EXHIBIT 10.1
TRINITY LEARNING CORPORATION
SECURITIES PURCHASE AGREEMENT
August 31, 2004
TABLE OF CONTENTS
Page
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1. Agreement to Sell and Purchase............................................1
2. Fees and Warrant..........................................................1
3. Closing, Delivery and Payment.............................................2
3.1 Closing............................................................2
3.2 Delivery...........................................................2
4. Representations and Warranties of the Company.............................2
4.1 Organization, Good Standing and Qualification......................3
4.2 Subsidiaries.......................................................3
4.3 Capitalization; Voting Rights......................................4
4.4 Authorization; Binding Obligations.................................4
4.5 Liabilities........................................................5
4.6 Agreements; Action.................................................5
4.7 Obligations to Related Parties.....................................6
4.8 Changes............................................................6
4.9 Title to Properties and Assets; Liens, Etc.........................7
4.10 Intellectual Property..............................................8
4.11 Compliance with Other Instruments..................................8
4.12 Litigation.........................................................9
4.13 Tax Returns and Payments...........................................9
4.14 Employees..........................................................9
4.15 Registration Rights and Voting Rights.............................10
4.16 Compliance with Laws; Permits.....................................10
4.17 Environmental and Safety Laws.....................................11
4.18 Valid Offering....................................................11
4.19 Full Disclosure...................................................11
4.20 Insurance.........................................................11
4.21 SEC Reports.......................................................11
4.22 Listing...........................................................12
4.23 No Integrated Offering............................................12
4.24 Stop Transfer.....................................................12
4.25 Dilution..........................................................12
4.26 Patriot Act ......................................................12
5. Representations and Warranties of the Purchaser..........................13
5.1 No Shorting.......................................................13
5.2 Requisite Power and Authority.....................................13
5.3 Investment Representations........................................13
5.4 Purchaser Bears Economic Risk.....................................14
5.5 Acquisition for Own Account.......................................14
5.6 Purchaser Can Protect Its Interest................................14
5.7 Accredited Investor...............................................14
5.8 Legends...........................................................14
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6. Covenants of the Company.................................................15
6.1 Stop-Orders.......................................................15
6.2 Listing...........................................................16
6.3 Market Regulations................................................16
6.4 Reporting Requirements............................................16
6.5 Use of Funds......................................................16
6.6 Access to Facilities..............................................16
6.7 Taxes.............................................................16
6.8 Insurance.........................................................17
6.9 Intellectual Property.............................................18
6.10 Properties........................................................18
6.11 Confidentiality...................................................18
6.12 Required Approvals................................................18
6.13 Reissuance of Securities..........................................19
6.14 Opinion...........................................................20
6.15 Margin Stock......................................................19
6.16 Restricted Cash Disclosure........................................19
6.17 Financing Right of First Refusal..................................19
6.18 Additional Investment.............................................19
7. Covenants of the Purchaser...............................................21
7.1 Confidentiality...................................................21
7.2 Non-Public Information............................................21
8. Covenants of the Company and Purchaser Regarding Indemnification.........21
8.1 Company Indemnification...........................................21
8.2 Purchaser's Indemnification.......................................21
9. Conversion of Convertible Note...........................................22
9.1 Issuance of Note Shares on Conversion.............................22
9.2 Failure to Issue Note Shares......................................20
10. Registration Rights......................................................23
10.1 Registration Rights Granted.......................................23
10.2 Offering Restrictions.............................................23
11. Miscellaneous............................................................23
11.1 Governing Law.....................................................23
11.2 Survival..........................................................23
11.3 Successors........................................................24
11.4 Entire Agreement..................................................24
11.5 Severability......................................................24
11.6 Amendment and Waiver..............................................24
11.7 Delays or Omissions...............................................24
11.8 Notices...........................................................24
11.9 Attorneys' Fees...................................................25
11.10 Titles and Subtitles..............................................26
11.11 Facsimile Signatures; Counterparts................................26
11.12 Broker's Fees.....................................................26
11.13 Construction......................................................26
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LIST OF EXHIBITS
Form of Convertible Term Note....................................... Exhibit A
Form of Warrant..................................................... Exhibit B
Form of Opinion..................................................... Exhibit C
Form of Escrow Agreement............................................ Exhibit D
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of August 31, 2004, by and between Trinity Learning Corporation, a Utah
corporation (the "Company"), and Laurus Master Fund, Ltd., a Cayman Islands
company (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a Secured
Convertible Term Note in the aggregate principal amount of Five Million Five
Hundred Thousand Dollars ($5,500,000) (as amended, modified or supplemented from
time to time, the "Note"), which Note is convertible into shares of the
Company's common stock, no par value per share (the "Common Stock") at an
initial fixed conversion price of $0.72 per share of Common Stock (the "Fixed
Conversion Price");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase up to 1,600,000 shares of the Company's Common Stock (subject to
adjustment as set forth therein) in connection with Purchaser's purchase of the
Note;
WHEREAS, Purchaser desires to purchase the Note and the Warrant (as
defined in Section 2) on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company, the Note in the aggregate principal amount of
$5,500,000 convertible in accordance with the terms hererof and thereof into
shares of the Company's Common Stock. The Note purchased on the Closing Date
shall be known as the "Offering." A form of the Note is annexed hereto as
Exhibit A. The Note will mature on the Maturity Date (as defined in the Note).
Collectively, the Note and Warrant and Common Stock issuable in payment of the
Note, upon conversion of the Note and upon exercise of the Warrant are referred
to as the "Securities."
2. Fees and Warrant. On the Closing Date:
(a) The Company will issue and deliver to the Purchaser a Warrant to
purchase up to 1,600,000 shares of Common Stock in connection with the
Offering (as amended, modified or supplemented from time to time, the
"Warrant") pursuant to
Section 1 hereof. The Warrant must be delivered on the Closing Date. A
form of Warrant is annexed hereto as Exhibit B. All the representations,
covenants, warranties, undertakings, and indemnification, and other rights
made or granted to or for the benefit of the Purchaser by the Company are
hereby also made and granted in respect of the Warrant and shares of the
Company's Common Stock issuable upon exercise of the Warrant (the "Warrant
Shares").
(b) Subject to the terms of Section 2(d) below, the Company shall
pay to Laurus Capital Management, LLC, the manager of the Purchaser, a
closing payment in an amount equal to three and nine-tenths percent
(3.90%) of the aggregate principal amount of the Note. The foregoing fee
is referred to herein as the "Closing Payment."
(c) On the Closing Date, the Company shall pay $44,500 to the
Purchaser as a reimbursement for Purchaser's reasonable expenses
(including legal fees and expenses) incurred in connection with the
preparation and negotiation of this Agreement and the Related Agreements
(as hereinafter defined), and expenses incurred in connection with the
Purchaser's due diligence review of the Company and its Subsidiaries (as
defined in Section 6.8) and all related matters.
(d) The Closing Payment and the expenses referred to in the
preceding clause (c) (net of deposits previously paid by the Company)
shall be paid at Closing out of funds held pursuant to an Escrow Agreement
(as defined below) among the Company, Purchaser, and an Escrow Agent and a
disbursement letter (the "Disbursement Letter").
3. Closing, Delivery and Payment.
3.1 Closing. Subject to the terms and conditions herein, the closing
of the transactions contemplated hereby (the "Closing"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "Closing Date").
3.2 Delivery. Pursuant to the Escrow Agreement, at the Closing on
the Closing Date, the Company will deliver to the Purchaser, among other things,
a Note in the form attached as Exhibit A representing the aggregate principal
amount of $5,500,000 and a Warrant in the form attached as Exhibit B in the
Purchaser's name representing 1,600,000 Warrant Shares and the Purchaser will
deliver to the Company, among other things, the amounts set forth in the
Disbursement Letter by certified funds or wire transfer (it being understood
that $4,491,000 of the proceeds of the Note shall be placed in the Restricted
Account (as defined in the Restricted Account Agreement referred to below)).
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchaser as follows (which representations and
warranties are supplemented by the Company's filings under the Securities
Exchange Act of 1934 (collectively, the "Exchange Act Filings"), copies of which
have been provided to the Purchaser):
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4.1 Organization, Good Standing and Qualification. Each of the
Company and each of its Subsidiaries is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the corporate power and authority to
own and operate its properties and assets, and each of the Company and its
Domestic Subsidiaries (as defined below) has the corporate power and authority
to execute and deliver (i) this Agreement, (ii) the Note and the Warrant to be
issued in connection with this Agreement, (iii) the Master Security Agreement
dated as of the date hereof between the Company, certain Subsidiaries of the
Company and the Purchaser (as amended, modified or supplemented from time to
time, the "Master Security Agreement"), (iv) the Registration Rights Agreement
relating to the Securities dated as of the date hereof between the Company and
the Purchaser (as amended, modified or supplemented from time to time, the
"Registration Rights Agreement"), (v) the Subsidiary Guaranty dated as of the
date hereof made by certain Subsidiaries of the Company (as amended, modified or
supplemented from time to time, the "Subsidiary Guaranty"), (vi) the Stock
Pledge Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company and the Purchaser (as amended, modified or
supplemented from time to time, the "Stock Pledge Agreement"), (vii) the Escrow
Agreement dated as of the date hereof among the Company, the Purchaser and the
escrow agent referred to therein, substantially in the form of Exhibit D hereto
(as amended, modified or supplemented from time to time, the "Escrow
Agreement"), (viii) the Restricted Account Agreement dated as of the date hereof
among the Company, the Purchaser and North Fork Bank (as amended, modified or
supplemented from time to time, the "Restricted Account Agreement"), (ix) the
Restricted Account Side Letter related to the Restricted Account Agreement dated
as of the date hereof between the Company and the Purchaser (as amended,
modified or supplemented from time to time, the "Restricted Account Side
Letter"), (x) those certain agreements related to the lockbox and clearing
account arrangements maintained by the Company and its Subsidiaries at North
Fork Bank for the benefit of the Purchaser (as amended, modified or supplemented
from time to time, the "Clearing Account Agreements"), (xi) that certain
Subordination Agreement, dated as of the date hereof, between the Purchaser, the
Company and the subordinated lender referred to therein (as amended, modified or
supplemented from time to time, the "Subordination Agreement") and (xii) all
other agreements related to this Agreement and the Note and referred to herein
(the preceding clauses (ii) through (xii), collectively, the "Related
Agreements"), to issue and sell the Note and the shares of Common Stock issuable
upon conversion of the Note (the "Note Shares"), to issue and sell the Warrant
and the Warrant Shares, and to carry out the provisions of this Agreement and
the Related Agreements and to carry on its business as presently conducted. Each
of the Company and each of its Subsidiaries is duly qualified and is authorized
to do business and is in good standing as a foreign corporation, partnership or
limited liability company, as the case may be, in all jurisdictions in which the
nature 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, or could not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company or the Company and its Subsidiaries taken as a whole (each, a "Material
Adverse Effect").
4.2 Subsidiaries. Each direct and indirect Subsidiary of the
Company, the direct owner of such Subsidiary and its percentage ownership
thereof, is set forth on Schedule 4.2. For the purpose of this Agreement, a
"Subsidiary" of any person or entity means a
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corporation or other entity in which such person or entity owns, directly or
indirectly, more than 50% of the equity interests at such time, provided that
for the purposes of Section 4 (other than the first sentence of Section 4.2, the
definition of "Subsidiary" shall not include the "Section 4 Excluded
Subsidiaries" identified on Schedule 4.2.
4.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, 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, 31,040,143 shares of which are
issued and outstanding, and 10,000,000 are shares of preferred stock, no
par value per share of which 0 shares of preferred stock are issued and
outstanding. The authorized capital stock of each Domestic Subsidiary of
the Company is set forth on Schedule 4.3.
(b) Except as disclosed on Schedule 4.3, other than: (i) the shares
reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except
as disclosed on Schedule 4.3, neither the offer, issuance or sale of any
of the Note or the Warrant, or the issuance of any of the Note Shares or
Warrant Shares, nor the consummation of any transaction contemplated
hereby will result in a change in the price or number of any securities of
the Company outstanding, under anti-dilution or other similar provisions
contained in or affecting any such securities.
(c) All issued and outstanding shares of the Company's Common Stock:
(i) have been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "Charter"). The Note Shares and Warrant Shares have
been duly and validly reserved for issuance. When issued in compliance
with the provisions of this Agreement and the Company's Charter, the
Securities will be validly issued, fully paid and nonassessable, and will
be free of any liens or encumbrances; provided, however, that the
Securities may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by
such laws at the time a transfer is proposed.
4.4 Authorization; Binding Obligations. All corporate, partnership
or limited liability company, as the case may be, action on the part of the
Company and each of its Domestic Subsidiaries (including the respective officers
and directors) necessary for the authorization of this Agreement and the Related
Agreements, the performance of all obligations of the Company and its Domestic
Subsidiaries hereunder and under the other Related Agreements at the Closing
and, the authorization, sale, issuance and delivery of the Note and Warrant has
been taken or will be taken prior to the Closing. This Agreement and the Related
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Agreements, when executed and delivered and to the extent it is a party thereto,
will be valid and binding obligations of each of the Company and each of its
Domestic Subsidiaries, enforceable against each such person in accordance with
their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Note and the subsequent conversion of the Note into Note Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with. The issuance of the
Warrant and the subsequent exercise of the Warrant for Warrant Shares are not
and will not be subject to any preemptive rights or rights of first refusal that
have not been properly waived or complied with.
4.5 Liabilities. Neither the Company nor any of its Domestic
Subsidiaries has any contingent liabilities, except current liabilities incurred
in the ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
4.6 Agreements; Action. Except as set forth on Schedule 4.6 or as
disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company or any of its Domestic Subsidiaries is a party or by which it is
bound which may involve: (i) obligations (contingent or otherwise) of, or
payments to, the Company in excess of $50,000 (other than obligations of,
or payments to, the Company arising from purchase or sale agreements
entered into in the ordinary course of business); or (ii) the transfer or
license of any patent, copyright, trade secret or other proprietary right
to or from the Company (other than licenses arising from the purchase of
"off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect
to infringements of proprietary rights.
(b) Since June 30, 2003, neither the Company nor any of its Domestic
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 course 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.
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(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
4.7 Obligations to Related Parties. Except as set forth on Schedule
4.7, there are no obligations of the Company or any of its Domestic Subsidiaries
to officers, directors, stockholders or employees of the Company or any of its
Domestic Subsidiaries other than:
(a) for payment of salary for services rendered and for bonus
payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and its Domestic Subsidiaries;
(c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any
stock option plan approved by the Board of Directors of the Company); and
(d) obligations listed in the Company's financial statements or
disclosed in any of its Exchange Act Filings.
Except as described above or set forth on Schedule 4.7, none of the officers,
directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person. Except as
set forth on Schedule 4.7, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
4.8 Changes. Since June 30, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or the Company and its Subsidiaries taken as a whole, which
individually or in the aggregate has had, or could reasonably be expected
to have, a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or any of its Domestic Subsidiaries;
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(c) any material change, except in the ordinary course of business,
in the contingent obligations of the Company or any of its Domestic
Subsidiaries by way of guaranty, endorsement, indemnity, warranty or
otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance, has had, or could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or any of its Domestic Subsidiaries of
a valuable right or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or any of its
Domestic Subsidiaries to any stockholder, employee, officer or director of
the Company or any of its Domestic Subsidiaries, other than advances made
in the ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any
of its Domestic Subsidiaries;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or any of its Domestic Subsidiaries;
(i) any labor organization activity related to the Company or any of
its Domestic Subsidiaries;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or any of its Domestic Subsidiaries, except
those for immaterial amounts and for current liabilities incurred in the
ordinary course of business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company
or any of its Domestic Subsidiaries;
(l) any change in any material agreement to which the Company or any
of its Domestic Subsidiaries is a party or by which either the Company or
any of its Domestic Subsidiaries is bound which either individually or in
the aggregate has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or any of its
Subsidiaries, as applicable, to do any of the acts described in subsection
(a) through (m) above.
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4.9 Title to Properties and Assets; Liens, Etc. Except as set forth
on Schedule 4.9, each of the Company and each of its Domestic Subsidiaries has
good and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company or any of its Domestic Subsidiaries; and
(c) those that have otherwise arisen in the ordinary course of
business.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Domestic 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 4.9, the
Company and its Domestic Subsidiaries are in compliance with all material terms
of each lease to which it is a party or is otherwise bound.
4.10 Intellectual Property.
(a) Each of the Company and each of its Domestic Subsidiaries owns
or possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes necessary for its business as now
conducted and to the Company's knowledge, as presently proposed to be
conducted (the "Intellectual Property"), without any known infringement of
the rights of others. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, nor
is the Company or any of its Domestic Subsidiaries bound by or a party to
any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements
arising from the purchase of "off the shelf" or standard products.
(b) Neither the Company nor any of its Domestic Subsidiaries has
received any communications alleging that the Company or any of its
Domestic Subsidiaries has violated any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity, nor is the Company or any of its
Domestic Subsidiaries aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company or any of its
Domestic Subsidiaries, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or any of
its Domestic Subsidiaries.
4.11 Compliance with Other Instruments. Neither the Company nor any
of its Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any
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provision of any indebtedness, mortgage, indenture, contract, agreement or
instrument to which it is party or by which it is bound or of any judgment,
decree, order or writ, which violation or default, in the case of this clause
(y), has had, or could reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect. The execution, delivery and
performance of and compliance with this Agreement and the Related Agreements to
which it is a party, and the issuance and sale of the Note by the Company and
the other Securities by the Company each pursuant hereto 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 mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or any
of its Subsidiaries or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
4.12 Litigation. Except as set forth on Schedule 4.12 hereto, there
is no action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related 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 any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
4.13 Tax Returns and Payments. Each of the Company and each of its
Domestic 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 the
Company or any of its Domestic Subsidiaries on or before the Closing, have been
paid or will be paid prior to the time they become delinquent. Except as set
forth on Schedule 4.13, neither the Company nor any of its Domestic Subsidiaries
has been advised:
(a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
The Company has no knowledge of any liability of any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14 Employees. Except as set forth on Schedule 4.14, neither the
Company nor any of its Domestic Subsidiaries has any collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's
9
knowledge, threatened with respect to the Company or any of its Subsidiaries.
Except as disclosed in the Exchange Act Filings or on Schedule 4.14, neither the
Company nor any of its Domestic Subsidiaries is a party to or bound by any
currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Domestic Subsidiaries, nor any consultant with whom
the Company or any of its Domestic 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, the Company or any of its Domestic Subsidiaries because of
the nature of the business to be conducted by the Company or any of its Domestic
Subsidiaries; and to the Company's knowledge the continued employment by the
Company or any of its Domestic Subsidiaries of its present employees, and the
performance of the Company's and its Domestic Subsidiaries' contracts with its
independent contractors, will not result in any such violation. Neither the
Company nor any of its Domestic Subsidiaries is aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
the Company or any of its Domestic Subsidiaries. Neither the Company nor any of
its Domestic Subsidiaries has received any notice alleging that any such
violation has occurred. Except for employees who have a current effective
employment agreement with the Company or any of its Domestic Subsidiaries, no
employee of the Company or any of its Domestic Subsidiaries has been granted the
right to continued employment by the Company or any of its Domestic Subsidiaries
or to any material compensation following termination of employment with the
Company or any of its Domestic Subsidiaries. Except as set forth on Schedule
4.14, the Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company or
any of its Domestic Subsidiaries, nor does the Company or any of its Domestic
Subsidiaries have a present intention to terminate the employment of any
officer, key employee or group of employees.
4.15 Registration Rights and Voting Rights. Except as set forth on
Schedule 4.15 and except as disclosed in Exchange Act Filings, neither the
Company nor any of its Domestic Subsidiaries is presently under any obligation,
and neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Domestic Subsidiaries' presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 and except as disclosed in Exchange Act
Filings, to the Company's knowledge, no stockholder of the Company or any of its
Domestic Subsidiaries has entered into any agreement with respect to the voting
of equity securities of the Company or any of its Domestic Subsidiaries.
4.16 Compliance with Laws; Permits. Neither the Company nor any of
its Subsidiaries is in violation of any applicable statute, rule, regulation,
order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which 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
other Related Agreement and the issuance of
10
any of the Securities, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. Each of the Company and its Subsidiaries has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of which
could, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.17 Environmental and Safety Laws. Neither the Company nor any of
its Domestic 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 4.17, no Hazardous Materials (as defined below) are used or have been
used, stored, or disposed of by the Company or any of its Domestic Subsidiaries
or, to the Company's knowledge, by any other person or entity on any property
owned, leased or used by the Company or any of its Domestic Subsidiaries. For
the purposes of the preceding sentence, "Hazardous Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous"
or "toxic" under any applicable local, state, federal and/or foreign laws
and regulations that govern the existence and/or remedy of contamination
on property, the protection of the environment from contamination, the
control of hazardous wastes, or other activities involving hazardous
substances, including building materials; or
(b) any petroleum products or nuclear materials.
4.18 Valid Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 Full Disclosure. Each of the Company and each of its
Subsidiaries has provided the Purchaser with all information requested by the
Purchaser in connection with its decision to purchase the Note and Warrant,
including all information the Company and its Subsidiaries believe is reasonably
necessary to make such investment decision. Neither this Agreement, the Related
Agreements, the exhibits and schedules hereto and thereto nor any other document
delivered by the Company or any of its Subsidiaries to Purchaser or its
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material fact
nor omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading. Any financial projections and other estimates provided to
the Purchaser by the Company or any of its Subsidiaries were based on the
Company's and its Subsidiaries' experience in the industry and on assumptions of
fact and opinion as to future events which the Company or any of its
Subsidiaries, at the date of the issuance of such projections or estimates,
believed to be reasonable.
11
4.20 Insurance. Each of the Company and each of its Subsidiaries has
general commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
4.21 SEC Reports. Except as set forth on Schedule 4.21, the Company
has filed all proxy statements, reports and other documents required to be filed
by it under the Securities ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, as amended (the "Exchange Act").
The Company has furnished the Purchaser with copies of: (i) its Annual Report on
Form 10-KSB for its fiscal year ended June 30, 2003; and (ii) its Quarterly
Reports on Form 10-QSB for each of its fiscal quarters ended September 30, 2003,
December 31, 2003 and March 31, 2003, respectively, and the Form 8-K filings
which it has made during the fiscal year 2004 to date (collectively, the "SEC
Reports"). Except as set forth on Schedule 4.21, each SEC Report was, at the
time of its filing, in substantial compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial statements (and
the notes thereto) included in the SEC Reports, as of their respective filing
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.22 Listing. The Company's Common Stock is listed for trading on
the National Association of Securities Dealers Over the Counter Bulletin Board
("NASD OTCBB") and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will not
be eligible to be traded on the NASD OTCBB or that its Common Stock does not
meet all requirements for such trading.
4.23 No Integrated Offering. Neither the Company, nor any of its
Subsidiaries or 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 of the Related Agreements to be
integrated with prior offerings by the Company for purposes of the Securities
Act which would prevent the Company from selling the Securities pursuant to Rule
506 under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or
Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
4.24 Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. Neither the Company nor any of its Subsidiaries will
issue any stop transfer order or other order impeding the sale and delivery of
any of the Securities at such time as the Securities are registered for public
sale or an exemption from registration is available, except as required by state
and federal securities laws.
4.25 Dilution. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
12
4.26 Patriot Act. The Company certifies that, to the best of
Company's knowledge, neither the Company nor any of its Subsidiaries has been
designated, and is not owned or controlled, by a "suspected terrorist" as
defined in Executive Order 13224. The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities. In furtherance of those efforts, the Company hereby
represents, warrants and agrees that: (i) none of the cash or property that the
Company or any of its Subsidiaries will pay or will contribute to the Purchaser
has been or shall be derived from, or related to, any activity that is deemed
criminal under United States law; and (ii) no contribution or payment by the
Company or any of its Subsidiaries to the Purchaser, to the extent that they are
within the Company's and/or its Subsidiaries' control shall cause the Purchaser
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. The Company shall promptly notify the Purchaser if any of these
representations ceases to be true and accurate regarding the Company or any of
its Subsidiaries. The Company agrees to provide the Purchaser any additional
information regarding the Company or any of its Subsidiaries that the Purchaser
deems necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. The Company 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, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser's investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
5. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
5.1 No Shorting. The Purchaser or any of its affiliates and
investment partners has not, will not and will not cause any person or entity to
directly engage in "short sales" of the Company's Common Stock as long as the
Note shall be outstanding.
5.2 Requisite Power and Authority. The Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Related Agreements and to carry out their
provisions. All corporate action on Purchaser's part required for the lawful
execution and delivery of this Agreement and the Related Agreements have been or
will be effectively taken prior to the Closing. Upon their execution and
delivery, this Agreement and the Related Agreements will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
13
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
5.3 Investment Representations. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act"). The Purchaser confirms that it
has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's and its Subsidiaries' business, management and financial
affairs and the terms and conditions of the Offering, the Note, the Warrant and
the Securities and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify any information furnished to the Purchaser or to
which the Purchaser had access.
5.4 Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. The Purchaser must bear the economic risk
of this investment until the Securities are sold pursuant to: (i) an effective
registration statement under the Securities Act; or (ii) an exemption from
registration is available with respect to such sale.
5.5 Acquisition for Own Account. The Purchaser is acquiring the Note
and Warrant and the Note Shares and the Warrant Shares for the Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
5.6 Purchaser Can Protect Its Interest. The Purchaser represents
that by reason of its, or of its management's, business and financial
experience, the Purchaser has the capacity to evaluate the merits and risks of
its investment in the Note, the Warrant and the Securities and to protect its
own interests in connection with the transactions contemplated in this Agreement
and the Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement
or the Related Agreements.
5.7 Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
5.8 Legends.
(a) The Note shall bear substantially the following legend:
14
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH
SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
TRINITY LEARNING CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO TRINITY
LEARNING CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT
OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO TRINITY LEARNING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
6. Covenants of the Company. The Company covenants and agrees with the
Purchaser as follows:
15
6.1 Stop-Orders. The Company will advise the Purchaser, promptly
after it receives notice of issuance by the Securities and Exchange Commission
(the "SEC"), any state securities commission or any other regulatory authority
of any stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the NASD OTCBB (the "Principal Market") upon which
shares of Common Stock are listed (subject to official notice of issuance) and
shall maintain such listing so long as any other shares of Common Stock shall be
so listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
6.4 Reporting Requirements. The Company will timely file with the
SEC all reports required to be filed pursuant to the Exchange Act and refrain
from terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.
6.5 Use of Funds. The Company agrees that it will use the proceeds
of the sale of the Note and the Warrant for general working capital purposes
only (it being understood that $4,750,000 of the proceeds of the Note will be
deposited in the Restricted Account on the Closing Date and shall be subject to
the terms and conditions of the Restricted Account Agreement and the Restricted
Account Side Letter).
6.6 Access to Facilities. Each of the Company and each of its
Subsidiaries will permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company, to:
(a) visit and inspect any of the properties of the Company or any of
its Subsidiaries;
(b) examine the corporate and financial records of the Company or
any of its Subsidiaries (unless such examination is not permitted by
federal, state or local law or by contract) and make copies thereof or
extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or any
of its Subsidiaries with the directors, officers and independent
accountants of the Company or any of its Subsidiaries.
16
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to the Purchaser unless the
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 Taxes. Each of the Company and each of its Subsidiaries will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company and its
Subsidiaries; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company and/or such Subsidiary shall
have set aside on its books adequate reserves with respect thereto, and
provided, further, that the Company and its Subsidiaries will pay all such
taxes, assessments, charges or levies forthwith upon the commencement of
proceedings to foreclose any lien which may have attached as security therefor.
6.8 Insurance. Each of the Company and its Subsidiaries will keep
its assets which are of an insurable character insured by financially sound and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in similar business similarly situated
as the Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company, 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 the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to
Purchaser, the Company and each of its Subsidiaries shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) in the case of the Company and each Subsidiary of the Company
organized in the United States of America (each a "Domestic Subsidiary"),
furnish Purchaser with (x) copies of all policies and evidence of the
maintenance of such policies at least thirty (30) days before any expiration
date, (y) excepting the Company's and its Domestic Subsidiaries' workers'
compensation policy, endorsements to such policies naming Purchaser as
"co-insured" or "additional insured" and appropriate loss payable endorsements
in form and substance
17
satisfactory to Purchaser, naming Purchaser as loss payee, and (z) evidence that
as to Purchaser the insurance coverage shall not be impaired or invalidated by
any act or neglect of the Company or any Domestic Subsidiary and the insurer
will provide Purchaser with at least thirty (30) days notice prior to
cancellation. The Company and each Domestic Subsidiary shall instruct the
insurance carriers that in the event of any loss thereunder, the carriers shall
make payment for such loss to the Company and/or the Subsidiary and Purchaser
jointly. In the event that as of the date of receipt of each loss recovery upon
any such insurance, the Purchaser has not declared an event of default with
respect to this Agreement or any of the Related Agreements, then the Company
and/or such Domestic Subsidiary shall be permitted to direct the application of
such loss recovery proceeds toward investment in property, plant and equipment
that would comprise "Collateral" secured by Purchaser's security interest
pursuant to its security agreement, with any surplus funds to be applied toward
payment of the obligations of the Company to Purchaser. In the event that
Purchaser has properly declared an event of default with respect to this
Agreement or any of the Related Agreements, then all loss recoveries received by
Purchaser upon any such insurance thereafter may be applied to the obligations
of the Company hereunder and under the Related Agreements, in such order as the
Purchaser may determine. Any surplus (following satisfaction of all Company
obligations to Purchaser) shall be paid by Purchaser to the Company or applied
as may be otherwise required by law. Any deficiency thereon shall be paid by the
Company or the Domestic Subsidiary, as applicable, to Purchaser, on demand.
6.9 Intellectual Property. Each of the Company and each of its
Subsidiaries shall maintain in full force and effect its existence, rights and
franchises and all licenses and other rights to use Intellectual Property owned
or possessed by it and reasonably deemed to be necessary to the conduct of its
business.
6.10 Properties. Each of the Company and each of its Subsidiaries
will keep its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needful and proper
repairs, renewals, replacements, additions and improvements thereto; and each of
the Company and each of its Subsidiaries will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.11 Confidentiality. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser,
unless expressly agreed to by the Purchaser or unless and until such disclosure
is required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose Purchaser's
identity and the terms of this Agreement to its current and prospective debt and
equity financing sources.
6.12 Required Approvals. For so long as twenty-five percent (25%) of
the principal amount of the Note is outstanding, the Company, without the prior
written consent of the Purchaser, shall not, and shall not permit any of its
Subsidiaries to:
(a) (i) directly or indirectly declare or pay any dividends, other
than (x) dividends paid to the Parent or any of its wholly-owned
Subsidiaries and (y) dividends paid to the Purchaser with respect to the
Series A Preferred, (ii) issue any preferred stock
18
that is manditorily redeemable prior to the one year anniversary of
Maturity Date (as defined in the Note) or (iii) redeem any of its
preferred stock or other equity interests;
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company dissolve, liquidate or
merge with any other person or entity (unless the Company is the surviving
entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or any of its
Subsidiaries right to perform the provisions of this Agreement, any
Related Agreement or any of the agreements contemplated hereby or thereby;
(d) materially alter or change the scope of the business of the
Company and its Subsidiaries taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
(exclusive of trade debt and debt incurred to finance the purchase of
equipment (not in excess of five percent (5%) of the fair market value of
the Company's and its Subsidiaries' assets) whether secured or unsecured
other than (x) the Company's indebtedness to the Purchaser, (y)
indebtedness set forth on Schedule 6.12(e) attached hereto and made a part
hereof and any refinancings or replacements thereof on terms no less
favorable to the Purchaser than the indebtedness being refinanced or
replaced, and (z) any debt incurred in connection with the purchase of
assets in the ordinary course of business, or any refinancings or
replacements thereof on terms no less favorable to the Purchaser than the
indebtedness being refinanced or replaced; (ii) cancel any debt owing to
it in excess of $50,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other Person, except the
endorsement of negotiable instruments by the Company for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant
to this clause (e);
(f) create or acquire any Subsidiary after the date hereof unless
(i) such Subsidiary is a wholly-owned Subsidiary of the Company and (ii)
such Subsidiary becomes party to the Master Security Agreement, the Stock
Pledge Agreement and the Subsidiary Guaranty (either by executing a
counterpart thereof or an assumption or joinder agreement in respect
thereof) and, to the extent required by the Purchaser, satisfies each
condition of this Agreement and the Related Agreements as if such
Subsidiary were a Subsidiary on the Closing Date; and
(g) with respect to the Company and each Domestic Subsidiary, make
investments in, make any loans or advances to, or transfer assets to, any
of its Subsidiaries organized in any jurisdiction other than the United
States of America, other than any immaterial investments, loans, advances
and/or asset transfers made in the ordinary course of business.
19
6.13 Reissuance of Securities. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.8 above at such time as:
(a) the holder thereof is permitted to dispose of such Securities
pursuant to Rule 144(k) under the Securities Act; or
(b) upon resale subject to an effective registration statement after
such Securities are registered under the Securities Act.
The Company agrees to cooperate with the Purchaser in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and broker, if
any.
6.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the Purchaser
(and acceptable to the Purchaser) in connection with the conversion of the Note
and exercise of the Warrant.
6.15 Margin Stock. The Company will not permit any of the proceeds
of the Note or the Warrant 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.
6.16 Restricted Cash Disclosure. The Company agrees that, in
connection with its filing of its 8-K Report with the SEC concerning the
transactions contemplated by this Agreement and the Related Agreements (such
report, the "Laurus Transaction 8-K") in a timely manner after the date hereof,
it will disclose in such Laurus Transaction 8-K the amount of the proceeds of
the Note issued to the Purchaser that has been placed in a restricted cash
account and is subject to the terms and conditions of this Agreement and the
Related Agreements. Furthermore, the Company agrees to disclose in all public
filings required by the Commission (where appropriate) following the filing of
the Laurus Transaction 8-K, the existence of the restricted cash referred to in
the immediately preceding sentence, together with the amount thereof.
6.17 Financing Right of First Refusal. (a) The Company hereby grants
to the Purchaser a right of first refusal to provide any Additional Financing
(as defined below) to be issued by the Company and/or any of its Subsidiaries,
subject to the following terms and conditions. From and after the date hereof,
prior to the incurrence of any additional indebtedness and/or the sale or
issuance of any equity interests of the Company or any of its Subsidiaries (an
"Additional Financing"), the Company and/or any Subsidiary of the Company, as
the case may be, shall notify the Purchaser of its intention to enter into such
Additional Financing. In connection therewith, the Company and/or the applicable
Subsidiary thereof shall submit a fully executed term sheet (a "Proposed Term
Sheet") to the Purchaser setting forth the terms, conditions and pricing of any
such Additional Financing (such financing to be negotiated on "arm's length"
terms and the terms thereof to be negotiated in good faith) proposed to be
entered
20
into by the Company and/or such Subsidiary. The Purchaser shall have the right,
but not the obligation, to deliver its own proposed term sheet (the "Purchaser
Term Sheet") setting forth the terms and conditions upon which Purchaser would
be willing to provide such Additional Financing to the Company and/or such
Subsidiary. The Purchaser Term Sheet shall contain terms no less favorable to
the Company and /or the Subsidiary than those outlined in Proposed Term Sheet.
The Purchaser shall deliver such Purchaser Term Sheet within ten business days
of receipt of each such Proposed Term Sheet. If the provisions of the Purchaser
Term Sheet are at least as favorable to the Company and/or such Subsidiary, as
the case may be, as the provisions of the Proposed Term Sheet, the Company
and/or such Subsidiary shall enter into and consummate the Additional Financing
transaction outlined in the Purchaser Term Sheet.
(b) The Company will not, and will not permit its Subsidiaries to,
agree, directly or indirectly, to any restriction with any person or entity
which limits the ability of the Purchaser to consummate an Additional Financing
with the Company or any of its Subsidiaries.
6.18 Additional Investment. The Company agrees that the Purchaser
shall have the right (at its sole option), on or prior to the date which is 270
days following the Closing Date, to issue an additional note to the Company in
an aggregate principal amount of up to $2,200,000 on the same terms and
conditions (including, without limitation, the same interest rate, the Fixed
Conversion Price (as defined in the Note) then in effect, proportionate warrant
coverage (at the same exercise prices), a proportionate amortization schedule,
etc.) set forth in, and pursuant to substantially similar documentation as, this
Agreement and the Related Agreements.
7. Covenants of the Purchaser. The Purchaser covenants and agrees with the
Company as follows:
7.1 Confidentiality. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 Non-Public Information. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
8. Covenants of the Company and Purchaser Regarding Indemnification.
8.1 Company Indemnification. The Company agrees to indemnify, hold
harmless, reimburse and defend the Purchaser, each of the Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any
21
exhibits or schedules attached hereto or thereto; or (ii) any breach or default
in performance by Company or any of its Subsidiaries of any covenant or
undertaking to be performed by Company or any of its Subsidiaries hereunder,
under any other Related Agreement or any other agreement entered into by the
Company and/or any of its Subsidiaries and Purchaser relating hereto or thereto.
8.2 Purchaser's Indemnification. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon: (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
9. Conversion of Convertible Note.
9.1 Issuance of Note Shares on Conversion.
Provided the Purchaser has notified the Company of the Purchaser's
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration
when sold: (i) upon the conversion of the Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel reasonably acceptable to
the Purchaser following a request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the Company's Common Stock
in the name of the Purchaser (or its nominee) or such other persons as
designated by the Purchaser in accordance with Section 9.1(b) hereof and
in such denominations to be specified representing the number of Note
Shares issuable upon such conversion; and (ii) the Company warrants that
no instructions other than these instructions have been or will be given
to the transfer agent of the Company's Common Stock and that after the
Effectiveness Date (as defined in the Registration Rights Agreement) the
Note Shares issued will be freely transferable subject to the prospectus
delivery requirements of the Securities Act and the provisions of this
Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.
9.2 Failure to issue Note Shares. The Company understands that a delay in
the delivery of the Note Shares in the form required pursuant to the terms
of Article III of the Note beyond the Delivery Date (as defined in the
Note) could result in economic loss to the Purchaser. In the event that
the Company fails to direct its transfer agent to deliver the Note Shares
to the Purchaser via the DWAC system within the time frame set forth in
Article III of the Note and the Note Shares are not delivered to the
Purchaser by the Delivery Date, as compensation to the Purchaser for such
loss, the Company agrees to pay late payments to the Purchaser for late
issuance of the Note Shares in the form required pursuant to Article III
of the Note upon conversion of the Note in the amount equal to the greater
of: (i) $500 per business day after the Delivery Date; or (ii) the
22
Purchaser's actual damages from such delayed delivery. Notwithstanding the
foregoing, the Company will not owe the Purchaser any late payments if the
delay in the delivery of the Note Shares beyond the Delivery Date is
solely out of the control of the Company and the Company is actively
trying to cure the cause of the delay. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand
and, in the case of actual damages, accompanied by reasonable
documentation of the amount of such damages. Such documentation shall show
the number of shares of Common Stock the Purchaser is forced to purchase
(in an open market transaction) which the Purchaser anticipated receiving
upon such conversion, and shall be calculated as the amount by which (A)
the Purchaser's total purchase price (including customary brokerage
commissions, if any) for the shares of Common Stock so purchased exceeds
(B) the aggregate principal and/or interest amount of the Note, for which
such Conversion Notice (as defined in the Note) was not timely honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.
10. Registration Rights.
10.1 Registration Rights Granted. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2 Offering Restrictions. Except as previously disclosed in the
SEC Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company (these exceptions hereinafter referred to
as the "Excepted Issuances"), neither the Company nor any of its Subsidiaries
will issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (together with all accrued and unpaid
interest and fees related thereto) (the "Exclusion Period").
11. Miscellaneous.
11.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY
EITHER PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS
OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH
PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS
ON BEHALF OF THE
23
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
11.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 Successors. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. Purchaser may not assign its rights hereunder to a
competitor of the Company.
11.4 Entire Agreement. This Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
11.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
24
11.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement or the Related
Agreements, by law or otherwise afforded to any party, shall be cumulative and
not alternative.
11.8 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
All communications shall be sent as follows:
If to the Company, to: Trinity Learning Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: ▇▇▇ ▇▇▇ ▇▇▇▇
with a copy to:
Attention:
Facsimile:
If to the Purchaser, to: Laurus Master Fund, Ltd.
c/o M&C Corporate Services Ltd.
▇.▇. ▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇ House
▇▇▇▇▇▇ Town
South Church Street
Grand Cayman, Cayman Islands
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
11.9 Attorneys' Fees. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
11.10 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
11.11 Facsimile Signatures; Counterparts. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12 Broker's Fees. Except as set forth on Schedule 11.12 hereof,
each party hereto represents and warrants that no agent, broker, investment
banker, person or firm acting on behalf of or under the authority of such party
hereto is or will be entitled to any broker's or finder's fee or any other
commission directly or indirectly in connection with the transactions
contemplated herein. Each party hereto further agrees to indemnify each other
party for any claims, losses or expenses incurred by such other party as a
result of the representation in this Section 11.12 being untrue.
11.13 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
26
IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASER:
TRINITY LEARNING CORPORATION LAURUS MASTER FUND, LTD.
By: By:
------------------------------ ------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
27
SCHEDULE 4.2
SUBSIDIARIES
28
SCHEDULE 4.3
COMPANY CAPITAL STOCK
29
SCHEDULE 4.6
AGREEMENTS
OCEANIC FUND PROMISSORY NOTE IN THE PRINCIPAL AMOUNT OF $500,000
30
SCHEDULE 4.7
OBLIGATIONS TO RELATED PARTIES
31
SCHEDULE 4.8
CHANGES
32
SCHEDULE 4.9
TITLE TO ASSETS
33
SCHEDULE 4.12
LITIGATION
34
SCHEDULE 4.13
TAX ISSUES
35
SCHEDULE 4.14
EMPLOYMENT ISSUES
36
SCHEDULE 4.15
REGISTRATION RIGHTS
37
SCHEDULE 4.17
ENVIRONMENTAL AND SAFETY LAWS
38
SCHEDULE 4.21
SEC REPORTS
39
SCHEDULE 6.12(e)
PERMITTED INDEBTEDNESS
40
SCHEDULE 11.12
BROKER'S FEES
41
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
1. Each of the Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Utah [other jurisdiction] and has all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted.
2. Each of the Company and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Agreement and the Related Agreements. All corporate action on the part
of the Company and each of its Subsidiaries and its officers, directors and
stockholders necessary has been taken for: (i) the authorization of the
Agreement and the Related Agreements and the performance of all obligations of
the Company and each of its Subsidiaries thereunder; and (ii) the authorization,
sale, issuance and delivery of the Securities pursuant to the Agreement and the
Related Agreements. The Note Shares and the Warrant Shares, when issued pursuant
to and in accordance with the terms of the Agreement and the Related Agreements
and upon delivery shall be validly issued and outstanding, fully paid and non
assessable.
3. The execution, delivery and performance by each of the Company and each
of its Subsidiaries of the Agreement and the Related Agreements to which it is a
party and the consummation of the transactions on its part contemplated by any
thereof, will not, with or without the giving of notice or the passage of time
or both:
(a) Violate the provisions of their respective charter or bylaws; or
(b) Violate any judgment, decree, order or award of any court
binding upon the Company or any of its Subsidiaries; or
(c) Violate any [insert jurisdictions in which counsel is qualified]
or federal law
4. The Agreement and the Related Agreements will constitute, valid and
legally binding obligations of each of the Company and each of its Subsidiaries
(to the extent such person is a party thereto), and are enforceable against each
of the Company and each of its Subsidiaries in accordance with their respective
terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
5. To such counsel's knowledge, the sale of the Note and the subsequent
conversion of the Note into Note Shares are not subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
To such counsel's knowledge, the sale of the Warrant and the subsequent exercise
of the Warrant for Warrant Shares are not subject to any
C-1
preemptive rights or, to such counsel's knowledge, rights of first refusal that
have not been properly waived or complied with.
6. Assuming the accuracy of the representations and warranties of the
Purchaser contained in the Agreement, the offer, sale and issuance of the
Securities on the Closing Date will be exempt from the registration requirements
of the Securities Act. To such counsel's knowledge, neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy and security under circumstances that would cause the offering of the
Securities pursuant to the Agreement or any Related Agreement to be integrated
with prior offerings by the Company for purposes of the Securities Act which
would prevent the Company from selling the Securities pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions.
7. There is no action, suit, proceeding or investigation pending or, to
such counsel's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the right of the Company or any of its Subsidiaries
to enter into this Agreement or any of the Related Agreements, or to consummate
the transactions contemplated thereby. To such counsel's knowledge, the Company
is not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality; nor is
there any action, suit, proceeding or investigation by the Company currently
pending or which the Company intends to initiate.
8. The terms and provisions of the Master Security Agreement and the Stock
Pledge Agreement create a valid security interest in favor of the Purchaser, in
the respective rights, title and interests of the Company and its Subsidiaries
in and to the Collateral (as defined in each of the Master Security Agreement
and the Stock Pledge Agreement). Each UCC-1 Financing Statement naming the
Company or any Subsidiary thereof as debtor and the Purchaser as secured party
are in proper form for filing and assuming that such UCC-1 Financing Statements
have been filed with the Secretary of State of Utah [other jurisdictions], the
security interest created under the Master Security Agreement will constitute a
perfected security interest under the Uniform Commercial Code in favor of the
Purchaser in respect of the Collateral that can be perfected by filing a
financing statement. After giving effect to the delivery to the Purchaser of the
stock certificates representing the ownership interests of each Subsidiary of
the Company (together with effective endorsements) and assuming the continued
possession by the Purchaser of such stock certificates in the State of New York,
the security interest created in favor of the Purchaser under the Stock Pledge
Agreement constitutes a valid and enforceable first perfected security interest
in such ownership interests (and the proceeds thereof) in favor of the
Purchaser, subject to no other security interest. No filings, registrations or
recordings are required in order to perfect (or maintain the perfection or
priority of) the security interest created under the Stock Pledge Agreement in
respect of such ownership interests.
9. Assuming that North Fork Bank is a "bank" (as such term is defined in
Section 9-102(a)(8) of the UCC), and that the Restricted Account (as defined in
the Restricted Account Agreement) constitutes a "deposit account" (as such term
is defined in Section 9-102(a)(29) of the UCC), under the Uniform Commercial
Code, the due execution and delivery of the Restricted Account Agreement
perfects the Purchaser's security interest in the Restricted Account.
C-2
EXHIBIT D
FORM OF ESCROW AGREEMENT
D-1