EXHIBIT 10.72
SECURITY AGREEMENT
This Security Agreement (the "Agreement") is made and entered into on July
29, 2004, by and between Trinity Learning Corporation, a Utah corporation (the
"Debtor"), and Oceanus Value Fund, L.P. (the "Secured Party").
A. Debtor and the Secured Party have entered into a Securities Purchase
Agreement dated concurrently herewith (the "Securities Purchase Agreement").
B. Pursuant to the Securities Purchase Agreement, Debtor has, among other
things, delivered to Secured Party a $500,000 12% Senior Secured Promissory Note
(the "Note").
C. The parties now enter into this Agreement as security for Debtor's
obligations under the Note.
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the parties hereby agree as
follows:
1. Definitions. Capitalized terms used in this Agreement and not defined
elsewhere herein or in the Securities Purchase Agreement shall have the meanings
set forth below:
"Accounts" means and includes all of Debtor's presently existing and
hereafter arising accounts, contract rights, rights of payment, instruments,
notes, drafts, documents, chattel paper, and all other forms of obligations
owing to Debtor arising out of the sale or lease of goods or the rendition of
services by Debtor, whether or not earned by performance, and any and all
letters of credit, credit insurance, guaranties, and other security therefor,
and all merchandise returned to or reclaimed by Debtor, and all proceeds and
products of any of the foregoing, and all of Debtor's Books (as defined below)
relating to any of the foregoing.
"Collateral" means and includes all of the following: (i) the
Accounts, Equipment, General Intangibles, Inventory, Negotiable Collateral, and
such other assets of Debtor as to which Secured Party may from time-to-time be
granted a security interest and (ii) the proceeds of any of the foregoing,
including, but not limited to, proceeds of insurance covering the foregoing or
any portion thereof, and any and all money, deposit accounts or other tangible
and intangible property of Debtor resulting from a sale or other disposition of
the foregoing or any portion thereof; provided, however, that notwithstanding
anything to the contrary contained in this Agreement, the Collateral hereunder
does not include any "infectious waste," "restricted hazardous waste," or
"hazardous waste" as those terms are defined under 42 U.S.C. Section 6903(5), as
such section may be from time to time amended, or under any regulations
thereunder.
"Debtor's Books" means and includes all of Debtor's books and records,
including, but not limited to, all records, ledgers and computer programs, disk
or tape files, printouts and other computer-prepared information indicating,
summarizing or evidencing the Collateral.
"Equipment" means and includes all of Debtor's present and hereafter
acquired equipment wherever located, including but not limited to, machinery and
machine tools with motors, controls, attachments, parts, tools and accessories
incidental thereto, all present and future furniture, furnishings, fixtures and
motor vehicles, tools, drawings, blueprints, catalogs and computer programs; and
all attachments, accessories, accessions, replacements, substitutions, additions
and improvements thereto, wherever located, as well as Debtor's Books relating
to any of the foregoing.
"Event of Default" means the occurrence of any one of the events set
forth in Section 7 of this Agreement.
"General Intangibles" means and includes all of Debtor's presently
existing and hereafter acquired or arising general intangibles and other
personal property (including, without limitation, any and all choses in action,
licenses, leasehold interests, equity interests (including equity interests in
subsidiaries, partnerships and joint ventures), goodwill, intellectual property
of any kind (including patents, copyrights, trademarks, trade names and service
marks), blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, monies due or recoverable from factors, route
lists, infringement claims, software source codes, computer programs and disks,
literature, reports, catalogs, deposit accounts, tax refunds and tax refund
claims, together with the proceeds and products of any of the foregoing, as well
as Debtor's Books relating to any of the foregoing.
"Inventory" means and includes all of Debtor's present and hereafter
acquired inventory in which Debtor has any interest, including goods held for
sale or lease or to be furnished under a service contract, and all of Debtor's
present and future goods, parts, raw materials, work in process, finished goods
and supplies that are or might be used in connection with the manufacture,
packing, shipping advertising, selling or finishing of such goods, as well as
Debtor's Books relating to any of the foregoing.
"Negotiable Collateral" means and includes all of Debtor's presently
existing and hereafter acquired or arising letters of credit, advices of credit,
notes, drafts, instruments, documents, leases of personal property, and chattel
paper, as well as Debtor's Books relating to any of the foregoing
"Obligations" means and includes any and all liabilities and
indebtedness owing by Debtor to Secured Party pursuant to the Note, including,
without limitation, all interest and other payments required thereunder that are
not paid when due, and all of the Secured Party Expenses which Debtor is
required to pay or reimburse by this Agreement, by law, or otherwise.
"Secured Party Expenses" means and includes (i) all costs or expenses
required to be paid by Debtor under this Agreement that are instead paid or
advanced by Secured Party; (ii) all costs and expenses incurred by Secured Party
to correct any default or enforce any provision of this Agreement, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale and/or advertising to sell the Collateral, irrespective of
whether a sale is consummated; and (iii) all costs and expenses (including
reasonable attorney's fees) incurred by Secured Party in enforcing or defending
this Agreement, irrespective of whether suit is brought.
2. Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular and vice versa, to the
part include the whole, "including" is not limiting, and "or" has the inclusive
meaning represented by the phrase "and/or." References in this Agreement to a
"determination" by Secured Party include reasonable, good faith estimates by
Secured Party (in the case of quantitative determinations) and reasonable, good
faith beliefs by Secured Party (in the case of qualitative determinations). The
words "hereof," "herein," "hereby," "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. Section, subsection, clause, and exhibit references are to
this Agreement, unless otherwise specified.
3. Creation of Security Interest.
3.1 Grant of Security Interest. Debtor hereby grants to Secured Party
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure Debtor's timely payment of the
Obligations and Debtor's timely performance of each and all of its covenants and
obligations under this Agreement and any other document, instrument or agreement
executed and/or delivered to Secured Party or any other party in connection with
the Obligations. Except for existing liens on shares of certain subsidiaries of
the Debtor (as described in the SEC Documents, as that term is defined in the
Securities Purchase Agreement), such security interest in the Collateral shall
be a first-priority security interest shared on a pari passu basis with the
Agent and the Lenders pursuant to the Intercreditor Agreement, and shall attach
to all Collateral without further act on the part of Secured Party or Debtor.
3.2 Rights as to Inventory. Until the occurrence of an Event of
Default under this Agreement, Debtor may, subject to the provisions hereof and
consistent herewith, sell the Inventory, but only in the ordinary course of
Debtor's business. A sale of Inventory in Debtor's ordinary course of business
does not include an exchange or a transfer in partial or total satisfaction of a
debt owing by Debtor, nor does it include an exchange for less than fair market
value.
4. Insurance. Debtor, at its expense, shall keep and maintain the Inventory
and Equipment insured against loss or damage by fire, theft, explosion,
sprinklers and all other hazards and risks and in such amounts as are ordinarily
insured against by other owners of such properties in similar businesses. Debtor
shall also keep and maintain public liability and property damage insurance
relating to Debtor's ownership and use of the Inventory and Equipment and its
other assets. At the request of Secured Party, all such policies of insurance
(except those of public liability and property damage) shall contain an
endorsement, in a form satisfactory to Secured Party, showing Secured Party as
the sole loss payee thereof, and all proceeds payable thereunder shall be
payable to Secured Party. To secure the payment of the Obligations, Debtor
grants Secured Party a security interest in all such policies of insurance
(except those of public liability and property damage) and the proceeds thereof.
Debtor will not cancel, without suitable and similar replacements, any of such
policies without Secured Party's prior written consent. At the request of
Secured Party, each such insurer shall agree (by endorsement upon the policy or
policies of insurance issued by it to Debtor or by independent instruments) that
it will give Secured Party at least thirty (30) days written notice before any
such policy or policies of insurance will be altered or cancelled, and that no
act or default of Debtor, or any other person, shall affect the right of Secured
Party to recover under such policy or policies of insurance or to pay any
premium in whole or in part relating thereto.
5. Further Assurances.
5.1 General. Following the Closing, Secured Party is authorized to
file a UCC-1 Financing Statement with the Department of Commerce, Division of
Corporations and Commercial Code, of the State of Utah evidencing Secured
Party's security interest in the Collateral. Debtor also authorizes the filing
by Secured Party of such other UCC financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, assignments
and other documents as Secured Party may reasonably require in order to perfect,
maintain and/or levy on the Secured Party's security interests in the Collateral
and in order to fully consummate all of the transactions contemplated under this
Agreement. If so requested by Secured Party at any time hereafter, Debtor shall
promptly execute and deliver to Secured Party such UCC financing statements,
continuation financing statements, fixture filings, security agreements, chattel
mortgages, assignments and other documents that Secured Party may reasonably
require from Debtor. Debtor hereby irrevocably makes, constitutes and appoints
Secured Party (and any of Secured Party's employees or agents designated by
Secured Party ) as Debtor's true and lawful attorney with power, upon Debtor's
failure or refusal to promptly comply with its obligations in this Section 5.1,
to sign the name of Debtor on any of the above-described documents or on any
other similar documents which need to be executed, recorded and/or filed in
order to perfect, maintain and/or levy on the Secured Party's security interests
in the Collateral.
5.2 Additional Matters. Without limiting the generality of the
foregoing Section 5.1, Debtor will (i) at the reasonable request of the Secured
Party, appear in and defend any action or proceeding which may affect Debtor's
title to, or the security interests of Secured Party in, the Collateral and (ii)
promptly furnish to Secured Party, from time to time, such reports
in connection with the Collateral as Secured Party may reasonably request, all
in reasonable detail, including reports describing the Equipment and Inventory,
specifying the locations at which the Equipment and Inventory is based and
setting forth the then current location of Debtor's Books pertaining to the
Collateral.
5.3 Accounts and Negotiable Collateral. In the event that any portion
of the Collateral, including proceeds, is evidenced by or consists of Accounts
and/or Negotiable Collateral, Debtor shall, immediately upon request therefor
from Secured Party, endorse, where appropriate, and assign such Accounts and/or
Negotiable Collateral over to Secured Party, and deliver actual physical
possession of the Accounts and/or Negotiable Collateral to Secured Party in
order to perfect fully the security interest therein.
6. Warranties, Representations and Covenants. Debtor warrants, represents,
covenants and agrees as follows:
6.1 No Prior Encumbrances. Debtor has good and marketable title to the
Collateral, free and clear of any liens, claims, encumbrances and rights of any
kind except those granted to the Agent and the Lenders pursuant to a Security
Agreement dated as of February 5, 2004.
6.2 Merchantable Inventory. Except for defects arising in the ordinary
and usual course of business, all Inventory is now and at all times hereafter
shall be of good and merchantable quality.
6.3 Storage of Inventory. The Inventory is not now and shall not at
any time hereafter be stored with a bailee, warehouseman or similar party,
unless Debtor has given fifteen (15) days prior written notice to Secured Party
specifying the name and address of such entity, and, in such event, Debtor
shall, concurrently therewith, cause any such bailee, warehouseman or similar
party to issue and deliver to Secured Party, in a form acceptable to Secured
Party, warehouse receipts in Secured Party's name evidencing the storage of the
Inventory.
6.4 Inventory Records. Debtor now keeps and at all times hereafter
shall keep correct and accurate records itemizing and describing the kind, type,
quality and quantity of the Inventory and Debtor's cost therefor. All of such
records shall be available upon demand to any of Secured Party's agents and
employees for inspection and copying.
6.5 Right to Inspect Inventory and Equipment. Secured Party shall have
the right, during Debtor's usual business hours, to inspect and examine the
Inventory and the Equipment and to check and test the same as to quality,
quantity value and condition. Debtor agrees that any reasonable expenses
incurred by Secured Party in connection with this Section 6.5 shall constitute
Secured Party Expenses.
6.6 Title to Equipment. Upon Secured Party's request, Debtor shall
immediately deliver to Secured Party, properly endorsed, any and all evidences
of ownership of or title to any items of Debtor's Equipment.
6.7 Maintenance of Equipment. Debtor shall keep and maintain the
Equipment in good operating condition and repair, and shall make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved.
6.8 Negative Covenants. Debtor shall not (i) sell, lease, or otherwise
dispose of, relocate or transfer, whether by sale or otherwise, any of Debtor's
assets other than sales of Inventory in the ordinary course of Debtor's business
or (ii) change Debtor's name or business structure, or add any new fictitious
name without providing Secured Party with forty-five (45) calendar days prior
written notice.
6.9 Relocation of Principal Place of Business. The principal place of
business of Debtor is at the address indicated in Section 10 below, and Debtor
shall not, during the term of this Agreement, without prior written notification
to Secured Party, relocate such principal place of business.
6.10 Further Information. Debtor shall promptly supply Secured Party
with such information concerning Debtor's business as Secured Party may request
from time to time hereafter, and shall promptly notify Secured Party of any
material adverse change in Debtor's financial condition or any event which
constitutes an Event of Default.
6.11 Solvency. Debtor is now and shall be at all times hereafter
solvent and able to pay its debts (including trade debts) as they mature.
6.12 Secured Party Expenses. Debtor shall immediately, and without
demand, reimburse Secured Party for all sums expended by Secured Party which
constitute Secured Party Expenses, and, in the event that Debtor does not pay
such Secured Party Expenses within ten (10) days after notice thereof, then
Secured Party may immediately and without further notice incur such Secured
Party Expenses on Debtor's behalf, and Debtor hereby authorizes and approves all
advances and payments by Secured Party for items constituting such Secured Party
Expenses.
6.13 Reliance by Secured Party; Representations Cumulative. Each
warranty, representation and agreement contained in this Agreement shall be
conclusively presumed to have been relied on by Secured Party regardless of any
investigation made or information possessed by Secured Party. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Debtor shall now or hereafter give, or cause to be given, to Secured Party.
7. Events of Default. Any one or more of the following events shall
constitute an Event of Default by Debtor under this Agreement:
(a) If, after expiration of any applicable cure period, Debtor fails
to pay when due all or any portion of the Obligations; or
(b) If, after expiration of any applicable cure period, Debtor (i)
fails or neglects to perform, keep or observe any term, provision, condition,
covenant or agreement or (ii) is found to be in material breach of any warranty
or representation when made, that is contained in this Agreement, the Securities
Purchase Agreement or the Note, or in any other present or future document or
agreement between Debtor and Secured Party with respect to the Obligations.
8. Rights and Remedies
8.1 Secured Party's Rights and Remedies.
(a) Upon the occurrence of an Event of Default, without notice of
election and without demand, Secured Party may cause any one or more of the
following to occur, all of which are authorized by Debtor:
(i) Secured Party may make such payments and do such acts as it
considers necessary or reasonable to protect its security interests in the
Collateral. Debtor agrees to assemble and make available the Collateral if
Secured Party so requires. Debtor authorizes Secured Party to enter the premises
where the Collateral is located, take and maintain possession of the Collateral,
or any part thereof, and pay, purchase, contest or compromise any encumbrance,
claim, right or lien which, in the opinion of Secured Party or its assignee,
appears to be prior or superior to Secured Party's security interests, and to
pay all expenses incurred in connection therewith;
(ii) Secured Party shall be automatically deemed to be (A) granted a
license or other right to use, without charge, Debtor's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks
and advertising matter, and any other property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale
and selling any Collateral and (B) assigned, without charge, all of Debtor's
rights and obligations under any licenses and/or franchise agreements;
(iii) Secured Party may ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale and sell (in the manner
provided for herein) the Collateral;
(iv) Secured Party may sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Debtor's premises) as
is commercially reasonable. It is not necessary that the Collateral be present
at any such sale;
(v) Secured Party shall be entitled to give notice of the disposition
of the Collateral as follows: (i) Secured Party shall give Debtor a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some other disposition other than a public sale is to be made of the
Collateral, the time on or after which the private sale or other disposition is
to be made, (ii) the notice shall be personally delivered or mailed, postage
prepaid, to Debtor at least ten (10) calendar days before the date fixed for the
sale, or at least five (5) calendar days before the date on or after which the
private sale or other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value and (iii) if the sale is to
be a public sale, Secured Party shall also give notice of the time and place by
publishing a notice one time at least five (5) calendar days before the date of
the sale in a newspaper of general circulation, if one exists, in the county in
which the sale is to be held;
(vi) Secured Party may credit bid and purchase all or any portion of
the Collateral at any public sale; and
(vii) Secured Party may collect on the Accounts and/or the Negotiable
Collateral and apply the proceeds thereof to payment of any and all amounts owed
to Secured Party under the Obligations or this Agreement.
(b) Upon demand, Debtor shall pay all the Secured Party Expenses
incurred in connection with the enforcement and exercise of any of the rights
and remedies of Secured Party provided for herein, irrespective of whether suit
is commenced. Any deficiency which exists after disposition of the Collateral as
provided herein will be paid immediately by Debtor, and any excess that exists
will be returned, without interest and subject to the rights of third parties,
to Debtor by Secured Party.
8.2 Rights and Remedies Cumulative. The rights and remedies of Secured
Party under this Agreement and any other agreements and documents delivered
and/or executed in connection with the Obligations shall be cumulative. Secured
Party shall also have all other rights and remedies not inconsistent herewith as
are provided under applicable law, or in equity. No exercise by Secured Party of
one right or remedy shall be deemed an election, and no waiver by Secured Party
of any default on Debtor's part shall be deemed a continuing waiver. No delay by
Secured Party shall constitute a waiver, election or acquiescence.
9. Waivers. Secured Party shall not in any way or manner be liable or
responsible for (i) the safekeeping of the Collateral, (ii) any loss or damage
thereto occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever.
10. Notices. All notices or demands by any party relating to this Agreement
shall be made in writing as provided in Section 8(f) of the Securities Purchase
Agreement.
11. Choice of Law and Venue. The validity of this Agreement, its
construction, interpretation and enforcement, and the rights of the parties
hereunder and concerning the
Collateral, shall be determined under, governed by, and construed in accordance
with the laws of the State of Kansas. The parties agree that all actions or
proceedings arising in connection with this Agreement shall be litigated in the
state and federal courts located in the State of Kansas, or, at the sole option
of Secured Party, in any other court in which Secured Party shall initiate legal
or equitable proceedings that has subject matter jurisdiction over the amount in
controversy. Debtor waives any right it may have to assert the doctrine of forum
non conveniens, lack of personal jurisdiction, or to object to such venue, and
hereby consents to any court ordered relief.
12. Waiver of Jury Trial. Debtor and Secured Party each waive any right to
trial by jury in any action or proceeding relating to this Agreement.
13. General Provisions.
13.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Debtor and Secured Party.
13.2 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of Secured Party. Debtor
shall not assign this Agreement or any rights hereunder, and any such assignment
shall be absolutely void.
13.3 Section Headings. Section headings are for convenience only.
13.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Secured Party or Debtor,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the parties.
13.5 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
13.6 Entire Agreement; Amendments. This Agreement and the documents
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and supercede all prior agreements, negotiations
and understandings, written or oral, with respect to such subject matter. No
provision of this Agreement shall be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
13.7 Good Faith. The parties intend and agree that their respective
rights, duties, powers, liabilities, obligations and discretions shall be
performed, carried out, discharged and exercised reasonably and in good faith.
13.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized persons as of the date first
written above.
"Debtor"
TRINITY LEARNING CORPORATION
By:______________________________
President
By:______________________________
Secretary
"Secured Party"
OCEANUS VALUE FUND, L.P.
By: Oceanus Asset Management, L.L.C.,
General Partner
By:______________________________
Title:___________________________