-----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, MNP9dh/6hbwlb0fGgKhxN73db/+jOOKL7IXe2fNmcneOpCS8Q2nXrQr7cfBkN8DE FK8TJz0LcuWQoOWbSW0AEQ== 0000932799-03-000167.txt : 20030912 0000932799-03-000167.hdr.sgml : 20030912 20030912172859 ACCESSION NUMBER: 0000932799-03-000167 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030828 ITEM INFORMATION: Acquisition or disposition of assets FILED AS OF DATE: 20030912 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EP MEDSYSTEMS INC CENTRAL INDEX KEY: 0001012394 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 223212190 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28260 FILM NUMBER: 03894574 BUSINESS ADDRESS: STREET 1: 100 STIERLI COURT STREET 2: SUITE 107 CITY: MOUNT ARLINGTON STATE: NJ ZIP: 07856 BUSINESS PHONE: 9733982800 MAIL ADDRESS: STREET 1: 575 ROUTE 73 N BUILDING D CITY: WEST BERLIN STATE: NJ ZIP: 08091 8-K 1 sep8k.txt FORM 8K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 28, 2003 EP MedSystems, Inc. (Exact name of small business issuer as specified in its charter) New Jersey 0-28260 22-3212190 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 575 Route 73 N. Building D West Berlin, New Jersey 08091 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (856) 753-8533 Not Applicable (Former name or former address, if changed since last report) Item 2. Acquisition or Disposition of Assets On August 28, 2003, EP MedSystems, Inc. (the "Company" or "EPMedSystems") issued a Secured Convertible Note (the "Convertible Note") to Laurus Master Fund, Ltd. ("Laurus") and entered into a related Security Agreement with Laurus, pursuant to which Laurus provided the Company with a $4,000,000 revolving asset-based credit facility in the form of a three-year Convertible Note secured by the accounts receivable, inventory, real property and other assets of the Company, other than intellectual property. At the closing of this transaction, the Company issued the Convertible Note to Laurus having a principal amount of $4,000,000 and received net proceeds of $2,661,600. The remaining $1,000,000 has been funded by Laurus and is expected to be available to the Company upon the fulfillment of certain customary requirements associated with documenting Laurus' security interest in the Company's real property. The balance of the proceeds was used to pay fees incurred in connection with this transaction. In addition, the Company paid a portion of the fees payable to an intermediary in shares of the Company's Common Stock having a market value on the date of closing of this transaction equal to $100,000. The net proceeds of the Convertible Note will be used by the Company for working capital purposes and payment of outstanding debt. The portion of the Convertible Note against which Laurus advances funds based on the Company's accounts receivable bears interest at the prime rate, with a floor of 4%, and the balance (the "Advance Amounts") bears interest at the prime rate plus 2%. One half of Advance Amounts outstanding the date of the closing (approximately $1,350,000) is required to be repaid on or before February 28, 2005. The remaining balance of the Advance Amounts outstanding the date of the closing is required to be repaid on or before August 28, 2006. The credit facility may be extended by the Company, subject to certain rights of cancellation by Laurus, on a year-by-year basis, commencing August 28, 2006. The Company may repay, in cash, without penalty, up to $500,000 of the Convertible Note in any one calendar year, plus all Advance Amounts. Subject to certain volume limitations and other conditions, all or a portion of the Convertible Note is convertible into the Common Stock of the Company at the Company's option if the market price of the Company's Common Stock reaches a level, for 11 consecutive trading days, which is above 120% of $2.55 (the "Fixed Conversion Price"), which is a price in excess of the market price of the Company's Common Stock on the date of closing. Subject to certain volume limitations and other conditions, Laurus has the option to convert all or a portion of the Convertible Note into shares of the Company's Common Stock if the market price of the Common Stock reaches a level which is above the Fixed Conversion Price. Following the conversion into the Company's Common Stock by the Company and/or by Laurus of an aggregate of $2,000,000 of the principal amount of the Convertible Note (a "Conversion Event"), the Fixed Conversion Price will be adjusted upward to a price which is 115% of the average of the closing price of the Company's Common Stock for the three trading days prior to the Conversion Event. Subject to certain limitations, including the repayment obligations with respect to Advance Amounts described above, the dollar amounts of the Convertible Note converted may be reborrowed. The Fixed Conversion Price is subject to adjustment, with customary exceptions and on a weighted-average basis, in connection with sales of the Company's securities below the Fixed Conversion Price then in effect, and is also subject to adjustment for stock splits, combinations, stock dividends and similar events. As part of the credit facility transaction, Laurus and the intermediary also received warrants to purchase an aggregate of 240,750 shares of the Company's Common Stock (the "Warrants"), with exercise prices set as follows: $2.93 per share for the purchase of up to the first 133,750 shares, $3.19 per share for the purchase of up to the next 80,250 shares, and $3.70 per share for the purchase of up to the final 26,750 shares. The expiration date of the warrants is August 28, 2010. The exercise price of the warrants and the number of shares underlying the warrants are subject to adjustments for stock splits, combinations, stock dividends and similar events. The Company is required to register under the Securities Act of 1933, as amended, within 60 days from the closing of this transaction, 1,500,000 shares of its Common Stock which may be received by Laurus upon conversion of the Convertible Note and/or exercise of the Warrant and will be required to so register the remainder of such shares (approximately 300,000 shares) on the date which is the earlier of (i) one year from the closing of the transaction or (ii) the date of conversion of a portion of the Convertible Note. FORWARD-LOOKING STATEMENTS This Current Report on Form 8-K contains statements of a forward-looking nature relating to future events or the future financial performance of the Company, including, but not limited to, the satisfaction of the conditions to the availability to the Company of the additional $1,000,000 funded by Laurus and the conversion of the Convertible Note. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. We emphasize to you that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. When we use the words or phrases "believe," "anticipate," "expect," "intend," "will likely result," "estimate," "project" or similar expressions in this Current Report on Form 8-K, we intend to identify such forward-looking statements, but they are not the exclusive means by which such statements are made. The forward-looking statements are only expectations and/or predictions which are subject to risks and uncertainties and general economic, market or business conditions, opportunities or lack of opportunities that may be presented to EP MedSystems, competitive actions, changes in laws and regulations and other matters discussed herein and elsewhere. 2 We caution readers to review the cautionary statements set forth in this Current Report on Form 8-K and in EP MedSystems' other reports filed with the Securities and Exchange Commission and caution that other factors may prove to be important in affecting EP MedSystems' business and results of operations. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Current Report. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date of this report. Item 7. Exhibits. (c) The following are filed herewith as exhibits: 10.1 Secured Convertible Note, dated August 28, 2003, by and between the Company and Laurus. 10.2 Security Agreement, dated August 28, 2003, by and between the Company and Laurus. 10.3 Common Stock Purchase Warrant, dated August 28, 2003, issued by the Company to Laurus. 10.4 Registration Rights Agreement, dated August 28, 2003, by and between the Company and Laurus. 10.5 Guaranty, dated August 28, 2003, issued by ProCath Corporation ("ProCath"), a wholly-owned subsidiary of the Company, to Laurus. 10.6 Security Agreement, dated August 28, 2003, by and between ProCath and Laurus. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EP MEDSYSTEMS, INC. Registrant Date: September 12, 2003 By: /s/ Matthew C. Hill Matthew C. Hill Chief Financial Officer 3 EX-10 3 exh101.txt EXHIBIT 10.1 Exhibit 10.1 THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EP MEDSYSTEMS INC., THAT SUCH REGISTRATION IS NOT REQUIRED. SECURED CONVERTIBLE NOTE FOR VALUE RECEIVED, EP MEDSYSTEMS, INC., a New Jersey corporation (hereinafter called "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, without demand, the sum of FOUR MILLION DOLLARS ($4,000,000) (the "Principal Amount") or such other principal amount as may be from time to time outstanding under the Security Agreement (as herein defined), together with any accrued and unpaid interest, on August 28, 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 the date hereof (as amended, modified and supplemented from time to time, the "Security Agreement"). The following terms shall apply to this Note: ARTICLE I INTEREST 1.1. Interest Rate. Subject to Section 5.3 hereof, interest on this Note shall be payable at the Contract Rate in accordance with the terms of the Security Agreement. ARTICLE II ADVANCES, 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. 1 2.2. Borrower Conversion Rights. Subject to adjustment as provided in Section 3.6 hereof, the Conversion Price per share shall be two dollars and fifty-five cents ($2.55) (the "Fixed Conversion Price"). In the event that the Common Stock trades on the principal trading exchange or market for the Common Stock (the "Principal Market") at a price greater than 120% of the Fixed Conversion Price for a period of at least eleven (11) consecutive trading days, then Borrower may, at its sole option, provide the Holder irrevocable written notice ("Call Notice") requiring the conversion at the Fixed Conversion Price (then in effect) of all or a portion of the Note held by the Holder (subject to the limitation provided for in Section 3.3 hereof) as of the date set forth in such Call Notice (the "Call Date"). The Call Date shall be at least two (2) trading days following the date of the Call Notice, provided a registration statement covering resales of that number of Conversion Shares provided for in the Call Notice has been declared effective and is available for use. The number of Conversion Shares to be issued in connection with any such conversion pursuant to a particular Call Notice pursuant to this Section 2.2 shall not exceed 30% of the aggregate dollar trading volume of the Common Stock for the eleven (11) trading days immediately preceding the Call Notice. If the price of the Common Stock falls below 110% of the Fixed Conversion Price during the ten (10) trading day period preceding the Call Date, then the Holder will be required to convert only such amount of the Note pursuant to such Call Notice as will equal thirty percent (30%) of the aggregate dollar trading volume for each day during such 10 day period that the closing price of the Common Stock was greater than one hundred ten percent (110%) of the then applicable Fixed Conversion Price. The Company shall not be permitted to give the Investor more than one Call Notice during any fifteen (15) day period. 2.3. Prepayments. In the event Borrower wishes to prepay all or a portion of the Obligations in cash in an amount in excess of $500,000 during any calendar year, Borrower shall deliver to the Holder a written irrevocable notice indicating the amount intended to be so prepaid (the "Prepayment Amount") and the date on which such prepayment shall be made (the "Prepayment Date"). Such notice shall be delivered to the Holder at least five (5) Business Days prior to the Prepayment Date. On the Prepayment Date, Borrower shall pay to the Holder $500,000 plus 125% (the "Premium") of the Prepayment Amount in excess of $500,000 in satisfaction of the Prepayment Amount; provided, however, no such Premium shall be applicable to any prepayment made by Borrower of an Approved Overadvance. All such prepayments shall be (a) applied to the Obligations in such order as the Holder shall elect, (b) shall be subject to the terms of Section 16 of the Security Agreement and (c) shall be credited (conditional upon final collection) to the Obligations one Business Day after receipt of such amounts by Laurus in good funds in dollars of the United States of America. 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. Conversions under Sections 2.2 or 3.1 shall not be deemed for any purpose to be prepayments hereunder. ARTICLE III 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, including at any time prior to a Prepayment Date (as defined in Section 2.3), or thereafter during an Event of Default (as defined in Article V), and, subject to the volume limitations set forth in Section 3.3 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 Borrower's common stock, as currently constituted (the "Common Stock") at the conversion price set forth in Section 3.2 (the "Conversion Price"). The shares of Common Stock to be issued upon such conversion are herein referred to as the "Conversion Shares." 2 3.2. Conversion Price. Notwithstanding the foregoing, the Fixed Conversion Price shall be adjusted upward (as hereafter provided) immediately following each conversion under Sections 2.2 and/or 3.1 hereof in a multiple (calculated on an aggregate cumulative basis for all such conversions taken together) of $2,000,000 (each aggregate $2,000,000 conversion, a "Specified Event"). Following the occurrence of each Specified Event, the Fixed Conversion Price shall be adjusted upward based on a formula equal to 115% of the closing price for the Common Stock on the Principal Market, or on any securities exchange or other securities market on which the Common Stock is then being listed or traded, for the three (3) trading days immediately prior to the occurrence of the Specified Event. 3.3. 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 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 3.3 upon 75 days prior notice to Borrower, or without any notice requirement upon an Event of Default. 3.4. Mechanics of 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 Borrower and such Notice of Conversion shall provide a breakdown in reasonable detail of the amount of 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 Borrower within two (2) business days after the Conversion Date. Each date on which a Notice of Conversion is delivered or telecopied to Borrower in accordance with the provisions hereof shall be deemed a Conversion Date (the "Conversion Date"). A form of Notice of Conversion that may be employed by the Holder is annexed hereto as Exhibit A. Borrower will 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 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 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 Borrower written instructions to the contrary. 3 3.5. Late Payments. 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 and 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 the greater of (i) $500 per Business Day after the Delivery Date and (ii) the Holder's actual damages from such delayed delivery. Borrower 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. 3.6. Adjustment Provisions. The Fixed Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Sections 3.1 and 3.2, 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 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 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 3.6, if Borrower shall at any time prior to the conversion or repayment in full of the Principal Amount issue any Additional Shares to a Person other than the Holder pursuant to Subsections A or B above for a consideration per share less than the Fixed Conversion Price in effect at the time of issuance, the Fixed Conversion Price shall be immediately reset to the price determined by multiplying the Fixed Conversion Price (as in effect from time to time) by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by Borrower for the total number of Additional Shares so issued would purchase at the Fixed Conversion Price (as in effect from time to time) and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares so issued; provided that, for the purposes of this Section C, all shares of Common Stock issuable upon exercise, exchange or conversion of outstanding options, convertible securities and preferred stock shall be deemed to be outstanding prior to such issuance; provided, however, in no event may the Fixed Conversion Price be reduced to a price which is lower than the closing market price on the date such reset is effective. For purposes hereof, the issuance of any security of 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. "Additional Shares" means all shares of Common Stock, except: 4 (a) shares of Common Stock issued or issuable upon conversion of preferred stock outstanding on the date hereof; (b) shares of Common Stock or options or warrants issued or issuable to officers, directors and employees of, and consultants to, Borrower pursuant to an option plan, purchase plan or other employee or consultant incentive plan, pursuant to stock grants or any other plan or arrangement approved by Borrower's Board of Directors; (c) shares of Common Stock or preferred stock or options or warrants exercisable for Common Stock or preferred stock issued to banks, savings and loan associations, equipment lessors or other similar lending institutions in connection with such entities providing working capital credit facilities or equipment financing to Borrower or to landlords not otherwise affiliated with Borrower in connection with the lease of office, laboratory, warehouse or other similar property approved by Borrower's Board of Directors; (d) shares of Borrower's capital stock issued pursuant to the acquisition of another corporation by Borrower by merger, purchase of all or substantially all of the assets or stock or other reorganization approved by Borrower's Board of Directors; (e) shares of Borrower's capital stock issued in connection with the acquisition of technology or licenses or other similar transactions approved by Borrower's Board of Directors; and (f) shares of Borrower's capital stock issued to Persons with which Borrower has strategic or business relationships, provided that such issuance is approved by the Board of Directors of Borrower and is not primarily for capital raising purposes. 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 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 Borrower (irrespective of the accounting treatment thereof); and (c) in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by Borrower for the issuance of such securities plus the additional minimum consideration, if any, to be received by 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)). 5 3.7. Reservation of Shares. During the period the conversion right exists, 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. Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. 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. 3.8. 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. 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 or Interest. Borrower shall default in the payment of (i) principal on any Note when due or (ii) interest on any Note when due and such interest payment default shall continue for a period of three (3) Business Days. 4.2. Failure to Pay Other Obligations. Borrower shall fail to make payment of any of the other Obligations when required hereunder and such default shall continue for a period of five (5) Business Days. 4.3. Breach of Representations and Warranties. Any material representation or warranty made by Borrower hereunder, in any certificate, statement or document delivered pursuant to the terms hereof, or in connection with the transactions contemplated by this Note should prove to have been false or misleading in any material respect when made or deemed made, as determined by Laurus in good faith in the exercise of its reasonable discretion; 4.4. Breach of Covenants. Borrower shall fail to perform any covenant or any other term or condition of this Note and such failure shall remain unremedied for 10 days after the occurrence thereof. 4.5. Default Under Related Agreement. The occurrence of an Event of Default under and as defined in the Security Agreement. 4.6. Stop Trade. A stop trade order is instituted by the SEC or the Principal Market governing body undertakes to officially suspend trading of the stock for 30 consecutive trading days, but excluding in all cases (i) a stop trade order not resulting from actions or omissions solely of Borrower, (ii) a stop trade order or a Principal Market suspension disputed in writing to the SEC or the Principal Market governing body by Borrower (which default shall be suspended until such stop trade order or the Principal Market suspension is finally determined by the SEC or the Principal Market governing body to be effective), (iii) a delisting from a Principal Market that is not a suspension by its governing body and (iv) any suspension of all trading on such Principal Market. 6 ARTICLE V DEFAULT PAYMENTS 5.1. Default Interest Rate. Following the occurrence and during the continuance of an Event of Default, interest on this Note shall automatically be increased to the Default Rate in effect for Loans at such time, 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. 5.2. 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 amended or supplemented, then as so amended or supplemented. 6.4. Assignability. This Note shall be binding upon 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 terms hereof and the legend set forth herein. 6.5. Cost of Collection. If default is made in the payment of this Note, Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys' fees. 7 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 state of New York. Both parties and the individual signing this Note on behalf of 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 Borrower in any other jurisdiction to collect on 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 Borrower to the Holder and thus refunded to Borrower. 6.8. Security Interest. The Holder of this Note has been granted a security interest in certain assets of Borrower more fully described in the Security Agreement. 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. 8 IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name effective as of this 28th day of August, 2003. EP MEDSYSTEMS INC. By: /s/Reinhard Schmidt Name: Reinhard Schmidt Title: President and Chief Executive Officer WITNESS:_/s/___________________ 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 Note issued by EP MEDSYSTEMS INC. on _______, 2003 into Shares of Common Stock of EP MEDSYSTEMS 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: 10 EX-10 4 ex102f.txt EXHIBIT 10.2 Exhibit 10.2 LAURUS MASTER FUND, LTD. and EP MEDSYSTEMS, INC. Dated: August 28, 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.................................................................................3 4. Procedure for Loans....................................................................................3 5. Interest and Payments..................................................................................4 (a) Interest......................................................................................4 (b) Payments......................................................................................4 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.....................................................................................17 16. Term of Agreement.....................................................................................17 17. Termination of Lien...................................................................................18 18. Events of Default.....................................................................................18 19. Remedies .............................................................................................20 i 20. Waivers ..............................................................................................20 21. Expenses .............................................................................................22 22. Assignment By Laurus..................................................................................23 23. No Waiver; Cumulative Remedies........................................................................23 24. Application of Payments...............................................................................23 25. Indemnity.............................................................................................23 26. Revival ..............................................................................................24 27. Notices ..............................................................................................24 28. Governing Law, Jurisdiction and Waiver of Jury Trial..................................................25 29. Limitation of Liability...............................................................................26 30. Entire Understanding..................................................................................26 31. Severability..........................................................................................26 32. Captions .............................................................................................26 33. Counterparts; Telecopier Signatures...................................................................26 34. Construction..........................................................................................26 35. Publicity.............................................................................................27 36. Representations and Warranties of Laurus................................................................................................27 ii
SECURITY AGREEMENT This Security Agreement is made as of August 28, 2003 by and between LAURUS MASTER FUND, LTD., a Cayman Islands corporation ("Laurus") and EP MEDSYSTEMS, INC. a New Jersey 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. 2. LOANS. (a)(i) Subject to the terms and conditions set forth herein and in the Ancillary Agreements, so long as no Event of Default shall have occurred and be continuing, Laurus shall 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 to preserve and protect the Collateral and/or Laurus' rights and remedies with respect thereto (the "Reserves") or (y) an amount equal to (I) the Accounts Availability plus Real Property Availability plus Approved Overadvances 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". From time to time thereafter, as requested by Laurus, 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 Note evidencing such tranche, in the form of Note delivered by Company to Laurus on the Closing Date. (ii) Notwithstanding the limitations set forth above, Laurus retains the right, in its sole discretion, to lend to Company from time to time such amounts in excess of the Formula Amount (each, an "Overadvance"), including, without limitation, the Approved Overadvances. (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 percentage used in determining Accounts Availability and Company hereby consents to any such increases or decreases which may limit or restrict advances requested by Company. Notwithstanding the foregoing, (a) Laurus shall decrease such advance percentage in its reasonable discretion exercised in good faith based upon a change in the Dilution rate and (b) in the event any such advance rate decrease results in an Overadvance, so long as no Event of Default shall have occurred and be continuing, Company shall have thirty (30) from such occurrence to repay in full such Overadvance (iv)If Company does not pay any interest, fees, costs or charges to Laurus when due or Laurus shall not then hold proceeds of Accounts sufficient to net therefrom (in accordance with Section 9(c) hereof) the amount of such interest, fees, costs or charges, 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, then Laurus may (in order to preserve and protect the Collateral and/or its rights and remedies hereunder), 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 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. 2 (vi)Laurus will account to Company monthly with a statement of all Loans (including those Loans constituting Overadvances and the timing of the occurrence of such Overadvances), 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 fifteen (15) 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, repay, prepay and convert Loans, all in accordance with the terms and conditions hereof and of the Notes. (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 (each, an "Event"), Company shall reimburse Laurus for the amount of the Loan made with respect to such Eligible 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; provided, however, no such adjustment fee shall be payable to the extent the Company shall have reimbursed Laurus for the amount of such Eligible Account within five (5) Business Days following the occurrence of an Event whether by cash, offset from other Eligible Accounts and/or collection of Accounts. 3. REPAYMENT OF THE LOANS. Company a) may prepay the Obligations from time to time in accordance with the terms and provisions of the Notes and Section 16 hereof; (b) shall repay on the expiration of the Term (i) the then aggregate outstanding principal balance of the Loans made by Laurus to Company hereunder together with accrued and unpaid interest, fees and charges and (ii) all other amounts owed Laurus under this Agreement and the Ancillary Agreements; and (c) shall repay Approved Overadvances pursuant to Section 5(b)(iv)hereof. Any payments of principal, interest, fees or any other amounts payable hereunder or under any Ancillary Agreement shall be made prior to 12:00 noon (New York time) on the due date thereof in immediately available funds. 4. PROCEDURE FOR LOANS. Company may by written notice request a borrowing of Loans prior to 9:30 a.m. (New York time) on the Business Day of its request to incur, on that day, a Loan. Together with each request for a Loan (but not less often than monthly), 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 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 and not paid in accordance with the terms hereof may be charged to Company's account and shall constitute Loans. 3 5. Interest and Payments. (a)Interest. (i)Except as modified by Section 5(a)(iii) below, Company shall pay interest in arrears on the first day of each month with respect to the immediately preceding month, the first such interest payment shall be made on October 1, 2003 with respect to all interest accruing from the Closing Date, at the Contract Rate on the unpaid principal balance of each Loan until such time as such Loan is collected in full in good funds in dollars of the United States of America. (ii)Interest and payments shall be computed on the basis of actual days elapsed in a year of 360 days. At Laurus' option, Laurus may charge Company's 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 six percent (6%) per annum (such increased rate, the "Default Rate"), and all outstanding Obligations, including unpaid interest, shall continue to accrue interest from the date of such Event of Default at the Default Rate applicable to such Obligations. (iv)In no event shall the aggregate interest payable hereunder exceed the maximum rate permitted under any applicable law or regulation, as in effect from time to time (the "Maximum Legal Rate") and if any provision of this Agreement or 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 one-half percent (3.5%) of the Capital Availability Amount ($140,000). On each anniversary of the Closing Date, Company shall pay to Laurus Capital Management, LLC an annual payment equal to three-quarters of one percent (0.75%) of the Capital Availability Amount. Such payments shall be deemed fully earned on the Closing Date and shall not be subject to rebate or proration for any reason. (ii)Collateral Management Payment. For underwriting, processing and supervising Company's Accounts, Company shall pay Laurus a monthly collateral management payment in an amount equal to 0.10% of the average outstanding Loans during the immediately preceding month. Such payment shall be payable on the first day of each month in arrears by a charge by Laurus to Company's account. Notwithstanding the foregoing, any unpaid fee shall be immediately due and payable upon termination of this Agreement. 4 (iii)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 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. (iv)Overadvance Payment. Without affecting Laurus' rights hereunder, in the event an Overadvance occurs or is made by Laurus, all such Overadvances shall bear interest at a per annum rate equal to 6% for each day such amounts shall be outstanding. Notwithstanding the foregoing, all Approved Overadvances shall be payable in two installments as follows: (1) one-half of the then outstanding balance of Approved Overadvances shall be payable on February 28, 2005 and (2) the remaining outstanding balance of Approved Overadvances shall be payable on August 28, 2006, or earlier, in each case upon termination of this Agreement. (v)Financial Information Default. Without affecting Laurus' other rights and remedies, in the event Company fails to deliver, or make available, the financial information required by Section 11 on or before the fifth Business Day following the date required by this Agreement, Company shall pay Laurus a fee in the amount of $500.00 per week (or portion thereof) for each such failure until such failure is cured to Laurus' reasonable 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 at Laurus' request following an Event on Default, be held 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 any portion of Companys assets) or words of similar effect (in each case, other than Intellectual Property), 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 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 5 (c) In connection with Laurus' exercise of its rights and remedies following the occurrence and during the continuance of an Event of Default, Company hereby grants to Laurus an irrevocable, non-exclusive right (exercisable upon the termination of this Agreement due to an occurrence and during the continuance of an Event of Default without payment of compensation of any nature whatsoever to Company) to use any Books and Records in connection with the preservation, protection and enforcement of Laurus' rights in respect of the Collateral. 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) 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. 6 (e) Except as set forth on Exhibit 7(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 $50,000 and only to the extent that, following the occurrence of an Event of Default, 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 seven (7) Business Days following Laurus' request therefor) delivery to Laurus of all original Instruments, Chattel Paper, negotiable Documents and certificated Stock owned by a 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 commercially reasonable 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. (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, 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 five (5) 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 in excess of $10,000 in the aggregate for any individual Account Debtor or $50,000 in the aggregate for all Account Debtors; (v) of all material adverse information relating to the financial condition of an Account Debtor; (vi) of any material return of goods; and (vii) of any loss, damage or destruction of any of Collateral, but only in the event the aggregate value of all such lost, damaged or destroyed Collateral exceeds $25,000. 7 (l) All Accounts when created and listed on a Borrowing Base Certificate (i) 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, any agreement with any Account Debtor for any extension of time for the payment of any Account in excess of five (5) Business Days, any compromise or settlement of Accounts for more than $10,000 in the aggregate for any individual Account Debtor or $50,000 in the aggregate for all Account Debtors, 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 materially maintained and preserved. Company shall not permit any such items to become a Fixture to real estate or accessions to other personal property. (n) Except with respect to Collateral directly relating to the portion of Company's business conducted outside of the United States, 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 Company provides Laurus at least thirty (30) days prior written notice of such changes or new location and (ii) prior to such change or opening of a new location it 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. (q) Company acknowledges that, from time to time as Laurus' deems reasonably appropriate, Laurus shall cause a fair market value appraisal of the Real Property to be performed by an appraiser satisfactory to Laurus at Company's expense. Following Laurus' approval of each such appraisal, the results thereof shall be conclusive. Based upon the results of such appraisal and Laurus' other rights hereunder, Laurus shall have the right to decrease the amount of Real Property Availability. 8 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 Accounts to make such payments directly to the lockbox maintained by Company (the "Lockbox") with Commerce Bank pursuant to the terms of the Clearing Account Agreement or such other financial institution accepted by Laurus in writing as may be selected by Company (the "Lockbox Bank"). 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 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 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. Company shall pay Laurus five percent (5%) of the amount of any payment so received by Company and not delivered in kind to Laurus within seven (7) Business Days following Company's receipt thereof. (b) At Laurus' election, following the occurrence of, and only during the continuance of, an Event of Default, Laurus may notify Company's Account Debtors of Laurus' security interest in the Accounts, collect them directly and charge the collection costs and expenses thereof to Company's account. 9. Collection and Maintenance of Collateral. (a) Laurus may verify Company's Accounts utilizing an audit control company or any other agent of Laurus. (b) Proceeds of Accounts received by Laurus will be deemed received on the Business Day after Laurus' receipt of such proceeds in good funds in dollars of the United States of America 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 promptly (but in no event later than three Business Days following Laurus' receipt thereof) remit all such proceeds to Company (net of interest, fees and other amounts then due and owing to Laurus hereunder). Notwithstanding the foregoing, following the occurrence and during the continuance of an Event of Default (or, in the case of proceeds of Specified Accounts, following the occurrence and during the continuance of a Specified Default) which has not been waived in writing by Laurus, Laurus, at its option, may (a) apply such proceeds to the Obligations in such order as Laurus shall elect, (b) hold (or cause and Affiliate or agent of Laurus to hold) such proceeds as cash Collateral for the Obligations, and Company hereby grants to Laurus (and each such Affiliate and/or agent) a security interest in such cash Collateral amounts as security for the Obligations and/or (c) do any combination of the foregoing. 9 10. Inspections and Appraisals. At all times during normal business hours, Laurus, and/or any agent of Laurus(a)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 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, or make available, to Laurus each of the following, which shall be in form and detail acceptable to Laurus: (a) As soon as available, and in any event within one hundred and ten (110) 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 consolidated basis to include all Subsidiaries in accordance with GAAP, together with (i) 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 consolidated basis to include all Subsidiaries and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP (except to the extent they may not include footnotes or may be condensed), 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; 10 (c) Within twenty (20) days after the end of each month, commencing with September 2003, (i) or more frequently upon Laurus' reasonable request therefor, agings of Company's Accounts, the Company's accounts payable and a calculation of Company's Accounts and Eligible Accounts, in each case, as at the end of such month or shorter period and (ii) unaudited trial balances and a calculation of Company's Inventory, in each case, as at the end of such month; 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, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. (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, except as enforcement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally and by general equitable principles. (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 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) 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. 11 (f) Company is solvent, able to pay its debts as they mature, has capital sufficient to carry on its business and all businesses in which Company is about to engage and the fair saleable value of its assets (calculated on a going concern basis) is in excess of the amount of its liabilities. (g) There is no pending or threatened litigation, court order, judgment, writ, suit, action or proceeding which involves the possibility of having a Material Adverse Effect. (h) 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 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. (i) Company possesses all of the Intellectual Property necessary to conduct its business. Except as set forth on Exhibit 12(i), there has been no assertion or claim of violation or infringement with respect to any Intellectual Property. Exhibit 12(i) sets forth all Intellectual Property of Company. (j) 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. Any financial projections and other estimates provided to Laurus by Company were based on Company's experience in the industry and on assumptions of fact and opinion as to future events which Company, at the date of the issuance of such projections or estimates, believed to be reasonable. As of the date hereof, no facts have come to the attention of Company that would, in its opinion, require Company to revise in any material respect the assumptions underlying such projections and other estimates or the conclusions derived therefrom. (k) Subject to the accuracy of the representations made by Laurus in Section 36 hereof, the issuance of the Notes and the Warrants and the shares of common stock issued upon conversion of the Notes and exercise of the Warrants will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither Company nor any of its Affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Securities. 12 (l) The common stock of Company is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Company has timely filed with the Securities Exchange Commission (the "SEC"), all proxy statements, reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act. Company has made available to Laurus copies of (i) its Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and (ii) its Quarterly Report on Form 10-SB for the fiscal quarter ended March 31, 2003, as amended on August 20, 2003 and its Quarterly Report on Form 10-SB for the fiscal quarter ended June 20, 2003 (the "SEC Reports"). Each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form, and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of 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 SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial position of Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). (m) Company's common stock is listed for trading on NASDAQ SmallCap and satisfies all requirements for the continuation of such listing. Company has not received any notice that its common stock will be delisted from the NASDAQ SmallCap or that its common stock does not meet all requirements for the continuation of such listing. (n) Neither 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 contemplated by the Ancillary Agreements (the "Securities") to be integrated with prior offerings by Company for purposes of the Securities Act which would prevent Company from selling the Securities pursuant to Rule 506 under the Securities Act, or any applicable exchange-related stockholder approval provisions. Nor will 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. (o) The Securities, when issued, will be restricted securities as of the date of issuance thereof. 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 required by law. 13 (p) Company understands the nature of the Securities being issued under the Ancillary Agreements and recognizes that they may have a potential dilutive effect. Company specifically acknowledges that its obligation to issue the shares of Common Stock upon conversion of the Notes and exercise of the Warrants is binding upon Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of Company. (q) There is no agreement that has not been filed with the SEC as an exhibit to a registration statement or other applicable form, the breach of which could have a material and adverse effect as to Company and its Subsidiaries (taken as a whole), or would prohibit or otherwise interfere with the ability of 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. Until such time as the Obligations are indefeasibly paid in full, Company covenants as follows: (a) Company will not, without the prior written consent of Laurus, which consent shall not be unreasonably withheld, 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, bylaws or other organizational document to the extent such amendment could reasonably be expected to have a Material Adverse Effect. (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 material 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 might singly or in the aggregate, have 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 might 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 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, which, in each case, would have a Material Adverse Effect and (vi) any change in Company's name or any other name used in its business. 14 (e) Company will not (i) create, incur, assume or suffer to exist any indebtedness, whether secured or unsecured, except Company's indebtedness to Laurus or Laurus' Affiliates or assignees, except for unsecured indebtedness for borrowed money in an aggregate amount not in excess of $250,000 so long as such indebtedness is subordinated on terms and conditions reasonably acceptable in all respects to Laurus, and except as set forth on Exhibit 13(e)(i); (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 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 or apply any of its funds, property or assets to the purchase, redemption or other retirement of any Stock of a Company except an immaterial number of repurchases of shares of Common Stock from employees pursuant to stock option or stock grants 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 in (if in connection with such acquisition Company shall assume or otherwise be responsible for any liabilities of the Person in which Company is acquiring any such interest), any other Person, including any partnership or joint venture, except (x) travel advances and (y) loans to Company's officers and employees not exceeding at any one time an aggregate of $50,000; (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 or its Affiliates and assignees), or repurchase, redeem, retire or otherwise acquire any indebtedness; (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; (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. (f) None of the proceeds of the Loans hereunder will be used directly or indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness incurred to "purchase" or "carry" "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. 15 (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 reasonably 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, 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 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 by 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 workers' 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) copies of all policies 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 additional insured as its interests may appear, 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. 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 held by Laurus as cash Collateral for the Obligations. 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) Except as set forth on Exhibit 13(h), Company shall not at any time permit any accounts payable in excess of $100,000, in the aggregate, to remain unpaid more than ninety (90) days from the due date thereof unless there exists an agreement in writing between Company and any Person with respect to such payable permitting extended payment terms or a bona fide dispute exists with respect to such accounts payable, such amounts are being diligently contested in good faith and adequate reserves with respect thereto are maintained on the books of Company in conformity with GAAP. (i) 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 reasonably 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 irrevocably appoints Laurus as its attorney-in-fact (which appointment is coupled with an interest) and agrees that Laurus may perform (but Laurus shall not be obligated to and shall incur no liability to Company or any other third party for failure so to do) any act which Company is obligated by this Agreement to perform, and to exercise such rights and powers as Company might exercise with respect to the Collateral, including the right to (a) 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 in respect of the Collateral; (b) sign Company's name on verifications of Accounts and notices to or from Account Debtors and verify the validity, amount or any other matter relating to any Account by mail, telephone, telegraph or otherwise with Account Debtors; (c) collect by legal proceedings or otherwise all dividends, interest, payments, proceeds and other sums and property now or hereafter payable on or on account of the Collateral; (d) 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; (e) enter into any extension, reorganization, deposit, merger, consolidation or other agreement pertaining to, or deposit, surrender, accept, hold or apply other property in exchange for the Collateral; (f) make any compromise or settlement, and take any action it deems advisable, with respect to the Collateral; (g) insure, process and preserve the Collateral; (h) pay any indebtedness of Company relating to the Collateral; and (i) execute UCC financing statements and other documents, instruments and agreements required hereunder or to preserve to Collateral; provided, however, that Laurus shall not exercise any such powers granted pursuant to subsections (c) through (f) prior to the occurrence of an Event of Default and shall only exercise such powers during the continuance of an Event of Default. Company agrees to reimburse Laurus upon demand for any reasonable costs and expenses, including attorneys' fees, Laurus may incur while acting as Company's attorney-in-fact hereunder, all of which costs and expenses are included in the Obligations. It is further agreed and understood between the parties hereto that such care as Laurus gives to the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral when in Laurus' possession; provided, however, that Laurus shall not be required to make any presentment, demand or protest, or give any notice and need not take any action to preserve any rights against any prior party or any other Person in connection with the Obligations or with respect to the Collateral. 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 the expiration of the Initial Term, this Agreement shall be deemed to be automatically renewed for an additional one-year period and thereafter to be automatically renewed by succeeding terms of equal length at the end of the first and each succeeding renewal term (each, a "Renewal Term"), unless (i) Company shall (a) deliver written notice of cancellation to Laurus not earlier than 90 days and not later than 30 days prior to the expiration date of the Initial Term or any succeeding Renewal Term and (b) has paid in full in cash all Obligations on or prior to the expiration date of the Initial Term or any Renewal Term, as applicable, or (ii) Laurus shall deliver written notice of cancellation to Company not earlier than 90 days and not later than 30 days prior to the expiration date of the Initial Term or any succeeding Renewal 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 seven (7) 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) only in the case of termination of this Agreement by Company prior to the expiration of the Initial Term or any Renewal Term, as the case may be, paid to Laurus an early payment fee in an amount equal to (1) four percent (4%) of the Capital Availability Amount if such payment occurs prior to the first anniversary of the Initial Term or any applicable Renewal Term, (2) three percent (3%) 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 (3) two percent (2%) of the Capital Availability Amount if such payment occurs on or after the second anniversary and prior to the third anniversary of the Initial Term or any applicable Renewal Term; such fee being intended to compensate Laurus for its costs and expenses incurred in initially approving this Agreement or extending same. 17 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 and 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 Notes 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) Company shall default in the payment of (i) principal on any Note when due or (ii) interest on any Note when due and such interest payment default shall continue for a period of three (3) Business Days; (b) Company shall fail to make payment of any of the other Obligations when required hereunder and such default shall continue for a period of five (5) Business Days following the occurrence thereof; (c) failure to pay any taxes within seven (7) days following the date on which such taxes are 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; 18 (d) Company shall fail to perform under and/or commit any breach of (i) Sections 3(b), 3(c), 7, 11, 12(d), 12(f), 12(j)-(q) or 13 this Agreement or (ii) this Agreement or any Ancillary Agreement (other than those set forth in the immediately preceding clause (i) or otherwise covered by another clause of this Section 18) and such failure shall remain unremedied for 10 days after the occurrence thereof; (e) Company shall default under any agreement to which Company is a party with third parties which default (i) shall not have been cured within five (5) days following the occurrence thereof and (ii) has a Material Adverse Effect; (f) any material 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 prove to have been false or misleading in any material respect when made or deemed made, as determined by Laurus in good faith in the exercise of its reasonably discretion; (g) an attachment or levy is made upon Company's assets having an aggregate value in excess of $150,000 or a judgment is rendered against Company or Company's property involving a liability of more than $150,000 (exclusive, in the case of any such judgment, of any liability covered by insurance with respect to which Laurus is the loss payee so long as such carrier has not denied or contested liability therefor or reserved its right to do so) which shall not have been vacated, discharged, stayed or bonded pending appeal within thirty (30) days from the entry thereof; (h) other than with respect to Permitted Liens, 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 or vacated, within sixty (60) days, any petition filed against it in any involuntary case under such bankruptcy laws, or (vii) take any action for the purpose of effecting any of the foregoing; (j) Company shall admit in writing its inability, or be generally unable to pay its debts as they become due or cease operations of its present business; (k) any Subsidiary (other than EP MedSystems France S.A.R.L. and/or EP MedSystems UK Ltd.), 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 19 (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 constituting Collateral or any interest therein, except as permitted herein (m) Company defaults in the payment, when due, of any principal of or interest on any other indebtedness for money borrowed in an amount greater than $100,000, which is not cured within any applicable cure or grace period; (n) the indictment or threatened indictment of Company, any officer of Company under any criminal statute, or commencement or threatened commencement of criminal or civil proceeding against Company or any officer of Company pursuant to which statute or proceeding penalties or remedies sought or available include forfeiture of any of the assets of Company; (o) if an Overadvance (other then Approved Overadvances) shall remain in existence for more than twenty (20) consecutive Business Days; (p) Company or any Guarantor shall breach any term of provision of any Ancillary Agreement which is not cured within any applicable cure or grace period; (q) if an Event of Default shall occur under and as defined in any Note or the Mortgage; (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. (a) Following the occurrence of, and only during the continuance of, an Event of Default, Laurus shall have the right, by written notice to Company, 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 on all Collateral. Laurus shall have, in addition to all other rights provided herein and in each Ancillary Agreement, the rights and remedies of a secured party under the UCC, and under other applicable law, all other legal and equitable rights to which Laurus may be entitled, including the right to take immediate possession of the Collateral, to require 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, and only during the continuance 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, franchises and other proprietary rights. The proceeds of sale shall be applied first to all costs and expenses of sale, including attorneys' fees, and second to the payment (in whatever order Laurus elects) of all Obligations. After the indefeasible payment and satisfaction in full in cash of all of the Obligations, and after the payment by Laurus of any other amount required by any provision of law, including Section 608(a)(1) of the Code (but only after Laurus has received what Laurus considers reasonable proof of a subordinate party's security interest), the surplus, if any, shall be paid to 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. 20 (b) In addition, following the occurrence of an Event of Default, Laurus may, at its option, elect to convert the credit facility contemplated hereby to an accounts receivable purchase facility. Upon such election by Laurus (subsequent notice of which Laurus shall provide to Company), 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, Laurus' standard form of accounts receivable purchase agreement and 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. Company shall pay Laurus a liquidation fee ("Liquidation Fee") in the amount of ten percent (10%) of the face amount 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 earlier to occur of: (i) the date on which Laurus collects the applicable Account; and (ii) the 90th day from the invoice of such Account by deduction from any amount otherwise due from Laurus to Company directly, at the option of Laurus. 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 quantity 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 occurrence. 21 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 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 choice and decision with respect to this Agreement, the Ancillary Agreements and the transactions evidenced hereby and thereby. 21. EXPENSES. Company has paid to Laurus (the receipt of which Laurus hereby acknowledges) a good faith deposit of $15,000 towards Laurus' costs and expenses described below relating to the financing contemplated herein (including, without limitation, costs and expenses relating to Laurus' initial field examination, Laurus' in-house and outside counsel and related expenses, and appraisals), and internal underwriting or any other reasonable costs associated with this transaction). Any unused portion of the deposit(s) will be credited against the Closing Fee paid pursuant to Sections 5(b)(i) hereof. Company shall pay Laurus' reasonable out-of-pocket costs and expenses, and reasonable fees and disbursements of in-house or outside counsel, in connection with the preparation, execution and delivery of this Agreement and the Ancillary Agreements in an amount not to exceed $20,000. Unless otherwise approved in writing by Company, in addition to the fees referred to in Section 5(b) hereof, Company shall also reimburse Laurus for its due diligence costs (i.e., field examinations, appraisals, internal underwriting and directly related expenses) not to exceed $17,500. 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, in the event Company requests any such waiver, amendment or consent, (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 reasonable consultations with third party professionals 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 22. ASSIGNMENT BY LAURUS. Subject to applicable securities laws, Laurus may assign any or all of the Obligations together with any or all of the security therefor and any 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. 23. NO WAIVER; CUMULATIVE REMEDIES. Failure by Laurus to exercise any right or remedy 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. 23 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 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 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 152 West 57th Street New York, New York 10019 Attention: David Grin Telephone: (212) 541-4434 Telecopier: (212) 541-5800 With a copy to: Loeb & Loeb LLP 345 Park Avenue New York, New York 10154 Attention: Scott J. Giordano, Esq. Telephone: (212) 407-4000 Telecopier: (212) 407-4990 24 If to Company: EP MedSystems, Inc. 575 Route 73 North Building D West Berlin, New Jersey 08091 Attention: Reinhard Schmidt Telephone: (856) 753-8533 Telecopier: (856) 753-8544 With a copy to: Heller Ehrman White & McAuliffe LLP 120 West 45th Street New York, New York 10036 Attention: Salvatore J. Vitiello, Esq. Telephone: (212) 847-8732 Telecopier: (212) 703-8923 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 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. 25 (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 neither Laurus nor any of Laurus' agents shall be liable for acts taken or omissions made in connection herewith or therewith except for Laurus' gross negligence, willful misconduct or bad faith. 30. ENTIRE UNDERSTANDING. This Agreement and the Ancillary Agreements contain the entire understanding between Company and Laurus 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 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. 26 35. PUBLICITY. With the Company's prior consent and prior review of the content thereof, Laurus may make appropriate written 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 and Company shall reasonably agree. 36. REPRESENTATIONS AND WARRANTIES OF LAURUS. Laurus is aware that none of the Securities have been registered under the Securities Act or any applicable state securities laws, and agrees that none of the Securities will be offered or sold in the absence of registration under the Securities Act and any applicable state securities laws or an exemption from the registration requirements of the Securities Act and any applicable state securities laws, which shall be accompanied by an opinion of counsel to Laurus, satisfactory to Company and its counsel that registration of such Securities is not required. Laurus agrees not to transfer any of the Securities in violation of the provisions of any applicable federal or state securities laws. In this connection, Laurus represents that it is familiar with Rule 144 promulgated by the SEC pursuant to the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Laurus understands that the offering and sale of the Securities is intended to be exempt from registration under the Securities Act, by virtue of the private placement exemption provided by 506 of Regulation D promulgated under the Securities Act and/or Section 4(2) of the Securities Act, based, in part, upon the representations, warranties and agreements contained in this Agreement, and Company may rely on such representations, warranties and agreements in connection therewith. Laurus agrees that it will be acquiring it's the Securities for its own account and for investment, and not with a view to the distribution thereof or with any present intention of distributing or selling any of such Securities, except in compliance with the Securities Act and this Agreement. Laurus hereby represents and warrants that it is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act. In addition, Laurus represents that by reason of its business and financial experience it has knowledge, sophistication and experience in business and financial matters as to be capable of evaluating the merits and risk of the prospective investment. The financial condition and investments of Laurus are such that Laurus is in a financial position to hold the Securities for an indefinite period of time and to bear the economic risk of, and withstand a complete loss of, the investment in his, her or its respective portion of the Securities. Laurus has carefully examined this Agreement and all exhibits and schedules hereto. Laurus acknowledges that Company has made available all documents and information that Laurus has requested relating to Company and has provided answers to all of Laurus' questions concerning Company and/or the Securities. 27 IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. EP MEDSYSTEMS INC. By: /s/ Reinhard Schmidt Name: Reinhard Schmidt Title:President and Chief Executive Officer LAURUS MASTER FUND, LTD. By: /s/ David Grin Name: David Grin Title:Partner 28 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 ninety percent (90%) of the net face amount of Eligible Accounts based on Accounts of Company; provided, however, in the event Dilution with respect to Company's Accounts exceeds 5%, the applicable percentage set forth above shall be reduced by 1% for each 2% increase in the applicable rate of Dilution. "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, or (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 purposes of this definition, control of a Person shall mean the power, direct or indirect, (i) to vote ten percent (10%) or more of the securities having ordinary voting power for the election of directors of such Person, or (ii) 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, the Mortgage 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. 29 "Appraisal" means the appraisal of the Real Property dated March 16, 1999 prepared by Heil Appraisals and all additional appraisals of the Real Property delivered to Laurus in accordance with the terms of Section 7(q). "Approved Overadvances" means Overadvances outstanding on the date the initial Loans are funded hereunder in an aggregate amount equal to $2,646,000 (or such other Approved Overadvance amounts approved in writing by Laurus), which such approved amount shall be permanently reduced in accordance with the terms of Section 5(b)(iv). "Books and Records" means all books, records, board minutes, contracts, licenses, insurance policies, environmental audits, business plans, files, computer files, computer discs and other data and software storage and media devices, accounting books and records, financial statements (actual and pro forma), filings with Governmental Authorities and any and all records and instruments relating to the Collateral or otherwise necessary or helpful in the collection thereof or the realization thereupon. "Business Day" means a day on which Laurus is open for business and that is not a Saturday, a Sunday or other day on which banks are required or permitted to be closed in the State of New York. "Capital Availability Amount" means $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 hereof. "Collateral" means all of Company's property and assets, whether real or personal, tangible or intangible (other than Intellectual Property and related tangible and intangible property and assets), 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, other than Intellectual Property; (e) all Accounts; (f) all Deposit Accounts, other bank accounts and all funds on deposit therein; (g) all Investment Property; 30 (h) all Stock; (i) all Chattel Paper; (j) all Letter-of-Credit Rights; (k) all Instruments; (l) all Real Property; (m) all commercial tort claims set forth on Exhibit 1(A); (n) all Books and Records; (o) all Supporting Obligations, including letters of credit and guarantees issued in support of Accounts, Chattel Paper, General Intangibles and Investment Property; (p) (i) all money, cash and cash equivalents and (ii) all cash held as cash collateral to the extent not otherwise constituting Collateral, all other cash or property at any time on deposit with or held by Laurus for the account of Company (whether for safekeeping, custody, pledge, transmission or otherwise); and (q) all products and Proceeds of all or any of the foregoing, tort claims and all claims and other rights to payment including 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 (a) with respect to outstanding Loans based upon Accounts Availability, the Prime Rate, but in no event less than four percent (4%) per annum (the "Specified Contract Rate") and (b) with respect to the amount of outstanding Loans in excess of Accounts Availability, the Specified Contract Rate plus two percent (2%) per annum. "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. "Dilution" means any reduction in the value of an Account at any time, including, without limitation, a reduction caused by: return of goods, discounts, allowances, rebills, credits and/or any other non-cash offsets asserted or assertable by an Account Debtor. 31 "Documents" means all "documents", as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located, including all bills of lading, dock warrants, dock receipts, warehouse receipts, and other documents of title, whether negotiable or non-negotiable. "Eligible Accounts" means and includes each Account 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 materially 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, agent, director, stockholder or Affiliate of Company; (m) is payable to Company; (n) does not arise out of a bill and hold sale prior to shipment and does not arise out of a sale to any Person to which Company is indebted; (o) is net of any returns, discounts, claims, credits and allowances; (p) 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 or service charges owing to Company; (w) is not a Specified Account and (x) is otherwise satisfactory to Laurus as determined by Laurus in the exercise of its good faith business judgment, including, without limitation, based upon Laurus receipt of all documents, instruments and agreements required to more fully evidence the transactions contemplated hereby. In the event Company requests that Laurus include within Eligible Accounts certain Accounts of one or more of Company's Subsidiaries, 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. 32 "Eligible Real Property" means the Real Property so long as such Real Property is not subject to any Liens other than those in favor of Laurus (other than Permitted Liens), is covered by a recent Appraisal acceptable to Laurus and is otherwise satisfactory in all respects to Laurus in its sole discretion for borrowing purposes. "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 19. "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). "Fraud Event" means the occurrence of any one or more of the following events: (a) Company has misappropriated any proceeds of any Company or the proceeds of any Loans, (b) Company has converted any Collateral or (c) Company has committed fraud against Laurus, including any material and willful misrepresentation made (or caused to be made) by Borrower with respect to any of the representations and warranties contained herein or the accuracy of any information provided to Laurus concerning the Collateral, or in any other document delivered to Laurus in connection with the transactions contemplated hereby. "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, 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, 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. 33 "Goods" means all "goods", as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located, including embedded software to the extent included in "goods" as defined in the UCC, manufactured homes, standing timber that is cut and removed for sale and unborn young of animals. "Goodwill" means all goodwill, trade secrets, proprietary or confidential information, technical information, procedures, formulae, quality control standards, designs, operating and training manuals, and customer lists, now owned or hereafter acquired by any Person. "Guarantor" means 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 third anniversary of the Closing Date, subject to acceleration at the option of Laurus upon the occurrence of an Event of Default hereunder or other termination hereunder. "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. 34 "Investment Property" means all "investment property", as such term is defined in the UCC, now owned or hereafter acquired by any Person, wherever located. "Letter-of-Credit Rights" means "letter-of-credit rights" as such term is defined in the UCC, now owned or hereafter acquired by any Person, including rights to payment or performance under a letter of credit, whether or not such Person, as beneficiary, has demanded or is entitled to demand payment or performance. "License" means any rights under any written agreement now or hereafter acquired by any Person to use any trademark, trademark registration, copyright, copyright registration or invention for which a patent is in existence or other license of rights or interests now held or hereafter acquired by any Person. "Lien" means any mortgage, security deed, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including any conditional sale or other title retention agreement, any lease having substantially the same 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). "Mortgage" means collectively the mortgage granted by Company and/or any Guarantor to Laurus on the Real Property securing the Obligations and all other mortgages and deeds of trust which are executed in favor of Laurus to secure the Obligations, as amended, modified and supplemented from time to time. "Notes" means each Secured Convertible Notes 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. 35 "Obligations" means all Loans (including, without limitation, any and all Overadvances), all advances, debts, liabilities, monetary obligations, interest and fees of every kind and description (whether or not evidenced by any note or other instrument and whether or not 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 at any time or from time to time) owing by Company to Laurus (and Laurus Capital Management LLC) under or in connection with this Agreement or any Ancillary Agreement or any related document or instrument including, without limitation, all amounts owing by Company to Laurus on account of fees, reasonable costs, commissions, reasonable expenses and taxes including any debt or liability owing from Company to others which Laurus may have obtained by assignment or otherwise and further including all interest (including interest accruing at the then applicable rate provided in this Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in this Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), charges or any other payments Company is required to make by law or otherwise arising under or as a result of this 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 "base rate" or "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. 36 "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 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; (d) 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 (e) 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, (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. "Real Property" means the real property located at 575 Route 73 North, Building D, West Berlin, New Jersey. "Real Property Availability" means the amount of Loans against Eligible Real Property Laurus may from time to time make available to Company up to one hundred percent (100%) of the appraised value of the Real Property as reflected on the most recent Appraisal delivered to Laurus in accordance with the terms of Section 7(q) hereof. "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. "Renewal Term" has the meaning set forth in Section 16. "Securities" has the meaning set forth in Section 12(n). 37 "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. "Specified Accounts" means any Account that (i) does not represent a right to payment due for Goods sold, or services rendered, to an end-user and (ii) [remainder intentionally omitted]. No Specified Account shall be deemed to be an Eligible Account. "Specified Default" means the occurrence of (a) one or more Events of Default under Sections 18(a), 18(e), 18(h), 18(i), 18(j), 18(k) or 18(l); or (b) a Fraud Event. "Stock" means all certificated and uncertificated shares, options, warrants, membership interests, general or limited partnership interests, participation or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Securities Exchange Act of 1934). "Subsidiary" of any Person means a corporation or other entity whose shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such 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. 38 EXHIBITS The following Exhibits are provided, as of August 28, 2003, pursuant to the Security Agreement, dated as of August 28, 2003, between EP MedSystems, Inc. and Laurus Master Fund Ltd. (the "Security Agreement"). Any information disclosed herein in any Exhibit shall be deemed to be disclosed and incorporated with respect to any section of the Security Agreement where such disclosure would be appropriate. Any capitalized terms used herein and not defined shall have the meanings assigned to such terms in the Security Agreement. 39 Exhibit 2 - Permitted Liens None 40 Exhibit 7(c) - Actions to Perfect Liens File UCC-1 financing statement with the Secretary of State of the State of New Jersey. 41 Exhibit 7(e) - Disposition of Collateral From time to time the Company loans out items in its inventory as demonstration models for sales purposes or for service parts. These items are either returned to the Company or sold. 42 Exhibit 12(d) - Locations of Collateral etc. The Company's name is EP MedSystems, Inc. The Company is a corporation. The Company's State of incorporation is New Jersey. The Company's chief executive offices are located at: 575 Route 73 North, Building D West Berlin, NJ 08091 The tangible Collateral is at the following locations: 575 Route 73 North, Building D West Berlin, NJ 08091 10a Lion Road, Bexleyheath Kent DA6 8NR UK 1140 Rue Ampere Pole d'Activites Aix Les Milles Aix en Provence Cedex 3 13795 France Buitenlust 39 Hoogheuvelstraat 114 5349 BA Oss The Netherlands Innovative Display & Design 1452 Barhom Avenue Bridgeport, CT 06610 The Company closed its Paris office in the last twelve months. 43 Exhibit 7(p) - Locations of Bank Accounts Commerce Bank 247 S. White Horse Pike Berlin, NJ 08009 Acct. #75-42798 Commerce Bank 247 S. White Horse Pike Berlin, NJ 08009 Acct. #74-48624 Commerce Bank 247 S. White Horse Pike Berlin, NJ 08009 Acct. #09-25503 Commerce Bank 247 S. White Horse Pike Berlin, NJ 08009 Acct. #14658470 Raymond James 880 Carillon Parkway St. Petersburg, FL 33716 Acct. #50229509 Fleet 500 Centennial Blvd. Voorhees, NJ 08043 856-751-6611 Acct. #941755-4747 Fleet 500 Centennial Blvd. Voorhees, NJ 08043 856-751-6611 Acct. #1000324623 Fleet 500 Centennial Blvd. Voorhees, NJ 08043 856-751-6611 Acct. #942775-7193 Fleet 500 Centennial Blvd. Voorhees, NJ 08043 856-751-6611 Acct. #0155102389 [Does not include bank accounts in Europe] 44 Exhibit 12(i) - Intellectual Property Patents
- ------------------------------------- ----------------------------------- ----------------------------------- United States Patents Description Date of Expiration - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,433,7421 Method for making a flexible November 19, 2013 adhesive electrode (1) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,807,324 Steerable catheter April 1, 2016 - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,697,965 Wiring of a common electrode array April 1, 2016 - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,888,577 Laser etched IBAD flexible metal June 30, 2017 electrodes - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,931,863 Combination pacing/sensing and December 22, 2017 cardioversion catheter - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,928,276 One-piece electrophysiology June 11, 2018 catheter - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,974,339 Controlled current defibrillator November 26, 2017 - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 6,085,117 Electrophysiology catheter December 22, 2017 - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 6,144,870 Catheter with improved electrodes October 21, 2016 and method of fabrication - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 6,173,205 Electrophysiology catheter December 22, 2017 - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,571,1592 Temporary atrial defibrillation April 4, 2014 catheter and method (2) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,653,7342 Temporary atrial defibrillation April 4, 2014 catheter and method (division of 5,571,159)(2) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,928,2692 Apparatus and method for April 4, 2014 temporary atrial defibrillation(2) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 6,181,9672 Atrial defibrillator apparatus April 4, 2014 and method of use(2) 45 - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,207,2193 Atrial defibrillator and method May 4, 2010 for providing interval timing prior to cardioversion (3) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,161,5364 Ultrasonic position indicating November 10, 2009 apparatus and methods (electronics for detection)(4) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,373,8454 Apparatus and method for forward December 20, 2011 looking volume imaging(4) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,329,9274 Apparatus and method for locating July 19, 2011 an interventional medical device with a ultrasound color imaging system (equipment)(4) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,343,8654 Apparatus and method for locating Sept. 6, 2011 an interventional medical device with a ultrasound color imaging system (method)(4) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,425,3704 Method and apparatus for locating March 23, 2014 vibrating devices (GreyMark)(4) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 5,421,3364 Method for attaching an April 4, 2014 interventional medical device to a vibratory member associated with visualization by an ultrasound imaging system (NeedleEngager)(4) - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 6,385,489 Triple array defibrillation May 7, 2018 catheter and method for using same - ------------------------------------- ----------------------------------- ----------------------------------- - ------------------------------------- ----------------------------------- ----------------------------------- 6,440,488 Flexible electrode catheter and August 27, 2018 process for manufacturing same - ------------------------------------- ----------------------------------- -----------------------------------
46 - ----------------------------------- 1 Subject to technology agreement with Allan Willis. 2 Subject to license agreement with Eckhard Alt. 3 Subject to license agreement with Incontrol, Inc. 4 Subject to license agreement with EchoCath, Inc. LICENSE AGREEMENTS License agreement with Eckhard Alt, M.D., dated as of November 1, 1995, as amended. License agreement with Incontrol, Inc., dated as of January 21, 1998. Agreement, dated as of April 10, 2001, with Sanjeev Saksena. Agreement, dated as of March 9, 1998, with Allan Willis. Settlement agreement with EchoCath, Inc., dated November 6, 2001. TRADEMARKS The following trademarks include those which have been registered with the U.S. Patent and Trademark Office, and those which are unregistered trademarks of EP Med: Registered Trademarks: EP-WorkMate(R), ALERT(R)System, SilverFlex(R), ProCath(R), V-LERT(R), ALERT VT(R), ViewMate(R) Unregistered Trademarks: EP-3(TM)Stimulator and Viewflex(TM) Other: Siemans has notified the Company that it has certain intellectual property covering ultrasound and that Siemens vigorously defends its intellectual property. The Company has obtained opinion from counsel that it is not infringing. 47 Exhibit 13(e)(i) - Permitted Indebtedness Indebtedness to Medtronic, which is non-recourse to the Company, in the principal amount of $2.2 million, plus accrued interest. 48 Exhibit 13(e)(v) - Investments in/Loans to others The Company has loaned one of its employees $27,250. The loan bears interest at the rate of WSJ prime +2% and is due upon the sale of his former residence. 49 Exhibit 13(e)(ii) - Existing Subs EP MedSystems UK Ltd. EP MedSystems France S.A.R.L. EP MedSystems Benelux ProCath Corporation 50 Exhibit 13(e)(vii) - Prepayment of Indebtedness The Company intends to prepay a portion of the Indebtedness to Medtronic with the proceeds of the Loans made on the Closing Date. 51 Exhibit 13(h)- Accounts Payable more than 90 Daus past due [intentionally omitted] $27,638 [intentionally omitted] $39,490 [intentionally omitted] $ 9,338 [intentionally omitted] $ 5,161 52 Exhibit A Borrowing Base Certificate 53 EX-10 5 ex103.txt EXHIBIT 10.3 Exhibit 10.3 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. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO EP MEDSYSTEMS INC. THAT SUCH REGISTRATION IS NOT REQUIRED. Right to Purchase 225,000 Shares of Common Stock of EP Medsystems Inc. (subject to adjustment as provided herein) COMMON STOCK PURCHASE WARRANT No. 2003-1 Issue Date: August 28, 2003 EP MEDSYSTEMS INC., a corporation organized under the laws of the State of New Jersey (the "Company"), 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 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 seven (7) years after such date (the "Expiration Date"), up to 225,000 fully paid and nonassessable shares of Common Stock (as hereinafter defined), $.01 par value, of the Company, at the Exercise Price (as defined below). The number and character of such shares of Common Stock and the Exercise Price 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 EP Medsystems Inc. and any corporation which shall succeed or assume the obligations of EP Medsystems Inc. hereunder. (b) The term "Common Stock" includes (a) the Company's Common Stock, no par value, and (b) 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. 1 (d) The term "Exercise Price" shall be as follows: a. 125,000 shares at $2.93 per share; b. 75,000 shares at $3.19 per share; and c. 25,000 shares at $3.70 per share. 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 the exercise notice attached hereto as Exhibit A (the "Exercise Notice"), shares of Common Stock of the Company, subject to adjustment pursuant to Sections 3 or 4. 1.2 Fair Market Value. 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 an 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 an exchange or on the Nasdaq but is traded on the NASD OTC Bulletin Board or BBX Exchange, 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 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 Common Stock pursuant to the charter in the event of such liquidation, dissolution or winding up, 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. 2 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 as aforesaid. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 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. (a) Payment may be made either (i) in cash, by official bank check or by wire transfer of immediately available funds to the Company equal to the applicable aggregate Exercise Price, (ii) by delivery of the Warrant, 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 such form (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. (b) Notwithstanding any provisions herein to the contrary, if (i) 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) and (ii) the Company does not then have an effective registration statement covering the resale of the Common Stock issuable upon exercise of this Warrant, then 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 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, prior to such dissolution, shall, to the extent permitted by law, at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of the Warrant after the effective date of such dissolution pursuant to Section 3.1 to a bank or trust company having its principal office in New York, NY, as trustee for the Holder of the Warrant. 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 only in such event will the Company's securities and property (including cash, where applicable) receivable by the holders of the Warrant be delivered to 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 increased to a number determined 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. 4 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 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. (a) The Holder acknowledges that the Holder has been advised by the Company that neither this Warrant nor the shares of Common Stock issuable upon exercise of this Warrant (the "Warrant Shares") have been registered under the Act, that this Warrant is being or has been issued and the Warrant Shares may be issued on the basis of the statutory exemption provided by Section 4(2) of the Act or Regulation D promulgated thereunder, or both, relating to transactions by an issuer not involving any public offering, and that the Company's reliance thereon is based in part upon the representations made by the original Holder in the Security Agreement. The Holder acknowledges that it has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Act and the rules and regulations thereunder on the transfer of securities. In particular, the Holder agrees that no sale, assignment or transfer of this Warrant or the Warrant Shares issuable upon exercise hereof shall be valid or effective, and the Company shall not be required to give any effect to any such sale, assignment or transfer, unless (i) the sale, assignment or transfer of this Warrant or such Warrant Shares is registered under the Act, it being understood that neither this Warrant nor such Warrant Shares are currently registered for sale and that the Company has no obligation or intention to so register this Warrant or such Warrant Shares except as specifically noted in Section 9 below, or (ii) this Warrant or such Warrant Shares are sold, assigned or transferred in accordance with all the requirements and limitations of Rule 144 promulgated under the Act, it being understood that Rule 144 is not available at the time of the original issuance of this Warrant for the sale of this Warrant or such Warrant Shares and that there can be no assurance that Rule 144 sales will be available at any subsequent time, or (iii) such sale, assignment, or transfer is otherwise exempt from registration under the Act. 5 (b) Subject to compliance with the Act and other applicable securities laws, this Warrant, and the rights evidenced hereby, may be transferred by any registered holder hereof (a "Transferor") with respect to any or all of the Shares. 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 the Act and other applicable securities laws, which shall include, without limitation, a legal opinion from the Transferor'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 at or prior to the issue 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. 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 IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of the date first written above. EP MEDSYSTEMS INC. By:/s/ Reinhard Schmidt Witness:_/s/____________________ 8 Exhibit A FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO: EP Medsystems Inc. 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 cash, official bank check or wire transfer of immediately available funds; 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, to exercise this Warrant with respect to the maximum number of shares of Common Stock purchaseable 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) 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 EP Medsystems Inc. to 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 EP Medsystems Inc. with full power of substitution in the premises. - ------------------ ------------------------- ---------------------- Transferees Percentage Transferred Number Transferred - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- - ------------------ ------------------------- ---------------------- Dated:___________________ (Signature must conform to name of holder as specified on the face of the Warrant) Signed in the presence of: _______________________ ______________________________ Name) (address) ACCEPTED AND AGREED: _____________________________ [TRANSFEREE] (address) __________________________ (Name) EX-10 6 ex104f.txt EXHIBIT10.4 Exhibit 10.4 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is made and entered into as of August 28, 2003, by and between EP Medsystems, Inc., a New Jersey corporation (the "Company"), Laurus Master Fund, Ltd. (the "Purchaser") and each person or entity that subsequently becomes a party to this Agreement pursuant to, and in accordance with, the provisions of Section 8(h) hereof (each a "Holder" and together the "Holders"). This Agreement is made pursuant to the Security Agreement, dated as of the date hereof, between the Purchaser and the Company (the "Security Agreement"), and is entered into pursuant to the Notes and the Warrants. 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: "Effectiveness Date" means the 90th day following the applicable Filing Date. "Effectiveness Period" shall have the meaning set forth in Section 2(a). "Filing Date" means, with respect to each Registration Statement required to be filed hereunder, no later than sixty (60) days following (1) the funding by Purchaser of the Loans on the initial funding date (the "Initial Filing Date") and (2) the earlier to occur of (a) that date which is twelve months following the date of this Agreement and (b) that date on which debt evidenced by one or more of the Notes has been converted into at least 1,250,000 shares of Company's Common Stock in accordance with the terms of the applicable Notes. "Indemnified Party" shall have the meaning set forth in Section 5(c). "Indemnifying Party" shall have the meaning set forth in Section 5(c). "Losses" shall have the meaning set forth in Section 5(a). "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 each 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. "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 be made on a continuous basis pursuant to Rule 415; provided, however, not more than 1,500,000 shares of Registrable Securities shall be covered by the Registration Statement to be filed on the Initial Filing Date. Each Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on 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 each 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, and shall keep each 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 pursuant to Rule 144(k), 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"). At the end of the Effectiveness Period, the Company shall be entitled to withdraw the Registration Statement and shall have no further obligation to register the Registrable Securities. 2 (b) If: (i) any Registration Statement is not filed on or prior to the applicable Filing Date (except if the delay is directly caused by the actions or inaction of the Holder); (ii) a Registration Statement filed hereunder is not declared effective by the Commission by the Effectiveness Date (except if the delay is directly caused by the actions or inaction of the Holder); (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 (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 (as defined below) 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 any of the NASD OTC Bulletin Board, BBX Exchange, NASDAQ SmallCap Market, the Nasdaq National Market, American Stock Exchange or New York Stock Exchange (the "Trading Market"))(any such failure or breach being referred to as an "Event," and for purposes of clause (i), (ii) or (v) the date on which such Event occurs, or for purposes of clause (iii) the date on 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 "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) on a daily basis of the original principal amount of each applicable Note. Such liquidation damages shall be paid not less than each thirty (30) days during an Event and within three (3) days following the date on which such Event has been cured by the Company. (c) Unless otherwise agreed to by the Company, the offer and sale of the Registrable Securities pursuant to the Registration Statement shall not be underwritten. 3. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions hereof to effect the registration of the Registrable Securities under the Act, the Company will, as expeditiously as possible: (a) prepare and file with the SEC a registration statement with respect to such securities, and use its best efforts to cause such registration statement to become and remain effective for the Effectiveness Period, and promptly provide to the Purchaser copies of all filings and SEC letters of comment; (b) prepare and file with the SEC 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 securities covered by the registration statement and to keep such registration statement effective during 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 securities covered by such registration statement; 3 (d) use its commercially reasonable efforts to register or qualify the Holder's Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Holder shall 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; and provided further that (notwithstanding anything in this Agreement to the contrary with respect to the bearing of expenses) if any jurisdiction in which any of such Registrable Securities shall be qualified shall require that expenses incurred in connection with the qualification therein of any such Registrable Securities be borne by the selling Holders, then the selling Holders shall, to the extent required by such jurisdiction, pay their pro rata share of such qualification expenses; (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 of one counsel to the Holders) incurred in connection with complying with state securities or "blue sky" laws, fees of the NASD, transfer taxes, fees of transfer agents and registrars, fees of, and disbursements incurred by, one counsel for the Holders, and costs of insurance 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 be responsible for all Registration Expenses and the Holders shall be responsible for all Selling Expenses. 5. INDEMNIFICATION. (a) In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, to the extent permitted by law, 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 ("Losses"), 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 indemnity agreement contained in this Section 5(a) shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld) and the Company will not be liable in any such case if and to the extent that any such Loss 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 any Holder or its representatives 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 Holders, jointly and severally, 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, joint or several, to which the Company or such persons may become subject under the Securities Act or otherwise, insofar as such Losses (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 any Holder or its representatives 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, provided, however, that the Holders will be liable in any such case if and only to the extent that any such Loss 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 any Holder or its representatives specifically for use in any such document. Notwithstanding the provisions of this paragraph, the Holders shall not be required to indemnify any person or entity in excess of the amount of the aggregate net proceeds received by the Holders of Registrable Securities in connection with any such registration under the Securities Act. 5 (c) Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, 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 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 parties 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. 6 (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 controlling person of the Purchaser, makes a claim for indemnification pursuant to this Section 5(d) 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(d) provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of the Purchaser or controlling person of the Purchaser in circumstances for which indemnification is provided under this Section 5(d); then, and in each such case, the Company and the Holders will contribute to the aggregate Losses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and of the indemnified party, on the other, in connection with the statements or omissions that resulted in such loss, claim or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. If, however, the allocation provided in the previous two sentences is not permitted by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative faults but also the relative benefits of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 5(d) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentences of this Section 5(d). The amount paid or payable in respect of any claim shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending such loss, claim, damage or liability (including legal expenses reasonably incurred). Notwithstanding anything in this Section 5(d) to the contrary, no Holder shall be required to contribute an amount in excess of 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 Holders will not be required to contribute any amount in excess of the public offering price of all such securities offered by them 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. (e) The obligations of the Company and the Holders under this Section 5 shall survive the completion of any offering of Registrable Securities pursuant to (i) a Registration Statement or (ii) any registration statement pursuant to which Registrable Securities are registered under Section 8(e) hereof. (f) Notwithstanding anything to the contrary herein, the indemnifying party shall not be entitled to settle any claim, suit or proceeding unless in connection with such settlement the indemnified party receives an unconditional release with respect to the subject matter of such claim, suit or proceeding and such settlement does not contain any admission of fault by the indemnified party. 7 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 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 December 31, 2002 and (ii) its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003 (collectively, the "SEC Reports"). Each SEC Report was, at the time of its filing, in substantial compliance with the requirements of its respective form and none of the SEC Reports, nor the financial statements (and the notes thereto) included in the SEC Reports, as of their respective filing dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed) and fairly present in all material respects the financial condition, the results of operations and the cash flows of the Company and its subsidiaries, on a consolidated basis, as of, and for, the periods presented in each such SEC Report. (b) The Company Common Stock is listed for trading on the Nasdaq SmallCap Market 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 Nasdaq SmallCap Market 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 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 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 Registrable Securities are 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 the 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 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. 8 (f) Except for agreements made in the ordinary course of business, there is no agreement that has not been filed with the SEC as an exhibit to a registration statement or to a form required to be filed by the Company under the Securities Exchange Act the breach of which could 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 each Warrant. 7. DEFERRAL AND LOCK-UP. Notwithstanding anything in this Agreement to the contrary, if the Company shall furnish to the Purchaser a certificate signed by the President or Chief Executive Officer of the Company stating that the Board of Directors of the Company has made the good faith determination (i) that continued use by the Holders of the Registration Statement for purposes of effecting offers or sales of Registrable Securities pursuant thereto would require, under the Securities Act, premature disclosure in the Registration Statement (or the prospectus relating thereto) of material, nonpublic information concerning the Company, its business or prospects or any proposed material transaction involving the Company, (ii) that such premature disclosure would be materially adverse to the Company, its business or prospects or any such proposed material transaction or would make the successful consummation by the Company of any such material transaction significantly less likely and (iii) that it is therefore essential to suspend the use by the Holders of such Registration Statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto, then the right of the Holders to use the Registration Statement, (and the prospectus relating thereto) for purposes of effecting offers or sales of Registrable Securities pursuant thereto shall be suspended for not more than two 15-business day periods in a twelve month period (the "Suspension Period(s)") after delivery by the Company of the certificate referred to above in this Section 7. In no event, however, will any suspension be any longer than is reasonably necessary to avoid the adverse effect. During the Suspension Period, none of the Holders shall offer or sell any Registrable Securities publicly pursuant to or in reliance upon the Registration Statement (or the prospectus relating thereto). 8. MISCELLANEOUS. (a) REMEDIES. In the event of a breach by the Company or by a Holder, of any of their 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 8(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 8(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 has not been fully satisfied. 9 (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 8(d), a "Discontinuation Event" shall mean 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); (iii) 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; (iv) 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; (v) 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 (vi) 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 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 option 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, subject to customary underwriter cutbacks applicable to all holders of registration rights and subject to the consent of any selling stockholder(s) under such registration statement. 10 (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 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 8(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 officer of the party to whom it is addressed, in the case of those by mail or overnight mail, deemed to have been given 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: EP Medsystems, Inc. 575 Route 73 North Building D West Berlin, New Jersey 08091-9293 Attention: President and Chief Executive Officer Facsimile: 856-753-8544 With a copy to: Salvatore J. Vitiello, Esq. Heller Ehrman White & McAuliffe 120 West 45th Street New York, NY 10036 Facsimile: 212-763-7600 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 the same manner, by such Person. 11 (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. None of the rights of the Purchaser under this Agreement shall be transferred or assigned to any person unless (i) such person is a Qualifying Holder (as defined below), and (ii) such person agrees to become a party to, and bound by, all of the terms and conditions of, this Agreement by duly executing and delivering to the Company an Instrument of Adherence in the form attached as Exhibit A hereto. For purposes of this Section 8(h), the term "Qualifying Holder" shall mean, with respect to the Purchaser, (i) any shareholder thereof, (ii) any corporation, partnership or limited liability company controlling, controlled by, or under common control with, the Purchaser, or (iii) any other direct transferee from the Purchaser of at least 25,000 shares included as Registrable Securities that are held or that may be acquired by the Purchaser. None of the rights of the Purchaser under this Agreement shall be transferred or assigned to any person (including, without limitation, a Qualifying Holder) that acquires Registrable Securities in the event that and to the extent that such person is eligible to resell such Registrable Securities pursuant to Rule 144(k) of the Securities Act or may otherwise resell such Registrable Securities pursuant to an exemption from the registration provisions of the Securities Act. (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, Borough of Manhattan. 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 a Transaction Document, 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. 12 (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. IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. EP MEDSYSTEMS, INC. By: /s/ Reinhard Schmidt Name: Reinhard Schmidt Title:President and Chief Executive Officer [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES OF PURCHASER TO FOLLOW] 13 IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above. LAURUS MASTER FUND, LTD. By:/s/ David Grin Name: David Grin Title: Partner Address for Notice: 152 West 57th Street New York, New York 10019 14 Exhibit A Instrument of Adherence Reference is hereby made to that certain Registration Rights Agreement, dated as of August __, 2003, among EP MedSystems, Inc., a New Jersey corporation (the "Company"), the Purchaser and the Holders, as amended and in effect from time to time (the "Registration Rights Agreement"). Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Registration Rights Agreement. The undersigned, in order to become the owner or holder of ___________ shares of Company common stock, no par value, $0.001 stated value per share (the "Common Stock"), hereby agrees that, from and after the date hereof, the undersigned has become a party to the Registration Rights Agreement in the capacity of a Holder, and is entitled to all of the benefits under, and is subject to all of the obligations, restrictions and limitations set forth in, the Registration Rights Agreement that are applicable to a Holder. This Instrument of Adherence shall take effect and shall become a part of the Registration Rights Agreement immediately upon execution. Executed under seal as of the date set forth below under the laws of the State of New York. Signature:________________ Name:_____________________ Title:____________________ Accepted: EP MedSystems, Inc. By:_____________________________ Name: ______________________________ Title:______________________________ Date:_________________________________ EX-10 7 exh105.txt EXHIBIT 10.5 Exhibit 10.5 GUARANTY (Corporate) New York, New York August 28, 2003 FOR VALUE RECEIVED, and in consideration of loans made or to be made or credit otherwise extended or to be extended by Laurus Master Fund, Ltd. ("Lender") to or for the account of EP MedSystems, Inc. ("Borrower") from time to time and at any time and for other good and valuable consideration and to induce Lender, in its discretion, to make such loans or extensions of credit and to make or grant such renewals, extensions, releases of collateral or relinquishments of legal rights as Lender may deem advisable, 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 "Guarantor" or "the undersigned") unconditionally guaranties to Lender, 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 Borrower to Lender and of all instruments of any nature evidencing or relating to any such obligations and liabilities upon which Borrower or one or more parties and Borrower is or may become liable to Lender, whether incurred by Borrower as maker, endorser, drawer, acceptor, guarantor, 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 Lender, whether arising under, out of, or in connection with that certain Security Agreement dated as of August 28, 2003 between Lender and Borrower (as amended, modified, restated or supplemented from time to time, the "Loan Agreement") or any documents, instruments or agreements relating to or executed in connection with the Loan Agreement or any documents, instruments or agreements referred to therein (together with the Loan Agreement, as each may be amended, modified, restated or supplemented from time to time, the "Loan Documents"), 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 Borrower under Title 11, United States Code, including, without limitation, obligations or indebtedness of Borrower 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. Lender 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, and may also make any agreement with Borrower 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 Lender and Borrower or any such other party or person, or make any election of rights Lender 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 Borrower, or any change in the composition, nature, personnel or location of Borrower and shall extend to any successor entity to Borrower, including a debtor in possession or the like under any Insolvency Law. 2. Guaranty Absolute. The undersigned guarantees that the Obligations will be paid strictly in accordance with the terms of the Loan Agreement 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 Borrower with respect thereto. Guarantor hereby knowingly accepts the full range of risk encompassed within a contract of "continuing guaranty" which risk includes the possibility that Borrower will contract additional indebtedness for which Guarantor may be liable hereunder after Borrower's financial condition or ability to pay its lawful debts when they fall due has deteriorated, whether or not Borrower has properly authorized incurring such additional indebtedness. The undersigned acknowledges that (i) no oral representations, including any representations to extend credit or provide other financial accommodations to Borrower, have been made by Lender to induce the undersigned to enter into this Guaranty and (ii) any extension of credit to the Borrower shall be governed solely by the provisions of the Loan Agreement. The liability 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 Loan 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 Lender or its assignees or any acceptance thereof or any release of any security by Lender or its assignees, (d) any limitation on any party's liability or obligation under the Loan 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 Borrower, 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 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 Lender 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. Lender shall be under no obligation to institute suit, exercise rights or remedies or take any other action against Borrower 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 Guarantor hereby waives any and all rights which it may have by statute or otherwise which would require Lender to do any of the foregoing. Guarantor further consents and agrees that Lender shall be under no obligation to marshal any assets in favor of Guarantor, 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 Lender, Borrower and/or the undersigned with respect to the undersigned's obligations under this Guaranty, or which Borrower 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) 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 Borrower'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 Lender, the undersigned shall not be entitled to be subrogated to any of the rights of Lender against Borrower or against any collateral or guarantee or right of offset held by Lender for the payment of the Obligations, nor shall the undersigned seek or be entitled to seek any contribution or reimbursement from Borrower in respect of payments made by the undersigned hereunder, until all amounts owing to Lender by Borrower on account of the Obligations are paid in full and the Loan Agreement has 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 the Loan Agreement shall not have been terminated, such amount shall be held by the undersigned in trust for Lender, 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 Lender in the exact form received by the undersigned (duly endorsed by the undersigned to Lender, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Lender may determine, subject to the provisions of the Loan Agreement. Any and all present and future debts and obligations of Borrower 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 Borrower to Lender. 4. Security. All sums at any time to the credit of the undersigned and any property of the undersigned in Lender's 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, Lender (each such entity, an "Affiliate") shall be deemed held by Lender or such Affiliate, as the case may be, as security for any and all of the undersigned's obligations to Lender and to any Affiliate of Lender, no matter how or when arising and whether under this or any other instrument, agreement or otherwise. 5. Representations and Warranties. The undersigned hereby represents and warrants (all of which representations and warranties shall survive until all Obligations are indefeasibly satisfied in full and the Loan Agreement has 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 New Jersey 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 Insolvency Law. (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 Lender on any of the property or assets of the undersigned pursuant to the provisions of any of the foregoing. (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. 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 Loan Agreement or other Obligation incurred by Borrower to Lender. The foregoing representations and warranties shall be deemed to have been made by the undersigned on the date of each borrowing by Borrower under the Loan Agreement on and as of such date of such borrowing as though made hereunder on and as of such date. 6. Acceleration. (a) If an Event of Default shall occur and be continuing under and as defined in the Loan Agreement or under and as defined in the Security Agreement made by the undersigned in favor of Lender (as the same may be amended, modified and supplemented from time to time), or either Borrower or 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, the undersigned, or if a notice of any lien, levy, or assessment is filed of record with respect to any assets 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 Lender's possession, or otherwise, any and all Obligations shall for purposes hereof, at Lender's option, be deemed due and payable without notice notwithstanding that any such Obligation is not then due and payable by Borrower. (b) The undersigned will promptly notify Lender of any default by the undersigned in the 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, Lender shall have the right to accelerate the undersigned's obligations hereunder. 7. Payments from Guarantor. Lender, 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 guarantor, 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 Lender hereunder or under any of the Obligations. 9. No Termination. This is a continuing irrevocable guaranty and shall remain in full force and effect and be binding upon the undersigned, and the undersigned's successors and assigns, until all of the Obligations have been paid in full and the Loan Agreement 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 the undersigned under this Guaranty. 10. Recapture. Anything in this Guaranty to the contrary notwithstanding, if Lender 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 Lender, the undersigned's obligations to Lender shall be reinstated and this Guaranty shall remain in full force and effect (or be reinstated) until payment shall have been made to Lender, which payment shall be due on demand. 11. Books and Records. The books and records of Lender showing the account between Lender and Borrower 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 Lender 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 Lender 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 Lender or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Lender at any time and from time to time. 13. Waiver of Jury Trial. 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 LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER 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. 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 LENDER INVOLVING, DIRECTLY 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. 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 the undersigned and Lender. 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. Lender 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, Lender 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, Lender, 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. Lender shall have an unimpaired right to enforce this Guaranty for its benefit with respect to that portion of the Obligations which Lender has not disposed of, sold, assigned, or otherwise transferred. 19. Release. Nothing except cash payment in full of the Obligations shall release the undersigned from liability under this Guaranty. IN WITNESS WHEREOF, this Guaranty has been executed by the undersigned this day of August 28, 2003. PROCATH CORPORTAION By:_/s/ Reinhard Schmidt Name: Reinhard Schmidt Title: President and Chief Executive Officer Address: 575 Route 73 North, Building D West Berlin, New Jersey 08091 Telephone No.: (856) 753-8533 Facsimile No.: (856) 753-8544 STATE OF NEW YORK ) ): ss.: COUNTY OF NEW YORK ) On the _28th_ day of _August_, 2003, before me personally came _Reinhard Schmidt______ to me known, who being by me duly sworn, did depose and say s/he is the ______________ of ProCath Corporation, 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. ---/s/ ____________________ Notary Public EX-10 8 exh106.txt EXHIBIT 10.6 Exhibit 10.6 SECURITY AGREEMENT (ProCath Corporation) 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, but excluding 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. 2. The term "Obligations" as used herein shall mean and include all debts, liabilities and obligations owing by us and/or EP MedSystems, Inc. ("EP MedSystems") to you and all loans, advances, extensions of credit, endorsements, guaranties, benefits and/or financial accommodations heretofore or hereafter made, granted or extended by you to us and/or EP MedSystems or which you have or will become obligated to make, grant or extend to us and/or EP MedSystems or for our account or EP MedSystems' account and any and all interest, charges and/or expenses heretofore or hereafter owing by us and/or EP MedSystems to you and any and all renewals or extensions of any of the foregoing, no matter how or when arising, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether under any present or future agreement or instruments between or among us, you, EP MedSystems or otherwise, including, without limitation, all obligations owing by us to you under the Secured Convertible Note dated as of the date hereof made by us in favor of you in the original principal amount of $4,000,000 (as amended, modified and supplemented from time to time, the "Note"). 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 New Jersey and we will provide you thirty days prior written notice of any change in our state of formation; (b) our legal name is "ProCath Corporation", 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; (e) we will at our own cost and expense keep the Collateral in good state of repair and will not waste or destroy the same or any part thereof; (f) we will not without your prior written consent, sell, exchange, lease or otherwise dispose of the Collateral or any of our rights therein or permit any lien or security interest to attach to same, except that created by this Agreement; (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 times allow you or your representatives free access to and the right of inspection of the Collateral; and (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 the Note 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, the Note and/or any of the Obligations and/or any of the Collateral. 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; (b) any covenant, warranty, representation or statement made or furnished to you by us or on our behalf shall be false in any material respect; (c) the loss, theft, substantial damage, destruction, sale or encumbrance to or of any of the Collateral or the making of any levy, seizure or attachment thereof or thereon; (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; (e) any proceedings under any bankruptcy or insolvency law shall be commenced by or against us; or (f) an Event of Default shall have occurred under and as defined in the Security Agreement dated as of the date hereof between you and EP MedSystems, as the same may be amended, modified and supplemented from time to time. 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. You will at all times 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 days before such disposition, postage prepaid, addressed to us either at our address shown herein or at any address appearing on your records for us. 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 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 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 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. 7. We appoint you, any of your officers, employees or any other person or entity whom you may designate as our attorney, 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 and neither you nor the attorney 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 remains unpaid. 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 and cannot be terminated orally. All of the rights, remedies, options, privileges and elections given to you hereunder shall enure 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 enure 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; provided, that nothing in this Agreement shall be deemed to preclude you from bringing suit or taking other legal action in any other jurisdiction and (c) waive any objection you or we may have as to the bringing or maintaining of such action with any such court. We hereby waive personal service of process in any such action and agree that service of such process may be made by registered or certified mail addressed to us at the address set forth below. [CONTINUED ON FOLLOWING PAGE] 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, PROCATH CORPORATION By:_/s/ Reinhard Schmidt Name: Reinhard Schmidt Title: President and Chief Executive Officer Address: 575 Route 73 North Building D West Berlin, New Jersey 08091 Dated as of: August 28, 2003 ACKNOWLEDGED: LAURUS MASTER FUND, LTD. By: /s/ David Grin Name: David Grin Title: Partner -----END PRIVACY-ENHANCED MESSAGE-----