fixed in nature and planned expenditures are based in part on anticipated orders. Accordingly, even a relatively small revenue shortfall would materially decrease our gross margins. In addition, depending on the patterns in the capital budgeting and purchasing cycles of our customers and our end-markets served and the seasonality of the computer industry generally, our sales may be subject to seasonal fluctuation. Such seasonal trends may cause fluctuations in our quarterly operating results in the future. Results of operations in any period should not be considered indicative of the results to be expected for any future period. In addition, our future quarterly operating results may fluctuate and may not meet the expectations of investors. If this occurs, our ability to raise future equity financing from existing or new investors may be materially adversely impacted. BECAUSE WE SELL ON A PURCHASE ORDER BASIS, WE ARE SUBJECT TO UNCERTAINTIES AND VARIABILITY IN DEMAND BY OUR CUSTOMERS, WHICH COULD DECREASE REVENUES AND MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS. We sell to customers on a purchase order basis rather than pursuant to long-term contracts and, consequently, our net sales are subject to short-term variability in demand by our customers. Customers submitting a purchase order may cancel, reduce or delay their order for a variety of reasons. The level and timing of orders placed by our customers vary due to: o customer attempts to manage inventory; o changes in customers' manufacturing strategies, such as a decision by a customer to either diversify or consolidate the number of printed circuit board manufacturers used or to manufacture their own products internally; and o variation in demand for our customers' products. Because we process customer orders on a "quick-turn" basis, we do not typically have more than a two-week backlog of customer orders at any one time, and therefore cannot easily predict future revenues. Significant or numerous terminations, reductions or delays in our customers' orders could materially adversely impact our operating results. In the event that we do not successfully address these risks, our business, prospects, financial condition and results of operations will be materially and adversely affected. OUR INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND THE RESTRICTIONS IMPOSED BY THE TERMS OF DEBT INSTRUMENTS MAY SEVERELY LIMIT OUR ABILITY TO PLAN FOR OR RESPOND TO CHANGES IN OUR BUSINESS. As of August 31, 2003, the total amount outstanding under our credit facilities ($2.4 million maximum available credit lines) was $1,756,612, and we had $643,388 available under our existing credit facilities for future borrowings subject to covenant compliance. Our level of debt could have negative consequences. For example, it could: o require us to dedicate a substantial portion of our cash flow from operations to repayment of debt, limiting the availability of cash for other purposes; o increase our vulnerability to adverse general economic conditions by making it more difficult to borrow additional funds to maintain our operations if we suffer revenue shortfalls; o hinder our flexibility in planning for, or reacting to, changes in our business and industry by preventing us from borrowing money to upgrade our equipment or facilities; and o limit or impair our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes. 13 IF WE EXPERIENCE EXCESS CAPACITY DUE TO VARIABILITY IN CUSTOMER DEMAND, OUR GROSS MARGINS MAY FALL. We generally schedule our quick-turn production facility at less than full capacity to retain our ability to respond to unexpected additional quick-turn orders. However, if these orders are not made, we may forego some production and could experience excess capacity. When we experience excess capacity, our sales may be insufficient to fully cover our fixed overhead expenses and our gross margins will fall. Conversely, we may not be able to capture all potential revenue in a given period if our customers' demands for quick-turn services exceeds our capacity during that period. WE ARE IN THE PROCESS OF EXPANDING OUR BUSINESS INTO NEW PRODUCTS AND SERVICES AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES WHO HAVE BEEN IN THESE BUSINESSES LONGER THAN WE HAVE. We are in the process of expanding our business operations to include a rigid-flex and backplane assembly operations and by moving into a newer, larger facility in Fremont, California. We will be competing with companies that have substantially greater financial and manufacturing resources than we have and who have been providing these services longer than us. We may not be able to successfully compete on this basis with more established competitors. Since July 2001, our predecessor, SVPC Partners, LLC ("SVPC"), expanded our operations through certain acquisitions and we may experience significant difficulties integrating these or any future acquisitions in expanding our business. Between July 2001 and the completion of the Merger, Titan PCB West consummated several acquisitions, including, acquisition of certain non-real estate assets of SVPC (which included certain assets that it had acquired from SVPC Circuit Systems, Inc. and Circuit Systems, Inc.) and certain assets of Paragon Electronic Systems, Inc. We have a limited history of owning and operating our businesses on a consolidated basis. We may not be able to meet performance expectations or successfully integrate our acquisition of Titan and our other acquired businesses on a timely basis without disrupting the quality and reliability of service to our customers or diverting management resources. To manage the expansion of our operations and any future growth, we will be required to: o improve existing and implement new operational, financial and management information controls, reporting systems and procedures; o hire, train and manage additional qualified personnel; o expand our direct and indirect sales channels; and o effectively transition our relationships with our customers, suppliers and partners to operations under our Titan brand. As part of our business strategy, we expect that we will continue to grow by pursuing acquisitions, assets or product lines that complement or expand our existing business. Other than as effected in the Merger, we currently have no commitments or agreements to acquire any business. Our acquisition of companies and businesses and expansion of operations involve risks, including the following: o the potential inability to identify the company best suited to our business plan; o the potential inability to successfully integrate acquired operations and businesses or to realize anticipated synergies, economics of scale or other expected value; o difficulties in managing production and coordinating operations at new sites; o the potential need to restructure, modify or terminate customer relationships of the acquired company; and 14 o loss of key employees of acquired operations. In addition, future acquisitions may result in dilutive issuances of equity securities and the incurrence of additional debt, and, although we generally endeavor to avoid them, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense. Competition in the printed circuit board market is intense, and if we are unable to compete effectively, the demand for our products may be reduced. The printed circuit board industry is intensely competitive, highly fragmented and rapidly changing. We expect competition to continue, which could result in price reductions, reduced gross margins and loss of market share. Our principal competitors include DDI, Cirrexx, Harbor, Sanmina and Tyco. In addition, new and emerging technologies may result in new competitors entering our market. Many of our competitors and potential competitors have a number of significant advantages over us, including: o greater financial and manufacturing resources that can be devoted to the development, production and sale of their products; o more established and broader sales and marketing channels; o more manufacturing facilities worldwide, some of which are closer in proximity to original equipment manufacturers; o manufacturing facilities which are located in countries with lower production costs; and o greater name recognition. In addition, these competitors may respond more quickly to new or emerging technologies, or may adapt more quickly to changes in customer requirements and may devote greater resources to the development, promotion and sale of their products than we do. We must continually develop improved manufacturing processes to meet our customers' needs for complex products, and our manufacturing process technology is generally not subject to significant proprietary protection. Furthermore, increased production capacity by our competitors can result in an excess supply of printed circuit boards, which could also lead to price reductions. During recessionary periods in the electronics industry, our competitive advantages in the areas of providing quick-turn services, an integrated manufacturing solution and responsive customer service may be of reduced importance to our customers who may become more price sensitive. This may force us to compete more on the basis of price and cause our margins to decline. WE COMPETE AGAINST MANUFACTURERS IN ASIA WHERE PRODUCTION COSTS ARE LOWER. These competitors may gain market share in our market segment for higher technology printed circuit boards, which may have an adverse effect on the pricing of our products. We may be at a competitive disadvantage with respect to price for volume production when compared to manufacturers with lower cost facilities in Asia and other locations. We believe price competition from printed circuit board manufacturers in Asia and other locations with lower production costs may play an increasing role in the market for volume production. We do not currently have offshore facilities in lower cost locations, such as Asia. While historically our competitors in these locations have produced less technologically advanced printed circuit boards, they continue to expand their technology to include higher technology printed circuit boards. In addition, fluctuations in foreign currency exchange rates may benefit these offshore competitors. As a result, these competitors may gain market share in the market for higher technology printed circuit boards, which may force us to lower our prices, reducing our revenues, gross profit, and cash flow from operations. 15 WE RELY ON SUPPLIERS FOR THE RAW MATERIALS USED IN MANUFACTURING OUR PRINTED CIRCUIT BOARDS, AND AN INCREASE IN INDUSTRY DEMAND FOR THESE RAW MATERIALS MAY INCREASE THE PRICE OF THESE RAW MATERIALS AND REDUCE OUR GROSS margins. To manufacture our printed circuit boards, we use raw materials such as laminated layers of fiberglass, copper foil and chemical solutions which we order from our suppliers. Although we have preferred suppliers for most of our raw materials, the materials we use are generally readily available in the open market and numerous other potential suppliers exist with the exception of one supplier of laminate material requested for use by our customers in less than 25% of our production. However, from time to time manufacturers of products that also use these raw materials increase their demand for these materials and, as a result, the prices of these materials increase. During these periods of increased demand, our gross margins decrease as we have to pay more for our raw materials. OUR MANUFACTURING PROCESS DEPENDS ON THE COLLECTIVE INDUSTRY EXPERIENCE OF OUR EMPLOYEES IN OUR INDUSTRY. IF THESE EMPLOYEES WERE TO LEAVE US AND TAKE THIS KNOWLEDGE WITH THEM, OUR MANUFACTURING PROCESS MAY SUFFER AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. We do not have patent or trade secret protection for our manufacturing process, but instead rely on the collective experience of our employees in the manufacturing process to ensure we continuously evaluate and adopt new technologies in our industry. Although we are not dependent on any one employee, if a significant number of our employees involved in our manufacturing process were to leave our employment and we were not able to replace these people with new employees with comparable experience, our manufacturing process may suffer as we may be unable to keep up with innovations in the industry. As a result, we may not be able to continue to compete effectively. We may be exposed to intellectual property infringement claims by third parties which could be costly to defend, could divert management's attention and resources and, if successful, could result in liability. We could be subject to legal proceedings and claims for alleged infringement by us of third party proprietary rights, such as patents, from time to time in the ordinary course of business. Although we are not aware of any infringement proceedings or claims against it, any claims relating to an alleged infringement, even if not meritorious, could result in costly litigation and divert management's attention and resources. OUR BUSINESS MAY SUFFER IF ANY OF OUR KEY SENIOR EXECUTIVES DISCONTINUES EMPLOYMENT WITH US OR IF WE ARE UNABLE TO RECRUIT AND RETAIN HIGHLY SKILLED ENGINEERING AND SALES STAFF. Our future success depends to a large extent on the services of our key managerial employees, particularly Robert E. Ciri who is our Chairman and Chief Executive Officer; Andrew Glashow, our President; and Stephen Saul Kennedy, our Vice-President-Sales for Titan PCB West. We have entered into employment agreements with Messrs. Ciri, Glashow, and Kennedy and other significant employees, however we may not be able to retain our executive officers and key personnel or attract additional qualified management in the future. Our business also depends on our continuing ability to recruit, train and retain highly qualified employees, particularly engineering and sales and marketing personnel. The competition for these employees is intense and the loss of these employees could harm our business. In addition, it may be difficult and costly for us to retain hourly skilled employees. Further, our ability to successfully integrate acquired companies depends in part on our ability to retain key management and existing employees at the time of the acquisition. PRODUCTS WE MANUFACTURE MAY CONTAIN DESIGN OR MANUFACTURING DEFECTS, WHICH COULD RESULT IN REDUCED DEMAND FOR OUR SERVICES AND LIABILITY CLAIMS AGAINST IT. We manufacture products to our customers' specifications, which are highly complex and may contain design or manufacturing errors or failures despite our quality control and quality assurance efforts. Defects in the products we manufacture, whether caused by a design, manufacturing or component failure or error, may result in delayed shipments, customer dissatisfaction, or a reduction or cancellation of purchase orders. If these defects occur either in large quantities or too frequently, our business reputation may be impaired. Since our products are used in products that are integral to our customers' businesses, errors, defects or other performance problems could result in financial or other damages to our customers, for which we may be legally required to compensate them. Although our purchase orders generally contain provisions designed to limit our exposure to product liability claims, existing or future laws or unfavorable judicial decisions could negate these limitation of liability provisions. Product liability litigation against us, even if it were unsuccessful, would be time consuming and costly to defend. 16 OUR FAILURE TO COMPLY WITH THE REQUIREMENTS OF ENVIRONMENTAL LAWS COULD RESULT IN FINES AND REVOCATION OF PERMITS NECESSARY TO OUR MANUFACTURING PROCESSES. Our operations are regulated under a number of federal, state and foreign environmental and safety laws and regulations that govern, among other things, the discharge of hazardous materials into the air and water, as well as the handling, storage and disposal of such materials. These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act, as well as analogous state and foreign laws. Compliance with these environmental laws is a major consideration for us because our manufacturing process uses and generates materials classified as hazardous such as ammoniacal etching solutions, copper and nickel. In addition, because we use hazardous materials and generate hazardous wastes in our manufacturing processes, we may be subject to potential financial liability for costs associated with the investigation and remediation of our own sites, or sites at which we have arranged for the disposal of hazardous wastes, if such sites become contaminated. Even if we fully comply with applicable environmental laws and we are not directly at fault for the contamination, we may still be liable. The wastes we generate includes spent ammoniacal etching solutions, solder stripping solutions and hydrochloric acid solution containing palladium; waste water which contains heavy metals, acids, cleaners and conditioners; and filter cake from equipment used for on-site waste treatment. We believe that our operations substantially comply in all material respects with all applicable environmental laws. However, any material violations of environmental laws by us could subject us to revocation of our effluent discharge permits. Any such revocations could require us to cease or limit production at one or more of our facilities, materially adversely affect our revenues and causing our Common Stock price to decline. Even if we ultimately prevail, environmental lawsuits against us would be time consuming and costly to defend. Environmental laws could also become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violation. We operate in environmentally sensitive locations and are subject to potentially conflicting and changing regulatory agendas of political, business and environmental groups. Changes or restrictions on discharge limits, emissions levels, material storage, handling or disposal might require a high level of unplanned capital investment and/or relocation. It is possible that environmental compliance costs and penalties from new or existing regulations may materially adversely affect our business, prospects, financial condition and results of operations. OUR MAJOR STOCKHOLDERS CONTROL OUR BUSINESS, AND COULD DELAY, DETER OR PREVENT A CHANGE OF CONTROL OR OTHER BUSINESS COMBINATION. One shareholder, ICT, holds approximately 61.9% of our outstanding stock as of August 31, 2003. David Marks, a member of our Board of Directors, is one of two trustees of ICT and has sole voting and dispositive authority with respect to the shares of stock held by ICT. By virtue of its stock ownership, ICT will control all matters submitted to our board and our stockholders, including the election of directors, and will be able to exercise control over our business, policies and affairs. Through its concentration of voting power, ICT could cause us to take actions that we would not consider absent its influence, or could delay, deter or prevent a change of our control or other business combination that might otherwise be beneficial to our stockholders. Additionally, the shares of common stock issued to each of Forest Home, Phoenix Trust and Ohio Investors are also beneficially owned by Mr. Marks. THE CURRENT ECONOMIC DOWNTURN OR OTHER DOWNTURNS MAY LEAD TO LESS DEMAND FOR OUR SERVICES. As a result of the general slowing of economic activities experienced in the United States in 2001, 2002 and first half of 2003, our customers may delay or cancel new projects. We may experience a similar loss of demand during future economic downturns, whether in the regions in which we operate, our industry or that of our customers, or the economy as a whole. Recent terrorism in the United States and international hostilities may also impact the demand for our services. A number of other factors, including unfavorable financing conditions for the industries we serve, could adversely affect our customers and their ability or willingness to fund capital expenditures in the future. These conditions, either singly or collectively, could result in lower revenues or slower growth than we anticipate, and in any of such events, our business, prospects, financial condition and results of operations could be materially and adversely affected. OUR COMMON STOCK IS CONSIDERED TO BE "PENNY STOCK". Our common stock may be deemed to be "penny stock" as that term is defined in Rule 3a51-1 promulgated under the Exchange Act. Penny stocks are stocks: o with a price of less than $5.00 per share; o that are not traded on a "recognized" national exchange; 17 o whose prices are not quoted on the NASDAQ automated quotation system; or o in issuers with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average revenues of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a "penny stock" for the investor's account. We urge potential investors to obtain and read this disclosure carefully before purchasing any shares that are deemed to be "penny stock." Rule 15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any "penny stock" to that investor. This procedure requires the broker-dealer to: o obtain from the investor information about his or her financial situation, investment experience and investment objectives; o reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has enough knowledge and experience to be able to evaluate the risks of "penny stock" transactions; o provide the investor with a written statement setting forth the basis on which the broker-dealer made his or her determination; and o receive a signed and dated copy of the statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it harder for investors in our Common Stock to resell their shares to third parties. Accordingly, our common stock should only be purchased by investors who understand that such investment is a long-term and illiquid investment, and are capable of and prepared to bear the risk of holding the common stock for an indefinite period of time. ITEM 2. PROPERTIES The company leases office and production facilities in Fremont, CA (27,984 square feet) and Amesbury, MA (57,033 square feet). Both locations contain manufacturing and office space. Our facility in Amesbury, Massachusetts concentrates on time-sensitive manufacturing orders for PCBs and has the ability to produce products using rigid bare-board and the patented HVR Flex(TM) process that we license from Coesen Inc.. This location also includes front offices for our East Coast operations and storage facilities for inventory in addition to a complete manufacturing facility on the Amesbury, Massachusetts campus. The entire location consists of two distinct buildings. We believe our Fremont, California and Amesbury, Massachusetts facilities will be adequate for our current operating needs and continued near term growth. 18 ITEM 3. LEGAL PROCEEDINGS There is no past, pending or, to our knowledge, threatened litigation or administrative action (including litigation or action involving our officers, directors or other key personnel) which in the opinion of our management has had or is expected to have a material effect upon our business, financial condition or operations. On September 19, 2002, SVPC Partners, LLC, a predecessor company and SVPC Circuit Systems, Inc. were sued in Superior Court by Ms. Dana Ward who made a claim in the Superior Court of California, County of Santa Clara, alleging wrongful termination of employment and seeking unlimited damages. As of August 31, 2003, we have accrued a reserve of $140,000 in connection with this case based on the preliminary evaluation by our legal counsel. On June 15, 2003, the Company was served with a summons from National Laminate Sales ("NLS"); whereby NLS is alleging that the Company's subsidiary, Titan PCB East, is only a name change from Eastern Manufacturing Corporation ("EMC") and the EMC liability should still be paid. The Company feels that this case is without merit and is strongly defending the action. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders in the fourth quarter of 2003. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our shares are traded on the OTC Bulletin Board, the symbol is TTGH. Our shares have been traded on the OTC Bulletin Board since September 21, 2002. Prior to September 21, 2002, there was no "public market" for shares of our common stock. The following table sets forth, for the periods indicated, the high and low sales prices for the common stock since September 21, 2002: HIGH LOW --------- --------- 2003 First Quarter ........................................ $ 2.95 $ 2.10 Second Quarter........................................ 2.30 2.10 Third Quarter......................................... 2.40 2.80 Fourth Quarter........................................ 1.80 0.80 2002 First Quarter ........................................ $ - $ - Second Quarter........................................ - - Third Quarter......................................... - - Fourth Quarter........................................ 3.50 1.50 On November 17, 2003, the last reported sale price for the Common Stock on the Over-the-Counter Bulletin Board Market was $0.71 per share. As of November 17, 2003, there were approximately 1,462 holders of record of Common Stock. The Company has never declared or paid any cash dividends on the Common Stock. The Company currently intends to retain future earnings, if any, to fund the development and growth of its business and does not anticipate paying any cash dividends on the Common Stock in the foreseeable future. It is the Company's intention to use any excess cash for debt retirement. Once this debt is extinguished, the Board of Directors of the Company intends to review this policy from time to time, after taking into account various factors such as the Company's financial condition, results of operation, current and anticipated cash needs and plans for expansion. The Company's registrar and transfer agent is InterWest Transfer Co., Inc., 1981 East 4000 South, Suite 100, Salt Lake City, UT 84117. 19 - -------- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations and Plan of Operations and other portions of this report contain forward-looking information that involve risks and uncertainties. Our actual results could differ materially from those anticipated by the forward-looking information. Factors that may cause such differences include, but are not limited to, availability and cost of financial resources, product demand, market acceptance and other factors discussed in this report under the heading "Business - Risk Factors." This Management's Discussion and Analysis of Financial Condition and Results of Operations and Plan of Operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report. OVERVIEW CORPORATE BACKGROUND We are a fabrication service provider of time sensitive, high tech, prototype and pre-production PCBs. We provide time-critical, PCB manufacturing services to original equipment manufacturers, contract manufacturers and electronic manufacturing services providers. Our prototype PCBs serve as the foundation in many electronic products used in telecommunications, medical devices, automotive, military applications, aviation components, networking and computer equipment. Our focus is on high quality niche Rigid and HVR Flex(TM) (rigid flex) PCBs consisting of complex, multi-layered, fine-lines and high-performance materials with delivery cycles between 24 hours and standard 14 day lead times at a value-added price. We were organized under the laws of the State of Utah on March 1, 1985, with an initial authorized capital of $100,000, consisting of 100,000,000 shares of one mill ($0.001) par value common voting stock. We were formed for the primary purpose of seeking potential business enterprises which in the opinion of our management would prove profitable. Our wholly-owned subsidiary Titan PCB West was incorporated on March 27, 2001 under the name Manufacturing Holding Corporation. On August 30, 2002, Titan PCB West was acquired by us through the merger of Titan EMS Acquisition Corp., our wholly owned subsidiary, with and into Titan PCB West. In connection with the Merger, the stockholders of Titan PCB West received shares of our common stock. For financial reporting purposes, the Merger has been treated as a reverse-merger, where Titan PCB West was the acquirer. Because the Merger is treated as a purchase of Ventures-National Incorporated, the historical financial statements of Titan PCB West became our historical financial statements after the Merger. See "Prospectus Summary - Recent Developments." On August 12, 1985, our Articles of Incorporation were amended to increase authorized capital to $500,000, consisting of 500,000,000 shares of common stock. The Articles of Incorporation were also amended on August 26, 1985, to expand the purposes for which we were organized to include various types of investments. In December 1986, we executed a Letter of Intent with Woroner Technology Corporation of Florida, a Florida corporation and manufacturing and marketing firm of electronic systems and non-electronic products for the military and consumer markets world-wide ("Woroner Technology"). The Articles of Incorporation were again amended on May 1, 1987, to increase our authorized capital to $950,000, consisting of 950,000,000 shares of common stock. On May 14, 1987, we acquired all of the outstanding common stock of Woroner Technology through an exchange of our common stock pursuant to an Agreement and Plan of Merger. We succeeded to the business operations of Woroner Technology and were subsequently involved in the manufacturing and sale of these products 20 in military and consumer markets until 1990, when these operations proved to be unsuccessful and were discontinued. We were inactive from 1990 until a court ordered annual meeting of the stockholders was duly called and held on March 9, 2000, at which a new Board of Directors was elected. At a special meeting of the newly constituted Board of Directors held April 20, 2000, the fiscal year was changed from February 28 in each year to June 30 in each year; and we once again became a developmental stage company, following our reinstatement as a corporation in good standing under the laws of the State of Utah. Effective February 22, 2002, we effected a reverse split of our outstanding common stock on a basis of one for 6,000, reducing our 590,221,925 then outstanding shares of common stock to 99,211 shares. On August 6, 2002, Titan PCB West acquired all of the non-real estate assets and assumed all of the non-term loan liabilities of SVPC in exchange for the issuance to SVPC of 800,000 shares of Titan PCB West common stock, pursuant to the terms and conditions of a Contribution Agreement and Assignment and Assumption of Liabilities dated August 6, 2002. Beginning in 2001, SVPC began acquiring cutting edge technology equipment, processes, customer lists and orders from competitors unable to remain in business principally due to a severe market downturn and excessive levels of indebtedness. On July 16, 2001, SVPC acquired all of the assets of SVPC Circuit Systems, Inc. and certain assets of CSI pursuant to a combined approved bankruptcy court sale. After these acquisitions, Titan PCB West acquired certain system integration division assets out of bankruptcy from creditors of Paragon Electronic Systems, Inc. In connection with the contribution, certain consents had not been received as of the closing date. Titan PCB West and SVPC have agreed that if such agreements are not received or they are such that the value of the contribution is detrimentally affected, SVPC will return shares in an amount equal to the resulting damages based on a value of $1.50 per share. On August 6, 2002, Titan PCB West acquired certain intangible assets contributed by Louis George, a former executive officer and director, in exchange for 50,000 shares of Titan PCB West common stock valued at $1.50 per share, pursuant to the terms and conditions of a Contribution Agreement and Assignment and Assumption of Liabilities dated August 6, 2002. Effective August 30, 2002, through our wholly-owned subsidiary Titan EMS Acquisition Corp. ("AcquisitionCo"), a Delaware corporation, we acquired all of the capital stock of Titan PCB West through an exchange of our common stock pursuant to an Agreement and Plan of Merger. In connection with the Merger, our fiscal year was also changed from June 30 in each year to August 31 in each year. We transmitted the information required by Rule 14f-1 under the Securities Exchange Act of 1934, as amended, to our holders of record on September 5, 2002. Since the recommencement of our developmental stage in March 2000, and until completion of our acquisition of Titan PCB West in August 2002, we did not engage in any material business operations other than seeking potential acquisition or merger candidates, and as of August 30, 2002, we had no assets and had liabilities of $9,660. In connection with the Merger, AcquisitionCo merged with and into Titan PCB West through the exchange of 6,880,490 shares of our common stock for all of Titan PCB West's outstanding shares of common stock. Upon the effectiveness of the Merger, the former executive officers resigned from their respective positions with us and the executive officers of Titan PCB West were duly elected as their successors as follows: David M. Marks became our Chairman of the Board, and Louis J. George became our President, Chief Executive Officer and Acting Treasurer. Mr. George has since resigned from all of his positions with the Company and Mr. James E. Patty became our President and Chief Executive Officer as of February 21, 2003. Mr. Marks resigned as 21 Chairman of the Board on May 13, 2003 and Mr. Ciri was appointed the new Chairman. Mr. Patty resigned as President and Chief Executive Officer effective July 29, 2003 and Mr. Ciri was appointed as our Chief Executive Officer and Mr. Andrew Glashow was appointed as our President, effective July 29, 2003. Our directors immediately prior to the effectiveness of the Merger irrevocably resigned effective as of the close of business on September 15, 2002. Messrs. Jacobs and Weisberg resigned as directors, and Mr. George resigned as a director and from his position as our President and Chief Executive Officer, in each case effective on or around January 10, 2003, at which time Mr. George was appointed Managing Director of Operations for California, a position from which he later resigned as of April 15, 2003. On August 26, 2002, Forest Home Investors I, LLC ("Forest Home") and Phoenix Business Trust ("Phoenix Trust"), lenders of Titan PCB West, converted indebtedness owed by Titan PCB West into shares of Titan PCB West common stock at the conversion price of $1.50 per share, which resulted in the issuance of 6,667 shares and 123,823 shares to Forest Home and Phoenix Trust, respectively. Immediately after the Merger, each of Ohio Investors of Wisconsin and Irrevocable Children's Trust converted certain outstanding indebtedness of Titan PCB West into shares of our common stock at a conversion price of $1.50 per share, resulting in the issuance of 1,160,764 shares of common stock to Ohio Investors of Wisconsin and 68,667 shares of common stock to Irrevocable Children's Trust. The conversion price at which Ohio Investors of Wisconsin and Irrevocable Children's Trust agreed to convert our indebtedness into shares of common stock was initially determined by reference to our then contemplated offering price of Units (as defined below) to be issued in the Private Placement. On October 28, 2002, we revised the offering price to $0.75 per share of common stock. Accordingly, on December 9, 2002, we entered into a letter agreement with each of Irrevocable Children's Trust and Ohio Investors of Wisconsin to provide for the issuance of 1,160,764 additional shares to Ohio Investors of Wisconsin and 68,667 additional shares of common stock to Irrevocable Children's Trust , to reflect a corresponding adjustment of the conversion price to $0.75 from $1.50. The Shares related to the conversion of these debts were issued subsequent to August 31, 2002 include the corresponding effect of the translation. Upon the effectiveness of the Merger, we commenced the Private Placement pursuant to which we sold 2,792,567 shares of common stock in the Private Placement for net proceeds of $1,990,516. We also issued 332,557 as a company self imposed penalty on the timing of the registration of these shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations and Plan of Operations - Liquidity and Capital Resources." On February 27, 2003, through our wholly-owned subsidiary Titan PCB East, we acquired certain assets of Eastern Manufacturing Corporation, for approximately $513,160 in a foreclosure sale from Eastern Manufacturing Corporation's secured lender Eastern Bank. The results from Eastern Manufacturing Corporation's operations have been reflected in our financial statements from the date of acquisition. No goodwill resulted from this acquisition. For more information concerning the acquisition of assets from Eastern Manufacturing Corporation, see Note 3 under "Mergers and Acquisitions" to the consolidated financial statements. Effective March 5, 2003, we purchased shares of common stock of Coesen Inc. representing 33.3% of its issued and outstanding shares of common stock from Mr. Howard Doane, the principal stockholder and an officer and director of Eastern Manufacturing Corporation, in exchange for 30,000 shares of common stock and $5,000 in cash. In connection with the share purchase, David M. Marks, one of our Directors, was elected to the Board of Directors of Coesen Inc. and Mr. Doane resigned as a director of Coesen Inc. In addition, Mr. Doane and the two other stockholders of Coesen Inc. entered into a stockholders agreement with Coesen Inc. dated as of March 5, 2003 pursuant to which they agreed not to take actions not in the ordinary course of business without our prior written consent. Management has devoted substantial time since the Merger to the integration and reorganization of our various business units. We anticipate that this integration and reorganization of our business will continue to require substantial management resources for much of the third and fourth quarters of our fiscal year ending August 31, 2003 22 and that, as a result, we may not realize the anticipated economies of scale and scope, as well as the attendant improvements in our operating results, until possibly the next fiscal year. For the year ended August 31, 2003 and 2002, ten customers accounted for 30% and 41% of our sales, respectively. As of August 31, 2003, we had a working capital deficit of $3,574,211 and an accumulated deficit of $8,208,979. We generated sales of $10,204,672 and $8,321,292 for the years ended August 31, 2003 and 2002, respectively and incurred net losses of $6,500,428 and $1,730,801, respectively. In addition, during the years ended August 31, 2003 and 2002, net cash used in operating activities was $2,564,005 and $539,868. We are in the early stage of operations and, as a result, the relationships between revenue, cost of revenue, and operating expenses reflected in the financial information included in this prospectus do not represent future expected financial relationships. Much of the cost of revenue and operating expenses reflected in our consolidated financial statements are costs based on the integration of the acquired companies and assets that comprise our operations. Accordingly, we believe that, at our current stage of operations period-to-period comparisons of results of operations are not meaningful. PLAN OF OPERATIONS Our business strategy is to: O to target potential customers and industries needing prototype boards with required turnaround times of between 24 hours and the industry standard 10-days as well as preproduction needs requiring numerous types of materials; O to aggressively market specialty manufacturing services for time sensitive, high-tech prototype and pre-production Rigid and HVR Flex(TM) (rigid-flex) PCBs to the high technology industry industry and cater to customers who need time sensitive delivery of low to medium production runs with high quality and superior design and customer service interface whether for production production or research and development; O to expand our services to include rigid-flex combinations in order to diversify sources of revenue; O to expand our sales through the marketing and manufacture of rigid-flex PCBs using the patented HVR Flex(TM) process available as a results of our acquisition of assets from Eastern Manufacturing Corporation in February 2003; O to acquire and integrate strategic assets of companies producing time sensitive, high tech prototype and pre-production PCBs with other unique customers, technology or processes in order to accelerate entry into our target market; O to acquire manufacturing facilities that have military certification or add value to our current time sensitive manufacturing service business; and O to develop and continuously improve fabrication and sales processes in order to improve margins and competitive pricing. We plan to add additional inside and independent sales representatives to extend our selling capacity. Commission costs will fluctuate depending on the origin of sales orders with our internal sales team or our independent sales representative organization. We also plan to increase our marketing expenditures. There are no assurances that additional inside or independent sales representatives or increased marketing expenditures will increase our revenues. We expect our general and administrative costs to increase in future periods due to our operating as a public company whereby we will incur added costs for filing fees, increased professional services and insurance costs. 23 We have completed our move to our new facilities in Fremont, California from Santa Clara, California during the fiscal year ended August 31, 2003. We expect to have all the clean up of the former facility in Santa Clara completed by the end of calendar year 2003. The cost of the move, which was expensed in the 3rd and 4th quarters of 2003 was financed from the proceeds of the previous private offering of our equity securities as well as funds from operations. ACCOUNTING PRINCIPLES; ANTICIPATED EFFECT OF GROWTH Below we describe a number of basic accounting principles which we employ in determining our recognition of revenues and expenses, as well as a brief description of the effects that we believe that our anticipated growth will have on our revenues and expenses in the future. SALES We recognize sales upon shipment to our customers. We record net sales as our gross sales less an allowance for returns. At August 31, 2003, we had approximately 360 customers. We provide our customers a limited right of return for defective PCBs and record an allowance against gross revenues for estimated returns at the time of sale based on our historical results. Because our customers quickly test the PCBs we manufacture for them, the majority of returns for defects occur within the first 15 days following shipment. At August 31, 2003, we provided an allowance for returns of $24,000. Actual returns may differ materially from our estimates, and revisions to the allowances may be required from time to time. We expect the number and complexity of PCBs we sell to fluctuate with the changes in demand from our customers and, the prices we charge our customers to fluctuate as a result of intense competition in the PCB industry and the current economic situation and its impact on the high technology market. Until industry conditions improve and demand increases, we expect that decreased average pricing will continue to negatively affect our sales. We expect sales to grow as we develop our reputation in our target market and as a result of our move to our facility in Fremont, California and the re-opening of our newly acquired facility in Amesbury Massachusetts. Management anticipates fluctuations in production as operations will be disrupted and in flux for a short period of time in connection with our move to Fremont, our re-opening of the Amesbury, MA facility, and as we establish our reputation, quality processes, and acquire certification with customers and certification agencies on both coasts as well as new customers across the US. Additional acquisitions will also increase sales as well as cause disruption as facilities, employees, and processes are integrated. We expect these fluctuations to be relatively short lived while expecting the sales growth to be more permanent with the variable of market demand as a condition. Future demand and product pricing will depend on many factors including product mix, levels of advanced technology, capacity utilization, competitive pressure in the PCB industry, and economic conditions affecting the markets we serve and the electronics industry in general. The current uncertainty regarding the level and timing of an economic recovery in our product markets and volatility in our customer forecasts continue to make our forecasting less reliable than in prior periods. In each case, our plan of operations anticipates that our internal growth, as well as acquisitions of competitors, shall materially contribute to our ability to increase our revenues as described above. Through August 2003, we anticipate that our primary source of sales will be from rigid bare-board manufacturing that provides time sensitive, high technology, and superior quality PCB's to the electronics industry at a competitive price. We are focused on higher layer counts and finer line production. Our sales have been derived from different areas including delivery of prototype/pre-prototype boards from 24 hours to 14-day standard time as well as pre-production with numerous types of materials. The essential element of our success, current and future, will be to service those customers who need time sensitive delivery of low to medium production runs with high quality and superior design and customer service interface. 24 In the future, Titan PCB West expects to receive sales from customers who need rigid-flex and increasingly complex rigid bare-board manufacturing that provides time sensitive, high technology, and superior quality PCBs. In addition, after an initial inspection and certification period, Titan PCB East and Titan PCB West intend to expand their sales focus to the military market place, which includes those vendors supplying the U.S. military with products in our target market. COST OF SALES Cost of sales consists of materials, labor, outside services and overhead expenses incurred in the manufacture and testing of our products. Many factors affect our gross margin, including, but not limited to, capacity utilization, production volume, production quality and yield. We do not participate in any long-term supply contracts and we believe there are a number of high quality suppliers for the raw materials we use. Our cost of goods, as a percentage of revenues, varies depending on the complexity of the PCBs we manufacture in any given period. Based upon our plan of operations, we anticipate that our cost of sales will increase as our sales increase, but that cost of sales as a percentage of net sales shall generally decrease for a period of time as our sales increase. We believe that the amount of the decrease of this percentage over the next several fiscal periods will be dependent in large part upon the source of the increase in sales. For example, an increase in our penetration in the existing market for our goods and services will permit us to increase sales at a low cost in part by causing us to utilize a greater portion of our existing manufacturing capacity, an expense which we already incur. On the other hand, an increase in our sales attributable to our offering a greater portfolio of products and services or an increase in the technology or complexity of products and services may result in less of a decrease in such percentage as such activities may initially be less efficient than our existing operations. Included in cost of sales is overhead which is relatively fixed on an annual basis. Materials are variable and labor is semi-variable and are influenced by the complexity of orders as well as the quantity of orders. As our business is continually changing with regard to the type of product produced, we plan to implement broader use of production systems to control the overtime in production as well as the use of materials in production. We anticipate that these systems will assist in the pricing of its products with the objective to be more competitive and profitable in our target market. We intend to continue to expand and upgrade our production capability as well as our production systems and processes and the financial systems interface in order to better manage material, labor and overhead costs. OPERATING AND NON-OPERATING EXPENSES Our operating expenses for the years ended August 31, 2003 and August 31, 2002 are comprised of marketing, general and administrative, non-recurring costs and costs related to mergers and acquisitions, as well as the cost of developing operating facilities. All non-recurring costs and costs related to mergers and acquisitions, as well as the cost of developing operating facilities and moving costs incurred have been accounted for in the fiscal years ended August 31, 2003 and 2002. Selling and marketing expenses consist primarily of salaries and commissions paid to our internal sales team, commissions paid to independent sales representatives and costs associated with advertising and marketing activities. We expect our selling and marketing expenses to fluctuate as a percentage of sales as we add new personnel, develop new independent sales representative channels and advertise our products and company. We intend to expand our direct, indirect and distributed channels sales plan in order to best utilize our newly acquired HVR Flex(TM) (rigid-flex) manufacturing capability as a result of our acquisition of the assets from Eastern Manufacturing Corporation as well as our geographic expansion in rigid bare board products. General and administrative expenses include all corporate and administrative functions that serve to support our current and future operations and provide an infrastructure to support future growth. Major items in this category include management and staff salaries and benefits, travel, network administration and systems/data processing, training, rent/leases and professional services. We expect these expenses to increase as a requirement of 25 operating as a public company and we further expect these expenses to fluctuate as a percentage of sales as we expand our business. We intend to expand our customer and sales support operation in order to support the increased complexity and volume of our PCB business and our anticipated use of indirect sales. We do not expect a material increase in sales and marketing expense that is not consistent with an increase in sales over a reasonable period of time. We anticipate our sales and marketing costs to fluctuate as a percentage of sales due to the addition of sales personnel and various marketing activities planned throughout the year. For the years ended August 31, 2003 and 2002, restructuring costs include loss on disposal of SID and write-off of capitalized cost related to this product line while merger costs related primarily to professional and consulting cost in connection with the Ventures/Titan merger. The Company also incurred costs in relation to moving its manufacturing and assembling plants. As a part of our business strategy we will continue to seek additional acquisitions. Therefore, we anticipate incurring merger costs in the future. Interest expense, including finance charges, relates primarily to our $640,000 24% note used for the purchase of EMC, an accounts receivable and inventory line of credit with an entity owned by a former member of our board of directors, an accounts receivable line of credit, a term loan secured by the equipment of Titan PCB East. We expect interest expenses to fluctuate as a percentage of revenues based on the timing of borrowings under our line of credit. RESULTS OF OPERATIONS. The following table sets forth income statement data for the years ended August 31, 2003 and 2002 and should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations and Plan of Operations" and our consolidated financial statements and the related notes appearing elsewhere in this form 10KSB. FOR THE YEARS ENDED AUGUST 31, ----------------------------- 2003 2002 ---- ---- Sales 100.0% 100.0% Cost of Sales 94.0 85.1 Gross Profit 6.0 14.9 Operating Expenses: Sales and Marketing 12.1 10.2 General and Administrative 39.5 14.9 Merger Costs 6.4 5.1 Restructuring Costs 5.7 -- Costs of moving manufacturing plants 1.6 -- Total Operating Expenses 65.3 30.2 Operating Loss (59.3) (15.3) Interest Expense (5.5) (5.8) Other income/expense, net 1.1 0.3 Net Loss (63.7) (20.8) YEAR ENDED AUGUST 31, 2003 COMPARED TO THE YEAR ENDED AUGUST 31, 2002 Sales. Sales increased by $1,883,380 or 22.6% from $8,321,292 in the year ended August 31, 2002 to $10,204,672 in the year ended August 31, 2003. This increase resulted primarily from the sales achieved in our latest acquisition of Eastern Manufacturing Corporation ("EMC") of $2,402,615. This was offset by a decrease in average pricing as a result of product mix changes, competitive pressures on pricing for both quick-turn and volume orders resulting from the overall decline in the electronics industry, and a lower level of premium revenue. While we see some stabilization in pricing as competitors are unable to effectively compete and are being forced to close, we 26 expect this situation to continue for the near future. As a result of a smaller number of competitors, we are currently experiencing a rebound in sales orders. COST OF SALES. Cost of sales increased $2,508,350, or 35.4%, from $7,079,941 in the year ended August 31, 2002 to $9,588,291 in the year ended August 31, 2003. The increase in cost of sales resulted from a greater number of PCBs sold, process inefficiencies, and an increase in labor costs primarily due to inefficiencies incurred during the transition between the new facility in Fremont and the facility in Santa Clara and the opening of the Amesbury, MA facility. During the first part of the year gross margins on our products did not meet our expected level and we have adapted our pricing accordingly and expect to achieve higher gross margins in the future. As a percentage of sales, cost of sales increased from 85.1% of sales in the year ended August 31, 2002 to 94.0% of sales in the year ended August 31, 2003. Such increase was caused by the reduction of prices for the PCBs as well as the reasons described above, the inefficiencies that we experienced in our acquisition of EMC in February 2003. and the increase in labor and inefficiencies that we experienced in relocating our California manufacturing facilities from Santa Clara to Fremont. We believe we have identified and fixed most of the inefficiencies in our EMC division and expect the division to begin to be profitable in the first half of fiscal 2004. We also have successfully completed the transition of our California manufacturing facilities from Santa Clara to Fremont. GROSS PROFIT. Gross profit decreased by $624,970 or 50.3%, from $1,241,351 in the year ended August 31, 2002 to $616,381 in the year ended August 31, 2003. The decrease in gross profit resulted primarily from a greater volume of PCBs produced at decreased prices as well as the increased labor costs primarily due to inefficiencies incurred during the transition between the new facility in Freemont and the facility in Santa Clara, and inefficiencies in process management especially in our newly acquired division. Our gross profit was 14.9% of sales in the year ended August 31, 2002 compared to 6.0% of sales in the year ended August 31, 2003. The impact of the increases in sales was also mitigated by various costs relating to materials, production personnel, production processes and overhead expenses not in place in the preceding comparable period. We expect our gross profit to fluctuate as a percentage of sales based on the demand from our customers which affects our costs and volatility in prices we charge our customers due to intense competition in the PCB industry. SALES AND MARKETING. Sales and marketing expenses increased by $384,363, or 45.1%, from $851,444 in the year ended August 31, 2002 to $1,235,807 in the year ended August 31, 2003. As a percentage of sales, sales and marketing expense increased from 10.2% of revenue in the year ended August 31, 2002 to 12.1% of sales in the year ended August 31, 2003. This increase was primarily due to the addition of sales personnel in fiscal year 2003 in our California location as well as the additional sales personnel upon the acquisition of EMC. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $2,792,888 or 224.9% from $1,241,777 in the year ended August 31, 2002 to $4,034,665 in the year ended August 31, 2003. These expenses mainly increased as a result of the personnel and associated benefits and expenses of our new East coast facility in Amesbury, MA ($672,330) as well as costs associated with our initial year of our being a public company and the promotion and exposure associated therewith such as professional fees. These expenses also included expenses incurred by our largest shareholder on our behalf. The Company also paid rent and other administrative expenses for both the Santa Clara building and Fremont building during the transition period of the move. RESTRUCTURING COSTS. Restructuring costs included expenses for setup and eventual sale of our SID product-line or 579,456. MERGER COSTS. During the year ended August 31, 2003, the Company incurred merger costs of $649,139 or 6.4% of sales as compared to $420,611 or 5.1% of sales in the year ended August 31, 2002. These merger costs related to the Ventures/Titan merger and included the cost of merger-related consulting services paid through issuance of Company stock and professional fees. As part of our business strategy we will continue to seek additional acquisitions. Therefore, we anticipate incurring merger-related costs in the future. COSTS OF MOVING MANUFACTURING PLANTS. During the year ended August 31, 2003, the Company incurred $164,512 dealing with cost related to our move of our manufacturing and assembling plants from Santa Clara, California to Fremont, California. INTEREST EXPENSE. Interest expense, including amortization of loan fees and financing cost in the year ended August 31, 2003, increased by $81,490, or 16.8%, from interest expense of $484,487 in the year ended 27 August 31, 2002 to $565,977 in the year ended August 31, 2003. As a percentage of sales, interest expense decreased from 5.8% in the year ended August 31, 2002 to 5.5% in the year ended August 31, 2003. In the year ended August 31, 2003, interest expense relates primarily to interest expense associated with our 24% $640,000 principal amount of private placement promissory notes (the "Notes") which carried $240,000 stock value issuance as financing cost which is being amortized over the one-year life ($105,965 expensed during the year ended August 31, 2003) and our credit facilities with Alco Financial Services ("Alco") and Equinox Business Credit Corp. ("Equinox") described below. The Notes were primarily issued to facilitate our purchase of EMC in February 2003. We anticipate retiring these 24% promissory notes in December 2003. Interest expense in the year ended August 31, 2002 primarily related to a real estate loan of approximately $3,349,000, factoring of our accounts receivable and, to a lesser degree, interest expense from lease obligations and a $100,000 renewal fee on our term loan. We anticipate interest expense, thereafter, to fluctuate as a percentage of revenue based on the timing and amounts borrowed under our line of credit and other credit facilities we may enter into from time to time. OTHER INCOME AND EXPENSE. NET. Other income and expense, net increased by $86,580 or 330.9%, from $26,167 in the year ended August 31, 2002 to $112,747 in the year ended August 31, 2003. This increase was primarily attributable to gain on the settlement of payables for professional fees with warrants issued in the fiscal year ended August 31, 2003. LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity have been cash provided by operations, borrowings under our various debt agreements and private placement offerings of securities. Our principal uses of cash have been for operations, to meet debt service requirements, finance capital expenditures and for acquisition activities. We anticipate these uses will continue to be our principal uses of cash in the future. On November 20, 2003, we entered into a Security Agreement (the "Security Agreement") with Laurus Master Fund, Ltd. ("Laurus"), pursuant to which we may borrow from Laurus such amount as shall equal 85% of our eligible accounts receivable and inventory as prescribed by the terms of the Security Agreement up to a maximum of $4,000,000. Pursuant to the Security Agreement, we issued to Laurus a (i) Secured Revolving Convertible Note (the "Revolving Note") in the principal amount of up to $2,500,000 and (ii) Secured Convertible Minimum Borrowing Note (the "Initial Minimum Borrowing Note" and together with any other Minimum Borrowing Notes issued under the Security Agreement, the "Minimum Borrowing Notes") in the original principal amount of $1,500,000. Additional Minimum Borrowing Notes shall be issued as and when the Company is eligible and elects to make additional borrowings under the Revolving Note. As of December 10, 2003, we had borrowed an aggregate of approximately $2.1 million under the Security Agreement. In connection with the issuance of the Revolving Note and the Initial Minimum Borrowing Note pursuant to the Security Agreement, we issued to Laurus a warrant (the "First Warrant") to purchase up to 600,000 shares of our common stock, par value $0.001 per share ("Common Stock"), having an exercise price of $0.83 per share for the first 250,000 shares of Common Stock acquired under such warrant, $0.90 per share for the next 200,000 shares of Common Stock acquired thereunder, and a price of $0.97 per share for any additional shares of Common Stock acquired thereunder. The First Warrant expires on November 20, 2010 and has a cashless exercise provision. Also on November 20, 2003, we entered into a Securities Purchase Agreement (the "SPA") pursuant to which we issued and sold to Laurus (i) a Convertible Term Note (the "Convertible Term Note", together with the Revolving Note, the Minimum Borrowing Notes, the "Notes") in the principal amount of $2,100,000 and (ii) a warrant (the "Second Warrant", and together with the First Warrant, the "Warrants") to purchase up to 350,000 shares of Common Stock having an exercise price of $0.83 per share for the first 200,000 shares of Common Stock acquired thereunder, $0.90 per share for the next 100,000 shares of Common Stock acquired thereunder, and $0.97 per share for any additional shares of Common Stock acquired thereunder. The Second Warrant expires on November 20, 2010 and has a cashless exercise provision. Each of the Notes accrues interest at a rate per annum equal to the greater of (i) the prime rate published in The Wall Street Journal plus three (3%) percent and (ii) seven (7%) percent, subject to possible downward adjustment if (x) we shall have registered the shares of our Common Stock underlying the conversion of such Note and the related Warrant, and (y) the volume weighted average price of the Common Stock as reported by Bloomberg, L.P. on the principal market for any of the trading days immediately preceding an interest payment date under such Note exceeds the then applicable Fixed Conversion Price by twenty five (25%) percent, in which event the interest rate for the succeeding calendar month shall automatically be reduced by twenty five (25%) percent. The first payment under the Notes is due 90 days from the issue date thereof. Each of the Notes has a maturity date of November 20, 2006. The outstanding principal and accrued interest under each Notes is convertible, at the holder's option, into shares of our Common Stock at a conversion price equal to $0.77 per share (the "Fixed Conversion Price"), subject to certain adjustments upon reclassifications, stock splits, combinations, stock dividends and similar events as well as downward adjustment upon an issuance of shares of Common Stock by the Company at a price per share below the then current Fixed Conversion Price, upon which issuance the Fixed Conversion Price shall be adjusted to equal such lower issue price (subject to certain exceptions set forth in the Notes). Each Note may be prepaid by us in cash by paying to the holder 115% of the principal and related accrued and unpaid interest thereon being prepaid. In addition, the Convertible Term Note may be prepaid at our option in shares of Common Stock if and to the extent the average closing price of the Common Stock is greater than 110% of the Fixed Conversion Price for at least 5 consecutive trading days, subject to certain limitations. Our obligations under the Security Agreement, SPA and the Notes are secured by a pledge by us of shares representing 100% of the share capital of our wholly-owned subsidiaries Titan PCB East, Inc. and Titan PCB West, Inc. (collectively, the "Subsidiaries"), a guaranty of such obligations by each of the Subsidiaries, and the grant of a security interest by each of the Subsidiaries in their respective assets. Laurus shall not be entitled to be issued shares of Common Stock in repayment of any portion of the Notes or upon exercise of either of the Warrants if and to the extent such issuance would result in Laurus and its affiliates beneficially owning more than 4.99% of the issued and outstanding Common Stock upon such issuance, unless Laurus shall have provided at least 75 days' prior written notice to us of its revocation of such restriction. We are obligated, pursuant to two Registration Rights Agreements each between us and Laurus dated November 20, 2003 to file a registration statement with the Securities and Exchange Commission to register the shares of Common Stock issuable upon conversion of the Notes (excluding Minimum Borrowing Notes not yet issued) and the Warrants on or before December 20, 2003 or, with respect to the future Minimum Borrowing Notes, within 30 days following the issuance thereof, and to use our best efforts to cause such registration statement to become effective within 90 days following the relevant filing date. To the extent, subject to certain conditions set forth in the Registration Rights Agreements, either (i) we fail to make such initial filing, (ii) the relevant registration statement is not declared effective by the Commission within 90 days of such filing, (iii) such registration statement ceases to be effective as to the securities to have been covered thereby for a period of 20 consecutive trading days or 30 days total in any 365 day period commencing on the effective date of such registration statement, or (iv) our Common Stock ceases to be traded on any trading market for a period of three consecutive trading days which has not been cured within 30 days of notice thereof, then we shall be liable to pay to Laurus, as liquidated damages, for each 30-day period during which the relevant default remains uncured 2.0% of the original principal amount of each applicable Note. As of December 10, 2003, we had borrowed a total of approximately $4.0 million from Laurus, of which approximately $3.0 million was used to repay outstanding indebtedness, $260,000 was used to pay transaction fees relating to the borrowing facility, and approximately $250,000 was used to satisfy outstanding trade payables. We will require additional financing in order to implement our business plan. We currently anticipate capital expenditures of at least $500,000 during the next 12 months in order to upgrade our capacity for our expected growth. If the anticipated cash generated by our operations are insufficient to fund requirements and losses, we will need to obtain additional funds through third party financing in the form of equity, debt or bank financing. There can be no assurance that we will be able to obtain the necessary additional capital on a timely basis or on acceptable terms, if at all. In any of such events, our business, prospects, financial condition, and results of operations would be materially and adversely affected. As a result of any such financing, the holders of our common stock may experience substantial dilution. In addition, as our results may be negatively impacted and thus delayed as a result of political and economic factors beyond our control, including the war in the Middle East and its impact on the high technology market and the economy in general, our capital requirements may increase. The following factors, among others, could cause actual results to differ from those indicated in the above forward-looking statements: pricing pressures in the industry; the loss of any of our major customers; a downturn in the economy in general or in the technology sector; a further decrease in demand for electronic products or continued weak demand for these products; significant changes or problems in our manufacturing facilities; our ability to attract new customers; our ability to reduce costs, including those associated with our restructuring plan; an increase in competition in the market for electronic interconnect solutions; and the ability of some of our new customers to obtain financing. These factors or additional risks and uncertainties not known to us or that we currently deem immaterial may impair business operations and may cause our actual results to differ materially from any forward-looking statement. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this report to conform them to actual results or to make changes in our expectations. 28 In the year ended August 31, 2002, net cash used in operations was $539,868 while in the year ended August 31, 2003 we used net cash of $2,564,005 in operating activities, an increase of $2,024,137. This increase was caused, in part, primarily by an increase in net losses of $4,769,627. In the year ended August 31, 2003, we used $744,264 for the purchase of fixed assets compared to $620,417 used for the purchase of fixed assets in the year ended August 31, 2002, an increase of $123,847, or 20.0%. We acquired equipment to outfit our new facility in Fremont, California and expect to expend additional funds to obtain other necessary equipment for both of our subsidiaries. On February 27, 2003, we purchased substantially all of the assets of Eastern Manufacturing Corporation ("EMC") for $513,160. In separate transactions, we purchased $50,000 of accounts receivable of EMC in February 2003 and on March 5, 2003, we purchased a 33.3% interest in Coesen Inc. (the company holding the patent for the HVR Flex(TM) process). Upon the effectiveness of the Merger, we commenced the Private Placement, initially of units (each a "Unit"), each Unit being comprised of one share of our common stock and a 5 year warrant to purchase one share of our common stock at an exercise price of $1.50 per share. Effective October 28, 2002, we amended the offering structure to provide for, among other things, the offering of shares of common stock (without common stock purchase warrants) at $0.75 per share, reduced from its previous offering price of $1.50 per Unit (the "Repricing"). Each investor in the Private Placement who had purchased Units prior to October 28, 2002 was provided an opportunity to rescind its purchase and receive a refund of their purchase when the terms of the offering were amended. None of the investors availed themselves of the refund offer, instead, those investors agreed to surrender their rights to Units and to apply their respective investment amounts toward the purchase of shares of common stock at $0.75 per share. During the year 2003, we sold 2,792,567 shares of common stock in the Private Placement for net proceeds of $1,990,516. We also issued 332,557 shares as a Company self imposed penalty on the timing of the registration of these chares. We used the majority of the proceeds of the Private Placement, after deducting fees and expenses related to the Private Placement, for general working capital needs and the build-out of new facilities. Fees and expenses related to the Private Placement included $113,905 paid to R. F. Lafferty and Co., Inc., and $30,000 paid to Berry-Shino Securities in consideration of their assistance with the Private Placement. These costs were paid out of the proceeds received from the Private Placement. During the year ended August 31, 2003, we increased our borrowings under our credit agreement with Alco, an entity owned by a former member of our Board of Directors, by $257,875. Under the terms of the agreement, we can borrow up to the sum of (1) 80% of the net face amount of Titan's eligible accounts receivable, plus (2) the lesser of (i) $100,000 or (ii) 50% of the eligible inventory. Also during the year ended August 31, 2003, we repaid obligations from notes, loans and capital lease obligations totaling $148,493. During the second quarter 2003, Titan PCB East entered into a promissory note agreement with several individual lenders for $640,000. The note was subsequently assigned to, and assumed by, Titan PCB West. We received financing of $801,797 through short-term and long-term debt in addition to the ALCO agreement. In the year ended August 31, 2002, we received note and loan proceeds of $367,370 and repaid $264,309 of those obligations, and we also received $200,000 loan from a related party to finance our day-to-day operations. During the year ended August 31, 2003, as a result of the Merger, $2,144,146 in loans and notes were converted to equity. Under the terms of our agreement with Alco, we can borrow up to the sum of (1) 80% of the net face amount of our eligible accounts receivable, plus (2) the lesser of (i) $100,000 or (ii) 50% of the eligible inventory. Borrowings under the loan agreement incur interest charges at a rate equal to the greater of (a) 3.5% over the prime rate or (b) interest rate at the date of the loan agreement (June 28, 2002), and matures on June 28, 2005. This loan is subject to a loan fee of $24,000 for one year and a minimum monthly interest charge of $7,500, and it is secured by the accounts receivable and inventory of Titan. As of August 31, 2003, the balance of the loan was $1,005,639. Under our agreement with Alco, after an event of default under the credit facility we may not (a) grant any extension of time for payment of any accounts, (b) settle any accounts for less than the full amount of the account (c) release any account debtor; or (d) grant any credits with respect to any account. we are subject to certain restrictions and covenants. On February 27, 2003, through our subsidiary, Titan PCB East, we acquired substantially all of the assets of Eastern Manufacturing 29 Corporation, for approximately $513,160 in a sale from Eastern Manufacturing Corporation's secured lender, Eastern Bank. The acquired assets included equipment, work-in-progress, inventory, technology, technology and patent licenses and customer lists. In connection with this acquisition, we were assigned Eastern Manufacturing Corporation's rights under a license agreement with Coesen Inc., to manufacture PCBs using the HVR Flex(TM) Process. We also entered into a lease for the facility in Amesbury, Massachusetts, previously leased by Eastern Manufacturing Corporation. We financed the acquisition of Eastern Manufacturing Corporation's assets through the issuance and sale on February 27, 2003 of secured promissory notes by Titan PCB East to a limited number of accredited investors in a private placement. The promissory notes have an aggregate face amount of $640,000, bear interest at the rate of 24% per annum, payable quarterly, and have an expiration date of February 27, 2004. The promissory notes are secured by the equipment assets of Titan PCB West and an option to purchase real estate held by Titan PCB East. We expect to repay the promissory notes with the proceeds from the issuance of other short-term promissory notes with more favorable terms. In connection with the issuance of the promissory notes, the investors were issued an aggregate of 320,000 shares of common stock, pro rata according to their respective investment amounts. On May 9, 2003, we entered into a loan and security agreement (the "Equinox Agreement") with Equinox, and paid a loan fee of $19,000 which was expensed during the year. Under the terms of the Equinox Agreement, we can borrow up to the sum of (1) 70% of the net face value of the Titan PCB East Inc.'s eligible accounts receivable, plus (2) $400,000 against the eligible property and equipment. The Equinox Agreement carries an interest rate of the greater of (a) 3.5% over the prime rate, which is defined as the prime rate stated on the Wall Street Journal, (b) interest rate at the date of the loan agreement, 8.25% or (c) a minimum monthly interest charge of $7,500. The Agreement matures on June 28, 2003 and is secured by all accounts receivable and inventory of the Titan PCB East, Inc. We are subject to certain restrictions and covenants under the Agreement. The outstanding principal balance outstanding under the Equinox Agreement was $750,973 at August 31, 2003 of which $346,421 were included in lines of credit and $404,552 were included in long-term debt. We expect to significantly increase our manufacturing capacity in the first half fiscal 2004 as a result of our move to our leased facility in Fremont, California, our acquisition of assets from EMC and our entry into a new lease for the manufacturing facility in Amesbury, Massachusetts that was formerly leased by EMC. In connection with this capacity increase, we anticipate improved production and process utilization once all systems are in place, upgraded and operating within expected range at these two facilities. Once completed, we expect these expansion projects to increase production capacity and we anticipate that at such time our company will support production of rigid and rigid-flex PCBs. Our planned capacity expansions involve risks. We may encounter construction delays, equipment delays, supplier delays, manufacturing problems, process inefficiencies, labor shortages or disputes and production start-up problems that could prevent us from meeting our customers' delivery schedules. We expect to incur new fixed operating expenses associated with our expansion efforts, including increases in depreciation expenses and lease expenses. The current unfavorable economic conditions affecting major customers or the electronics industry in general may affect our ability to successfully utilize our additional manufacturing capacity in an effective manner. If our revenues do not increase sufficiently to offset increased expenses, our operating results may be adversely affected. CRITICAL ACCOUNTING POLICIES The U.S. Securities and Exchange Commission ("SEC") recently issued Financial Reporting Release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include: inventory valuation, which affects our cost of sales and gross margin; and allowance for doubtful accounts, which affects the general and administrative expenses. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. The Company believes the following represents its critical accounting policies: 30 INVENTORY VALUATION. Our policy is to value inventories at the lower of cost or market on a part-by-part basis. This policy requires us to make estimates regarding the market value of our inventories, including an assessment of excess or obsolete inventories. We determine excess and obsolete inventories based on an estimate of the future demand for our products within a specified time horizon, generally 12 months. The estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. If our demand forecast is greater than our actual demand we may be required to take additional excess inventory charges, which will decrease gross margin and net operating results in the future. In addition, as a result of the downturn in demand for our products, we have excess capacity in our manufacturing facilities. Currently, we are not capitalizing any inventory costs related to this excess capacity as the recoverability of such costs is not certain. The application of this policy adversely affects our gross margin. ALLOWANCE FOR DOUBTFUL ACCOUNTS. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our allowance for doubtful accounts is based on our assessment of the collectibility of specific customer accounts, the aging of accounts receivable, our history of bad debts, and the general condition of the industry. If a major customer's credit worthiness deteriorates, or our customers' actual defaults exceed our historical experience, our estimates could change and impact our reported results. CONTRACTUAL OBLIGATIONS The following table presents the Company's contractual obligations as of August 31, 2003 over the next five years and thereafter:
Payments by Period Contractual Obligations Amount Less than 1-3 years 4-5 years After 5 years one year Employment Agreements $ 2,266,232 $ 1,859,982 $ 250,000 $ 156,250 $ - Long-Term Debt 635,380 377,938 257,442 - - Capitalized Leases 494,689 260,690 233,999 - - Operating Leases 2,070,268 369,362 669,055 847,157 184,694 Short Term Debt 870,000 870,000 - - - Short Term Agreements 44,754 44,754 - - - ------------- ------------ ------------ ------------ ------------ Total Contractual Cash Obligations $ 6,381,323 $ 3,782,726 $ 1,410,496 $ 1,003,407 $ 184,694 ============== ============ ============ ============ ============
INFLATION AND COSTS The cost of the Company's products is influenced by the cost of a wide variety of raw materials, including precious metals such as gold used in plating, copper and brass used for contacts, and plastic material used in molding connector components. In the past, increases in the cost of raw materials, labor and services have been offset by price increases, productivity improvements and cost saving programs. There can be no assurance, however, that the Company will be able to similarly offset such cost increases in the future. RECENT ACCOUNTING PRONOUNCEMENTS In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9," which removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions 31 such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The requirements relating to acquisitions of financial institutions is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. The adoption of this Statement did not have a material impact on the Company's financial position or results of operations as the Company has not engaged in either of these activities. In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of this statement did not have a material impact on the Company's financial position or results of operations as the Company has not elected to change to the fair value based method of accounting for stock-based employee compensation. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this Statement does not have a material effect on the Company's financial position, results of operations, or cash flows. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of this statement did not have a material impact to the Company's financial position or results of operations. During October 2003, the FASB issued Staff Position No. FIN 46, deferring the effective date for applying the provisions of FIN 46 until the end of the first interim or annual period ending after December 31, 2003 if the variable interest was created prior to February 1, 2003 and the public entity has not issued financial statements reporting that variable interest entity in accordance with FIN 46. The FASB also indicated it would be issuing a modification to FIN 46 prior to the end of 2003. Accordingly, the Company has deferred the adoption of FIN 46 with respect to VIEs created prior to February 1, 2003. Management is currently assessing the impact, if any, FIN 46 may have on the Company; however, management does not believe there will be any material impact on its consolidated financial statements, results of operations or liquidity resulting from the adoption of this interpretation. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Statement 149 amends and clarifies financial accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for contracts entered into or modified after June 30, 2003, except for certain 32 hedging relationships designated after June 30, 2003. Adoption of this statement did not have a material impact on the Company's financial position or results of operations. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." Statement 150 establishes standards for how an issuer classifies and measures certain financial instrument with characteristics of both liabilities and equity. It requires that issuers classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement with the definitions of liabilities in FASB Concepts Statement No. 6, "Elements of Financial Statements." The remaining provisions of this Statement are consistent with the Board's proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. While the Board still plans to revise that definition through an amendment until it has concluded its deliberations on the next phase of this project. That next phase will deal with certain compound financial instrument including puttable shares, convertible bonds, and dual indexed financial instruments. This Statement is effective for financial instruments entered into modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of non-public entities. Adoption of this statement did not have a material impact on the Company's financial position or results of operations. 33 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report........................................................................ 35 Consolidated Balance Sheet as of August 31, 2003..................................................... 36 Consolidated Statements of Operations for the years ended August 31, 2003 and 2002................... 37 Consolidated Statements of Stockholders' Deficit for the years ended August 31, 2003 and 2002........ 38 Consolidated Statements of Cash Flows for the years ended August 31, 2003 and 2002................... 39 Notes to the Consolidated Financial Statements....................................................... 40
34 INDEPENDENT AUDITORS' REPORT Board of Directors Ventures-National Incorporated (dba Titan General Holdings, Inc.) Fremont, California We have audited the accompanying consolidated balance sheet of Ventures-National Incorporated (dba Titan General Holdings, Inc.) as of August 31, 2003, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years ended August 31, 2003 and 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ventures-National Incorporated (dba Titan General Holdings, Inc.) as of August 31, 2003, and the results of its operations and its cash flows for the years ended August 31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the accompanying consolidated financial statements, the Company' working capital deficit and significant operating losses raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ STONEFIELD JOSEPHSON, INC. CERTIFIED PUBLIC ACCOUNTANTS Irvine, California December 2, 2003 35 VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.) CONSOLIDATED BALANCE SHEET AS OF AUGUST 31, 2003 ASSETS Current assets: Cash.............................................................. $ 96,973 Accounts receivable-- trade (less allowance for doubtful accounts of $65,211 and allowance for sales returns of $24,000) ......... 1,643,599 Inventory, net.................................................... 408,189 Prepaid expenses and other current assets......................... 50,241 ------------ Total current assets......................................... 2,199,002 Equipment and improvements, net..................................... 2,751,648 Intangible assets, net.............................................. 36,938 Other assets........................................................ 155,092 ------------ Total assets................................................. $ 5,142,680 ============ LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of capitalized lease obligations.................. $ 204,751 Current portion of long-term debt................................. 377,938 Lines of credit................................................... 1,352,060 Loans and notes payable to related parties........................ 905,965 Accounts payable-- trade.......................................... 1,940,649 Accrued liabilities............................................... 991,850 ------------ Total current liabilities.................................... 5,773,213 Capitalized leases less current portion............................. 228,881 Long-term debt less current portion................................. 257,442 ------------ Total liabilities............................................ 6,259,536 Commitments and contingencies - Stockholders' deficit: Common stock-- $0.001 par value; 950,000,000 shares authorized; 14,624,687 shares issued and outstanding.......................... 14,625 Additional paid-in capital.......................................... 9,149,669 Accumulated deficit................................................. (8,208,979) Deferred compensation............................................... (2,072,171) ------------- Total stockholders' deficit.................................. (1,116,856) ------------ Total liabilities and stockholders' deficit.................. $ 5,142,680 ============
The accompanying notes form an integral part of the consolidated financial statements 36 VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.) CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, ---------------------- 2003 2002 ----------- ---------- Sales................................................. $ 10,204,672 $ 8,321,292 Cost of sales......................................... 9,588,291 7,079,941 ------------ ----------- Gross profit........................................ 616,381 1,241,351 Operating expenses: Sales and marketing................................. 1,235,807 851,444 General and administrative expenses................. 4,034,665 1,241,777 Merger costs........................................ 649,139 420,611 Restructuring costs ................................ 579,456 -- Costs of moving manufacturing plants ............... 164,512 -- ------------ ----------- Income (loss) from operations....................... (6,047,198) (1,272,481) Other income (expenses): Interest expense...................................... (565,977) (484,487) Miscellaneous......................................... 112,747 26,167 ------------ ----------- Loss before income taxes.............................. (6,500,428) (1,730,801) Income taxes.......................................... - - ------------ ----------- Net loss.............................................. $ (6,500,428) $(1,730,801) ============ =========== Loss per share: Basic and diluted................................... $ (0.52) $ (0.26) ======== ======== Number of weighted average shares-: Basic and diluted................................... 12,398,023 6,615,598 ============ ===========
The accompanying notes form an integral part of the consolidated financial statements 37 VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT) FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002
COMMON STOCK ADDITIONAL ------------------- PAID-IN ACCUMULATED SHARES PAR VALUE CAPITAL DEFICIT -------- ----------- --------- ----------- Balance, August 31, 2001 .............................. 800,000 $ 800 $ 898,423 $ 22,250 Acquisition of SVPC Partners LLC assets ............... 5,800,000 5,800 (800) - Issuance of common stock to related party as consulting fees at $0.10 per share .......... 100,000 100 9,900 - Issuance of common stock for compensation to related party at $1.50 per share .................. 50,000 50 74,950 - Issuance of common stock to retire loans payable to related parties at $1.50 per share ............... 130,490 130 195,605 - Reverse acquisition between Titan Acquisition Corp, and Titan PCB West, Inc. on August 30, 2001 ... 99,211 99 (9,759) - Issuance of warrants to consultants ................... - - 13,396 - Net loss .............................................. - - - (1,730,801) ---------- ------- ------------ ----------- Balance, August 31, 2002 .............................. 6,979,701 6,979 1,181,715 (1,708,551) Issuance of common stock as financing cost ............ 320,000 320 239,680 - Issuance of common stock for professional services .... 1,161,000 1,161 920,019 - Issuance of common stock for investment in Coesin...... 30,000 30 22,470 - Issuance of common stock for debt conversion to related parties ..................................... 2,458,862 2,459 1,841,688 - Issuance of common stock for debt conversion to loan holders ............................................. 400,000 400 299,600 - Issuance of common stock in relation to employee contracts ........................................... 50,000 50 37,450 - Issuance of common stock in public offering ........... 3,125,124 3,126 1,987,390 - Issuance of stock in private offering ................. 100,000 100 74,900 - Issuance of warrants as financing costs for future offering ............................................ - - 507,375 - Issuance of options as director fees .................. - - 161,532 - Issuance of employee options .......................... - - 173,250 - Issuance of warrants by stockholder for consulting service .............................................. - - 1,537,600 - Issuance of warrants by stockholder for professional services ............................. - - 165,000 - Amortization of deferred compensation ................. - - - - Net Loss .............................................. - - - (6,500,428) ---------- ------- ------------ ----------- Balance, August 31, 2003 .............................. 14,624,687 $14,625 $ 9,149,669 $(8,208,979) ========== ======= ============ ===========
TOTAL DEFERRED STOCKHOLDERS' COMPENSATION EQUITY/(DEFICIT) -------------- ------------------ Balance, August 31, 2001 .............................. $ - $ 921,473 Acquisition of SVPC Partners LLC assets ............... - 5,000 Issuance of common stock to related party as consulting fees at $0.10 per share .......... - 10,000 Issuance of common stock for compensation to related party at $1.50 per share .................. - 75,000 Issuance of common stock to retire loans payable to related parties at $1.50 per share ............... - 195,735 Reverse acquisition between Titan Acquisition Corp, and Titan PCB West, Inc. on August 30, 2001 ... - (9,660) Issuance of warrants to consultants ................... - 13,396 Net loss .............................................. - (1,730,801) ------------ ------------ Balance, August 31, 2002 .............................. - (519,857) Issuance of common stock as financing cost ............ - 240,000 Issuance of common stock for professional services .... (39,000) 882,180 Issuance of common stock for investment in Coesin...... - 22,500 Issuance of common stock for debt conversion to related parties ..................................... - 1,844,147 Issuance of common stock for debt conversion to loan holders ............................................. - 300,000 Issuance of common stock in relation to employee contracts ........................................... (37,500) - Issuance of common stock in public offering ........... - 1,990,516 Issuance of stock in private offering ................. - 75,000 Issuance of warrants as financing costs for future offering ............................................ (507,375) - Issuance of options as director fees .................. - 161,532 Issuance of employee options .......................... (173,250) - Issuance of warrants by stockholder for consulting service .............................................. (1,537,600) - Issuance of warrants by stockholder for professional services ............................. - 165,000 Amortization of deferred compensation ................. 222,554 222,554 Net Loss .............................................. - (6,500,428) ------------ ------------ Balance, August 31, 2003 .............................. $ (2,072,171) $ (1,116,856) ============ ============
The accompanying notes form an integral part of the consolidated financial statements 38 VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, ---------------------- 2003 2002 ---- ---- Cash flows from operating activities: Net income (loss) ........................................ $(6,500,428) $(1,730,801) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: .............. 422,391 420,727 Depreciation ........................................... 13,044 13,029 Amortization of intangible assets ...................... 21,260 126,182 Bad debt and sale return allowance ..................... -- 100,000 Loan fees to lender .................................... 1,431,265 98,396 Non cash compensation .................................. 10,000 -- Inventory reserve ...................................... 105,965 20,000 Interest expense as stock issuance amortization ........ 495,274 -- Loss on sale of SID equipment Changes in operating assets and liabilities: ........... (427,109) (227,668) Accounts receivable .................................. (73,877) 142,609 Inventory ............................................ 64,021 35,202 Prepaid expenses and other current assets ............ 3,467 (115,834) Other assets ......................................... 1,354,976 578,290 Accounts payable ..................................... 515,746 -- ----------- ----------- Accrued liabilities .................................. 3,936,423 1,190,933 ----------- ----------- Total adjustments .................................. (2,564,005) (539,868) ----------- ----------- Net cash provided by (used in) operating activities Cash flows from investing activities: Purchases of assets pursuant to purchase agreements, net of cash acquired .............. (518,160) -- Proceeds from sale of SID Equipment ...................... 30,000 -- Equipment and improvements expenditures, net ............. (744,264) (620,417) ----------- ----------- Net cash used in investing activities ............ (1,232,424) (620,417) ----------- ----------- Cash flows from financing activities: Principal proceeds on notes and loans payable from related parties ................ -- 1,582,419 Proceeds from issuance of long term debt ................. 441,296 -- Proceeds from issuance of lines of credit ................ 618,376 -- Proceeds from public stock offering, net ................. 1,990,516 -- Proceeds from private stock offering, net ................ 75,000 -- Proceeds from issuance of notes payable ................. 640,000 -- Proceeds from related party borrowing .................... 200,000 -- Payments on notes and loans payable ...................... (64,893) (334,730) Payments on long-term debt ............................... (66,349) (104,693) Payments on capitalized lease obligations ................ (17,251) (91,138) Proceeds from contributions by stockholders .............. -- 5,000 ----------- ----------- Net cash provided by (used in) financing activities .................................... 3,816,695 1,056,858 ----------- ----------- Net increase (decrease) in cash ............................ 20,266 (103,427) Cash and cash equivalents at beginning of year ............. 76,707 180,134 ----------- ----------- Cash and cash equivalents at end of year ................... $ 96,973 $ 76,707 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest ............................................... $ 275,392 $ 504,713 =========== ========== Income taxes ........................................... $ -- $ -- =========== ========== Non cash activities: Loans and notes payable for purchase of property and equipment ................... $ -- $ 15,700 =========== ========== Company self imposed penalty for timing of registration statement ..................... $ 209,443 $ - =========== ========== Issuance of common stock for consulting fees ........... $ 1,086,180 $ 10,000 =========== ========== Issuance of common stock to related party as compensation ....................................... $ -- $ 75,000 =========== ========== Issuance of common stock to related parties to retire debt .................... $ 2,144,147 $ 195,735 =========== ========== Issuance of common stock for acquisition of intangible assets from related party .............. $ 22,500 $ - =========== ========== Borrowings from related party to retire term loan ...... $ -- $1,741,146 =========== ========== Issuance of common stock as interest expense ........... $ 105,965 $ -- =========== ========== Issuance of common stock as deferred compensation ...... $ 37,500 $ -- =========== ========== Issuance of warrants as financing costs ................ $ 507,375 $ -- =========== ========== Issuance of options at less than market value .......... $ 161,532 $ -- =========== ========== Issuance of options/warrants as deferred compensation ........................................ $ 1,710,850 $ -- =========== ==========
The accompanying notes form an integral part of the consolidated financial statements 39 VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS: BUSINESS ACTIVITY: Ventures-National, Inc. (dba Titan General Holdings, Inc.) (the "Company") was formed on March 1, 1985 as an Utah corporation. Before its wholly owned subsidiary, Titan EMS Acquisition Corp. (Acquisition Corp.), merged with Titan PCB West, Inc. (Titan) (formerly Titan EMS, Inc.), the Company had no revenue and minimal amount of expenses. Titan, a wholly owned subsidiary of Ventures-National, Inc., was formed on March 27, 2001, as a Delaware corporation, with its former principal office in Santa Clara, California. In its Santa Clara facilities, Titan manufactures PCBs, with emphasis on time critical production for both prototype and low-to-medium volume orders. Its customers are located throughout the United States with a concentration in California. During the year ended August 31, 2003, Titan PCB West, Inc. was relocated to a facility in Fremont, CA and Ventures National formed a subsidiary, Titan PCB East, Inc., and purchased the assets of Eastern Manufacturing Corporation. NATURE OF BUSINESS We are a fabrication service provider of time sensitive, high tech, prototype and pre-production rigid and rigid flex printed circuit boards ("PCBs") providing time-critical printed circuit board manufacturing services to original equipment manufacturers, contract manufacturers and electronic manufacturing services providers through our wholly-owned subsidiaries Titan PCB West, Inc. and Titan PCB East, Inc. Our prototype printed circuit boards serve as the foundation in many electronic products used in telecommunications, medical devices, automotive, military applications, aviation components, networking and computer equipment. Our time sensitive and high quality manufacturing services enable our customers to shorten the time it takes them to get their products from the research and development phase to the production phase, thus increasing their competitive position. Our focus is on high quality niche Rigid and HVR Flex(TM) (rigid flex) printed circuit boards consisting of complex, multi-layered, fine-lines and high-performance materials with delivery cycles between 24 hours and standard 14 day lead times at a competitive price. Beginning in the year 2001, Titan began acquiring cutting edge technology equipment and processes from competitors unable to remain in business due to a severe market downturn and overwhelming debt. MERGER ACTIVITY: On August 12, 2002, Titan entered into an Agreement and Plan of Merger (the "Merger") with Titan EMS Acquisition Corp., a wholly owned subsidiary of Ventures-National, Inc. ("Ventures"). The Merger became effective on August 30, 2002 at which time Titan became a wholly owned subsidiary of Ventures. Under the Merger, the holders of capital stock of Titan received an aggregate of 6,880,490 shares of common stock of Ventures, representing approximately 80% of the outstanding common stock of Ventures immediately following the Merger. Upon the completion of the Merger, Titan's directors and officers became directors and officers of the merged company. In addition, each outstanding option of Titan was converted into one option of Ventures. For accounting purposes, the Merger was accounted for as a reverse-merger, where Titan is the acquirer. Because the Merger is accounted for as a purchase of Ventures, the historical financial statements of Titan became the historical financial statements of Ventures after the Merger. The accompanying consolidated financial statements as of August 31, 2002, include the operating results of Titan up to the closing day of August 30, 2002 and the operating results of Ventures after August 30, 2002. 40 BASIS OF PRESENTATION: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. At August 31, 2003, the Company had a working capital deficit of $3,574,211 and an accumulated deficit of $8,208,979. Management plans to take the following steps that it believes will be sufficient to provide Titan with the ability to continue its operations: Management intends to raise additional equity through a combination of equity and non-equity financing.. Titan plans to use the proceeds of theses transactions to expand its current product offering to allow for additional processing services for its customers. Management anticipates sales to grow as a result of additional customer offerings. Management believes that theses financing options and new product offerings will enable the Company to generate positive operating cash flows and continue its operations. The consolidated financial statements do not include any adjustments that might result from the outcome of the uncertainty. The accompanying consolidated statements of operations also include the operating results of SVPC Partners, LLC from September 1, 2001 to August 6, 2002 (date of merger with Titan), of Titan from August 7, 2002 to August 30, 2002, and of Ventures on August 31, 2002. During fiscal 2003, we purchased the assets of Eastern Manufacturing Corporation and therefore the results of this division have also been included since February 27, 2003. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CONSOLIDATION POLICY: The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Titan EMS Acquisition Corp., which merged with Titan PCB West, Inc. under a reverse-merger effective August 30, 2002 and Titan PCB East, Inc. All material intercompany transactions have been eliminated. USE OF ESTIMATES: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION: The Company derives its revenue primarily from the sale of PCBs using customers' design plans and recognizes revenues when products are shipped to customers. Provisions for discounts to customers, estimated returns and allowances are provided for the same period the related revenue is recorded by using an estimate based on a percent of Accounts Receivable which is consistent with or historical activity and our industry peers policy. This allowance is also checked against the percentage of Accounts Receivable that are over 90 days and Accounts Receivable that may be in dispute due to a change in customer specifications. Given the current market conditions that percent is approximately four percent of outstanding accounts receivable. The percentage used may fluctuate as market conditions for our customers change over time. CASH AND CASH EQUIVALENTS: The Company considers highly liquid investments with a maturity of three months or less to be cash equivalents and consist primarily of interest-bearing bank accounts and short-term debt securities. As of August 31, 2003, the Company had no short-term debt securities. 41 CONCENTRATION OF CREDIT RISK: The Company generally extends credit to its customers, which are concentrated in the computer and electronics industries and performs ongoing credit evaluations of its customers. Typically, the Company does not require collateral. The Company routinely reviews the collectibility of its accounts receivable and provides an allowance for potentially uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change. At August 31, 2003, the Company provided an allowance for doubtful accounts of $65,211 and an allowance for sales returns of $24,000. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). PROPERTY, EQUIPMENT AND IMPROVEMENTS: Property, equipment and improvements are valued at cost. Depreciation and amortization are provided using the straight-line method. Leasehold improvements are amortized on a straight-line basis over the lease term. The estimated service lives of property, equipment and improvements are as follows: Automobile 5 years Office equipment 7 years Production equipment 7 years Leasehold improvements 3 years Software 3 years INTANGIBLE ASSETS: Intangible assets include cost to acquire customer accounts, which is amortized on a straight-line basis over a period of five years. Accumulated amortization was $28,256 at August 31, 2003. LONG-LIVED ASSETS: In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 144 relates to assets that can be amortized and the life can be determinable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less the cost to sell. During the year ended August 31, 2002, the Company purchased certain assembling equipment and fixed assets and incurred certain setup cost for its System Integration Division. Such cost was being capitalized as Construction in Progress. During the year ended August 31, 2003, the Company decided not to pursue this aspect of the business, sold the assets for $30,000 and wrote off the prior year's capitalized costs. Included in the non-recurring cost is loss of $495,274 related to disposing such assets and capitalized costs. 42 ADVERTISING: The Company expenses advertising costs when incurred. Advertising expense totaled $22,483 and $6,146 for the years ended August 31, 2003 and 2002, respectively. BASIC AND DILUTED LOSS PER SHARE: In accordance with SFAS No. 128, "Earnings Per Share," the basic loss per common share is computed by dividing net loss available to common stockholders less preferred dividends by the weighted average number of common shares outstanding. Diluted loss per common share is computed similarly to basic loss per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were not anti-dilutive. The Company has excluded all outstanding options and convertible debt from the calculation of diluted net loss per share because these securities are anti-dilutive. The number of outstanding shares and weighted average shares reflects a stock split of 3,866.667 to 1 which took place during the year ended August 31, 2002. As of August 31, 2003, the Company has approximately 2,364,000 common stock equivalents. INCOME TAXES: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax basis. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Realization of the deferred tax asset is dependent upon generating sufficient taxable income in future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of the Company's cash and cash equivalents, accounts receivable, notes payable, accounts payable, and accrued expenses, none of which is held for trading, approximates their estimated fair values due to the short-term maturities of those financial instruments. COMPREHENSIVE INCOME: SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of August 31, 2003 and 2002, the Company had no items that represented other comprehensive income and, therefore, has not included a schedule of comprehensive income in the consolidated financial statements. SEGMENT REPORTING: Based on the Company's integration and management strategies, the Company operated in a single business segment. For the years ended August 31, 2003 and 2002, substantially all revenue has been derived from domestic operations. RECLASSIFICATION: Certain reclassifications have been made to the 2002 consolidated financial statements to conform to the 2003 presentation. STOCK BASED COMPENSATION; The Company accounts for stock-based compensation in accordance with Accounting Principles Board ("APB") Opinion No. 25. "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123. "Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost is recognized over the vesting period based on the excess, if any, on the date of grant of the fair value of the Company's shares over the employee's exercise price. When the exercise price of the option is less than the fair value price of the underlying shares on the grant date, deferred stock compensation is recognized and amortized to expense in accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 44 over the vesting period of the individual options. Accordingly, if the exercise price of the Company's employee options equals or exceeds the market price of the underlying shares on the date of grant no compensation expense is recognized. Options or shares awards issued to non-employees and directors are valued using the Black-Scholes pricing model and expensed over the period services are provided. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," which amends, SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 expands the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition provisions of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The transition provisions do not currently have an impact on the Company's consolidated financial position and results of operations as the Company has not elected to adopt the fair value-based method of accounting for stock-based employee compensation under SFAS NO. 123. The disclosure provisions of SFAS No. 148 are effective for financial statements for interim periods beginning after December 15, 2002. The Company adopted the disclosure requirements in the third quarter of fiscal 2003. At August 31, 2003, the Company had not adopted a stock-based compensation plan, but has issued options to certain of its employees and executive officers. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25. ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related Interpretations. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION to stock based employee compensation: 2003 2002 ---- ---- Net loss, as reported ................... $(6,500,428) $(1,730,801) Add: Compensation recognized under APB No. 25 .............................. 34,650 - Deduct: Compensation recognized under FAS 123 ................................. (50,883) - ----------- ----------- Proforma net loss ....................... $(6,516,661) $(1,730,801) ----------- ----------- Loss per share: Basic and diluted, as reported ........ $ (0.52) $ (0.26) Basis and diluted, proforma ........... $ (0.53) $ (0.26) 43 NEW ACCOUNTING PRONOUNCEMENTS: In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain Financial Institutions-an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9," which removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. In addition, this Statement amends SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The requirements relating to acquisitions of financial institutions is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. The adoption of this Statement did not have a material impact on the Company's financial position or results of operations as the Company has not engaged in either of these activities. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45). FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this Statement does not have a material effect on the Company's financial position, results of operations, or cash flows. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities." Interpretation 46 changes the criteria by which one company includes another entity in its consolidated financial statements. Previously, the criteria were based on control through voting interest. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of this Statement did not have a material impact to the Company's financial position, results of operations or cash flows. During October 2003, the FASB issued Staff Position No. FIN 46, deferring the effective date for applying the provisions of FIN 46 until the end of the first interim or annual period ending after December 31, 2003 if the variable interest was created prior to February 1, 2003 and the public entity has not issued financial statements reporting that variable interest entity in accordance with FIN 46. The FASB also indicated it would be issuing a modification to FIN 46 prior to the end of 2003. Accordingly, the Company has deferred the adoption of FIN 46 with respect to VIEs created prior to February 1, 2003. Management is currently assessing the impact, if any, FIN 46 may have on the Company; however, management does not believe there will be any material impact on its consolidated financial statements, results of operations or liquidity resulting from the adoption of this interpretation. 44 In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." Statement 149 amends and clarifies financial accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. The adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." Statement 150 establishes standards for how an issuer classifies and measures certain financial instrument with characteristics of both liabilities and equity. It requires that issuers classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement with the definitions of liabilities in FASB Concepts Statement No. 6, "Elements of Financial Statements." The remaining provisions of this Statement are consistent with the Board's proposal to revise that definition to encompass certain obligations that a reporting entity can or must settle by issuing its own equity shares, depending on the nature of the relationship established between the holder and the issuer. While the Board still plans to revise that definition through an amendment until it has concluded its deliberations on the next phase of this project. That next phase will deal with certain compound financial instrument including puttable shares, convertible bonds, and dual indexed financial instruments. This Statement is effective for financial instruments entered into modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of non-public entities. The adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or cash flows. 3. MERGERS AND ACQUISITIONS: MERGER WITH VENTURES-NATIONAL, INC. On August 12, 2002, Titan entered into an Agreement and Plan of Merger (the "Merger") with Titan EMS Acquisition Corp., a wholly owned subsidiary of Ventures. The Merger became effective on August 30, 2002 (after the date was closed) at which time Titan became a wholly owned subsidiary of Ventures. Under the Merger, the holders of capital stock of Titan received an aggregate of 6,880,490 shares of common stock of Ventures, representing approximately 80% of the outstanding common stock of Ventures immediately following the Merger. Upon the completion of the Merger, Titan's directors and officers became directors and officers of the merged company. In addition, each outstanding option of Titan will be converted into one Venture options. For accounting purposes, the Merger was accounted for as a reverse-merger, where Titan is the acquirer. Because the Merger is accounted for as a purchase of Ventures, the historical financial statements of Titan became the historical financial statements of Ventures after the Merger. MERGER WITH SVPC PARTNERS, LLC On August 6, 2002, prior to its merger with Ventures, and except for real estate and related obligations, Titan purchased all operating assets and assumed all operating liabilities of SVPC Partners, LLC (an affiliate company of Titan), by issuing 800,000 shares of Titan's stock to SVPC Partners, LLC. Before this acquisition, Titan had no revenue and limited operating expenses. Subsequent to the transactions, SVPC Partners, LLC owned approximately 12% of the total issued and outstanding shares of Titan, while approximately 88% of those were owned by Irrevocable Children's Trust. This transaction is considered a re-capitalization where the controlling shareholder of SVPC Partners, LLC and Titan remains the controlling shareholder of the combined company after this transaction. The historical financial statements of SVPC Partners, LLC became the historical financial statements of Titan up to August 5, 2002. 45 Immediately before this transaction, the net assets of Titan were immaterial to the combined balance sheet. ACQUISITION OF EASTERN MANUFACTURING CORPORATION On February 27, 2003, the Company's wholly owned subsidiary, Titan PCB East, Inc. ("Titan East"), acquired substantially all of the assets of Eastern Manufacturing Corporation, an Amesbury, Massachusetts-based manufacturer of rigid-flex printed circuit boards using the patented HVR Flex(TM) process ("EMC"). Pursuant to an agreement, dated February 27, 2003, between Titan East and Eastern Bank ("Eastern Bank"), the secured lender of EMC, Eastern Bank sold to Titan East, among other things, equipment, work-in-progress, inventory, technology, patent licenses, and customer lists, by means of a foreclosure sale in accordance with the laws of the Commonwealth of Massachusetts and with the consent of EMC. The Company intends to continue to use the purchased assets to manufacture rigid-flex printed circuit boards, as well as time sensitive, high tech, prototype, and pre-production printed circuit boards. Pursuant to the terms of the Agreement, the purchase price was $500,000. The purchase price was determined by negotiation between the Company and Eastern Bank. The company incurred additional cost of $13,160 related to the purchase which have been added to the original purchase price. In a related but separate transaction, prior to the purchase of the EMC assets by Titan East, Titan East entered into an accounts receivable factoring agreement whereby Titan East purchased the current accounts receivable of $53,507 from EMC for $50,000. 46 The purchase price of acquisition of EMC's assets was allocated as follows: Inventories $ 46,313 Property and equipment 460,017 Furniture and fixtures 6,830 --------- Purchase Price $513,160 ======== The allocation of the purchase price is preliminary and is subject to revision, which is not expected to be material, based on the final valuation of the net assets acquired. Merger related cost was expensed as incurred. The proforma financial information is not presented as this acquisition was not considered significant or material on the date of the acquisition. INVESTMENT IN COESEN, INC. Effective March 5, 2003, the Company purchased ten (10) shares (the "Shares") of common stock, par value $0.01 per share, of Coesen Inc. Inc., a New Hampshire corporation ("Coesen Inc."), representing 33.3% of the issued and outstanding shares of Coesen Inc. common stock from Mr. Howard Doane pursuant to a Stock Purchase Agreement among the Company, Coesen Inc. and Mr. Doane (the "Stock Purchase Agreement"). In consideration for the Shares, the Company issued thirty thousand (30,000) shares of its common stock and paid $5,000 in cash, to Mr. Doane. In connection with the acquisition of the Shares, David M. Marks, Director of the Registrant, was elected to the Board of Directors of Coesen Inc. and Mr. Doane resigned as a director of Coesen Inc.. In addition, Mr. Doane and the two other stockholders of Coesen Inc. entered into a stockholders agreement with Coesen Inc. dated as of March 5, 2003 pursuant to which the stockholders agreed not to take actions not in the ordinary course of business including, without limitation, incurring of indebtedness outside the ordinary course, liquidating or dissolving Coesen Inc., merging or consolidating Coesen Inc. with another entity, issuing or redeeming any equity, in each case without the prior written consent of the Company. 4. INVENTORIES: Inventories as of August 31, 2003 consist of the following: Raw materials $158,765 Work in process 198,849 Finished goods 50,575 -------- $408,189 ======== At August 31, 2003, the reserve for obsolescence was $30,000, which represents an increase of $10,000 from August 31, 2002 5. PROPERTY, EQUIPMENT, AND IMPROVEMENTS: A summary as of August 31, 2003, is as follows: Automobiles $ 26,684 Office equipment 56,895 Production equipment 3,065,355 Leasehold improvements 373,674 Software 26,149 ---------- 3,548,757 Less accumulated depreciation and amortization 797,109 ---------- $2,751,648 ========== Depreciation and amortization expense for property, equipment, and improvements amounted to $422,391 and $420,727 for the years ended August 31, 2003 and 2002, respectively. 47 6. INTANGIBLE ASSETS: A summary is as follows: Customer list $ 65,194 Less accumulated amortization 28,256 --------- $ 36,938 ========= Amortization expense for intangible assets amounted to $13,044 and $13,029 for the years ended August 31, 2003 and 2002. 7. PRIVATE PLACEMENT OFFERING AND DEBT CONVERSION: We raised $1,990,516 (net of related cost) from our private placement offering that closed on January 9, 2003 (the "Private Placement") and two additional private placements on February 3, 2003. In connection with these placements, the Company issued 3,125,124 shares of Common Stock at $0.75 per share (which includes self imposed company penalty for late registration of shares). Of the total raised to date, we received $1,690,516 during the year 2003 and $300,000 during August 2002. During the quarter ended February 28, 2003, the Company had two notes/loans payable to related parties, which were converted into a total of 2,458,862 shares of common stock at $0.75 per share. During the quarter ended November 30, 2002, the Company had two non-interest bearing loans payable totaling $300,000 ($150,000 each) which were converted into 400,000 shares of common stock at $0.75 per share. 8. LOANS AND NOTES PAYABLE: NON-RELATED PARTIES On June 28, 2002, the Company entered into a loan and security agreement (the "Alco Agreement") with Alco Financial Services ("Alco"), an entity owned by an individual who subsequently became a member of its Board of Directors at the time, and paid a loan fee of $24,000 which is being amortized to interest expense at $2,000 per month. Under the terms of the Alco Agreement, the Company can borrow up to the sum of (1) 80% of the net face value of the Titan PCB West Inc.'s eligible accounts receivable, plus (2) the lesser of (i) $100,000 or (ii) 50% of eligible inventory. The Alco Agreement carries an interest rate of the greater of (a) 3.5% over the prime rate, which is defined as the prime rate stated on the Wall Street Journal, (b) interest rate at the date of the loan agreement, 8.25% or (c) a minimum monthly interest charge of $7,500. The Agreement originally matures on June 28, 2003 and extended to December 2003, and is secured by all accounts receivable and inventory of the Titan PCB West, Inc. The Company is subject to certain restrictions and covenants under the Alco Agreement. During the year ended August 31, 2003, the Company amortized loan fees of $18,000 and paid interest of $159,438. During the quarter ended February 28, 2003, the owner of Alco resigned as a member of the Company's Board of Directors. The outstanding principal balance was $1,005,639 at August 31, 2003 and was paid off in November 2003. On May 9, 2003, the Company entered into a loan and security agreement (the "Equinox Agreement") with Equinox Business Credit Corp. ("Equinox"), and paid a loan fee of $19,000 which was expensed during the year. Under the terms of the Equinox Agreement, the Company can borrow up to the sum of (1) 70% of the net face value of the Titan PCB East Inc.'s eligible accounts receivable, plus (2) $400,000 against the eligible property and equipment. The Equinox Agreement carries an interest rate of the greater of (a) 3.5% over the prime rate, which is defined as the prime rate stated on the Wall Street Journal, (b) interest rate at the date of the loan agreement, 8.25% or (c) a minimum monthly interest charge of $7,500. The Agreement matures on June 28, 2005 and is secured by all accounts receivable and inventory of the Titan PCB East, Inc. The Company is subject to certain restrictions and covenants under the Agreement. During the year ended August 31, 2003, the Company paid interest of $77,017. The outstanding principal balance was $346,421 at August 31, 2003. 48 RELATED PARTIES Before the re-capitalization between Titan and SVPC Partners, LLC on August 6, 2002, Ohio Investors of Wisconsin, an affiliate of Titan, paid off the outstanding balance of the term loan owed by SVPC Partners, LLC for approximately $3,141,146. SVPC Partners, LLC sold the land and buildings to Ohio Investors Wisconsin for approximately $1,400,000, which was used to reduce the amount owed to Ohio Investors of Wisconsin to $1,741,146. The Company entered into a loan agreement with Ohio Investors of Wisconsin for the remaining unpaid balance of $1,741,146. At the option of Ohio Investors of Wisconsin loan balance is convertible into 2,321,528 shares of Ventures' common stock after the merger with Ventures at a price of $0.75 per share, which approximates the fair market value per share based on the management's assessment. Based on the conversion terms, no beneficial conversion feature is included with this convertible note. According to EIFT 00-27, no discount or premium is recorded. Subsequent to August 31, 2002, the Company converted the outstanding balance of this loan into 2,321,528 shares of Ventures' common stock at $0.75 per share. At November 30, 2002, the Company owed approximately $353,000 of a non-interest bearing loan to a major shareholder. In December 2002, $103,000 of the obligation was converted into 137,333 shares of common stock at $0.75 per share. In addition, the Company made cash repayments of $50,000 during the year. $200,000 remained unpaid as of August 31, 2003. In August 2002, the Company obtained two non-interest bearing loans payable totaling $300,000 ($150,000 each). Subsequent to August 31, 2002, the Company converted the outstanding balance of this loan into 400,000 shares of Ventures' common stock at $0.75 per share. The Company had two unsecured 10% loans payable totaling $195,735 to affiliated companies. On August 31, 2002, the Company converted the loans into 130,490 shares of its common stock at $1.50. On February 27, 2003, the Company entered into an unsecured promissory note agreement with several individual lenders. Under the terms of the agreement, the Company agreed to sell up to $640,000 principal amount of promissory notes to these individual lenders which notes have an interest rate of the lower of (i) 24% or (ii) maximum legal rate. Interest on these notes is payable quarterly, and unpaid principal and interest shall be payable on February 27, 2004. In connection with this financing, on February 27, 2003, the Company issued 320,000 shares of its common stock to the lenders as a financing cost with a value of $240,000, which was classified as discount of the notes. For the year ended August 31, 2003, the Company amortized $106,965 of the discount using the interest method. As of August 31, 2003, the investors had purchased and the Company had issued promissory notes under this Agreement having an aggregate principal amount of $505,965 (net of unamortized discount of $134,035) In August 2003, the Company received two short-term loans from our CEO and President in the amounts of $150,000 and $50,000, respectively. 9. LONG-TERM DEBT: A summary as of August 31, 2003, is as follows: Unsecured 6.25% note payable to a financing company, payable in monthly installments of $11,133, including interest. The unpaid balance of $230,771 is all current as of August 31, 2003. The Company also has a term loan form Equinox which it entered into on May 9, 2003 for $441,330 which is payable in equal monthly installments of $12,259 thru May 2006. In January 2002, SVPV Partners, LLC secured a non-interest bearing auto loan for $15,700 and is required to make monthly payments of $436 through February 2005. As of August 31, 2003, the outstanding balance of this loan was $7,850 which was expected to be repaid within the next fiscal year. The Company assumed the outstanding balance of this loan pursuant to its purchase of SVPC Partners, LLC on August 6, 2002. A summary of the long-term debt maturities at August 31, 2003 is as follows: 49 Year ending August 31, 2004 $377,938 2005 147,110 2006 110,332 Thereafter -- -------- $635,380 ======== 10. OBLIGATIONS UNDER CAPITAL LEASES: The following is a schedule by years of future minimum lease payments required under capital lease obligations together with the present value of the net minimum lease payments, as of August 31, 2003: Year ending August 31, 2004 $260,690 2005 137,005 2006 96,994 Thereafter -- -------- Total minimum lease payments 494,689 Less amounts representing interest 61,057 -------- Present value of net minimum lease payments 433,632 Less current portion 204,751 -------- $228,881 ======== The cost of property and equipment under capitalized lease obligations was $550,000, with related accumulated depreciation and amortization of $170,238 as of August 31, 2003. 11. INCOME TAXES: Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain. Accordingly a valuation allowance, in an amount equal to the net deferred tax asset as of August 31, 2003 and 2002, has been established to reflect these uncertainties. As of August 31, 2003, the deferred tax asset before valuation allowances is approximately $2,368,000, for federal purposes. Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986. The annual limitation may result in the expiration of the net operating loss carryforwards before utilization. Income tax provision amounted to $0 for each of the years ended August 31, 2003 and August 31, 2002 (an effective rate of 0%). A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows: 50 Computed tax at federal statutory rate of 34% $(2,210,000) Other changes of temporary differences (60,000) Change in valuation allowance 2,270,000 ----------- $ -- =========== Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: Deferred tax assets: Allowance for doubtful accounts $ 30,000 Inventory reserve 10,000 Accrued vacation 30,000 Reserve for lawsuit 48,000 Net operating losses carryforwards 2,250,000 ------------ Net deferred assets before valuation allowance 2,368,000 Valuation allowance (2,368,000) ------------ Net deferred tax assets $ -- ============ At August 31, 2003, the Company has available unused net operating losses carryforwards of approximately $6,618,000 for federal purposes that may be applied against future taxable income and that, if unused, begin to expire in 2022. 12. STOCK OPTIONS: As of August 31, 2003, the Company has not established an employee stock option plan. However, in August 2002, the Company granted 710,000 stock options to its Chief Executive Officer and its Vice President of Sales. The exercise price for these options, based on the management's assessment, is equal to the fair market value of the Company's common stock at the date of grant. Options expire no later than five years from the grant date and are vested upon granted. During the year 2003, the Company issued 1,920,000 options at prices ranging from $0.75 to $4.00. The Company also cancelled certain options which ranged in price from $1.50 thru $2.00. WEIGHTED AVERAGE OPTIONS EXERCISE PRICE ---------- -------------- Options outstanding at August 31, 2001........ - $ - Options granted............................... 710,000 1.50 Options canceled.............................. - - Options exercised............................. - - ---------- Options outstanding at August 31, 2002........ 710,000 1.50 Options granted............................... 1,920,000 1.62 Options canceled.............................. (1,415,000) 1.42 Options exercised............................. - - ---------- Options outstanding at August 31, 2003........ 1,215,000 1.23 ========== Summarized information about stock options outstanding at August 31, 2003 is as follows:
EXERCISABLE WEIGHTED ------------------------------- AVERAGE WEIGHTED WEIGHTED NUMBER OF REMAINING AVERAGE AVERAGE RANGE OF OPTIONS CONTRACTUAL EXERCISE NUMBER OF EXERCISE EXERCISE PRICES OUTSTANDING LIFE PRICE OPTIONS PRICE --------------- ----------- ----------- --------- --------- --------- $ 0.75............................... 515,000 4.92 $ 0.75 103,000 $ 0.75 1.50............................... 675,000 4.08 1.50 207,000 1.50 4.00............................... 25,000 4.33 4.00 5,000 1.00 --------- ------ 1,215,000 315,000 ========= =======
51 For the years ended August 31, 2003 and 2002, options to purchase 315,000 and 142,000 shares, at weighted average exercise prices of $1.29 and $1.50, respectively, of Common Stock were exercisable with the remaining options becoming exercisable at various dates through July 31, 2008. Generally, when shares acquired pursuant to the exercise of incentive stock options are sold within one year of exercise or within two years from the date of grant, the Company derives a tax deduction measured by the amount that the fair market value exceeds the option price at the date the options are exercised. When nonqualified stock options are exercised, the Company derives a tax deduction measured by the amount that the fair market value exceeds the option price at the date the options are exercised. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: 2003 2002 -------- -------- Dividend yield........... 0% N/A Expected volatility...... 67% N/A Risk free interest rate.. 4.17% N/A Expected life (years).... 3.0 N/A The effect of applying SFAS No. 123 in this pro forma disclosure is not indicative of future amounts. Additional awards in future years are anticipated. The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The Company's options do not have the characteristics of traded options, therefore, the option valuation models do not necessarily provide a reliable measure of the fair value of its options. 52 13. WARRANTS: There were 350,000 warrants issued to Star Consulting in the year ended August 31, 2002, but these were subsequently cancelled in the year ended Augusts 31, 2003. There were three issuances of warrants in 2003. The first warrant for 48,753 was issued to Reitler Brown, our legal counsel, in connection with the payment for legal services. The second and third sets of warrants were issued to SBI-Securities and SBI-USA for a total of 1,100,000 shares at $0.75 per share. This is in connection with the private offering registered in our SB-2 filing in August 2003 in which to date we have raised approximately $520,000 of which $445,000 has been raised subsequent to year end. Our largest shareholder, Irrevocable Children's Trust ("ICT"), issued 1,000,000 warrants to purchase shares of common stock owned by ICT to each of Mr. Ciri and Mr. Glashow to entice them to serve as our Chief Executive Officer and President, respectively. These warrants were issued for the purchase of their shares at $0.50 each and no additional stock will be issued from the Company in exchange for these warrants, but will be forthcoming from this shareholder. 14. RETIREMENT PLAN: The Company has established a 401(k) plan for the benefits of employees effective September 1, 2003 and therefore made no contributions for the year ended August 31, 2003 and 2002. This plan allows for the employee to contribute up to 75% of their pay to the IRS maximum allowable contribution per year. The Plan includes a discretionary match based on the Company's profitability. 15. COMMITMENTS: The Company leases its facilities. The following is a schedule by years of future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year as of August 31, 2003: REAL ESTATE OTHER TOTAL ----------- ----- ----- Year Ending August 31, 2004 $ 358,087 $ 6,478 $ 364,565 2005 301,688 6,478 308,166 2006 352,934 5,358 358,292 2007 406,887 2,600 409,487 2008 437,670 - 437,670 Thereafter 184,694 - 184,694 ----------- -------- ----------- Totals $ 2,041,960 $ 20,914 $ 2,062,874 =========== ======== =========== All leases expire prior to January 2009. Real estate taxes, insurance, and maintenance expenses are obligations of the Company. Rent expense totaled $793,070 and $309,614 for the years ended August 31, 2003 and 2002. In July 2002, the Company entered into an at-will employment agreement with its Vice President of Sales ("VPS") that allows for either the Company or the VPS to terminate employment at any time. Under the at-will employment agreement, the Company will pay a base annual salary plus bonuses, which are based on achieving certain monthly sales quotas and normal employee benefits. This at-will employment agreement is for a term of five years from the date of the agreement. In the event the VPS is terminated without cause, the Company will pay three (3) months of base salary as severance and continuation of normal employee benefits during the three (3) month severance period. In addition, the Company has granted vested options to purchase up to 360,000 shares of the Company's common stock at $1.50 per share. In February 2003, the Company entered into an at-will employment agreement with its divisional Vice President of Sales ("Sales VP") that allows for either the Company or the Sales VP to terminate employment at any time. Under the at-will employment agreement, the Company will pay a base annual salary plus bonuses, which are based on achieving certain monthly sales quotas 53 and normal employee benefits. This at-will employment agreement is for a term of one year from the date of the agreement. In the event the Sales VP is terminated without cause, the Company will pay two (2) months of base salary as severance and continuation of normal employee benefits during the two (2) month severance period. In addition, the Company granted 25,000 restricted shares of the Company's common stock to the Executive. In May 2003, the Company entered into an at-will employment agreement with its Chief Technology Officer ("CTO") that allows for either the Company or the CTO to terminate employment at any time. Under the at-will employment agreement, the Company will pay a base annual salary plus bonuses, which are based on achieving certain monthly sales quotas and normal employee benefits. This at-will employment agreement is for a term of one year from the date of the agreement. In the event the CTO VP is terminated without cause, the Company will pay twelve (12) months of base salary as severance and continuation of normal employee benefits during the twelve (12) month severance period. In addition, the Company granted 25,000 restricted shares of the Company's common stock to the Executive. In July 2003, the Company entered into an at-will employment agreement with its Chief Executive Officer ("CEO") that allows for either the Company or the CEO to terminate employment at any time. Under the at-will employment agreement, the Company will pay a base annual salary of $1. Our largest shareholder, Irrevocable Children's Trust has also granted our CEO 1,000,000 warrants to purchase shares of common stock owned by ICT at $.50 per share exercisable for a period of three years. In July 2003, the Company entered into an at-will employment agreement with its President that allows for either the Company or the President to terminate employment at any time. Under the at-will employment agreement, the Company will pay a base annual salary of $1. Our largest shareholder, Irrevocable Children's Trust has also granted our President 1,000,000 warrants to purchase shares of common stock owned by ICT at $.50 per share exercisable for a period of three years. 16. STOCKHOLDERS' EQUITY: Transactions of stockholders' equity during the year ended August 31, 2003 are summarized by type in the following table:
COMMON STOCK NUMBER & ADDITIONAL OF SHARES PAID IN CAPITAL ------------ --------------- Beginning balance at 8/31/02..................................... 6,979,701 $1,188,694 Issuance of common stock as financing costs (1).................. 320,000 240,000 Issuance of common stock for professional services (2)........... 1,161,000 921,180 Issuance of common stock as investment in Coesen , Inc.(3)....... 30,000 22,500 Issuance of common stock for debt conversion (4)................. 2,858,862 2,144,147 Issuance of common stock in relation to employment contracts (5). 50,000 37,500 Issuance of common stock in public offering, net (6)............. 3,125,124 1,990,516 Issuance of common stock in private offering (7)................. 100,000 75,000 Issuance of warrants as financing costs for future offering (8).. - 507,375 Issuance of options as director fees (9)......................... - 161,532 Issuance of options as employee options (10)..................... - 173,250 Issuance of warrants by shareholder for consulting service (11) - 1,537,600 Issuance of warrants by stockholder for professional services (12) - 165,000 ---------- ---------- Ending balance at 8/31/03........................................ 14,624,687 $9,164,294 ========== ==========
(1) In order to facilitate the purchase of the assets of Eastern Manufacturing Corporation ("EMC"), mentioned elsewhere within this document, the Company issued $640,000 24% notes which carried attached common stock at a share for every $2.00 invested.. This stock was issued at a price of $0.75 and is being amortized to interest expense using the interest method over the one-year life which ends in February 2004. (2) The Company had many consultants and professionals during the year and as part of their compensation, these consultants were issued stock in the amount of 1,161,000 shares in varying prices ranging from $0.75 to $1.30 or an average price of $0.79/share 54 (3) On March 5, 2003, the Company purchased a 33.3% share in Coesen, Inc. for $5,000 and the issuance of 30,000 shares. (4) During the year 2003, the Company had two notes/loans payable to related parties, which were converted into a total of 2,458,862 shares of common stock at $0.75 per share. During the quarter ended November 30, 2002, the Company had two non-interest bearing loans payable totaling $300,000 ($150,000 each) which were converted into 400,000 shares of common stock at $0.75 per share. (5) As part of two employment agreements, the Company issued to two employees 25,000 shares each. (6) We raised $1,990,516 (net of related cost) from our private placement offering that closed on January 9, 2003 (the "Private Placement") and two additional private placements on February 3, 2003. In connection with these placements, the Company issued 3,125,124 shares of Common Stock at $0.75 per share (which includes self imposed company penalty for late registration of shares). (7) In August 2003, the Company raised $75,000 through the exercise of 100,000 SBI warrants. (8) The Company issued to SBI warrants as financing cost related to upcoming offerings. (9) On July 24, 2003, the Company issued 50,000 options at $0.75 per share to each of its four directors. At the time of grant, the market price was $1.30. The Company computed the fair value of these options using the Black-Scholes model. Since these options were vested immediately, the fair value of the options was expensed upon granted. (10) On July 24, 2003, the Company issued 315,000 options at $0.75 per share to five of its employees. At the time of grant, the market price was $1.30. The Company expensed the intrinsic value of these options in accordance with APB 25. 20% of these options were vested upon granted and additional 20% will be vested at the each of the anniversary date. The Company expensed 20% of the intrinsic value of these options during the year ended August 31, 2003 and the remaining amount was classified as deferred compensation. (11) On July 29, 2003, Irrevocable Children's Trust, our largest shareholder, issued 1,000,000 warrants to purchase shares of common stock owned by ICT at $0.50 per share to each Mr. Bob Ciri and Mr. Andrew Glashow as part of employment agreements to serve as our Chief Executive Officer and President, respectively. The Company computed the fair value of these warrants using the Black-Scholes model. The fair value of the options was amortized and expensed over the term of the employment contracts. (12) Irrevocable Children's Trust, our largest shareholder, issued 150,000 shares to Trilogy Capital Partners in order to entice Trilogy to promote the Company's stock. The Company expensed the fair value of the shares upon grant. 17. RELATED PARTY TRANSACTIONS: On August 18, 2003, Irrevocable Children's Trust ("ICT"), our largest shareholder granted 150,000 shares of the Company's common stock to Trilogy Capital Partners, Inc. for service performed for the Company. Fair value of shares totaling $165,000 was expensed during the year ended August 31, 2003. On July 29, 2003, ICT, our largest shareholder, issued 1,000,000 warrants to purchase shares of common stock owned by ICT at $0.50 per share to each Mr. Bob Ciri and Mr. Andrew Glashow to purchase ICT's ownership of the Company's common stock as part of employment agreements to serve as our Chief Executive Officer and President, respectively. The fair value is determined based on the Black-Scholes model with a total valuation of $1,537,600. The Company expensed $164,292 during the year ended August 31, 2003 and the remaining amount was classified as deferred compensation which will be amortized over the term of the employment contracts. In addition, under the employment agreements, ICT will issue 50,000 shares of common stock to each Mr. Ciri and Mr. Glashow upon the completion of the agreements. The Company expensed $24,574 related to these shares granted during the year ended August 31, 2003. 55 The Company accounted for the transactions between ICT and consultants and employees in accordance with Staff Bulletin Board (SAB) 5T, "Accounting for Expenses or Liabilities Paid by Principal Stockholder(s)" which requires the Company to record expense for services paid by the stockholders. During the year ended August 31, 2003, the Company converted outstanding loans to related parties totaling $1,844,147 into 2,458,862 shares of common stock. 18. LEGAL PROCEEDINGS: TITAN V. ELECTRONIC MANUFACTURING GROUP, INC. ("EMG") The Company filed a litigation in California Superior Court for collection of unpaid invoices for sales made to EMG. The motion is set for hearing on November 13, 2003. Based on the preliminary evaluation of case, it is not clear that these receivables will be collectible. As of August 31, 2003, the Company accrued $12,000 as allowance for doubtful accounts. TITAN V. CVPC, INC. The Company filed a litigation in California Superior Court for collection of unpaid invoices for sales made to CVPC, Inc. and its principal, Greg Short, based on personal guarantee and alter ego theories. Titan dismissed Mr. Short without prejudice and has obtained default judgment for approximately $44,000 against CVPC, Inc., it is not clear that these receivables will be collectible. As of August 31, 2003, the Company accrued $44,000 as allowance for doubtful accounts. NORTHERN LAMINATE V. TITAN Northern Laminate Sales, Inc. ("Norther Laminate") filed an action against the Company in the Superior Court on a claim of successor liability to enforce a default judgment in the amount of $61,033 entered against Eastern Manufacturing Corporation ("EMC"). Northern Laminate alleges that the Company succeeded to EMC's alleged contractual obligations when the Company purchased EMC's assets in a secured party sale form Eastern Bank in February 2003. The Company denies liabilities for EMC's debts on the grounds that it does not hold itself out as a continuation of EMC, and that the mere purchase of EMC's assets, without more, does not make the Company the "successor" of EMC as a mater of law. Northern Laminate has since moved to amend its complaint to add claims for breach of contracts and violations of G.L. c. 93A, based on the Company's failure to pay for goods in the amount of $11,327 received since commencement of the action. The Company believed that the case is without merit and has not accrued any of this claims in the accompanying financial statements. DISPUTE WITH ORBOTECH The Company has a dispute with Orbotech regarding a claim of approximately $300,000 involved a default under a CAM Software License and Service Agreement and Consolidated Agreement executed by SVPC Partners, LLC on July 30, 2001. The Company has outstanding payable to Orbotech approximately $223,000 as of August 31, 2003. The Company is in negotiation with Orbotech and attempt to reconcile the claim amount and the Company's records. The Company believes that its payable amount is sufficient in pursuant with the original debt agreement and does not believe any additional accrual is necessary. DANA WARD V. SVPC CIRCUIT SYSTEMS, INC. AND SVPC PARTNERS, LLC - -------------------------------------------------------------- Dana Ward, a former employee of SVPC Circuit Systems, Inc. and SVPC Partners, LLC, is alleging pregnancy discrimination and wrongful termination. The Company plan on settling this case for approximately $85,000. As of August 31, 2003, the Company accrued $140,000 related to the settlement and legal fees. 19. SUBSEQUENT EVENT: On November 24, 2003, the Company restructured all of its existing debt into a new debt instrument from Laurus Master Fund, Ltd. The new debt instrument consists of a $2.1 million 36 month term note with the first note payment 56 occurring 90 days from the closing date as well as a $4.0 million revolving line of credit; whereby the Company can borrow up to 85% of the eligible accounts receivable. Both notes are convertible into shares of the Company's common stock and have attached warrants. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL DISCLOSURE None. ITEM 8A. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting during the quarter ended August 31, 2003 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the directors executive officers of the Company and their ages as of August 31, 2003 and positions held with the Company, as follows:
NAME AGE POSITION ---- --- -------- Robert Ciri 51 Chairman of the Board, Chief Executive Officer, and Director Andrew Glashow 40 President and Director James Patty 48 Director David M. Marks 35 Director Joel Gold 66 Director Stephen Saul Kennedy 35 Vice President Sales, Titan PCB West, Inc. Daniel Guimond 45 Acting Chief Financial Officer and Corporate Controller Alfred Covino 44 Divisional Vice President of Sales Joseph Thoman 48 Chief Technology Officer
Robert Ciri. Mr. Ciri has been a Director of the Company since March 3, 2003 and was appointed as Chairman of the Board of Directors on May 13, 2003 and Chief Executive Officer on July 29, 2003. Since July, 1998, Mr. Ciri has been a partner in and is a co-founder of a financial management consulting firm STAR Associates, LLC where he focuses in various areas of high technology and health care. Prior to this, from January 1996 to May 1998, Mr. Ciri was associated with the Venture Fund of Washington where he held various positions in affiliated companies including that of CEO of ConexSys, Inc., an internet and data warehouse company and President and COO of APACHE Medical Systems, Inc., a public healthcare software and data mining corporation which he led to a successful initial public stock offering. Previously, Mr. Ciri had been with Hewlett-Packard Company for fifteen years until 1995 where he served in various positions including North American Field Operations Manager. Effective July 29, 2003 Mr. Ciri was elected as our Chief Executive Officer and remains as a Director. Andrew Glashow. Mr. Glashow was appointed President effective July 29, 2003. Mr. Glashow is a senior director and founding partner of Star Associates, LLC, a financial management consulting firm and has been a managing director of Star Associates, LLC since July 1998. Mr. Glashow specializes in various areas of high technology, financial services, and transition technology in the consumer products industry. From 1996 to 1998, Mr. Glashow owned and operated a corporate finance firm, Glashow Associates, specializing in the placement of capital for small emerging growth companies. Andrew graduated from the University of New Hampshire's Whitemore School of Business and Economics with a B.A. in Economics. 57 James E. Patty. Mr. Patty has been a Director and our President and Chief Executive Officer since February 21, 2003 too July 29, 2003. Before joining us, from June 2001 until his becoming Chief Executive Officer of our Company, Mr. Patty was President and Founder of Global Business Solutions Inc., a management consulting firm based in Campbell, California that provides services to executive management and boards of directors of several companies. From May 1999 to June 2001, Mr. Patty was President and Chief Executive Officer of VPNet Technologies (Milpitas, CA), where he was instrumental in significantly increasing the market value of the company prior to its sale to Avaya Communications, Inc. for $235.0 million. From March 1998 to May 1999, Mr. Patty was vice president of GET Manufacturing, an Asian electronic manufacturing services company, where he was instrumental in re-engineering the company's operations in Asia, Mexico and the United States before its sale to Jabil Circuits for $280 million. From March, 1996 to February, 1998 Mr. Patty was chief executive officer and operating and senior vice president of Alsphasource Manufacturing Services, an international EMS company headquartered in Bangkok, Thailand. Mr. Patty has had additional senior management and engineering experience with ATI, Maxtor, Motorola, and Four Phase Systems. David M. Marks. Mr. Marks was our Chairman of the Board of Directors from September 15, 2002 to May 13, 2003. Mr. Marks remains as one of our Director. Mr. Marks has served as Trustee of Irrevocable Children's Trust and Irrevocable Children's Trust No. 2 (the "Trusts") since 1994. The Trusts currently have an ownership or investment interest in commercial properties, private residences, natural resources, telecommunications, and technology companies, and other business and investment ventures. Mr. Marks has the responsibility in overseeing all investments by the Trusts with responsibilities beginning at acquisition and continuing through ownership. Mr. Marks generally acts in the capacity of officer or director for all of the operating companies that are vehicles for investments by the Trusts and is involved in strategic planning, and major decision-making. Mr. Marks holds a BS in Economics from the University of Wisconsin. Joel Gold. Mr. Gold was appointed as a Director on May 13, 2003. Since December 1999, Mr. Gold has been Executive Vice President - Investment Banking at Berry-Shino Securities, Inc., a brokerage services firm which provides institutional sales, investment banking and proprietary research to clients around the world. From September 1997 to December 1999, Mr. Gold was Vice Chairman of Coleman and Company Securities, Inc., an underwriting firm. From April 1996 through September 1997, Mr. Gold was Executive Vice President and head of investment banking at L.T. Lawrence Co., an investment banking firm. From April 1995 to April 1996, Mr. Gold was a managing director and head of investment banking at Fechtor & Detwiler. Previously, Mr. Gold was a managing director Bear Stearns & Co., an investment banking firm and before that a managing director at Drexel Burnham Lambert for nineteen years. He is currently a member of the Board of Directors of Concord Camera and Sterling Vision, Inc. and Geneva Financial Corp. Mr. Gold has a law degree from New York University and an MBA from Columbia Business School. Stephen Saul Kennedy. Mr. Kennedy has been an employee of our predecessor companies SVPC and Circuit Systems Inc. since 1988. Mr. Kennedy was a top Sales Manager and Sales Executive for SVPC and subsequently Circuit Systems Inc. Since 1988 Mr. Kennedy has worked as both as an Inside and Outside Sales Executive as well as overall sales management for the SVPC. He has been instrumental in SVPC's sales growth from 1988 to 1999. Mr. Kennedy holds a B.S. in Economics from Santa Clara University and was a Commissioned Officer in the United States Army. Daniel Guimond. Mr. Guimond has served as Acting Chief Financial Officer and Controller since July 2003. From 1997 until 2003, Mr. Guimond served as the Corporate Finance Manager of PCD Inc. From 1987 to 1997, Mr. Guimond was the Corporate and Tax Accounting Manager at Bailey Corporation specializing in all aspects of the corporate accounting environment. Mr. Guimond's areas of expertise include consolidations, FASB integration, external auditor and tax interaction and tax preparation. Mr. Guimond is a manga cum laude graduate of Southern New Hampshire University with a B.A. in Management Advisory Services. Alfred Covino. Mr. Covino has served as Divisional Vice President of Sales since the acquisition of Eastern Manufacturing Corporation in February 2003 where he was formerly the Vice President of Sales and Marketing. Mr. Covino has over twenty years of experience in the sale and development of flex, rigid-flex, and related packaging products. Prior to joining Eastern, he was the founder and President of Strataflex USA, a subsidiary of Strataflex Canada Corp., which specializes in the design and development of complex flex, sculptured, 58 and rigid-flex printed circuits and assemblies. He has also held Sales and Project Management positions with Parlex Corp and Interflex Corp, and was involved in the development of MRP and business management systems. Fred is the co-founder and President of Coesen Inc. Inc. a technology development company located in Hudson New Hampshire. Joseph Thoman. Mr. Thoman has served as Chief Technology Officer since May 2003. For the past nine years, Mr. Thoman was the Vice President of Operations for Eastern Manufacturing Corporation. He has a twenty-nine year history in the engineering, development and manufacturing of both rigid and flexible printed circuits. Prior to joining Eastern, he held the position of Director of Engineering for one of the Teledyne Electronics divisions where he was responsible for R & D, product development, quick turn manufacturing and assembly. Mr. Thoman has shared authorship of several process patents for rigid-flex manufacturing. Prior to Teledyne he held a senior engineering position with Teradyne Connections Systems as part of a team to build a manufacturing facility for over sized backplane printed circuit manufacturing. ITEM 10. EXECUTIVE COMPENSATION The following table sets forth certain information regarding the Company's Chief Executive Officer and each of the other four highly paid executive officers during the year ended August 31, 2003.
LONG-TERM COMPENSATION(2) --------------- NUMBER OF SHARES UNDERLYING ---------- ANNUAL COMPENSATION (1) ----------------------- OPTIONS ALL-OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) GRANTED(#) (4) COMPENSATION($)(X) - --------------------------- ---- --------- -------- -------------- ------------------ Robert Ciri 2003 $ 1(2) $ - - $ 202,433(10) Chairman of the Board and Chief Executive Officer Andrew Glashow 2003 $ 1(3) $ - - $ 202,433(10) President and Director 2002 - - - - 2001 - - - - James E. Patty 2003 $ 84,000(4) $ - - $ - Former President, Chief Executive 2002 - - - - Officer, and Acting Treasurer 2001 - - - - Louis J. George 2003 $ 165,000(5) $ - - $ - Former Managing Director of Operations for California; Former President, Chief Executive Officer, Acting Treasurer and Director Stephen S. Kennedy 2003 $125,000 $ - - $ - Vice President, Sales, 2002 528(6) - - - Titan PCB West, Inc. Alfred Covino 2003 $ 64,000(7) $ - - $ 18,750 Vice President, Sales, Titan PCB East, Inc. Joseph Thoman 2003 $38,462(8) $ - - $ 18,750 Chief Technology Officer Daniel Guimond 2003 $ 23,077(9) $ - - $ - Acting Chief Financial Officer and Corporate Controller
59 (1) In accordance with the rules of the Securities and Exchange Commission, other compensation in the form of perquisites and other personal benefits has been omitted because such perquisites and other personal benefits constituted less than the lesser of $50,000 or ten percent of the total annual salary and bonus reported for the executive officer during the years reported. (2) Mr. Ciri was appointed Chairman on May 13, 2003 and Chief Executive Officer on July 29, 2003. Mr. Ciri has an annual salary of $1.00. Other compensation represents the value of warrants to purchase 1,000,000 shares of common stock with an exercise price of $0.50 and an expiration date of July 29, 2006 provided to Mr. Ciri by Irrevocable Children's Trust our largest shareholder and options to purchase 50,000 shares of common stock with an exercise price of $0.75 and an expiration date of July 24, 2008. Star Associates LLC, of which Mr. Ciri is a member, receives a monthly payment of $18,000 in return for consulting services provided to us. (3) Mr. Glashow was appointed President and a Director on July 29, 2003. Mr. Glashow has an annual salary of $1.00. Other compensation represents the value of warrants to purchase 1,000,000 shares of common stock with an exercise price of $0.50 and an expiration date of July 29, 2006 provided to Mr. Glashow by Irrevocable Children's Trust our largest shareholder. Star Associates LLC, of which Mr. Glashow is a member, receives a monthly payment of $18,000 in return for consulting services provided to us. (4) Mr. Patty was appointed President and Chief Executive Officer on February 21, 2003 and resigned as President and Chief Executive Officer on July 29, 2003. Mr. Patty's annual salary while Chief Executive Officer was $84,000. As of July 10, 2003 Mr. Patty's annual salary is $1.00. Other compensation represents the value of options to purchase 50,000 shares of common stock with an expiration date of July 24, 2008. (5) Mr. George was appointed President and Chief Executive Officer effective August 30, 2002 upon completion of the merger with Titan PCB West, Inc. His then annual salary was $165,000. Mr. George resigned as an executive officer and director effective January 10, 2003 and as Manager of our Santa Clara, California operations effective April 15, 2003. Other compensation represents the value of options to purchase 350,000 shares of common stock with an exercise price of $1.50 per share and an expiration date of July 31, 2007. The options have been canceled with the mutual consent of Mr. George and the Company. (6) Mr. Kennedy was appointed Vice-President-Sales effective August 30, 2002. The $538 represents one day's earnings based on an annual salary of $140,000 computed based on a 52-week year and a 5-day work week. Mr. Kennedy's original salary was $140,000 per annum. Mr. Kennedy's salary was adjusted to $125,000 per annum effective March 1, 2003. Other compensation represents the value of options to purchase 360,000 shares of Common stock with an exercise price of $1.50 per share and an expiration date of July 31, 2007. (7) Mr. Covino has served as Divisional Vice President of Sales since the acquisition of Eastern Manufacturing Corporation in February 2003. His employment agreement carries a $120,000 salary with bonuses specified at certain financial targets. As part of his employment agreement, Mr. Covino was granted 25,000 restricted shares. The $18,750 other compensation is the value of these shares at $0.75 each. The Company amortized the fair value over the term of the agreement and expensed approximately $5,500 during the year ended August 31, 2003 and the remaining amount was classified as deferred compensation. (8) Mr. Thoman has served as Chief Technology Officer since the acquisition of Eastern Manufacturing Corporation in May 2003. His employment agreement carries a $120,000 salary with bonuses specified at certain financial targets. As part of his employment agreement, Mr. Thoman was granted 25,000 restricted shares. The $18,750 other compensation is the value of these shares at $0.75 each. . The Company amortized the fair value over the term of the agreement and expensed approximately $5,500 during the year ended August 31, 2003 and the remaining amount was classified as deferred compensation. 60 (9) Mr. Guimond has served as Acting Chief Financial Officer and Corporate Controller since June 2003. As part of his compensation package, he was awarded 75,000 options at an exercise price of $0.75 on July 24, 2003. The Company does not have an employment agreement with Mr. Guimond. (10) Represents (i) a value of $768,800 ascribed to warrants issued by Irrevocable Children's Trust ("ICT") to such individual to acquire 1,000,000 shares of our common stock having an exercise price of $0.50 per share and an expiration date of July 29, 2006 using the Black-Scholes Valuation method (ii) $108,000 attributed to each of Messrs. Glashow and Ciri out of a total of $216,000 paid to STAR Associates LLC, of which each of Messrs. Glashow and Ciri is a controlling member (iii) cash bonus of $50,000 for the employment term to be paid by the Company (iv) 50,000 shares of common stock granted by ICT upon completion of the employment term. Amortization of compensation related to employment contract totaled $94,433 and $108,000 paid to STAR Associates LLC , with total expense of $202,433 to each Mr. Ciri and Mr. Glashow. OPTION/SAR GRANT TABLE
Number of % of Total Securities Options/SARs Underlying Granted to Options/SARs Employees In Exercise or Base Price Name Granted Fiscal Year ($/Share) Expiration Date Robert Ciri 50,000(1) 9.0% $0.75 7/24/08 Daniel Guimond 75,000(2) 13.5% $0.75 7/24/08
(1) Issued to Mr. Ciri our Chairman Chief Executive Officer in return for services as a Director on July 24, 2003, the options have an $0.75 exercise price and are valid until July 24, 2008. (2) Issued to Mr. Guimond our Acting Chief Financial Officer and Corporate Controller on July 24, 2003, the options have an $0.75 exercise price and are valid until July 24, 2008. EMPLOYMENT AGREEMENTS Pursuant to the terms of an Agreement, dated as of August 12, 2002, between Stephen S. Kennedy and Titan PCB West, assumed by us pursuant to the Merger, Mr. Kennedy receives a salary equal to $140,000 per annum and received immediately exercisable options to purchase 360,000 shares of our common stock, at an exercise price of $1.50 per share, expiring on July 31, 2007. The agreement provides for a 5-year term subject to earlier termination by either party. In the event that Mr. Kennedy's employment is terminated without cause, Mr. Kennedy is entitled to receive severance pay and continued employee benefits for a period of six (6) months after such termination. Effective March 1, 2003, the Company and Mr. Kennedy agreed orally to reduce his salary to an annual rate of $125,000. Pursuant to the terms of an Agreement, dated as of February 26, 2003, between Alfred Covino and Titan PCB East, Mr. Covino receives a salary equal to $120,000 per annum and received immediately 25,000 restricted shares our common stock. The agreement provides for a 1-year term subject to earlier termination by either party. In the event that Mr. Covino's employment is terminated without cause, Mr. Covino is entitled to receive severance pay and continued employee benefits for a period of two months after such termination. Pursuant to the terms of an Agreement, dated as of May 21, 2003, between Joseph Thoman and Titan PCB East, Mr. Thoman receives a salary equal to $120,000 per annum and received immediately 25,000 restricted shares our common stock. The agreement provides for a 1-year term subject to earlier termination by either party. In the event that Mr. Thoman's employment is terminated without cause, Mr. Thoman is entitled to receive severance pay and continued employee benefits for a period of twelve months after such termination. 61 Pursuant to the terms of an Agreement, dated as of July 29, 2003, between us and Andrew Glashow, our President, Mr. Glashow receives a salary equal to $1.00 per annum. Irrevocable Children's Trust has agreed to provide Mr. Glashow with warrants to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.50, which such warrants expire July 29, 2008. The agreement provides for a one year term subject to earlier termination by either party. In the event that Mr. Glashow is terminated by us without cause, Mr. Glashow is entitled to receive severance pay of $50,000 from us and 50,000 shares of our common stock from Irrevocable Children's Trust. Mr. Glashow also participates in the employee benefits programs. Pursuant to the terms of an Agreement, dated as of July 29, 2003, between us and Robert Ciri, our Chairman and Chief Executive Officer, Mr. Ciri receives a salary equal to $1.00 per annum. Irrevocable Children's Trust has agreed to provide Mr. Ciri with warrants to purchase up to 1,000,000 shares of our common stock at an exercise price of $0.50, which such warrants expire July 29, 2006. The agreement provides for a one year term subject to earlier termination by either party. In the event that Mr. Ciri is terminated by the Company without cause, Mr. Ciri is entitled to receive severance pay of $50,000 from us and 50,000 shares of our common stock from Irrevocable Children's Trust. Mr. Ciri also participates in the employee benefits programs. See also "Certain Relationships and Related Party Transactions." DIRECTOR COMPENSATION During the year ended August 31, 2002 and as of the date of this report, directors received no compensation for their services, except as follows: (i) On December 18, 2002, we granted two options, each to purchase 50,000 shares (an aggregate of 100,000 shares) of common stock having an exercise price of $1.50 per share and an expiration date of December 18, 2007, 100% vested on the date of grant, to Messrs. Robert Weisberg and Gregory Jacobs, former Directors; (ii) On December 18, 2002, we granted options to purchase 50,000 shares of its common stock to David Marks having an exercise price of $1.50 per share and an expiration date of December 18, 2007, 100% vested on the date of grant; (iii) On April 22, 2003, we issued Mr. Lawrence McFall 15,000 shares of common stock in exchange for services performed by Mr. McFall. Mr. McFall resigned as a Director on April 30, 2003; (iv) On July 24, 2003, we granted options to purchase up to 50,000 shares of common stock to Lawrence McFall, Joel Gold, Robert E. Ciri and James E. Patty at an exercise price of $0.75 and an expiration date of July 24, 2008 for services as past or current directors; (v) On July 29, 2003, Irrevocable Children's Trust ("ICT") issued warrants to purchase 1,000,000 shares of common stock to each of Robert E. Ciri and Andrew J. Glashow, each having an exercise price of $0.50 per share, which expire on July 24, 2006. In addition, ICT will issue 50,000 shares of common stock and the Company will pay $50,000 cash bonus to each of Robert E. Ciri and Andrew J. Glashow. Fair value of these grants and bonus was amortized over the term of the employment. The Company expensed $94,433 related to each of the employment contracts during the year ended August 31, 2003. 62 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information as of August 31, 2003 with respect to the beneficial ownership of the outstanding shares of our common stock by (i) each person known by us to beneficially own five percent (5%) or more of the outstanding shares; (ii) our officers and directors; and (iii) our officers and directors as a group. As used in the table below, the term "beneficial ownership" means the sole or shared power to vote or direct the voting, or to dispose or direct the disposition, of any security. A person is deemed as of any date to have beneficial ownership of any security that such person has a right to acquire within 60 days after such date. Except as otherwise indicated, the stockholders listed below have sole voting and investment powers with respect to the shares indicated.
Name and Address of Shares of Common Stock Percentage of Class Beneficial Owner Beneficially Owned Beneficially Owned (1) David M. Marks 9,029,352(2) 61.5% c/o Ventures-National Incorporated 44358 Old Warm Springs Boulevard Fremont, California 94538 James E. Patty 213,733(3) 1.5% c/o Ventures-National Incorporated 44358 Old Warm Springs Boulevard Fremont, California 94538 Robert E. Ciri 1,165,200(4) 7.9% c/o Ventures-National Incorporated 44358 Old Warm Springs Boulevard Fremont, California 94538 Joel Gold 328,000(5) 2.2% c/o Ventures-National Incorporated 44358 Old Warm Springs Boulevard Fremont, California 94538 Andrew Glashow 1,165,200(6) 7.9% c/o Ventures-National Incorporated 44358 Old Warm Springs Boulevard Fremont, California 94538 Irrevocable Children's Trust 9,057,120(7) 61.9% 1818 North Falwell Avenue Milwaukee, WI 53202 SBI-USA 1,600,000(8) 10.18% 2361 Campus Drive, Suite 210 Irvine 92612 All Directors and Executive 11,901,485 80.01% Officers as a Group (5 persons) (2)(3)(4)(5)(6)
- ------------------------------ (1) Applicable percentage of ownership is based on 14,624,687 shares of common stock outstanding as of August 31, 2003, together with securities exercisable or convertible into shares of common stock within 60 days of August 31, 2003 for each stockholder, as applicable. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within 60 days of August 31, 2003 are deemed to be beneficially owned by the person 63 holding such options for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. (2) Includes (i) 8,907,120 shares held by Irrevocable Children's Trust, of which Mr. Marks is the trustee with voting and dispositive powers with respect to the shares of common stock that it holds directly or indirectly; (ii) 72,232 shares held by Irrevocable Children's Trust No.2 of which Mr. Marks is the trustee with voting and dispositive powers with respect to the shares of common stock that it holds directly or indirectly; and (iii) options to purchase 50,000 shares of common stock at an exercise price of $0.75 with an expiration date of July 24, 2008 issued to Mr. Marks on December 18, 2002. On July 29, 2003, Irrevocable Children's Trust granted (i) warrants exercisable for an aggregate of 1,000,000 shares of the Company's common stock to each of Mr. Ciri and Mr. Glashow having an exercise price of $0.50 per shares and an expiration date of July 29, 2006, in order to induce them to become our employees and serve in their respective capacities with us and (ii) warrants exercisable for an aggregate of 500,000 shares of the Company's common stock to SBI-USA to purchase at an exercise price of $0.38 in return for consulting services, which warrants expire on July 24, 2004. (3) Includes (i) 30,400 shares purchased by Mr. Patty in the Private Placement (ii) 133,333 shares purchased by Mr. Patty at a price of $0.75 in an additional private placement and (iii) options to purchase 50,000 shares of common stock at an exercise price of $0.75 with an expiration date of July 24, 2008 issued to Mr. Patty on July 24, 2003. (4) Includes (i) 100,000 shares of common stock granted to Mr. Ciri in consideration of consulting services; (ii) 15,200 shares purchased by Star Associates, LLC of which Mr. Ciri is a member in the Private Placement; (iii) warrants to purchase up to 1,000,000 shares of common stock at an exercise price of $0.50 and an expiration date of July 29, 2006 issued to Mr. Ciri by Irrevocable Children's Trust in order to induce Mr. Ciri to enter into an employment agreement dated as of July 29, 2003 and (iv) options to purchase 50,000 shares of common stock at an exercise price of $0.75 with an expiration date of July 24, 2008 issued to Mr. Ciri on July 24, 2003. (5) Includes 228,000 shares of common stock purchased by Mr. Gold in the Private Placement and 50,000 shares of common stock issued to Mr. Gold in return for his investment in 24% Promissory Notes issued by our subsidiary Titan PCB East, Inc; and (ii) options to purchase 50,000 shares of common stock at an exercise price of $0.75 with an expiration date of July 24, 2008 issued to Mr. Gold on July 24, 2003. (6) Includes (i) 150,000 shares of common stock granted to Mr. Glashow pursuant to a consulting agreement dated March 15, 2003; (ii) 15,200 shares purchased by Star Associates, LLC of which Mr. Glashow is a member in the Private Placement; and (iii) warrants to purchase up to 1,000,000 shares of common stock at an exercise price of $0.50 and an expiration date of July 29, 2006 issued to Mr. Glashow by Irrevocable Children's Trust in order to induce Mr. Glashow to enter into an employment agreement dated as of July 29, 2003. (7) Represents (i) 5,800,000 shares of common stock issued to Irrevocable Children's Trust in connection with the Merger; (ii) 137,334 shares issued to Irrevocable Children's Trust in consideration for the cancellation of $103,000 of indebtedness of Titan PCB West; (iii) 2,321,296 shares of common stock distributed to Irrevocable Children's Trust from Ohio Investors of Wisconsin LLC; (iv) 668,000 shares of common stock distributed to Irrevocable Children's Trust from SVPC Partners LLC; (v) 123,823 shares held by Phoenix Business Trust, which is controlled by Irrevocable Children's Trust; and (vi) 6,667 shares held by Forest Home Investors I, LLC, which is controlled by Irrevocable Children's Trust. Effective July 24, 2003, Irrevocable Children's Trust granted (i) warrants exercisable for an aggregate of 1,000,000 shares of the Company's common stock to each of Mr. Ciri and Mr. Glashow having an exercise price of $0.50 per shares and an expiration date of July 29, 2006, in order to induce them to become our employees and serve in their respective capacities with us; and (ii) warrants exercisable for an aggregate of 500,000 shares of the Company's common stock to SBI-USA to purchase at an exercise price of $0.38 in return for consulting services, which warrants expire on July 24, 2004. (8) Represents (i) warrants granted to SBI-USA by the Company to purchase 500,000 shares of common stock at the exercise price of $0.75 (with cashless exercise provisions) in return for consulting services, which warrants expire on July 24, 2005; (ii) warrants granted by Irrevocable Children's Trust to purchase 500,000 shares of common stock with an exercise price of $0.38, which warrants expire on July 29, 2004; and (iii) 64 warrants granted by the Company to purchase 600,000 shares of common stock with an exercise price of $0.75, which warrants expire on May 18, 2004. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Our policy is to enter into transactions with related parties on terms that, on the whole, are more favorable, or no less favorable, than those available from unaffiliated third parties. Based on our experience in the business sectors in which we operate and the terms of our transactions with unaffiliated third parties, we believe that all of the transactions described below met this policy standard at the time they occurred. In June 2002, Titan PCB West entered into a loan and security agreement with Alco, an entity owned by Robert Weisberg, who became a former member of our Board of Directors. As of August 30, 2002, the outstanding balance of the loan was $733,684. During the year ended August 30, 2002, we paid interest and financing costs of $202,515 to Alco. As of August 31, 2003, the balance of the loan was $1,005,639. See "Management's Discussion and Analysis of Financial Condition and Results of Operations and Plan of Operations-Liquidity and Capital Resources." On July 29, 2002, we issued 100,000 shares of common stock to Mr. Robert Ciri, a Director since March 3, 2003 and Chairman since May 13, 2003, in consideration of certain consulting services rendered pursuant to a letter agreement dated July 29, 2002 by and between the Company and Mr. Ciri. Mr. Ciri was named our Chief Executive Officer effective July 29, 2003. We are party to a Consulting Agreement (the "Star Consulting Agreement") dated July 29, 2002 with Star Associates, LLC, a Wyoming limited liability company, of which Mr. Ciri is a member, pursuant to which Star Associates, LLC was issued warrants to purchase up to 350,000 shares of common stock at a purchase price of $2.00, exercisable until August 31, 2007 in consideration of consulting services provided by Star Associates, LLC. The Star Consulting Agreement was amended on March 15, 2003 to provide for additional services to be performed by Star Associates, LLC in return for cash payments of $18,000 per month for a period of one year, beginning April 1, 2003, and additional warrants to purchase 200,000 shares of common stock at a purchase price of $2.00, exercisable until March 15, 2008. All warrants issued to Star Associates LLC were canceled by mutual agreement of Star Associates, LLC in an Amendment Agreement between the parties dated July 24, 2003. In addition, Star Associates, LLC purchased 13,333 shares of common stock in the Private Placement for $0.75 per share. On August 6, 2002, Titan PCB West acquired all of the non-real estate assets and assumed all of the non-term loan liabilities of SVPC in exchange for the issuance to SVPC of 800,000 shares of Titan PCB West common stock, pursuant to the terms and conditions of a Contribution Agreement and Assignment and Assumption of Liabilities dated August 6, 2002. SVPC is controlled by Irrevocable Children's Trust. Our Director, Mr. Marks is the trustee with sole voting and dispositive powers of Irrevocable Children's Trust On August 6, 2002, Titan PCB West acquired certain intangible assets contributed by Louis George, a former executive officer and director, in exchange for 50,000 shares of Titan PCB West common stock valued at $1.50 per share, pursuant to the terms and conditions of a Contribution Agreement and Assignment and Assumption of Liabilities dated August 6, 2002. On August 26, 2002, each of Ohio Investors of Wisconsin and Irrevocable Children's Trust converted certain outstanding indebtedness of Titan PCB West into shares of our common stock at a conversion price of $1.50 per share, resulting in the issuance of 1,160,764 shares of common stock to Ohio Investors and 68,667 shares of common stock to Irrevocable Children's Trust. The conversion price at which Ohio Investors of Wisconsin and Irrevocable Children's Trust agreed to convert their our indebtedness into shares of our common stock was initially determined by reference to the then contemplated offering price of the Units in the Private Placement. Accordingly, on December 9, 2002, we entered into a letter agreement with each of Irrevocable Children's Trust and Ohio Investors of Wisconsin to provide for the issuance of 1,160,764 additional restricted shares to Ohio Investors of Wisconsin and 68,667 additional restricted shares of common stock to Irrevocable Children's Trust, to reflect a 65 corresponding adjustment of the conversion price to $0.75 from $1.50. The shares related to the conversion of these debts were issued subsequent to August 31, 2002. Our Director, Mr. Marks is the trustee with sole voting and dispositive powers of Irrevocable Children's Trust and Ohio Investors of Wisconsin is controlled by Irrevocable Children's Trust. On August 26, 2002, Forest Home and Phoenix Trust, lenders of Titan PCB West, converted indebtedness owed by Titan PCB West into shares of Titan PCB West common stock at the conversion price of $1.50 per share, which resulted in the issuance of 6,667 shares and 123,823 shares to Forest Home and Phoenix Trust, respectively. Phoenix Trust, and Forest Home, are both controlled by Irrevocable Children's Trust of which Mr. Marks, our Director, is the trustee with sole voting and dispositive powers. Our prior manufacturing facility in Santa Clara, California was leased by us on a month-to-month basis at a rate of $12,500 per month from Ohio Investors of Wisconsin, a related party. In February 2003, we paid a consulting fee in the amount of $10,000 to Phoenix Investors LLC, a company controlled by David M. Marks, our Director, for services rendered on behalf of the Company. On February 3, 2003 we issued 133,333 shares of common stock to Lawrence McFall, a former Director of the Company, for an aggregate purchase price of $100,000 and 133,333 shares of common stock to James E. Patty, a Director and Former Chief Executive Officer and Former President of the Company for an aggregate purchase price of $100,000, in each case in private placement transactions. In addition, Mr. McFall purchased 13,333 shares of common stock and Mr. Patty purchased 26,667 shares of common stock, in the Company's Private Placement, at a purchase price of $0.75 per share. Mr. McFall resigned as Director and Executive Vice President of the Company on April 30, 2003. Mr. Patty resigned as President and Chief Executive of the Company effective July 10, 2003, however will remain as a Director of the Company. On March 15, 2003, we granted warrants to purchase up to 200,000 shares of our common stock having an exercise price of $2.00 per share, with an expiration date of March 15, 2008 to Phoenix Investors LLC in consideration for the performance of consulting services. Phoenix Investors LLC is controlled by Irrevocable Children's Trust of which Mr. Marks, our Director, is the trustee with sole voting and dispositive powers. These warrants have now been canceled with the mutual consent of Phoenix Investors LLC and the Company. On April 22, 2003, we issued Mr. Lawrence McFall, then a Director and Executive Vice President of the Company, 15,000 shares of Company common stock in exchange for services performed by Mr. McFall. Mr. McFall resigned as a Director and as Executive Vice President on April 30, 2003. On March 5, 2003, we issued 30,000 shares of common stock to Mr. Howard Doane, now our employee, in partial consideration for the acquisition of 10 shares of common stock, par value $0.01 per share, of Coesen Inc., which owns certain patented technology relating to a method of manufacture of rigid-flex PCBs that we license from Coesen Inc.. These shares were issued without registration under the Securities Act, in reliance upon the exemptions from the registration provisions thereof, contained in Section 4(2) of the Securities Act. On March 15, 2003 we issued 150,000 shares of common stock to Mr. Andrew Glashow, the current President of Titan PCB East at a price of $0.01 per share in exchange for consulting services. These shares were issued without registration under the Securities Act in reliance upon the exemptions from the registration provisions thereof, contained in Section 4(2) of the Securities Act. Mr. Glashow is also a managing director of Star Associates LLC, a company co-owned by Mr. Glashow, our President and a Director and Mr. Robert Ciri, our Chairman and Chief Executive Officer. On April 22, 2003, we issued Mr. Alfred Covino 25,000 shares of Company common stock pursuant to an employment agreement between the Company and Mr. Covino dated as of February 26, 2003. On May 27, 2003, we issued Mr. Joseph Thoman 25,000 shares of Company common stock pursuant to an employment agreement between the Company and Mr. Thoman dated as of May 21, 2003. 66 On July 24, 2003 the Company granted non-qualified options to purchase 315,000 shares of common stock to a total of five of our employees which options have an exercise price of $0.75 per share and vest in equal annual installments over a five-year period from the date of grant. These options were issued without consideration therefore and, as none of such employees is an accredited investor, as defined in Rule 501 (a) of Regulation D, such options are not exercisable until a registration statement under the Securities Act relating to such issuance shall be effective under such act. On July 24, 2003 we granted options to purchase 50,000 shares of our common stock to Mr. Robert E. Ciri, Mr. Lawrence McFall, Mr. Joel Gold and Mr. James E. Patty for a total of 200,000 shares having an exercise price of $0.75 per share and an expiration date of July 24, 2008, 100% vested on the date of grant. On July 24, 2003, Irrevocable Children's Trust issued warrants to purchase 500,000 shares of common stock to SBI-USA on behalf of the Company, which such warrants have an exercise price of $0.38 per share, which expire on July 24, 2004. On July 29, 2003, Irrevocable Children's Trust issued warrants to purchase 1,000,000 shares of common stock to each of Robert E. Ciri, our Chairman and Chief Executive Officer and a Director, and Andrew J. Glashow, our President and a Director, each having an exercise price of $0.50 per share, which expire on July 29, 2006. On August 18, 2003, Irrevocable Children's Trust granted 150,000 shares of common stock to Trilogy Capital Partners Inc. on behalf of the Company pursuant to a Consulting Agreement between the Company, Trilogy Capital Partners Inc. and Irrevocable Children's Trust dated as of August 18, 2003. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibits to this report are listed in the Exhibit Index at the end of this report. (b) The Company filed report on Form 8-K on July 31, 2003 under Item 5, reporting the resignation of James E. Patty as CEO and President, and the appointment of Andrew Glashow as President. 67 SIGNATURES In accordance with the Exchange Act, this report has been signed by the following persons in the capacities and on the dates indicated. VENTURES-NATIONAL INCORPORATED /s/ ROBERT E. CIRI ------------------------------------ By: Robert E. Ciri, Chairman, Chief Executive Officer and Director In accordance with the requirements of the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROBERT CIRI Director, Chief Executive Officer and December 10, 2003 - ----------------------- Robert Ciri Chairman /s/ ANDREW GLASHOW Director and President December 10, 2003 - ----------------------- Andrew Glashow /s/ DAVID MARKS Director December 10, 2003 - ----------------------- David Marks Director December 10, 2003 - ----------------------- Joel Gold /s/ DANIEL GUIMOND Acting Chief Financial Officer December 10, 2003 - ----------------------- (Principal Financial and Accounting Officer) Daniel Guimond
68 EXHIBIT INDEX Exhibit Number Description 3.1(1) -- Certificate of Incorporation of Ventures-National Incorporated, as amended. 3.2(1) -- By-Laws of Ventures-National Incorporated, as amended. 10.1(2) -- Agreement and Plan of Merger, dated as of August 12, 2002, among Ventures-National Incorporated, Titan EMS Acquisition Corporation, and Titan PCB West, Inc.(2). 10.2(2) Contribution Agreement dated as of August 6, 2002, by and between Titan PCB West, Inc. and SVPC Partners, LLC 69 10.3(2) Contribution Agreement dated as of August 6, 2002 by and between Titan PCB West, Inc. and Louis George 10.4(2) Employment Agreement dated as of August 6, 2002 by and between Titan PCB West, Inc. and Louis George 10.5(2) Employment Agreement dated as of August 12, 2002 by and between Titan PCB West, Inc. and Stephen Saul Kennedy 10.6(2) Consulting Agreement dated as of July 29, 2002 by and between Robert Ciri and Ventures-National Incorporated 10.7(2) Consulting Agreement dated as of July 29, 2002, by and among Ventures-National Incorporated, Jenson Services, Inc., Duane S. Jenson, Jeffrey D. Jenson, Travis T. Jenson, Thomas J. Howells, Jeffrey D. Jensen, Leonard W. Burningham and James P. Doolin 10.8(2) Consulting Agreement dated as of July 29, 2002 by and between Ventures-National Incorporated and STAR Associates, LLC 10.9(2) Financial Advisory Agreement dated as of July 29, 2002 by and between Ventures-National Incorporated and STAR Associates, LLC 10.10(2) Letter Agreement dated August 26, 2002 by and between Titan PCB West, Inc. and Phoenix Business Trust 10.11(2) Letter Agreement dated August 26, 2002 by and between Titan PCB West, Inc. and Forest Home Investors I, LLC 10.12(2) Indemnification Agreement dated August 19, 2002 by and among Ventures-National Incorporated, Titan EMS and Jenson Services, Inc 10.13(3) Option Agreement dated as of August 22, 2002 by and among Ventures-National Incorporated, Jenson Services, Inc., Duane S. Jenson, Jeffrey D. Jenson, Travis T. Jenson, Thomas J. Howells, James P. Doolin, Leonard W. Burningham, Esq. and Interwest Transfer Company 10.14(4) Consulting Agreement, dated as of May 1, 2001, between SVPC Partners, LLC and Frank Crivello 10.15(5) Letter Agreement, dated August 30, 2002, between Ventures-National Incorporated and Irrevocable Children's Trust 10.16(5) Letter Agreement, dated August 30, 2002, between Ventures-National Incorporated and Ohio Investors of Wisconsin LLC 10.17(6) Warrant, dated November 15, 2002, issued to William Mark 10.18(6) Agreement, dated as of September 10, 2002, between Ventures-National Incorporated and Dunlap & Kieft 10.19(6) Form of Agreement, dated as of November 7, 2002, between Ventures-National Incorporated and R.F. Lafferty & Co., Inc. 10.20(7) Warrant dated as of January 9, 2003 issued to Reitler Brown LLC 10.21(8) 2002 Stock Option Plan 10.22(8) 2002 Stock Option Plan for Non-Employee Directors as amended 10.23(8) Lease Indenture dated as of February 26, 2003, between Howard J. Doane JR, Trustee of HD Realty Trust - 1993 and Titan PCB East, Inc. 10.24(9) Lease dated 6th of August 2002 by and between SVPC Partners, LLC and Titan PCB West, Inc 10.25(8) Promissory Note dated as of February 27, 2003 by Titan PCB East, Inc. in favor of certain holders 10.26(8) Security Agreement dated as of February 27, 2003, between Titan PCB East, Inc. and Personal Resources Management, Inc., as Collateral Agent 10.27(8) Agency Agreement dated February 27, 2003 between the investors named therein, and Personal Resources Management, Inc., acting in its capacity as collateral agent for the investors 10.28(8) Securities Purchase Agreement, dated as of February 27, 2003, among the purchasers named therein, Titan PCB East Inc., and Ventures-National Incorporated 10.29(10) Secured Party's Bill of Sale dated February 27, 2003 10.30(11) Stock Purchase Agreement, dated as of March 5, 2003, among Howard Doane, Coesen, Inc. and Ventures-National Incorporated 10.31(11) Acknowledgment of Assignment dated March 5, 2003 among the Registrant, Titan PCB East, Inc. and Coesen Inc. Inc.( 10.32(11) Stockholders Agreement dated March 5, 2003 among Coesen Inc. Inc., Howard Doane, Joseph Thoman and Alfred Covino 70 10.33(9) Amendment to Employment Agreement dated February 20, 2003 between Titan PCB West, Inc., and Mr. Louis George 10.34(9) Sublease dated July 26, 2002 among Tyco Printed Circuit Group LP, Titan PCB West, Inc. and SVPC Partners, LLC and Phoenix Business Trust 10.35(9) Standard Industrial/Commercial Multi-Tenant Lease dated February 4, 2000 among Kevan Del Grande and Salvatore Grassia, d/b/a K&S Enterprises and SVPC Circuit Systems, Inc 10.36(13) Consulting Agreement dated as of March 12, 2003 by and between Fred Kudish and Ventures-National Incorporated 10.37(13) Consulting Agreement dated as of March 15,2003 by and between Phoenix Investors LLC and Ventures-National Incorporated 10.38(12) Consulting Agreement dated as of March 15, 2003 by and between Andrew Glashow and Ventures-National Incorporated 10.39(12) Consulting Agreement dated as of March 15, 2003 by and between Frank Crivello and Ventures-National Incorporated 10.40(13) Addendum dated March 15, 2003 to Consulting Agreement dated as of July 29, 2002 by and between Star Associates, LLC and Ventures-National Incorporated. 10.41(13) Mortgagee's Waiver and Consent dated as of May 9, 2003, by and among Eastern Bank, Titan PCB East, Inc., and Equinox Business Credit Corp 10.42(13) Loan and Security Agreement dated as of May 9, 2003 by and between Equinox Business Credit Corp., a New Jersey corporation ("Lender") and Titan PCB East, Inc 10.43(13) Promissory Note between Titan PCB East, Inc., and Equinox Business Credit Corp 10.44(13) Guarantee of Validity of Collateral, dated as of May 9, 2003 by Robert E. Ciri, in favor of Equinox Business Credit Corp 10.45(13) Letter dated as of May 9, 2003 between Equinox Business Credit Corp. and Titan PCB East, Inc 10.46(13) Subordination Agreement dated as of May 9, 2003 among Equinox Business Credit Corp., Ventures-National Incorporated and Titan PCB East, Inc 10.47(13) Amendment Number 1 dated as of May 5, 2003, to the Security Agreement dated as of February 27, 2003, between Titan PCB East, Inc., and Personal Resources Management, Inc., as Collateral Agent. 10.48(13) Assignment and Assumption Agreement, dated as of May 5, 2003 by and among, among Titan PCB East, Inc., Titan PCB West, Inc., and Personal Resources Management, Inc. as Collateral Agent 10.49(13) Consulting Agreement dated as of July 24, 2003 between Ventures-National Incorporated and SBI-USA 10.50(13) Employment Agreement dated as of July 29, 2003 between Ventures-National Incorporated and Mr. Robert Ciri 10.51(13) Employment Agreement dated as of July 29, 2003 between Ventures-National Incorporated and Mr. Andrew Glashow 10.52(13) Warrant granted to Robert E. Ciri by Irrevocable Children's Trust dated July 29, 2003 10.53(13) Warrant granted to Andrew J. Glashow by Irrevocable Children's Trust date July 29, 2003 10.54(13) Warrant granted to SBI-USA by Ventures-National Incorporated dated July 24, 2003. 10.55(13) Warrant granted to SBI-USA by Irrevocable Children's Trust dated July 24, 2003 10.56(14) Form of Warrant granted to SBI-USA by Ventures-National Incorporated dated August 18, 2003 10.57(14) Form of Letter of Amendment dated as of August 18, 2003 between SBI-USA and Ventures-National Incorporated 10.58(14) Form of Consulting Agreement among Trilogy Capital Partners Inc., Ventures-National Incorporated and the Irrevocable Children's Trust 10.59(15) Form of Consulting Agreement dated as of July 24, 2003, between Victor Nostas and Ventures-National Incorporated 10.60(15) Form of Consulting Agreement dated as of June 19, 2003, between Trilogy Capital Partners Inc. and Ventures-National Incorporated 10.61 Convertible Term Note dated November 20, 2003 issued to Laurus Master Fund, Ltd. 10.62 Common Stock Purchase Warrant of Ventures-National Incorporated dated November 20, 2003 issued to Laurus Master Fund, Ltd. 10.63 Registration Rights Agreement dated November 20, 2003 by and between Ventures-National Incorporated and Laurus Master Fund, Ltd. 10.64 Securities Purchase Agreement dated November 20, 2003 by and between Ventures-National Incorporated and Laurus Master Fund, Ltd. 10.65 Securty Letter Agreement dated November 20, 2003 by and between Ventures-National Incorporated and Laurus Master Fund. 10.66 Subsidiary Security Agreement dated November 20, 2003 by and among Laurus Master Fund, Ltd., Titan PCB East, Inc. and Titan PCB West, Inc. 10.67 Subsidiary Guaranty dated November 20, 2003 by and among Laurus Master Fund, Ltd., Titan PCB East, Inc. and Titan PCB West, Inc. 10.68 Stock Pledge Agreement dated November 20, 2003 by and between Ventures-National Incorporated and Laurus Master Fund, Ltd. 10.69 Registration Rights Agreement dated November 20, 2003 by and between Ventures-National Incorporated and Laurus Master Fund, Ltd. 10.70 Common Stock Purchase Warrant dated November 20, 2003 issued by Ventures-National Incorporated and Laurus Master Fund, Ltd. 10.71 Secured Convertible Minimum Borrowing Note dated November 20, 2003 issued by Ventures-National Incorporated to Laurus Master Fund, Ltd. 10.72 Secured Revolving Note dated November 20, 2003 issued by Ventures-National Incorporated in favor of Laurus Master Fund, Ltd. 10.73 Security Agreement dated as of November 20, 2003 by and between Ventures-National Incorporated and Laurus Master Fund, Ltd. 21 Subsidiaries of the Registrant Titan PCB West, Inc. Titan PCB East, Inc. 23 Consent of Independent Certified Public Accountant 31.1 Certification of Robert Ciri required by Rule 13a-14(a). 31.2 Certification of Daniel D. Guimond required by Rule 13a-14(a). 32 Certification of Robert Ciri and Daniel D. Guimond pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 71 - --------------------- (1) Previously filed and incorporated herein by reference to our Annual Report on Form 10-KSB, dated September 29, 2000. (Filing number: 002-98075-D) (2) Previously filed and incorporated herein by reference to our Current Report on Form 8-K, dated August 30, 2002, and filed on September 4, 2002. (Filing number: 000-324847) (3) Previously filed and incorporated herein by reference to our Current Report on Form 8-K dated August 30, 2002, and filed on September 4, 2002, and as amended in our Current Report on Form 8-K, dated September 11, 2002. (Filing number:000-32847) (4) Previously filed and incorporated herein by reference to the Registration Statement on Form S-8, dated August 14, 2002, and filed on September 5, 2002. (Filing number: 333-99167) (5) Previously filed and incorporated herein by reference to the 8-K Current Report dated September 11, 2002, and as amended in the Current Report on Form 8-K, dated December 9, 2002. (Filing number: 000-32847 (6) Previously filed and incorporated herein by reference to the 10-KSB Annual report filed December 16, 2002. (Filing number: 000-32847) (7) Previously filed and incorporated herein by reference to the 10-QSB Quarterly Report filed January 16, 2002. (Filing number:000-32847) (8) Previously filed and incorporated herein by reference to the SB-2 pre-effective amendment number 1 filed March 20, 2003. (Filing number: 333-102697) (9) Previously filed and incorporated by reference to the SB-2 pre-effective amendment number 2 filed April 9, 2003 (Filing number: 333-102697) (10) Previously filed and incorporated herein by reference to our Current Report on Form 8-K, dated February 27, 2003 filed March 3, 2003. (Filing number: 000-32847) (11) Previously filed and incorporated herein by reference to our Current Report on Form 8-K, filed March 11, 2003. (Filing number: 000-32847) (12) Previously filed and incorporated herein by reference to the Form S-8 filed on April 8, 2003. (Filing number: 333-104365) (13) Previously filed and incorporated herein by reference to SB-2 pre-effective amendment number 1 filed on August 14, 2003 (Filing number: 333-107497) (14) Previously filed and incorporated herein by reference to SB-2 pre-effective amendment number 2 filed on August 19, 2003 (Filing number: 333-107497) (15) Previously filed and incorporated by reference to the SB-2 pre-effective amendment number 3 filed on August 20, 2003 (Filing number: 333-107497) 72 EX-10.61 3 c30085_ex10-61.txt Exhibit 10.61 THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH COMMON SHARES, AS APPLICABLE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.) THAT SUCH REGISTRATION IS NOT REQUIRED. CONVERTIBLE TERM NOTE FOR VALUE RECEIVED, VENTURES-NATIONAL INCORPORATED (D/B/A TITAN GENERAL HOLDINGS, INC.), a Utah corporation (the "BORROWER"), hereby promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "HOLDER") or its registered assigns or successors in interest, on order, the sum of TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000), together with any accrued and unpaid interest hereon, on November 20, 2006 (the "MATURITY DATE") if not sooner paid. Capitalized terms used herein without definition shall have the meanings ascribed to such terms in that certain Securities Purchase Agreement dated as of the date hereof between the Borrower and the Holder (the "PURCHASE AGREEMENT"). The following terms shall apply to this Note: ARTICLE I INTEREST & AMORTIZATION 1.1 INTEREST RATE AND PAYMENT. (a) Subject to Sections 4.9 and 5.6 hereof, interest payable on this Note shall accrue at a rate per annum (the "Interest Rate") equal to the "prime rate" published in THE WALL STREET JOURNAL from time to time, plus three percent (3%). 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. Subject to adjustment as set forth in Section 1.1(b), in no event shall the Interest Rate will be less than seven percent (7.00%). Interest shall be payable monthly in arrears commencing on December 1, 2003, on the first day of each consecutive calendar month thereafter (each, a "REPAYMENT DATE"), and on the Maturity Date, whether by acceleration or otherwise. 1.1 (b) On the last business day of each month hereafter (each a "DETERMINATION DATE"), the Interest Rate shall be adjusted: if (i) the Company shall have registered the shares of the Company's common stock underlying the conversion of this Note and that certain warrant of even date herewith to purchase up to 350,000 shares of Common Stock issued to the Holder 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 the 10 trading days immediately preceding a Determination Date exceeds the then applicable Fixed Conversion Price in such percentages as outlined in the table below, the Interest Rate for the succeeding calendar month shall automatically be adjusted as follows: - -------------------------------------------------------------------------------- 100% or less of Applicable Fixed Conversion Price Interest Rate - -------------------------------------------------------------------------------- 125% of the applicable Fixed Conversion Price Interest Rate minus 0.25% - -------------------------------------------------------------------------------- 150% of the applicable Fixed Conversion Price Interest Rate minus 0.50% - -------------------------------------------------------------------------------- 175% of the applicable Fixed Conversion Price Interest Rate minus 0.75%; - -------------------------------------------------------------------------------- And thereafter, for each 25% incremental increase in the Fixed Conversion Price, the Interest Rate will be correspondingly reduced by twenty five (25) basis points, PROVIDED, HOWEVER, that in no event will the Interest Rate hereunder be reduced to less than 0.00%. 1.2 MINIMUM MONTHLY PRINCIPAL PAYMENTS. Amortizing payments of the aggregate principal amount outstanding under this Note at any time (the "PRINCIPAL AMOUNT") shall begin on February 1, 2004 and shall recur on the first calendar day of each succeeding month thereafter until the Maturity Date (each, an "AMORTIZATION DATE"). Subject to Section 3.4 below, beginning on the first Amortization Date, the Borrower shall make monthly payments to the Holder on each Repayment Date, each in the amount of $63,636.36, together with any accrued and unpaid interest to date on such portion of the Principal Amount plus any and all other amounts which are then owing under this Note but have not been paid (collectively, the "MONTHLY AMOUNT"). ARTICLE II BORROWER PAYMENT OPTIONS 2.1 (a) PAYMENT OF MONTHLY AMOUNT IN CASH OR COMMON STOCK. Subject to the terms hereof, the Borrower shall have the sole option to determine whether to satisfy payment of the Monthly Amount on each Repayment Date either in cash or in shares of Common Stock (as defined in the Purchase Agreement), or a combination of both. Each month by the tenth (10th) day of such month, the Borrower shall deliver to the Holder a written irrevocable notice in the form of Exhibit B attached hereto electing to pay the Monthly Amount payable on the next Repayment Date in either cash or Common Stock, or a combination of both (each, a "REPAYMENT ELECTION NOTICE") (the date by which such notice is required to be given being hereinafter referred to as the "NOTICE DATE"). If a Repayment Election Notice is not delivered to the Holder by the applicable Notice Date for such Repayment Date, then the Monthly Amount due on such Repayment Date shall be paid in cash. Any portion of the Monthly Amount paid in cash on a Repayment Date, shall be paid to the Holder an amount equal to (x) 103% of the principal portion of the Monthly Amount plus (y) any accrued and unpaid interest in satisfaction of such obligation. If the Borrower repays all or a portion of the Monthly Amount in shares of Common Stock, the number of such shares to be issued for such Repayment Date shall be the number determined by dividing (x) the portion of the Monthly Amount to be paid in shares of Common Stock, by (y) the Fixed Conversion Price. For purposes hereof, the "FIXED CONVERSION PRICE" means $0.77. 2 (b) MONTHLY AMOUNT COMMON STOCK PAYMENT GUIDELINES. Subject to Sections 2.1(a) and 2.2 hereof, if the Borrower has elected to pay all or a portion of the Monthly Amount due on such Repayment Date in shares of Common Stock and the closing price of the Common Stock as reported by Bloomberg, L.P. on the Principal Market (as defined in Section 4.7 hereof) for any of the ten (10) trading days preceding a Repayment Date was less than 110% of the Fixed Conversion Price, then the Borrower shall pay in cash instead. Any part of the Monthly Amount due on such Repayment Date that the Borrower did not elect to pay in shares of Common Stock shall be paid by the Borrower in cash on such Repayment Date. Any part of the Monthly Amount due on such Repayment Date which the Borrower elected to pay in shares of Common Stock but which must be paid in cash (as a result of the closing price of the Common Stock on one or more of the five (5) trading days preceding the applicable Repayment Date was less than 110% of the Fixed Conversion Price) shall be paid within three (3) business days following the applicable Repayment Date. 2.2 NO EFFECTIVE REGISTRATION. Notwithstanding anything to the contrary herein, the Borrower shall not repay any part of its obligations to the Holder hereunder in Common Stock if (i) there fails to exist an effective current Registration Statement (as defined in the Registration Rights Agreement covering the shares of Common Stock to be issued in connection with such payment, or (ii) an Event of Default hereunder exists and is continuing, unless such Event of Default is cured within any applicable cure period or is otherwise waived in writing by the Holder in whole or in part at the Holder's option. 2.3 OPTIONAL PREPAYMENTS IN COMMON STOCK. Subject to Section 2.2 hereof, if the average closing price of the Common Stock on the Principal Market is greater than 110% of the Fixed Conversion Price for a period of at least five (5) consecutive trading days, then the Borrower may, at its sole option, provide the Holder written notice (a "PREPAYMENT CALL NOTICE") requiring the conversion at the then applicable Fixed Conversion Price of all or a portion of the outstanding principal, interest and fees outstanding under this Note (subject to compliance with Section 2.3 and 3.2), together with accrued interest on the amount being prepaid, as of the date set forth in such Prepayment Call Notice (the "PREPAYMENT CALL DATE"). The Prepayment Call Date shall be at least ten (10) trading days following the date of the Prepayment Call Notice. On the Prepayment Call Date, the Borrower shall deliver to the Holder certificates evidencing the shares of Common Stock issued in satisfaction of the principal and interest being prepaid. Notwithstanding the foregoing, the Borrower's right to issue shares of Common Stock in satisfaction of its obligations under this Note shall be subject to the limitation that the number of shares of Common Stock issued in connection with any Prepayment Call Notice shall not exceed 25% of the aggregate dollar trading volume of the Common Stock for the ten (10) trading days immediately preceding the Prepayment Call Date (as such volume is reported by Bloomberg L.P.). If the price of the Common Stock falls below 110% of the then applicable Fixed Conversion Price during the ten (10) trading day period immediately preceding the Prepayment Call Date, then the Holder will then be required to convert only such amount of the Note as shall equal twenty five percent (25%) of the aggregate dollar trading volume (as such volume is reported by Bloomberg L.P.) for each day that the Common Stock has exceeded 110% of the then applicable Fixed Conversion Price. The Borrower shall not be permitted to give the Holder more than one Prepayment Call Notice under this Note during any 22-day period. 3 Any principal amount of this Note which is prepaid pursuant to this Section 2.3 shall be deemed to constitute payments of outstanding principal applying to Monthly Amounts for the remaining Repayment Dates in chronological order. 2.4 OPTIONAL REDEMPTION IN CASH. The Borrower will have the option of prepaying this Note in full ("OPTIONAL REDEMPTION") by paying to the Holder a sum of money equal to one hundred fifteen percent (115%) of the principal amount of this Note together with accrued but unpaid interest thereon and any and all other sums due, accrued or payable to the Holder arising under this Note or the Purchase Agreement or any Related Document (as defined in the Purchase Agreement) (the "REDEMPTION AMOUNT") outstanding on the day written notice of redemption (the "NOTICE OF REDEMPTION") is given to the Holder, which Notice of Redemption shall specify the date for such Optional Redemption (the "REDEMPTION PAYMENT DATE"). A Notice of Redemption shall not be effective with respect to any portion of this Note for which the Holder has a pending election to convert pursuant to Section 3.1 and the Redemption Amount shall be determined as if such election to convert had been completed immediately prior to the date of the Notice of Redemption. The Redemption Payment Date shall not be earlier than the day after the date of the Notice of Redemption and not later than seven (7) days after the date of the Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must be paid in good funds to the Holder. In the event the Borrower fails to pay the Redemption Amount by the Redemption Payment Date, then such Redemption Notice will be null and void. ARTICLE III CONVERSION RIGHTS 3.1. HOLDER'S CONVERSION RIGHTS. The Holder shall have the right, but not the obligation, to convert all or any portion of the then aggregate outstanding principal amount of this Note, together with interest and fees due hereon, into shares of Common Stock subject to the terms and conditions set forth in this Article III. The Holder may exercise such right by delivery to the Borrower of a written notice of conversion not less than one (1) day prior to the date upon which such conversion shall occur. The date upon which such conversion shall occur is the "CONVERSION DATE". 3.2 CONVERSION LIMITATION. Notwithstanding anything contained herein to the contrary, the Holder shall not be entitled to convert pursuant to the terms of this Note an amount that would be convertible into that number of Conversion Shares which would exceed the difference between the number of shares of Common Stock beneficially owned by such Holder or issuable upon exercise of warrants held by such Holder and 4.99% of the outstanding shares of Common Stock of the Borrower. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share limitation described in this Section 3.2 upon 75 days prior notice to the Borrower or without any notice requirement upon an Event of Default. 3.3 MECHANICS OF HOLDER'S CONVERSION. (a) In the event that the Holder elects to convert this Note into Common Stock, the Holder shall give notice of such election by delivering an executed and completed notice of conversion ("NOTICE OF CONVERSION") to the Borrower and such 4 Notice of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued interest and fees being converted. On each Conversion Date (as hereinafter defined) and in accordance with its Notice of Conversion, the Holder shall make the appropriate reduction to the Principal Amount, accrued interest and fees as entered in its records and shall provide written notice thereof to the Borrower within two (2) business days after Conversion Date. Each date on which a Notice of Conversion is delivered or telecopied to the Borrower in accordance with the provisions hereof shall be deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of Conversion to be employed by the Holder is annexed hereto as Exhibit A. (b) Pursuant to the terms of the Notice of Conversion, the Borrower will issue instructions to the transfer agent accompanied by an opinion of counsel within one (1) business day of the date of the delivery to Borrower of the Notice of Conversion and, if the transfer agent is a participant in Depository Trust Corporation, shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder by crediting the account of the Holder's designated broker with the Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business days after receipt by the Borrower of the Notice of Conversion (the "DELIVERY DATE"). In the event that the transfer agent is not such a participant, the Borrower shall use best efforts to cause a certificate representing the Conversion Shares to be delivered to the Holder within three (3) business days. Unless the transfer books of the Borrower should otherwise be closed (solely as required by applicable securities law or the regulations of the Principal Market) at the time of the receipt of such Notice of Conversion, in the case of the exercise of the conversion rights set forth herein the conversion privilege shall be deemed to have been exercised and the Conversion Shares issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Borrower of the Notice of Conversion. The Holder shall be treated for all purposes as the record holder of such Common Stock, unless the Holder provides the Borrower written instructions to the contrary. In the event that the transfer books of the Borrower should be so closed (solely as required by applicable securities law or the regulations of the Principal Market), the Holder shall be deemed to hold the Conversion Shares commencing on the first date upon which such transfer books are again open. 3.4 CONVERSION MECHANICS. (a) The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal and interest and fees to be converted, if any, by the then applicable Fixed Conversion Price. In the event of any conversions of outstanding principal amount under this Note in part pursuant to this Article III, such conversions shall be deemed to constitute conversions of outstanding principal amount applying to Monthly Amounts for the remaining Repayment Dates in chronological order. By way of example, if the original principal amount of this Note is $2,100,000 and the Holder converted $100,000 of such original principal amount prior to the first Repayment Date, then (1) the principal amount of the Monthly Amount due on the first subsequent Repayment Date would equal $0.00, (2) the principal amount of the Monthly Amount due on the second subsequent Repayment Date would equal $27,272.72 and (3) the principal amount of the Monthly Amount due on the third subsequent Repayment Dates would be $63,636.36. 5 (b) The Fixed Conversion Price and number and kind of shares or other securities to be issued upon conversion is subject to adjustment from time to time upon the occurrence of certain events, as follows: A. STOCK SPLITS, COMBINATIONS AND DIVIDENDS. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Fixed Conversion Price or the Conversion Price, as the case may be, shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event. B. During the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. The Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. C. SHARE ISSUANCES. Subject to the provisions of this Section 3.4, if the Borrower shall at any time prior to the conversion or repayment in full of the Principal Amount issue any shares of Common Stock to a person other than the Holder (except (i) pursuant to Subsections A or B above; (ii) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof as disclosed to Holder in writing; or (iii) pursuant to options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Borrower) for a consideration per share (the "Offer Price") less than the Fixed Conversion Price in effect at the time of such issuance, then the Fixed Conversion Price shall be immediately reset to such lower Offer Price. For purposes hereof, the issuance of any security of the Borrower convertible into or exercisable or exchangeable for Common Stock shall result in an adjustment to the Fixed Conversion Price at the time of issuance of such securities. D. RECLASSIFICATION, ETC. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change. 3.5 ISSUANCE OF NEW NOTE. Upon any partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid. The Borrower will pay no costs, fees or any other consideration to the Holder for the production and issuance of a new Note. 6 ARTICLE IV EVENTS OF DEFAULT If an Event of Default (as defined below) occurs and is continuing, the Borrower's rights under Sections 2.1, 2.3 and 2.4 shall immediately cease and be of no further effect until such time as the Event of Default has been cured, or has been waived by the Holder. Upon the occurrence and continuance of an Event of Default beyond any applicable grace period, the Holder may make all sums of principal, interest and other fees then remaining unpaid hereon and all other amounts payable hereunder due and payable within five business (5) days after written notice from Holder to Borrower (each occurrence being a "DEFAULT NOTICE PERIOD"). In the event of such an acceleration, the amount due and owing to the Holder shall be 125% of the outstanding principal amount of the Note (plus accrued and unpaid interest and fees, if any). If, with respect to any Event of Default other than a payment default described in Section 4.1 below, within the Default Notice Period the Borrower cures the Event of Default, the Event of Default will be deemed to no longer exist and any rights and remedies of Holder pertaining to such Event of Default will be of no further force or effect. The occurrence of any of the following events is an "EVENT OF DEFAULT": 4.1 FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The Borrower fails to pay when due any installment of principal, interest or other fees hereon in accordance herewith, or the Borrower fails to pay when due any amount due under any other promissory note issued by Borrower. 4.2 BREACH OF COVENANT. The Borrower breaches any material covenant or other term or condition of this Note or the Purchase Agreement in any material respect and such breach, if subject to cure, continues for a period of thirty (30) days after the occurrence thereof. 4.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material representation or warranty of the Borrower made herein, in the Purchase Agreement, or in any Related Document (as defined in the Purchase Agreement) shall be materially false or misleading and shall not be cured for a period of ten (10) days after the occurrence thereof. 4.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed. 4.5 JUDGMENTS. Any money judgment, writ or similar final process shall be entered or filed against the Borrower or any of its property or other assets for more than $250,000, and shall remain unvacated, unbonded or unstayed for a period of ninety (90) days. 4.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower. 4.7 STOP TRADE. An SEC stop trade order or Principal Market trading suspension of the Common Stock shall be in effect for 5 consecutive days or 5 days during a period of 10 consecutive days, excluding in all cases a suspension of all trading on a Principal Market, PROVIDED that the 7 Borrower shall not have been able to cure such trading suspension within 30 days of the notice thereof or list the Common Stock on another Principal Market within 60 days of such notice. The "Principal Market" for the Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock, or any securities exchange or other securities market on which the Common Stock is then being listed or traded. 4.8 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The Borrower's failure to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note, and Section 9 of the Securities Purchase Agreement, or if required, a replacement Note if such failure to timely deliver Common Stock shall not be cured within three (3) business days or such failure to deliver a replacement Note is not cured within seven (7) business days. 4.9 DEFAULT UNDER RELATED AGREEMENTS. The occurrence and continuance of any Event of Default as defined in the Related Agreements. 4.10 PAYMENT GRACE PERIOD. The Borrower shall have a three (3) business day grace period to pay any monetary amounts due under this Note or the Purchase Agreement or any Related Document, after which grace period a default interest rate of five percent (5%) per annum above the then applicable interest rate hereunder shall apply to the monetary amounts due. 4.11 CONVERSION PRIVILEGES. The conversion privileges set forth in Article III shall remain in full force and effect immediately from the date hereof and until this Note is paid in full. 4.12 CUMULATIVE REMEDIES. The remedies under this Note shall be cumulative. ARTICLE V MISCELLANEOUS 5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 5.2 NOTICES. Any notice herein required or permitted to be given shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Borrower at the address provided in the Purchase Agreement executed in connection herewith, with a copy to Reitler Brown LLC, 800 Third Avenue, 21st Floor, New York, New York 10022, Attention: Robert Steven Brown, Esq., facsimile number (212) 371-5500, and to the Holder at the address provided in the Purchase Agreement for such Holder, with a copy to John E. Tucker, 8 Esq., 825 Third Avenue , 14th Floor, New York, New York 10022, facsimile number (212) 541-4434, or at such other address as the Borrower or the Holder may designate by ten days advance written notice to the other parties hereto. A Notice of Conversion shall be deemed given when made to the Borrower pursuant to the Purchase Agreement. 5.3 AMENDMENT PROVISION. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument issued pursuant to Section 3.5 hereof, as it may be amended or supplemented. 5.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder in accordance with the requirements of the Purchase Agreement. 5.5 GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the city of New York, state of New York. Both parties and the individual signing this Note on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower's obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court in favor of the Holder. 5.6 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower. 5.7 SECURITY INTEREST. The holder of this Note has been granted a security interest in certain assets of the Borrower more fully described in a Security Agreement dated as of November 20, 2003. 5.8 CONSTRUCTION. Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other. 5.9 COST OF COLLECTION. If default is made in the payment of this Note, the borrower shall 9 pay to Holder reasonable costs of collection, including reasonable attorney's fees. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.] 10 IN WITNESS WHEREOF, Borrower has caused this Convertible Term Note to be signed in its name effective as of this 20th day of November, 2003. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: /s/ Andrew Glashow ------------------------------ Name: Andrew Glashow ---------------------------- Title: President --------------------------- WITNESS: - ------------------------------- 11 EXHIBIT A NOTICE OF CONVERSION (To be executed by the Holder in order to convert all or part of the Note into Common Stock [Name and Address of Holder] The Undersigned hereby elects to convert $_________ of the principal due on [SPECIFY APPLICABLE REPAYMENT DATE] under the Convertible Term Note issued by VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. dated November 20, 2003 by delivery of shares of Common Stock of VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. on and subject to the conditions set forth in Article II of such Note. 1. Date of Conversion ----------------------------- 2. Shares To Be Delivered: ----------------------------- By: ------------------------------ Name: ---------------------------- Title: --------------------------- 12 EXHIBIT B REPAYMENT ELECTION NOTICE (To be executed by the Borrower in order to pay all or part of a Monthly Amount with Common Stock) [Name and Address of Holder] VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. hereby elects to pay $_________ of the Monthly Amount due on [specify applicable Repayment Date] under the Convertible Term Note issued by VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. dated _______, 200__ by delivery of shares of Common Stock of VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. on and subject to the conditions set forth in Article II of such Note. 1. Fixed Conversion Price: $__________________ 2. Amount to be paid: $__________________ 3. Shares To Be Delivered (line 2 divided by line 1) : __________________ Date: ____________ VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: ------------------------------ Name: ---------------------------- Title: --------------------------- EX-10.62 4 c30085_ex10-62.txt Exhibit 10.62 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR SUCH SHARES OF COMMON STOCK, AS APPLICABLE, UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 350,000 Shares of Common Stock of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. ----------------------------------------------------------------- (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. _________________ Issue Date: November 20, 2003 VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. a corporation organized under the laws of the State of Utah, hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through the close of business November 20, 2010 (the "Expiration Date"), up to 350,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.001 par value per share, at the applicable Exercise Price per share (as defined below). The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Ventures-National Incorporated d/b/a Titan General Holdings, Inc. and any corporation which shall succeed, or assume the obligations of, Ventures-National Incorporated d/b/a Titan General Holdings, Inc. hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, par value $0.001 per share; and (ii) any other securities into which or for which any of the securities described in (a) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. (d) The "Exercise Price" applicable under this Warrant shall be as follows: (i) a price of $0.83 for the first 200,000 shares acquired hereunder; (ii) a price of $0.90 for the next 100,000 shares acquired hereunder; and (iii) a price of $0.97 for any additional shares acquired hereunder. 1. EXERCISE OF WARRANT. 1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2 FAIR MARKET VALUE. For purposes hereof, the "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (a) If the Company's Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc.("Nasdaq"), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen by the mutual agreement of the Company and the Holder from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the 2 Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date. 1.3 COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.4 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. PROCEDURE FOR EXERCISE. 2.1 DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith unless the stock transfer books of the Company shall then be closed (but, solely as required by applicable securities law or the regulations of the market on which the Company's Common Stock is traded), in which event such shares of Common Stock shall be deemed outstanding on the first day thereafter on which the stock transfer books of the Company shall then be open. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 2.2 EXERCISE. Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with Section (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in 3 such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) 3. EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE. 3.1 REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2 DISSOLUTION. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the Holder 4 shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder of the Warrant (the "Trustee"). 3.3 CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company's securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section 3.2. 4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise. 5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such 5 certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANT. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. 7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") in whole or in part. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, a legal opinion from the Company's counsel that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Registration Rights Agreement entered into by the Company and Purchaser dated as of even date of this Warrant. 10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Notwithstanding the foregoing, the restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company and is automatically null and void upon an Event of Default under the Note. 6 11. WARRANT AGENT. The Company may, by written notice to the each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 14. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 15. NO SHORTING. The Purchaser 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" or "short sales against the box" of the Company's Common Stock or any other hedging strategies. 16. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of New York without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state of New York; provided, however, that the Holder may choose to waive this provision and bring an action outside the State of New York. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party. 7 [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.] 8 IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. WITNESS: By: /s/ Andrew Glashow --------------------------- Name: Andrew Glashow --------------------------- Title: President - ----------------------------------- --------------------------- 9 EXHIBIT A FORM OF SUBSCRIPTION (To Be Signed Only On Exercise Of Warrant) TO: Ventures-National Incorporated d/b/a Titan General Holdings, Inc. Attention: Chief Financial Officer The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ____________ _______ shares of the Common Stock covered by such Warrant; or ____________ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ____________ $__________ in lawful money of the United States; and/or ____________ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ____________ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to _______________________________________ whose address is _____________________________________________________________ . The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated: ---------------------- --------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: ------------------------------------- ------------------------------------- A-1 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To Be Signed Only On Transfer Of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. into which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. with full power of substitution in the premises. Percentage Number Transferees Address Transferred Transferred - ----------- ------- ----------- ----------- - -------------------- ---------------------- ------------- --------------- - -------------------- ---------------------- ------------- --------------- - -------------------- ---------------------- ------------- --------------- - -------------------- ---------------------- ------------- --------------- Dated: ---------------------- --------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: ------------------------------------- ------------------------------------- SIGNED IN THE PRESENCE OF: --------------------------------------------- (Name) ACCEPTED AND AGREED: [TRANSFEREE] - -------------------------------------- (Name) B-1 EX-10.63 5 c30085_ex10-63.txt Exhibit 10.63 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of November 20, 2003, by and between Ventures-National Incorporated d/b/a Titan General Holdings, Inc., a Utah corporation (the "Company"), and Laurus Master Fund, Ltd. (the "Purchaser"). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof, by and between the Purchaser and the Company (the "Securities Purchase Agreement"), and pursuant to the Note and the Warrants referred to therein. The Company and the Purchaser hereby agree as follows: 1. DEFINITIONS. Capitalized terms used and not otherwise defined herein that are defined in the Securities Purchase Agreement shall have the meanings given such terms in the Securities Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" means shares of the Company's common stock, par value $0.001 per share. "EFFECTIVENESS DATE" means the 90th day following the date hereof. "EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(a). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and any successor statute. "FILING DATE" means, with respect to the Registration Statement required to be filed hereunder, a date no later than thirty (30) days following the date upon which the principal amount of the Term Loan to the Company in original principal amount of $2,100,000 has been funded to the Company. "HOLDER" or "HOLDERS" means the Purchaser or any of its affiliates or transferees to the extent any of them hold Registrable Securities. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c). "INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c). "NOTE" has the meaning set forth in the Securities Purchase Agreement. "PROCEEDING" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "PROSPECTUS" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means the shares of Common Stock issued upon the conversion of the Note and issuable upon exercise of the Warrants. "REGISTRATION STATEMENT" means each registration statement required to be filed hereunder, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "RULE 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "RULE 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "RULE 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "SECURITIES ACT" means the Securities Act of 1933, as amended, and any successor statute. "SECURITIES PURCHASE AGREEMENT" means the agreement between the parties hereto calling for the issuance by the Company of $2,100,000 of convertible Notes plus Warrants. "TRADING MARKET" means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange. "WARRANTS" means the Common Stock purchase warrants issued pursuant to the Securities Purchase Agreement. 2. REGISTRATION. (a) On or prior to the Filing Date the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall 2 be on Form SB-2, S-1, or Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, S-1, or Form S-3, in which case such registration shall be on another appropriate form in accordance herewith). The Company shall cause the Registration Statement to become effective and remain effective as provided herein. The Company shall use its reasonable commercial efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the Effectiveness Date. The Company shall use its reasonable commercial efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities have been sold or (ii) all Registrable Securities may be sold immediately without registration under the Securities Act and without volume restrictions set forth in Rule 144(e), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders (the "Effectiveness Period"). (b) If: (i) the Registration Statement is not filed on or prior to the Filing Date; (ii) the Registration Statement is not declared effective by the Commission by the Effectiveness Date; (iii) after the Registration Statement is filed with and declared effective by the Commission, the Registration Statement ceases to be effective (by suspension or otherwise) as to all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period (without being succeeded immediately by an additional registration statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year or more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date the Registration Statement is declared effective); or (iv) the Common Stock is not listed or quoted, or is suspended from trading on any Trading Market for a period of three (3) consecutive trading days (provided the Company shall not have been able to cure such trading suspension within 30 days of the notice thereof or list the Common Stock on another Trading Market); (any such failure or breach being referred to as an "Event," and for purposes of clause (i) or (ii) the date on which such Event occurs, or for purposes of clause (iii) the date which such 30 day or 20 consecutive day period (as the case may be) is exceeded, or for purposes of clause (iv) the date on which such three (3) trading day period is exceeded, being referred to as an "Event Date"), then until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% for each thirty (30) day period (prorated for partial periods) on a daily basis of the original principal amount of the Note. While such Event continues, such liquidated damages shall be paid not less often than each thirty (30) days. Any unpaid liquidated damages as of the date when an Event has been cured by the Company shall be paid within three (3) business days following the date on which such Event has been cured by the Company. 3. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions hereof to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission the Registration Statement with respect to such Registrable Securities, respond as promptly as possible to any comments 3 received from the Commission, and use its best efforts to cause the Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser copies of all filings and Commission letters of comment relating thereto; (b) prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement and to keep such Registration Statement effective until the expiration of the Effectiveness Period; (c) furnish to the Purchaser such number of copies of the Registration Statement and the Prospectus included therein (including each preliminary Prospectus) as the Purchaser reasonably may request to facilitate the public sale or disposition of the Registrable Securities covered by the Registration Statement; (d) use its commercially reasonable efforts to register or qualify the Purchaser's Registrable Securities covered by the Registration Statement under the securities or "blue sky" laws of such jurisdictions within the United States as the Purchaser may reasonably request, provided, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) list the Registrable Securities covered by the Registration Statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify the Purchaser at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the Prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and (g) make available for inspection by the Purchaser and any attorney, accountant or other agent retained by the Purchaser, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorney, accountant or agent of the Purchaser. 4. REGISTRATION EXPENSES. All expenses relating to the Company's compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of 4 transfer agents and registrars, reasonable fees of, and disbursements incurred by, one counsel for the Holders (to the extent such counsel is required due to the Company's failure to meet any of its obligations hereunder), are called "Registration Expenses". All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called "Selling Expenses." The Company shall only be responsible for all Registration Expenses. 5. INDEMNIFICATION. (a) In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the Purchaser, and its officers, directors and each other person, if any, who controls the Purchaser within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Purchaser, and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of the Purchaser or any such person in writing specifically for use in any such document. (b) In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, the Purchaser will indemnify and hold harmless the Company, and its officers, directors and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by the Purchaser to the Company expressly for use in (and such information is contained in) the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, provided, however, that the Purchaser 5 will be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by or on behalf of the Purchaser specifically for use in any such document. Notwithstanding the provisions of this paragraph, the Purchaser shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by the Purchaser in respect of Registrable Securities in connection with any such registration under the Securities Act. (c) Promptly after receipt by a party entitled to claim indemnification hereunder (an "Indemnified Party") of notice of the commencement of any action, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against a party hereto obligated to indemnify such Indemnified Party (an "Indemnifying Party"), notify the Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to such Indemnified Party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced by such omission. In case any such action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel, provided, however, that, if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred. (d) In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) the Purchaser, or any officer, director or controlling person of the Purchaser, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Purchaser or such officer, director or controlling person of the Purchaser in circumstances 6 for which indemnification is provided under this Section 5; then, and in each such case, the Company and the Purchaser will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Purchaser is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, provided, however, that, in any such case, (A) the Purchaser will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 6. REPRESENTATIONS AND WARRANTIES. (a) The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except with respect to certain matters which the Company has disclosed to the Purchaser on Schedule 4.21 to the Securities Purchase Agreement, 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-K for the fiscal year ended August 31, 2002 and (ii) its Quarterly Report on Form 10-Q for the fiscal quarters ended November 30, 2003, February 28, 2003, and May 31, 2003 (collectively, the "SEC Reports"). Except to the extent set forth in Schedule 4.21 to the Purchase Agreement, each SEC Report was, at the time of its filing, in compliance in all material respects 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. (b) The Common Stock is listed for trading on the OTCBB and satisfies all requirements for the continuation of such listing. The Company has not received any notice that its Common Stock will be delisted from the OTCBB (except for prior notices which have been fully remedied) or that the Common Stock does not meet all requirements for the continuation of such listing. 7 (c) Neither the Company, 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 the Securities Purchase Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act which would prevent the Company from selling the Common Stock 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. (d) The Warrants, the Note and the shares of Common Stock which the Purchaser may acquire pursuant to the Warrants and the Note 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 Registrable Securities at such time as such Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws. (e) The Company understands the nature of the Registrable Securities issuable upon the conversion of the Note and the exercise of the Warrant and recognizes that the issuance of such Registrable Securities may have a potential dilutive effect. The Company specifically acknowledges that its obligation to issue the Registrable 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. (f) 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 and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect. (g) The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock for the full conversion of the Note and exercise of the Warrants. 7. MISCELLANEOUS. (a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. (b) NO PIGGYBACK ON REGISTRATIONS. Except as and to the extent specified in SCHEDULE 7(b) hereto, neither the Company nor any of its security holders (other than the 8 Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders. Except as and to the extent specified in SCHEDULE 7(b) hereto, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been fully satisfied. (c) COMPLIANCE. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement. (d) DISCONTINUED DISPOSITION. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. For purposes of this Section 7(d), a "Discontinuation Event" shall mean (i) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (ii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information; (iii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any event or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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. (e) PIGGY-BACK REGISTRATIONS. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities 9 and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock compensation or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered to the extent the Company may do so without violating registration rights of others which exist as of the date of this Agreement, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to obtaining any required consent of any selling stockholder(s) to such inclusion under such registration statement. (f) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (g) NOTICES. Any notice or request hereunder may be given to the Company or the Purchaser 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 7(g). Any notice or request hereunder shall be given by registered or certified mail, return receipt requested, hand delivery, overnight mail, Federal Express or other national overnight next day carrier (collectively, "Courier") 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 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, in the case of a Courier, the next business day following timely delivery of the package with the Courier, and, in the case of a telecopy, when confirmed. The address for such notices and communications shall be as follows: IF TO THE COMPANY: Ventures-National Incorporated d/b/a Titan General Holdings, Inc. Attention: Chief Financial Officer Facsimile: 10 WITH A COPY TO: Reitler Brown LLC 800 Third Avenue, 21st Floor New York, New York 10022 Attention: Robert Steven Brown, Esq. Facsimile: 212-371-5500 IF TO A PURCHASER: To the address set forth under such Purchaser name on the signature pages hereto. IF TO ANY OTHER PERSON WHO IS THEN THE REGISTERED HOLDER: To the address of such Holder as it appears in the stock transfer books of the Company or such other address as may be designated in writing hereafter in accordance with this Section 7(g) by such Person. (h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Notes and the Security Agreement with the prior written consent of the Company, which consent shall not be unreasonably withheld. (i) EXECUTION AND COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (j) GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the city of New York, the state of New York. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and 11 consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of a Related Agreements , then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding. (k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (l) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (m) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS] 12 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. VENTURES-NATIONAL INCORPORTED D/B/A TITAN GENERAL HOLDINGS, INC. LAURUS MASTER FUND, LTD. By: /s/ Andrew Glashow By: /s/ David Grin ------------------------------ ------------------------------ Name: Andrew Glashow Name: David Grin ------------------------------ ------------------------------ Title: President Title: ------------------------------ ------------------------------ ADDRESS FOR NOTICES: 825 Third Avenue - 14th Floor New York, NY 10022 Attention: David Grin Facsimile: 212-541-4434 13 EX-10.64 6 c30085_ex10-64.txt Exhibit 10.64 VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. SECURITIES PURCHASE AGREEMENT NOVEMBER 20, 2003 TABLE OF CONTENTS PAGE ---- 1. AGREEMENT TO SELL AND PURCHASE........................................1 2. FEES AND WARRANT......................................................1 3. CLOSING, DELIVERY AND PAYMENT.........................................2 3.1 CLOSING....................................................2 3.2 DELIVERY...................................................2 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................2 4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION..............2 4.2 SUBSIDIARIES...............................................3 4.3 CAPITALIZATION; VOTING RIGHTS..............................3 4.4 AUTHORIZATION; BINDING OBLIGATIONS.........................4 4.5 LIABILITIES................................................4 4.6 AGREEMENTS; ACTION.........................................4 4.7 OBLIGATIONS TO RELATED PARTIES.............................5 4.8 CHANGES....................................................6 4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC.................7 4.10 INTELLECTUAL PROPERTY......................................7 4.11 COMPLIANCE WITH OTHER INSTRUMENTS..........................8 4.12 LITIGATION.................................................8 4.13 TAX RETURNS AND PAYMENTS...................................8 4.14 EMPLOYEES..................................................8 4.15 REGISTRATION RIGHTS AND VOTING RIGHTS......................9 4.16 COMPLIANCE WITH LAWS; PERMITS..............................9 4.17 ENVIRONMENTAL AND SAFETY LAWS.............................10 4.18 VALID OFFERING............................................10 4.19 FULL DISCLOSURE...........................................10 4.20 INSURANCE.................................................10 4.21 SEC REPORTS...............................................10 4.22 LISTING...................................................11 4.23 NO INTEGRATED OFFERING....................................11 4.24 STOP TRANSFER.............................................11 4.25 DILUTION..................................................11 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................11 5.1 NO SHORTING...............................................11 5.2 REQUISITE POWER AND AUTHORITY.............................11 5.3 INVESTMENT REPRESENTATIONS................................12 5.4 PURCHASER BEARS ECONOMIC RISK.............................12 5.5 ACQUISITION FOR OWN ACCOUNT...............................12 5.6 PURCHASER CAN PROTECT ITS INTEREST........................12 5.7 ACCREDITED INVESTOR.......................................13 5.8 LEGENDS...................................................13 6. COVENANTS OF THE COMPANY.............................................14 6.1 STOP-ORDERS...............................................14 i 6.2 LISTING...................................................14 6.3 MARKET REGULATIONS........................................14 6.4 REPORTING REQUIREMENTS....................................14 6.5 USE OF FUNDS..............................................14 6.6 ACCESS TO FACILITIES......................................14 6.7 TAXES.....................................................15 6.8 INSURANCE.................................................15 6.9 INTELLECTUAL PROPERTY.....................................16 6.10 PROPERTIES................................................16 6.11 CONFIDENTIALITY...........................................16 6.12 REQUIRED APPROVALS........................................16 6.13 REISSUANCE OF SECURITIES..................................17 6.14 OPINION...................................................17 7. COVENANTS OF THE PURCHASER...........................................18 7.1 CONFIDENTIALITY...........................................18 7.2 NON-PUBLIC INFORMATION....................................18 8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.....18 8.1 COMPANY INDEMNIFICATION...................................18 8.2 PURCHASER'S INDEMNIFICATION...............................18 8.3 PROCEDURES................................................18 9. CONVERSION OF CONVERTIBLE NOTE.......................................18 9.1 MECHANICS OF CONVERSION...................................18 9.2 MAXIMUM CONVERSION........................................20 10. REGISTRATION RIGHTS..................................................20 10.1 REGISTRATION RIGHTS GRANTED...............................20 10.2 OFFERING RESTRICTIONS.....................................20 11. MISCELLANEOUS........................................................20 11.1 GOVERNING LAW.............................................20 11.2 SURVIVAL..................................................21 11.3 SUCCESSORS................................................21 11.4 ENTIRE AGREEMENT..........................................21 11.5 SEVERABILITY..............................................21 11.6 AMENDMENT AND WAIVER......................................21 11.7 DELAYS OR OMISSIONS.......................................22 11.8 NOTICES...................................................22 11.9 ATTORNEYS' FEES...........................................23 11.10 TITLES AND SUBTITLES......................................23 11.11 FACSIMILE SIGNATURES; COUNTERPARTS........................23 11.12 BROKER'S FEES.............................................23 11.13 CONSTRUCTION..............................................23 ii LIST OF EXHIBITS - -------------------------------------------------------------------------------- Form of Convertible Term Note....................................... Exhibit A Form of Warrant..................................................... Exhibit B Form of Opinion..................................................... Exhibit C Form of Escrow Agreement............................................ Exhibit D iii SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into as of November 20, 2003, by and between VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC., a Utah corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands company (the "Purchaser"). RECITALS WHEREAS, the Company has authorized the sale to the Purchaser of a Convertible Term Note in the aggregate principal amount of two million one hundred thousand dollars ($2,100,000) (the "Note"), which Note is convertible into shares of the Company's common stock, $0.001 par value per share (the "Common Stock") at a fixed conversion price of $0.77 per share of Common Stock ("Fixed Conversion Price"); WHEREAS, the Company wishes to issue a warrant to the Purchaser to purchase up to 350,000 shares of the Company's Common Stock in connection with Purchaser's purchase of the Note; WHEREAS, Purchaser desires to purchase the Note and Warrant on the terms and conditions set forth herein; and WHEREAS, the Company desires to issue and sell the Note and Warrant to Purchaser on the terms and conditions set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined in Section 3), the Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company a Note in the amount of $2,100,000 convertible in accordance with the terms thereof into shares of the Company's Common Stock in accordance with the terms of the Note and this Agreement. The sale of the Note on the Closing Date shall be known as the "Offering." A form of the Note is annexed hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note) thirty six (36) months from the date of issuance. Collectively, the Note and Warrant (as defined in Section 2) and Common Stock issuable in payment of the Note, upon conversion of the Note and upon exercise of the Warrant are referred to as the "Securities." 2. FEES AND WARRANT. On the Closing Date: (a) The Company will issue and deliver to the Purchaser a Warrant to purchase up to 350,000 shares of Common Stock in connection with the Offering (the "Warrant") pursuant to Section 1 hereof. The Warrant must be delivered on the Closing Date. A form of Warrant is annexed hereto as Exhibit B. All the representations, covenants, warranties, undertakings, and indemnification, and other rights made or granted to or for the benefit of the Purchaser by the Company are hereby also made and granted in respect of the Warrant and shares of the Company's Common Stock issuable upon exercise of the Warrant (the "Warrant Shares"). (b) Subject to the terms of Section 2(d) below, the Company shall pay to Laurus Capital Management, LLC, manager of Purchaser a closing payment in an amount equal to three and six tenths percent (3.6%) of the aggregate principal amount of the Note. The foregoing fee is referred to herein as the "Closing Payment." (c) The Company shall reimburse the Purchaser for its reasonable legal fees for services rendered to the Purchaser in preparation of this Agreement and the Related Agreements (as hereinafter defined), and expenses in connection with the Purchaser's due diligence review of the Company and relevant matters. Amounts required to be paid hereunder will be paid at the Closing and shall not exceed $22,000 for legal expenses and $17,500 for performing due diligence inquiries on the Company. (d) The Closing Payment, legal fees and due diligence fees (net of deposits previously paid by the Company shall be paid at closing out of funds held pursuant to a Funds Escrow Agreement of even date herewith among the Company, Purchaser, and an Escrow Agent (the "Funds Escrow Agreement") and a disbursement letter (the "Disbursement Letter"). 3. CLOSING, DELIVERY AND PAYMENT. 3.1 CLOSING. Subject to the terms and conditions herein, the closing of the transactions contemplated hereby (the "Closing"), shall take place on the date hereof, at such time or place as the Company and Purchaser may mutually agree (such date is hereinafter referred to as the "Closing Date"). 3.2 DELIVERY. Pursuant to the Funds Escrow Agreement in the form attached hereto as Exhibit C, at the Closing on the Closing Date, the Company will deliver to the Purchaser, among other things, a Note in the form attached as Exhibit A representing the principal amount of $2,100,000 and a Warrant in the form attached as Exhibit B in the Purchaser's name representing 350,000 Warrant Shares and the Purchaser will deliver to the Company, among other things, the amounts set forth in the Disbursement Letter by certified funds or wire transfer. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to the Purchaser as of the date of this Agreement as set forth below which disclosures are supplemented by, and subject to the Company's filings under the Securities Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which have been provided to the Purchaser. 4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Utah. The Company has the corporate power and authority to own and operate its properties and 2 assets, to execute and deliver this Agreement, and the Note and the Warrant to be issued in connection with this Agreement, the Security Agreement relating to the Note dated as of November __, 2003 between the Company and the Purchaser (the "Security Agreement"), the Registration Rights Agreement relating to the Securities dated as of November __, 2003 between the Company and the Purchaser (the "Registration Rights Agreement") and all other agreements referred to herein (collectively, the "Related Agreements"), to issue and sell the Note and the shares of Common Stock issuable upon conversion of the Note (the "Note Shares"), to issue and sell the Warrant and the Warrant Shares, and to carry out the provisions of this Agreement and the Related Agreements and to carry on its business as presently conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on the Company or its business. 4.2 SUBSIDIARIES. The Company owns all of the issued and outstanding capital stock of Titan PCB East, Inc. and Titan PCB West, Inc. The Company does not own or control any equity security or other material interest of any other corporation, limited partnership or other business entity 4.3 CAPITALIZATION; VOTING RIGHTS. (a) The authorized capital stock of the Company, as of the date hereof consists of _________shares, of which ________are shares of Common Stock, par value $0.001 per share, _________shares of which are issued and outstanding. (b) Except as disclosed on SCHEDULE 4.3, other than: (i) the shares reserved for issuance under the Company's stock option plans; and (ii) shares which may be granted pursuant to this Agreement and the Related Agreements, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal), proxy or stockholder agreements, or arrangements or agreements of any kind for the purchase or acquisition from the Company of any of its securities. Except as disclosed on SCHEDULE 4.3, neither the offer, issuance or sale of any of the Note or Warrant, or the issuance of any of the Note Shares or Warrant Shares, nor the consummation of any transaction contemplated hereby will result in a change in the price or number of any securities of the Company outstanding, under anti-dilution or other similar provisions contained in or affecting any such securities. (c) All issued and outstanding shares of the Company's Common Stock: (i) have been duly authorized and validly issued and are fully paid and nonassessable; and (ii) were issued in compliance with all applicable state and federal laws concerning the issuance of securities. (d) The rights, preferences, privileges and restrictions of the shares of the Common Stock are as stated in the Company's Certificate of Incorporation (the "Charter"). The Note Shares and Warrant Shares have been duly and validly reserved for issuance. When issued in compliance with the provisions of this Agreement and the Company's Charter, the Securities will be validly issued, fully paid and nonassessable, 3 and will be free of any liens or encumbrances; provided, however, that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein or as otherwise required by such laws at the time a transfer is proposed. 4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the part of the Company, its officers and directors necessary for the authorization of this Agreement and the Related Agreements, the performance of all obligations of the Company hereunder at the Closing and, the authorization, sale, issuance and delivery of the Note and Warrant has been taken or will be taken prior to the Closing. The Agreement and the Related Agreements, when executed and delivered and to the extent it is a party thereto, will be valid and binding obligations of the Company 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; (b) general principles of equity that restrict the availability of equitable or legal remedies; (c) indemnity and contribution provisions thereof insofar as such provisions may be unenforceable as a matter of public policy ; (d) choice of law provisions thereof, insofar as such provisions may be unenforceable as a matter of public policy. The sale of the Note and the subsequent conversion of the Note into Note Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. The issuance of the Warrant and the subsequent exercise of the Warrant for Warrant Shares are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with. 4.5 LIABILITIES. The Company, to the best of its knowledge, has no material contingent liabilities, except current liabilities incurred in the ordinary course of business and liabilities disclosed in any Exchange Act Filings. 4.6 AGREEMENTS; ACTION. Except as set forth on SCHEDULE 4.6 or as disclosed in any Exchange Act Filings: (a) There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or to its knowledge by which it is bound which may involve: (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $50,000 (other than obligations of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business); or (ii) the transfer or license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of "off the shelf" or other standard products); or (iii) provisions restricting the development, manufacture or distribution of the Company's products or 4 services; or (iv) indemnification by the Company with respect to infringements of proprietary rights. (b) Since August 31, 2002, the Company has not: (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money borrowed or any other liabilities (other than ordinary course obligations) individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate; (iii) made any loans or advances to any person not in excess, individually or in the aggregate, of $100,000, other than ordinary advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (c) For the purposes of subsections (a) and (b) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. 4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth on SCHEDULE 4.7, there are no obligations of the Company to officers, directors, stockholders or employees of the Company other than: (a) for payment of salary for services rendered and for bonus payments; (b) reimbursement for reasonable expenses incurred on behalf of the Company; (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company); and (d) obligations listed in the Company's financial statements or disclosed in any of its Exchange Act Filings. Except as described above or set forth on SCHEDULE 4.7, none of the officers, directors or, to the best of the Company's knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company, individually or in the aggregate, in excess of $50,000 or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than one percent (1%) of such company) which may compete with the Company. Except as described above, no officer, director or stockholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company and no agreements, understandings or proposed transactions are contemplated between the Company and any such person. Except as set forth on SCHEDULE 4.7, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 5 4.8 CHANGES. Since August 31, 2002, except as disclosed in any Exchange Act Filing or in any Schedule to this Agreement or to any of the Related Agreements, there has not been: (a) Any change in the assets, liabilities, financial condition, prospects or operations of the Company, other than changes in the ordinary course of business, none of which individually or in the aggregate has had or is reasonably expected to have a material adverse effect on such assets, liabilities, financial condition, prospects or operations of the Company; (b) Any resignation or termination of any officer, key employee or group of employees of the Company; (c) Any material change, except in the ordinary course of business, in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise; (d) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, business or prospects or financial condition of the Company; (e) Any waiver by the Company of a valuable right or of a material debt owed to it; (f) Any direct or indirect material loans made by the Company to any stockholder, employee, officer or director of the Company, other than advances made in the ordinary course of business; (g) Any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder; (h) Any declaration or payment of any dividend or other distribution of the assets of the Company; (i) Any labor organization activity related to the Company; (j) Any debt, obligation or liability incurred, assumed or guaranteed by the Company, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business; (k) Any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (l) Any change in any material agreement to which the Company is a party or by which it is bound which may materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company; 6 (m) Any other event or condition of any character that, either individually or cumulatively, has or may materially and adversely affect the business, assets, liabilities, financial condition, prospects or operations of the Company; or (n) Any arrangement or commitment by the Company to do any of the acts described in subsection (a) through (m) above. 4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set forth on SCHEDULE 4.9, the Company has good and marketable title to its properties and assets, and good title to its leasehold estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than: (a) those resulting from taxes which have not yet become delinquent; (b) minor liens and encumbrances which do not materially detract from the value of the property subject thereto or materially impair the operations of the Company; and (c) those that have otherwise arisen in the ordinary course of business. All facilities, machinery, equipment, fixtures, vehicles and other properties owned, leased or used by the Company are in good operating condition and repair and are reasonably fit and usable for the purposes for which they are being used. Except as set forth on SCHEDULE 4.9, the Company is in compliance with all material terms of each lease to which it is a party or is otherwise bound. 4.10 INTELLECTUAL PROPERTY. (a) The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes necessary for its business as now conducted and to the Company's knowledge as presently proposed to be conducted (the "Intellectual Property"), without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing proprietary rights, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. (b) The Company has not received any communications alleging that the Company has violated any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity, nor is the Company aware of any basis therefor. (c) The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its employees made prior to 7 their employment by the Company, except for inventions, trade secrets or proprietary information that have been rightfully assigned to the Company. 4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on SCHEDULE 4.11, the Company is not in violation or default of any term of its Charter or Bylaws, or of any material provision of any mortgage, indenture, contract, agreement, instrument or contract to which it is party or by which it is bound or of any judgment, decree, order or writ. Except as otherwise contemplated hereby and by the Related Agreements, the execution, delivery and performance of and compliance with this Agreement and the Related Agreements to which it is a party, and the issuance and sale of the Note by the Company and the other Securities by the Company each pursuant hereto, will not, with or without the passage of time or giving of notice, result in any such material violation, or be in conflict with or constitute a default under any such term or provision, or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties. 4.12 LITIGATION. Except as set forth on SCHEDULE 4.12 hereto, there is no action, suit, proceeding or investigation pending or, to the Company's knowledge, currently threatened against the Company that prevents the Company to enter into this Agreement or the Related Agreements, or to consummate the transactions contemplated hereby or thereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for any of the foregoing. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax returns (federal, state and local) required to be filed by it. All taxes shown to be due and payable on such returns, any assessments imposed, and to the Company's knowledge all other taxes due and payable by the Company on or before the Closing, have been paid or will be paid prior to the time they become delinquent. Except as set forth on SCHEDULE 4.13, the Company has not been advised: (a) that any of its returns, federal, state or other, have been or are being audited as of the date hereof; or (b) of any deficiency in assessment or proposed judgment to its federal, state or other taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for. 4.14 EMPLOYEES. Except as set forth on SCHEDULE 4.14, the Company has no collective bargaining agreements with any of its employees. There is no labor union organizing 8 activity pending or, to the Company's knowledge, threatened with respect to the Company. Except as disclosed in the Exchange Act Filings or on SCHEDULE 4.14, the Company is not a party to or bound by any currently effective employment contract, deferred compensation arrangement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation plan or agreement. To the Company's knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation of any term of any employment contract, proprietary information agreement or any other agreement relating to the right of any such individual to be employed by, or to contract with, the Company because of the nature of the business to be conducted by the Company; and to the Company's knowledge the continued employment by the Company of its present employees, and the performance of the Company's contracts with its independent contractors, will not result in any such violation. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere in any material respect with their duties to the Company. The Company has not received any notice alleging that any such violation has occurred. Except for employees who have a current effective employment agreement with the Company, no employee of the Company has been granted the right to continued employment by the Company or to any material compensation following termination of employment with the Company. Except as set forth on SCHEDULE 4.14, the Company is not aware that any officer, key employee or group of employees intends to terminate his, her or their employment with the Company, nor does the Company have a present intention to terminate the employment of any officer, key employee or group of employees. 4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set forth on SCHEDULE 4.15 and except as disclosed in Exchange Act Filings, the Company is presently not under any obligation, and has not granted any rights, to register any of the Company's presently outstanding securities or any of its securities that may hereafter be issued. Except as set forth on SCHEDULE 4.15 and except as disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of the Company has entered into any agreement with respect to the voting of equity securities of the Company. 4.16 COMPLIANCE WITH LAWS; PERMITS. Except as set forth on SCHEDULE 4.16, to its knowledge, the Company is not in violation in any material respect of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties which violation would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company. No governmental orders, permissions, consents, approvals or authorizations are required to be obtained and no registrations or declarations are required to be filed in connection with the execution and delivery of this Agreement and the issuance of any of the Securities, except such as has been duly and validly obtained or filed, or with respect to any filings that must be made after the Closing in accordance with federal securities laws and state blue sky laws, as will be filed in a timely manner. The Company has all material franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would materially and adversely affect the business, properties, prospects or financial condition of the Company. 9 4.17 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation in any material respect of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. Except as set forth on SCHEDULE 4.17, no Hazardous Materials (as defined below) are used or have been used, stored, or disposed of by the Company or, to the Company's knowledge, by any other person or entity on any property owned, leased or used by the Company. For the purposes of the preceding sentence, "Hazardous Materials" shall mean: (a) materials which are listed or otherwise defined as "hazardous" or "toxic" under any applicable local, state, federal and/or foreign laws and regulations that govern the existence and/or remedy of contamination on property, the protection of the environment from contamination, the control of hazardous wastes, or other activities involving hazardous substances, including building materials; or (b) any petroleum products or nuclear materials. 4.18 VALID OFFERING. Assuming the accuracy of the representations and warranties of the Purchaser contained in this Agreement, the offer, sale and issuance of the Securities will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. 4.19 FULL DISCLOSURE. The Company has provided the Purchaser with all information requested by the Purchaser in connection with its decision to purchase the Note and Warrant, including all information the Company believes is reasonably necessary to make such investment decision. Neither this Agreement, the exhibits and schedules hereto, the Related Agreements nor any other document delivered by the Company to Purchaser or its attorneys or agents in connection herewith or therewith or with the transactions contemplated hereby or thereby, contain any untrue statement of a material fact nor omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances in which they are made, not misleading. Any financial projections and other estimates provided to the Purchaser by the Company were based on the Company's experience in the industry and on assumptions of fact and opinion as to future events which the Company, at the date of the issuance of such projections or estimates, believed to be reasonable. 4.20 INSURANCE. The Company has general commercial, product liability, fire and casualty insurance policies with coverages which the Company believes are customary for companies similarly situated to the Company in the same or similar business. 4.21 SEC REPORTS. Except as set forth on SCHEDULE 4.21, the Company has filed all proxy statements, reports and other documents required to be filed by it under the Exchange Act. The Company has furnished the Purchaser with copies of: (i) its Annual Report on Form 10-KSB for the fiscal year ended August 31, 2002; and (ii) its Quarterly Reports on Form 10-QSB for the fiscal quarters ended November 30, 2003, February 28, 2003, and May 31, 2003, and the Form 8-K filings which it has made during 2003 to date (collectively, the "SEC 10 Reports"). Except as set forth on SCHEDULE 4.21, each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.22 LISTING. The Company's Common Stock is listed for trading on 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 delisted from OTCBB or that its Common Stock does not meet all requirements for listing. 4.23 NO INTEGRATED OFFERING. Neither the Company, 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 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. 4.24 STOP TRANSFER. The Securities are restricted securities 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 the Securities are registered for public sale or an exemption from registration is available, except as otherwise provided in the Registration Rights Agreement and as required by state and federal securities laws. 4.25 DILUTION. The Company specifically acknowledges that its obligation to issue the shares of Common Stock upon conversion of the Note and exercise of the Warrant 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. 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company as follows (such representations and warranties do not lessen or obviate the representations and warranties of the Company set forth in this Agreement) 5.1 NO SHORTING. The Purchaser 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" or "short sales against the box" of the Company's Common Stock or any other hedging strategies. 5.2 REQUISITE POWER AND AUTHORITY. Purchaser 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 Purchaser's part required for the lawful execution and delivery of this Agreement and the Related Agreements 11 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 Purchaser, 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. 5.3 INVESTMENT REPRESENTATIONS. Purchaser understands that the Securities are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Purchaser's representations contained in the Agreement, including, without limitation, that the Purchaser is an "accredited investor" within the meaning of Regulation D under the Securities Act. The Purchaser 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. The Purchaser 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 the Purchaser or to which the Purchaser had access. 5.4 PURCHASER BEARS ECONOMIC RISK. Purchaser 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. Purchaser 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. 5.5 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Note and Warrant and the Note Shares and the Warrant Shares for Purchaser's 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. 5.6 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by reason of its, or of its management's, business and financial experience, Purchaser 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, Purchaser is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement or the Related Agreements. 12 5.7 ACCREDITED INVESTOR. Purchaser represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. 5.8 LEGENDS. (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 THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF 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 VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (b) The Note Shares and the Warrant Shares, if not issued by DWAC system 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, HYPOTHECATED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED." (c) 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, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS 13 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 VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED." 6. COVENANTS OF THE COMPANY. The Company covenants and agrees with the Purchaser as follows: 6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly after it receives notice of issuance by the SEC, any state securities commission or any other regulatory authority of any stop order or of any order preventing or suspending any offering of any securities of the Company, or of the suspension of the qualification of the Common Stock of the Company for offering or sale in any jurisdiction, or the initiation of any proceeding for any such purpose. 6.2 LISTING. The Company shall promptly secure the listing of the shares of Common Stock issuable upon conversion of the Note and upon the exercise of the Warrant on the OTCBB (the "Principal Market") upon which shares of Common Stock are listed (subject to official notice of issuance) and shall maintain such listing so long as any other shares of Common Stock shall be so listed. The Company will maintain the listing of its Common Stock on the Principal Market, and will comply in all material respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable. 6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD and applicable state authorities, in accordance with their requirements, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Securities to Purchaser and promptly provide copies thereof to Purchaser. 6.4 REPORTING REQUIREMENTS. The Company will timely file with the SEC all reports required to be filed pursuant to the Exchange Act and refrain from terminating its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such termination. 6.5 USE OF FUNDS. The Company agrees that it will use the proceeds of the sale of the Note and Warrant for general corporate purposes only. 6.6 ACCESS TO FACILITIES. The Company will permit any representatives designated by the Purchaser (or any successor of the Purchaser), upon reasonable notice and during normal business hours, at such person's expense and accompanied by a representative of the Company, to: (a) visit and inspect any of the properties of the Company; 14 (b) examine the corporate and financial records of the Company (unless such examination is not permitted by federal, state or local law or by contract) and make copies thereof or extracts therefrom; and (c) discuss the affairs, finances and accounts of the Company with the directors, officers and independent accountants of the Company. Notwithstanding the foregoing, the Company will not provide any material, non-public information to the Purchaser unless the Purchaser signs a confidentiality agreement and otherwise complies with Regulation FD, under the federal securities laws. 6.7 TAXES. The Company will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any lien which may have attached as security therefor. 6.8 INSURANCE. The Company will keep its assets which are of an insurable character insured by financially sound and reputable insurers against loss or damage by fire, explosion and other risks customarily insured against by companies in similar business similarly situated as the Company; and the Company will maintain, with financially sound and reputable insurers, insurance against other hazards and risks and liability to persons and property to the extent and in the manner which the Company reasonably believes is customary for companies in similar business similarly situated as the Company and to the extent available on commercially reasonable terms. The Company and each of its subsidiaries set forth in Section 4.2 hereof (the "Subsidiaries") will jointly and severally bear the full risk of loss from any loss of any nature whatsoever with respect to the assets pledged to the Purchaser as security for its obligations hereunder and under the Related Agreements. At the Company's own cost and expense in amounts and with carriers reasonably acceptable to Purchaser, the Company and each of the Subsidiaries shall (i) keep all its insurable properties and properties in which it has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to the Company's or the respective Subsidiary's including business interruption insurance; (ii) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to the Company's or the Subsidiary'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 the Company 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 the Company or the Subsidiary is engaged in business; and (v) furnish Purchaser with (x) copies of all policies and evidence of the 15 maintenance of such policies at least thirty (30) days before any expiration date, (y) excepting the Company's workers' compensation policy, endorsements to such policies naming Purchaser as "co-insured" or "additional insured" and appropriate loss payable endorsements in form and substance satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence that as to Purchaser the insurance coverage shall not be impaired or invalidated by any act or neglect of the Company or any Subsidiary and the insurer will provide Purchaser with at least thirty (30) days notice prior to cancellation. The Company and each Subsidiary shall instruct the insurance carriers that in the event of any loss thereunder, the carriers shall make payment for such loss to the Company and/or the Subsidiary and Purchaser jointly. In the event that as of the date of receipt of each loss recovery upon any such insurance, the Purchaser has not declared an event of default with respect to this Agreement or any of the Related Agreements, then the Company shall be permitted to direct the application of such loss recovery proceeds toward investment in property, plant and equipment that would comprise "Collateral" secured by Purchaser's security interest pursuant to its security agreement, with any surplus funds to be applied toward payment of the obligations of the Company to Purchaser. In the event that Purchaser has properly declared an event of default with respect to this Agreement or any of the Related Agreements, then all loss recoveries received by Purchaser upon any such insurance thereafter may be applied to the obligations of the Company hereunder and under the Related Agreements, in such order as the Purchaser may determine. Any surplus (following satisfaction of all Company obligations to Purchaser) shall be paid by Purchaser to the Company or applied as may be otherwise required by law. Any deficiency thereon shall be paid by the Company or the Subsidiary, as applicable, to Purchaser, on demand. 6.9 INTELLECTUAL PROPERTY. The Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to use Intellectual Property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business. 6.10 PROPERTIES. The Company will keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needful and proper repairs, renewals, replacements, additions and improvements thereto; and the Company will at all times comply with each provision of all leases to which it is a party or under which it occupies property if the breach of such provision could reasonably be expected to have a material adverse effect. 6.11 CONFIDENTIALITY. The Company agrees that it will not disclose, and will not include in any public announcement, the name of the Purchaser, unless expressly agreed to by the Purchaser or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement. The Company may disclose Purchaser's identity and the terms of this Agreement to its current and prospective debt and equity financing sources. 6.12 REQUIRED APPROVALS. For so long as twenty-five percent (25%) of the principal amount of the Note is outstanding, the Company, without the prior written consent of the Purchaser, shall not: (a) directly or indirectly declare or pay any dividends, other than dividends with respect to any series of preferred stock issued or to be issued thereby; 16 (b) liquidate, dissolve or effect a material reorganization; (c) become subject to (including, without limitation, by way of amendment to or modification of) any agreement or instrument which by its terms would (under any circumstances) restrict the Company's right to perform the provisions of this Agreement or any of the agreements contemplated thereby; (d) materially alter or change the scope of the business of the Company; (e) create, incur, assume or suffer to exist any indebtedness (exclusive of trade debt and debt incurred to finance the purchase of equipment (not in excess of five percent (5%) per annum of the Company's assets) whether secured or unsecured other than the Company's indebtedness to Laurus and as set forth on EXHIBIT 6.12(e) attached hereto and made a part hereof or any refinancings or replacements thereof or any debt incurred in connection with the purchase of assets or in connection with operating lines of credit as necessary to operate such assets, or any refinancings or replacements thereof; (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 Company for deposit or collection or similar transactions in the ordinary course of business or guarantees provided to any of the lenders set forth in subparagraph (i) immediately above. 6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue certificates representing the Securities without the legends set forth in Section 5.7 above at such time as: (a) the holder thereof is permitted to dispose of such Securities pursuant to Rule 144(k) under the Securities Act; or (b) upon resale subject to an effective registration statement after such Securities are registered under the Securities Act. The Company agrees to cooperate with the Purchaser in connection with all resales pursuant to Rule 144 and Rule 144(k) and provide legal opinions necessary to allow such resales provided the Company and its counsel receive reasonably requested representations from the selling Purchaser and broker, if any. 6.14 OPINION. On the Closing Date, the Company will deliver to the Purchaser an opinion acceptable to the Purchaser from the Company's legal counsel. The Company will use its best efforts to provide, at the Company's expense, such other legal opinions in the future as are reasonably necessary for the conversion of the Note and exercise of the Warrant. 7. COVENANTS OF THE PURCHASER. The Purchaser covenants and agrees with the Company as follows: 7.1 CONFIDENTIALITY. The Purchaser agrees that it will not disclose, and will not include in any public announcement, the name of the Company, unless expressly agreed to by 17 the Company or unless and until such disclosure is required by law or applicable regulation, and then only to the extent of such requirement. 7.2 NON-PUBLIC INFORMATION. The Purchaser agrees not to effect any sales in the shares of the Company's Common Stock while in possession of material, non-public information regarding the Company if such sales would violate applicable securities law. 8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION. 8.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold harmless, reimburse and defend Purchaser, and each of Purchaser's officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Purchaser which results, arises out of or is based upon: (i) any misrepresentation by Company or breach of any warranty by Company in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or default in performance by Company of any covenant or undertaking to be performed by Company hereunder, or any other agreement entered into by the Company and Purchaser relating hereto. 8.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company's officers, directors, agents, affiliates, control persons and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company which results, arises out of or is based upon: (i) any misrepresentation by Purchaser or breach of any warranty by Purchaser in this Agreement or in any exhibits or schedules attached hereto or any Related Agreement; or (ii) any breach or default in performance by Purchaser of any covenant or undertaking to be performed by Purchaser hereunder, or any other agreement entered into by the Company and Purchaser relating hereto. 8.3 PROCEDURES. The procedures and limitations set forth in Section 10.2(c) and (d) shall apply to the indemnifications set forth in Sections 8.1 and 8.2 above. 9. CONVERSION OF CONVERTIBLE NOTE. 9.1 MECHANICS OF CONVERSION. (a) Provided the Purchaser has notified the Company of the Purchaser's intention to sell the Note Shares and the Note Shares are included in an effective registration statement or are otherwise exempt from registration when sold: (i) upon the conversion of the Note or part thereof, the Company shall, at its own cost and expense, take all necessary action (including the issuance of an opinion of counsel) to assure that the Company's transfer agent shall issue shares of the Company's Common Stock in the name of the Purchaser (or its nominee) or such other persons as designated by the Purchaser in accordance with Section 9.1(b) hereof and in such denominations to be specified representing the number of Note Shares issuable upon such conversion; and (ii) the Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company's Common Stock and that after the Effectiveness Date (as defined in the Registration Rights Agreement) the Note Shares 18 issued will be freely transferable subject to the prospectus delivery requirements of the Securities Act and the provisions of this Agreement, and, upon the sale thereof, will not contain a legend restricting the resale or transferability of the Note Shares. (b) Purchaser will give notice of its decision to exercise its right to convert the Note or part thereof by telecopying or otherwise delivering an executed and completed notice of the number of shares to be converted to the Company (the "Notice of Conversion"). The Purchaser will not be required to surrender the Note until the Purchaser receives a credit to the account of the Purchaser's prime broker through the DWAC system (as defined below), representing the Note Shares or until the Note has been fully satisfied. Each date on which a Notice of Conversion is telecopied or delivered to the Company in accordance with the provisions hereof shall be deemed a "Conversion Date." Pursuant to the terms of the Notice of Conversion, the Borrower will issue instructions to the transfer agent accompanied by an opinion of counsel within one (1) business days of the date of the delivery to Borrower of the Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder by crediting the account of the Purchaser's prime broker with the Depository Trust Company ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business days after receipt by the Company of the Notice of Conversion (the "Delivery Date"). (c) The Company understands that a delay in the delivery of the Note Shares in the form required pursuant to Section 9 hereof beyond the Delivery Date could result in economic loss to the Purchaser. In the event that the Company fails to direct its transfer agent to deliver the Note Shares to the Purchaser via the DWAC system within the time frame set forth in Section 9.1(b) above and the Note Shares are not delivered to the Purchaser by the Delivery Date, as compensation to the Purchaser for such loss, the Company agrees to pay late payments to the Purchaser for late issuance of the Note Shares in the form required pursuant to Section 9 hereof upon conversion of the Note in the amount equal to the greater of: (i) $500 per business day after the Delivery Date; or (ii) the Purchaser's actual damages from such delayed delivery. Notwithstanding the foregoing, the Company will not owe the Purchaser any late payments if the delay in the delivery of the Note Shares beyond the Delivery Date is solely out of the control of the Company and the Company is actively trying to cure the cause of the delay. The Company shall pay any payments incurred under this Section in immediately available funds upon demand and, in the case of actual damages, accompanied by reasonable documentation of the amount of such damages. Such documentation shall show the number of shares of Common Stock the Purchaser is forced to purchase (in an open market transaction) which the Purchaser anticipated receiving upon such conversion, and shall be calculated as the amount by which (A) the Purchaser's total purchase price (including customary brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note, for which such Conversion Notice was not timely honored. Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or 19 dividends required to be paid or other charges hereunder exceed the maximum amount permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to a Purchaser and thus refunded to the Company. 9.2 MAXIMUM CONVERSION. The Purchaser shall not be entitled to convert on a Conversion Date, nor shall the Company be permitted to require the Purchaser to accept, that amount of a Note in connection with that number of shares of Common Stock which would be in excess of the sum of: (i) the number of shares of Common Stock beneficially owned by the Purchaser on a Conversion Date; and (ii) the number of shares of Common Stock issuable upon the conversion of the Note with respect to which the determination of this proviso is being made on a Conversion Date, which would result in beneficial ownership by the Purchaser of more than 4.99% of the outstanding shares of Common Stock of the Company on such Conversion Date. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. Upon an Event of Default under the Note, the conversion limitation in this Section 9.2 shall become null and void. 10. REGISTRATION RIGHTS.10.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants registration rights to the Purchaser pursuant to a Registration Rights Agreement dated as of even date herewith between the Company and the Purchaser. 10.2 OFFERING RESTRICTIONS. Except as previously disclosed in the SEC Reports or in the Exchange Act Filings, or stock or stock options granted to employees or directors of the Company; or shares of preferred stock issued to pay dividends in respect of the Company's preferred stock; or equity or debt issued in connection with an acquisition of a business or assets by the Company; or the issuance by the Company of stock in connection with the establishment of a joint venture partnership or licensing arrangement (these exceptions hereinafter referred to as the "Excepted Issuances"), the Company will not issue any securities with a continuously variable/floating conversion feature which are or could be (by conversion or registration) free-trading securities (i.e. Common Stock subject to a registration statement) prior to the full repayment or conversion of the Note (the "Exclusion Period"). 11. MISCELLANEOUS. 11.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK, IN EACH CASE LOCATED IN THE CITY OF NEW YORK. BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE STATUTE OR RULE OF LAW, THEN 20 SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF ANY AGREEMENT. 11.2 SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby to the extent provided therein. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 11.3 SUCCESSORS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, heirs, executors and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of the Securities from time to time, other than the holders of Common Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective registration statement. Purchaser may not assign its rights hereunder to a competitor of the Company. 11.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules hereto, the Related Agreements and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. 11.5 SEVERABILITY. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 11.6 AMENDMENT AND WAIVER. (a) This Agreement may be amended or modified only upon the written consent of the Company and the Purchaser. (b) The obligations of the Company and the rights of the Purchaser under this Agreement may be waived only with the written consent of the Purchaser. (c) The obligations of the Purchaser and the rights of the Company under this Agreement may be waived only with the written consent of the Company. 11.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power or remedy accruing to any party, upon any breach, default or noncompliance by another party under this Agreement or the Related Agreements, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or 21 noncompliance, or any acquiescence therein, or of or in any similar breach, default or noncompliance thereafter occurring. All remedies, either under this Agreement, the Note or the Related Agreements, by law or otherwise afforded to any party, shall be cumulative and not alternative. 11.8 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified; (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (c) three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent as follows: IF TO THE PURCHASER, TO: Ventures-National Incorporated d/b/a Titan General Holdings, Inc. Attention: Chief Financial Officer Facsimile: WITH A COPY TO: Reitler Brown LLC 800 Third Avenue, 21st Floor New York, New York 10022 Attention: Robert Steven Brown, Esq. Facsimile: 212-371-5500 IF TO THE COMPANY, TO: Laurus Master Fund, Ltd. c/o Ironshore Corporate Services ltd. P.O. Box 1234 G.T. Queensgate House, South Church Street Grand Cayman, Cayman Islands Facsimile: 345-949-9877 WITH A COPY TO: 22 John E. Tucker , Esq. 825 Third Avenue 14th Floor New York, NY 10022 Facsimile: 212-541-4434 or at such other address as the Company or the Purchaser may designate by written notice to the other parties hereto given in accordance herewith. 11.9 ATTORNEYS' FEES. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 11.10 TITLES AND SUBTITLES. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 11.11 FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be executed by facsimile signatures and in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 11.12 BROKER'S FEES. Except as set forth on SCHEDULE 11.12 hereof, each party hereto represents and warrants that no agent, broker, investment banker, person or firm acting on behalf of or under the authority of such party hereto is or will be entitled to any broker's or finder's fee or any other commission directly or indirectly in connection with the transactions contemplated herein. Each party hereto further agrees to indemnify each other party for any claims, losses or expenses incurred by such other party as a result of the representation in this Section 11.12 being untrue. 11.13 CONSTRUCTION. Each party acknowledges that its legal counsel participated in the preparation of this Agreement and the Related Agreements and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Agreement to favor any party against the other. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK 23 IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: PURCHASER: VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. LAURUS MASTER FUND, LTD. By: /s/ Andrew Glashow By: /s/ David Grin --------------------------- --------------------------- Name: Andrew Glashow Name: David Grin --------------------------- --------------------------- Title: President Title: --------------------------- --------------------------- 24 EX-10.65 7 c30085_ex10-65.txt Exhibit 10.65 VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. SECURITY AGREEMENT To: Laurus Master Fund, Ltd. c/o Onshore Corporate Services, Ltd. P.O. Box 1234 G.T Queensgate House South Church Street Grand Cayman, Cayman Islands Gentlemen: 1. To secure the payment of all Obligations (as hereafter defined), we hereby grant to you a continuing security interest in all of the following property now owned or at any time hereafter acquired by us, or in which we now have or at any time in the future may acquire any right, title or interest (the "Collateral"): all accounts, inventory, equipment, goods, documents, instruments (including, without limitation, promissory notes), contract rights, general intangibles (including, without limitation, payment intangibles and an absolute right to license on terms no less favorable than those current in effect among our affiliates, but not own intellectual property), chattel paper, supporting obligations, investment property, letter-of-credit rights, trademarks and tradestyles in which we now have or hereafter may acquire any right, title or interest, all proceeds and products thereof (including, without limitation, proceeds of insurance) and all additions, accessions and substitutions thereto or therefor In the event we wish to finance the acquisition of any hereafter acquired equipment and have obtained a commitment from a financing source to finance such equipment from an unrelated third party, you agree to release your security interest on such hereafter acquired equipment so financed by such third party financing source. 2. The term "Obligations" as used herein shall mean and include all debts, liabilities and obligations owing by us to you hereunder and under whether arising under, out of, or in connection with that certain SECURITIES PURCHASE AGREEMENT dated as of the date hereof by and between the undersigned and Laurus Master Fund, Ltd. ("Laurus") (the "Securities Purchase Agreement"), that certain SECURED CONVERTIBLE NOTE dated as of the date hereof made by in favor of Laurus (the "Term Note"), THE WARRANT dated as of the date hereof made by the undersigned in favor of Laurus in connection with the Term Note (the "Term Note Warrant"), that certain REGISTRATION RIGHTS AGREEMENT dated as of the date hereof by and between the undersigned and Laurus in connection with the Term Note (the "Term Note Registration Rights Agreement"), that certain SECURITY AGREEMENT dated as of the date hereof by and between the undersigned and Laurus (the "Security Agreement"), that certain SECURED REVOLVING NOTE dated as of the date hereof made by the undersigned in favor of Laurus (the "Revolving Note"), that certain SECURED CONVERTIBLE MINIMUM BORROWING NOTE dated as of the date hereof made by the undersigned in favor of Laurus (the "MB Note"), THE WARRANT dated as of the date hereof made by the undersigned in favor of Laurus in connection with the MB Note (the "MB Warrant"), or that certain REGISTRATION RIGHTS AGREEMENT dated as of the date hereof by and between the undersigned and Laurus in connection with the MB Note (the "MB Registration Rights Agreement") (the Securities Purchase Agreement, the Term Note, the Term Note Warrant and the Term Note Registration Rights Agreement, the Security Agreement, the Revolving Note, the MB Note, the MB Warrant and the MB Registration Rights Agreement as each may be amended, modified, restated or supplemented from time to time, are collectively referred to herein as the "Documents"). 3. We hereby represent, warrant and covenant to you that: (a) we are a company validly existing, in good standing and formed under the laws of the State of Utah and we will provide you thirty (30) days' prior written notice of any change in our state of formation; (b) our legal name is Ventures-National Incorporated d/b/a Titan General Holdings, Inc., as set forth in our Certificate of Incorporation as amended through the date hereof; (c) we are the lawful owner of the Collateral and have the sole right to grant a security interest therein and will defend the Collateral against all claims and demands of all persons and entities; (d) we will keep the Collateral free and clear of all attachments, levies, taxes, liens, security interests and encumbrances of every kind and nature ("Encumbrances"), other than encumbrances set forth on Schedule 3(d) hereto, ("Permitted Encumbrances"), except to the extent said Encumbrance does not secure indebtedness in excess of $100,000 and such Encumbrance is removed or otherwise released within ten (10) days of the creation thereof; (e) we will at our own cost and expense keep the Collateral in good state of repair (ordinary wear and tear excepted) and will not waste or destroy the same or any part thereof other than ordinary course discarding of items no longer used or useful in our business; (f) we will not without your prior written consent, sell, exchange, lease or otherwise dispose 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 or equipment no longer necessary for our ongoing needs, having an aggregate fair market value of not more than $25,000 and only to the extent that: (i) the proceeds of any such disposition are used to acquire replacement Collateral which is subject to your first priority security interest or are used to repay Obligations or to pay general corporate expenses; or (ii) following the occurrence of an Event of Default (as hereinafter defined) which continues to exist the proceeds of which are remitted to you (to be 2 held as cash collateral by you for the Obligations until such time as the Event of Default no longer exists); (g) we will insure the Collateral in your name against loss or damage by fire, theft, burglary, pilferage, loss in transit and such other hazards as you shall specify in amounts and under policies by insurers acceptable to you and all premiums thereon shall be paid by us and the policies delivered to you. If we fail to do so, you may procure such insurance and the cost thereof shall constitute Obligations; (h) we will at all reasonable times allow you or your representatives free access to and the right of inspection of the Collateral; (i) we hereby indemnify and save you harmless from all loss, costs, damage, liability and/or expense, including reasonable attorneys' fees, that you may sustain or incur to enforce payment, performance or fulfillment of any of the Obligations and/or in the enforcement of this Agreement or in the prosecution or defense of any action or proceeding either against you or us concerning any matter growing out of or in connection with this Agreement, and/or any of the Obligations and/or any of the Collateral except to the extent caused by your own gross negligence or willful misconduct. 4. We shall be in default under this Agreement upon the happening of any of the following events or conditions, each such event or condition an "Event of Default:" (a) we shall fail to pay when due or punctually perform any of the Obligations and such failure shall continue for a period of three (3) days following such failure to pay or punctually perform, or for a period of thirty (30) days following default for any other such failure; (b) any covenant, warranty, representation or statement made or furnished to you by us or on our behalf was false in any material respect when made or furnished; (c) the loss, theft, substantial damage, destruction, sale or encumbrance not permitted hereunder to or of any of the Collateral or the making of any levy, seizure or attachment thereof or thereon except to the extent: (i) such loss, theft, substantial damage, or destruction is covered by insurance proceeds which are used to replace the item or repay us; or (ii) said levy, seizure or attachment does not secure indebtedness in excess of $100,000 and such levy, seizure or attachment has not been removed or otherwise released within thirty (30) days after the creation or the assertion thereof; (d) we shall become insolvent, cease operations, dissolve, terminate our business existence, make an assignment for the benefit of creditors, suffer the appointment of a receiver, trustee, liquidator or custodian of all or any part of our property; 3 (e) any proceedings under any bankruptcy or insolvency law shall be commenced by or against us and if commenced against us shall not be dismissed within sixty (60) days after the commencement thereof; (f) we shall repudiate, purport to revoke or fail to perform any of our obligations under the Note (after passage of applicable cure period, if any); or (g) an Event of Default shall have occurred under and as defined in the Notes. 5. Upon the occurrence of any Event of Default and at any time thereafter, you may declare all Obligations immediately due and payable and you shall have the remedies of a secured party provided in the Uniform Commercial Code as in effect in the State of New York, this Agreement and other applicable law. Upon the occurrence of any Event of Default and at any time thereafter, you will have the right to take possession of the Collateral and to maintain such possession on our premises or to remove the Collateral or any part thereof to such other premises as you may desire. Upon your request, we shall assemble the Collateral and make it available to you at a place designated by you. If any notification of intended disposition of any Collateral is required by law, such notification, if mailed, shall be deemed properly and reasonably given if mailed at least ten (10) days before such disposition, postage prepaid, addressed to us, Attention: President, either at our address shown herein or as may be amended by us in writing to you from time to time. Any proceeds of any disposition of any of the Collateral shall be applied by you to the payment of all expenses in connection with the sale of the Collateral, including reasonable attorneys' fees and disbursements and the reasonable expense of retaking, holding, preparing for sale, selling, and the like, and any balance of such proceeds may be applied by you toward the payment of the Obligations in such order of application as you may elect, and we shall be liable for any deficiency. 6. If we default in any material respect in the performance or fulfillment of any of the terms, conditions, promises, covenants, provisions or warranties on our part to be performed or fulfilled under or pursuant to this Agreement, you may, at your option without waiving your right to enforce this Agreement according to its terms, immediately or at any time thereafter and without notice to us, perform or fulfill the same or cause the performance or fulfillment of the same for our account and at our sole cost and expense, and the cost and expense thereof (including reasonable attorneys' fees) shall be added to the Obligations and shall be payable on demand with interest thereon at the highest rate permitted by law or, at your option, debited by you from the account pledged to you in connection with this Agreement (the"Pledged Account"), the details of which are set forth on Schedule 6, attached hereto. 7. We appoint you, any of your officers, employees or any other person or entity whom you may designate as our attorney-in-fact, with power to execute such documents in our behalf and to supply any omitted information and correct patent errors in any documents executed by us or on our behalf; to file financing statements against us covering the Collateral; to sign our name on public records; and to do all other things you deem necessary to carry out this Agreement. We hereby ratify and approve all acts of the attorney-in-fact and neither you nor the attorney-in-fact will be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law other than gross negligence or willful misconduct. This power being coupled with an interest, is irrevocable so long as any Obligations remains unpaid. 4 8. No delay or failure on your part in exercising any right, privilege or option hereunder shall operate as a waiver of such or of any other right, privilege, remedy or option, and no waiver whatever shall be valid unless in writing, signed by you and then only to the extent therein set forth, and no waiver by you of any default shall operate as a waiver of any other default or of the same default on a future occasion. Your books and records containing entries with respect to the Obligations shall be admissible in evidence in any action or proceeding, shall be binding upon us for the purpose of establishing the items therein set forth and shall constitute prima facie proof thereof. You shall have the right to enforce any one or more of the remedies available to you, successively, alternately or concurrently. We agree to join with you in executing financing statements or other instruments to the extent required by the Uniform Commercial Code in form satisfactory to you and in executing such other documents or instruments as may be required or deemed necessary by you for purposes of affecting or continuing your security interest in the Collateral. 9. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflicts of law principles and cannot be terminated orally. All of the rights, remedies, options, privileges and elections given to you hereunder shall inure to the benefit of your successors and assigns. The term "you" as herein used shall include your company, any parent of your company, any of your subsidiaries and any co-subsidiaries of your parent, whether now existing or hereafter created or acquired, and all of the terms, conditions, promises, covenants, provisions and warranties of this Agreement shall inure to the benefit of and shall bind the representatives, successors and assigns of each of us and them. You and we hereby (a) waive any and all right to trial by jury in litigation relating to this Agreement and the transactions contemplated hereby and we agree not to assert any counterclaim in such litigation, (b) submit to the nonexclusive jurisdiction of any New York State court sitting in the borough of Manhattan, the city of New York and (c) waive any objection you or we may have as to the bringing or maintaining of such action with any such court. 5 10. All notices from you to us shall be sufficiently given if mailed or delivered to us at our address set forth below. Very truly yours, VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: /s/ Andrew Glashow --------------------------- Name: Andrew Glashow --------------------------- ACKNOWLEDGED: Title: President --------------------------- LAURUS MASTER FUND, LTD. Address: By: /s/ David Grin --------------------------- Name: David Grin --------------------------- Title: --------------------------- 6 EX-10.66 8 c30085_ex10-66.txt Exhibit 10.66 SUBSIDIARY SECURITY AGREEMENT NOVEMBER 20, 2003 To: Laurus Master Fund, Ltd. c/o Onshore Corporate Services, Ltd. P.O. Box 1234 G.T Queensgate House South Church Street Grand Cayman, Cayman Islands Gentlemen: 1. To secure the payment of all Obligations (as hereafter defined), each of the undersigned hereby grants to Laurus Master Fund, Ltd. ("Laurus") a continuing security interest in all of the following property now owned or at any time hereafter acquired, or in which each of the undersigned now has or at any time in the future may acquire any right, title or interest (the "Collateral"): all accounts, inventory, equipment, goods, documents, instruments (including, without limitation, promissory notes), contract rights, general intangibles (including, without limitation, payment intangibles and an absolute right to license on terms no less favorable than those current in effect among our affiliates, but not own intellectual property), chattel paper, supporting obligations, investment property, letter-of-credit rights, trademarks and tradestyles] in which we now have or hereafter may acquire any right, title or interest, all proceeds and products thereof (including, without limitation, proceeds of insurance with respect thereto) and all additions, accessions and substitutions thereto or therefor. 2. The term "Obligations" as used herein shall mean and include all debts, liabilities and obligations owing by (a) each of the undersigned to Laurus hereunder and under the Subsidiary Guaranty (as amended, modified and supplemented from time to time, the "Guaranty") dated as of the date hereof made by each of the undersigned in favor of Laurus pursuant to which each of the undersigned guarantied to Laurus all of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. ("TTGH") obligations to Laurus whether arising under, out of, or in connection with that certain Securities Purchase Agreement dated as of the date hereof by and between TTGH and Laurus (the "Securities Purchase Agreement"), that certain Secured Convertible Note dated as of the date hereof made by Debtor in favor of Laurus (the "Term Note"), the Warrant dated as of the date hereof made by TTGH in favor of Laurus in connection with the Term Note (the "Term Note Warrant"), that certain Registration Rights Agreement dated as of the date hereof by and between TTGH and Laurus in connection with the Term Note (the "Term Note Registration Rights Agreement"), that certain Security Agreement dated as of the date hereof by and between TTGH and Laurus (the "Security Agreement"), that certain Secured Revolving Note dated as of the date hereof made by TTGH in favor of Laurus (the "Revolving Note"), that certain Secured Convertible Minimum Borrowing Note dated as of the date hereof made by TTGH in favor of Laurus (the "MB Note"), the Warrant dated as of the date hereof made by TTGH in favor of Laurus in connection with the MB Note (the "MB Warrant"), or that certain Registration Rights Agreement dated as of the date hereof by and between TTGH and Laurus in connection with the MB Note (the "MB Registration Rights Agreement") (the Securities Purchase Agreement, the Term Note, the Term Note Warrant, the Term Note Registration Rights Agreement, the Security Agreement, the Revolving Note, the MB Note, the MB Warrant and the MB Registration Rights Agreement as each may be amended, modified, restated or supplemented from time to time, are collectively referred to herein as the "Documents") . 3. Each of the undersigned hereby jointly and severally represents, warrants and covenants to Laurus that each of the undersigned: (a) is company validly existing, in good standing under the law of the jurisdiction of its incorporation and will provide Laurus thirty days prior written notice of any change in our jurisdiction of formation; (b) legal name is "Titan PCB East, Inc." and "Titan PCB West, Inc.", respectively, each as set forth in its respective certificate of incorporation as amended through the date hereof; (c) is the lawful owner of the Collateral and have the sole right to grant a security interest therein and will defend the Collateral against all claims and demands of all persons and entities; (d) each of the undersigned will keep the Collateral free and clear of all attachments, levies, taxes, liens, security interests and encumbrances of every kind and nature ("Encumbrances") except to the extent said Encumbrance does not secure indebtedness in excess of $50,000 and such Encumbrance is removed or otherwise released within fifteen (15) days of the creation thereof; (e) each of the undersigned will at its own respective cost and expense keep the Collateral in good state of repair (ordinary wear and tear excepted) and will not waste or destroy (obsolete, worn out, or equipment no longer necessary to our respective needs excepted) the same or any part thereof; (f) each of the undersigned will not without Laurus' prior written consent, sell, exchange, lease or otherwise dispose of any part of the Collateral (except for sales in the ordinary course of business) or any of our rights therein; (g) each of the undersigned will insure the Collateral in Laurus' name against loss or damage by fire, theft, burglary, pilferage, loss in transit and such other hazards as Laurus shall specify in amounts and under policies by insurers acceptable to Laurus and all premiums thereon shall be paid by each of the undersigned and the policies delivered to Laurus. If any of the undersigned fails to do so, Laurus may procure such insurance and the cost thereof shall constitute Obligations; (h) each of the undersigned will at all reasonable times allow Laurus or its representatives free access to and the right of inspection of the Collateral; (i) each of the undersigned hereby indemnifies and saves Laurus harmless from all loss, costs, damage, liability and/or expense, including reasonable attorneys' fees, that Laurus may sustain or incur to enforce payment, performance or fulfillment of any of the Obligations and/or in the enforcement of this Agreement or the Guaranty or in the prosecution or defense of any action or proceeding either against Laurus or each of the undersigned concerning any matter growing out of or in connection with this Agreement, the Guaranty and/or any of the Obligations and/or any of the Collateral. 4. Following the occurrence and during the continuance of an Event of Default, Laurus shall have the right to instruct all of our account debtors to remit payments on all accounts in accordance with Laurus' express written instructions. If, despite such instructions, any of the undersigned shall receive any payments with respect to accounts, such undersigned shall receive such payments in trust for Laurus' benefit, shall segregate such payments from its other funds and shall deliver or cause to be delivered to Laurus, in the same form as so received with all necessary endorsements, all such payments as soon as practicable, but in no event later than two (2) business days after its receipt thereof. Laurus shall have full power and authority to collect each account, through legal action or otherwise, and may settle, compromise, or assign (in whole or in part) the claim for any account, or otherwise exercise any other right now existing or hereafter arising with respect to any account if such action will facilitate collection. -2- 5. Each of the undersigned shall be in default under this Agreement upon the happening of any of the following events or conditions, each such event or condition an "Event of Default" (a) any of the undersigned shall fail to pay when due or punctually perform any of the Obligations; (b) any covenant, warranty, representation or statement made or furnished to Laurus by any of the undersigned or on our behalf was false in any material respect when made or furnished; (c) the loss, theft, substantial damage or, destruction, or a sale or encumbrance not permitted hereunder to or of any of the Collateral or the making of any levy, seizure or attachment thereof or thereon except to the extent said levy, seizure or attachment does not secure indebtedness in excess of $50,000 and such loss, theft, substantial damage or destruction is covered by insurance proceeds which are used to replace the item ( but only if no Event of Default has occurred or is continuing hereunder) or repay us or such levy, seizure or attachment has not been removed or otherwise released within fifteen (15) days after the undersigned receive notice of the creation or the assertion thereof; (d) any of the undersigned shall become insolvent, cease operations, dissolve, terminate our business existence, make an assignment for the benefit of creditors, suffer the appointment of a receiver, trustee, liquidator or custodian of all or any part of our property; (e) any proceedings under any bankruptcy or insolvency law shall be commenced by or against any of the undersigned and if commenced against any of the undersigned shall not be dismissed within 30 days after the commencement thereof; (f) any of the undersigned shall repudiate, purport to revoke or fail to perform any of its obligations under the Guaranty or hereunder; or (g) an Event of Default shall have occurred under and as defined in the TTGH Security Agreement, the Note or the Related Agreements. 6. Upon the occurrence of any Event of Default and at any time thereafter, Laurus may declare all Obligations immediately due and payable and Laurus shall have the remedies of a secured party provided in the Uniform Commercial Code as in effect in the State of New York, this Agreement and other applicable law. Upon the occurrence of any Event of Default and at any time thereafter, Laurus will have the right to take possession of the Collateral and to maintain such possession on our premises or to remove the Collateral or any part thereof to such other premises as Laurus may desire. Upon Laurus' request, each of the undersigned shall assemble the Collateral and make it available to Laurus at a place designated by Laurus. If any notification of intended disposition of any Collateral is required by law, such notification, if mailed, shall be deemed properly and reasonably given if mailed at least ten (10) days before such disposition, postage prepaid, addressed to each of the undersigned either at our address shown herein or at any address appearing on Laurus' records for each of the undersigned. Any proceeds of any disposition of any of the Collateral shall be applied by Laurus to the payment of all expenses in connection with the sale of the Collateral, including reasonable attorneys' fees and other legal expenses and disbursements and the reasonable expense of retaking, holding, preparing for sale, selling, and the like, and any balance of such proceeds may be applied by Laurus toward the payment of the Obligations in such order of application as Laurus may elect, and each of the undersigned shall be liable for any deficiency. 7. If any of the undersigned default in any material respect in the performance or fulfillment of any of the terms, conditions, promises, covenants, provisions or warranties on our part to be performed or fulfilled under or pursuant to this Agreement, Laurus may, at Laurus' option without waiving Laurus' right to enforce this Agreement according to its terms, immediately or at any time thereafter and without notice to any of the undersigned, perform or fulfill the same or cause the performance or fulfillment of the same for our account and at our -3- sole cost and expense, and the cost and expense thereof (including reasonable attorneys' fees) shall be added to the Obligations and shall be payable on demand with interest thereon at the highest rate permitted by law . 8. Each of the undersigned appoints Laurus, any of its officers, employees or any other person or entity whom Laurus may designate as our attorney-in-fact, with power to execute such documents in our behalf and to supply any omitted information and correct patent errors in any documents executed by us or on our behalf; to file financing statements against us covering the Collateral; to sign our name on public records; and to do all other things Laurus deem necessary to carry out this Agreement. Each of the undersigned hereby ratifies and approves all acts of the attorney-in-fact and neither Laurus nor the attorney-in-fact will be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law. This power being coupled with an interest, is irrevocable so long as any Obligations remain unpaid. 9. No delay or failure on Laurus' part in exercising any right, privilege or option hereunder shall operate as a waiver of such or of any other right, privilege, remedy or option, and no waiver whatever shall be valid unless in writing, signed by Laurus and then only to the extent therein set forth, and no waiver by Laurus of any default shall operate as a waiver of any other default or of the same default on a future occasion. Laurus' books and records containing entries with respect to the Obligations shall be admissible in evidence in any action or proceeding, shall be binding upon us for the purpose of establishing the items therein set forth and shall constitute prima facie proof thereof. Laurus shall have the right to enforce any one or more of the remedies available to Laurus, successively, alternately or concurrently. Each of the undersigned agree to join with Laurus in executing financing statements or other instruments to the extent required by the Uniform Commercial Code in form satisfactory to Laurus and in executing such other documents or instruments as may be required or deemed necessary by Laurus for purposes of affecting or continuing Laurus' security interest in the Collateral. 10. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to its conflict of laws provisions and cannot be terminated orally. All of the rights, remedies, options, privileges and elections given to Laurus hereunder shall enure to the benefit of Laurus' successors and assigns. The term "Laurus" as herein used shall include Laurus, any subsidiaries and any co-subsidiaries of Laurus, whether now existing or hereafter created or acquired, and all of the terms, conditions, promises, covenants, provisions and warranties of this Agreement shall enure to the benefit of and shall bind the representatives, successors and assigns of each of each of the undersigned and them. You and each of the undersigned hereby (a) waive any and all right to trial by jury in litigation relating to this Agreement and the transactions contemplated hereby and each of the undersigned agree not to assert any counterclaim in such litigation, (b) submit to the nonexclusive jurisdiction of any New York State court sitting in the borough of Manhattan, the city of New York and (c) waive any objection you or each of the undersigned may have as to the bringing or maintaining of such action with any such court. -4- 11. All notices from you to each of the undersigned shall be sufficiently given if mailed or delivered to us at our address set forth below. TITAN PCB EAST, INC. By: /s/ Robert Ciri ------------------------------ Name: Robert Ciri ----------------------- Title: President ----------------------- Address: 1&2 Industrial Way Amesbury, MA 01913 Telephone No.: 978-388-5740 ------------------ Facsimile No.: 978-388-3940 ------------------ TITAN PCB WEST, INC. By: /s/ Robert Ciri ------------------------------ Name: Robert Ciri ----------------------- Title: President ----------------------- Address: 44358 Old Warm Springs Blvd. Fremont, CA 94538 Telephone No.: 510-824-1200 ------------------ Facsimile No.: 978-388-3940 ------------------ ACKNOWLEDGED: LAURUS MASTER FUND, LTD. By: /s/ David Grin ---------------------------- Name: David Grin Title: -5- EX-10.67 9 c30085_ex10-67.txt Exhibit 10.67 SUBSIDIARY GUARANTY New York, New York November 20, 2003 FOR VALUE RECEIVED, and in consideration of note purchases from, loans made or to be made or credit otherwise extended or to be extended by Laurus Master Fund, Ltd. ("Laurus") to or for the account of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. ("Debtor") from time to time and at any time and for other good and valuable consideration and to induce Laurus, in its discretion, to purchase such notes, make such loans or extensions of credit and to make or grant such renewals, extensions, releases of collateral or relinquishments of legal rights as Laurus may deem advisable, each of the undersigned (and each of them if more than one, the liability under this Guaranty being joint and several) (jointly and severally referred to as "Guarantors " or "the undersigned") unconditionally guaranties to Laurus, its successors, endorsees and assigns the prompt payment when due (whether by acceleration or otherwise) of all present and future obligations and liabilities of any and all kinds of Debtor to Laurus and of all instruments of any nature evidencing or relating to any such obligations and liabilities upon which Debtor or one or more parties and Debtor is or may become liable to Laurus, whether incurred by Debtor as maker, endorser, drawer, acceptor, guarantors , accommodation party or otherwise, and whether due or to become due, secured or unsecured, absolute or contingent, joint or several, and however or whenever acquired by Laurus, whether arising under, out of, or in connection with that certain SECURITIES PURCHASE AGREEMENT dated as of the date hereof by and between Debtor and Laurus (the "Securities Purchase Agreement"), that certain SECURED CONVERTIBLE NOTE dated as of the date hereof made by Debtor in favor of Laurus (the "Term Note"), THE WARRANT dated as of the date hereof made by Debtor in favor of Laurus in connection with the Term Note (the "Term Note Warrant"), that certain REGISTRATION RIGHTS AGREEMENT dated as of the date hereof by and between Debtor and Laurus in connection with the Term Note (the "Term Note Registration Rights Agreement"), that certain SECURITY AGREEMENT dated as of the date hereof by and between Debtor and Laurus (the "Security Agreement"), that certain SECURED REVOLVING NOTE dated as of the date hereof made by Debtor in favor of Laurus (the "Revolving Note"), that certain SECURED CONVERTIBLE MINIMUM BORROWING NOTE dated as of the date hereof made by Debtor in favor of Laurus (the "MB Note"), THE WARRANT dated as of the date hereof made by Debtor in favor of Laurus in connection with the MB Note (the "MB Warrant"), or that certain REGISTRATION RIGHTS AGREEMENT dated as of the date hereof by and between Debtor and Laurus in connection with the MB Note (the "MB Registration Rights Agreement") (the Securities Purchase Agreement, the Term Note, the Term Note Warrant and the Term Note Registration Rights Agreement, the Security Agreement, the Revolving Note, the MB Note, the MB Warrant and the MB Registration Rights Agreement as each may be amended, modified, restated or supplemented from time to time, are collectively referred to herein as the "Documents"), or any documents, instruments or agreements relating to or executed in connection with the Documents or any documents, instruments or agreements referred to therein or otherwise (all of which are herein collectively referred to as the "Obligations"), and irrespective of the genuineness, validity, regularity or enforceability of such Obligations, or of any instrument evidencing any of the Obligations or of any collateral therefor or of the existence or extent of such collateral, and irrespective of the allowability, allowance or disallowance of any or all of the Obligations in any case commenced by or against Debtor under Title 11, United States Code, including, without limitation, obligations or indebtedness of Debtor for post-petition interest, fees, costs and charges that would have accrued or been added to the Obligations but for the commencement of such case. In furtherance of the foregoing, the undersigned hereby agrees as follows: 1. NO IMPAIRMENT. Laurus may at any time and from time to time, either before or after the maturity thereof, without notice to or further consent of the undersigned, extend the time of payment of, exchange or surrender any collateral for, renew or extend any of the Obligations or increase or decrease the interest rate thereon, or any other agreement with Debtor or with any other party to or person liable on any of the Obligations, or interested therein, for the extension, renewal, payment, compromise, discharge or release thereof, in whole or in part, or for any modification of the terms thereof or of any agreement between Laurus and Debtor or any such other party or person, or make any election of rights Laurus may deem desirable under the United States Bankruptcy Code, as amended, or any other federal or state bankruptcy, reorganization, moratorium or insolvency law relating to or affecting the enforcement of creditors' rights generally (any of the foregoing, an "Insolvency Law") without in any way impairing or affecting this Guaranty. This instrument shall be effective regardless of the subsequent incorporation, merger or consolidation of Debtor, or any change in the composition, nature, personnel or location of Debtor and shall extend to any successor entity to Debtor, including a debtor in possession or the like under any Insolvency Law. 2. GUARANTY ABSOLUTE. Subject to Section 5(c), each of the undersigned jointly and severally guarantees that the Obligations will be paid strictly in accordance with the terms of the Documents and/or any other document, instrument or agreement creating or evidencing the Obligations, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of Debtor with respect thereto. Guarantors hereby knowingly accept the full range of risk encompassed within a contract of "continuing guaranty" which risk includes the possibility that Debtor will contract additional indebtedness for which Guarantors may be liable hereunder after Debtor's financial condition or ability to pay its lawful debts when they fall due has deteriorated, whether or not Debtor has properly authorized incurring such additional indebtedness. The undersigned acknowledge that (i) no oral representations, including any representations to extend credit or provide other financial accommodations to Debtor, have been made by Laurus to induce the undersigned to enter into this Guaranty and (ii) any extension of credit to the Debtor shall be governed solely by the provisions of the Documents. The liability of each of the undersigned under this Guaranty shall be absolute and unconditional, in accordance with its terms, and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (a) any waiver, indulgence, renewal, extension, amendment or modification of or addition, consent or supplement to or deletion from or any other action or inaction under or in respect of the Documents or any other instruments or agreements relating to the Obligations or any assignment or transfer of any thereof, (b) any lack of validity or enforceability of any Loan Document or other documents, instruments or agreements relating to the Obligations or any assignment or transfer of any thereof, (c) any furnishing of any additional security to Laurus or its assignees or any acceptance thereof or any release of any security by Laurus or its assignees, (d) any limitation on any party's liability or obligation under the Documents or any other documents, instruments or agreements relating to the Obligations or any assignment or transfer of any thereof or any invalidity or unenforceability, in whole or in part, of any such document, instrument or agreement or any term thereof, (e) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Debtor, or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding, whether or not the undersigned shall have notice or knowledge of any of the foregoing, (f) any exchange, release or nonperfection of any collateral, or any release, or amendment or waiver of or consent to departure from any guaranty or security, for all or any of 2 the Obligations or (g) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the undersigned. Any amounts due from the undersigned to Laurus shall bear interest until such amounts are paid in full at the highest rate then applicable to the Obligations. Obligations include post-petition interest whether or not allowed or allowable. 3. WAIVERS. (a) This Guaranty is a guaranty of payment and not of collection. Laurus shall be under no obligation to institute suit, exercise rights or remedies or take any other action against Debtor or any other person liable with respect to any of the Obligations or resort to any collateral security held by it to secure any of the Obligations as a condition precedent to the undersigned being obligated to perform as agreed herein and each of the Guarantors hereby waives any and all rights which it may have by statute or otherwise which would require Laurus to do any of the foregoing. Each of the Guarantors further consents and agrees that Laurus shall be under no obligation to marshal any assets in favor of Guarantors, or against or in payment of any or all of the Obligations. The undersigned hereby waives all suretyship defenses and any rights to interpose any defense, counterclaim or offset of any nature and description which the undersigned may have or which may exist between and among Laurus, Debtor and/or the undersigned with respect to the undersigned's obligations under this Guaranty, or which Debtor may assert on the underlying debt, including but not limited to failure of consideration, breach of warranty, fraud, payment (other than cash payment in full of the Obligations), statute of frauds, bankruptcy, infancy, statute of limitations, accord and satisfaction, and usury. (b) Each of the undersigned further waives (i) notice of the acceptance of this Guaranty, of the making of any such loans or extensions of credit, and of all notices and demands of any kind to which the undersigned may be entitled, including, without limitation, notice of adverse change in Debtor's financial condition or of any other fact which might materially increase the risk of the undersigned and (ii) presentment to or demand of payment from anyone whomsoever liable upon any of the Obligations, protest, notices of presentment, non-payment or protest and notice of any sale of collateral security or any default of any sort. (c) Notwithstanding any payment or payments made by the undersigned hereunder, or any setoff or application of funds of the undersigned by Laurus, the undersigned shall not be entitled to be subrogated to any of the rights of Laurus against Debtor or against any collateral or guarantee or right of offset held by Laurus for the payment of the Obligations, nor shall the undersigned seek or be entitled to seek any contribution or reimbursement from Debtor in respect of payments made by the undersigned hereunder, until all amounts owing to Laurus by Debtor on account of the Obligations are paid in full and Laurus' obligation to extend credit pursuant to the Documents have been terminated. If, notwithstanding the foregoing, any amount shall be paid to the undersigned on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full and Laurus' obligation to extend credit pursuant to the Documents shall not have been terminated, such amount shall be held by the undersigned in trust for Laurus, segregated from other funds of the undersigned, and shall forthwith upon, and in any event within two (2) business days of, receipt by the undersigned, be turned over to Laurus in the exact form received by the undersigned (duly endorsed by the undersigned to Laurus, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Laurus may determine, 3 subject to the provisions of the Documents. Any and all present and future debts and obligations of Debtor to any of the undersigned are hereby waived and postponed in favor of, and subordinated to the full payment and performance of, all present and future debts and Obligations of Debtor to Laurus. 4. SECURITY. All sums at any time to the credit of the undersigned and any property of the undersigned in Laurus' possession or in the possession of any bank, financial institution or other entity that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, Laurus (each such entity, an "Affiliate") shall be deemed held by Laurus or such Affiliate, as the case may be, as security for any and all of the undersigned's obligations to Laurus and to any Affiliate of Laurus, no matter how or when arising and whether under this or any other instrument, agreement or otherwise. Notwithstanding anything to the contrary contained herein, the security interest granted to Laurus shall consist of all accounts, inventory, equipment, goods, documents, instruments (including, without limitation, promissory notes), contract rights, general intangibles (including, without limitation, payment intangibles and an absolute right to license on terms no less favorable than those current in effect among our affiliates, but not own intellectual property), chattel paper, supporting obligations, investment property, letter-of-credit rights, trademarks and tradestyles] in which we now have or hereafter may acquire any right, title or interest, all proceeds and products thereof (including, without limitation, proceeds of insurance with respect thereto) and all additions, accessions and substitutions thereto or thereforof the undersigned. 5. REPRESENTATIONS AND WARRANTIES. Each of the undersigned respectively, hereby jointly and severally represents and warrants (all of which representations and warranties shall survive until all Obligations are indefeasibly satisfied in full and the Documents have been irrevocably terminated), that: (a) CORPORATE STATUS. The undersigned is a corporation duly organized, validly existing and in good standing under the laws of the state of incorporation indicated on the signature page hereof and has full power, authority and legal right to own its property and assets and to transact the business in which it is engaged. (b) AUTHORITY AND EXECUTION. The undersigned has full power, authority and legal right to execute and deliver, and to perform its obligations under, this Guaranty and has taken all necessary corporate and legal action to authorize the execution, delivery and performance of this Guaranty. (c) LEGAL, VALID AND BINDING CHARACTER. This Guaranty constitutes the legal, valid and binding obligation of the undersigned enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting the enforcement of creditor's rights and general principles of equity that restrict the availability of equitable or legal remedies. (d) VIOLATIONS. The execution, delivery and performance of this Guaranty will not violate any requirement of law applicable to the undersigned or any material contract, agreement or instrument to which the undersigned is a party or by which the undersigned or any property of the undersigned is bound or result in the creation or imposition of any mortgage, lien or other encumbrance other than to Laurus on any of the property or assets of the undersigned pursuant to the provisions of any of the foregoing. 4 (e) CONSENTS OR APPROVALS. No consent of any other person or entity (including, without limitation, any creditor of the undersigned) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery, performance, validity or enforceability of this Guaranty. (f) LITIGATION. No litigation, arbitration, investigation or administrative proceeding of or before any court, arbitrator or governmental authority, bureau or agency is currently pending or, to the best knowledge of the undersigned, threatened (i) with respect to this Guaranty or any of the transactions contemplated by this Guaranty or (ii) against or affecting the undersigned, or any of property or assets of the undersigned, which, if adversely determined, would have a material adverse effect on the business, operations, assets or condition, financial or otherwise, of the undersigned. (g) FINANCIAL BENEFIT. Each of the undersigned has derived or expects to derive a financial or other advantage from each and every loan, advance or extension of credit made under the Documents or other Obligation incurred by Debtor to Laurus. 6. ACCELERATION. (a) If any breach of any covenant or condition or other event of default shall occur and be continuing under any agreement made by Debtor or any of the undersigned to Laurus, or either Debtor or any of the undersigned should at any time become insolvent, or make a general assignment, or if a proceeding in or under any Insolvency Law shall be filed or commenced by, or in respect of, any of the undersigned, or if a notice of any lien, levy, or assessment is filed of record with respect to any assets of any of the undersigned by the United States of America or any department, agency, or instrumentality thereof, or if any taxes or debts owing at any time or times hereafter to any one of them becomes a lien or encumbrance upon any assets of the undersigned in Laurus' possession, or otherwise, any and all Obligations shall for purposes hereof, at Laurus' option, be deemed due and payable without notice notwithstanding that any such Obligation is not then due and payable by Debtor. (b) Each of the undersigned will promptly notify Laurus of any default by such undersigned in its respective performance or observance of any term or condition of any agreement to which the undersigned is a party if the effect of such default is to cause, or permit the holder of any obligation under such agreement to cause, such obligation to become due prior to its stated maturity and, if such an event occurs, Laurus shall have the right to accelerate such undersigned's obligations hereunder. 7. PAYMENTS FROM GUARANTORS. Laurus, in its sole and absolute discretion, with or without notice to the undersigned, may apply on account of the Obligations any payment from the undersigned or any other guarantors, or amounts realized from any security for the Obligations, or may deposit any and all such amounts realized in a non-interest bearing cash collateral deposit account to be maintained as security for the Obligations. 8. COSTS. The undersigned shall pay on demand, all costs, fees and expenses (including expenses for legal services of every kind) relating or incidental to the enforcement or protection of the rights of Laurus hereunder or under any of the Obligations. 5 9. NO TERMINATION. This is a continuing irrevocable guaranty and shall remain in full force and effect and be binding upon the undersigned, and each of the undersigned's successors and assigns, until all of the Obligations have been paid in full and Laurus' obligation to extend credit pursuant to the Documents has been irrevocably terminated. If any of the present or future Obligations are guarantied by persons, partnerships or corporations in addition to the undersigned, the death, release or discharge in whole or in part or the bankruptcy, merger, consolidation, incorporation, liquidation or dissolution of one or more of them shall not discharge or affect the liabilities of any undersigned under this Guaranty. 10. RECAPTURE. Anything in this Guaranty to the contrary notwithstanding, if Laurus receives any payment or payments on account of the liabilities guaranteed hereby, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver, or any other party under any Insolvency Law, common law or equitable doctrine, then to the extent of any sum not finally retained by Laurus, the undersigned's obligations to Laurus shall be reinstated and this Guaranty shall remain in full force and effect (or be reinstated) until payment shall have been made to Laurus, which payment shall be due on demand. 11. BOOKS AND RECORDS. The books and records of Laurus showing the account between Laurus and Debtor shall be admissible in evidence in any action or proceeding, shall be binding upon the undersigned for the purpose of establishing the items therein set forth and shall constitute prima facie proof thereof. 12. NO WAIVER. No failure on the part of Laurus to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Laurus of any right, remedy or power hereunder preclude any other or future exercise of any other legal right, remedy or power. Each and every right, remedy and power hereby granted to Laurus or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Laurus at any time and from time to time. 13. WAIVER OF JURY TRIAL. EACH OF THE UNDERSIGNED DOES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR WITH RESPECT TO THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR RELATING OR INCIDENTAL HERETO. THE UNDERSIGNED DOES HEREBY CERTIFY THAT NO REPRESENTATIVE OR AGENT OF LAURUS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LAURUS WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. 14. GOVERNING LAW; JURISDICTION; AMENDMENTS. THIS INSTRUMENT CANNOT BE CHANGED OR TERMINATED ORALLY, AND SHALL BE GOVERNED, CONSTRUED AND INTERPRETED AS TO VALIDITY, ENFORCEMENT AND IN ALL OTHER RESPECTS IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT HAVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS. EACH OF THE UNDERSIGNED EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR ALL PURPOSES IN CONNECTION HEREWITH. ANY JUDICIAL PROCEEDING BY THE UNDERSIGNED AGAINST LAURUS INVOLVING, DIRECTLY 6 OR INDIRECTLY ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED HEREWITH SHALL BE BROUGHT ONLY IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE UNDERSIGNED FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS OR PAPERS (INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER APPLICATION TO EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY NOTICE IN CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR OUTSIDE OF THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE PROVIDED A REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER AS MAY BE PERMISSIBLE UNDER THE RULES OF SAID COURTS. EACH OF THE UNDERSIGNED WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. 15. SEVERABILITY. To the extent permitted by applicable law, any provision of this Guaranty which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 16. AMENDMENTS, WAIVERS. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the undersigned therefrom shall in any event be effective unless the same shall be in writing executed by each of the undersigned and Laurus. 17. NOTICE. All notices, requests and demands to or upon the undersigned, shall be in writing and shall be deemed to have been duly given or made (a) when delivered, if by hand, (b) three (3) days after being sent, postage prepaid, if by registered or certified mail, (c) when confirmed electronically, if by facsimile, or (d) when delivered, if by a recognized overnight delivery service in each event, to the numbers and/or address set forth beneath the signature of the undersigned. 18. SUCCESSORS. Laurus may, from time to time, without notice to the undersigned, sell, assign, transfer or otherwise dispose of all or any part of the Obligations and/or rights under this Guaranty. Without limiting the generality of the foregoing, Laurus may assign, or grant participations to, one or more banks, financial institutions or other entities all or any part of any of the Obligations. In each such event, Laurus, its Affiliates and each and every immediate and successive purchaser, assignee, transferee or holder of all or any part of the Obligations shall have the right to enforce this Guaranty, by legal action or otherwise, for its own benefit as fully as if such purchaser, assignee, transferee or holder were herein by name specifically given such right. Laurus shall have an unimpaired right to enforce this Guaranty for its benefit with respect to that portion of the Obligations which Laurus has not disposed of, sold, assigned, or otherwise transferred. 19. RELEASE. Nothing except cash payment in full of the Obligations shall release any of the undersigned from liability under this Guaranty. 7 [REMAINDER OF THIS PAGE IS BLANK. SIGNATURE PAGE IMMEDIATELY FOLLOWS] 8 IN WITNESS WHEREOF, this Guaranty has been executed by the undersigned this 20th day of November, 2003. TITAN PCB EAST, INC. By: /s/ Robert Ciri ------------------------------- Name: Robert Ciri ------------------------------- Title: President ------------------------------- Address: 1&2 Industrial Way Amesbury, MA 01913 Telephone: 978-388-5740 Facsimile: 978-388-3940 State of Incorporation: Delaware TITAN PCB WEST, INC. By: /s/ Robert Ciri ------------------------------- Name: Robert Ciri ------------------------------- Title: President ------------------------------- Address: 44358 Old Warm Springs Blvd. --------------------------- Fremont, CA 94538 --------------------------- Telephone: 510-824-1200 --------------------------- Facsimile: 978-388-3940 --------------------------- State of Incorporation: 9 STATE OF MARYLAND ) ) SS COUNTY OF MONTGOMERY ) On the 21st day of November, 2003, before me personally came Ciri Robert Eugene to me known, who being by me duly sworn, did depose and say he is the President of Titan PCB East & West the corporation described in and which executed the foregoing instrument; and that s/he signed her/his name thereto by order of the board of directors of said corporation. Haajira A. Motala ------------------------------------------------ Notary Public My Commission Expires: 4/9/07 ------------------------- 10 EX-10.68 10 c30085_ex10-68.txt Exhibit 10.68 STOCK PLEDGE AGREEMENT This Stock Pledge Agreement (this "Agreement") dated as of November 20, 2003, between Laurus Master Fund, Ltd. ("Pledgee"), and Ventures-National Incorporated d/b/a Titan General Holdings, Inc. corporation ("Pledgor"). BACKGROUND Pledgor has entered into a Securities Purchase Agreement dated as of November 20, 2003 (as amended, modified, restated or supplemented from time to time, the "Purchase Agreement") and a Security Agreement dated as of the date hereof (as amended, modified, restated or supplemented from time to time, the "Security Agreement") pursuant to which Pledgee provides or will provide certain financial accommodations to Pledgor. In order to induce Pledgee to provide or continue to provide the financial accommodations described in the Purchase Agreement and the Security Agreement, Pledgor has agreed to pledge and grant a security interest in the collateral described herein to Pledgee on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINED TERMS. All capitalized terms used herein which are not defined shall have the meanings given to them in the Purchase Agreement. 2. PLEDGE AND GRANT OF SECURITY INTEREST. To secure the full and punctual payment and performance of the (a) obligations under the Purchase Agreement and the Security Agreement and (b) all other indebtedness, obligations and liabilities of Pledgor to Pledgee whether now existing or hereafter arising, direct or indirect, liquidated or unliquidated, absolute or contingent, due or not due and whether under, pursuant to or evidenced by a note, agreement, guaranty, instrument or otherwise ((a) and (b) collectively, the "Indebtedness"), Pledgor hereby pledges, assigns, hypothecates, transfers and grants a security interest to Pledgee in all of the following (the "Collateral"): (a) the shares of stock set forth on SCHEDULE A annexed hereto and expressly made a part hereof (the "Pledged Stock"), the certificates representing the Pledged Stock and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Stock; (b) all additional shares of stock of any issuer of the Pledged Stock (the "Issuer") from time to time acquired by the Pledgor in any manner, including, without limitation, stock dividends or a distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off (which shares shall be deemed to be part of the Collateral), and the certificates -1- representing such additional shares, and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (c) all options and rights, whether as an addition to, in substitution of or in exchange for any shares of the Pledged Stock and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all such options and rights. 3. DELIVERY OF COLLATERAL. All certificates representing or evidencing the Pledged Stock shall be delivered to and held by or on behalf of Pledgee pursuant hereto and shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Pledgee. Pledgor hereby authorizes the Issuer upon demand by Pledgee to deliver any certificates, instruments or other distributions issued in connection with the Collateral directly to Pledgee, in each case to be held by Pledgee, subject to the terms hereof. Upon an Event of Default under the Note that has occurred and is continuing beyond any applicable grace period, Pledgee shall have the right, during such time in its discretion and without notice to the Pledgor, to transfer to or to register in the name of Pledgee or any of its nominees any or all of the Pledged Stock. In addition, Pledgee shall have the right at such time to exchange certificates or instruments representing or evidencing Pledged Stock for certificates or instruments of smaller or larger denominations. 4. REPRESENTATIONS AND WARRANTIES OF PLEDGOR. Pledgor represents and warrants to Pledgee (which representations and warranties shall be deemed to continue to be made until all of the Indebtedness has been paid in full and the Purchase Agreement has been irrevocably terminated) that: (a) The execution, delivery and performance by Pledgor of this Agreement and the pledge of the Collateral hereunder do not and will not result in any violation of any agreement, indenture, instrument, license, judgment, decree, order, law, statute, ordinance or other governmental rule or regulation applicable to Pledgor. (b) This Agreement constitutes the legal, valid, and binding obligation of Pledgor enforceable against Pledgor in accordance with its terms. (c) Pledgor is the direct and beneficial owner of each share of the Collateral. (d) All of the shares of the Pledged Stock have been duly authorized, validly issued and are fully paid and nonassessable. (e) No consent or approval of any person, corporation, governmental body, regulatory authority or other entity, is or will be necessary for (i) the execution, delivery and performance of this Agreement, (ii) the exercise by Pledgee of any rights with respect to the Collateral or (iii) the pledge and assignment of, and the grant of a security interest in, the Collateral hereunder. -2- (f) There are no pending or, to the best of Pledgor's knowledge, threatened actions or proceedings before any court, judicial body, administrative agency or arbitrator which may materially adversely affect the Collateral. (g) Pledgor has the requisite power and authority to enter into this Agreement and to pledge and assign the Collateral to Pledgee in accordance with the terms of this Agreement. (h) Pledgor owns each item of the Collateral and, except for the pledge and security interest granted to Pledgee hereunder, the Collateral shall be, immediately following the closing of the transactions contemplated by the Purchase Agreement, free and clear of any other security interest, pledge, claim, lien, charge, hypothecation, assignment, offset or encumbrance whatsoever (collectively, "Liens"). (i) There are no restrictions on transfer of the Pledged Stock contained in the certificate of incorporation or by-laws of the Issuer or otherwise which have not otherwise been enforceably and legally waived by the necessary parties. (j) None of the Pledged Stock has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject. (k) The pledge and assignment of the Collateral and the grant of a security interest under this Agreement vest in Pledgee all rights of Pledgor in the Collateral as contemplated by this Agreement. (l) Except for the pledged stock of Coesen [THIS COMPANY OWNS IP RELATED TO THE BUSINESS OF THE PLEDGOR, WE WILL NEED TO GET A RIGHTS TO THE IP IN CONNECTION HEREWITH, I'LL BE SENDING YOU A FORM OF "CONSENT" FOR YOUR REVIEW, TO BE FORWARDED TO COESEN'S COUNSEL) ], which constitutes 33% of the shares issued and outstanding as of the date hereof, the Pledged Stock constitutes one hundred percent (100%) of the issued and outstanding shares of capital stock of the respective Issuer. 5. COVENANTS. Pledgor covenants that, until the Indebtedness shall be satisfied in full and the Purchase Agreement is irrevocably terminated: (a) Pledgor will not sell, assign, transfer, convey, or otherwise dispose of its rights in or to the Collateral or any interest therein; nor will Pledgor create, incur or permit to exist any Lien whatsoever with respect to any of the Collateral or the proceeds thereof other than that created hereby. (b) Pledgor will, at its expense, defend Pledgee's right, title and security interest in and to the Collateral against the claims of any other party. (c) Pledgor shall at any time, and from time to time, upon the written request of Pledgee, execute and deliver such further documents and do such further acts and things as -3- Pledgee may reasonably request in order to effect the purposes of this Agreement including, but without limitation, delivering to Pledgee upon the occurrence of an Event of Default irrevocable proxies in respect of the Collateral in form satisfactory to Pledgee. Until receipt thereof, upon an Event of Default under the Note that has occurred and is continuing beyond any applicable grace period, this Agreement shall constitute Pledgor's proxy to Pledgee or its nominee to vote all shares of Collateral then registered in Pledgor's name. (d) Pledgor will not consent to or approve the issuance of (i) any additional shares of any class of capital stock of the Issuer; (ii) any securities convertible either voluntarily by the holder thereof or automatically upon the occurrence or nonoccurrence of any event or condition into, or any securities exchangeable for, any such shares. 6. VOTING RIGHTS AND DIVIDENDS. In addition to Pledgee's rights and remedies set forth in Section 8 hereof, in case an Event of Default under the Note shall have occurred and be continuing, beyond any applicable cure period Pledgee shall (i) vote the Collateral (ii) be entitled to give consents, waivers and ratifications in respect of the Collateral (Pledgor hereby irrevocably constituting and appointing Pledgee, with full power of substitution, the proxy and attorney-in-fact of Pledgor for such purposes) and (iii) be entitled to collect and receive for its own use cash dividends paid on the Collateral. Pledgor shall not be permitted to exercise or refrain from exercising any voting rights or other powers if, in the reasonable judgment of Pledgee, such action would have a material adverse effect on the value of the Collateral or any part thereof; and, PROVIDED, FURTHER, that Pledgor shall give at least five (5) days' written notice of the manner in which Pledgor intends to exercise, or the reasons for refraining from exercising, any voting rights or other powers other than with respect to any election of directors and voting with respect to any incidental matters. Following the occurrence of an Event of Default, all dividends and all other distributions in respect of any of the Collateral, shall be delivered to Pledgee to hold as Collateral and shall, if received by the Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to Pledgee as Collateral in the same form as so received (with any necessary endorsement. 7. EVENT OF DEFAULT. An Event of Default shall be deemed to have occurred and may be declared by Pledgee upon the happening of any of the following events: (a) An "Event of Default" under any Note shall have occurred and be continuing beyond any applicable cure period; (b) Pledgor shall default in the performance of any of its obligations under any agreement between Pledgor and Pledgee, including, without limitation, this Agreement, and such default shall not be cured for a period of twenty (20) business days afterthe occurrence thereof; (c) Any material representation or warranty of the Pledgee made herein, in the Purchase Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading and shall not be cured for a period of twenty (20) business days after the occurrence thereof; -4- (d) The Collateral is subjected to levy of execution, attachment, distraint or other judicial process; or the Collateral is the subject of a claim (other than by Pledgee) of a Lien or other right or interest in or to the Collateral and such levy or claim shall not be cured, disputed or stayed within a period of thirty (30) days after the occurrence thereof; or (e) Pledgor shall (i) apply for, consent to, or suffer to exist the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or other fiduciary 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 any state or 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 ninety (90) ) 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. 8. REMEDIES. In case an Event of Default shall have occurred and be declared by Pledgee, Pledgee may: (a) Transfer any or all of the Collateral into its name, or into the name of its nominee or nominees; (b) Exercise all corporate rights with respect to the Collateral including, without limitation, all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any shares of the Collateral as if it were the absolute owner thereof, including, but without limitation, the right to exchange, at its discretion, any or all of the Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of the Issuer thereof, or upon the exercise by the Issuer of any right, privilege or option pertaining to any of the Collateral, and, in connection therewith, to deposit and deliver any and all of the Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as it may determine, all without liability except to account for property actually received by it; and (c) Subject to any requirement of applicable law, sell, assign and deliver the whole or, from time to time, any part of the Collateral at the time held by Pledgee, at any private sale or at public auction, with or without demand, advertisement or notice of the time or place of sale or adjournment thereof or otherwise (all of which are hereby waived, except such notice as is required by applicable law and cannot be waived), for cash or credit or for other property for immediate or future delivery, and for such price or prices and on such terms as Pledgee in its sole discretion may determine, or as may be required by applicable law. Pledgor hereby waives and releases any and all right or equity of redemption, whether before or after sale hereunder. At any such sale, unless prohibited by applicable law, Pledgee may bid for and purchase the whole or any part of the Collateral so sold free from any such right or equity of redemption. All moneys received by Pledgee hereunder whether upon sale of the Collateral or any part thereof or otherwise shall be held by Pledgee and applied by it -5- as provided in Section 10 hereof. No failure or delay on the part of Pledgee in exercising any rights hereunder shall operate as a waiver of any such rights nor shall any single or partial exercise of any such rights preclude any other or future exercise thereof or the exercise of any other rights hereunder. Pledgee shall have no duty as to the collection or protection of the Collateral or any income thereon nor any duty as to preservation of any rights pertaining thereto, except to apply the funds in accordance with the requirements of Section 10 hereof. Pledgee may exercise its rights with respect to property held hereunder without resort to other security for or sources of reimbursement for the Indebtedness. In addition to the foregoing, Pledgee shall have all of the rights, remedies and privileges of a secured party under the Uniform Commercial Code of New York regardless of the jurisdiction in which enforcement hereof is sought. 9. PRIVATE SALE. Pledgor recognizes that Pledgee may be unable to effect (or to do so only after delay which would adversely affect the value that might be realized from the Collateral) a public sale of all or part of the Collateral by reason of certain prohibitions contained in the Securities Act, and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor agrees that any such private sale may be at prices and on terms less favorable to the seller than if sold at public sales and that such private sales shall be deemed to have been made in a commercially reasonable manner. Pledgor agrees that Pledgee has no obligation to delay sale of any Collateral for the period of time necessary to permit the Issuer to register the Collateral for public sale under the Securities Act. 10. PROCEEDS OF SALE. The proceeds of any collection, recovery, receipt, appropriation, realization or sale of the Collateral shall be applied by Pledgee as follows: (a) First, to the payment of all costs, reasonable expenses and charges of Pledgee and to the reimbursement of Pledgee for the prior payment of such costs, reasonable expenses and charges incurred in connection with the care and safekeeping of the Collateral (including, without limitation, the reasonable expenses of any sale or any other disposition of any of the Collateral), the expenses of any taking, attorneys' fees and reasonable expenses, court costs, any other fees or expenses incurred or expenditures or advances made by Pledgee in the protection, enforcement or exercise of its rights, powers or remedies hereunder; (b) Second, to the payment of the Indebtedness, in whole or in part, in such order as Pledgee may elect, whether or not such Indebtedness is then due; (c) Third, to such persons, firms, corporations or other entities as required by applicable law including, without limitation, Section 9-504(1)(c) of the UCC; and (d) Fourth, to the extent of any surplus to Pledgor or as a court of competent jurisdiction may direct. In the event that the proceeds of any collection, recovery, receipt, appropriation, realization or sale are insufficient to satisfy the Indebtedness, Pledgor shall be liable for the -6- deficiency plus the costs and fees of any attorneys employed by Pledgee to collect such deficiency. 11. WAIVER OF MARSHALING. Pledgor hereby waives any right to compel any marshaling of any of the Collateral. 12. NO WAIVER. Any and all of Pledgee's rights with respect to the Liens granted under this Agreement shall continue unimpaired, and Pledgor shall be and remain obligated in accordance with the terms hereof, notwithstanding (a) the bankruptcy, insolvency or reorganization of Pledgor, (b) the release or substitution of any item of the Collateral at any time, or of any rights or interests therein, or (c) any delay, extension of time, renewal, compromise or other indulgence granted by Pledgee in reference to any of the Indebtedness. Pledgor hereby waives all notice of any such delay, extension, release, substitution, renewal, compromise or other indulgence, and hereby consents to be bound hereby as fully and effectively as if Pledgor had expressly agreed thereto in advance. No delay or extension of time by Pledgee in exercising any power of sale, option or other right or remedy hereunder, and no failure by Pledgee to give notice or make demand, shall constitute a waiver thereof, or limit, impair or prejudice Pledgee's right to take any action against Pledgor or to exercise any other power of sale, option or any other right or remedy. 13. EXPENSES. The Collateral shall secure, and Pledgor shall pay to Pledgee on demand, from time to time, all reasonable costs and expenses, (including but not limited to, reasonable attorneys' fees and costs, taxes, and all transfer, recording, filing and other charges) of, or incidental to, the custody, care, transfer, administration of the Collateral or any other collateral, or in any way relating to the enforcement, protection or preservation of the rights or remedies of Pledgee under this Agreement or with respect to any of the Indebtedness. 14. PLEDGEE APPOINTED ATTORNEY-IN-FACT AND PERFORMANCE BY PLEDGEE. Upon the occurrence of an Event of Default, Pledgor hereby irrevocably constitutes and appoints Pledgee as Pledgor's true and lawful attorney-in-fact, with full power of substitution, to execute, acknowledge and deliver any instruments and to do in Pledgor's name, place and stead, all such acts, things and deeds for and on behalf of and in the name of Pledgor, which Pledgor could or might do or which Pledgee may deem necessary, desirable or convenient to accomplish the purposes of this Agreement, including, without limitation, to execute such instruments of assignment or transfer or orders and to register, convey or otherwise transfer title to the Collateral into Pledgee's name. Pledgor hereby ratifies and confirms all that said attorney-in-fact may so do and hereby declares this power of attorney to be coupled with an interest and irrevocable. If Pledgor fails to perform any agreement herein contained, Pledgee may itself perform or cause performance thereof, and any costs and expenses of Pledgee incurred in connection therewith shall be paid by Pledgor as provided in Section 10 hereof. 15. WAIVERS. (a) EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, -7- DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OTHER AGREEMENT EXECUTED OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. 16. RECAPTURE. Notwithstanding anything to the contrary in this Agreement, if Pledgee receives any payment or payments on account of the Indebtedness, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver, or any other party under the United States Bankruptcy Code, as amended, or any other federal or state bankruptcy, reorganization, moratorium or insolvency law relating to or affecting the enforcement of creditors' rights generally, common law or equitable doctrine, then to the extent of any sum not finally retained by Pledgee, Pledgor's obligations to Pledgee shall be reinstated and this Agreement shall remain in full force and effect (or be reinstated) until payment shall have been made to Pledgee, which payment shall be due on demand. 17. CAPTIONS. All captions in this Agreement are included herein for convenience of reference only and shall not constitute part of this Agreement for any other purpose. 18. MISCELLANEOUS. (a) This Agreement constitutes the entire and final agreement among the parties with respect to the subject matter hereof and may not be changed, terminated or otherwise varied except by a writing duly executed by the parties hereto. (b) No waiver of any term or condition of this Agreement, whether by delay, omission or otherwise, shall be effective unless in writing and signed by the party sought to be charged, and then such waiver shall be effective only in the specific instance and for the purpose for which given. (c) In the event that any provision of this Agreement or the application thereof to Pledgor or any circumstance in any jurisdiction governing this Agreement shall, to any extent, be invalid or unenforceable under any applicable statute, regulation, or rule of law, such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute, regulation or rule of law, and the remainder of this Agreement and the application of any such invalid or unenforceable provision to parties, jurisdictions, or circumstances other than to whom or to which it is held invalid or unenforceable -8- shall not be affected thereby, nor shall same affect the validity or enforceability of any other provision of this Agreement. (d) This Agreement shall be binding upon Pledgor, and Pledgor's successors and assigns, and shall inure to the benefit of Pledgee and its successors and assigns. (e) Any notice or other communication required or permitted pursuant to this Agreement shall be given in accordance with the Purchase Agreement. (f) This Agreement shall be governed by and construed and enforced in all respects in accordance with the laws of the State of New York applied to contracts to be performed wholly within the State of New York. (g) PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF EACH COURT OF COMPETENT JURISDICTION LOCATED IN THE STATE OF NEW YORK FOR ALL PURPOSES IN CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A STATE COURT LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. PLEDGOR FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS OR PAPERS (INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER APPLICATION TO EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY NOTICE IN CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR OUTSIDE OF THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE PROVIDED A REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER AS MAY BE PERMISSIBLE UNDER THE RULES OF SAID COURTS. PLEDGOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. (h) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed an original signature hereto. [Remainder of Page Intentionally Left Blank] -9- IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first written above. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: /s/ Andrew Glashow ------------------------------ Name: Andrew Glashow Title: President LAURUS MASTER FUND, LTD. By: /s/ David Grin ------------------------------ Name: David Grin Title: -10- SCHEDULE A PLEDGED STOCK
- -------------------------------------------------------------------------------------- Issuer Class of Stock Stock Certificate Par Value Number of Number Shares - -------------------------------------------------------------------------------------- Titan PCB East, Inc. Common - -------------------------------------------------------------------------------------- Titan PCB West, Inc. Common - -------------------------------------------------------------------------------------- [COESEN] [CHECK] Common] - --------------------------------------------------------------------------------------
-11- EX-10.69 11 c30085_ex10-69.txt Exhibit 10.69 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of November 20, 2003, by and between Ventures-National Incorporated d/b/a Titan General Holdings, Inc., a Utah corporation (the "Company"), and Laurus Master Fund, Ltd. (the "Purchaser"). This Agreement is made pursuant to the Security Agreement, dated as of the date hereof, by and between the Purchaser and the Company (the "Security Agreement"), and pursuant to the Notes and the Warrants referred to therein. The Company and the Purchaser hereby agree as follows: 1. DEFINITIONS. Capitalized terms used and not otherwise defined herein that are defined in the Security Agreement shall have the meanings given such terms in the Security Agreement. As used in this Agreement, the following terms shall have the following meanings: "COMMISSION" means the Securities and Exchange Commission. "COMMON STOCK" means shares of the Company's common stock, par value $0.001 per share. "EFFECTIVENESS DATE" means the 90th day following the applicable Filing Date. "EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(a). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and any successor statute. "FILING DATE" means, with respect to (1) the Registration Statement which is required to be filed with respect to the Loans made on the initial funding date, the date which is thirty (30) days after such initial funding date, and (2) with respect to each $1,500,000 tranche of Loans funded after the initial funding date, the date which is forty-five (45) days after such funding of such additional $1,500,000 of Loans evidenced by a Minimum Borrowing Note thereafter. "HOLDER" or "HOLDERS" means the Purchaser or any of its affiliates or transferees to the extent any of them hold Registrable Securities. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 5(c). "INDEMNIFYING PARTY" shall have the meaning set forth in Section 5(c). "NOTES" has the meaning set forth in the Security Agreement. "PROCEEDING" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. "PROSPECTUS" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. "REGISTRABLE SECURITIES" means the shares of Common Stock issued upon the conversion of the each Note and issuable upon exercise of the Warrants. "REGISTRATION STATEMENT" means each registration statement required to be filed hereunder, including the Prospectus therein, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "RULE 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "RULE 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "RULE 424" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "SECURITIES ACT" means the Securities Act of 1933, as amended, and any successor statute. "TRADING MARKET" means any of the NASD OTC Bulletin Board, NASDAQ SmallCap Market, the Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange "WARRANTS" means the Common Stock purchase warrants issued pursuant to the Security Agreement. 2. REGISTRATION. (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the Registrable Securities for an offering to 2 be made on a continuous basis pursuant to Rule 415. Each Registration Statement shall be on Form SB-2, S-1, or Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, S-1, or Form S-3, in which case such registration shall be on another appropriate form in accordance herewith). The Company shall cause each Registration Statement to become effective and remain effective as provided herein. The Company shall use its reasonable commercial efforts to cause the first such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than the Effectiveness Date. The Company shall use its reasonable commercial efforts to cause any subsequent such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than sixty (60) days after the filing thereof. The Company shall use its reasonable commercial efforts to keep each Registration Statement continuously effective under the Securities Act until the date which is the earlier date of when (i) all Registrable Securities covered by such Registration Statement have been sold or (ii) all Registrable Securities covered by such Registration Statement may be sold immediately without registration under the Securities Act and without volume restrictions set forth in Rule 144(e), as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent and the affected Holders (each, an "Effectiveness Period"). (b) If: (i) any Registration Statement is not filed on or prior to the applicable Filing Date for such Registration Statement; (ii) a Registration Statement filed hereunder is not declared effective by the Commission by the date required hereby with respect to such Registration Statement; (iii) after a Registration Statement is filed with and declared effective by the Commission, such Registration Statement ceases to be effective (by suspension or otherwise) as to all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period applicable to such Registration Statement (without being succeeded immediately by an additional Registration Statement filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per year or more than 20 consecutive calendar days (defined as a period of 365 days commencing on the date such Registration Statement is declared effective); or (iv) the Common Stock is not listed or quoted, or is suspended from trading on any Trading Market for a period of three (3) consecutive trading days (provided the Company shall not have been able to cure such trading suspension within 30 days of the notice thereof or list the Common Stock on another Trading Market); (any such failure or breach being referred to as an "Event," and for purposes of clause (i) or (ii) the date on which such Event occurs, or for purposes of clause (iii) the date which such 30 day or 20 consecutive day period (as the case may be) is exceeded, or for purposes of clause (iv) the date on which such three (3) trading day period is exceeded, being referred to as an "Event Date"), then until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 2.0% for each thirty (30) day period (prorated for partial periods) of the original principal amount of each applicable Note. While such Event continues, such liquidated damages shall be paid not less often than each thirty (30) days. Any unpaid liquidated damages as of the date when an Event has been cured by the Company shall be paid within three (3) business days following the date on which such Event has been cured by the Company. 3 3. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions hereof to effect the registration of any Registrable Securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such Registrable Securities, respond as promptly as possible to any comments received from the Commission, and use its best efforts to cause such Registration Statement to become and remain effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser copies of all filings and Commission letters of comment relating thereto; (b) prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement and to keep such Registration Statement effective until the expiration of the Effectiveness Period applicable to such Registration Statement; (c) furnish to the Purchaser such number of copies of the Registration Statement and the Prospectus included therein (including each preliminary Prospectus) as the Purchaser reasonably may request to facilitate the public sale or disposition of the Registrable Securities covered by such Registration Statement; (d) use its commercially reasonable efforts to register or qualify the Purchaser's Registrable Securities covered by such Registration Statement under the securities or "blue sky" laws of such jurisdictions within the United States as the Purchaser may reasonably request, PROVIDED, however, that the Company shall not for any such purpose be required to qualify generally to transact business as a foreign corporation in any jurisdiction where it is not so qualified or to consent to general service of process in any such jurisdiction; (e) list the Registrable Securities covered by such Registration Statement with any securities exchange on which the Common Stock of the Company is then listed; (f) immediately notify the Purchaser at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event of which the Company has knowledge as a result of which the Prospectus contained in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and (g) make available for inspection by the Purchaser and any attorney, accountant or other agent retained by the Purchaser, all publicly available, non-confidential financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all publicly available, non-confidential information reasonably requested by the attorney, accountant or agent of the Purchaser. 4 4. REGISTRATION EXPENSES. All expenses relating to the Company's compliance with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, reasonable fees of, and disbursements incurred by, one counsel for the Holders are called "Registration Expenses". All selling commissions applicable to the sale of Registrable Securities, including any fees and disbursements of any special counsel to the Holders beyond those included in Registration Expenses, are called "Selling Expenses." The Company shall only be responsible for Registration Expenses. 5. INDEMNIFICATION. (a) In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the Purchaser, and its officers, directors and each other person, if any, who controls the Purchaser within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser, or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Purchaser, and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of the Purchaser or any such person in writing specifically for use in any such document. (b) In the event of a registration of the Registrable Securities under the Securities Act pursuant to this Agreement, the Purchaser will indemnify and hold harmless the Company, and its officers, directors and each other person, if any, who controls the Company within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact which was furnished in writing by the Purchaser to the Company expressly for use in (and such information is contained in) the Registration Statement under which such Registrable Securities were registered under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will 5 reimburse the Company and each such person for any reasonable legal or other expenses incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action, PROVIDED, however, that the Purchaser will be liable in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing to the Company by or on behalf of the Purchaser specifically for use in any such document. Notwithstanding the provisions of this paragraph, the Purchaser shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by the Purchaser in respect of Registrable Securities in connection with any such registration under the Securities Act. (c) Promptly after receipt by a party entitled to claim indemnification hereunder (an "Indemnified Party") of notice of the commencement of any action, such Indemnified Party shall, if a claim for indemnification in respect thereof is to be made against a party hereto obligated to indemnify such Indemnified Party (an "Indemnifying Party"), notify the Indemnifying Party in writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any liability which it may have to such Indemnified Party other than under this Section 5(c) and shall only relieve it from any liability which it may have to such Indemnified Party under this Section 5(c) if and to the extent the Indemnifying Party is prejudiced by such omission. In case any such action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel, PROVIDED, however, that, if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right to select one separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred. (d) In order to provide for just and equitable contribution in the event of joint liability under the Securities Act in any case in which either (i) the Purchaser, or any officer, director or controlling person of the Purchaser, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Purchaser or such officer, director or controlling person of the Purchaser in circumstances for which indemnification is provided under this Section 5; then, 6 and in each such case, the Company and the Purchaser will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that the Purchaser is responsible only for the portion represented by the percentage that the public offering price of its securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, PROVIDED, however, that, in any such case, (A) the Purchaser will not be required to contribute any amount in excess of the public offering price of all such securities offered by it pursuant to such Fegistration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation. 6. REPRESENTATIONS AND WARRANTIES. (a) The Common Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and, except with respect to certain matters which the Company has disclosed to the Purchaser on EXHIBIT 12(J) to the Security Agreement, 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-K for the fiscal year ended August 31, 2002 and (ii) its Quarterly Report on Form 10-Q for the fiscal quarters ended November 30, 2003, February 28, 2003, and May 31, 2003 (collectively, the "SEC Reports"). Except to the extent set forth in Schedule 4.21 to the Purchase Agreement, each SEC Report was, at the time of its filing, in compliance in all material respects 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. (b) The Common Stock is listed for trading on the American Stock Exchange and satisfies all requirements for the continuation of such listing. The Company has not received any notice that its Common Stock will be delisted from the American Stock Exchange or that the Common Stock does not meet all requirements for the continuation of such listing. (c) Neither the Company, 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 the Security Agreement to be integrated with prior offerings by the Company for 7 purposes of the Securities Act which would prevent the Company from selling the Common Stock 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 Common Stock to be integrated with other offerings. (d) The Warrants, the Notes and the shares of Common Stock which the Purchaser may acquire pursuant to the Warrants and the Notes 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 Registrable Securities at such time as such Registrable Securities are registered for public sale or an exemption from registration is available, except as required by federal or state securities laws. (e) The Company understands the nature of the Registrable Securities issuable upon the conversion of each Note and the exercise of each Warrant and recognizes that the issuance of such Registrable Securities may have a potential dilutive effect. The Company specifically acknowledges that its obligation to issue the Registrable 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. (f) 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 and adverse effect on the Company and its subsidiaries, or would prohibit or otherwise interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement in any material respect. (g) The Company will at all times have authorized and reserved a sufficient number of shares of Common Stock for the full conversion of each Note and exercise of the Warrants. 7. MISCELLANEOUS. (a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their respective obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. (b) NO PIGGYBACK ON REGISTRATIONS. Except as set forth on SCHEDULE 7(b) hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in any Registration Statement other than the Registrable Securities, and the Company shall not after the date hereof enter into any agreement providing any such right for inclusion of shares in the Registration Statement to any of its security holders. Except as and to the extent specified in SCHEDULE 7(b) hereto, the Company has not previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been fully satisfied. 8 (c) COMPLIANCE. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to any Registration Statement. (d) DISCONTINUED DISPOSITION. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable Securities under the applicable Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company may provide appropriate stop orders to enforce the provisions of this paragraph. For purposes of this Section 7(d), a "Discontinuation Event" shall mean (i) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); (ii) any request by the Commission or any other Federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information; (iii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v) the occurrence of any event or passage of time that makes the financial statements included in such Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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. (e) PIGGY-BACK REGISTRATIONS. If at any time during any Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities required to be covered during such Effectiveness Period and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock compensation or other employee benefit plans, then the Company shall send to each Holder written notice of such determination and, if within fifteen (15) days after receipt of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such 9 Registrable Securities such holder requests to be registered, to the extent the Company may do so without violating registration rights of others which exist as of the date of this Agreement, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to obtaining any required consent of any selling stockholder(s) to such inclusion under such registration statement. (f) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of the then outstanding Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of certain Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of at least a majority of the Registrable Securities to which such waiver or consent relates; PROVIDED, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (g) NOTICES. Any notice or request hereunder may be given to the Company or the Purchaser 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 7(g). 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 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. The address for such notices and communications shall be as follows: If to the Company: Ventures-National Incorporated d/b/a Titan General Holdings, Inc. Attention: Chief Financial Officer Facsimile: With a copy to: Reitler Brown LLC 800 Third Avenue, 21st Floor New York, New York 10022 Attention: Robert Steven Brown, Esq. Facsimile: 212-371-5500 If to a Purchaser: To the address set forth under such Purchaser name on the signature pages hereto. If to any other Person who is then the registered Holder: 10 To the address of such Holder as it appears in the stock transfer books of the Company or such other address as may be designated in writing hereafter in accordance with this Section 7(g) by such Person. (h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Notes and the Securities Purchase Agreement with the prior written consent of the Company, which consent shall not be unreasonably withheld.. (i) EXECUTION AND COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof. (j) GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the city of New York, the state of New York. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence a Proceeding to enforce any provisions of any Ancillary Agreement, then the prevailing party in such Proceeding shall be reimbursed by the other party for its reasonable attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding. 11 (k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. (l) SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (m) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. [Balance of page intentionally left blank; signature page follows.] 12 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: /s/ Andrew Glashow ------------------------------- Name: Andrew Glashow ---------------------------- Title: President ---------------------------- LAURUS MASTER FUND, LTD. By: /s/ David Grin ------------------------------- Name: David Grin ---------------------------- Title: ---------------------------- Address for Notices: 825 Third Avenue, 14th Floor New York, New York 10022 Attention: David Grin Facsimile: 212-541-4434 13 EX-10.70 12 c30085_ex10-70.txt Exhibit 10.70 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR SUCH SHARES OF COMMON STOCK, AS APPLICABLE, UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 600,000 Shares of Common Stock of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. ----------------------------------------------------------------- (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. _________________ Issue Date: November 20, 2003 VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. a corporation organized under the laws of the State of Utah, hereby certifies that, for value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company (as defined herein) from and after the Issue Date of this Warrant and at any time or from time to time before 5:00 p.m., New York time, through the close of business November 20, 2010 (the "Expiration Date"), up to 600,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $0.001 par value per share, at the applicable Exercise Price per share (as defined below). The number and character of such shares of Common Stock and the applicable Exercise Price per share are subject to adjustment as provided herein. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" shall include Ventures-National Incorporated d/b/a Titan General Holdings, Inc. and any corporation which shall succeed, or assume the obligations of, Ventures-National Incorporated d/b/a Titan General Holdings, Inc. hereunder. (b) The term "Common Stock" includes (i) the Company's Common Stock, par value 0.001 per share; and (ii) any other securities into which or for which any of the securities described in (a) may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. (c) The term "Other Securities" refers to any stock (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holder of the Warrant at any time shall be entitled to receive, or shall have received, on the exercise of the Warrant, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 4 or otherwise. (d) The "Exercise Price" applicable under this Warrant shall be as follows: (i) a price of $0.83 for the first 250,000 shares acquired hereunder; (ii) a price of $0.90 for the next 200,000 shares acquired hereunder; and (iii) a price of $0.97 for any additional shares acquired hereunder. 1. EXERCISE OF WARRANT. 1.1 NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the date hereof through and including the Expiration Date, the Holder shall be entitled to receive, upon exercise of this Warrant in whole or in part, by delivery of an original or fax copy of an exercise notice in the form attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant to Section 4. 1.2 FAIR MARKET VALUE. For purposes hereof, the "Fair Market Value" of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (a) If the Company's Common Stock is traded on the American Stock Exchange or another national exchange or is quoted on the National or SmallCap Market of The Nasdaq Stock Market, Inc.("Nasdaq"), then the closing or last sale price, respectively, reported for the last business day immediately preceding the Determination Date. (b) If the Company's Common Stock is not traded on the American Stock Exchange or another national exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board, then the mean of the average of the closing bid and asked prices reported for the last business day immediately preceding the Determination Date. (c) Except as provided in clause (d) below, if the Company's Common Stock is not publicly traded, then as the Holder and the Company agree or in the absence of agreement by arbitration in accordance with the rules then in effect of the American Arbitration Association, before a single arbitrator to be chosen by the mutual agreement of the Company and the Holder from a panel of persons qualified by education and training to pass on the matter to be decided. (d) If the Determination Date is the date of a liquidation, dissolution or winding up, or any event deemed to be a liquidation, dissolution or winding up pursuant to the Company's charter, then all amounts to be payable per share to holders of the 2 Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, plus all other amounts to be payable per share in respect of the Common Stock in liquidation under the charter, assuming for the purposes of this clause (d) that all of the shares of Common Stock then issuable upon exercise of the Warrant are outstanding at the Determination Date. 1.3 COMPANY ACKNOWLEDGMENT. The Company will, at the time of the exercise of the Warrant, upon the request of the holder hereof acknowledge in writing its continuing obligation to afford to such holder any rights to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant. If the holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder any such rights. 1.4 TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust company shall have been appointed as trustee for the holders of the Warrant pursuant to Subsection 3.2, such bank or trust company shall have all the powers and duties of a warrant agent (as hereinafter described) and shall accept, in its own name for the account of the Company or such successor person as may be entitled thereto, all amounts otherwise payable to the Company or such successor, as the case may be, on exercise of this Warrant pursuant to this Section 1. 2. PROCEDURE FOR EXERCISE. 2.1 DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. The Company agrees that the shares of Common Stock purchased upon exercise of this Warrant shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares in accordance herewith unless the stock transfer books of the Company shall then be closed (but, solely as required by applicable securities law or the regulations of the market on which the Company's Common Stock is traded),, in which event such shares of Common Stock shall be deemed outstanding on the first day thereafter on which the stock transfer books of the Company shall then be open. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within three (3) business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and nonassessable shares of Common Stock (or Other Securities) to which such Holder shall be entitled on such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then Fair Market Value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such Holder is entitled upon such exercise pursuant to Section 1 or otherwise. 2.2 EXERCISE. Payment may be made either (i) in cash or by certified or official bank check payable to the order of the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, or shares of Common Stock and/or Common Stock receivable upon exercise of the Warrant in accordance with Section (b) below, or (iii) by a combination of any of the foregoing methods, for the number of Common Shares specified in 3 such Exercise Notice (as such exercise number shall be adjusted to reflect any adjustment in the total number of shares of Common Stock issuable to the Holder per the terms of this Warrant) and the Holder shall thereupon be entitled to receive the number of duly authorized, validly issued, fully-paid and non-assessable shares of Common Stock (or Other Securities) determined as provided herein. Notwithstanding any provisions herein to the contrary, if the Fair Market Value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Exercise Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised (at the date of such calculation) A = the Fair Market Value of one share of the Company's Common Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) 3. EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE. 3.1 REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time or from time to time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Warrant, on the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation or merger or the effective date of such dissolution, as the case may be, shall receive, in lieu of the Common Stock (or Other Securities) issuable on such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Holder had so exercised this Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 4. 3.2 DISSOLUTION. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, concurrently with any distributions made to holders of its Common Stock, shall at its expense deliver or cause to be delivered to the Holder the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant pursuant to Section 3.1, or, if the Holder 4 shall so instruct the Company, to a bank or trust company specified by the Holder and having its principal office in New York, NY as trustee for the Holder of the Warrant (the "Trustee"). 3.3 CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 3, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in Section 4. In the event this Warrant does not continue in full force and effect after the consummation of the transactions described in this Section 3, then the Company's securities and property (including cash, where applicable) receivable by the Holders of the Warrant will be delivered to Holder or the Trustee as contemplated by Section 3.2. 4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Exercise Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Exercise Price then in effect. The Exercise Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 4. The number of shares of Common Stock that the holder of this Warrant shall thereafter, on the exercise hereof as provided in Section 1, be entitled to receive shall be adjusted by multiplying the number of shares of Common Stock that would otherwise (but for the provisions of this Section 4) be issuable on such exercise by a fraction of which (a) the numerator is the Exercise Price that would otherwise (but for the provisions of this Section 4) be in effect, and (b) the denominator is the Exercise Price in effect on the date of such exercise. 5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such 5 certificate to the holder of the Warrant and any Warrant agent of the Company (appointed pursuant to Section 11 hereof). 6. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANT. The Company will at all times reserve and keep available, solely for issuance and delivery on the exercise of the Warrant, shares of Common Stock (or Other Securities) from time to time issuable on the exercise of the Warrant. 7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") in whole or in part. On the surrender for exchange of this Warrant, with the Transferor's endorsement in the form of Exhibit B attached hereto (the "Transferor Endorsement Form") and together with evidence reasonably satisfactory to the Company demonstrating compliance with applicable securities laws, which shall include, without limitation, a legal opinion from the Company's counsel that such transfer is exempt from the registration requirements of applicable securities laws, the Company at its expense but with payment by the Transferor of any applicable transfer taxes) will issue and deliver to or on the order of the Transferor thereof a new Warrant of like tenor, in the name of the Transferor and/or the transferee(s) specified in such Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant so surrendered by the Transferor. 8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted certain registration rights by the Company. These registration rights are set forth in a Registration Rights Agreement entered into by the Company and Purchaser dated as of even date of this Warrant. 10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this Warrant on an exercise date, in connection with that number of shares of Common Stock which would be in excess of the sum of (i) the number of shares of Common Stock beneficially owned by the Holder and its affiliates on an exercise date, and (ii) the number of shares of Common Stock issuable upon the exercise of this Warrant with respect to which the determination of this proviso is being made on an exercise date, which would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock of the Company on such date. For the purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Notwithstanding the foregoing, the restriction described in this paragraph may be revoked upon 75 days prior notice from the Holder to the Company and is automatically null and void upon an Event of Default under the Note. 6 11. WARRANT AGENT. The Company may, by written notice to the each Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock (or Other Securities) on the exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant pursuant to Section 8, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 13. NOTICES, ETC. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company in writing by such Holder or, until any such Holder furnishes to the Company an address, then to, and at the address of, the last Holder of this Warrant who has so furnished an address to the Company. 14. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 15. NO SHORTING. The Purchaser 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" or "short sales against the box" of the Company's Common Stock or any other hedging strategies. 16. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be governed by and construed in accordance with the laws of State of New York without regard to principles of conflicts of laws. Any action brought concerning the transactions contemplated by this Warrant shall be brought only in the state courts of New York or in the federal courts located in the state of New York; provided however that the Holder may choose to waive this provision and bring an action outside of the State of New York. The individuals executing this Warrant on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. The Company acknowledges that legal counsel participated in the preparation of this Warrant and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Warrant to favor any party against the other party. 7 [BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS.] 8 IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first written above. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. WITNESS: By: /s/ Andrew Glashow --------------------------- Name: Andrew Glashow --------------------------- Title: President - --------------------------------- --------------------------- 9 EXHIBIT A FORM OF SUBSCRIPTION (To Be Signed Only On Exercise Of Warrant) TO: Ventures-National Incorporated d/b/a Titan General Holdings, Inc. Attention: Chief Financial Officer The undersigned, pursuant to the provisions set forth in the attached Warrant (No.____), hereby irrevocably elects to purchase (check applicable box): ____________ ________ shares of the Common Stock covered by such Warrant; or ____________ the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 2. The undersigned herewith makes payment of the full Exercise Price for such shares at the price per share provided for in such Warrant, which is $___________. Such payment takes the form of (check applicable box or boxes): ____________ $__________ in lawful money of the United States; and/or ____________ the cancellation of such portion of the attached Warrant as is exercisable for a total of _______ shares of Common Stock (using a Fair Market Value of $_______ per share for purposes of this calculation); and/or ____________ the cancellation of such number of shares of Common Stock as is necessary, in accordance with the formula set forth in Section 2.2, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchasable pursuant to the cashless exercise procedure set forth in Section 2. The undersigned requests that the certificates for such shares be issued in the name of, and delivered to ________________________________________ whose address is _____________________________________________________________ . The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable upon exercise of the within Warrant shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Securities Act") or pursuant to an exemption from registration under the Securities Act. Dated: ----------------------- -------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: ----------------------------------- ----------------------------------- A-1 B-1 EXHIBIT B FORM OF TRANSFEROR ENDORSEMENT (To Be Signed Only On Transfer Of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading "Transferees" the right represented by the within Warrant to purchase the percentage and number of shares of Common Stock of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. into which the within Warrant relates specified under the headings "Percentage Transferred" and "Number Transferred," respectively, opposite the name(s) of such person(s) and appoints each such person Attorney to transfer its respective right on the books of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. with full power of substitution in the premises. Percentage Number Transferees Address Transferred Transferred - ----------- ------- ----------- ----------- - -------------------- ---------------------- ------------- --------------- - -------------------- ---------------------- ------------- --------------- - -------------------- ---------------------- ------------- --------------- - -------------------- ---------------------- ------------- --------------- Dated: ---------------------- --------------------------------------------- (Signature must conform to name of holder as specified on the face of the Warrant) Address: ------------------------------------- ------------------------------------- SIGNED IN THE PRESENCE OF: --------------------------------------------- (Name) ACCEPTED AND AGREED: [TRANSFEREE] - -------------------------------------- (Name) B-1 EX-10.71 13 c30085_ex10-71.txt Exhibit 10.71 THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH COMMON SHARES, AS APPLICABLE, UNDER SAID ACT AND ANY APPLICABLE STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED. SECURED CONVERTIBLE MINIMUM BORROWING NOTE ------------------------------------------ FOR VALUE RECEIVED, VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. a Utah corporation (the "BORROWER") promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "HOLDER") or its registered assigns, on order, the sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000), of, if different, the aggregate principal amount of all "LOANS" (as such term is defined in the Security Agreement referred to below), together with any accrued and unpaid interest hereon, on November 20, 2006 (the "MATURITY DATE"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Security Agreement between Borrower and the Holder dated as of November 20, 2003 (as amended, modified and supplemented from time to time, the "SECURITY AGREEMENT"). The following terms shall apply to this Minimum Borrowing Note (the "NOTE"): ARTICLE I INTEREST 1.1 INTEREST RATE AND PAYMENTS. Subject to Sections 5.3 and 6.7 hereof, interest payable on this Note shall accrue at a rate per annum equal to the "PRIME RATE" published in THE WALL STREET JOURNAL from time to time, plus three percent (3%) (the "CONTRACT RATE"). 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 in accordance with the terms of the Security Agreement. Subject to the immediately following sentence, the Contract Rate shall not be less than seven percent (7%). The Contract Rate shall be adjusted as follows: if (i) the Company shall have registered the shares of the Company's common stock underlying the conversion of this Note and that certain warrant issued to Holder of even date herewith on a registration statement declared effective by the Securities Exchange Commission, and (ii) the volume weighted average price of the Common Stock as reported by Bloomberg, L.P. on the principal market for the Common Stock for any of the ten (10) trading days immediately preceding an Interest Payment Date (defined below) exceeds the then applicable Fixed Conversion Price (as hereinafter defined) by twenty five percent (25%), the Contract Rate for the succeeding calendar month shall automatically be reduced by twenty five basis points (25 b.p.) for such period PROVIDED, HOWEVER, that in no event will the Contract Rate hereunder be reduced to less than 0.00%.. Interest shall be payable monthly in arrears commencing on December 1, 2003 and on the first day of each consecutive calendar month thereafter, (each, an "INTEREST PAYMENT DATE"). ARTICLE II ADVANCES, BORROWER CONVERSION RIGHTS, PAYMENTS UNDER NOTE 2.1. MECHANICS OF ADVANCES. All Loans evidenced by this Note shall be made in accordance with the terms and provisions of the Security Agreement. 2.2. FIXED CONVERSION PRICE. For purposes hereof, subject to Section 3.5 hereof, the "FIXED CONVERSION PRICE" means $0.77. 2.3. NO EFFECTIVE REGISTRATION. Notwithstanding anything to the contrary herein, the Borrower shall be prohibited from exercising its right to repay any amount hereunder in shares of Common Stock if at any time from the Call Date (defined below) for such payment through the date upon which such payment is made by delivery of certificates for shares of Common Stock, there fails to exist an effective current Registration Statement (as defined in the Registration Rights Agreement) covering the shares of Common Stock to be issued, or if an Event of Default hereunder exists and is continuing, unless such requirement is otherwise waived in writing by the Holder in whole or in part at the Holder's option. 2.4. OPTIONAL PAYMENTS IN COMMON STOCK. Subject to Section 2.3 hereof, if the Company elects to pay interest or prepay principal and the average closing price of the Common Stock on the Principal Market is greater than 110% of the Fixed Conversion Price for a period of at least five (5) consecutive trading days, then the Borrower may, AT ITS SOLE OPTION, provide the Holder written notice (a "CALL NOTICE") requiring the conversion at the Fixed Conversion Price of all or a portion of the outstanding interest or principal of this Note (subject to compliance with Section 2.3 and 3.2), together with accrued interest on the amount being prepaid, as of the date set forth in such Call Notice (the "CALL DATE"). The Call Date shall be at least ten (10) trading days following the date of the Call Notice. On the Call Date the Borrower shall deliver to the Holder certificates evidencing the shares of Common Stock issued in satisfaction of the principal and/or interest being retired. Notwithstanding the foregoing, the Borrower's right to issue shares of Common Stock in payment of obligations under this Note shall be subject to the limitation that the number of shares of Common Stock issued in connection with any Call Notice shall not exceed 25% of the aggregate dollar trading volume of the Common Stock for the ten (10) trading days immediately preceding the Call Date (as such volume is reported by Bloomberg, L.P.). If the price of the Common Stock falls below 110% of the Fixed Conversion Price during the ten (10) trading day period immediately preceding the Call Date, then the Holder will then be required to convert only such amount of the Note as shall equal twenty five percent (25%) of the aggregate dollar trading volume (as such volume is reported by Bloomberg L.P.) for each day that the Common Stock has exceeded 110% of the 2 then applicable Fixed Conversion Price. The Borrower shall not be permitted to give the Holder more than one Call Notice under this Note during any 22-day period. 2.5 Optional Redemption in Cash. The Borrower will have the option of prepaying this Note in full ("OPTIONAL REDEMPTION") by paying to the Holder a sum of money equal to one hundred fifteen percent (115%) of the principal amount of this Note together with accrued but unpaid interest thereon and any and all other sums due, accrued or payable to the Holder arising under this Note, the Security Agreement, or any Ancillary Agreement (as defined in the Security Agreement) (the "REDEMPTION AMOUNT") outstanding on the day written notice of redemption (the "NOTICE OF REDEMPTION") is given to the Holder, which Notice of Redemption shall specify the date for such Optional Redemption (the "REDEMPTION PAYMENT DATE"). A Notice of Redemption shall not be effective with respect to any portion of this Note for which the Holder has a pending election to convert pursuant to Section 3.1 and the Redemption Amount shall be determined as if such election to convert had been completed immediately prior to the date of the Notice of Redemption. The Redemption Payment Date shall not be earlier than the day after the date of the Notice of Redemption and not later than seven (7) days after the date of the Notice of Redemption. On the Redemption Payment Date, the Redemption Amount must be paid in good funds to the Holder. In the event the Borrower fails to pay the Redemption Amount by the Redemption Payment Date, then such Redemption Notice will be null and void. ARTICLE III HOLDER'S CONVERSION RIGHTS 3.1. OPTIONAL CONVERSION. Subject to the terms of this Article III, the Holder shall have the right, but not the obligation, at any time until the Maturity Date, or thereafter during an Event of Default (as defined in Article IV), and, subject to the limitations set forth in Section 3.2 hereof, to convert all or any portion of the outstanding principal amount and/or accrued interest and fees due and payable into fully paid and nonassessable shares of the Common Stock at the Fixed Conversion Price. The shares of Common Stock to be issued upon such conversion are herein referred to as the "CONVERSION SHARES." 3.2. CONVERSION LIMITATION. Notwithstanding anything contained herein to the contrary, the Holder shall not be entitled to convert pursuant to the terms of this Note an amount that would be convertible into that number of Conversion Shares which would exceed the difference between the number of shares of Common Stock beneficially owned by such Holder or issuable upon exercise of warrants held by such Holder and 4.99% of the outstanding shares of Common Stock of the Borrower. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. The Conversion Shares limitation described in this Section 3.2 shall automatically become null and void without any notice to Borrower upon the occurrence and during the continuance beyond any applicable grace period of an Event of Default, or upon 75 days prior notice to the Borrower. 3.3. MECHANICS OF HOLDER'S CONVERSION. In the event that the Holder elects to convert this Note into Common Stock, the Holder shall give notice of such election by delivering an executed and completed notice of conversion ("NOTICE OF CONVERSION") to the Borrower and 3 such Notice of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued interest and fees, if any, that are being converted. On each Conversion Date (as hereinafter defined) and in accordance with its Notice of Conversion, the Holder shall make the appropriate reduction to the Principal Amount, accrued interest and fees as entered in its records and shall provide written notice thereof to the Borrower within two (2) business days after the Conversion Date. Each date on which a Notice of Conversion is delivered or telecopied to the Borrower in accordance with the provisions hereof shall be deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of Conversion to be employed by the Holder is annexed hereto as Exhibit A. Pursuant to the terms of the Notice of Conversion, the Borrower will issue instructions to the transfer agent accompanied by an opinion of counsel within two (2) business days of the date of the delivery to Borrower of the Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder by crediting the account of the Holder's designated broker with the Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business days after receipt by the Borrower of the Notice of Conversion (the "DELIVERY DATE"). In the case of the exercise of the conversion rights set forth herein the conversion privilege shall be deemed to have been exercised and the Conversion Shares issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Borrower of the Notice of Conversion. The Holder shall be treated for all purposes as the record holder of such Common Stock, unless the Holder provides the Borrower written instructions to the contrary. 3.4. LATE PAYMENTS. The Borrower understands that a delay in the delivery of the shares of Common Stock in the form required pursuant to this Article beyond the Delivery Date could result in economic loss to the Holder. As compensation to the Holder for such loss, the Borrower agrees to pay late payments to the Holder for late issuance of such shares in the form required pursuant to this Article III upon conversion of the Note, in the amount equal to $500 per business day after the Delivery Date. The Borrower shall pay any payments incurred under this Section in immediately available funds upon demand. 3.5. ADJUSTMENT PROVISIONS. The Fixed Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.2 shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows: A. RECLASSIFICATION, ETC. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change. B. STOCK SPLITS, COMBINATIONS AND DIVIDENDS. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Fixed Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such 4 event bears to the total number of shares of Common Stock outstanding immediately prior to such event. C. SHARE ISSUANCES. Subject to the provisions of this Section 3.5, if the Borrower shall at any time prior to the conversion or repayment in full of the Principal Amount issue any shares of Common Stock to a person other than the Holder (except (i) pursuant to Subsections A or B above; (ii) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof as disclosed to Holder in writing; or (iii) pursuant to options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Borrower) for a consideration per share (the "OFFER PRICE") less than the Fixed Conversion Price in effect at the time of such issuance, then the Fixed Conversion Price shall be immediately reset to such lower Offer Price. For purposes hereof, the issuance of any security of the Borrower convertible into or exercisable or exchangeable for Common Stock shall result in an adjustment to the Fixed Conversion Price at the time of issuance of such securities. D. COMPUTATION OF CONSIDERATION. For purposes of any computation respecting consideration received pursuant to Subsection C above, the following shall apply: (a) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Borrower for any underwriting of the issue or otherwise in connection therewith; (b) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Borrower (irrespective of the accounting treatment thereof); and (c) upon any such exercise, the aggregate consideration received for such securities shall be deemed to be the consideration received by the Borrower for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Borrower upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (a) and (b) of this Subsection (D)). 3.6. RESERVATION OF SHARES. During the period the conversion right set forth in this Article III exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. The Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. 3.7. REGISTRATION RIGHTS. The Holder has been granted registration rights with respect to the shares of Common Stock issuable upon conversion of this Note as more fully set forth in a Registration Rights Agreement dated the date hereof. 5 ARTICLE IV EVENTS OF DEFAULT The occurrence of any of the following events is an Event of Default ("EVENT OF DEFAULT"): 4.1. FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The Borrower fails to pay when due any installment of principal, interest or other fees hereon or on any other promissory note issued pursuant to the Security Agreement, when due in accordance with the terms of such note. 4.2. BREACH OF COVENANT. The Borrower breaches any covenant or other term or condition of this Note in any material respect and such breach, if subject to cure, continues for a period of thirty (30) days after the occurrence thereof. 4.3. BREACH OF REPRESENTATIONS AND WARRANTIES. Any material representation or warranty of the Borrower made herein, or the Security Agreement, or in any Ancillary Agreement shall be materially false or misleading. 4.4. STOP TRADE. An SEC stop trade order or Principal Market trading suspension of the Common Stock shall be in effect for 5 consecutive days or 5 days during a period of 10 consecutive days, excluding in all cases a suspension of all trading on a Principal Market, provided that the Borrower shall not have been able to cure such trading suspension within 30 days of the notice thereof or list the Common Stock on another Principal Market within 60 days of such notice. The "PRINCIPAL MARKET" for the Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock), or any securities exchange or other securities market on which the Common Stock is then being listed or traded. 4.5. DEFAULT UNDER RELATED AGREEMENT. The occurrence of an Event of Default under and as defined in the Security Agreement and/or the Ancillary Agreements . 4.6 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The Borrower's failure to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note, and Section 9 of the Security Agreement, or if required, a replacement Note if such failure to timely deliver Common Stock shall not be cured within two (2) business days or such failure to deliver a replacement Note is not cured within seven (7) business days. 4.7 PAYMENT GRACE PERIOD. The Borrower shall have a three (3) business day grace period to pay any monetary amounts due under this Note or the Security Agreement or any Ancillary Agreements, after which grace period a default interest rate of five percent (5%) per annum above the then applicable interest rate hereunder shall apply to the monetary amounts due. 6 ARTICLE V DEFAULT PAYMENTS 5.1. DEFAULT PAYMENT. If an Event of Default occurs, the Holder, at its option, may elect, in addition to all rights and remedies of Holder under the Security Agreement and all obligations of Borrower under the Security Agreement, by written notice to the Borrower to require the Borrower to make a Default Payment ("DEFAULT Payment"). The Default Payment shall be the outstanding principal amount of the Note, plus accrued but unpaid interest, all other fees then remaining unpaid, and all other amounts payable hereunder. 5.2. DEFAULT PAYMENT DATE AND DEFAULT NOTICE PERIOD. The Default Payment shall be due and payable on the fifth business day after an Event of Default has occurred and is continuing beyond any applicable grace period ("DEFAULT PAYMENT DATE"). The period between date upon which of an Event of Default has occurred and is continuing beyond any applicable grace period and the Default Payment Date shall be the "DEFAULT PERIOD." If during the Default Period, the Borrower cures the Event of Default, the Event of Default will no longer exist and any additional rights the Holder had triggered by the occurrence and continuance of an Event of Default will no longer exist. If the Event of Default is not cured during the Default Notice Period, all amounts payable hereunder shall be due and payable on the Default Payment Date, all without further demand, presentment or notice, or grace period, all of which hereby are expressly waived. 5.3. DEFAULT INTEREST RATE. Following the occurrence and during the continuance of an Event of Default beyond any applicable cure period, interest on this Note shall automatically be increased to one and one half percent (1.5%) per month, and all outstanding Obligations, including unpaid interest, shall continue to accrue interest from the date of such Event of Default at such interest rate applicable to such Obligations until such Event of Default is cured or waived 5.4. CUMULATIVE REMEDIES. The remedies under this Note shall be cumulative. ARTICLE VI MISCELLANEOUS 6.1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 6.2. NOTICES. Any notice herein required or permitted to be given shall be in writing and provided in accordance with the terms of the Security Agreement. 6.3. AMENDMENT PROVISION. The term "NOTE" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later 7 amended or supplemented, then as so amended or supplemented, and any successor instrument as it may be amended or supplemented. 6.4. ASSIGNABILITY. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder in accordance with the requirements of the Security Agreement. 6.5. COST OF COLLECTION. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys' fees. 6.6. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the city of New York, the state of New York. Both parties and the individual signing this Note on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower's obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court order in favor of Holder. 6.7. MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower. 6.8. SECURITY INTEREST. The Holder of this Note has been granted a security interest in certain assets of the Borrower more fully described in the Security Agreement dated as of November ___, 2003. 6.9. CONSTRUCTION. Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other. [Balance of page intentionally left blank; signature page follows.] 8 IN WITNESS WHEREOF, the Borrower has caused this Secured Convertible Revolving Note to be signed in its name effective as of this 20th day of November, 2003. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: /s/ Andrew Glashow --------------------------------- Name: Andrew Glashow Title: President WITNESS: - --------------------------------------- 9 NOTICE OF CONVERSION (To be executed by the Holder in order to convert the Note) The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Secured Convertible Revolving Note issued by VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. on September 11, 2003 into Shares of Common Stock of VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. (the "BORROWER") according to the conditions set forth in such Note, as of the date written below. Date of Conversion: --------------------------------------------------------- Conversion Price: --------------------------------------------------------- Shares To Be Delivered: --------------------------------------------------------- Signature: --------------------------------------------------------- Print Name: --------------------------------------------------------- Address: --------------------------------------------------------- --------------------------------------------------------- Holder DWAC instructions --------------------------------------------------------- EX-10.72 14 c30085_ex10-72.txt Exhibit 10.72 THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH COMMON SHARES, AS APPLICABLE, UNDER SAID ACT AND ANY APPLICABLE STATES SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED. SECURED REVOLVING NOTE ---------------------- FOR VALUE RECEIVED, VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. a Utah corporation (the "BORROWER") promises to pay to LAURUS MASTER FUND, LTD., c/o Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the "HOLDER") or its registered assigns, on order, the sum of up to TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000) without duplication of any amounts owing by Borrower to Holder under the Minimum Borrowing Notes (as defined in the Security Agreement referred to below), or , if different, the aggregate principal amount of all "Loans" (as such term is defined in the Security Agreement referred to below), together with any accrued and unpaid interest hereon, on November 20, 2006 (the "MATURITY DATE"). Capitalized terms used herein without definition shall have the meanings ascribed to such terms in the Security Agreement between Borrower and the Holder dated as of November 20, 2003 (as amended, modified and supplemented from time to time, the "SECURITY AGREEMENT"). The following terms shall apply to this Note: ARTICLE I INTEREST & PREPAYMENTS 1.1. INTEREST RATE AND PAYMENTS. Subject to Sections 5.3 and 6.7 hereof, interest payable on this Note shall accrue at a rate per annum equal to the "prime rate" published in THE WALL STREET JOURNAL from time to time, plus three percent (3%) (the "CONTRACT RATE"). 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 in accordance with the terms of the Security Agreement. Subject to the immediately following sentence, the Contract Rate hall not be less than seven percent (7%). The Contract Rate shall be adjusted as follows: if (i) the Company shall have registered the shares of the Company's common stock underlying the 10 conversion of all currently issued and outstanding Minimum Borrowing Notes and that certain warrant issued to Holder of even date herewith on a registration statement declared effective by the Securities Exchange Commission, 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 a Interest Payment Date (defined below) exceeds the then applicable Fixed Conversion Price by twenty five percent (25%), the Contract Rate for the succeeding calendar month shall automatically be reduced by twenty five basis points (25 b.p.) for such period PROVIDED, HOWEVER, that in no event will the Contract Rate hereunder be reduced to less than 0.00%. Interest shall be payable monthly in arrears commencing on December 1, 2003 and on the first day of each consecutive calendar month thereafter, (each, an "INTEREST PAYMENT DATE"). 1.2. OPTIONAL PREPAYMENT IN CASH. The Borrower will have the option of prepaying this Note in full or in part at any time in an amount equal to 115% of the amount being prepaid. 1.3 ALLOCATION OF OUTSTANDING PRINCIPAL TO MINIMUM BORROWING NOTE. In the event that the amount due and payable hereunder should equal or exceed $1,000,000, to the extent that the outstanding balance on Minimum Borrowing Note shall be less than $1,500,000 (the difference of $1,500,000 less the actual balance of the Minimum Borrowing Note, the "Available Minimum Borrowing"), such portion of the balance hereof 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 next additional Minumum Borrowing Note (e.g., the Available Minimum Borrowing shall remain $0). ARTICLE II HOLDER'S CONVERSION RIGHTS 2.1. OPTIONAL CONVERSION. Subject to the terms of this Article II, the Holder shall have the right, but not the obligation, at any time until the Maturity Date, or thereafter during an Event of Default (as defined in Article IV), and, subject to the limitations set forth in Section 2.2 hereof, to convert all or any portion of the outstanding Principal Amount and/or accrued interest and fees due and payable into fully paid and nonassessable shares of the Common Stock at the Fixed Conversion Price. For purposes hereof, subject to Section 3.5 hereof, the "FIXED CONVERSION PRICE" means $0.77. The shares of Common Stock to be issued upon such conversion are herein referred to as the "CONVERSION SHARES." 2.2. CONVERSION LIMITATION. Notwithstanding anything contained herein to the contrary, the Holder shall not be entitled to convert pursuant to the terms of this Note an amount that would be convertible into that number of Conversion Shares which would exceed the difference between the number of shares of Common Stock beneficially owned by such Holder or issuable upon exercise of warrants held by such Holder and 4.99% of the outstanding shares of Common Stock of the Borrower. For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. The Conversion Shares limitation described in this Section 2.2 2 shall automatically become null and void without any notice to Borrower upon the occurrence and during the continuance beyond any applicable grace period of an Event of Default, or upon 75 days prior notice to the Borrower. 2.3. MECHANICS OF HOLDER'S CONVERSION. In the event that the Holder elects to convert this Note into Common Stock, the Holder shall give notice of such election by delivering an executed and completed notice of conversion ("NOTICE OF CONVERSION") to the Borrower and such Notice of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued interest and fees that are being converted. On each Conversion Date (as hereinafter defined) and in accordance with its Notice of Conversion, the Holder shall make the appropriate reduction to the Principal Amount, accrued interest and fees as entered in its records and shall provide written notice thereof to the Borrower within two (2) business days after the Conversion Date. Each date on which a Notice of Conversion is delivered or telecopied to the Borrower in accordance with the provisions hereof shall be deemed a Conversion Date (the "CONVERSION DATE"). A form of Notice of Conversion to be employed by the Holder is annexed hereto as Exhibit A. Pursuant to the terms of the Notice of Conversion, the Borrower will issue instructions to the transfer agent accompanied by an opinion of counsel within two (2) business days of the date of the delivery to Borrower of the Notice of Conversion and shall cause the transfer agent to transmit the certificates representing the Conversion Shares to the Holder by crediting the account of the Holder's designated broker with the Depository Trust Corporation ("DTC") through its Deposit Withdrawal Agent Commission ("DWAC") system within three (3) business days after receipt by the Borrower of the Notice of Conversion (the "DELIVERY DATE"). In the case of the exercise of the conversion rights set forth herein the conversion privilege shall be deemed to have been exercised and the Conversion Shares issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Borrower of the Notice of Conversion. The Holder shall be treated for all purposes as the record holder of such Common Stock, unless the Holder provides the Borrower written instructions to the contrary. 2.4. LATE PAYMENTS. The Borrower understands that a delay in the delivery of the shares of Common Stock in the form required pursuant to this Article beyond the Delivery Date could result in economic loss to the Holder. As compensation to the Holder for such loss, the Borrower agrees to pay late payments to the Holder for late issuance of such shares in the form required pursuant to this Article III upon conversion of the Note, in the amount equal to $500 per business day after the Delivery Date. The Borrower shall pay any payments incurred under this Section in immediately available funds upon demand. 2.5. ADJUSTMENT PROVISIONS. The Fixed Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1 shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows: A. RECLASSIFICATION, ETC. If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change. 3 B. STOCK SPLITS, COMBINATIONS AND DIVIDENDS. If the shares of Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Fixed Conversion Price shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event. C. SHARE ISSUANCES. Subject to the provisions of this Section 2.5, if the Borrower shall at any time prior to the conversion or repayment in full of the Principal Amount issue any shares of Common Stock to a person other than the Holder (except (i) pursuant to Subsections A or B above; (ii) pursuant to options, warrants, or other obligations to issue shares outstanding on the date hereof as disclosed to Holder in writing; or (iii) pursuant to options that may be issued under any employee incentive stock option and/or any qualified stock option plan adopted by the Borrower) for a consideration per share (the "OFFER PRICE") less than the Fixed Conversion Price in effect at the time of such issuance, then the Fixed Conversion Price shall be immediately reset to such lower Offer Price. For purposes hereof, the issuance of any security of the Borrower convertible into or exercisable or exchangeable for Common Stock shall result in an adjustment to the Fixed Conversion Price only upon the conversion, exercise or exchange of such securities. D. COMPUTATION OF CONSIDERATION. For purposes of any computation respecting consideration received pursuant to Subsection C above, the following shall apply: (a) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Borrower for any underwriting of the issue or otherwise in connection therewith; (b) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Borrower (irrespective of the accounting treatment thereof); and (c) upon any such exercise, the aggregate consideration received for such securities shall be deemed to be the consideration received by the Borrower for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Borrower upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (a) and (b) of this Subsection (D)). 2.6. RESERVATION OF SHARES. During the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. The Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing 4 and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note. ARTICLE III EVENTS OF DEFAULT The occurrence of any of the following events is an Event of Default ("EVENT OF DEFAULT"): 3.1. FAILURE TO PAY PRINCIPAL, INTEREST OR OTHER FEES. The Borrower fails to pay when due any installment of principal, interest or other fees hereon or on any other Note issued pursuant to the Security Agreement, when due in accordance with the terms of such Note. 3.2. BREACH OF COVENANT. The Borrower breaches any covenant or other term or condition of this Note in any material respect and such breach, if subject to cure, continues for a period of thirty (30) days after the occurrence thereof. 3.3. BREACH OF REPRESENTATIONS AND WARRANTIES. Any material representation or warranty of the Borrower made herein, or the Security Agreement, or in any Ancillary Agreement shall be materially false or misleading. 3.4. STOP TRADE. An SEC stop trade order or Principal Market trading suspension of the Common Stock shall be in effect for 5 consecutive days or 5 days during a period of 10 consecutive days, excluding in all cases a suspension of all trading on a Principal Market, provided that the Borrower shall not have been able to cure such trading suspension within 30 days of the notice thereof or list the Common Stock on another Principal Market within 60 days of such notice. The "Principal Market" for the Common Stock shall include the NASD OTC Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New York Stock Exchange (whichever of the foregoing is at the time the principal trading exchange or market for the Common Stock), or any securities exchange or other securities market on which the Common Stock is then being listed or traded. 3.5. DEFAULT UNDER RELATED AGREEMENT. The occurrence of an Event of Default under and as defined in the Security Agreement. 3.6. FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. The Borrower's failure to timely deliver Common Stock to the Holder pursuant to and in the form required by this Note and Section 9 of the Security Agreement if such failure to timely deliver Common Stock shall not be cured within two (2) business days, or if required, the Borrower is required to issue to Holder a replacement Note, and the Borrower's failure to deliver a replacement Note is not cured within seven (7) business days. 3.7. PAYMENT GRACE PERIOD. The Borrower shall have a three (3) business day grace period to pay any monetary amounts due under this Note or the Security Agreement or any Related Document, after which grace period a default interest rate of five percent (5%) per annum above the then applicable interest rate hereunder shall apply to the monetary amounts due. 5 ARTICLE IV DEFAULT PAYMENTS 4.1. DEFAULT PAYMENT. If an Event of Default occurs, the Holder, at its option, may elect, in addition to all rights and remedies of Holder under the Security Agreement and all obligations of Borrower under the Security Agreement, to require the Borrower to make a Default Payment ("DEFAULT PAYMENT"). The Default Payment shall be the outstanding principal amount of the Note, plus accrued but unpaid interest, all other fees then remaining unpaid, and all other amounts payable hereunder. 4.2. DEFAULT PAYMENT DATE AND DEFAULT NOTICE PERIOD. The Default Payment shall be due and payable on the fifth business day after an Event of Default as defined in Article III ("DEFAULT PAYMENT DATE") has occurred and is continuing beyond any applicable grace period. The period between date upon which of an Event of Default has occurred and is continuing beyond any applicable grace period and the Default Payment Date shall be the "DEFAULT PERIOD." If during the Default Period, the Borrower cures the Event of Default, the Event of Default will no longer exist and any additional rights the Holder had triggered by the occurrence and continuance of an Event of Default will no longer exist. If the Event of Default is not cured during the Default Notice Period, all amounts payable hereunder shall be due and payable on the Default Payment Date, all without further demand, presentment or notice, or grace period, all of which hereby are expressly waived. 4.3. DEFAULT INTEREST RATE. Following the occurrence and during the continuance of an Event of Default, interest on this Note shall automatically be increased by five percent (5%) per annum, and all outstanding Obligations, including unpaid interest, shall continue to accrue interest from the date of such Event of Default at such interest rate applicable to such Obligations until such Event of Default is cured or waived. 4.4. CUMULATIVE REMEDIES. The remedies under this Note shall be cumulative. ARTICLE V MISCELLANEOUS 5.1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available. 5.2. NOTICES. Any notice herein required or permitted to be given shall be in writing and provided in accordance with the terms of the Security Agreement. 5.3. AMENDMENT PROVISION. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later 6 amended or supplemented, then as so amended or supplemented, and any successor instrument as it may be amended or supplemented. 5.4. ASSIGNABILITY. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns, and may be assigned by the Holder in accordance with the requirements of the Security Agreement. 5.5. COST OF COLLECTION. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys' fees. 5.6. GOVERNING LAW. This Note shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the city of New York, the state of New York. Both parties and the individual signing this Note on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower's obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court order in favor of Holder. 5.7. MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower. 5.8. SECURITY INTEREST. The Holder of this Note has been granted a security interest in certain assets of the Borrower more fully described in a Security Agreement dated as of November __, 2003. 5.9. CONSTRUCTION. Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other. [Balance of page intentionally left blank; signature page follows.] 7 IN WITNESS WHEREOF, the Borrower has caused this Secured Convertible Revolving Note to be signed in its name effective as of this 20th day of November, 2003. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: /s/ Andrew Glashow --------------------------------- Name: Andrew Glashow Title: President WITNESS: - -------------------------------------- 8 NOTICE OF CONVERSION -------------------- (To be executed by the Holder in order to convert the Note) The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Secured Convertible Revolving Note issued by Ventures-National Incorporated d/b/a Titan General Holdings, Inc. on _______ __, 2003 into shares of Common Stock of Ventures-National Incorporated d/b/a Titan General Holdings, Inc. (the "Borrower") according to the conditions set forth in such Note, as of the date written below. Date of Conversion: ------------------------------------------------------- Conversion Price: ------------------------------------------------------- Shares To Be Delivered: ------------------------------------------------------- Signature: ------------------------------------------------------- Print Name: ------------------------------------------------------- Address: ------------------------------------------------------- Holder DWAC instructions ------------------------------------------------------- 9 EX-10.73 15 c30085_ex10-73.txt Exhibit 10.73 LAURUS MASTER FUND, LTD. and VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC., Dated: November 20, 2003 TABLE OF CONTENTS PAGE ---- 1. (a) General Definitions ............................................. 1 (b) Accounting Terms ................................................ 1 (c) Other Terms ..................................................... 1 (d) Rules of Construction ........................................... 1 2. Loans ................................................................. 2 3. Repayment of the Loans Company ........................................ 4 4. Procedure for Loans ................................................... 4 5. Interest and Payments ................................................. 4 (a) Interest ........................................................ 4 (b) Payments ........................................................ 5 6. Security Interest ..................................................... 5 7. Representations, Warranties and Covenants Concerning the Collateral ... 6 8. Payment of Accounts ................................................... 9 9. Collection and Maintenance of Collateral .............................. 9 10. Inspections and Appraisals ............................................ 10 11. Financial Reporting ................................................... 10 12. Additional Representations and Warranties ............................. 11 13. Covenants ............................................................. 14 14. Further Assurances .................................................... 16 15. Power of Attorney ..................................................... 16 16. Term of Agreement ..................................................... 17 17. Termination of Lien ................................................... 17 18. Events of Default ..................................................... 17 19. Remedies .............................................................. 19 i PAGE(S) ------- 20. Waivers ............................................................... 20 21. Expenses .............................................................. 20 22. Assignment By Laurus .................................................. 21 23. No Waiver; Cumulative Remedies ........................................ 21 24. Application of Payments ............................................... 22 25. Indemnity ............................................................. 22 26. Revival ............................................................... 22 27. Notices ............................................................... 22 28. Governing Law, Jurisdiction and Waiver of Jury Trial .................. 23 29. Limitation of Liability ............................................... 24 30. Entire Understanding .................................................. 24 31. Severability .......................................................... 24 32. Captions .............................................................. 25 33. Counterparts; Telecopier Signatures ................................... 25 34. Construction .......................................................... 25 35. Publicity ............................................................. 25 36. Legends ............................................................... 25 ii SECURITY AGREEMENT This Security Agreement is made as of November 20, 2003 by and between LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus") and Ventures-National Incorporated d/b/a Titan General Holdings, Inc., a Utah corporation (the "Company"). BACKGROUND Company has requested that Laurus make advances available to Company; and Laurus has agreed to make such advances to Company 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 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. 13 2. Loans. (i) Subject to the terms and conditions set forth herein and in the Ancillary Agreements, Laurus may make loans (the "Loans") to Company from time to time during the Term which, in the aggregate at any time outstanding, will not exceed the lesser of (x) (I) the Capital Availability Amount minus (II) such reserves as Laurus may reasonably in its good faith judgment deem proper and necessary from time to time (the "Reserves") 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 $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 $1,000,000, to the extent that the outstanding balance on Minimum Borrowing Note shall be less than $1,500,000 (the difference of $1,500,000 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 next additional Minimum Borrowing Note (e.g., the Available Minimum Borrowing shall remain $0). (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. (v) If Company at any time fails to perform or observe any of the covenants contained in this Agreement or any Ancillary Agreement, Laurus may, but need not, perform or observe such covenant on behalf and in the name, place and stead of Company (or, at Laurus' option, in Laurus' name) and may, but need not, take any and all other actions which Laurus may deem necessary to cure or correct such failure (including the payment of taxes, the satisfaction of Liens, the performance of obligations owed to Account Debtors, lessors or other obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments). The amount of all 2 monies expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by Laurus in connection with or as a result of the performance or observance of such agreements or the taking of such action by Laurus shall be charged to Company's account as a Loan and added to the Obligations. To facilitate Laurus' performance or observance of such covenants of Company, Company hereby irrevocably appoints Laurus, or Laurus' delegate, acting alone, as Company's attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of Company any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed delivered or endorsed by Company. (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), Company shall be deemed to hereby have sold, assigned, transferred, conveyed and delivered to Laurus, and Laurus shall be deemed to have purchased and received from Company, all right, title and interest of Company in and to all Accounts which shall at any time constitute Eligible Accounts (the "Receivables Purchase"). All outstanding Loans hereunder shall be deemed obligations under such accounts receivable purchase facility. The conversion to an accounts receivable purchase facility in accordance with the terms hereof shall not be deemed an exercise by Laurus of its secured creditor rights under Article 9 of the UCC. Immediately following Laurus' request, Company shall execute all such further documentation as may be required by Laurus to more fully set forth the accounts receivable purchase facility herein contemplated, including, without limitation, account debtor notification letters, but Company's failure to enter into any such documentation shall not impair or affect the Receivables Purchase in any manner whatsoever. 3 (c) Minimum Borrowing Amount. After a registration statement registering the Registrable Securities (as defined in the Registration rights Agreement) has been declared effective by the SEC, conversions of the Minimum Borrowing Amount into the Common Stock of the Company may be initiated as set forth in the Notes. 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 (and the corresponding amounts shall be deducted from loans under the Revolving Note) until they reach the sum of $1,500,000 and (ii) the Company will issue a new (serialized) Minimum Borrowing Note to Laurus in respect of such $1,500,000 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 to 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 5:00 p.m. (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. 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. 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. 4 (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 until such time as the Event of Default no longer exists or is waived. (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 Company and Laurus, Company shall pay to Laurus Capital Management, LLC a closing payment in an amount equal to three and six tenths percent (3.6%) 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 ("Overadvances"), in the event an Overadvance occurs or is made by Laurus, all such Overadvances shall bear interest at an annual rate equal to two percent (2%) 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 Company 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 5 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, Company hereby assigns, pledges and grants to Laurus a continuing security interest in and Lien upon all of the Collateral. All of Company's Books and Records relating to the Collateral shall, until delivered to or removed by Laurus, be kept by Company in trust for Laurus until all Obligations have been paid in full. Each confirmatory assignment schedule or other form of assignment hereafter executed by Company shall be deemed to include the foregoing grant, whether or not the same appears therein. (b) Company hereby (i) authorizes Laurus to file any financing statements, continuation statements or amendments thereto that (x) indicate the Collateral (1) as all assets of Company or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC of such jurisdiction, or (2) as being of an equal or lesser scope or with greater detail, and (y) contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment and (ii) ratifies its authorization for Laurus to have filed any initial financial statements, or amendments thereto if filed prior to the date hereof. Company acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed by or on behalf of Laurus without the prior written consent of Laurus and agrees that it will not do so without the prior written consent of Laurus, subject to Company's rights under Section 9-509(d)(2) of the UCC. (c) Company hereby grants to Laurus an irrevocable, non-exclusive license (exercisable upon the termination of this Agreement due to an occurrence and during the continuance of an Event of Default without payment of royalty or other compensation to Company) to use, transfer, license or sublicense any Intellectual Property now owned, licensed to, to the extent permitted by the applicable license agreement or hereafter acquired by Company, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer and automatic machinery software and programs used for the compilation or printout thereof, and represents, promises and agrees that, to the knowledge of the Company, any such license or sublicense is not and will not be in conflict with the contractual or commercial rights of any third Person; provided, that such license will terminate on the termination of this Agreement and the payment in full of all Obligations. 7. Representations, Warranties and Covenants Concerning the Collateral. Company represents, warrants (each of which such representations and warranties shall be deemed repeated upon the making of each request for a Loan and made as of the time of each and every Loan hereunder) and covenants as follows: (a) all of the Collateral (i) is owned by Company free and clear of all Liens (including any claims of infringement) except those in Laurus' favor and Permitted Liens and (ii) 6 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) Company shall not encumber, mortgage, pledge, assign or grant any Lien in any Collateral of Company or any of Company'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 Company 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) Company shall not dispose of any of the Collateral whether by sale, lease or otherwise except for the sale of Inventory in the ordinary course of business and for the disposition or transfer in the ordinary course of business during any fiscal year of obsolete and worn-out Equipment having an aggregate fair market value of not more than $25,000 and only to the extent that (i) the proceeds of any such disposition are used to acquire replacement Equipment which is subject to Laurus' first priority security interest or are used to repay Loans or to pay general corporate expenses, or (ii) following the occurrence of an Event of Default which continues to exist the proceeds of which are remitted to Laurus to be held as cash collateral for the Obligations. (f) Company 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 Company, 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 Company (in each case, accompanied by stock powers, allonges or other instruments of transfer executed in blank), (iii) notification of Laurus' interest in Collateral at Laurus' request, and (iv) the institution of litigation against third parties as shall be prudent in order to protect and preserve Company's and Laurus' respective and several interests in the Collateral. (g) Company 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, Company shall enter into a supplement to this Agreement granting to Laurus a Lien in such commercial tort claim. 7 (h) Company shall place notations upon its Books and Records and any financial statement of Company to disclose Laurus' Lien in the Collateral. (i) If Company 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) Company 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) Company 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 Company's knowledge would cause Laurus to consider any then existing Account as no longer constituting an Eligible Account; (ii) of any material delay in Company'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 Company to any Account Debtor; (v) of all material adverse information relating to the financial condition of an Account Debtor; (vi) of any material return of goods; and (vii) of any material loss, damage or destruction of any of the Collateral. (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 Company'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 Company. Company has not made, and will not make, unless commercially reasonable, 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 Company in the ordinary course of its business consistent with historical practice and as previously disclosed to Laurus in writing. (m) Company shall keep and maintain its Equipment in good operating condition, except for ordinary wear and tear, and shall make all necessary repairs and replacements thereof so that the value and operating efficiency shall at all times be maintained and preserved. Company shall not permit any such items to become a Fixture to real estate or accessions to other personal property. (n) Company shall maintain and keep all of its Books and Records concerning the Collateral at Company's executive offices listed in Exhibit 12(d). (o) Company shall maintain and keep the tangible Collateral at the addresses listed in Exhibit 12(d), provided, that Company may change such locations or open a new location, provided that (i) Company provides Laurus at least thirty (30) days prior written notice 8 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, Company 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 Company 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 Company 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) Company will irrevocably direct all of its present and future Account Debtors and other Persons obligated to make payments constituting Collateral to make such payments directly to the lockbox maintained by Company (the "Lockbox") with Commerce Bank (the "Lockbox Bank") pursuant to the terms of the Clearing Account Agreement dated November 20, 2003 or such other financial institution accepted by Laurus in writing as may be selected by Company. On or prior to the Closing Date, Company shall and shall cause the Lockbox Bank to enter into all such documentation acceptable to Laurus pursuant to which, among other things, the Lockbox Bank agrees to: (a) sweep the Lockbox account (number #7916375160) on a daily basis and deposit all checks received therein to an account designated by Laurus in writing and (b) comply only with the instructions or other directions of Laurus concerning the Lockbox. All of Company's invoices, account statements and other written or oral communications directing, instructing, demanding or requesting payment of any Account of Company or any other amount constituting Collateral shall conspicuously direct that all payments be made to the Lockbox or such other address as Laurus may direct in writing. If, notwithstanding the instructions to Account Debtors, Company receives any payments, Company shall immediately remit such payments to Laurus in their original form with all necessary endorsements. Until so remitted, Company shall hold all such payments in trust for and as the property of Laurus and shall not commingle such payments with any of its other funds or property. (b) At Laurus' election, following the occurrence of an Event of Default which is continuing, Laurus may notify Company's Account Debtors of Laurus' security interest in the Accounts, collect them directly and charge the reasonable collection costs and expenses thereof to Company's account. 9. Collection and Maintenance of Collateral. (a) Laurus may verify Company's Accounts from time to time, but not more often than once every ninety (90) days unless an Event of Default has occurred and is continuing, utilizing an audit control company or any other agent of Laurus. 9 (b) Proceeds of Accounts received by Laurus will be deemed received on the Business Day of Laurus' receipt of such proceeds in good funds in dollars of the United States of America in Laurus' 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 Accounts, 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 Company hereby grants to Laurus a security interest in such cash collateral amounts as security for the Obligations and/or (c) do any combination of the foregoing. 10. Inspections and Appraisals. At all times during normal business hours, Laurus, and/or any agent of Laurus shall have the right to (a) have access to, visit, inspect, review, evaluate and make physical verification and appraisals of Company's properties and the Collateral, (b) inspect, audit and copy (or take originals if reasonably necessary) and make extracts from Company's Books and Records, including management letters prepared by independent accountants, and (c) discuss with Company's principal officers, and independent accountants, Company's business, assets, liabilities, financial condition, results of operations and business prospects. Company will deliver to Laurus any instrument necessary for Laurus to obtain records from any service bureau maintaining records for Company. If any internally prepared financial information, including that required under this Section is unsatisfactory in any manner to Laurus, Laurus may request that the Accountants review the same. 11. Financial Reporting. Company will deliver, or cause to be delivered, to Laurus each of the following, which shall be in form and detail reasonably acceptable to Laurus: (a) As soon as available, and in any event within ninety (90) days after the end of each fiscal year of Company, Company's audited financial statements with a report of independent certified public accountants of recognized standing selected by Company and acceptable to Laurus (the "Accountants"), which annual financial statements shall include Company's balance sheet as at the end of such fiscal year and the related statements of Company's income, retained earnings and cash flows for the fiscal year then ended, prepared, if Laurus so requests, on a consolidating and 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 Company'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 Company 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 consolidating and consolidated basis to 10 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 Company'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 Company's Accounts, unaudited trial balances and their accounts payable and a calculation of Company'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 (30) 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. Company represents and warrants (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: (a) Company 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 state or jurisdiction in which the nature of Company's 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 certificate of incorporation, by-laws or of any indenture, agreement or undertaking to which Company is a party or by which Company is bound and (iii) are within Company's corporate powers. (c) This Agreement and the Ancillary Agreements executed and delivered by Company are Company's legal, valid and binding obligations, enforceable in accordance with their terms. (d) Exhibit 12(d) sets forth Company's name as it appears in official filing in the state of its incorporation, the type of entity of Company, the organizational identification number issued by Company's state of incorporation or a statement that no such number has been issued, Company's state of incorporation, and the location of Company's chief executive office, corporate offices, warehouses, other locations of Collateral and locations where records with 11 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), Company has not been known as or conducted business in any other name (including trade names). Company has only one state 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 Company's financial condition on a basis consistent with that of previous financial statements and except as reflected in such financial statements there has been no material adverse change in Company'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 Company's financial condition. (h) Company 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 Company. (i) Neither this Agreement, the exhibits and schedules hereto, the Ancillary Agreements nor any other document delivered by Company 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. Assuming that the representations and warranties of Laurus in the documentation relating to such securities is accurate, complete, and correct, tThe 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 Company nor any of its Affiliates, 12 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 12(b) or 12(g) 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-K for the fiscal year ended August 31, 2002 and (ii) its Quarterly Reports on Form 10-Q for the fiscal quarters ended November 30, 2002, February 28, 2003, and May 31, 2003 (collectively, the "SEC Reports"). Each SEC Report, as it may from time to time be amended, 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. (k) The common stock of the Company is listed for trading on 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 delisted from the OTCBB or that the common stock does not meet all requirements for the continuation of such listing. (l) Neither the Company, 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 (other than a concurrent offering to Laurus under a Securities Purchase Agreement between the Company and Laurus dated as of November 20, 2003) 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 13 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 provided in the Registration Rights Agreement and as otherwise 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 or the Registration Rights Agreement executed by Company in favor of Laurus in any material respect. 13. Covenants. Company covenants as follows: (a) Company 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 Company'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) Company will pay or discharge when due all taxes, assessments and governmental charges or levies imposed upon Company 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 Company 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) Company 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 Company'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 event which with the passage of time or 14 giving of notice or both would constitute a default under any agreement for the payment of money to which Company is a party or by which Company or any of Company's properties may be bound the breach of which would have a Material Adverse Effect and (vi) any change in Company's name or any other name used in its business. (e) The Company will not (i) except for Permitted Liens, create, incur, assume or suffer to exist any indebtedness (exclusive of trade debt) whether secured or unsecured other than Company'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 Company 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 Company except as required under the terms of the Company'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 Company's officers and employees not exceeding at any one time an aggregate of $10,000, and (z) existing Subsidiaries of the Company; (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. (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 15 under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. (g) Company will bear the full risk of loss from any loss of any nature whatsoever with respect to the Collateral. At Company's own cost and expense in amounts and with carriers acceptable to Laurus, Company 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 Company'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 Company'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 Company 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 Company 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 Company and the insurer will provide Laurus with at least thirty (30) days notice prior to cancellation or expiration thereof. Company 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 Company and Laurus jointly. If any insurance losses are paid by check, draft or other instrument payable to Company and Laurus jointly, Laurus may endorse Company's name thereon and do such other things as Laurus may deem advisable to reduce the same to cash. Laurus is hereby authorized to adjust and compromise claims. All loss recoveries received by Laurus upon any such insurance may be applied to the Obligations, in such order as Laurus in its sole discretion shall determine or shall otherwise be delivered to the Company. Any surplus shall be paid by Laurus to Company or applied as may be otherwise required by law. Any deficiency thereon shall be paid by Company 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. 14. Further Assurances. At any time and from time to time, upon the written request of Laurus and at the sole expense of Company, Company shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Laurus may request (a) to obtain the full benefits of this Agreement and the Ancillary Agreements, (b) to protect, preserve and maintain Laurus' rights in the Collateral and under this Agreement or any Ancillary Agreement, or (c) to enable Laurus to exercise all or any of the rights and powers herein granted or any Ancillary Agreement. 16 15. Power of Attorney. Company hereby appoints Laurus, or any other Person whom Laurus may designate as Company's attorney, with power to: (i) endorse Company's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into Laurus' possession; (ii) sign Company'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 Company's mail to an address designated by Laurus, and to receive, open and dispose of all mail addressed to Company. Company hereby ratifies and approves all acts of the attorney. Neither Laurus, nor the attorney will be liable for any acts or omissions or for any error of judgment or mistake of fact or law, except for gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as Laurus has a security interest and until the Obligations have been fully satisfied. 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 Company shall have (i) provided Laurus with an executed release of any and all claims which Company may have or thereafter have under this Agreement and all Ancillary Agreements and (ii) paid to Laurus an early payment fee in an amount equal to (1) FIVE PERCENT (5%) 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) FOUR (4%) 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 THREE PERCENT (3%) if such termination occurs thereafter during the Initial Term; such fee being intended to compensate Laurus for its costs and expenses incurred in initially approving this Agreement or extending same. Such early payment fee shall be due and payable by Company 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 Company's account may from time to time be temporarily in a zero or credit position, until all of the Obligations of Company have been paid or performed in full after the termination of this Agreement. Laurus shall not be required to send termination statements to Company, or to file them with any filing office, unless and until this Agreement and the 17 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 Company's books; (c) failure to perform under and/or committing any breach of this Agreement or any Ancillary Agreement or any other agreement between Company 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 Company is a party with third parties which has a Material Adverse Effect; (e) any representation, warranty or statement made by Company hereunder, in any Ancillary Agreement, any certificate, statement or document delivered pursuant to the terms hereof, or in connection with the transactions contemplated by this Agreement should at any time be false or misleading in any material respect; (f) an attachment or levy is made upon Company's assets having an aggregate value in excess of $50,000 or a judgment is rendered against Company or Company's property involving a liability of more than $50,000 which shall not have been vacated, discharged, stayed or bonded pending appeal within thirty (30) days from entry thereof; (g) any change in Company'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; (i) if Company 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 thirty (30) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (vii) take any action for the purpose of effecting any of the foregoing; (j) Company shall admit in writing its inability, or be generally unable to pay its debts as they become due or cease operations of its present business; 18 (k) any Affiliate or Subsidiary of the Company 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) Company directly or indirectly sells, assigns, transfers, conveys, or suffers or permits to occur any sale, assignment, transfer or conveyance of any assets of Company or any interest therein, except as permitted herein; (m) the occurrence of a change in the controlling ownership of the Company; (n) a default by Company in the payment, when due, of any principal of or interest on any other indebtedness for money borrowed in an amount greater than $25,000, which is not cured within any applicable cure or grace period; (o) the indictment or threatened indictment of Company or any executive officer of Company under any criminal statute, or commencement or threatened commencement of criminal or civil proceeding against Company or any executive officer of Company pursuant to which statute or proceeding penalties or remedies sought or available include forfeiture of any of the property of Company; (p) if an Event of Default shall occur under and as defined in any Note; (q) any Guarantor shall breach any term or provision of any Ancillary Agreement which is not cured within any applicable cure or grace period; (r) if any Guarantor attempts to terminate, challenges the validity of, or its liability under any Guaranty or any Guarantor Security Agreement; or (s) should any Guarantor default in its obligations under any Guaranty or any Guarantor Security Agreement or if any proceeding shall be brought to challenge the validity, binding effect of any Guaranty or any Guarantor Security Agreement or should any Guarantor breach any representation, warranty or covenant contained in any Guaranty Agreement or any Guarantor Security Agreement or should any Guaranty or Guarantor Security Agreement cease to be a valid, binding and enforceable obligation. 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 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 19 right to take immediate possession of the Collateral, to require Company to assemble the Collateral, at Company'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 Company or wherever the Collateral shall be located, with or without force or process of law, and to keep and store the same on said premises until sold (and if said premises be the property of Company, Company agrees not to charge Laurus for storage thereof), and the right to apply for the appointment of a receiver for Company's property. Further, Laurus may, at any time or times after the occurrence of an Event of Default, sell and deliver all Collateral held by or for Laurus at public or private sale for cash, upon credit or otherwise, at such prices and upon such terms as Laurus, in Laurus' sole discretion, deems advisable or Laurus may otherwise recover upon the Collateral in any commercially reasonable manner as Laurus, in its sole discretion, deems advisable. The requirement of reasonable notice shall be met if such notice is mailed postage prepaid to Company at Company's address as shown in Laurus' records, at least ten (10) days before the time of the event of which notice is being given. Laurus may be the purchaser at any sale, if it is public. In connection with the exercise of the foregoing remedies, Laurus is granted permission to use all of Company's trademarks, tradenames, tradestyles, patents, patent applications, licenses (subject to the terms of such license), franchises and other proprietary rights. The proceeds of sale shall be applied first to all costs and expenses of sale, including reasonable attorneys' fees, and second to the payment (in whatever order Laurus elects) of all Obligations. After the indefeasible payment and satisfaction in full 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 Company or its representatives or to whosoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. Company shall remain liable to Laurus for any deficiency. In addition, Company shall pay Laurus a liquidation fee ("Liquidation Fee") in the amount of five percent (5%) of the actual amount collected in respect of each Account outstanding at any time during a "liquidation period". For purposes hereof, "liquidation period" means a period: (i) beginning on the earliest date of (x) an event referred to in Section 18(i) or 18(j), or (y) the cessation of Company's business; and (ii) ending on the date on which Laurus has actually received all Obligations due and owing it under this Agreement and the Ancillary Agreements. The Liquidation Fee shall be paid on the date on which Laurus collects the applicable Account by deduction from the proceeds thereof. Company and Laurus acknowledge that the actual damages that would be incurred by Laurus after the occurrence of an Event of Default would be difficult to quantify and that Company and Laurus have agreed that the fees and obligations set forth in this Section and in this Agreement would constitute fair and appropriate liquidated damages in the event of any such termination. 20. Waivers. To the full extent permitted by applicable law, Company 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 Company may in any way be liable, and hereby ratifies and confirms whatever Laurus may do in this regard; (b) all rights to notice and a hearing prior to Laurus' taking possession or control of, or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or security that might be required by any court prior to allowing Laurus to 20 exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws. Company acknowledges that it has been advised by counsel of its choices and decisions with respect to this Agreement, the Ancillary Agreements and the transactions evidenced hereby and thereby. 21. Expenses. Company 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, provided that such amount does not exceed $[39,500]. Company shall also pay all of Laurus' reasonable fees, charges, out-of-pocket costs and expenses, including fees and disbursements of counsel and appraisers, in connection with (a) the preparation, execution and delivery of any waiver, any amendment thereto or consent proposed or executed in connection with the transactions contemplated by this Agreement or the Ancillary Agreements, (b) Laurus' obtaining performance of the Obligations under this Agreement and any Ancillary Agreements, including, but not limited to, the enforcement or defense of Laurus' security interests, assignments of rights and Liens hereunder as valid perfected security interests, (c) any attempt to inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any Collateral, (d) any appraisals or re-appraisals of any property (real or personal) pledged to Laurus by Company as Collateral for, or any other Person as security for, Company's Obligations hereunder and (e) any consultations in connection with any of the foregoing. Company shall also pay Laurus' customary bank charges for all bank services (including wire transfers) performed or caused to be performed by Laurus for Company at Company's request or in connection with Company's loan account with Laurus. All such costs and expenses together with all filing, recording and search fees, taxes and interest payable by Company to Laurus shall be payable on demand and shall be secured by the Collateral. If any tax by any Governmental Authority is or may be imposed on or as a result of any transaction between Company and Laurus which Laurus is or may be required to withhold or pay, Company agrees to indemnify and hold Laurus harmless in respect of such taxes, and Company will repay to Laurus the amount of any such taxes which shall be charged to Company's account; and until Company shall furnish Laurus with indemnity therefor (or supply Laurus with evidence satisfactory to it that due provision for the payment thereof has been made), Laurus may hold without interest any balance standing to Company'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 Company 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 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. Company agrees that each such holder may exercise any and all rights of banker's lien, set-off and counterclaim with respect to its participation in the Obligations as fully as though Company were directly indebted to such holder in the amount of such participation. 21 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 Company and Laurus or delay by Laurus in exercising the same, will not operate as a waiver; no waiver by Laurus will be effective unless it is in writing and then only to the extent specifically stated. Laurus' rights and remedies under this Agreement and the Ancillary Agreements will be cumulative and not exclusive of any other right or remedy which Laurus may have. 24. Application of Payments. Company irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received by Laurus from or on Company's behalf and Company hereby irrevocably agrees that Laurus shall have the continuing exclusive right to apply and reapply any and all payments received at any time or times hereafter against the Obligations hereunder in such manner as Laurus may deem advisable notwithstanding any entry by Laurus upon any of Laurus' books and records. 25. Indemnity. Company 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 COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. 26. Revival. Company further agrees that to the extent Company makes a payment or payments to Laurus, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment had not been made. 27. Notices. Any notice or request hereunder may be given to Company or Laurus at the respective addresses set forth below or as may hereafter be specified in a notice 22 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: . Address: Attention: Chief Financial Officer Telephone: Telecopier: With a copy to: Reitler Brown LLC 800 Third Avenue, 21st Floor New York, New York 10022 Attention: Robert Steven Brown, Esq. Telephone: (212) 209-3050 Telecopier: (212) 371-5500 or such other address as may be designated in writing hereafter in accordance with this Section 27 by such Person. 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) COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN COMPANY AND LAURUS PERTAINING TO THIS 23 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 COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS. COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND COMPANY HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AT THE ADDRESS SET FORTH IN SECTION 27 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF COMPANY'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 COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED THERETO. 29. Limitation of Liability. Company acknowledges and understands that in order to assure repayment of the Obligations hereunder Laurus may be required to exercise any and all of Laurus' rights and remedies hereunder and agrees that, except as limited by applicable law, neither Laurus nor any of Laurus' agents shall be liable for acts taken or omissions made in connection herewith or therewith except for actual gross negligence, bad faith or willful misconduct. 30. Entire Understanding. This Agreement and the Ancillary Agreements contain the entire understanding between Company and Laurus as to the subject matter hereof and thereof and any promises, representations, warranties or guarantees not herein contained shall have no force and effect unless in writing, signed by Company's and Laurus' respective officers. Neither this Agreement, the Ancillary Agreements, nor any portion or provisions thereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or 24 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. Company hereby authorizes Laurus to make appropriate announcements of the financial arrangement entered into by and between Company and Laurus, including, without limitation, announcements which are commonly known as tombstones, in such publications and to such selected parties as Laurus shall in its sole and absolute discretion deem appropriate, or as required by applicable law. 36. Legends. The Securities shall bear legends as follows; (a) The Notes shall bear substantially the following legend: "THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF 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 VENTURES-NATIONAL INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED." 25 (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, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER SAID ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO VENTURES-NATIONAL INCORPORATED 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, HYPOTHECATED OR OTHERWISE DISPOSED OF 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 VENTURES-NATIONAL INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED." [Balance of page intentionally left blank; signature page follows.] 26 IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the date first written above. VENTURES-NATIONAL INCORPORATED D/B/A TITAN GENERAL HOLDINGS, INC. By: /s/ Andrew Glashow ------------------------------------ Name: Andrew Glashow --------------------------------- Title: President --------------------------------- LAURUS MASTER FUND, LTD. By: /s/ David Grin ------------------------------------ Name: David Grin ---------------------------------- Title: ---------------------------------- 27 Annex A - Definitions "Account Debtor" means any Person who is or may be obligated with respect to, or on account of, an Account. "Accountants" has the meaning given to such term in Section 11(a). "Accounts" means all "accounts", as such term is defined in the UCC, now owned or hereafter acquired by any Person, including: (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper or Instruments) (including any such obligations that may be characterized as an account or contract right under the UCC); (b) all of such Person's rights in, to and under all purchase orders or receipts for goods or services; (c) all of such Person's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods); (d) all rights to payment due to such Person for Goods or other property sold, leased, licensed, assigned or otherwise disposed of, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or other contract, arising out of the use of a credit card or charge card, or for services rendered or to be rendered by such Person or in connection with any other transaction (whether or not yet earned by performance on the part of such Person); and (e) all collateral security of any kind given by any Account Debtor or any other Person with respect to any of the foregoing. "Accounts Availability" means the amount of Loans against Eligible Accounts Laurus may from time to time make available to Company up to eighty five percent (85%) 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 Agreements, each Guaranty, each Guaranty Security 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 Company 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 Company 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 devices, accounting books and records, financial statements (actual and pro forma), filings with Governmental Authorities and any 28 and all records and instruments relating to the Collateral or otherwise necessary or helpful in the collection thereof or the realization thereupon. "Business Day" means a day on which Laurus is open for business and that is not a Saturday, a Sunday or other day on which banks are required or permitted to be closed in the State of New York. "Capital Availability Amount" means $4,000,000. "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 Company's property and assets, whether real or personal, tangible or intangible, and whether now owned or hereafter acquired, or in which it now has or at any time in the future may acquire any right, title or interests including all of the following property in which it now has or at any time in the future may acquire any right, title or interest: (a) all Inventory; (b) all Equipment; (c) all Fixtures; (d) all 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; (i) all Chattel Paper; (j) all Letter-of-Credit Rights; (k) all Instruments; (l) all commercial tort claims set forth on Exhibit 1(A); (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; 29 (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 Company (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 (3.0%) per annum, but subject to the immediately following sentence, the Contract Rate shall not be less than seven percent (7%). 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 Contract Rate minus 0.25% --------------------------------------- ----------------------------- 150% of the Fixed Conversion Price Contract Rate minus 0.25% --------------------------------------- ----------------------------- 175% of the Fixed Conversion Price Contract Rate minus 0.75% --------------------------------------- ----------------------------- And thereafter, for each 25% incremental increase in the Fixed Conversion Price, the Contract Rate will be correspondingly reduced by twenty five (25) basis points, PROVIDED, HOWEVER, that in no event will the Contract Rate hereunder be reduced to less than 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 . "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 30 warrants, dock receipts, warehouse receipts, and other documents of title, whether negotiable or non-negotiable. "Eligible Accounts" means and includes each Account 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 Company to Laurus with respect thereto; (e) Laurus is, and continues to be, satisfied with the credit standing of the Account Debtor in relation to the amount of credit extended; (f) there are no facts existing or threatened which are likely to result in any adverse change in an Account Debtor's financial condition; (g) is documented by an invoice in a form approved by Laurus and shall not be unpaid more than ninety (90) days from invoice date; (h) not more than twenty-five percent (25%) of the unpaid amount of invoices due from such Account Debtor remains unpaid more than ninety (90) days from invoice date; (i) is not evidenced by chattel paper or an instrument of any kind with respect to or in payment of the Account unless such instrument is duly endorsed to and in possession of Laurus or represents a check in payment of a Account; (j) the Account Debtor is located in the United States; provided, however, Laurus may, from time to time, in the exercise of its sole discretion and based upon satisfaction of certain conditions to be determined at such time by Laurus, deem certain Accounts as Eligible Accounts notwithstanding that such Account is due from an Account Debtor located outside of the United States; (k) Laurus has a first priority perfected Lien in such Account and such Account is not subject to any Lien other than Permitted Liens; (l) does not arise out of transactions with any employee, officer, director, stockholder or Affiliate of Company; (m) is payable to Company or a wholly-owned subsidiary thereof; (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) if the Account arises out of contracts between Company and the United States, any state, or any department, agency or instrumentality of any of them, Company has so notified Laurus, in writing, prior to the creation of such Account, and there has been compliance with any governmental notice or approval requirements, including compliance with the Federal Assignment of Claims Act; (q) is a good and valid account representing an undisputed bona fide indebtedness incurred by the Account Debtor therein named, for a fixed sum as set forth in the invoice relating thereto with respect to an unconditional sale and delivery upon the stated terms of goods sold by 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. 31 "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, 32 operating and training manuals, customer lists, and distribution agreements now owned or hereafter acquired by any Person. "Guarantor" means and any Person who may guarantee payment of performance of the whole or any part of the Obligations. "Guarantor Security Agreements" means all security agreements, mortgages, cash collateral deposit letters, pledges and other agreements which are executed by any Guarantor in favor of Laurus. "Guaranty" means all agreements to perform all or any portion of the Obligations on behalf of Company. "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 33 performance under a letter of credit, whether or not such Person, as beneficiary, has demanded or is entitled to demand payment or performance. "License" means any rights under any written agreement now or hereafter acquired by any Person to use any trademark, trademark registration, copyright, copyright registration or invention for which a patent is in existence or other license of rights or interests now held or hereafter acquired by any Person. "Lien" means any mortgage, security deed, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the UCC or comparable law of any jurisdiction. "Loans" 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 $1,500,000, 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 34 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 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, 35 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 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 two million five hundred thousand dollars ($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). 36 "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 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. EXHIBITS Exhibit 1(A) - Commercial Tort Claims Exhibit 2 - Permitted Liens Exhibit 7(c) - Actions for Perfection Exhibit 7(p) - Bank Accounts Exhibit 12(d) - Corporate Information and Locations of Collateral Exhibit 12(e) - ERISA Exhibit 12(i) - Licenses, Patents, Trademarks and Copyrights Exhibit 12(j) - Certain SEC matters Exhibit 13(e)(i) - Permitted Indebtedness Exhibit 13(e)(ii) - Existing Subsidiaries Exhibit A - Form of Borrowing Base Certificate 37 Exhibit A Borrowing Base Certificate - -------------------------------------------------------------------------------- DATE: CERTIFICATE NUMBER: - -------------------------------------------------------------------------------- BORROWER NAME: VENTURES NATIONAL INC. D/B/A TITAN GENERAL HOLDINGS, INC. - -------------------------------------------------------------------------------- 1. Period end Accounts as of: $ --------------------- -------------- Ineligible Accounts as of: --------------------- Accounts over 90 days from invoice date $ -------------- Intercompany and Affiliate Accounts $ -------------- Contra Accounts $ -------------- COD Accounts $ -------------- Foreign Accounts $ -------------- Discounts, Credits and Allowances $ -------------- 25% cross aging exclusion $ -------------- Bill and Hold invoices $ -------------- Progress Accounts $ -------------- Finance/Service/Late Charges $ -------------- Other $ ---------------------------- -------------- 2. Total ineligibles $ -------------- 3. Eligible Accounts (Line 1 minus Line 2) $ -------------- 4. Eligible Accounts advance rate (85% ) -------------- 5. Accounts Availability (Line 3 multiplied by Line 4) $ -------------- 6. Borrowing Availability (lesser of sum of lines 5 + 6 or the Capital Availability Amount) $ -------------- 7. Revolving Credit Advances balance $ -------------- 8. Reserves (explain) $ -------------- 9. Net Borrowing Availability (Line 6 minus the total of Lines 7 and 8) $ -------------- The undersigned hereby certifies that all of the foregoing information regarding the Eligible Accounts is true and correct on the date hereof and all such Accounts listed as Eligible Accounts are Eligible Accounts within the meaning given such term in the Security Agreement dated _____, 2003 between Borrower and Laurus Master Fund, Ltd. VENTURES NATIONAL INC. D/B/A TITAN GENERAL HOLDINGS, INC. By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- EX-23 16 c30085_ex23.txt Exhibit 23 Consent of Independent Certified Public Accountants Board of Directors Ventures-National, Inc. (dba Titan General Holdings, Inc.) We consent to the incorporation by reference of our independent auditors' report dated December 2, 2003 on the consolidated balance sheet as of August 31, 2003 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended August 31, 2003 and August 31, 2002, included in this Form 10K-SB, into the Company's previously filed Registration Statements (File no. 333-110732, 333-107497, 333-102697, 333-104365, 333-99167) /s/ STONEFIELD JOSEPHSON, INC. CERTIFIED PUBLIC ACCOUNTANTS Irvine, California December 10, 2003 EX-31.1 17 c30085_ex31-1.txt Exhibit 31.1 CERTIFICATIONS I, Robert Ciri, certify that: 1. I have reviewed this annual report on Form 10-KSB of VENTURES-NATIONAL INCORPORATED 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 10, 2003 /s/ ROBERT CIRI ------------------- Robert Ciri Chief Executive Officer, and Director (Principal Executive Officer) EX-31.2 18 c30085_ex31-2.txt Exhibit 31.2 CERTIFICATIONS I, Daniel D. Guimond, certify that: 1. I have reviewed this annual report on Form 10-KSB of VENTURES-NATIONAL INCORPORATED 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 10, 2003 /s/ DANIEL D. GUIMOND ------------------------ Daniel D. Guimond Acting Chief Financial Officer, and Corporate Controller (Principal Financial Officer) EX-32 19 c30085_ex32.txt Exhibit 32 The undersigned, Robert Ciri, Chief Executive Officer, of Ventures-National Incorporated (the "Company") and Daniel D. Guimond, Acting Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-KSB of the Company for the year ended August 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d); and (2) the information contained in the Report fairly presents in all material respects, the financial condition and results of operations of the Company. Dated: December 10, 2003 /s/ DANIEL D. GUIMOND ------------------------ Daniel D. Guimond Acting Chief Financial Officer, and Corporate Controller (Principal Financial Officer) /s/ ROBERT CIRI ------------------------ Robert Ciri Chief Executive Officer, and Director (Principal Executive Officer) -----END PRIVACY-ENHANCED MESSAGE-----