Exhibit 4.1
SECURITY AGREEMENT
This Security Agreement is made as of August 31, 2006 by and among LAURUS MASTER
FUND, LTD., a Cayman Islands company ("Laurus"), TRINITY LEARNING CORPORATION, a
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Utah corporation ("the Parent"), and each party listed on Exhibit A attached
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hereto (each an "Eligible Subsidiary" and collectively, the "Eligible
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Subsidiaries") the Parent and each Eligible Subsidiary, each a "Company" and
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collectively, the "Companies").
BACKGROUND
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The Companies have requested that Laurus make advances available to the
Companies; and
Laurus has agreed to make such advances on the terms and conditions set forth in
this Agreement.
AGREEMENT
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NOW, THEREFORE, in consideration of the mutual covenants and undertakings and
the terms and conditions contained herein, the parties hereto agree as follows:
1. General Definitions and Terms; Rules of Construction.
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(a) General Definitions. Capitalized terms used in this Agreement shall
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have the meanings assigned to them in Annex A.
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(b) Accounting Terms. Any accounting terms used in this Agreement that are
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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
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UCC, shall have the meaning given therein unless otherwise defined herein.
(d) Rules of Construction. All Schedules, Addenda, Annexes and Exhibits
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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,
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schedules, disclosure schedules, exhibits, and attachments shall refer to the
corresponding sections, schedules, disclosure schedules, exhibits, and
attachments of or to this Agreement. All references to any instruments or
agreements, including references to any of this Agreement or the Ancillary
Agreements shall include any and all modifications or amendments thereto and any
and all extensions or renewals thereof.
2. Loan Facility; 7% Preferred Stock; Closing.
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(a) Revolving Loans.
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(i) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Laurus may make revolving loans (the "Revolving Loans") to
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the Companies from time to time during the Term which, in the aggregate at any
time outstanding, will not exceed the lesser of (x) (I) the Capital Availability
Amount minus (II) such reserves as Laurus may reasonably in its good faith
judgment deem proper and necessary from time to time (the "Reserves")
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(including, without limitation, reserves with respect to (i) sums that the
Companies are required to pay (such as taxes, assessments, insurance premiums,
or, in the case of leased assets, rents or other amounts payable under such
leases) and have failed to pay under any Section of this Agreement or any other
Ancillary Agreement, (ii) amounts owing by the Companies or their Subsidiaries
to any Person to the extent secured by a Lien on, or trust over, any of the
Collateral, (such as Liens or trusts in favor of landlords, warehousemen,
carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for
ad valorem, excise, sales, or other taxes) or (iii) any deterioration in the
financial condition or credit quality of any Account Debtor), and (y) an amount
equal to (I) the Accounts Availability plus (II) the Inventory Availability,
minus (III) the Reserves. The amount derived at any time from Section
2(a)(i)(y)(I) plus Section 2(a)(i)(y)(II) minus 2(a)(i)(y)(III) shall be
referred to as the "Formula Amount." The Companies shall, jointly and
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severally, execute and deliver to Laurus on the Closing Date the Secured
Revolving Note and the Secured Term Note. The Companies hereby each acknowledge
and agree that Laurus' obligation to purchase the Secured Revolving Note and the
Secured Term Note from the Companies on the Closing Date shall be contingent
upon the satisfaction (or waiver by Laurus in its sole discretion) of the items
and matters set forth in the closing checklist provided by Laurus to the
Companies on or prior to the Closing Date. The Companies hereby each further
acknowledge and agree that, immediately prior to each borrowing hereunder and
immediately after giving effect thereto, the Companies shall be deemed to have
certified to Laurus that at the time of each such proposed borrowing and also
after giving effect thereto (i) there shall exist no Event of Default, (ii) all
representations, warranties and covenants made by the Companies in connection
with this Agreement and the Ancillary Agreements are true, correct and complete
and (iii) all of each Company's and its respective Subsidiaries' covenant
requirements under this Agreement and the Ancillary Agreements have been met.
The Companies hereby agree to provide a certificate confirming the foregoing
concurrently with each request for a borrowing hereunder.
(ii) Notwithstanding the limitations set forth above, if requested by any
Company, Laurus retains the right to lend to such Company from time to time such
amounts in excess of such limitations as Laurus may determine in its sole
discretion. In connection with each such request by one or more Companies, the
Companies shall be deemed to have certified,
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as of the time of such proposed borrowing and immediately after giving effect
thereto, to the satisfaction of all Overadvance Conditions. For purposes
hereof, "Overadvance Conditions" means (i) no Event of Default shall exist and
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be continuing as of such date; and (ii) all representations, warranties and
covenants made by the Companies in connection with the Security Agreement and
the Ancillary Agreements shall be true, correct and complete as of such date.
The Companies hereby agree to provide a certificate confirming the satisfaction
of the Overadvance Conditions concurrently with the request for same.
(iii) The Companies acknowledge that the exercise of Laurus' discretionary
rights hereunder may result during the Term in one or more increases or
decreases in the advance percentages used in determining Accounts Availability
and/or Inventory Availability and each of the Companies hereby consent to any
such increases or decreases which may limit or restrict advances requested by
the Companies.
(iv) If any interest, fees, costs or charges payable to Laurus hereunder are
not paid when due, each of the Companies shall thereby be deemed to have
requested, and Laurus is hereby authorized at its discretion to make and charge
to the Companies' account, a Loan as of such date in an amount equal to such
unpaid interest, fees, costs or charges.
(v) If any Company at any time fails to perform or observe any of the
covenants contained in this Agreement or any Ancillary Agreement, Laurus may,
but need not, perform or observe such covenant on behalf and in the name, place
and stead of such Company (or, at Laurus' option, in Laurus' name) and may, but
need not, take any and all other actions which Laurus may deem necessary to cure
or correct such failure (including the payment of taxes, the satisfaction of
Liens, the performance of obligations owed to Account Debtors, lessors or other
obligors, the procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and the endorsement
of instruments). The amount of all monies expended and all costs and expenses
(including attorneys' fees and legal expenses) incurred by Laurus in connection
with or as a result of the performance or observance of such agreements or the
taking of such action by Laurus shall be charged to the Companies' account as a
Revolving Loan and added to the Obligations. To facilitate Laurus' performance
or observance of such covenants by each Company, each Company hereby irrevocably
appoints Laurus, or Laurus' delegate, acting alone, as such Company's attorney
in fact (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of such Company any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by such Company.
(vi) Laurus will account to Company Agent monthly with a statement of all
Loans and other advances, charges and payments made pursuant to this Agreement,
and such account rendered by Laurus shall be deemed final, binding and
conclusive unless Laurus is notified by Company Agent in writing to the contrary
within thirty (30) days of the date each account was rendered specifying the
item or items to which objection is made.
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(vii) During the Term, the Companies may borrow and prepay Loans in
accordance with the terms and conditions hereof.
(viii) If any Eligible Account is not paid by the Account Debtor within
ninety (90) days after the date that such Eligible Account was invoiced or if
any Account Debtor asserts a deduction, dispute, contingency, set-off, or
counterclaim with respect to any Eligible Account, (a "Delinquent Account"), the
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Companies shall jointly and severally (i) reimburse Laurus for the amount of the
Loans made with respect to such Delinquent Account or (ii) immediately replace
such Delinquent Account with an otherwise Eligible Account.
(b) Term Loan. Subject to the terms and conditions set forth herein and in
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the Ancillary Agreements, Laurus shall make a term loan (the "Term Loan") to
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Company Agent (for the benefit of Companies) in an aggregate amount equal to Two
Million Five Hundred Thousand Dollars $2,500,000. The Term Loan shall be
advanced on the Closing Date and shall be, with respect to principal, payable in
consecutive monthly installments of principal commencing on January 2, 2007 and
on the first day of each month thereafter, subject to acceleration upon the
occurrence of an Event of Default or termination of this Agreement. The Term
Loan shall be evidenced by the Secured Term Note.
(c) 7% Preferred Stock. Subject to the terms and conditions set forth herein
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and in the Ancillary Agreements, Laurus shall purchase from the Parent 1,500,000
shares of 7% Preferred Stock.
3. Repayment of the Loans. The Companies (a) may prepay the Obligations
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from time to time in accordance with the terms and provisions of the Notes (and
Section 17 hereof if such prepayment is due to a termination of this Agreement);
(b) shall repay on the Maturity Date (as defined in the Secured Term Note) (i)
the then aggregate outstanding principal balance of the Term Loan together with
accrued and unpaid interest, fees and charges and: (ii) all other amounts owed
Laurus under the Secured Term Note; (c) shall repay on the expiration of the
Term (i) the then aggregate outstanding principal balance of the Revolving Loans
together with accrued and unpaid interest, fees and charges and; (ii) all other
amounts owed Laurus under this Agreement and the Ancillary Agreements; and (c)
subject to Section 2(a)(ii), shall repay on any day on which the then aggregate
outstanding principal balance of the Loans are in excess of the Formula Amount
at such time, Loans in an amount equal to such excess. Any payments of
principal, interest, fees or any other amounts payable hereunder or under any
Ancillary Agreement shall be made prior to 12:00 noon (New York time) on the due
date thereof in immediately available funds.
4. Procedure for Revolving Loans. Company Agent may by written notice
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request a borrowing of Revolving Loans prior to 12:00 noon (New York time) on
the Business Day of its request to incur, on the next Business Day, a Revolving
Loan. Together with each request for a Revolving Loan (or at such other
intervals as Laurus may request), Company Agent shall deliver to Laurus a
Borrowing Base Certificate in the form of Exhibit B attached hereto, which shall
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be certified as true and correct by the Chief Executive Officer or Chief
Financial Officer of Company Agent together with all supporting documentation
relating thereto. All Revolving Loans shall be disbursed from whichever office
or other place Laurus may designate
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from time to time and shall be charged to the Companies' account on Laurus'
books. The proceeds of each Revolving Loan made by Laurus shall be made
available to Company Agent on the Business Day following the Business Day so
requested in accordance with the terms of this Section 4 by way of credit to the
applicable Company's operating account maintained with such bank as Company
Agent designated to Laurus. Any and all Obligations due and owing hereunder may
be charged to the Companies' account and shall constitute Revolving Loans.
5. Interest and Payments.
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(a) Interest.
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(i) Except as modified by Section 5(a)(iii) below, the Companies shall
jointly and severally pay interest at the Contract Rate on the unpaid principal
balance of each Loan until such time as such Loan is collected in full in good
funds in dollars of the United States of America.
(ii) Interest and payments shall be computed on the basis of actual days
elapsed in a year of 360 days. At Laurus' option, Laurus may charge the
Companies' account for said interest.
(iii) Effective upon the occurrence of any Event of Default and for so long
as any Event of Default shall be continuing, the Contract Rate shall
automatically be increased as set forth in the Notes (such increased rate, the
"Default Rate"), and all outstanding Obligations, including unpaid interest,
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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 or under any
Note 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
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of this Agreement or any Ancillary Agreement is in contravention of any such law
or regulation, interest payable under this Agreement and each Ancillary
Agreement shall be computed on the basis of the Maximum Legal Rate (so that such
interest will not exceed the Maximum Legal Rate).
(v) The Companies shall jointly and severally pay principal, interest and
all other amounts payable hereunder, or under any Ancillary Agreement, without
any deduction whatsoever, including any deduction for any set-off or
counterclaim.
(b) Payment; Certain Closing Conditions.
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(i) Payment. Upon execution of this Agreement by each Company and Laurus,
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the Companies shall jointly and severally pay to Laurus Capital Management, LLC,
the investment advisor of Laurus ("LCM"), a non-refundable payment in an amount
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equal to three and six-tenths percent (3.60%) of the Total Investment Amount.
The foregoing payment is referred to herein as the "LCM Payment." Such payment
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shall be deemed fully earned on the Closing Date and shall not be subject to
rebate or proration for any reason.
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(ii) Overadvance Payment. Without affecting Laurus' rights hereunder in the
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event the Loans exceed the Formula Amount (each such event, an "Overadvance"),
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all such Overadvances shall bear additional interest at a rate equal to one-half
percent (0.5%) per month of the amount of such Overadvances for all times such
amounts shall be in excess of the Formula Amount. All amounts that are incurred
pursuant to this Section 5(b)(ii) shall be due and payable by the Companies
monthly, in arrears, on the first business day of each calendar month and upon
expiration of the Term.
(iii) Expenses. The Companies shall jointly and severally reimburse Laurus
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for its expenses (including reasonable legal fees and expenses) incurred in
connection with the entering into of this Agreement and the Ancillary
Agreements, and expenses incurred in connection with Laurus' due diligence
review of each Company and its Subsidiaries and all related matters. Amounts
required to be paid under this Section 5(b)(iii) will be paid on the Closing
Date and shall be the sum of (I) $45,000 for such expenses referred to in this
Section 5(b)(iii) (net of deposits previously paid by the Company) plus (II) the
cost of all reasonable third-party appraisals of the Companies and their
respective Subsidiaries to the extent required by Laurus as determined in its
sole discretion, not to exceed $30,000.
(iv) Closing. Subject to the terms and conditions of this
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Agreement, the closing of the transactions contemplated hereby (the "Closing"),
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shall take place on the Closing Date, at such time or place as the Company and
Purchaser may mutually agree. Furthermore, pursuant to the Escrow
Agreement, at the Closing Laurus will deliver to the Company or such third party
as may be identified by the Company in writing in the Disbursement Letter, among
other things, the amounts set forth in the Disbursement Letter by certified
funds or wire transfer.
6. Security Interest.
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(a) To secure the prompt payment to Laurus of the Obligations, each Company
hereby assigns, pledges and grants to Laurus a continuing security interest in
and Lien upon all of the Collateral. All of each Company's Books and Records
relating to the Collateral shall, until delivered to or removed by Laurus, be
kept by such Company in trust for Laurus until all Obligations have been paid in
full. Each confirmatory assignment schedule or other form of assignment
hereafter executed by each Company shall be deemed to include the foregoing
grant, whether or not the same appears therein.
(b) Each Company hereby (i) authorizes Laurus to file any financing
statements, continuation statements or amendments thereto that (x) indicate the
Collateral (1) as all assets and personal property of such Company or words of
similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC of such jurisdiction,
or (2) as being of an equal or lesser scope or with greater detail, and (y)
contain any other information required by Part 5 of Article 9 of the UCC for the
sufficiency or filing office acceptance of any financing statement, continuation
statement or amendment and (ii) ratifies its authorization for Laurus to have
filed any initial financial statements, or amendments thereto if filed prior to
the date hereof. Each Company acknowledges that it is not authorized to file
any financing statement or amendment or termination statement with respect to
any financing statement without the prior written consent of Laurus and agrees
that it will not do
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so without the prior written consent of Laurus, subject to such Company's rights
under Section 9-509(d)(2) of the UCC.
(c) Each Company hereby grants to Laurus an irrevocable, non-exclusive
license (exercisable upon the termination of this Agreement due to an occurrence
and during the continuance of an Event of Default without payment of royalty or
other compensation to such Company) to use, transfer, license or sublicense any
Intellectual Property now owned, licensed to, or hereafter acquired by such
Company, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof, and represents, promises and agrees that any
such license or sublicense is not and will not be in conflict with the
contractual or commercial rights of any third Person; provided, that such
license will terminate on the termination of this Agreement and the payment in
full of all Obligations; provided further that such license will terminate on
the date of the cure of such an Event of Default.
7. Representations, Warranties and Covenants Concerning the Collateral.
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Each Company represents, warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each request for a
Revolving Loan and made as of the time of each and every Revolving Loan
hereunder) and covenants as follows:
(a) all of the Collateral (i) is owned by it free and clear of all Liens
(including any claims of infringement) except those in Laurus' favor and
Permitted Liens and (ii) except as set forth on Schedule 7(a) hereto, is not
subject to any agreement prohibiting the granting of a Lien or requiring notice
of or consent to the granting of a Lien.
(b) it shall not encumber, mortgage, pledge, assign or grant any Lien in any
Collateral or any other assets to anyone other than Laurus and except for
Permitted Liens.
(c) the Liens granted pursuant to this Agreement, upon due completion of the
filings of UCC-1 financing statements in respect of each grantor of such Liens
in the applicable filing offices of the states of organization of such grantor
and the completion of the other filings and actions listed on Schedule 7(c)
(which, in the case of all filings and other documents referred to in said
Schedule, have been delivered to Laurus in duly executed form) constitute valid
perfected security interests in all of the Collateral in favor of Laurus as
security for the prompt and complete payment and performance of the Obligations,
enforceable in accordance with the terms hereof against any and all of its
creditors and purchasers and such security interest is prior to all other Liens
in existence on the date hereof other than Permitted Liens.
(d) no effective security agreement, mortgage, deed of trust, financing
statement, equivalent security or Lien instrument or continuation statement
covering all or any part of the Collateral is or will be on file or of record in
any public office, except those relating to Permitted Liens.
(e) it shall not dispose of any of the Collateral whether by sale, lease or
otherwise except for the sale of Inventory in the ordinary course of business
and for the disposition or transfer in the ordinary course of business during
any fiscal year of obsolete and
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worn-out Equipment having an aggregate fair market value of not more than
$50,000 and only to the extent that (i) the proceeds of any such disposition are
used to acquire replacement Equipment which is subject to Laurus' first priority
security interest or are used to repay Loans or to pay general corporate
expenses, or (ii) following the occurrence of an Event of Default which
continues to exist the proceeds of which are remitted to Laurus to be held as
cash collateral for the Obligations.
(f) it shall defend the right, title and interest of Laurus in and to the
Collateral against the claims and demands of all Persons whomsoever, and take
such actions, including (i) all actions necessary to grant Laurus "control" of
any Investment Property, Deposit Accounts, Letter-of-Credit Rights or electronic
Chattel Paper owned by it, with any agreements establishing control to be in
form and substance satisfactory to Laurus, (ii) the prompt (but in no event
later than five (5) Business Days following Laurus' request therefor) delivery
to Laurus of all original Instruments, Chattel Paper, negotiable Documents and
certificated Stock owned by it (in each case, accompanied by stock powers,
allonges or other instruments of transfer executed in blank), (iii) notification
of Laurus' interest in Collateral at Laurus' request, and (iv) the institution
of litigation against third parties as shall be prudent in order to protect and
preserve its and/or Laurus' respective and several interests in the Collateral.
(g) it shall promptly, and in any event within five (5) Business Days after
the same is acquired by it, notify Laurus of any commercial tort claim (as
defined in the UCC) acquired by it and unless otherwise consented by Laurus, it
shall enter into a supplement to this Agreement granting to Laurus a Lien in
such commercial tort claim.
(h) it shall place notations upon its Books and Records and any of its
financial statements to disclose Laurus' Lien in the Collateral.
(i) if it retains possession of any Chattel Paper or Instrument with Laurus'
consent, upon Laurus' request such Chattel Paper and Instruments shall be marked
with the following legend: "This writing and obligations evidenced or secured
hereby are subject to the security interest of Laurus Master Fund, Ltd."
Notwithstanding the foregoing, upon the reasonable request of Laurus, such
Chattel Paper and Instruments shall be delivered to Laurus.
(j) it shall perform in a reasonable time all other steps requested by
Laurus to create and maintain in Laurus' favor a valid perfected first Lien in
all Collateral subject only to Permitted Liens.
(k) it shall notify Laurus promptly and in any event within ten (10)
Business Days after obtaining knowledge thereof (i) of any event or circumstance
that, to its knowledge, would cause Laurus to consider any then existing Account
and/or Inventory] as no longer constituting an Eligible Account [or Eligible
Inventory, as the case may be]; (ii) of any material delay in its performance of
any of its obligations to any Account Debtor; (iii) of any assertion by any
Account Debtor of any material claims, offsets or counterclaims; (iv) of any
allowances, credits and/or monies granted by it to any Account Debtor; (v) of
all material adverse information relating to the financial condition of an
Account Debtor; (vi) of any material return of goods; and (vii) of any loss,
damage or destruction of any of the Collateral.
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(l) all Eligible Accounts (i) represent complete bona fide transactions
which require no further act under any circumstances on its part to make such
Accounts payable by the Account Debtors, (ii) are not subject to any present,
future contingent offsets or counterclaims, and (iii) do not represent xxxx and
hold sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of such Company.
It has not made, nor will it make, any agreement with any Account Debtor for any
extension of time for the payment of any Account, any compromise or settlement
for less than the full amount thereof, any release of any Account Debtor from
liability therefor, or any deduction therefrom except a discount or allowance
for prompt or early payment allowed by it in the ordinary course of its business
consistent with historical practice and as previously disclosed to Laurus in
writing.
(m) it shall keep and maintain its Equipment in good operating condition,
except for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall at all
times be maintained and preserved. It shall not permit any such items to become
a Fixture to real estate or accessions to other personal property.
(n) it shall maintain and keep all of its Books and Records concerning the
Collateral at its executive offices listed in Schedule 12(aa).
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(o) it shall maintain and keep the tangible Collateral at the addresses
listed in Schedule 12(aa), provided, that it may change such locations or open a
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new location, provided that it provides Laurus at least thirty (30) days prior
written notice of such changes or new location and (ii) prior to such change or
opening of a new location where Collateral having a value of more than $75,000
will be located, it executes and delivers to Laurus such agreements deemed
reasonably necessary or prudent by Laurus, including landlord agreements,
mortgagee agreements and warehouse agreements, each in form and substance
satisfactory to Laurus, to adequately protect and maintain Laurus' security
interest in such Collateral.
(p) Schedule 7(p) lists all banks and other financial institutions at which
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it maintains deposits and/or other accounts, and such Schedule correctly
identifies the name, address and telephone number of each such depository, the
name in which the account is held, a description of the purpose of the account,
and the complete account number. It shall not establish any depository or other
bank account with any financial institution (other than the accounts set forth
on Schedule 7(p)) without Laurus' prior written consent.
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(q) All Inventory manufactured by it in the United States of America shall
be produced in accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto or promulgated thereunder.
8. Payment of Accounts.
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(a) Each Company will irrevocably direct all of its present and future
Account Debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the lockboxes maintained by such
Company (the "Lockboxes") with Col Xxxxxx Bank or such other financial
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institution accepted by Laurus in writing as may be selected
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by such Company (the "Lockbox Bank") pursuant to the terms of the certain
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agreements among one or more Companies, Laurus and/or the Lockbox Bank dated as
of ------- August __, 2006. On or prior to the Closing Date, each Company shall
and shall cause the Lockbox Bank to enter into all such documentation acceptable
to Laurus pursuant to which, among other things, the Lockbox Bank agrees to:
(a) sweep the Lockbox on a daily basis and deposit all checks received therein
to an account designated by Laurus in writing and (b) comply only with the
instructions or other directions of Laurus concerning the Lockbox. All of each
Company's invoices, account statements and other written or oral communications
directing, instructing, demanding or requesting payment of any Account of any
Company or any other amount constituting Collateral shall conspicuously direct
that all payments be made to the Lockbox or such other address as Laurus may
direct in writing. If, notwithstanding the instructions to Account Debtors, any
Company receives any payments, such Company shall immediately remit such
payments to Laurus in their original form with all necessary endorsements.
Until so remitted, such Company shall hold all such payments in trust for and as
the property of Laurus and shall not commingle such payments with any of its
other funds or property.
(b) At Laurus' election, following the occurrence of an Event of Default
which is continuing, Laurus may notify each Company's Account Debtors of Laurus'
security interest in the Accounts, collect them directly and charge the
reasonable collection costs and expenses thereof to Company's and the Eligible
Subsidiaries joint and several account.
9. Collection and Maintenance ofCollateral.
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(a) Laurus may verify each Company's Accounts from time to time, but not
more often than once every six (6) months, unless an Event of Default has
occurred and is continuing or Laurus believes that such verification is
necessary to preserve or protect the Collateral, utilizing an audit control
company or any other agent of Laurus, provided that Laurus shall not charge the
Companies for the costs of verifying the Companies' Accounts in excess of
$10,000 per each such verification.
(b) Proceeds of Accounts received by Laurus will be deemed received on the
Business Day after Laurus' receipt of such proceeds in good funds in dollars of
the United States of America to an account designated by Laurus. Any amount
received by Laurus after 12:00 noon (New York time) on any Business Day shall be
deemed received on the next Business Day.
(c) As Laurus receives the proceeds of Accounts of any Company, it shall (i)
apply such proceeds, as required, to amounts outstanding under the Notes, and
(ii) remit all such remaining proceeds (net of interest, fees and other amounts
then due and owing to Laurus hereunder) to Company Agent (for the benefit of the
applicable Companies) upon request (but no more often than twice a week).
Notwithstanding the foregoing, following the occurrence and during the
continuance of an Event of Default, Laurus, at its option, may (a) apply such
proceeds to the Obligations in such order as Laurus shall elect, (b) hold all
such proceeds as cash collateral for the Obligations and each Company hereby
grants to Laurus a security interest in such cash collateral amounts as security
for the Obligations and/or (c) do any combination of the foregoing.
-10-
10. Inspections and Appraisals. At all times during normal business hours,
---------------------------
Laurus, and/or any agent of Laurus shall have the right to (a) have access to,
visit, inspect, review, evaluate and make physical verification and appraisals
of each Company's properties and the Collateral, (b) inspect, audit and copy (or
take originals if necessary) and make extracts from each Company's Books and
Records, including management letters prepared by the Accountants, and (c)
discuss with each Company's directors, principal officers, and independent
accountants, each Company's business, assets, liabilities, financial condition,
results of operations and business prospects. Each Company will deliver to
Laurus any instrument necessary for Laurus to obtain records from any service
bureau maintaining records for such Company. If any internally prepared
financial information, including that required under this Section is
unsatisfactory in any manner to Laurus, Laurus may request that the Accountants
review the same.
11. Financial Reporting. Company Agent will deliver, or cause to be
--------------------
delivered, to Laurus each of the following, which shall be in form and detail
acceptable to Laurus:
(a) As soon as available, and in any event within ninety (90) days after the
end of each fiscal year of the Parent, except to the extent permitted under Rule
12b-25 promulgated under the Securities Exchange Act of 1934, as amended,
Parent's audited consolidated financial statements with a report of independent
certified public accountants of recognized standing selected by the Parent and
acceptable to Laurus (the "Accountants"), which annual financial statements
-----------
shall be without qualification and shall include the Parent's consolidated
balance sheet as at the end of such fiscal year and the related statements of
the Parent's, including Subsidiaries', income, retained earnings and cash flows
for the fiscal year then ended, prepared on a consolidating and consolidated
basis to include the Parent, each Subsidiary of the Parent and each of their
respective affiliates, all in reasonable detail and prepared in accordance with
GAAP, together with (i) if and when available, copies of any management letters
prepared by the Accountants; and (ii) a certificate of the Parent's President,
Chief Executive Officer or Chief Financial Officer stating that such financial
statements have been prepared in accordance with GAAP and whether or not such
officer has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with respect
thereto;
(b) As soon as available and in any event within forty five (45) days after
the end of each fiscal quarter of the Parent, except to the extent permitted
under Rule 12b-25 promulgated under the Securities Exchange Act of 1934, as
amended, an unaudited/internal balance sheet and statements of income, retained
earnings and cash flows of each of the Parent's and each of its Subsidiaries' as
at the end of and for such quarter and for the year to date period then ended,
prepared on a consolidating and consolidated basis to include the Parent, each
Subsidiary of the Parent and each of their respective affiliates, in reasonable
detail and stating in comparative form the figures for the corresponding date
and periods in the previous year, all prepared in accordance with GAAP, subject
to year-end adjustments and accompanied by a certificate of the Parent's
President, Chief Executive Officer or Chief Financial Officer, stating (i) that
such financial statements have been prepared in accordance with GAAP, subject to
year-end audit adjustments, and (ii) whether or not such officer has knowledge
of the occurrence of
-11-
any Default or Event of Default hereunder not theretofore reported and remedied
and, if so, stating in reasonable detail the facts with respect thereto;
(c) Within thirty (30) days after the end of each calendar month, an
unaudited/internal balance sheet and statements of income, retained earnings and
cash flows of each of the Parent and its Subsidiaries as at the end of and for
such month and for the year to date period then ended, prepared on a
consolidating and consolidated basis to include the Parent, each Subsidiary of
the Parent and each of their respective affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods
in the previous year, all prepared in accordance with GAAP, subject to year-end
adjustments and accompanied by a certificate of the Parent's President, Chief
Executive Officer or Chief Financial Officer, stating (i) that such financial
statements have been prepared in accordance with GAAP, subject to year-end audit
adjustments, and (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore reported
and remedied and, if so, stating in reasonable detail the facts with respect
thereto;
(d) Within fifteen (15) days after the end of each month (or more frequently
if Laurus so requests), agings of each Company's Accounts, unaudited trial
balances and their accounts payable and a calculation of each Company's
Accounts, Eligible Accounts, Inventory and/or Eligible Inventory, provided,
however, that if Laurus shall request the foregoing information more often than
as set forth in the immediately preceding clause, each Company shall have
fifteen (15) days from each such request to comply with Laurus' demand; and
(e) Promptly after (i) the filing thereof, copies of the Parent's most
recent registration statements and annual, quarterly, monthly or other regular
reports which the Parent files with the Securities and Exchange Commission (the
"SEC"), and (ii) the issuance thereof, copies of such financial statements,
---
reports and proxy statements as the Parent shall send to its stockholders.
Notwithstanding the foregoing, neither the Company's Agent, the Company nor any
of its Subsidiaries will provide any material, non-public information to Laurus
unless Laurus signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
(f) The Parent shall deliver, or cause the applicable Subsidiary of the
Parent to deliver, such other public information as the Purchaser shall
reasonably request.
12. Additional Representations and Warranties. Each Company hereby
--------------------------------------------
represents and warrants to Laurus as follows:
(a) Organization, Good Standing and Qualification. It and each of its
-------------------------------------------------
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. It and each of its Subsidiaries has
the corporate, limited liability company or partnership, as the case may be,
power and authority to own and operate its properties and assets and, insofar as
it is or shall be a party thereto, to (i) execute and deliver this Agreement and
the Ancillary Agreements, (ii) to issue and sell the Notes, (iii) to issue and
sell the 7% Preferred Stock and the
-12-
shares of Common Stock issuable upon conversion of the 7% Preferred Stock (the
"Preferred Conversion Shares"), and to (iv) carry out the provisions of this
-----------------------------
Agreement and the Ancillary Agreements and to carry on its business as presently
conducted. It and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions in
which failure to do so has not had, or could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) Subsidiaries. Each of its direct and indirect Subsidiaries, the direct
------------
owner of each such Subsidiary and its percentage ownership thereof, is set forth
on Schedule 12(b). No Inactive Subsidiary owns any assets (other than
---------------
immaterial assets) or has any significant operations
(c) Capitalization; Voting Rights.
-------------------------------
(i) The authorized capital stock of the Parent, as of the date hereof
consists of 110,000,000 shares, of which 100,000,000 are shares of Common Stock,
no par value per share, 42,855,513 shares of which are issued and outstanding,
and 10,000,000 are shares of preferred stock, no par value per share of which
1,000,000 shares of 7% preferred stock are issued and outstanding. The
authorized, issued and outstanding capital stock of each Subsidiary of each
Company is set forth on Schedule 12(c).
---------------
(ii) Except as disclosed on Schedule 12(c), other than: (i) the shares
---------------
reserved for issuance under the Parent's stock option plans; and (ii) shares
which may be issued pursuant to this Agreement and the Ancillary Agreements,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), proxy or stockholder agreements,
or arrangements or agreements of any kind for the purchase or acquisition from
the Parent of any of its securities. Except as disclosed on Schedule 12(c),
--------------
neither the offer, issuance or sale of any of the Notes or the 7% Preferred
Stock or the issuance of any of the Preferred Conversion Shares, nor the
consummation of any transaction contemplated hereby will result in a change in
the price or number of any securities of the Parent outstanding, under
anti-dilution or other similar provisions contained in or affecting any such
securities.
(iii) All issued and outstanding shares of the Parent's Common Stock: (i)
have been duly authorized and validly issued and are fully paid and
non-assessable; and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(iv) The rights, preferences, privileges and restrictions of the shares of
the Common Stock are as stated in the Parent's Articles of Incorporation (the
"Charter"). The Preferred Conversion Shares have been duly and validly reserved
------
for issuance; it being understood that, notwithstanding the foregoing, prior to
October 2, 2006 (the "Authorization Deadline Date"), the number of shares of
---------------------------
Common Stock otherwise required to be reserved by
-13-
the Issuer hereunder may be less than that sufficient to provide for the
issuance of Preferred Conversion Shares upon the full conversion of the 7%
Preferred Stock; provided that, on and after the Authorization Deadline Date,
-------- ----
100% of the required Preferred Conversion Shares shall be duly and validly
authorized and reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Parent's Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
-------- -------
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
(d) Authorization; Binding Obligations. All corporate, partnership or
------------------------------------
limited liability company, as the case may be, action on its and its
Subsidiaries' part (including their respective officers and directors) necessary
for the authorization of this Agreement and the Ancillary Agreements, the
performance of all of its and its Subsidiaries' obligations hereunder and under
the Ancillary Agreements on the Closing Date and, the authorization, issuance
and delivery of the Notes and the 7% Preferred Stock has been taken or will be
taken prior to the Closing Date. This Agreement and the Ancillary Agreements,
when executed and delivered and to the extent it is a party thereto, will be its
and its Subsidiaries' valid and binding obligations enforceable against each
such Person in accordance with their terms, except:
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(ii) general principles of equity that restrict the availability of
equitable or legal remedies.
The issuance of the Notes is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. The issuance of the 7% Preferred Stock and the subsequent conversion of
the 7% Preferred Stock into Preferred Conversion Shares is not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with.
(e) Liabilities; Solvency. Except as set forth on Schedule 12(e) (i)
----------------------
neither it nor any of its Subsidiaries has any liabilities, except current
liabilities incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings.
(ii) Both before and after giving effect to (a) the Loans incurred on the
Closing Date or such other date as Loans requested hereunder are made or
incurred, (b) the disbursement of the proceeds of, or the assumption of the
liability in respect of, such Loans pursuant to the instructions or agreement of
any Company, (c) the payment and accrual of all transaction costs in connection
with the foregoing, and (d) the consummation of the transactions contemplated
herein and in the Ancillary Agreements, each Company and each Subsidiary of each
Company, is and will be, Solvent.
-14-
(f) Agreements; Action. Except as set forth on Schedule 12(f) or Permitted
------------------- --------------
Liens or as disclosed in any Exchange Act Filings:
(i) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which it or any of
its Subsidiaries is a party or to its knowledge by which it is bound which may
involve: (i) obligations (contingent or otherwise) of, or payments to, it or
any of its Subsidiaries in excess of $75,000 (other than obligations of, or
payments to, it or any of its Subsidiaries arising from purchase or sale
agreements entered into in the ordinary course of business); or (ii) the
transfer or license of any patent, copyright, trade secret or other proprietary
right to or from it (other than licenses arising from the purchase of "off the
shelf" or other standard products); or (iii) provisions restricting the
development, manufacture or distribution of its or any of its Subsidiaries'
products or services; or (iv) indemnification by it or any of its Subsidiaries
with respect to infringements of proprietary rights.
(ii) Except for Permitted Liens, since June 30, 2005 (the "Balance Sheet
-------------
Date") neither it nor any of its Subsidiaries has: (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock; (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than ordinary course obligations)
individually in excess of $50,000 or, in the case of indebtedness and/or
liabilities individually less than $50,000, in excess of $100,000 in the
aggregate; (iii) made any loans or advances to any Person not in excess,
individually or in the aggregate, of $100,000, other than ordinary advances for
travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its Inventory in the ordinary course of
business.
(iii) For the purposes of subsections (i) and (ii) of this Section 12(f),
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same Person (including Persons
it or any of its applicable Subsidiaries has reason to believe are affiliated
therewith or with any Subsidiary thereof) shall be aggregated for the purpose of
meeting the individual minimum dollar amounts of such subsections.
(iv) the Parent maintains disclosure controls and procedures ("Disclosure
----------
Controls") designed to ensure that information required to be disclosed by the
------
Parent in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported, within the time periods specified
in the rules and forms of the SEC.
(v) The Parent makes and keeps books, records, and accounts that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of its assets. It maintains internal control over financial
reporting ("Financial Reporting Controls") designed by, or under the supervision
----------------------------
of, its principal executive and principal financial officers, and effected by
its board of directors, management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with GAAP, including
that:
-15-
(1) transactions are executed in accordance with management's general or
specific authorization;
(2) unauthorized acquisition, use, or disposition of the Parent's assets
that could have a material effect on the financial statements are prevented or
timely detected;
(3) transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that its receipts and
expenditures are being made only in accordance with authorizations of the
Parent's management and board of directors;
(4) transactions are recorded as necessary to maintain accountability for
assets; and
(5) the recorded accountability for assets is compared with the existing
assets at reasonable intervals, and appropriate action is taken with respect to
any differences.
(vi) There is no weakness in any of its Disclosure Controls or Financial
Reporting Controls that is required to be disclosed in any of the Exchange Act
Filings, except as so disclosed.
(g) Obligations to Related Parties. Except as set forth on Schedule 12(g),
------------------------------- --------------
neither it nor any of its Subsidiaries has any obligations to their respective
officers, directors, stockholders or employees other than:
(i) for payment of salary for services rendered and for bonus payments;
(ii) reimbursement for reasonable expenses incurred on its or its
Subsidiaries' behalf;
(iii) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by its and its Subsidiaries' Board of Directors, as applicable);
and
(iv) obligations listed in its and each of its Subsidiary's financial
statements or disclosed in any of the Parent's Exchange Act Filings.
Except as described above or set forth on Schedule 12(g), none of its officers,
--------------
directors or, to the best of its knowledge, key employees or stockholders, any
of its Subsidiaries or any members of their immediate families, are indebted to
it or any of its Subsidiaries, individually or in the aggregate, in excess of
$100,000 or have any direct or indirect ownership interest in any Person with
which it or any of its Subsidiaries is affiliated or with which it or any of its
Subsidiaries has a business relationship, or any Person which competes with it
or any of its Subsidiaries, other than passive investments in publicly traded
companies (representing less than one percent (1%) of such company) which may
compete with it or any of its Subsidiaries. Except as described
-16-
above, none of its officers, directors or stockholders, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with it or any of its Subsidiaries and no agreements, understandings or
proposed transactions are contemplated between it or any of its Subsidiaries and
any such Person. Except as set forth on Schedule 12(g), neither it nor any of
--------------
its Subsidiaries is a guarantor or indemnitor of any indebtedness of any other
Person.
(h) Changes. Except as set forth on Schedule 12(h), since the Balance Sheet
-------
Date, except as disclosed in any Schedule to this Agreement or to any of the
Ancillary Agreements, there has not been:
(i) any change in its or any of its Subsidiaries' business, assets,
liabilities, condition (financial or otherwise), properties, operations or
prospects, which, individually or in the aggregate, has had, or could reasonably
be expected to have, a Material Adverse Effect;
(ii) any resignation or termination of any of its or its Subsidiaries'
officers, key employees or groups of employees;
(iii) any material change, except in the ordinary course of business, in its
or any of its Subsidiaries' contingent obligations by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(iv) any damage, destruction or loss, whether or not covered by insurance,
which has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
(v) any waiver by it or any of its Subsidiaries of a valuable right or of a
material debt owed to it;
(vi) any direct or indirect material loans made by it or any of its
Subsidiaries to any of its or any of its Subsidiaries' stockholders, employees,
officers or directors, other than advances made in the ordinary course of
business;
(vii) any material change in any compensation arrangement or agreement with
any employee, officer, director or stockholder;
(viii) any declaration or payment of any dividend or other distribution of
its or any of its Subsidiaries' assets;
(ix) any labor organization activity related to it or any of its
Subsidiaries;
(x) any debt, obligation or liability incurred, assumed or guaranteed by it
or any of its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(xi) any sale, assignment or transfer of any Intellectual Property or other
intangible assets;
-17-
(xii) any change in any material agreement to which it or any of its
Subsidiaries is a party or by which either it or any of its Subsidiaries is
bound which, either individually or in the aggregate, has had, or could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
(xiii) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; or
(xiv) any arrangement or commitment by it or any of its Subsidiaries to do
any of the acts described in subsection (i) through (xiii) of this Section
12(h).
(i) Title to Properties and Assets; Liens, Etc. Except as set forth on
-----------------------------------------------
Schedule 12(i), it and each of its Subsidiaries has good and marketable title to
----------
their respective properties and assets, and good title to its leasehold
interests, in each case subject to no Lien, other than Permitted Liens.
All facilities, Equipment, Fixtures, vehicles and other properties owned, leased
or used by it or any of its Subsidiaries are in good operating condition and
repair and are reasonably fit and usable for the purposes for which they are
being used. Except as set forth on Schedule 12(i), it and each of its
---------------
Subsidiaries is in compliance with all material terms of each lease to which it
is a party or is otherwise bound.
(j) Intellectual Property.
----------------------
(i) It and each of its Subsidiaries owns or possesses sufficient legal
rights to all Intellectual Property necessary for their respective businesses as
now conducted and, to its knowledge as presently proposed to be conducted,
without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to its or any
of its Subsidiary's Intellectual Property, nor is it or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the Intellectual Property of any other Person other than such
licenses or agreements arising from the purchase of "off the shelf" or standard
products.
(ii) Neither it nor any of its Subsidiaries has received any communications
alleging that it or any of its Subsidiaries has violated any of the Intellectual
Property or other proprietary rights of any other Person, nor is it or any of
its Subsidiaries aware of any basis therefor.
(iii) Neither it nor any of its Subsidiaries believes it is or will be
necessary to utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by it or any of its
Subsidiaries, except for inventions, trade secrets or proprietary information
that have been rightfully assigned to it or any of its Subsidiaries.
(k) Compliance with Other Instruments. Neither it nor any of its
------------------------------------
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) any provision of any
-18-
indebtedness, mortgage, indenture, contract, agreement or instrument to which it
is party or by which it is bound or of any judgment, decree, order or writ,
which violation or default, in the case of this clause (y), has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. The execution, delivery and performance of and
compliance with this Agreement and the Ancillary Agreements to which it is a
party, and the issuance of the Notes and the other Securities each pursuant
hereto and thereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term or provision, or result in the creation
of any Lien upon any of its or any of its Subsidiary's properties or assets or
the suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to it or any of its Subsidiaries,
their businesses or operations or any of their assets or properties.
(l) Litigation. Except as set forth on Schedule 12(l), there is no action,
---------- --------------
suit, proceeding or investigation pending or, to its knowledge, currently
threatened against it or any of its Subsidiaries that prevents it or any of its
Subsidiaries from entering into this Agreement or the Ancillary Agreements, or
from consummating the transactions contemplated hereby or thereby, or which has
had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect, or could result in any change in its or
any of its Subsidiaries' current equity ownership, nor is it aware that there is
any basis to assert any of the foregoing. Neither it nor any of its
Subsidiaries is a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by it or
any of its Subsidiaries currently pending or which it or any of its Subsidiaries
intends to initiate.
(m) Tax Returns and Payments. Except as set forth on Schedule 12(m), it and
------------------------
each of its Subsidiaries has timely filed all tax returns (federal, state and
local) required to be filed by it. All taxes shown to be due and payable on
such returns, any assessments imposed, and all other taxes due and payable by it
and each of its Subsidiaries on or before the Closing Date, have been paid or
will be paid prior to the time they become delinquent. Except as set forth on
Schedule 12(m), neither it nor any of its Subsidiaries has been advised:
--------------
(i) that any of its returns, federal, state or other, have been or are being
audited as of the date hereof; or
(ii) of any adjustment, deficiency, assessment or court decision in respect
of its federal, state or other taxes.
Neither it nor any of its Subsidiaries has any knowledge of any liability of any
tax to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
(n) Employees. Except as set forth on Schedule 12(n), neither it nor any of
--------- --------------
its Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to its
knowledge, threatened with respect to it or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule 12(n), neither it nor any
--------------
of its Subsidiaries is a party to or bound by any currently effective employment
-19-
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. To its knowledge, none of its or any of its Subsidiaries' employees,
nor any consultant with whom it or any of its Subsidiaries has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, it or any of its Subsidiaries because of
the nature of the business to be conducted by it or any of its Subsidiaries; and
to its knowledge the continued employment by it and its Subsidiaries of their
present employees, and the performance of its and its Subsidiaries contracts
with its independent contractors, will not result in any such violation.
Neither it nor any of its Subsidiaries is aware that any of its or any of its
Subsidiaries' employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency that would
interfere with their duties to it or any of its Subsidiaries. Neither it nor
any of its Subsidiaries has received any notice alleging that any such violation
has occurred. Except for employees who have a current effective employment
agreement with it or any of its Subsidiaries, none of its or any of its
Subsidiaries' employees has been granted the right to continued employment by it
or any of its Subsidiaries or to any material compensation following termination
of employment with it or any of its Subsidiaries. Except as set forth on
Schedule 12(n), neither it nor any of its Subsidiaries is aware that any
---------
officer, key employee or group of employees intends to terminate his, her or
their employment with it or any of its Subsidiaries, as applicable, nor does it
or any of its Subsidiaries have a present intention to terminate the employment
of any officer, key employee or group of employees.
(o) Registration Rights and Voting Rights. Except as set forth on Schedule
-------------------------------------- --------
12(o) and except as disclosed in Exchange Act Filings, neither it nor any of its
-----
Subsidiaries is presently under any obligation, and neither it nor any of its
Subsidiaries has granted any rights, to register any of its or any of its
Subsidiaries' presently outstanding securities or any of its securities that may
hereafter be issued. Except as set forth on Schedule 12(o) and except as
--------------
disclosed in Exchange Act Filings, to its knowledge, none of its or any of its
Subsidiaries' stockholders has entered into any agreement with respect to its or
any of its Subsidiaries' voting of equity securities.
(p) Compliance with Laws; Permits. Neither it nor any of its Subsidiaries
-------------------------------
is in violation of the Xxxxxxxx-Xxxxx Act of 2002 or any SEC related regulation
or rule or any rule of the Principal Market promulgated thereunder or any other
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which has had, or
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any Ancillary Agreement and the issuance of any of
the Securities, except such as have been duly and validly obtained or filed, or
with respect to any filings that must be made after the Closing Date, as will be
filed in a timely manner. It and each of its Subsidiaries has all material
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack
-20-
of which could, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
(q) Environmental and Safety Laws. Neither it nor any of its Subsidiaries
-------------------------------
is in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation. Except as set forth on Schedule 12(q), no Hazardous
--------------
Materials (as defined below) are used or have been used, stored, or disposed of
by it or any of its Subsidiaries or, to its knowledge, by any other Person on
any property owned, leased or used by it or any of its Subsidiaries. For the
purposes of the preceding sentence, "Hazardous Materials" shall mean:
--------------------
(i) materials which are listed or otherwise defined as "hazardous" or
"toxic" under any applicable local, state, federal and/or foreign laws and
regulations that govern the existence and/or remedy of contamination on
property, the protection of the environment from contamination, the control of
hazardous wastes, or other activities involving hazardous substances, including
building materials; and
(ii) any petroleum products or nuclear materials.
(r) Valid Offering. Assuming the accuracy of the representations and
---------------
warranties of Laurus contained in this Agreement, the offer and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and will have been registered or
--------------
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
(s) Full Disclosure. It and each of its Subsidiaries has provided Laurus
----------------
with all information requested by Laurus in connection with Laurus' decision to
enter into this Agreement, including all information each Company and its
Subsidiaries believe is reasonably necessary to make such investment decision.
Neither this Agreement, the Ancillary Agreements nor the exhibits and schedules
hereto and thereto nor any other document delivered by it or any of its
Subsidiaries to Laurus or its attorneys or agents in connection herewith or
therewith or with the transactions contemplated hereby or thereby, contain any
untrue statement of a material fact nor omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading. Any financial projections
and other estimates provided to Laurus by it or any of its Subsidiaries were
based on its and its Subsidiaries' experience in the industry and on assumptions
of fact and opinion as to future events which it or any of its Subsidiaries, at
the date of the issuance of such projections or estimates, believed to be
reasonable.
(t) Insurance. It and each of its Subsidiaries has general commercial,
---------
product liability, fire and casualty insurance policies with coverages which it
believes are customary for companies similarly situated to it and its
Subsidiaries in the same or similar business.
(u) SEC Reports and Financial Statements. Except as set forth on Schedule
-------------------------------------- --------
12(u), it and each of its Subsidiaries has filed all proxy statements, reports
and other
-21-
documents required to be filed by it under the Exchange Act. The Parent has
furnished Laurus with copies of: (i) its Annual Report on Form 10-KSB for its
fiscal years ended June 30, 2005; and (ii) its Quarterly Reports on Form 10-QSB
for its fiscal quarters ended September 30, 2005, December 31, 2005 and March
31, 2006, and the Form 8-K filings which it has made during its fiscal year 2006
to date (collectively, the "SEC Reports"). Except as set forth on Schedule
------------ --------
12(u), each SEC Report was, at the time of its filing, in substantial compliance
-----
with the requirements of its respective form and none of the SEC Reports, nor
the financial statements (and the notes thereto) included in the SEC Reports, as
of their respective filing dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Such financial statements have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed)
and fairly present in all material respects the financial condition, the results
of operations and cash flows of the Parent and its Subsidiaries, on a
consolidated basis, as of, and for, the periods presented in each such SEC
Report.
(v) Listing. The Parent's Common Stock is listed or quoted, as applicable,
-------
on the Principal Market and satisfies all requirements for the continuation of
such listing or quotation, as applicable, and the Parent shall do all things
necessary for the continuation of such listing or quotation, as applicable. The
Parent has not received any notice that its Common Stock will be delisted from,
or no longer quoted on, as applicable, the Principal Market or that its Common
Stock does not meet all requirements for such listing or quotation, as
applicable.
(w) No Integrated Offering. Neither it, nor any of its Subsidiaries nor any
----------------------
of its Affiliates, nor any Person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement or any Ancillary Agreement to be
integrated with prior offerings by it for purposes of the Securities Act which
would prevent it from issuing the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will it or any of its Affiliates or Subsidiaries take any action
or steps that would cause the offering of the Securities to be integrated with
other offerings.
(x) Stop Transfer. The Securities are restricted securities as of the date
--------------
of this Agreement. Neither it nor any of its Subsidiaries will issue any stop
transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.
(y) Dilution. It specifically acknowledges that the Parent's obligation to
--------
issue the shares of Common Stock upon conversion of the 7% Preferred Stock is,
upon receipt of the Stockholder Approval, binding upon the Parent and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Parent.
-00-
(x) Xxxxxxx Xxx. It certifies that, to the best of its knowledge, neither
------------
it nor any of its Subsidiaries has been designated, nor is or shall be owned or
controlled, by a "suspected terrorist" as defined in Executive Order 13224. It
hereby acknowledges that Laurus seeks to comply with all applicable laws
concerning money laundering and related activities. In furtherance of those
efforts, it hereby represents, warrants and covenants that: (i) none of the
cash or property that it or any of its Subsidiaries will pay or will contribute
to Laurus has been or shall be derived from, or related to, any activity that is
deemed criminal under United States law; and (ii) no contribution or payment by
it or any of its Subsidiaries to Laurus, to the extent that they are within its
or any such Subsidiary's control shall cause Laurus to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly notify
Laurus if any of these representations, warranties and covenants ceases to be
true and accurate regarding it or any of its Subsidiaries. It shall provide
Laurus with any additional information regarding it and each Subsidiary thereof
that Laurus deems necessary or convenient to ensure compliance with all
applicable laws concerning money laundering and similar activities. It
understands and agrees that if at any time it is discovered that any of the
foregoing representations, warranties and covenants are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, Laurus may undertake appropriate actions to ensure
compliance with applicable law or regulation, including but not limited to
segregation and/or redemption of Laurus' investment in it. It further
understands that Laurus may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Laurus, in its sole discretion, determines that it is in the best
interests of Laurus in light of relevant rules and regulations under the laws
set forth in subsection (ii) above.
(aa) Company Name; Locations of Offices, Records and Collateral. Schedule
------------------------------------------------------------ --------
12(aa) sets forth each Company's name as it appears in official filings in the
-----
state of its organization, the type of entity of each Company, the
organizational identification number issued by each Company's state of
organization or a statement that no such number has been issued, each Company's
state of organization, and the location of each Company's chief executive
office, corporate offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept (including in each
case the county of such locations) and, except as set forth in such Schedule
--------
12(aa), such locations have not changed during the preceding twelve months. As
------
of the Closing Date, during the prior five years, except as set forth in
Schedule 12(aa), no Company has been known as or conducted business in any other
--------
name (including trade names). Each Company has only one state of organization.
(bb) ERISA. Based upon the Employee Retirement Income Security Act of 1974
-----
("ERISA"), and the regulations and published interpretations thereunder: (i)
-----
neither it nor any of its Subsidiaries has engaged in any Prohibited
Transactions (as defined in Section 406 of ERISA and Section 4975 of the Code);
(ii) it and each of its Subsidiaries has met all applicable minimum funding
requirements under Section 302 of ERISA in respect of its plans; (iii) neither
it nor any of its Subsidiaries has any knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to institute
proceedings under Title IV of ERISA to terminate any employee benefit plan(s);
(iv) neither it nor any of its Subsidiaries has any fiduciary responsibility for
investments with respect to any plan existing for the benefit of
-23-
persons other than its or such Subsidiary's employees; and (v) neither it nor
any of its Subsidiaries has withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980.
13. Covenants. Each Company, as applicable, covenants and agrees with
---------
Laurus as follows:
(a) Stop-Orders. The Parent shall advise Laurus, promptly after it receives
-----------
notice of issuance by the SEC, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
any offering of any securities of the Parent, or of the suspension of the
qualification of the Common Stock of the Parent for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
(b) Listing. The Parent shall promptly secure the listing or quotation, as
-------
applicable, of the shares of Common Stock issuable upon conversion of the 7%
Preferred Stock on the Principal Market upon which shares of Common Stock are
listed or quoted, as applicable, (subject to official notice of issuance) and
shall maintain such listing or quotation, as applicable, so long as any other
shares of Common Stock shall be so listed or quoted, as applicable. The Parent
shall maintain the listing or quotation, as applicable, of its Common Stock on
the Principal Market, and will comply in all material respects with the Parent's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
----
applicable.
(c) Market Regulations. It shall notify the SEC, NASD and applicable state
-------------------
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Laurus and
promptly provide copies thereof to Laurus.
(d) Reporting Requirements. It shall timely file with the SEC all reports
-----------------------
required to be filed pursuant to the Exchange Act and refrain from terminating
its status as an issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations thereunder would permit
such termination.
(e) Use of Funds. It shall use the proceeds of the Loans for general
--------------
working capital purposes only.
(f) Access to Facilities. It shall, and shall cause each of its
----------------------
Subsidiaries to, permit any representatives designated by Laurus (or any
successor of Laurus), upon reasonable notice and during normal business hours,
at Company's expense and accompanied by a representative of Company Agent
(provided that no such prior notice shall be required to be given and no such
representative shall be required to accompany Laurus in the event Laurus
believes such access is necessary to preserve or protect the Collateral or
following the occurrence and during the continuance of an Event of Default), to:
(i) visit and inspect any of its or any such Subsidiary's properties;
-24-
(ii) examine its or any such Subsidiary's corporate and financial records
(unless such examination is not permitted by federal, state or local law or by
contract) and make copies thereof or extracts therefrom; and
(iii) discuss its or any such Subsidiary's affairs, finances and accounts
with its or any such Subsidiary's directors, officers and Accountants.
Notwithstanding the foregoing, neither it nor any of its Subsidiaries shall
provide any material, non-public information to Laurus unless Laurus signs a
confidentiality agreement and otherwise complies with Regulation FD, under the
federal securities laws.
(g) Taxes. It shall, and shall cause each of its Subsidiaries to, promptly
-----
pay and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon it and
its Subsidiaries' income, profits, property or business, as the case may be;
provided, however, that any such tax, assessment, charge or levy need not be
paid currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall not result in the imposition of a security interest and/or
lien on the Collateral, and (iii) if it and/or such Subsidiary, as applicable,
shall have set aside on its and/or such Subsidiary's books adequate reserves
with respect thereto in accordance with GAAP; and provided, further, that it
shall, and shall cause each of its Subsidiaries to, pay all such taxes,
assessments, charges or levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security therefor.
(h) Insurance. (i) It shall bear the full risk of loss from any loss of any
---------
nature whatsoever with respect to the Collateral and it and each of its
Subsidiaries will, jointly and severally, bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to Laurus as
security for the Obligations. Furthermore, it will insure or cause the
Collateral to be insured in Laurus' name as an additional insured and lender
loss payee, with an appropriate loss payable endorsement in form and substance
satisfactory to Laurus, against loss or damage by fire, flood, sprinkler
leakage, theft, burglary, pilferage, loss in transit and other risks customarily
insured against by companies in similar business similarly situated as it and
its Subsidiaries including but not limited to workers compensation, public and
product liability and business interruption, and such other hazards as Laurus
shall specify in amounts and under insurance policies and bonds by insurers
acceptable to Laurus and all premiums thereon shall be paid by such Company and
the policies delivered to Laurus. If any such Company fails to obtain the
insurance and in such amounts of coverage as otherwise required pursuant to this
Section (h), Laurus may procure such insurance and the cost thereof shall be
promptly reimbursed by the Companies, jointly and severally, and shall
constitute Obligations.
(ii) No Company's insurance coverage shall be impaired or invalidated by any
act or neglect of any Company or any of its Subsidiaries and the insurer will
provide Laurus with no less than thirty (30) days notice prior of cancellation;
-25-
(iii) Laurus, in connection with its status as a lender loss payee, will be
assigned at all times to a first lien position until such time as all Laurus
Obligations have been indefeasibly satisfied in full.
(i) Intellectual Property. It shall, and shall cause each of its
----------------------
Subsidiaries to, maintain in full force and effect its corporate existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.
(j) Properties. It shall, and shall cause each of its Subsidiaries to, keep
----------
its properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all needful and proper repairs,
renewals, replacements, additions and improvements thereto; and it shall, and
shall cause each of its Subsidiaries to, at all times comply with each provision
of all leases to which it is a party or under which it occupies property if the
breach of such provision could reasonably be expected to have a Material Adverse
Effect.
(k) Confidentiality. It shall not, and shall not permit any of its
---------------
Subsidiaries to, disclose, and will not include in any public announcement, the
name of Laurus, unless expressly agreed to by Laurus or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement. Notwithstanding the foregoing, each Company and its
Subsidiaries may disclose Laurus' identity and the terms of this Agreement to
its current and prospective debt and equity financing sources.
(l) Required Approvals. It shall not, and shall not permit any of its
-------------------
Subsidiaries to, without the prior written consent of Laurus, (i) create, incur,
assume or suffer to exist any indebtedness (exclusive of trade debt) whether
secured or unsecured other than each Company's indebtedness to Laurus and as set
forth on Schedule 13(l)(i) attached hereto and made a part hereof; (ii) cancel
-----------------
any debt owing to it in excess of $100,000 in the aggregate during any 12 month
period; (iii) assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except the endorsement of negotiable instruments by it or its Subsidiaries for
deposit or collection or similar transactions in the ordinary course of
business; (iv) directly or indirectly declare, pay or make any dividend or
distribution on any class of its Stock or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any of its or its
Subsidiaries' Stock, or issue any preferred stock; (v) purchase or hold
beneficially any Stock or other securities or evidences of indebtedness of, make
or permit to exist any loans or advances to, or make any investment or acquire
any interest whatsoever in, any other Person, including any partnership or joint
venture, except (x) travel advances, (y) loans to its and its Subsidiaries'
officers and employees not exceeding at any one time an aggregate of $25,000,
and (z) loans to its existing Subsidiaries so long as such Subsidiaries are
designated as either a co-borrower hereunder or has entered into such guaranty
and security documentation required by Laurus, including, without limitation, to
grant to Laurus a first priority perfected security interest in substantially
all of such Subsidiary's assets to secure the Obligations; (vi) create or permit
to exist any Subsidiary, other than any Subsidiary in existence on the date
hereof and listed in Schedule 12(b) unless such new Subsidiary is a wholly-owned
--------------
Subsidiary and is designated by Laurus as either a co-borrower or guarantor
hereunder and such Subsidiary shall have entered into all such documentation
required
-26-
by Laurus, including, without limitation, to grant to Laurus a first priority
perfected security interest in substantially all of such Subsidiary's assets to
secure the Obligations; (vii) directly or indirectly, prepay any indebtedness
(other than to Laurus and in the ordinary course of business), or repurchase,
redeem, retire or otherwise acquire any indebtedness (other than to Laurus and
in the ordinary course of business) except to make scheduled payments of
principal and interest thereof; (viii) enter into any merger, consolidation or
other reorganization with or into any other Person or acquire all or a portion
of the assets or Stock of any Person or permit any other Person to consolidate
with or merge with it, unless (1) such Company is the surviving entity of such
merger or consolidation, (2) no Event of Default shall exist immediately prior
to and after giving effect to such merger or consolidation, (3) such Company
shall have provided Laurus copies of all documentation relating to such merger
or consolidation and (4) such Company shall have provided Laurus with at least
thirty (30) days' prior written notice of such merger or consolidation; (ix)
materially change the nature of the business in which it is presently engaged;
(x) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict its or any of its Subsidiaries' right to perform the
provisions of this Agreement or any of the Ancillary Agreements; (xi) change its
fiscal year or make any changes in accounting treatment and reporting practices
without prior written notice to Laurus except as required by GAAP or in the tax
reporting treatment or except as required by law; (xii) enter into any
transaction with any employee, director or Affiliate, except in the ordinary
course on arms-length terms; (xiii) xxxx Accounts under any name except the
present name of such Company; or (xiv) sell, lease, transfer or otherwise
dispose of any of its properties or assets, or any of the properties or assets
of its Subsidiaries, except for (1) sales, leases, transfer or dispositions by
any Company to any other Company, (2) the sale of Inventory in the ordinary
course of business and (3) the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment and only to
the extent that (x) the proceeds of any such disposition are used to acquire
replacement Equipment which is subject to Laurus' first priority security
interest or are used to repay Loans or to pay general corporate expenses, or (y)
following the occurrence of an Event of Default which continues to exist, the
proceeds of which are remitted to Laurus to be held as cash collateral for the
Obligations.
(m) Reissuance of Securities. The Parent shall reissue certificates
--------------------------
representing the Securities without the legends set forth in Section 39 below at
such time as:
(i) the holder thereof is permitted to dispose of such Securities pursuant
to Rule 144(k) under the Securities Act; or
(ii) upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.
The Parent agrees to cooperate with Laurus in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales provided the Parent and its counsel receive reasonably
requested representations from Laurus and broker, if any.
-27-
(n) Opinion. On the Closing Date, it shall deliver to Laurus an opinion
-------
acceptable to Laurus from each Company's legal counsel. Each Company will
provide, at the Companies' joint and several expense, such other legal opinions
in the future as are reasonably necessary for the resale and conversion of the
7% Preferred Stock.
(o) Legal Name, etc. Except as set forth on Schedule 13(o), it shall not,
-----------------
without providing Laurus with 30 days prior written notice, change (i) its name
as it appears in the official filings in the state of its organization, (ii) the
type of legal entity it is, (iii) its organization identification number, if
any, issued by its state of organization, (iv) its state of organization or (v)
amend its certificate of incorporation, by-laws or other organizational
document. In connection with Parent's proposal to change its name from Trinity
Learning Corporation to TWL Corporation, it shall provide written notice to
Laurus within five (5) days of effectiveness of such name change and shall have
taken on or prior to the date of effectiveness of such name change all action
necessary to ensure that Laurus' security interest in the Collateral is
unaffected by the effectiveness of such name change, including, without
limitation, assisting Laurus in the preparation of amendment filings with
respect to UCC-1 on file for the benefit of Laurus, as well as amendment filings
with the United States Patent and Trademark Office.
(p) Compliance with Laws. The operation of each of its and each of its
----------------------
Subsidiaries' business is and shall continue to be in compliance in all material
respects with all applicable federal, state and local laws, rules and
ordinances, including to all laws, rules, regulations and orders relating to
taxes, payment and withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee retirement and welfare
benefits, employee health and safety and environmental matters.
(q) Notices. It and each of its Subsidiaries shall promptly inform Laurus
-------
in writing of: (i) the commencement of all proceedings and investigations by or
before and/or the receipt of any notices from, any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any way concerning any event which could reasonably be
expected to have singly or in the aggregate, a Material Adverse Effect; (ii) any
change which has had, or could reasonably be expected to have, a Material
Adverse Effect; (iii) any Event of Default or Default; and (iv) any default or
any event which with the passage of time or giving of notice or both would
constitute a default under any agreement for the payment of money to which it or
any of its Subsidiaries is a party or by which it or any of its Subsidiaries or
any of its or any such Subsidiary's properties may be bound the breach of which
would have a Material Adverse Effect.
(r) Margin Stock. It shall not permit any of the proceeds of the Loans made
------------
hereunder to be used directly or indirectly to "purchase" or "carry" "margin
stock" or to repay indebtedness incurred to "purchase" or "carry" "margin stock"
within the respective meanings of each of the quoted terms under Regulation U of
the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect.
(s) Offering Restrictions. Except as previously disclosed in the SEC
----------------------
Reports or in the Exchange Act Filings, or stock or stock options granted to its
employees or directors, neither it nor any of its Subsidiaries shall, prior to
the full repayment of the Notes (together with
-28-
all accrued and unpaid interest and fees related thereto), the termination of
this Agreement and the full redemption of the 7% Preferred Stock (or in lieu of
full redemption, the full conversion of the 7% Preferred Stock into Preferred
Conversion Shares), (x) enter into any equity line of credit agreement or
similar agreement with a floorless pricing feature or (y) issue, or enter into
any agreement to issue, any securities with a floorless variable/floating
conversion and/or pricing feature which are or could be (by conversion or
registration) free-trading securities (i.e. common stock subject to a
registration statement).
(t) Authorization and Reservation of Shares. The Parent shall at all times
----------------------------------------
have authorized and reserved a sufficient number of shares of Common Stock to
provide for the full conversion of the 7% Preferred Stock; it being understood
that, notwithstanding the foregoing, prior to the Authorization Deadline Date,
the number of shares of Common Stock otherwise required to be reserved by the
Issuer hereunder may be less than that sufficient to provide for the issuance of
Preferred Conversion Shares upon the full conversion of the 7% Preferred Stock;
provided that, on and after the Authorization Deadline Date, 100% of the
-------- ----
required Preferred Conversion Shares shall be duly and validly authorized and
reserved for issuance.
(u) FIRPTA. Neither it, nor any of its Subsidiaries, is a "United States
------
real property holding corporation" as such term is defined in Section 897(c)(2)
of the Code and Treasury Regulation Section 1.897-2 promulgated thereunder and
it and each of its Subsidiaries shall at no time take any action or otherwise
acquire any interest in any asset or property to the extent the effect of which
shall cause it and/or such Subsidiary, as the case may be, to be a "United
States real property holding corporation" as such term is defined in Section
897(c)(2) of the Code and Treasury Regulation Section 1.897-2 promulgated
thereunder.
(v) No Restrictions on Addition Financings.
------------------------------------------
On or prior to the second (2nd) anniversary of the date of this Agreement, it
shall not, and shall not permit its Subsidiaries to, agree, directly or
indirectly, to any restriction with any Person which materially limits it or any
of its Subsidiaries from consummating the incurrence of any additional
indebtedness and/or the sale or issuance of any equity interests from or to
Laurus.
(w) Prohibition of Amendments to Subordinated Debt Documentation. It shall
-------------------------------------------------------------
not, without the prior written consent of Laurus, amend, modify or in any way
alter the terms of any of the Subordinated Debt Documentation.
(x) Prohibitions of Payment Under Subordinated Debt Documentation. Neither
--------------------------------------------------------------
it nor any of its Subsidiaries shall, without the prior written consent of
Laurus, make any payments in respect of the indebtedness evidenced by the
Subordinated Debt Documentation other than as permitted pursuant to the
Subordination Agreement.
(y) Inactive Subsidiaries. Neither it nor any of its Subsidiaries will
----------------------
not permit its Inactive Subsidiaries to hold significant assets or liabilities
or engage in any business activities.
-29-
14. Further Assurances. At any time and from time to time, upon the written
------------------
request of Laurus and at the sole expense of Companies, each Company shall
promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Laurus may request (a) to obtain the
full benefits of this Agreement and the Ancillary Agreements, (b) to protect,
preserve and maintain Laurus' rights in the Collateral and under this Agreement
or any Ancillary Agreement, and/or (c) to enable Laurus to exercise all or any
of the rights and powers herein granted or any Ancillary Agreement.
15. Representations, Warranties and Covenants of Laurus. Laurus hereby
--------------------------------------------------------
represents, warrants and covenants to each Company as follows:
(a) Requisite Power and Authority. Laurus has all necessary power and
--------------------------------
authority under all applicable provisions of law to execute and deliver this
Agreement and the Ancillary Agreements and to carry out their provisions. All
corporate action on Laurus' part required for the lawful execution and delivery
of this Agreement and the Ancillary Agreements have been or will be effectively
taken prior to the Closing Date. Upon their execution and delivery, this
Agreement and the Ancillary Agreements shall be valid and binding obligations of
Laurus, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
(b) Investment Representations. Laurus understands that the Securities are
---------------------------
being offered pursuant to an exemption from registration contained in the
Securities Act based in part upon Laurus' representations contained in this
Agreement, including, without limitation, that Laurus is an "accredited
investor" within the meaning of Regulation D under the Securities Act. Laurus
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Notes and 7% Preferred Stock to be issued to it under this Agreement and the
Securities acquired by it upon the conversion of the 7% Preferred Stock.
(c) Laurus Bears Economic Risk. Laurus has substantial experience in
-----------------------------
evaluating and investing in private placement transactions of securities in
companies similar to the Parent so that it is capable of evaluating the merits
and risks of its investment in the Parent and has the capacity to protect its
own interests. Laurus must bear the economic risk of this investment until the
Securities are sold pursuant to (i) an effective registration statement under
the Securities Act, or (ii) an exemption from registration is available.
(d) Investment for Own Account. The Securities are being issued to Laurus
----------------------------
for its own account for investment only, and not as a nominee or agent and not
with a view towards or for resale in connection with their distribution.
(e) Laurus Can Protect Its Interest. Laurus represents that by reason of
----------------------------------
its, or of its management's, business and financial experience, Laurus has the
capacity to evaluate the merits and risks of its investment in the Notes, and
the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement, and the Ancillary
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Agreements. Further, Laurus is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement or the Ancillary
Agreements.
(f) Accredited Investor. Laurus represents that it is an accredited
--------------------
investor within the meaning of Regulation D under the Securities Act.
(g) Shorting. Neither Laurus nor any of its Affiliates or investment
--------
partners has, will, or will cause any Person, to directly engage in "short
sales" of the Parent's Common Stock as long as any amount under any Note shall
remain outstanding.
(h) Patriot Act. Laurus certifies that, to the best of Laurus' knowledge,
------------
Laurus has not been designated, and is not owned or controlled, by a "suspected
terrorist" as defined in Executive Order 13224. Laurus seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, Laurus hereby represents, warrants and covenants
that: (i) none of the cash or property that Laurus will use to make the Loans
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no disbursement by Laurus to any
Company to the extent within Laurus' control, shall cause Laurus to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. Laurus shall
promptly notify the Company Agent if any of these representations ceases to be
true and accurate regarding Laurus. Laurus agrees to provide the Company any
additional information regarding Laurus that the Company deems necessary or
convenient to ensure compliance with all applicable laws concerning money
laundering and similar activities. Laurus understands and agrees that if at any
time it is discovered that any of the foregoing representations are incorrect,
or if otherwise required by applicable law or regulation related to money
laundering similar activities, Laurus may undertake appropriate actions to
ensure compliance with applicable law or regulation, including but not limited
to segregation and/or redemption of Laurus' investment in the Parent. Laurus
further understands that the Parent may release information about Laurus and, if
applicable, any underlying beneficial owners, to proper authorities if the
Parent, in its sole discretion, determines that it is in the best interests of
the Parent in light of relevant rules and regulations under the laws set forth
in subsection (ii) above.
(i) Limitation on Acquisition of Common Stock. Notwithstanding anything to
------------------------------------------
the contrary contained in this Agreement, any Ancillary Agreement, or any
document, instrument or agreement entered into in connection with any other
transaction entered into by and between Laurus and any Company (and/or
Subsidiaries or Affiliates of any Company), Laurus shall not acquire stock in
the Parent (including, without limitation, pursuant to a contract to purchase,
by exercising an option or warrant, by converting any other security or
instrument, by acquiring or exercising any other right to acquire, shares of
stock or other security convertible into shares of stock in the Parent, or
otherwise, and such options, warrants, conversion or other rights shall not be
exercisable) to the extent such stock acquisition would cause any interest
(including any original issue discount) payable by any Company to Laurus not to
qualify as portfolio interest, within the meaning of Section 881(c)(2) of the
Internal Revenue Code of 1986, as amended (the "Code") by reason of Section
----
881(c)(3) of the Code, taking into account the constructive ownership rules
under Section 871(h)(3)(C) of the Code (the "Stock Acquisition
------------------
-31-
Limitation"). The Stock Acquisition Limitation shall automatically become null
----------
and void without any notice to any Company upon the earlier to occur of either
(a) the Parent's delivery to Laurus of a Notice of Redemption (as defined in the
Secured Term Note) or (b) the existence of an Event of Default at a time when
the average closing price of the Common Stock as reported by Bloomberg, L.P. on
the Principal Market for the immediately preceding five trading days is greater
than or equal to 150% of the Fixed Conversion Price (as defined in 7% Preferred
Stock).
16. Power of Attorney. Each Company hereby appoints Laurus, or any other
-------------------
Person whom Laurus may designate as such Company's attorney, with power to:
(a)(i) execute any security related documentation on such Company's behalf and
to supply any omitted information and correct patent errors in any documents
executed by such Company or on such Company's behalf; (ii) to file financing
statements against such Company covering the Collateral (and, in connection with
the filing of any such financing statements, describe the Collateral as "all
assets and all personal property, whether now owned and/or hereafter acquired"
(or any substantially similar variation thereof)); (iii) sign such Company's
name on any invoice or xxxx of lading relating to any Accounts, drafts against
Account Debtors, schedules and assignments of Accounts, notices of assignment,
financing statements and other public records, verifications of Account and
notices to or from Account Debtors; and (iv) to do all other things Laurus deems
necessary to carry out the terms of Section 6 of this Security Agreement and (b)
upon the occurrence and during the continuance of an Event of Default; (v)
endorse such Company's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Laurus'
possession; (vi) verify the validity, amount or any other matter relating to any
Account by mail, telephone, telegraph or otherwise with Account Debtors; (vii)
do all other things necessary to carry out this Agreement, any Ancillary
Agreement and all related documents; and (viii) notify the post office
authorities to change the address for delivery of such Company's mail to an
address designated by Laurus, and to receive, open and dispose of all mail
addressed to such Company. Each Company hereby ratifies and approves all acts
of the attorney. Neither Laurus, nor the attorney will be liable for any acts
or omissions or for any error of judgment or mistake of fact or law, except for
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable so long as Laurus has a security interest and until the
Obligations have been fully satisfied.
17. Term of Agreement. Laurus' agreement to make Loans and extend financial
-----------------
accommodations under and in accordance with the terms of this Agreement or any
Ancillary Agreement shall continue in full force and effect until the expiration
of the Term. At Laurus' election following the occurrence of an Event of
Default, Laurus may terminate this Agreement. The termination of the Agreement
shall not affect any of Laurus' rights hereunder or any Ancillary Agreement and
the provisions hereof and thereof shall continue to be fully operative until all
transactions entered into, rights or interests created and the Obligations have
been irrevocably disposed of, concluded or liquidated. Notwithstanding the
foregoing, Laurus shall release its security interests at any time after thirty
(30) days notice upon irrevocable payment to it of all Obligations if each
Company shall have (i) provided Laurus with an executed release of any and all
claims which such Company may have or thereafter have under this Agreement and
all Ancillary Agreements and (ii) paid to Laurus an early payment fee in an
amount equal to (1) three percent (3%) of the Capital Availability Amount if
such payment
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occurs prior to the first anniversary of the Closing Date, (2) two percent (2%)
of the Capital Availability Amount if such payment occurs on or after the first
anniversary of the Closing Date and prior to the second anniversary of the
Closing Date and (3) one percent (1%) of the Capital Availability Amount if such
termination occurs thereafter during the Term; such fee being intended to
compensate Laurus for its costs and expenses incurred in initially approving
this Agreement or extending same. Such early payment fee shall be due and
payable jointly and severally by the Companies to Laurus upon termination by
acceleration of this Agreement by Laurus due to the occurrence and continuance
of an Event of Default; provided that, in the event of termination by
acceleration on account of the occurrence and continuance of an Event of
Default, the lesser of (x) the applicable early payment fee and (y) the
remainder of (I) the aggregate amount of the Default Payments (as defined in the
Notes) less (II) the then outstanding principal balance of the Notes, shall be
waived by Laurus.
18. Termination of Lien. The Liens and rights granted to Laurus hereunder
---------------------
and any Ancillary Agreements and the financing statements filed in connection
herewith or therewith shall continue in full force and effect, notwithstanding
the termination of this Agreement or the fact that any Company's account may
from time to time be temporarily in a zero or credit position, until all of the
Obligations have been indefeasibly paid or performed in full and this Agreement
has been terminated in accordance with the terms of this Agreement. Laurus
shall not be required to send termination statements to any Company, or to file
them with any filing office, unless and until this Agreement and the Ancillary
Agreements shall have been terminated in accordance with their terms and all
Obligations indefeasibly paid in full in immediately available funds.
19. Events of Default. The occurrence of any of the following beyond any
-------------------
applicable grace period shall constitute an "Event of Default":
------------------
(a) failure to make payment of any of the Obligations when required
hereunder (the "Obligation Failure"), and, in any such case, such failure shall
continue for a period of five (5) days following the date upon which any such
payment was due;
(b) failure by any Company or any of its Subsidiaries to pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon it and its
Subsidiaries' income, profits, property or business, as the case may be;
provided, however, that any such tax, assessment, charge or levy need not be
paid currently if (i) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (ii) such tax, assessment,
charge or levy shall not result in the imposition of a security interest and/or
lien on the Collateral, and (iii) if it and/or such Subsidiary, as applicable,
shall have set aside on its and/or such Subsidiary's books adequate reserves
with respect thereto in accordance with GAAP;
(c) failure to perform under, and/or committing any breach of, in any
material respect, this Agreement or any covenant contained herein, which failure
or breach (collectively the "Failure") shall continue without remedy for a
period of thirty (30) days after the occurrence thereof;
-33-
(d) any representation, warranty or statement made by any Company or any of
its Subsidiaries hereunder, in any Ancillary Agreement, any certificate,
statement or document delivered pursuant to the terms hereof, or in connection
with the transactions contemplated by this Agreement should prove to be false or
misleading in any material respect on the date as of which made or deemed made;
(e) the occurrence of any default (or similar term) in the observance or
performance of any other agreement or condition relating to any indebtedness or
contingent obligation of any Company or any of its Subsidiaries (including,
without limitation, the indebtedness evidenced by the Subordinated Debt
Documentation) beyond the period of grace (if any), the effect of which default
is to cause, or permit the holder or holders of such indebtedness or beneficiary
or beneficiaries of such contingent obligation to cause, such indebtedness to
become due prior to its stated maturity or such contingent obligation to become
payable solely to the extent that the principal amount of any such indebtedness
or contingent obligation exceeds (x) $50,000 in respect of any single instance
and (y), when aggregated together with all other defaulted (or similar term)
indebtedness and contingent oblugations, $100,000 in the aggregate;
(f) attachments or levies in excess of $100,000 in the aggregate are made
upon any Company's assets or a judgment is rendered against any Company's
property involving a liability of more than $100,000 which shall not have been
vacated, discharged, stayed or bonded within forty-five (45) days from the entry
thereof;
(g) any change in any Company's or any of its Subsidiary's condition or
affairs (financial or otherwise) which in Laurus' reasonable, good faith
opinion, could reasonably be expected to have a Material Adverse Effect;
(h) any Lien created hereunder or under any Ancillary Agreement ceases to be
or is not a valid and perfected Lien having a first priority interest;
(i) any Company or any of its Subsidiaries shall (i) apply for, consent to
or suffer to exist the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
creditors, (iii) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to without challenge within fifteen (15) days
of the filing thereof, or fail to have dismissed within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
(j) any Company or any of its Subsidiaries shall admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business;
(k) any Company or any of its Subsidiaries directly or indirectly sells,
assigns, transfers, conveys, or suffers or permits to occur any sale,
assignment, transfer or conveyance of any assets of such Company or any interest
therein, except as permitted herein;
-34-
(l) any "Person" or "group" (as such terms are defined in Sections 13(d) and
14(d) of the Exchange Act, as in effect on the date hereof), other than Laurus
and Palisades Master Fund, L.P., is or becomes the "beneficial owner" (as
defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of 35% or more on a fully diluted basis of the then outstanding
voting equity interest of the Parent, (ii) the Board of Directors of the Parent
shall cease to consist of a majority of the Board of Directors of the Parent on
the date hereof (or directors appointed by a majority of the board of directors
in effect immediately prior to such appointment) or (iii) the Parent or any of
its Subsidiaries merges or consolidates with, or sells all or substantially all
of its assets to, any other person or entity;
(m) the indictment or threatened indictment of any Company or any of its
Subsidiaries or any executive officer of any Company or any of its Subsidiaries
under any criminal statute, or commencement or threatened commencement of
criminal or civil proceeding against any Company or any of its Subsidiaries or
any executive officer of any Company or any of its Subsidiaries pursuant to
which statute or proceeding penalties or remedies sought or available include
forfeiture of any of the property of any Company or any of its Subsidiaries;
(n) an Event of Default (or similar term) shall occur under and as defined
in any Note or in any other Ancillary Agreement;
(o) any Company or any of its Subsidiaries shall breach any term or
provision of any Ancillary Agreement to which it is a party (including, without
limitation, Section 7(e) of the Registration Rights Agreement), in any material
respect which breach is not cured within any applicable cure or grace period
provided in respect thereof (if any);
(p) any Company or any of its Subsidiaries attempts to terminate, challenges
the validity of, or its liability under this Agreement or any Ancillary
Agreement, or any proceeding shall be brought to challenge the validity, binding
effect of any Ancillary Agreement or any Ancillary Agreement ceases to be a
valid, binding and enforceable obligation of such Company or any of its
Subsidiaries (to the extent such Persons are a party thereto);
(q) an SEC stop trade order or Principal Market trading suspension of the
Common Stock shall be in effect for five (5) consecutive days or five (5) days
during a period of ten (10) consecutive days, excluding in all cases a
suspension of all trading on a Principal Market, provided that the Parent shall
not have been able to cure such trading suspension within thirty (30) days of
the notice thereof or list the Common Stock on another Principal Market within
sixty (60) days of such notice; or
(r) Subject to Stockholder Approval, the Parent's failure to deliver Common
Stock to Laurus pursuant to and in the form required by the 7% Preferred Stock
and this Agreement, if such failure to deliver Common Stock shall not be cured
within three (3) Business Days or any Company is required to issue a replacement
Note to Laurus and such Company shall fail to deliver such replacement Note
within ten (10) Business Days; or
(s) any Company, or any of its Subsidiaries shall take or participate in any
action which would be prohibited under the provisions of any of the Subordinated
Debt Documentation or make any payment on the indebtedness evidenced by the
Subordinated Debt
-35-
Documentation to a Person that was not entitled to receive such payments under
the subordination provisions of applicable Subordinated Debt Documentation; or
(t) the Issuer shall not have caused, on or prior to the Authorization
Deadline Date, (x) a duly authorized increase (through shareholder vote and
otherwise required to effect such increase) in its authorized shares of common
stock to no less than 750,000,000 shares of Common Stock (or such other number
as may be acceptable to Laurus) or (y) its board of directors to reserve that
number of shares of Common Stock that is necessary to provide for the issuance
of Preferred Conversion Shares upon the full conversion of the 7% Preferred
Stock.
20. Remedies. Following the occurrence of an Event of Default, Laurus shall
--------
have the right to demand repayment in full of all Obligations, whether or not
otherwise due. Until all Obligations have been fully and indefeasibly
satisfied, Laurus shall retain its Lien in all Collateral. Laurus shall have,
in addition to all other rights provided herein and in each Ancillary Agreement,
the rights and remedies of a secured party under the UCC, and under other
applicable law, all other legal and equitable rights to which Laurus may be
entitled, including the right to take immediate possession of the Collateral, to
require each Company to assemble the Collateral, at Companies' joint and several
expense, and to make it available to Laurus at a place designated by Laurus
which is reasonably convenient to both parties and to enter any of the premises
of any Company or wherever the Collateral shall be located, with or without
force or process of law, and to keep and store the same on said premises until
sold (and if said premises be the property of any Company, such Company agrees
not to charge Laurus for storage thereof), and the right to apply for the
appointment of a receiver for such Company's property. Further, Laurus may, at
any time or times after the occurrence of an Event of Default, sell and deliver
all Collateral held by or for Laurus at public or private sale for cash, upon
credit or otherwise, at such prices and upon such terms as Laurus, in Laurus'
sole discretion, deems advisable or Laurus may otherwise recover upon the
Collateral in any commercially reasonable manner as Laurus, in its sole
discretion, deems advisable. The requirement of reasonable notice shall be met
if such notice is mailed postage prepaid to Company Agent at Company Agent's
address as shown in Laurus' records, at least twenty (20) days before the time
of the event of which notice is being given. Laurus may be the purchaser at any
sale, if it is public. In connection with the exercise of the foregoing
remedies, Laurus is granted permission to use all of each Company's Intellectual
Property. The proceeds of sale shall be applied first to all costs and expenses
of sale, including attorneys' fees, and second to the payment (in whatever order
Laurus elects) of all Obligations. After the indefeasible payment and
satisfaction in full of all of the Obligations, and after the payment by Laurus
of any other amount required by any provision of law, including Section
9-608(a)(1) of the UCC (but only after Laurus has received what Laurus considers
reasonable proof of a subordinate party's security interest), the surplus, if
any, shall be paid to Company Agent (for the benefit of the applicable
Companies) or its representatives or to whosoever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may direct. The
Companies shall remain jointly and severally liable to Laurus for any
deficiency. Each Company and Laurus acknowledge that the actual damages that
would be incurred by Laurus after the occurrence of an Event of Default would be
difficult to quantify and that such Company and Laurus have agreed that the fees
and obligations set forth in this Section and in this Agreement would constitute
fair and appropriate liquidated damages in the event of any such termination.
The parties hereto each hereby agree that the exercise by any party hereto
-36-
of any right granted to it or the exercise by any party hereto of any remedy
available to it (including, without limitation, the issuance of a notice of
redemption, a borrowing request and/or a notice of default), in each case,
hereunder or under any Ancillary Agreement shall not constitute confidential
information and no party shall have any duty to the other party to maintain such
information as confidential, except for the portions of such publicly filed
documents that are subject to confidential treatment request made by the
Companies to the SEC.
21. Waivers. To the full extent permitted by applicable law, each Company
-------
hereby waives (a) presentment, demand and protest, and notice of presentment,
dishonor, intent to accelerate, acceleration, protest, default, nonpayment,
maturity, release, compromise, settlement, extension or renewal of any or all of
this Agreement and the Ancillary Agreements or any other notes, commercial
paper, Accounts, contracts, Documents, Instruments, Chattel Paper and guaranties
at any time held by Laurus on which such Company may in any way be liable, and
hereby ratifies and confirms whatever Laurus may do in this regard; (b) all
rights to notice and a hearing prior to Laurus' taking possession or control of,
or to Laurus' replevy, attachment or levy upon, any Collateral or any bond or
security that might be required by any court prior to allowing Laurus to
exercise any of its remedies; and (c) the benefit of all valuation, appraisal
and exemption laws. Each Company acknowledges that it has been advised by
counsel of its choices and decisions with respect to this Agreement, the
Ancillary Agreements and the transactions evidenced hereby and thereby.
22. Expenses. The Companies shall jointly and severally pay all of Laurus'
--------
out-of-pocket costs and expenses, including reasonable fees and disbursements of
in-house or outside counsel and appraisers, in connection with (x) subject to
the limitations set forth in Section 5(b)(iii), the preparation, execution and
delivery of this Agreement and the Ancillary Agreements, and (y) in connection
with the prosecution or defense of any action, contest, dispute, suit or
proceeding concerning any matter in any way arising out of, related to or
connected with this Agreement or any Ancillary Agreement. The Companies shall
also jointly and severally pay all of Laurus' reasonable fees, charges,
out-of-pocket costs and expenses, including fees and disbursements of counsel
and appraisers, in connection with (a) the preparation, execution and delivery
of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by this Agreement or the Ancillary
Agreements, (b) Laurus' obtaining performance of the Obligations under this
Agreement and any Ancillary Agreements, including, but not limited to, the
enforcement or defense of Laurus' security interests, assignments of rights and
Liens hereunder as valid perfected security interests, (c) any attempt to
inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral, (d) any appraisals or re-appraisals of any property (real or
personal) pledged to Laurus by any Company or any of its Subsidiaries as
Collateral for, or any other Person as security for, the Obligations hereunder
and (e) any consultations in connection with any of the foregoing. The
Companies shall also jointly and severally pay Laurus' customary bank charges
for all bank services (including wire transfers) performed or caused to be
performed by Laurus for any Company or any of its Subsidiaries at any Company's
or such Subsidiary's request or in connection with any Company's loan account
with Laurus. All such costs and expenses together with all filing, recording
and search fees, taxes and interest payable by the Companies to Laurus shall be
payable on demand and shall be secured by the Collateral. If any tax by any
Governmental Authority is or may be imposed on or as a result of any transaction
between any
-37-
Company and/or any Subsidiary thereof, on the one hand, and Laurus on the other
hand, which Laurus is or may be required to withhold or pay (including, without
limitation, as a result of a breach by any Company or any of its Subsidiaries of
Section 13(u) herein), the Companies hereby jointly and severally indemnifies
and holds Laurus harmless in respect of such taxes, and the Companies will repay
to Laurus the amount of any such taxes which shall be charged to the Companies'
account; and until the Companies shall furnish Laurus with indemnity therefor
(or supply Laurus with evidence satisfactory to it that due provision for the
payment thereof has been made), Laurus may hold without interest any balance
standing to each Company's credit and Laurus shall retain its Liens in any and
all Collateral.
23. Assignment By Laurus. Laurus may assign any or all of the Obligations
----------------------
together with any or all of the security therefor to any Person and any such
assignee shall succeed to all of Laurus' rights with respect thereto; provided
that Laurus shall not be permitted to effect any such assignment to a competitor
of any Company unless an Event of Default has occurred and is continuing. Upon
such assignment, Laurus shall be released from all responsibility for the
Collateral to the extent same is assigned to any transferee. Laurus may from
time to time sell or otherwise grant participations in any of the Obligations
and the holder of any such participation shall, subject to the terms of any
agreement between Laurus and such holder, be entitled to the same benefits as
Laurus with respect to any security for the Obligations in which such holder is
a participant. Each Company agrees that each such holder may exercise any and
all rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though such Company were directly
indebted to such holder in the amount of such participation.
24. No Waiver; Cumulative Remedies. Failure by Laurus to exercise any
---------------------------------
right, remedy or option under this Agreement, any Ancillary Agreement or any
supplement hereto or thereto or any other agreement between or among any Company
and Laurus or delay by Laurus in exercising the same, will not operate as a
waiver; no waiver by Laurus will be effective unless it is in writing and then
only to the extent specifically stated. Laurus' rights and remedies under this
Agreement and the Ancillary Agreements will be cumulative and not exclusive of
any other right or remedy which Laurus may have.
25. Application of Payments. Each Company irrevocably waives the right to
-------------------------
direct the application of any and all payments at any time or times hereafter
received by Laurus from or on such Company's behalf and each Company hereby
irrevocably agrees that Laurus shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times hereafter
against the Obligations hereunder in such manner as Laurus may deem advisable
notwithstanding any entry by Laurus upon any of Laurus' books and records.
26. Indemnity. Each Company hereby jointly and severally indemnifies and
---------
holds Laurus, and its respective affiliates, employees, attorneys and agents
(each, an "Indemnified Person"), harmless from and against any and all suits,
-------------------
actions, proceedings, claims, damages, losses, liabilities and expenses of any
kind or nature whatsoever (including 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
-38-
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 ANY COMPANY OR TO ANY OTHER PARTY OR TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
27. Revival. The Companies further agree that to the extent any Company
-------
makes a payment or payments to Laurus, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
28. Borrowing Agency Provisions.
-----------------------------
(a) Each Company hereby irrevocably designates Company Agent to be its
attorney and agent and in such capacity to borrow, sign and endorse notes, and
execute and deliver all instruments, documents, writings and further assurances
now or hereafter required hereunder, on behalf of such Company, and hereby
authorizes Laurus to pay over or credit all loan proceeds hereunder in
accordance with the request of Company Agent.
(b) The handling of this credit facility as a co-borrowing facility with a
borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to the Companies and at their request. Laurus shall not incur any
liability to any Company as a result thereof. To induce Laurus to do so and in
consideration thereof, each Company hereby indemnifies Laurus and holds Laurus
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Laurus by any Person arising from or
incurred by reason of the handling of the financing arrangements of the
Companies as provided herein, reliance by Laurus on any request or instruction
from Company Agent or any other action taken by Laurus with respect to this
Paragraph 28.
(c) All Obligations shall be joint and several, and the Companies shall make
payment upon the maturity of the Obligations by acceleration or otherwise, and
such obligation and liability on the part of the Companies shall in no way be
affected by any extensions, renewals and forbearance granted by Laurus to any
Company, failure of Laurus to give any
-39-
Company notice of borrowing or any other notice, any failure of Laurus to pursue
to preserve its rights against any Company, the release by Laurus of any
Collateral now or thereafter acquired from any Company, and such agreement by
any Company to pay upon any notice issued pursuant thereto is unconditional and
unaffected by prior recourse by Laurus to any Company or any Collateral for such
Company's Obligations or the lack thereof.
(d) Each Company expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Company may now or hereafter have against the other or other Person
directly or contingently liable for the Obligations, or against or with respect
to any other's property (including, without limitation, any property which is
Collateral for the Obligations), arising from the existence or performance of
this Agreement, until all Obligations have been indefeasibly paid in full and
this Agreement has been irrevocably terminated.
(e) Each Company represents and warrants to Laurus that (i) Companies have
one or more common shareholders, directors and officers, (ii) the businesses and
corporate activities of Companies are closely related to, and substantially
benefit, the business and corporate activities of Companies, (iii) the financial
and other operations of Companies are performed on a combined basis as if
Companies constituted a consolidated corporate group, (iv) Companies will
receive a substantial economic benefit from entering into this Agreement and
will receive a substantial economic benefit from the application of each Loan
hereunder, in each case, whether or not such amount is used directly by any
Company and (v) all requests for Loans hereunder by the Company Agent are for
the exclusive and indivisible benefit of the Companies as though, for purposes
of this Agreement, the Companies constituted a single entity.
29. Notices. Any notice or request hereunder may be given to any Company,
-------
Company Agent or Laurus at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
Section. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given three (3) Business Days after the date when
deposited in the mail or with the overnight mail carrier, and, in the case of a
telecopy, when confirmed.
Notices shall be provided as follows:
If to Laurus:
Laurus Master Fund, Ltd.
c/o M&C Corporate Services Limited
X.X. Xxx 000 XX
Xxxxxx Xxxxx
Xxxxxx Xxxx
South Church Street
Grand Cayman, Cayman Islands
Facsimile: 000-000-0000
-40-
With a copy to:
Laurus Capital Management, LLC
000 Xxxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, Xxx Xxxx 00000
Attention: Portfolio Services
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to any Company,
or Company Agent:
Trinity Learning Corporation
0000 Xxxxxxxxxxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxx 00000
Attention: Xxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to:
Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
0000 Xxxxxx xx Xxx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or such other address as may be designated in writing hereafter in accordance
with this Section 29 by such Person.
30. Governing Law, Jurisdiction and Waiver of Jury Trial.
-----------------------------------------------------------
(a) THIS AGREEMENT AND THE ANCILLARY AGREEMENTS SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY,
ON THE ONE HAND, AND LAURUS, ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR
ANY OF THE ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT LAURUS AND
--------
EACH COMPANY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD
BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
---- --------
PRECLUDE LAURUS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, TO
-41-
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LAURUS. EACH COMPANY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY HEREBY WAIVES ANY OBJECTION
THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. EACH COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE
-------------------
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY AGENT AT THE ADDRESS SET FORTH
IN SECTION 29 AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF COMPANY AGENT'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE
BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE
ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN LAURUS,
AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, ANY
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
31. Limitation of Liability. Each Company acknowledges and understands that
-----------------------
in order to assure repayment of the Obligations hereunder Laurus may be required
to exercise any and all of Laurus' rights and remedies hereunder and agrees
that, except as limited by applicable law, neither Laurus nor any of Laurus'
agents shall be liable for acts taken or omissions made in connection herewith
or therewith except for actual bad faith.
32. Entire Understanding; Maximum Interest. This Agreement and the
-----------------------------------------
Ancillary Agreements contain the entire understanding among each Company and
Laurus as to the subject matter hereof and thereof and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by each Company's and Laurus'
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged. Nothing contained in this Agreement, any Ancillary
Agreement or in any document referred to herein or delivered in connection
herewith shall be deemed to establish or require the payment of a rate of
interest or other charges in excess of the maximum rate permitted by applicable
law. In the event that the rate of interest or dividends required to be paid or
other charges hereunder exceed the maximum rate permitted by such law, any
payments in excess of such maximum shall be credited against amounts owed by the
Companies to Laurus and thus refunded to the Companies.
-42-
33. Severability. Wherever possible each provision of this Agreement or the
------------
Ancillary Agreements shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
thereof.
34. Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by Laurus and the closing of
the transactions contemplated hereby to the extent provided therein. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Companies pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Companies hereunder solely as of the date
of such certificate or instrument. All indemnities set forth herein shall
survive the execution, delivery and termination of this Agreement and the
Ancillary Agreements and the making and repaying of the Obligations.
35. Captions. All captions are and shall be without substantive meaning or
--------
content of any kind whatsoever.
36. Counterparts; Telecopier Signatures. This Agreement may be executed in
------------------------------------
one or more counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement. Any signature
delivered by a party via telecopier transmission shall be deemed to be any
original signature hereto.
37. Construction. The parties acknowledge that each party and its counsel
------------
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
38. Publicity. Each Company hereby authorizes Laurus to make appropriate
---------
announcements of the financial arrangement entered into by and among each
Company and Laurus, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Laurus shall in its sole and absolute discretion deem appropriate, or as
required by applicable law.
39. Joinder. It is understood and agreed that any Person that desires to
-------
become a Company hereunder, or is required to execute a counterpart of this
Agreement after the date hereof pursuant to the requirements of this Agreement
or any Ancillary Agreement, shall become a Company hereunder by (a) executing a
Joinder Agreement in form and substance satisfactory to Laurus, (b) delivering
supplements to such exhibits and annexes to this Agreement and the Ancillary
Agreements as Laurus shall reasonably request and (c) taking all actions as
specified in this Agreement as would have been taken by such Company had it been
an original party to this Agreement, in each case with all documents required
above to be delivered to Laurus and with all documents and actions required
above to be taken to the reasonable satisfaction of Laurus.
-43-
40. Legends. The Securities shall bear legends as follows;
-------
(a) The 7% Preferred Stock shall bear substantially the following legend:
"THIS 7% PREFERRED STOCK AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO TRINITY LEARNING CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) Any shares of Common Stock issued pursuant to conversion of the 7%
Preferred Stock, shall bear a legend which shall be in substantially the
following form until such shares are covered by an effective registration
statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO TRINITY LEARNING CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
[Balance of page intentionally left blank; signature page follows.]
-44-
IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the
date first written above.
TRINITY LEARNING CORPORATION
By:
Name:
Title:
TRINITY WORKPLACE LEARNING CORPORATION
By:
Name:
Title:
LAURUS MASTER FUND, LTD.
By:
Name:
Title:
-45-
-1-
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 ninety percent (90%) of the net face amount of
----------------------
Eligible Accounts.
"Affiliate" means, with respect to any Person, (a) any other Person (other than
---------
a Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, (b) any other Person that, directly
or indirectly, owns or controls, whether beneficially, or as trustee, guardian
or other fiduciary, 25% or more of the Stock having ordinary voting power in the
election of directors of such Person, (c) any other Person who is a director,
officer, joint venturer or partner (i) of such Person, (ii) of any Subsidiary of
such Person or (iii) of any Person described in clause (a) above or (d) in the
case of the Companies, the immediate family members, spouses and lineal
descendants of individuals who are Affiliates of such Companies. For the
purposes of this definition, control of a Person shall mean the power (direct or
indirect) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; provided however, that the term
"Affiliate" shall specifically exclude Laurus.
"Ancillary Agreements" means the Notes, the 7% Preferred Stock, the Registration
--------------------
Rights Agreements, the Subordination Agreement, each Security Document, the
Escrow Agreement and all other agreements, instruments, documents, mortgages,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, trust agreements and guarantees whether heretofore, concurrently, or
hereafter executed by or on behalf of any Company, any of its Subsidiaries or
any other Person or delivered to Laurus,
-2-
relating to this Agreement or to the transactions contemplated by this Agreement
or otherwise relating to the relationship between or among any Company and
Laurus, as each of the same may be amended, supplemented, restated or otherwise
modified from time to time.
"Authorization Deadline Date" has the meaning given such term in Section
-----------------------------
12(c)(iv).
------
"Balance Sheet Date" has the meaning given such term in Section 12(f)(ii).
--------------------
"Books and Records" means all books, records, board minutes, contracts,
-------------------
licenses, insurance policies, environmental audits, business plans, files,
computer files, computer discs and other data and software storage and media
devices, accounting books and records, financial statements (actual and pro
forma), filings with Governmental Authorities and any and all records and
instruments relating to the Collateral or otherwise necessary or helpful in the
collection thereof or the realization thereupon.
"Business Day" means a day on which Laurus is open for business and that is not
-------------
a Saturday, a Sunday or other day on which banks are required or permitted to be
closed in the State of New York.
"Capital Availability Amount" means $5,000,000.
-----------------------------
"Charter" has the meaning given such term in Section 12(c)(iv).
-------
"Chattel Paper" means all "chattel paper," as such term is defined in the UCC,
--------------
including electronic chattel paper, now owned or hereafter acquired by any
Person.
"Closing Date" means the date on which any Company shall first receive proceeds
-------------
of the initial Loans or the date hereof, if no Loan is made under the facility
on the date hereof.
"Code" has the meaning given such term in Section 15(i).
----
"Collateral" means all of each Company's property and assets, whether real or
----------
personal, tangible or intangible, and whether now owned or hereafter acquired,
-
or in which it now has or at any time in the future may acquire any right, title
or interests including all of the following property in which it now has or at
any time in the future may acquire any right, title or interest:
(a) all Inventory;
(b) all Equipment;
(c) all Fixtures;
(d) all Goods;
(e) all General Intangibles;
-3-
(f) all Accounts;
(g) all Deposit Accounts, other bank accounts and all funds on deposit
therein;
(h) all Investment Property;
(i) all Stock;
(j) all Chattel Paper;
(k) all Letter-of-Credit Rights;
(l) all Instruments;
(m) all commercial tort claims set forth on Schedule 1(A);
--------------
(n) all Books and Records;
(o) all Intellectual Property;
(p) all Supporting Obligations including letters of credit and guarantees
issued in support of Accounts, Chattel Paper, General Intangibles and Investment
Property;
(q) (i) all money, cash and cash equivalents and (ii) all cash held as cash
collateral to the extent not otherwise constituting Collateral, all other cash
or property at any time on deposit with or held by Laurus for the account of any
Company (whether for safekeeping, custody, pledge, transmission or otherwise);
and
(r) all products and Proceeds of all or any of the foregoing, tort claims
and all claims and other rights to payment including (i) insurance claims
against third parties for loss of, damage to, or destruction of, the foregoing
Collateral and (ii) payments due or to become due under leases, rentals and
hires of any or all of the foregoing and Proceeds payable under, or unearned
premiums with respect to policies of insurance in whatever form.
"Common Stock" means the shares of stock representing the Parent's common equity
------------
interests.
"Company Agent" means Trinity Learning Corporation.
--------------
"Contract Rate" has the meaning given such term in the respective Note.
--------------
"Default" means any act or event that, with the giving of notice or passage of
-------
time or both, would constitute an Event of Default.
"Deposit Accounts" means all "deposit accounts" as such term is defined in the
-----------------
UCC, now or hereafter held in the name of any Person, including, without
limitation, the Lockboxes.
-4-
"Disclosure Controls" has the meaning given such term in Section 12(f)(iv).
--------------------
"Documents" means all "documents", as such term is defined in the UCC, now owned
---------
or hereafter acquired by any Person, wherever located, including all bills of
lading, dock warrants, dock receipts, warehouse receipts, and other documents of
title, whether negotiable or non-negotiable.
"Eligible Accounts" means each Account of each Company which conforms to the
------------------
following criteria: (a) shipment of the merchandise or the rendition of
services has been completed; (b) no return, rejection or repossession of the
merchandise has occurred; (c) merchandise or services shall not have been
rejected or disputed by the Account Debtor and there shall not have been
asserted any offset, defense or counterclaim; (d) continues to be in full
conformity with the representations and warranties made by such Company to
Laurus with respect thereto; (e) Laurus is, and continues to be, satisfied with
the credit standing of the Account Debtor in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in an Account Debtor's financial condition; (g) is
documented by an invoice in a form approved by Laurus and shall not be unpaid
more than ninety (90) days from invoice date; (h) not more than twenty-five
percent (25%) of the unpaid amount of invoices due from such Account Debtor
remains unpaid more than ninety (90) days from invoice date; (i) is not
evidenced by chattel paper or an instrument of any kind with respect to or in
payment of the Account unless such instrument is duly endorsed to and in
possession of Laurus or represents a check in payment of an Account; (j) the
Account Debtor is located in the United States; provided, however, Laurus may,
-------- -------
from time to time, in the exercise of its sole discretion and based upon
satisfaction of certain conditions to be determined at such time by Laurus, deem
certain Accounts as Eligible Accounts notwithstanding that such Account is due
from an Account Debtor located outside of the United States; (k) Laurus has a
first priority perfected Lien in such Account and such Account is not subject to
any Lien other than Permitted Liens; (l) does not arise out of transactions with
any employee, officer, director, stockholder or Affiliate of any Company; (m) is
payable to such Company; (n) does not arise out of a xxxx and hold sale prior to
shipment and does not arise out of a sale to any Person to which such Company is
indebted; (o) is net of any returns, discounts, claims, credits and allowances;
(p) if the Account arises out of contracts between such Company, on the one
hand, and the United States, on the other hand, any state, or any department,
agency or instrumentality of any of them, such Company has so notified Laurus,
in writing, prior to the creation of such Account, and there has been compliance
with any governmental notice or approval requirements, including compliance with
the Federal Assignment of Claims Act; (q) is a good and valid account
representing an undisputed bona fide indebtedness incurred by the Account Debtor
therein named, for a fixed sum as set forth in the invoice relating thereto with
respect to an unconditional sale and delivery upon the stated terms of goods
sold by such Company or work, labor and/or services rendered by such Company;
(r) does not arise out of progress xxxxxxxx prior to completion of the order;
(s) the total unpaid Accounts from such Account Debtor does not exceed
twenty-five percent (25%) of all Eligible Accounts; (t) such Company's right to
payment is absolute and not contingent upon the fulfillment of any condition
whatsoever; (u) such Company is able to bring suit and enforce its remedies
against the Account Debtor through judicial process; (v) does not represent
interest payments, late or finance charges owing to such Company, and (w) is
otherwise satisfactory to Laurus as reasonably determined by Laurus to be proper
and necessary in the exercise of its good
-5-
faith judgment. In the event any Company requests that Laurus include within
Eligible Accounts certain Accounts of one or more of such Company's acquisition
targets, Laurus shall at the time of such request consider such inclusion, but
any such inclusion shall be at the sole option of Laurus and shall at all times
be subject to the execution and delivery to Laurus of all such documentation
(including, without limitation, guaranty and security documentation) as Laurus
may require in its sole discretion.
"Eligible Inventory" means Inventory owned by a Company which Laurus, in its
-------------------
sole and absolute discretion, reasonably determines: (a) is subject to a first
priority perfected Lien in favor of Laurus and is subject to no other Liens
whatsoever (other than Permitted Liens); (b) is located on premises with respect
to which Laurus has received a landlord or mortgagee waiver acceptable in form
and substance to Laurus; (c) is not in transit; (d) is in good condition and
meets all standards imposed by any governmental agency, or department or
division thereof having regulatory Governmental Authority over such Inventory,
its use or sale including the Federal Fair Labor Standards Act of 1938 as
amended, and all rules, regulations and orders thereunder; (e) is currently
either usable or salable in the normal course of such Company's business; (f) is
not placed by such Company on consignment or held by such Company on consignment
from another Person; (g) is in conformity with the representations and
warranties made by such Company to Laurus with respect thereto; (h) is not
subject to any licensing, patent, royalty, trademark, trade name or copyright
agreement with any third parties; (i) does not require the consent of any Person
for the completion of manufacture, sale or other disposition of such Inventory
and such completion, manufacture or sale does not constitute a breach or default
under any contract or agreement to which such Company is a party or to which
such Inventory is or may be subject; (j) is not work-in-process; (k) is covered
by casualty insurance acceptable to Laurus and under which Laurus has been named
as a lender's loss payee and additional insured; and (l) not to be ineligible
for any other reason.
"Eligible Subsidiary" means each Subsidiary of the Parent set forth on Exhibit
-------------------- -------
Ahereto, as the same may be updated from time to time with Laurus' written
consent.
"Equipment" means all "equipment" as such term is defined in the UCC, now owned
---------
or hereafter acquired by any Person, wherever located, including any and all
machinery, apparatus, equipment, fittings, furniture, Fixtures, motor vehicles
and other tangible personal property (other than Inventory) of every kind and
description that may be now or hereafter used in such Person's operations or
that are owned by such Person or in which such Person may have an interest, and
all parts, accessories and accessions thereto and substitutions and replacements
therefor.
"ERISA" has the meaning given such term in Section 12(bb).
-----
"Event of Default" means the occurrence of any of the events set forth in
------------------
Section 19.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-------------
"Exchange Act Filings" means the Parent's filings under the Exchange Act made
----------------------
prior to the date of this Agreement.
-6-
"Financial Reporting Controls" has the meaning given such term in Section
------------------------------
12(f)(v).
"Fixtures" means all "fixtures" as such term is defined in the UCC, now owned or
--------
hereafter acquired by any Person.
"Formula Amount" has the meaning given such term in Section 2(a)(i).
---------------
"GAAP" means generally accepted accounting principles, practices and procedures
----
in effect from time to time in the United States of America.
"General Intangibles" means all "general intangibles" as such term is defined in
-------------------
the UCC, now owned or hereafter acquired by any Person including all right,
title and interest that such Person may now or hereafter have in or under any
contract, all Payment Intangibles, customer lists, Licenses, Intellectual
Property, interests in partnerships, joint ventures and other business
associations, permits, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, Software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials, Books and Records, Goodwill
(including the Goodwill associated with any Intellectual Property), all rights
and claims in or under insurance policies (including insurance for fire, damage,
loss, and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key-person, and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit accounts, rights to receive tax refunds and other
payments, rights to received dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, and rights of indemnification.
"Goods" means all "goods", as such term is defined in the UCC, now owned or
-----
hereafter acquired by any Person, wherever located, including embedded software
---
to the extent included in "goods" as defined in the UCC, manufactured homes,
fixtures, standing timber that is cut and removed for sale and unborn young of
animals.
"Goodwill" means all goodwill, trade secrets, proprietary or confidential
--------
information, technical information, procedures, formulae, quality control
standards, designs, operating and training manuals, customer lists, and
distribution agreements now owned or hereafter acquired by any Person.
-----
"Governmental Authority" means any nation or government, any state or other
-----------------------
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Inactive Subsidiaries" shall have the meaning set forth on Schedule 12(b)
hereto.
"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.
-7-
"Intellectual Property" means any and all patents, trademarks, service marks,
----------------------
trade names, copyrights, trade secrets, Licenses, information and other
proprietary rights and processes.
"Inventory" means all "inventory", as such term is defined in the UCC, now owned
---------
or hereafter acquired by any Person, wherever located, including all inventory,
merchandise, goods and other personal property that are held by or on behalf of
such Person for sale or lease or are furnished or are to be furnished under a
contract of service or that constitute raw materials, work in process, finished
goods, returned goods, or materials or supplies of any kind, nature or
description used or consumed or to be used or consumed in such Person's business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including all supplies and embedded software.
"Inventory Availability" means the lesser of (a) thirty percent (30%) of the
-----------------------
value of Companies' Eligible Inventory (calculated on the basis of the lower of
cost or market, on a first-in first-out basis) and (b) $1,000,000.
"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" has the meaning given such term in Section 2(a)(i) and shall include all
-----
other extensions of credit hereunder and under any Ancillary Agreement.
"Lockboxes" has the meaning given such term in Section 8(a).
---------
"Material Adverse Effect" means a material adverse effect on (a) the business,
-------------------------
assets, liabilities, condition (financial or otherwise), properties, operations
or prospects of any Company or any of its Subsidiaries (taken individually and
as a whole), (b) any Company's or any of its Subsidiary's ability to pay or
perform the Obligations in accordance with the terms
-8-
hereof or any Ancillary Agreement, (c) the sufficiency and/or 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. Without limiting the foregoing,
any event or occurrence adverse to any Company that results or could reasonably
be expected to result in costs and/or liabilities or loss of revenues,
individually or in the aggregate to such Company in excess of 30% of such
Company's revenue shall constitute a Material Adverse Effect.
"NASD" has the meaning given such term in Section 13(b).
----
"Notes" means the Secured Revolving Note and the Secured Term Note made by
-----
Companies in favor of Laurus in connection with the transactions contemplated
hereby, as each of the same may be amended, supplemented, restated and/or
otherwise modified from time to time.
"Obligations" means all Loans, all advances, debts, liabilities, obligations,
-----------
covenants and duties owing by each Company and each of its Subsidiaries to
Laurus (or any corporation that directly or indirectly controls or is controlled
by or is under common control with Laurus) of every kind and description
(whether or not evidenced by any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act), direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including any debt, liability or
obligation owing from any Company and/or each of its Subsidiaries to others
which Laurus may have obtained by assignment or otherwise and further including
all interest (including interest accruing at the then applicable rate provided
in this Agreement after the maturity of the Loans and interest accruing at the
then applicable rate provided in this Agreement after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed or allowable in such proceeding), charges or any other payments each
Company and each of its Subsidiaries is required to make by law or otherwise
arising under or as a result of this Agreement, the Ancillary Agreements or
otherwise, together with all reasonable expenses and reasonable attorneys' fees
chargeable to the Companies' or any of their Subsidiaries' accounts or incurred
by Laurus in connection therewith.
"Payment Intangibles" means all "payment intangibles" as such term is defined in
-------------------
the UCC, now owned or hereafter acquired by any Person, including, a General
Intangible under which the Account Debtor's principal obligation is a monetary
obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans, bailees,
----------------
mechanics and materialmen incurred in the ordinary course of business securing
sums not overdue; (b) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (i) not
overdue or (ii) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of the Companies and
their Subsidiaries, as applicable, in conformity with GAAP; (c) Liens in favor
of Laurus; (d) Liens for taxes (i) not yet due or (ii) being diligently
contested in good faith by
-9-
appropriate proceedings, provided that adequate reserves with respect thereto
are maintained on the books of the Companies and their Subsidiaries, as
applicable, in conformity with GAAP; and which have no effect on the priority of
Liens in favor of Laurus or the value of the assets in which Laurus has a Lien;
(e) Purchase Money Liens securing Purchase Money Indebtedness to the extent
permitted in this Agreement and (f) Liens specified on Schedule 2 hereto.
----------
"Person" means any individual, sole proprietorship, partnership, limited
------
liability partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof), and shall include such Person's successors and assigns.
"Preferred Conversion Shares" has the meaning given such term in Section 12(a).
----------------------------
"Principal Market" means the NASD Over The Counter Bulletin Board, NASDAQ
-----------------
Capital Market, NASDAQ National Market System, American Stock Exchange or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock).
"Proceeds" means "proceeds", as such term is defined in the UCC and, in any
--------
event, shall include: (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Company or any other Person from time to
time with respect to any Collateral; (b) any and all payments (in any form
whatsoever) made or due and payable to any Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any Collateral by any governmental body, governmental authority,
bureau or agency (or any person acting under color of governmental authority);
(c) any claim of any Company against third parties (i) for past, present or
future infringement of any Intellectual Property or (ii) for past, present or
future infringement or dilution of any trademark or trademark license or for
injury to the goodwill associated with any trademark, trademark registration or
trademark licensed under any trademark License; (d) any recoveries by any
Company against third parties with respect to any litigation or dispute
concerning any Collateral, including claims arising out of the loss or
nonconformity of, interference with the use of, defects in, or infringement of
rights in, or damage to, Collateral; (e) all amounts collected on, or
distributed on account of, other Collateral, including dividends, interest,
distributions and Instruments with respect to Investment Property and pledged
Stock; and (f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.
"Purchase Money Indebtedness" means (a) any indebtedness incurred for the
-----------------------------
payment of all or any part of the purchase price of any fixed asset, including
indebtedness under capitalized leases, (b) any indebtedness incurred for the
sole purpose of financing or refinancing all or any part of the purchase price
of any fixed asset, and (c) any renewals, extensions or refinancings thereof
(but not any increases in the principal amounts thereof outstanding at that
time).
-10-
"Purchase Money Lien" means any Lien upon any fixed assets that secures the
---------------------
Purchase Money Indebtedness related thereto but only if such Lien shall at all
times be confined solely to the asset the purchase price of which was financed
or refinanced through the incurrence of the Purchase Money Indebtedness secured
by such Lien and only if such Lien secures only such Purchase Money
Indebtedness.
"Registration Rights Agreements" means that certain Registration Rights
--------------------------------
Agreement dated as of the Closing Date by and between the Parent and Laurus and
each other registration rights agreement by and between the Parent and Laurus,
as each of the same may be amended, modified and supplemented from time to time.
"Revolving Loans" shall have the meaning given such term in Section 2(a)(i).
----------------
"SEC" means the Securities and Exchange Commission.
---
"SEC Reports" has the meaning given such term in Section 12(u).
------------
"Secured Revolving Note" means that certain Secured Revolving Note dated as of
------------------------
the Closing Date made by the Companies in favor of Laurus in the original face
amount of Five Million Dollars ($5,000,000), as the same may be amended,
supplemented, restated and/or otherwise modified from time to time.
"Secured Term Note" means that certain Secured Term Note dated as of the Closing
-----------------
Date made by the Companies in favor of Laurus in the original face amount of Two
Million Five Hundred Thousand Dollars ($2,500,000), as the same may be amended,
supplemented, restated and/or otherwise modified from time to time.
"Securities" means the Notes and the 7% Preferred Stock and the shares of Common
----------
Stock which may be issued pursuant to conversion of the 7% Preferred Stock in
whole or in part.
"Securities Act" has the meaning given such term in Section 12(r).
---------------
"Security Documents" means all security agreements, mortgages, cash collateral
-------------------
deposit letters, pledges and other agreements which are executed by any Company
or any of its Subsidiaries in favor of Laurus.
"7% PreferredStock" means the 1,500,000 shares of the Company's 7% preferred
------------------
stock issued to Laurus.
"Software" means all "software" as such term is defined in the UCC, now owned or
--------
hereafter acquired by any Person, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.
"Solvent" means, with respect to any Person on a particular date, that on such
-------
date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such Person; (b) the
present fair salable value of the assets of
-11-
such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured; (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (d) such Person is not engaged in a business or
transaction, and is not about to engage in a business or transaction, for which
such Person's property would constitute and unreasonably small capital. The
amount of contingent liabilities (such as litigation, guaranties and pension
plan liabilities) at any time shall be computed as the amount that, in light of
all the facts and circumstances existing at the time, represents the amount that
can reasonably be expected to become an actual or matured liability.
"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).
"Stockholder Approval" shall mean the approval required from the Parent's
---------------------
majority shareholders as of August 11, 2006, in order for the Parent to amend
its Articles of Incorporation, as amended, as set forth in the proposals of the
Proxy Statement on Schedule 14(a) filed with the SEC on August 18, 2006.
"Subordinated Debt Documentation" shall mean the Securities Purchase Agreement,
-------------------------------
dated as of March 31, 2006, among the Parent and each purchaser identified on
the signature pages thereto (including, without limitation, Palidaides Master
Fund, LP) together with each other Transaction Document (as defined therein).
"Subsidiary" means, with respect to any Person, (i) any other Person whose
----------
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors or other
governing body of such other Person, are owned, directly or indirectly, by such
Person or (ii) any other Person in which such Person owns, directly or
indirectly, more than 50% of the equity interests at such time.
"Supporting Obligations" means all "supporting obligations" as such term is
-----------------------
defined in the UCC.
"Term" means the Closing Date through the close of business on the day
----
immediately preceding the third anniversary of the Closing Date, subject to
acceleration at the option of Laurus upon the occurrence of an Event of Default
hereunder or other termination hereunder.
"Term Loan" has the meaning given such term in Section 2(a)(c).
----------
"Total Investment Amount" means Seven Million Five Hundred Thousand Dollars
-------------------------
($7,500,000).
-12-
"UCC" means the Uniform Commercial Code as the same may, from time to time be in
---
effect in the State of New York; provided, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or
priority of, or remedies with respect to, Laurus' Lien on any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions of
this Agreement relating to such attachment, perfection, priority or remedies and
for purposes of definitions related to such provisions; provided further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Division 9 shall govern.
-13-
Exhibit A
---------
Eligible Subsidiaries
---------------------
Trinity Workplace Learning Corporation, a Delaware corporation
Exhibit B
---------
Borrowing Base Certificate
--------------------------
As of __________ __, 200__
ACCOUNTS RECEIVABLE PER __________ AGING 0.00
INELIGIBLE ACCOUNTS:
Accounts over 90 days from Invoice Date 0.00
---------------------------------------------------------------
Credit Balances Over 90 days from Invoice Date 0.00
Intercompany and Affiliate Accounts 0.00
__% Concentration Cap 0.00
Contra Accounts 0.00
Cash Sales and COD Accounts 0.00
Foreign Receivables 0.00
Government Receivables (without Assignment of Claims) 0.00
Discounts, Credits and Allowances 0.00
Cross-age (__% Past Due) 0.00
Xxxx and Hold Invoices 0.00
Finance/Service/Late Charges 0.00
Other: 0.00 0.00
ELIGIBLE ACCOUNTS RECEIVABLE 0.00
Accounts Receivable Advance Rate 90%
ACCOUNTS RECEIVABLE AVAILABILITY 0.00
INVENTORY PER __________ BALANCE SHEET 0.00
INELIGIBLE INVENTORY:
Work-in-Process 0.00
---------------------------------------------------------------
Excess/Slow Moving 0.00
Supplies/Packaging 0.00
Damaged 0.00
Other: 0.00 0.00
ELIGIBLE INVENTORY 0.00
Inventory Advance Rate 50%
Inventory Cap [1,000,000.00]
INVENTORY AVAILABILITY 0.00
TOTAL AVAILABILITY 0.00
LESS RESERVES 0.00
NET AVAILABILITY 0.00
REVOLVING CREDIT LINE 0.00
MINIMUM BORROWING NOTE 0.00
NET BORROWING AVAILABILITY (LESSER OF LINE OR NET AVAILABILITY) 0.00
LESS: LAURUS LOANS 0.00
EXCESS/(DEFICIT) AVAILABILITY 0.00
The undersigned hereby certifies that all of the foregoing information regarding
the Eligible Accounts and Eligible Inventory are true and correct on the date
hereof and all such Accounts and Inventory listed as Eligible are Eligible
within the meaning given such term in the Security Agreement dated August __,
2006 among Trinity Learning Corporation, the other companies named therein and
Laurus Master Fund, Ltd.
_____________, COMPANY AGENT
By: ___________________________________
Name:
Title:
SECURITY AGREEMENT
------------------
LAURUS MASTER FUND, LTD.
TRINITY LEARNING CORPORATION
and
TRINITY WORKPLACE LEARNING CORPORATION
Dated: August __, 2006
1. General Definitions and Terms; Rules of Construction. 1
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2. Loan Facility. 2
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3. Repayment of the Loans. 4
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4. Procedure for Revolving Loans. 4
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5. Interest and Payments. 5
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6. Security Interest. 6
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7. Representations, Warranties and Covenants Concerning the Collateral. 7
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8. Payment of Accounts. 9
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9. Collection and Maintenance of Collateral. 10
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10. Inspections and Appraisals. 10
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11. Financial Reporting. 11
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12. Additional Representations and Warranties. 12
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13. Covenants. 23
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14. Further Assurances. 29
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15. Representations, Warranties and Covenants of Laurus. 29
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16. Power of Attorney. 31
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17. Term of Agreement. 31
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18. Termination of Lien. 32
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19. Events of Default. 35
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20. Remedies. 36
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21. Waivers. 37
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22. Expenses. 37
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23. Assignment By Laurus. 37
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24. No Waiver; Cumulative Remedies. 38
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25. Application of Payments. 38
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26. Indemnity. 38
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27. Revival. 39
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28. Borrowing Agency Provisions. 40
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29. Notices. 41
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30. Governing Law, Jurisdiction and Waiver of Jury Trial. 41
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31. Limitation of Liability. 42
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32. Entire Understanding; Maximum Interest. 42
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33. Severability. 42
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34. Survival. 42
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35. Captions. 42
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36. Counterparts; Telecopier Signatures. 42
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37. Construction. 42
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38. Publicity. 42
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39. Joinder. 42
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40. Legends. 43
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