SECURITIES PURCHASE AGREEMENT BETWEEN CHINA EDUCATION ALLIANCE, INC. AND BARRON PARTNERS LP AND THE OTHER INVESTORS NAMED HEREIN DATED May 8, 2007
Exhibit
99.1
BETWEEN
CHINA
EDUCATION ALLIANCE, INC.
AND
▇▇▇▇▇▇
PARTNERS LP
AND
THE
OTHER INVESTORS NAMED HEREIN
DATED
May
8, 2007
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”)
is
made and entered into as of the 8th
day of
May, 2007 between China
Education Alliance, Inc.,
a North
Carolina corporation (the “Company”), and ▇▇▇▇▇▇
Partners LP, a
North
Carolina limited partnership (“▇▇▇▇▇▇”),
and
any other investors named on the signature page of this Agreement (together
with
▇▇▇▇▇▇, the “Investors”
and
each an “Investor”).
RECITALS:
WHEREAS,
the
Investors wish to purchase from the Company, upon the terms and subject to
the
conditions of this Agreement, for the Purchase Price, as hereinafter defined,
one or more convertible notes (the “Notes”)
in the
aggregate principal amount of two million four hundred thousand dollars
($2,400,000), which Notes are convertible into either (a) an aggregate of (i)
six million four hundred eighty six thousand four hundred eighty six (6,486,486)
shares of the Company’s Series A Convertible Preferred Stock, par value $.001
per share (“Series
A Preferred Stock”),
with
each share of Series A Preferred Stock being initially convertible into one
(1)
share of the Company’s common stock, par value $.001 per share (“Common Stock”),
subject to adjustment, (ii) common stock purchase warrants (the “Warrants”) to
purchase six million (6,000,000) shares of Common Stock at sixty nine cents
($.69) per share, (iii) Warrants to purchase three million (3,000,000) shares
of
Common Stock at eighty cents ($.80) per share, and (iv) Warrants to purchase
three million (3,000,000) shares of Common Stock at one dollar ($1.00) per
share, and or (b) an aggregate of (i) six million four hundred eighty six
thousand four hundred eighty six (6,486,486) shares of Common Stock, (ii)
Warrants to purchase six million (6,000,000) shares of Common Stock at sixty
nine cents ($.69) per share, (iii) Warrants to purchase three million
(3,000,000) shares of Common Stock at eighty cents ($.80) per share, and (iv)
Warrants to purchase three million (3,000,000) shares of Common Stock at one
dollar ($1.00) per share or (c) if the Certificate of Amendment and the
Certificate of Designation, as hereinafter defined, shall not have been filed
as
required by this Agreement and the Note, eighteen million four hundred eighty
six thousand four hundred eighty six (18,486,486) shares of Common Stock; and
WHEREAS,
each
Investor is purchasing Notes in the principal amount set forth in Schedule
A of
this Agreement;
WHEREAS,
the
parties intend to memorialize the terms on which the Company will sell to the
Investors and the Investors will purchase the Securities;
NOW,
THEREFORE,
in
consideration of the mutual covenants and premises contained herein, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
Article
1
INCORPORATION
BY REFERENCE AND DEFINITIONS
1.1
Incorporation
by Reference.
The
foregoing recitals and the Exhibits and Schedules attached hereto and referred
to herein, are hereby acknowledged to be true and accurate, and are incorporated
herein by this reference.
1.2 Supersedes
Other Agreements.
This
Agreement, to the extent that it is inconsistent with any other instrument
or
understanding among the parties, shall supersede such instrument or
understanding to the fullest extent permitted by law. A copy of this Agreement
shall be filed at the Company’s principal office.
1.3 Certain
Definitions.
For
purposes of this Agreement, the following capitalized terms shall have the
following meanings (all capitalized terms used in this Agreement that are not
defined in this Article 1 shall have the meanings set forth elsewhere in this
Agreement):
1.3.1 “4.9%
Limitation”
has
the
meaning set forth in Section 2.1.3 of this Agreement.
1.3.2 “1933
Act”
means
the Securities Act of 1933, as amended.
1.3.3 “1934
Act”
means
the Securities Exchange Act of 1934, as amended.
1.3.4 “Affiliate”
means
a
Person or Persons directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the Person(s) in
question. The term “control,” as used in the immediately preceding sentence,
means, with respect to a Person that is a corporation, the right to the
exercise, directly or indirectly, of more than 50% of the voting rights
attributable to the shares of such controlled corporation and, with respect
to a
Person that is not a corporation, the possession, directly or indirectly, of
the
power to direct or cause the direction of the management or policies of such
controlled Person.
1.3.5 “Articles”
means
the articles of incorporation of the Company, as the same may be amended from
time to time.
1.3.6 “Authorized
Stock Proviso”
has
the
meaning set forth in Section 4.4.3 of this Agreement.
1.3.7 “Bylaws”
means
the bylaws of the Company, as the same may be amended from time to
time.
1.3.8 “Certificate
of Amendment”
means
the certificate of amendment which is in substantially the form of Exhibit
A
to this
Agreement.
1.3.9 “Certificate
of Designation”
means
the certificate of the rights, preferences and privileges, subject to the
limitations, with respect to the Series A Preferred Stock. The Certificate
of
Designation shall be in substantially the form of Exhibit
B
to this
Agreement.
1.3.10 “Closing” means
the
consummation of the transactions contemplated by this Agreement, all of which
transactions shall be consummated contemporaneously with the
Closing.
1.3.11 “Closing
Date”
means
the date on which the Closing occurs.
1.3.12 “Closing
Escrow Agreement”
shall
mean the agreement between the Company, the Investors and the Escrow Agent
pursuant to which securities are deposited into escrow to be held as provided
in
Section 6 of this Agreement. The Closing Escrow Agreement shall be in
substantially the form of Exhibit
C
to this
Agreement.
1.3.13 “Common
Stock”
means
the Company’s common stock, which is presently designated as the common stock,
par value $.001 per share.
1.3.14 “Company’s
Governing Documents”
means
the Articles and Bylaws.
1.3.15 “EBITDA”
means
consolidated earnings before interest, taxes, depreciation and amortization,
determined in accordance with GAAP.
1.3.16 “Escrow
Agreement”
means
the Escrow Agreement dated April 24, 2007, among the Company, the Investor
and
Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP, as Escrow Agent.
1.3.17 “Exempt
Issuance”
means
the issuance of (a) shares of Common Stock or options to employees, officers,
directors of and consultants (other than consultants whose services relate
to
the raising of funds) of the Company pursuant to any stock or option plan that
was or may be adopted by a majority of independent members of the Board of
Directors of the Company or a majority of the members of a committee of
independent directors established for such purpose, (b) securities upon the
exercise of or conversion of any securities issued hereunder and pursuant to
the
Registration Rights Agreement, the Notes, the Warrants and the Certificate
of
Designation and any other options, warrants or convertible securities which
are
outstanding on after completion of the Closing, and (c) securities issued
pursuant to acquisitions, licensing agreements, or other strategic transactions,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company in a business which the Company’s board
of directors believes is beneficial to the Company and in which the Company
receives benefits in addition to the investment of funds, but shall not include
a transaction in which the Company is issuing securities primarily for the
purpose of raising capital or to an entity whose primary business is investing
in securities.
1.3.18 “GAAP”
means
United States generally accepted accounting principles consistently
applied.
1.3.19 “Material
Adverse Effect”
means
any adverse effect on the business, operations, properties or financial
condition of the Company or any of its Subsidiaries that is material and adverse
to the Company and its Subsidiaries taken as a whole and/or any condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company or any Subsidiary to perform any of its material
obligations under this Agreement, the Registration Rights Agreement or the
Warrants or to perform its obligations under any other material agreement.
1.3.20 “North
Carolina Law”
shall
mean the North Carolina Business Corporation Act.
1.3.21 “Note(s)”
shall
have the meaning set forth in the introductory paragraph of this Agreement
and
shall be in substantially the form of Exhibit
D
to this
Agreement.
1.3.22 “Person”
means
an individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
1.3.23 “Preferred
Stock”
means
the preferred stock, par value $.001 per share, as created by the Certificate
of
Amendment.
1.3.24 “Pre-Tax
Income”
means
income
before income taxes determined in accordance with GAAP plus (a) any charges
relating to the transaction contemplated by this Agreement and the Registration
Rights Agreement, minus (b) the amount, if any, by which all non-recurring
losses or expenses exceed all non-recurring items or income or gain.
Pre-Tax
Income shall not be adjusted if all non-recurring items of income or gain exceed
all non-recurring losses or expenses. Items shall be deemed to be non-recurring
only if they qualify as non-recurring pursuant to GAAP.
1.3.25 “Proxy
Statement”
means
a
proxy statement filed with the SEC pursuant to Section 14(a) of the 1934 Act
which seeks stockholder approval of the Certificate of Amendment.
1.3.26 “Purchase
Price”
means
the two million four hundred thousand dollars ($2,400,000) to be paid by the
Investors to the Company for the Securities.
1.3.27 “Registration
Rights Agreement”
means
the registration rights agreement between the Investor and the Company in
substantially the form of Exhibit
E
to this
Agreement.
1.3.28 “Registration
Statement”
means
the registration statement under the 1933 Act to be filed with the SEC for
the
registration of the Shares pursuant to the Registration Rights
Agreement.
1.3.29 “Restricted
Stockholders”
shall
have the meaning set forth in Section 6.16 of this Agreement.
1.3.30 “Restriction
Termination Date”
shall
mean the date on which the Investors shall have (a) converted all Notes and
shares of Series A Preferred Stock and exercised all Warrants (other than
Warrants that shall have expired unexercised) and (b) sold the underlying Shares
in the public market.
1.3.31 “Restriction
Termination Date at 90%”
shall
mean the date on which the Investors shall have (a) converted Notes and shares
of Series A Preferred Stock and exercised Warrants (other than Warrants that
shall have expired unexercised) and (b) sold 90% of the Total
Shares.
1.3.32 “Securities”
means
the Note, the shares of Series A Preferred Stock, the Warrants and the
Shares.
1.3.33 “SEC”
means
the Securities and Exchange Commission.
1.3.34 “SEC
Documents”
means,
at any given time, the Company’s latest Form 10-K or Form 10-KSB and all Forms
10-Q or 10-QSB and 8-K and all proxy statements or information statements filed
between the date the most recent Form 10-K or Form 10-KSB was filed and the
date
as to which a determination is being made.
1.3.35 “Series
A Preferred Stock”
means
the shares of Series A Preferred Stock having the rights, preferences and
privileges and subject to the limitations set forth in the Certificate of
Designation.
1.3.36 “Shares”
means,
collectively, the shares of Common Stock issued or issuable (i) upon conversion
of the Notes or Series A Preferred Stock and (ii) upon exercise of the
Warrants.
1.3.37 “Subsidiary”
means
an entity in which the Company and/or one or more other Subsidiaries directly
or
indirectly own either 50% of the voting rights or 50% of the equity
interests.
1.3.38 “Subsequent
Financing”
means
any offer and sale of shares of Preferred Stock or debt that is initially
convertible into shares of Common Stock or otherwise senior or superior to
the
Series A Preferred Stock.
1.3.39 “Target
Number”
has
the
meaning set forth in Section 6.15.2 of this Agreement.
1.3.40 “Total
Shares”
means
the number of shares of Common Stock as are issuable upon conversion of the
Notes, such number to be determined as if the Notes are never converted into
shares of Series A Preferred Stock and shall be based on the calculation which
excludes any computation based on the issuance of Common Stock referred to
in
clause (c) of the first introductory paragraph of this Agreement. Based on
the
initial conversion price, as defined in the Note, which is thirty seven cents
($.37) and the initial exercise price of the Warrants, which is sixty nine
cents
($.69) the Total Shares shall be twelve million four hundred eighty six thousand
four hundred eighty six (12,486,486) shares of Common Stock. The number of
Total
Shares shall be adjusted to reflect any change in the conversion price of the
Notes or Series A Preferred Stock and the exercise price of the Warrants and
the
expiration of any Warrants.
1.3.41 “Transaction
Documents”
means
this Agreement, all Schedules and Exhibits attached hereto, the Notes, the
Certificate of Designation, the Warrants, the Registration Rights Agreement,
the
Closing Escrow Agreement and all other documents and instruments to be executed
and delivered by the parties in order to consummate the transactions
contemplated hereby.
1.3.42 “Warrants”
means
the common stock purchase warrants in substantially the forms of Exhibits
F-1, F-2 and F-3
to this
Agreement.
1.4
All
references in this Agreement to “herein” or words of like effect, when referring
to preamble, recitals, article and section numbers, schedules and exhibits
shall
refer to this Agreement unless otherwise stated.
Article
2
SALE
AND PURCHASE OF NOTES; PURCHASE PRICE
2.1
Sale
of Notes.
2.1.1 Upon
the
terms and subject to the conditions set forth herein, and in accordance with
applicable law, the Company agrees to sell to the Investors, and each Investor
severally agrees to purchase from the Company, on the Closing Date, Notes for
portion of the Purchase Price set forth after the Investor’s name on Schedule A
to this Agreement in the principal amount set forth in said Schedule A. At
or
prior to the Closing each Investor shall wire the Investor’s portion of the
Purchase Price to the Escrow Agent, who shall release the Purchase Price to
the
Company upon receipt of instructions from the Investor and the Company as
provided in the Escrow Agreement. The Company shall cause the Notes to be issued
to the Investors upon the release of the Purchase Price to the Company by the
Escrow Agent pursuant to the terms of the Escrow Agreement.
2.1.2 The
Notes
shall be convertible into Preferred Stock and Warrants, or Common Stock and
Warrants or Common Stock in the manner set forth in the first introductory
paragraph of this Agreement, all as set forth in the Notes. As provided in
the
Notes, upon filing of the Certificate of Amendment and the Certificate of
Designation, the Notes shall be automatically converted, without any action
on
the part of the holder thereof, into an aggregate of six million four hundred
eighty six thousand four hundred eighty six (6,486,486) shares of Series A
Convertible Preferred Stock, Warrants to purchase an aggregate of six million
(6,000,000) shares of Common Stock at sixty nine cents ($.69) per share,
Warrants to purchase an aggregate of three million (3,000,000) shares of Common
Stock at eighty cents ($.80) per share, and , and (iv) Warrants to purchase
three million (3,000,000) shares of Common Stock at one dollar ($1.00) per
share, less any securities issued as a result of a conversion prior to such
automatic conversion.
2.1.3 Except
as
expressly provided in the Certificate of Designation and the Warrants, an
Investor shall not be entitled to convert the Notes or Series A Preferred
Stock
into
shares of Common Stock or to exercise the Warrants to the extent that such
conversion or exercise would result in beneficial ownership by the Investor
and
its Affiliates of more than 4.9% of the then outstanding number of shares of
Common Stock on such date after giving effect to such conversion or exercise.
For the purposes of this Agreement beneficial ownership shall be determined
in
accordance with Section 13(d) of the 1934 Act, and Regulation 13d-3 thereunder.
The limitation set forth in this Section 2.1.3 is referred to as the
“4.9%
Limitation.”
Article
3
CLOSING
DATE AND DELIVERIES AT CLOSING
3.1
Closing
Date.
The
Closing of the transactions contemplated by this Agreement, unless expressly
determined herein, shall be held at the offices of the Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ LLP, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 2:00 P.M. local time,
on
the Closing Date or on such other date and at such other place as may be
mutually agreed by the parties, including closing by facsimile with originals
to
follow.
3.2
Deliveries
by the Company.
In
addition to and without limiting any other provision of this Agreement, the
Company agrees to deliver, or cause to be delivered, to the escrow agent under
the Escrow Agreement, the following:
(a) At
or
prior to Closing, an executed Agreement with all exhibits and schedules attached
hereto;
(b) At
the
Closing, Notes in the names of the Investors in the amounts set forth in
Schedule A to this Agreement;
(c) The
executed Registration Rights Agreement;
(d) The
executed Closing Escrow Agreement;
(e) Copies
of
all SEC correspondence since last Form 10-KSB and any correspondence which
was
issued prior to the last Form 10-KSB which has not been resolved to the
satisfaction of the SEC.
(f) Schedule
of all amounts owed (cash and stock) to officers, consultants and key employees
(salary, bonuses, etc.).
(g) Certifications
in form and substance acceptable to the Company and the Investors from any
and
all brokers or agents involved in the transactions contemplated hereby as to
the
amount of commission or compensation payable to such broker or agent as a result
of the consummation of the transactions contemplated hereby and from the Company
or Investor, as appropriate, to the effect that reasonable reserves for any
other commissions or compensation that may be claimed by any broker or agent
have been set aside;
(h) Management
letter from the Company’s registered independent accounting firm or confirmation
from such firm that no such letter were issued in connection with the Company’s
most recent audit;
(i) Evidence
of approval of the Board of Directors of the Company of the Transaction
Documents and the transactions contemplated hereby and thereby;
(j) Agreements
from the Restricted Stockholders pursuant to Section 6.16 of this
Agreement.
(k) Evidence
that the Certificate of Amendment has been approved by the directors, and that
the board of directors has authorized the filing of the Proxy Statement with
the
SEC.
(l) Good
standing certificate from the Secretary of State of the State of North
Carolina;
(m) Copy
of
the Company’s Articles, as currently in effect, certified by the Secretary of
State of the State of North Carolina.
(n) An
opinion from the Company’s general counsel, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., P.C.,
concerning the Transaction Documents and the transactions contemplated hereby
in
form and substance reasonably acceptable to Investors;
(o) The
executed disbursement instructions pursuant to the Escrow Agreement, which
shall
provide that the Escrow Agent continue to hold $150,000 to pay the Company’s
anticipated obligations to its investor relations company;
(p) Evidence
that the Company’s cash position immediately following the Closing, based upon
its cash position on or about April 30, 2007 and the payment of debt
contemplated by Section 6.12 of this Agreement shall be not less than three
million dollars ($3,000,000) and that the payment to such debt holders
constitutes full payment of all of the Company’s obligations to such debt
holders.
(q) Copies
of
all executive employment agreements, all past and present financing
documentation or other documentation where stock could potentially be issued
or
issued as payment, all past and present litigation documents which have not
been
disclosed in the Company’s Form 10-KSB for the year ended December 31, 2006;
and
(r) Such
other documents or certificates as shall be reasonably requested by Investors
or
their counsel.
3.3
Deliveries
by Investors.
In
addition to and without limiting any other provision of this Agreement, the
Investors agree to deliver, or cause to be delivered, to the Escrow Agent under
the Escrow Agreement, the following:
(a) A
deposit
from each Investor as to the Investor’s portion of the Purchase
Price;
(b) The
executed Agreement with all Exhibits and Schedules attached hereto;
(c) The
executed Registration Rights Agreement;
(d) The
executed Closing Escrow Agreement;
(e) The
executed disbursement instructions pursuant to the Escrow Agreement;
and
(f) Such
other documents or certificates as shall be reasonably requested by the Company
or its counsel.
3.4
Delivery
of Original Documents.
In the
event any document provided to the other party in Paragraphs 3.2 and 3.3 herein
are provided by facsimile, the party shall forward an original document to
the
other party within seven (7) business days.
3.5
Further
Assurances.
The
Company and each Investor shall, upon request, on or after the Closing Date,
cooperate with each other (specifically, the Company shall cooperate with the
Investors, and each Investor shall cooperate with the Company) by furnishing
any
additional information, executing and delivering any additional documents and/or
other instruments and doing any and all such things as may be reasonably
required by the parties or their counsel to consummate or otherwise implement
the transactions contemplated by this Agreement.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CHINA
EDUCATION ALLIANCE, INC. AND ▇▇▇▇▇▇ PARTNERS
LP
PAGE
8
3.6
Waiver.
An
Investor may waive any of the requirements of Section 3.2 of this Agreement,
and
the Company may waive any of the provisions of Section 3.3 of this Agreement.
The Investors may also waive any of the requirements of the Company under the
Escrow Agreement.
Article
4
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Investors as of the date hereof and
as of
Closing Date (which warranties and representations shall survive the Closing
regardless of any examinations, inspections, audits and other investigations
the
Investors have heretofore made or may hereinafter make with respect to such
warranties and representations) as follows:
4.1
Organization
and Qualification.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of North Carolina, and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on
its
business as it is now being conducted and is duly qualified to do business
in
any other jurisdiction by virtue of the nature of the businesses conducted
by it
or the ownership or leasing of its properties, except where the failure to
be so
qualified will not, when taken together with all other such failures, have
a
Material Adverse Effect on the business, operations, properties, assets,
financial condition or results of operation of the Company and its subsidiaries
taken as a whole.
4.2
Company’s
Governing Documents.
The
complete and correct copies of the Company’s Governing Documents (a) have been
provided to the Investor and (b) have been filed with the SEC in accordance
with
the regulations of the SEC and (c) will be in full force and effect on the
Closing Date.
4.3
Capitalization.
4.3.1 The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and as adjusted to reflect the issuance and sale of the Securities
pursuant to this Agreement is set forth in Schedule 4.3.l to this Agreement.
Schedule 4.3.1 lists all shares and potentially dilutive events, including
shares issuable pursuant to employment, consulting and other services
agreements, acquisition agreements, options and equity-based incentive plans,
debt securities, convertible securities, financing or business relationships
as
well as each agreement, plan, arrangement or understanding pursuant to which
any
shares of any class of capital stock may be issued, a copy of each of which
has
been provided to the Investors.
4.3.2 All
shares of capital stock described above to be issued have been duly authorized
and when issued, will be validly issued, fully paid and non-assessable and
free
of preemptive rights.
4.3.3 Except
pursuant to this Agreement and as set forth in Schedule 4.3.1, there are not
now
outstanding options, warrants, rights to subscribe for, calls or commitments
of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of any class of capital stock of the Company, or
agreements, understandings or arrangements to which the Company is a party,
or
by which the Company is or may be bound, to issue additional shares of its
capital stock or options, warrants, scrip or rights to subscribe for, calls
or
commitment of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of any class of its capital
stock. The Company agrees to inform the Investors in writing of any additional
warrants granted prior to the Closing Date.
SECURITIES
PURCHASE AGREEMENT BETWEEN
CHINA
EDUCATION ALLIANCE, INC. AND ▇▇▇▇▇▇ PARTNERS
LP
PAGE
9
4.4
Authority.
4.4.1 The
Company has all requisite corporate power and authority to execute and deliver
this Agreement, Notes and the Securities issuable upon conversion of the Notes,
the Registration Rights Agreement, the Closing Escrow Agreement and any other
Transaction Documents to which the Company is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
the Notes and the Securities issuable upon conversion of the Notes, the
Registration Rights Agreement, the Closing Escrow Agreement and any other
Transaction Documents to which the Company is a party have been duly authorized
by all necessary corporate action and no other corporate proceedings on the
part
of the Company is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby and thereby except as disclosed in this
Agreement. This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditors’ rights and except
that any the granting of equitable relief is in the discretion of the
court.
4.4.2 The
Note,
when issued pursuant to this Agreement, constitutes the valid, binding and
obligation of the Company enforceable in accordance with its terms, except
as
enforceability may be limited by bankruptcy, insolvency and other laws of
general application affecting the enforcement of creditors’ rights and except
that any the granting of equitable relief is in the discretion of the court.
The
Certificate of Amendment has been approved by the board of directors. Upon
the
filing of the Certificate of Amendment and the Certificate of Designation,
the
equity Securities issuable upon conversion of the Note, when so issued, will
be
duly and validly authorized and issued, fully paid and non-assessable and the
Warrants will be the valid and binding obligations of the Company, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency and other laws of general application affecting the
enforcement of creditors’ rights and except that any the granting of equitable
relief is in the discretion of the court. All such Securities, when so issued,
will be free and clear of all liens, charges, claims, options, pledges,
restrictions, preemptive rights, rights of first refusal and encumbrances
whatsoever (other than those incurred by the Investor).
4.4.3 Notwithstanding
any contrary representations and warranties, no
representation is made with respect to the ability of any Investor to convert
the Note or, following the filing of the Certificate of Amendment and the
Certificate of Designation, the Series A Preferred Stock or exercise any Warrant
if and to the extent that the conversion price of the Note or the Series A
Preferred Stock, as defined in the Note or the Certificate of Designation,
or
the number of Shares issuable upon exercise of the Warrants would result in
the
issuance of a number of shares of Common Stock which is greater than the amount
by which the authorized Common Stock exceeds the sum of the outstanding Common
Stock and the shares of Common Stock reserved for issuance pursuant to
outstanding agreements and outstanding options, warrants, rights, convertible
securities and other securities upon the exercise or conversion of which or
pursuant to the terms of which additional shares of Common Stock may be issuable
(the foregoing proviso being referred to as the “Authorized
Stock Proviso”).
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4.5
No
Conflict; Required Filings and Consents.
Neither
the execution and delivery of this Agreement by the Company nor the issuance
of
the Notes and other Transaction Documents, and the performance by the Company
of
its obligations hereunder and thereunder will: (i) conflict with or violate
the
Company’s or any Subsidiary’s Governing Instruments; (ii) conflict with, breach
or violate any federal, state, foreign or local law, statute, ordinance, rule,
regulation, order, judgment or decree (collectively, “Laws”)
in
effect as of the date of this Agreement and applicable to the Company or any
Subsidiary; or (iii) result in any breach of, constitute a default (or an event
that with notice or lapse of time or both would become a default) under, give
to
any other entity any right of termination, amendment, acceleration or
cancellation of, require payment under, or result in the creation of a lien
or
encumbrance on any of the properties or assets of the Company or any Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties or assets is bound, other than such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens that would not, in the aggregate, have a Material Adverse
Effect
except
to the extent that stockholder approval may be required as a result of the
Authorized Stock Proviso, in which event, the Company will seek stockholder
approval to an increase in the authorized Common Stock sufficient to enable
the
Company to be in compliance with this Section 4.5..
4.6
Report
and Financial Statements.
The
Company’s Annual Report on Form 10-KSB for the year ended December 31, 2006 with
the SEC contains the audited consolidated financial statements of the Company
and its Subsidiaries, certified by Murrell, Hall, ▇▇▇▇▇▇▇▇ & Co., PLLP
(“▇▇▇▇▇▇▇,
Hall”),
the
Company’s independent registered accounting firm. Each of the consolidated
balance sheets contained in the Form 10-KSB fairly presents the financial
position of the Company, as of its date, and each of the consolidated statements
of income, stockholders’ equity and cash flows (including any related notes and
schedules thereto) fairly presents the results of operations, cash flows and
changes in stockholders’ equity, as the case may be, of the Company and its
Subsidiaries for the periods to which they relate, in each case in accordance
with GAAP consistently applied during the periods involved. ▇▇▇▇▇▇, ▇▇▇▇ is
independent as to the Company in accordance with the rules and regulations
of
the SEC. The books and records of the Company and its Subsidiaries have been,
and are being, maintained in all material respects in accordance with GAAP
and
any other applicable legal and accounting requirements and reflect only actual
transaction. The Company has not received any letters of comments from the
SEC
relating to any filing made by the Company with the SEC which has not been
addressed by an amended filing, and each amended filing fully responds to the
questions raised by the staff of the SEC. The Company maintains disclosure
controls and procedures that are effective to ensure that information required
to be disclosed by the Company in its annual and quarterly reports filed with
the SEC is accumulated and communicated to the Company’s management, including
its principal executive and financial officers as appropriate, to allow timely
decisions regarding required disclosure. There were no significant changes
in
the Company’s internal controls or other factors that could significantly affect
such controls subsequent to December 31, 2006. The Company has not received
any
advice from its independent registered accounting firm to the effect that there
is any significant deficiency or material weakness in the Company’s controls or
recommending any corrective action on the part of the Company or any Subsidiary.
4.7
Compliance
with Applicable Laws.
Neither
the Company nor any Subsidiary is in violation of, or, to the knowledge of
the
Company is under investigation with respect to or has been given notice or
has
been charged with the violation of, any Law of a governmental agency, except
for
violations which individually or in the aggregate do not have a Material Adverse
Effect.
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4.8
Brokers.
Except
as set forth on Schedule 4.8, no broker, finder or investment banker is entitled
to any brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or
on behalf of the Company.
4.9
SEC
Documents.
The
Investors acknowledge that the Company is a publicly held company and has made
available to the Investors upon request true and complete copies of any
requested SEC Documents. The Company has registered its Common Stock pursuant
to
Section 12(d) of the 1934 Act, and the Common Stock is quoted and traded on
the
OTC Bulletin Board of the National Association of Securities Dealers, Inc.
The
Company has received no notice, either oral or written, with respect to the
continued quotation or trading of the Common Stock on the OTC Bulletin Board.
The Company has not provided to the Investor any information that, according
to
applicable law, rule or regulation, should have been disclosed publicly prior
to
the date hereof by the Company, but which has not been so disclosed. As of
their
respective dates, the SEC Documents complied in all material respects with
the
requirements of the 1934 Act, and rules and regulations of the SEC promulgated
thereunder and the SEC Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
4.10 Litigation.
To the
knowledge of the Company, no litigation, claim, or other proceeding before
any
court or governmental agency is pending or to the knowledge of the Company,
threatened against the Company, the prosecution or outcome of which may have
a
Material Adverse Effect.
4.11
Employment
Agreements.
Except
as disclosed in the Company’s Form 10-KSB for the year ended December 31, 2006,
the Company does not have any agreement or understanding with any officer or
director, and there has been no material change in the compensation of any
officer and director from that shown in said Form 10-KSB.
4.12
Exemption
from Registration.
Subject
to the accuracy of the Investors’ representations in Article V of this
Agreement, except as required pursuant to the Registration Rights Agreement,
the
sale of the Common Stock and Warrants by the Company to the Investor will not
require registration under the 1933 Act. When issued upon conversion of the
Series A Preferred Stock or upon exercise of the Warrants in accordance with
their terms, the Shares underlying the Preferred Stock and the Warrants will
be
duly and validly authorized and issued, fully paid, and non-assessable. The
Company is issuing the Preferred Stock and the Warrants in accordance with
and
in reliance upon the exemption from securities registration afforded, inter
alia, by Rule 506 under Regulation D as promulgated by the SEC under the 1933
Act, and/or Section 4(2) of the 1933 Act.
4.13
No
General Solicitation or Advertising in Regard to this
Transaction.
Neither
the Company nor any of its Affiliates nor, to the knowledge of the Company,
any
Person acting on its or their behalf (i) has conducted or will conduct any
general solicitation (as that term is used in Rule 502(c) of Regulation D as
promulgated by the SEC under the ▇▇▇▇ ▇▇▇) or general advertising with respect
to the sale of the Preferred Stock or Warrants, or (ii) made any offers or
sales
of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Notes, Series A Preferred
Stock, Common Stock or Warrants, under the 1933 Act, except as required
herein.
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4.14
No
Material Adverse Effect.
Since
December 31, 2006, no event or circumstance resulting in a Material Adverse
Effect has occurred or exists with respect to the Company. No material supplier
or customer has given notice, oral or written, that it intends to cease or
reduce the volume of its business with the Company from historical levels.
Since
December 31, 2006, no event or circumstance has occurred or exists with respect
to the Company or its businesses, properties, prospects, operations or financial
condition, that, under any applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has
not been so publicly announced or disclosed in writing to the
Investor.
4.15
Material
Non-Public Information.
The
Company has not disclosed to the Investors any material non-public information
that (i) if disclosed, would reasonably be expected to have a material effect
on
the price of the Common Stock or (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the
date
hereof but which has not been so disclosed.
4.16
Internal
Controls And Procedures.
The
Company and its Subsidiaries maintain books and records and internal accounting
controls which provide reasonable assurance that (i) all transactions to which
the Company or any Subsidiary is a party or by which their respective its
properties are bound are executed with management’s authorization; (ii) the
recorded accounting of the Company’s consolidated assets is compared with
existing assets at regular intervals; (iii) access to the Company’s consolidated
assets is permitted only in accordance with management’s authorization; and (iv)
all transactions to which the Company or any Subsidiary is a party or by which
any of their respective properties are bound are recorded as necessary to permit
preparation of the financial statements of the Company in accordance with
GAAP.
4.17
Full
Disclosure.
No
representation or warranty made by the
Company in
this
Agreement and no certificate or document furnished or to be furnished to the
Investor pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not
misleading.
Article
5
REPRESENTATIONS
AND WARRANTIES OF THE INVESTORS
Each
Investor severally and not jointly represents and warrants to the Company
that:
5.1 Concerning
the Investors.
The
state in which any offer to purchase shares hereunder was made or accepted by
such Investor is the state shown as such Investor’s address. The Investor was
not formed for the purpose of investing solely in the Securities.
5.2
Authorization
and Power.
The
Investor has the requisite power and authority to enter into and perform this
Agreement and to purchase the securities being sold to it hereunder. The
execution, delivery and performance of this Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby have been
duly authorized by all necessary partnership action where appropriate. This
Agreement, the Registration Rights Agreement and the Closing Escrow Agreement
have been duly executed and delivered by such Investor and at the Closing shall
constitute valid and binding obligations of such Investor enforceable against
the Investor in accordance with their terms, except as such enforceability
may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
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5.3
No
Conflicts.
The
execution, delivery and performance of this Agreement and the consummation
by
such Investor of the transactions contemplated hereby or relating hereto do
not
and will not (i) result in a violation of such Investor’s charter documents or
bylaws where appropriate or (ii) conflict with, or constitute a default (or
an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of any agreement, indenture or instrument to which such Investor
is
a party, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to such
Investor or its properties (except for such conflicts, defaults and violations
as would not, individually or in the aggregate, have a Material Adverse Effect
on such Investor). The Investor is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or
governmental agency in order for it to execute, deliver or perform any of such
Investor’s obligations under this Agreement or to purchase the securities from
the Company in accordance with the terms hereof, provided that for purposes
of
the representation made in this sentence, the Investor is assuming and relying
upon the accuracy of the relevant representations and agreements of the Company
herein.
5.4
Financial
Risks.
Such
Investor acknowledges that such Investor is able to bear the financial risks
associated with an investment in the securities being purchased by such Investor
from the Company and that it has been given full access to such records of
the
Company and its Subsidiaries and to the officers of the Company and its
Subsidiaries as it has deemed necessary or appropriate to conduct its due
diligence investigation. Such Investor is capable of evaluating the risks and
merits of an investment in the securities being purchased by the Investor from
the Company by virtue of its experience as an investor and its knowledge,
experience, and sophistication in financial and business matters and the
Investor is capable of bearing the entire loss of its investment in the
securities being purchased by the Investor from the Company.
5.5
Accredited
Investor.
The
Investor is (i) an “accredited investor” as that term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act by reason of Rule 501(a)(3) and
(6),
(ii) experienced in making investments of the kind described in this Agreement
and the related documents, (iii) able, by reason of the business and financial
experience of its officers (if an entity) and professional advisors (who are
not
affiliated with or compensated in any way by the Company or any of its
affiliates or selling agents), to protect its own interests in connection with
the transactions described in this Agreement, and the related documents, and
(iv) able to afford the entire loss of its investment in the securities being
purchased by the Investor from the Company.
5.6
Brokers.
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or Commission in connection with the transactions contemplated by
this
Agreement based upon arrangements made by or on behalf of such Investor. Such
Investor understands that any obligations under agreements or arrangements
with
brokers disclosed in Schedule 4.8 are obligations of the Company.
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5.7
Knowledge
of Company.
Such
Investor and such Investor’s advisors, if any, have been, upon request,
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the securities
being purchased by such Investor from the Company. Such Investor and such
Investor’s advisors, if any, have been afforded the opportunity to ask questions
of the Company and have received complete and satisfactory answers to any such
inquiries.
5.8
Risk
Factors.
Each
Investor understands that such Investor’s investment in the securities being
purchased by such Investor from the Company involves a high degree of risk.
Such
Investor understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation
or
endorsement of the securities being purchased by the Investor from the Company.
Such Investor warrants that such Investor is able to bear the complete loss
of
such Investor’s investment in the securities being purchased by the Investor
from the Company.
5.9
Full
Disclosure.
No
representation or warranty made by such Investor in this Agreement and no
certificate or document furnished or to be furnished to the Company pursuant
to
this Agreement contains or will contain any untrue statement of a material
fact,
or omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading. Except as set forth or referred
to
in this Agreement, Investor does not have any agreement or understanding with
any person relating to acquiring, holding, voting or disposing of any equity
securities of the Company.
Article
6
COVENANTS
OF THE COMPANY
6.1
Registration
Rights.
The
Company shall cause the Registration Rights Agreement to remain in full force
and effect according to the provisions of the Registration Rights Agreement
and
the Company shall comply in all material respects with the terms thereof. The
Company does not have any agreement or obligation which would enable any Person
to include securities in any registration statement required to be filed on
behalf of the Investors pursuant to the Registration Rights Agreement and will
not take any action which will give any Person any right to include securities
in any such registration statement. No Person has any demand or piggyback
registration right with respect to any securities of the Company. The Company
will not file any registration statement covering any shares of Common Stock
issuable to any officers, directors, Affiliates of or consultants to the Company
until the earlier of (a) thirty (30) months from the Closing Date or (b) the
Restriction Termination Date at 90%; provided, however, that the Company may
file a registration statement on Form S-8 for shares issued or issuable pursuant
to employee stock option plans for employees who are not officers, directors
or
Affiliates of the Company.
6.2
Reservation
of Common Stock.
As of
the date hereof, the Company has reserved and the Company shall continue to
reserve and keep available at all times, free of preemptive rights, the maximum
number of shares of Common Stock for the purpose of enabling the Company to
issue the shares of Common Stock underlying the Notes, Series A Preferred Stock
and Warrants.
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6.3
Compliance
with Laws.
The
Company hereby agrees to comply in all respects with the Company’s reporting,
filing and other obligations under the Laws.
6.4 Exchange
Act Registration.
The
Company will continue its obligation to report to the SEC under Section 12
of
the 1934 Act and will use its best efforts to comply in all respects with its
reporting and filing obligations under the 1934 Act, and will not take any
action or file any document (whether or not permitted by the 1934 Act or the
rules thereunder) to terminate or suspend any such registration or to terminate
or suspend its reporting and filing obligations under the 1934 until the
Investors have disposed of all of their Shares.
6.5
Corporate
Existence; No Conflicting Agreements.
The
Company will take all steps necessary to preserve and continue the corporate
existence of the Company. The Company shall not enter into any agreement, the
terms of which agreement would restrict or impair the right or ability of the
Company to perform any of its obligations under this Agreement or any of the
other agreements attached as exhibits hereto.
6.6 Listing,
Securities Exchange Act of 1934 and Rule 144
Requirements.
The
Company shall not take any action which would cause its Common Stock not to
be
traded on the OTC Bulletin Board, except that the Company may list the Common
Stock on the Nasdaq Stock Market or the American or New York Stock Exchange
if
it meets the applicable listing requirements. If, for any time after the
Closing, the Company is no longer in compliance with this Section 6.6, then
the
Company shall pay to the Investors as liquidated damages and not as a penalty,
an amount equal to twelve percent (12%) per annum, based on the lesser of (a)
the Purchase Price or (b) that percentage of the Purchase Price which the Unsold
Shares bears to the number of shares of Common Stock initially issuable upon
conversion of the Series A Preferred Stock sold pursuant to this Agreement.
The
Unsold Shares shall mean shares of Series A Preferred Stock with respect to
which both (i) the Series A Preferred Stock has not been converted and (ii)
the
underlying shares of Common Stock have not been sold or otherwise transferred
pursuant to a registration statement or Rule 144. The liquidated damages shall
be payable in cash or in shares of Series A Preferred Stock, as the Company
shall determine. If, pursuant to this Agreement, share of Series A Preferred
Stock are to be delivered, each share of Series A Preferred Stock shall be
valued at an amount equal to the conversion ratio, as set forth in the
Certificate of Designation, which initially shall be one (1), multiplied by
the
average closing price of the Common Stock for the five (5) trading days
preceding the date on which the computation is required to be made. Such
damages shall be payable quarterly on the tenth (10th)
day of
the following calendar quarter, and shall cease at the time the Company begins
complying with the provisions of this Section 6.6.
6.7
No
Convertible Debt or Preferred Stock.
On
or
prior to the Closing Date, the Company will cause to be cancelled or paid all
convertible debt in the Company. Until the earlier of (a) five years from the
Closing Date or (b) the Restriction Termination Date, the Company will not
issue
any convertible debt or any shares of any class or series of Preferred
Stock.
6.8
Debt
Limitation.
The
Company agrees until the earlier of (a) three years after Closing Date or (b)
the Restriction Termination Date at 90%, it will not have outstanding any debt
in an amount greater than twice as the sum of the EBITDA from continuing
operations for the past four quarters.
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6.9
Reset
Equity Deals.
On
or
prior to the Closing Date, the Company will cause to be cancelled any and all
reset features related to any shares outstanding that could result in additional
shares being issued. Until the earlier of (a) five years from the Closing Date
or (b) the Restriction Termination Date, the Company will not enter into any
transactions that have any reset features that could result in additional shares
being issued.
6.10 Independent
Directors.
6.10.1 The
Company shall have caused the appointment of the majority of the board of
directors to be independent directors, as defined by the rules
of
the Nasdaq Stock Market, not later than the ninety (90) days after the Closing
Date.
6.10.2 If,
at
any time subsequent to ninety (90) days after the Closing Date until the earlier
of (a) three years from the Closing or (b) the Restriction Termination Date
at
90%, the board of directors shall not be composed of a majority of independent
directors:
6.10.2.1 for
a
reason other than for an Excused Reason, the Company shall have 60 days to
take
such steps as are necessary so that a majority of the Company’s directors are
independent directors, and
6.10.2.2 for
an
Excused Reason, the Company shall have 75 days from the date that the Company
becomes aware of the event (or the last event if there are more than one such
event) giving rise to the Excused Reason, to take such steps as are necessary
so
that a majority of the Company’s directors are independent
directors.
6.10.3 The
term
“Excused Reason” shall mean the death or resignation of an independent director
or the occurrence of an event whereby an independent director ceases to be
independent.
6.10.4 If,
during the period referred to in Section 6.10.2 of this Agreement, the Company
shall have failed to have a board of directors composed of a majority of
independent directors after the date by which such situation was to have been
cured pursuant to Section 6.10.2.1 or Section 6.10.2.2 of this Agreement,
whichever shall apply, the Company shall pay to the Investors, as liquidated
damages and not as a penalty, an amount equal to twelve percent (12%) per annum
of the Purchase Price of the then outstanding shares of Series A Preferred
Stock, payable monthly on the tenth (10th)
day of
the following month, in cash or in Series A Preferred Stock at the option of
the
Investors, based on the number of days that such condition exists beyond the
applicable grace period. The parties agree that the only damages payable for
a
violation of such provisions shall be such liquidated damages. The parties
hereto agree that the liquidated damages provided for in this Section 6.10.4
constitute a reasonable estimate of the damages that may be incurred by the
Investors by reason of the failure of the Company to have a majority of
directors as independent directors.
6.10.5 In
no
event shall the total payments made pursuant to this Section 6.10 and Section
6.11, whether in cash or Series A Preferred Stock exceed in the aggregate twelve
percent (12%) of the Purchase Price of the shares of Series A Preferred Stock
that are outstanding as of the date on which a computation is being
made.
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6.11 Independent
Directors on Audit and Compensation Committees. No
later
than ninety (90) days after the Closing Date, the Company will have an audit
committee comprised solely of not less than three independent directors and
a
compensation committee comprised of not less than three directors, a majority
of
whom are independent directors. If at any time subsequent to the Closing Date
during the period when the Company is required to have a majority of independent
directors pursuant to Section 6.10 of this Agreement, independent directors
do
not comprise all of the members of the audit committee and a majority of the
members of the compensation committee within the grace periods provided in
Section 6.10, the Company shall pay to the Investors, as liquidated damages
and
not as a penalty, an amount equal to twelve percent (12%) per annum of the
Purchase Price of the then outstanding Series A Preferred Stock payable in
the
manner and at the time provided in Section 6.10, such payment shall be based
on
the number of days that such condition exists. The parties agree that the only
damages payable for a violation of the terms of this Agreement with respect
to
which liquidated damages are expressly provided shall be such liquidated
damages. Notwithstanding the foregoing, no liquidated damages shall be payable
pursuant to this Section 6.11 during any period for which liquidated damages
are
payable pursuant to Section 6.10.
6.12
Use
of Proceeds.
The
Company will use the net proceeds from the sale of the Securities, after payment
of legal fees and other closing costs, to pay in full the Company’s obligations
to note holders for whom SBI Advisors, LLC in the principal amount of $1,330,000
and for working capital.
6.13 Right
of First Refusal.
6.13.1 In
the
event that the Company seeks to raise additional funds through a
private
placement of its securities (a “Proposed
Financing”),
other
than Exempt Issuances, each Investor shall have the right to participate in
any
subsequent funding by the Company of the offering price on a pro rata basis,
based on the percentage that (a) the number of such Investor’s Percentage
Shares, without regard to the 4.9% Limitation but excluding shares of Common
Stock issuable upon exercise of Warrants, bears to (b) the total number of
shares of Common Stock outstanding plus the number of Shares issuable upon
conversion of the Series A Preferred Stock and any other series of convertible
preferred stock or debt securities, without regard to the 4.9% Limitations
any
other limitations on exercise such other convertible preferred stock or debt
securities. The term “Percentage
Shares”
shall
mean the number of Total Shares less the number of shares of Common Stock
issuable upon exercise of outstanding Warrants. This Section 6.13 shall apply
to
each such offering based on the total purchase price of the securities being
offered by the Company. This right is personal to the Investors and is not
transferable, whether in connection with the sale of stock or
otherwise.
6.13.2 The
terms
on which the Investors shall purchase securities pursuant to Proposed Financing
shall be the same as such securities are purchased by other investors. The
Company shall give the Investors the opportunity to participate in the offering
by giving the Investors not less than ten (10) days notice setting forth the
terms of the Proposed Financing. In the event that the terms of the Proposed
Financing are changed in a manner which is more favorable to the potential
investor, the Company shall provide the Investors, at the same time as the
notice is provided to the other potential investors, with a new ten (10) day
notice setting forth the revised terms that are provided to the other potential
investors.
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6.13.3 In
the
event that the Investors does not exercise its right to participate in the
Proposed Financing within the time limits set forth in Section 6.13.2 of this
Agreement, the Company may sell the securities in the Proposed Financing at
a
price and on terms which are no more favorable to the investors than the terms
provided to the Investors. If the Company subsequently changes the price or
terms so that the price is more favorable to the investors or so the terms
are
more favorable to the investors, the Company shall provide the Investors with
the opportunity to purchase the securities on the revised terms in the manner
set forth in Section 6.13.2
of this
Agreement.
6.14
Price
Adjustment.
From
the
Closing Date until such time as the Restriction Termination Date, except
for Exempt Issuances, as to which this Section
6.14
does not
apply, if the Company closes on the sale or issuance of Common Stock at a price,
or warrants, options, convertible
debt or
equity securities with a exercise price per share or exercise price per share
which is less than the Conversion Price, as defined in the Note and the
Certificate of Designation, then in effect (such lower sales price, conversion
or exercise price, as the case may be, being referred to as the “Lower Price”),
the Conversion Price in effect from and after the date of such transaction
shall
be reduced to the Lower Price. For purpose of determining the exercise price
of
warrants issued by the Company, the price, if any, paid per share for the
warrants shall be added to the exercise price of the warrants. A similar
provision shall be included in the Warrants, except that the adjustment in
the
warrant exercise price shall have a formula.
6.15
Deliveries
from Escrow Based on Pre-Tax Earnings Per Share.
6.15.1 At
the
Closing, pursuant to the Closing Escrow Agreement, the Company shall deliver
to
the Escrow Agent 2,000,000 shares of Common Stock and Xiqun Yu shall deliver
to
the Escrow Agent 2,000,000 shares of Common Stock. Upon the filing of the
Certificate of Amendment and the Certificate of Designation, the Company will
deliver to the Escrow Agent a certificate for 2,000,000 shares of Series A
Preferred Stock and the Escrow Agent shall return the certificate for 2,000,000
shares of Common Stock to the Company and the Company shall cancel such shares
of Common Stock.
6.15.2 In
the
event the Company’s consolidated Pre-Tax Income for the year ended December 31,
2007 is less than $0.06647 per share, on a fully-diluted basis (the
“Target
Number”)
the
percentage shortfall shall be determined by dividing the amount of the shortfall
by the Target Number.
6.15.3 If
the
percentage shortfall is equal to or greater than thirty three and one-third
percent (33 1/3%), then the Escrow Agent shall (a) deliver the 2,000,000 shares
of Series A Preferred Stock to the Investors in the ratio of their initial
purchase of Notes, and (b) deliver the 2,000,000 shares of Common Stock to
the
Company, and the Company shall cancel such shares.
6.15.4 If
the
percentage shortfall is less than thirty three and one-third percent (33 1/3%),
then the Escrow Agent shall (a) deliver to the Investors in the ratio of their
initial purchase of Securities the such number of shares of Series A Preferred
Stock as is determined by multiplying the percentage shortfall by 2,000,000
shares, (b) deliver to the Company the balance of the 2,000,000 shares of Series
A Preferred Stock that were not transferred to the Investors, and the Company
shall cancel such shares, (c) deliver to the Company such number of shares
of
Common Stock as is determined by multiplying the percentage shortfall by
2,000,000 shares, and the Company shall cancel such shares, and (d) deliver
to
Xiqun
Yu
the
balance of the 2,000,000 shares that were not transferred to the
Company.
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6.15.5 If
the
Escrow Agent shall not have received the 2,000,000 shares of Series A Preferred
Stock from the Company, the 2,000,000 shares of Common Stock delivered to the
Escrow Agent by the Company shall be delivered in the same manner that the
2,000,000 shares would have been delivered if the Escrow Agent had received
such
shares.
6.15.6 For
purpose of determining Pre-Tax Income Per Share on a fully-diluted basis, all
shares of Common Stock issuable upon conversion of convertible securities and
upon exercise of warrants and options (whether or not vested) shall be deemed
to
be outstanding, regardless of whether (i) such shares are treated as outstanding
for determining diluted earnings per share under GAAP, (ii) such securities
are
“in the money,” or (iii) such shares may be issued as a result of the 4.9%
Limitation; provided, however, that neither the 2,000,000 shares of Series
A
Preferred Stock held in escrow pursuant to Section 6.15.1 nor the shares of
Common Stock issuable upon conversion of such Series A Preferred Stock shall
be
deemed outstanding for purpose of this Section 6.15.
6.15.7 The
distribution of shares of Series A Preferred Stock and Common Stock pursuant
to
this Section 6.15 shall be made within five (5) business days after the Company
files its Form 10-KSB with the SEC. In the event that the Company does not
file
its Form 10-KSB for the year ended December 31, 2007 with the SEC within thirty
(30) days after the date that filing was required, after giving effect to any
extension pursuant to Rule 12b-25 of the Exchange Act, all of the 2,000,000
shares of Series A Preferred Stock shall be delivered to the Investors and all
of the 2,000,000 shares of Common Stock shall be transferred to the
Company.
6.15.8 The
parties understand that, pursuant to the Closing Escrow Agreement, the Escrow
Agent will not make any deliveries of shares without the signed written
instructions from the Company, the Investors and ▇▇. ▇▇.
6.16
Insider
Selling.
No
Restricted
Stockholders may sell any shares of Common Stock in the public market prior
to
the earlier of 27 months from the Closing Date or the Restriction Termination
Date; provided, however, that if any Restricted Stockholder who is director
and
not an executive officer of the Company shall cease to be a director, such
Person may sell not more than a total of 50,000 shares of Common Stock in the
public market during the period set forth in this sentence. Restricted
Stockholders shall mean any Person who is an officer, director or Affiliate
of
the Company or who becomes an officer or director of the Company subsequent
to
the Closing Date. Without
limiting the generality of the foregoing, the Restricted Stockholders shall
not
to directly or indirectly offer to sell, grant an option for the purchase or
sale of, transfer, pledge assign, hypothecate, distribute or otherwise encumber
or dispose of any securities in the Company in a transaction which is not in
the
public market unless the transferee agrees to be bound by the provisions of
this
Section 6.16. The
Company shall require any newly elected officer or director to agree to the
restriction set forth in this Section 6.16. ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ and the
Investors shall not be considered Restricted Stockholders. The restrictions
in
this Section 6.16 shall not apply to shares issued pursuant to a stock option
or
long-term incentive plans which may be approved by the Compensation Committee
provided that such committee is comprises of a majority of independent
directors.
6.17 Employment
and Consulting Contracts.
For
three
years after the Closing, the Company shall have a unanimous approval from the
Compensation Committee that any awards other than salary are usual, appropriate
and reasonable for any officer, director or consultants whose compensation
is
more than $100,000 per annum. This Section 6.17 does not apply to attorneys,
accountants and other persons who provide professional services to the
Company.
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6.18
Subsequent
Equity Sales.
From
the
date hereof until the Restriction Termination Date, the Company shall be not
effect or enter into an agreement to effect any Subsequent Financing involving
a
“Variable
Rate Transaction”
or
an
“MFN
Transaction”
(each
as defined below). The term “Variable
Rate Transaction”
shall
mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B)
with a conversion, exercise or exchange price that is subject to being reset
at
some future date after the initial issuance of such debt or equity security
or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock.
The
term “MFN
Transaction”
shall
mean a transaction in which the Company issues or sells any securities in a
capital raising transaction or series of related transactions which grants
to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor
in
such offering. Any Investor shall be entitled to obtain injunctive relief
against the Company to preclude any such issuance, which remedy shall be in
addition to any right to collect damages. Notwithstanding the foregoing, this
Section 6.18 shall not apply in respect of an Exempt Issuance, except that
no
Variable Rate Transaction or MFN Transaction shall be an Exempt
Issuance.
6.19
Amendment
to the Articles. The
Company’s board of directors has approved the Certificate of Amendment. The
Company shall promptly, but not later than thirty (30) days after the Closing
Date, file the Proxy Statement with the SEC, and shall mail the Proxy Statement
to stockholders within five (5) business days after the SEC has completed its
review of the Proxy Statement, of, if the SEC does not review the Proxy
Statement, within fifteen (15) business days after the Proxy Statement is filed
with the SEC.
The
Company shall schedule an annual or special meeting of stockholders as soon
as
possible, but not later than twenty five (25) days after the Proxy Statement
is
mailed to stockholders. The Company shall file the Certificate of Amendment
with
the Secretary of State of the State of North Carolina promptly, but not later
than three (3) business days after the meeting of stockholders at which the
Certificate of Amendment is approved. Mr.
Xiqun
Yu
agrees
to vote all shares of Common Stock which he controls in favor of the Certificate
of Amendment.
6.20
Stock
Splits.
All
forward and reverse stock splits shall effect all equity and derivative holders
proportionately.
6.21
Retention
of Investor Relations Firm.
The
Company shall instruct the Escrow Agent to retain one hundred fifty thousand
($150,000) of the proceeds of the sale of the Securities to be utilized for
payment to investor relations firms. The Company shall retain an investor
relations firm within 30 days after the Closing Date.
6.22
Payment
of Due Diligence Expenses.
At
Closing the Escrow Agent shall disperse to ▇▇▇▇▇▇ the sum of fifty thousand
dollars ($50,000.00) for its due diligence expenses.
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6.23 No
Outside Interests.
Until
the Restriction Termination Date, the Company’s chairman, chief executive
officer and chief financial officer will devote their full time and attention
to
the business of the Company and shall not have any business interests or
activities other than as chairman, chief executive officer or chief
financial officer, as the case may be, except that he or she may devote
time, which shall not be material and which shall not interfere with his or
her duties as the Company’s chairman, chief executive officer or chief financial
officer, as the case may be, to personal passive investments and charitable
and
community activities.
Article
7
COVENANTS
OF THE INVESTOR
Each
Investor, severally and not jointly, covenants and agrees with the Company
as
follows:
7.1
Compliance
with Law.
Each
Investor’s trading activities with respect to shares of the Company’s Common
Stock will be in compliance with all applicable state and federal securities
laws, rules and regulations and rules and regulations of any public market
on
which the Company’s Common Stock is listed.
7.2
Transfer
Restrictions. The
Investor’s acknowledge that (a) the Preferred Stock, Warrants and Shares
underlying the Preferred Stock and Warrants have not been registered under
the
provisions of the 1933 Act, and may not be transferred unless (i) subsequently
registered thereunder or (ii) the Investor shall have delivered to the Company
an opinion of counsel, reasonably satisfactory in form, scope and substance
to
the Company, to the effect that the Preferred Stock, Warrants and Shares
underlying the Notes and Warrants to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; and (b) any sale
of
the Shares underlying the Preferred Stock and Warrants made in reliance on
Rule
144 promulgated under the 1933 Act may be made only in accordance with the
terms
of said Rule and further, if said Rule is not applicable, any resale of such
securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used
in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder.
7.3
Restrictive
Legend. Each
Investor acknowledges and agrees that the Securities and the Shares shall bear
a
restrictive legend and a stop-transfer order may be placed against transfer
of
any such Securities except that the requirement for a restrictive legend shall
not apply to Shares sold pursuant to a current and effective registration
statement or a sale pursuant Rule 144 or any successor rule.
Article
8
CONDITIONS
PRECEDENT TO THE COMPANY’S OBLIGATIONS
The
obligation of the Company to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date, of the
following conditions:
8.1
No
Termination.
This
Agreement shall not have been terminated pursuant to Article 10
hereof.
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8.2
Representations
True and Correct.
The
representations and warranties of the Investors contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date
with the same force and effect as if made on as of the Closing
Date.
8.3
Compliance
with Covenants.
The
Investors shall have performed and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied by it prior to or at the Closing Date.
8.4
No
Adverse Proceedings.
On the
Closing Date, no action or proceeding shall be pending by any public authority
or individual or entity before any court or administrative body to restrain,
enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.
Article
9
CONDITIONS
PRECEDENT TO INVESTOR’S OBLIGATIONS
The
obligation of the Investors to consummate the transactions contemplated hereby
shall be subject to the fulfillment, on or prior to Closing Date unless
specified otherwise, of the following conditions:
9.1
No
Termination.
This
Agreement shall not have been terminated pursuant to Article 10
hereof.
9.2
Representations
True and Correct.
The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with
the same force and effect as if made on as of the Closing Date.
9.3
Compliance
with Covenants .
The
Company shall have performed and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement to be performed
or complied by it prior to or at the Closing Date.
9.4
No
Adverse Proceedings.
On the
Closing Date, no action or proceeding shall be pending by any public authority
or individual or entity before any court or administrative body to restrain,
enjoin, or otherwise prevent the consummation of this Agreement or the
transactions contemplated hereby or to recover any damages or obtain other
relief as a result of the transactions proposed hereby.
Article
10
TERMINATION,
AMENDMENT AND WAIVER
10.1
Termination.
This
Agreement may be terminated at any time prior to the Closing Date
10.1.1 by
mutual
written consent of the Investor and the Company;
10.1.2 by
the
Company upon a material breach of any representation, warranty, covenant or
agreement on the part of any Investor set forth in this Agreement, or any
Investor upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company or the Investor, respectively, shall
have become untrue, in either case such that any of the conditions set forth
in
Article 8 or Article 9 hereof would not be satisfied (a “Terminating
Breach”),
and
such breach shall, if capable of cure, not have been cured within five (5)
business days after receipt by the party in breach of a notice from the
non-breaching party setting forth in detail the nature of such
breach.
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10.2
Effect
of Termination.
Except
as otherwise provided herein, in the event of the termination of this Agreement
pursuant to Section 10.1 hereof, there shall be no liability on the part of
the
Company or any Investor or any of their respective officers, directors, agents
or other representatives and all rights and obligations of any party hereto
shall cease.
10.3
Amendment.
This
Agreement may be amended by the parties hereto any time prior to the Closing
Date by an instrument in writing signed by the parties hereto; provided, however
that the 4.9% Limitation may not be amended or waived.
10.4
Waiver.
At any
time prior to the Closing Date, the Company or the Investors, as appropriate,
may: (a) extend the time for the performance of any of the obligations or other
acts of other party or; (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto which
have been made to it or them; or (c) waive compliance with any of the agreements
or conditions contained herein for its or their benefit other than the 4.9%
Limitation which may not be waived. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party or parties
to
be bound thereby.
Article
11
GENERAL
PROVISIONS
11.1
Transaction
Costs
Except
as otherwise provided herein, each of the parties shall pay all of his or its
costs and expenses (including attorney fees and other legal costs and expenses
and accountants’ fees and other accounting costs and expenses) incurred by that
party in connection with this Agreement; provided, the Company shall pay
Investor such due diligence expenses as described in Section 6.22.
11.2
Indemnification.
The
Investor agrees to indemnify, defend and hold the Company (following the Closing
Date) and its officers and directors harmless against and in respect of any
and
all claims, demands, losses, costs, expenses, obligations, liabilities or
damages, including interest, penalties and reasonable attorney’s fees, that it
shall incur or suffer, which arise out of or result from any breach of this
Agreement by the Investors or failure by the Investors to perform with respect
to the representations, warranties or covenants contained in this Agreement
or
in any exhibit or other instrument furnished or to be furnished under this
Agreement. The Company agrees to indemnify, defend and hold the Investors
(following the Closing Date) harmless against and in respect of any and all
claims, demands, losses, costs, expenses, obligations, liabilities or damages,
including interest, penalties and reasonable attorney’s fees, that it shall
incur or suffer, which arise out of, result from or relate to any breach of
this
Agreement or failure by the Company to perform with respect to the
representations, warranties or covenants contained in this Agreement or in
any
exhibit or other instrument furnished or to be furnished under this Agreement.
In no event shall the Company or the Investors be entitled to recover
consequential or punitive damages resulting from a breach or violation of this
Agreement nor shall any party have any liability hereunder in the event of
gross
negligence or willful misconduct of the indemnified party. In the event of
the
failure of the Company to issue the Series A Preferred Stock and Warrants in
violation of the provisions of this Agreement, the Investors, as their sole
remedy, shall be entitled to pursue a remedy of specific performance upon tender
into the Court an amount equal to the Purchase Price hereunder. The
indemnification by the Investors shall be limited to $50,000.00. This Section
11.2 shall not relate to indemnification under the Registration Rights
Agreement.
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11.3
Headings.
The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of
this Agreement.
11.4
Entire
Agreement.
This
Agreement (together with the Schedule, Exhibits, Warrants and documents referred
to herein) constitute the entire agreement of the parties and supersede all
prior agreements and undertakings, both written and oral, between the parties,
or any of them, with respect to the subject matter hereof.
11.5
Notices.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the third business
day after it is mailed by registered or certified mail, return receipt requested
with postage and other fees prepaid as follows:
If
to
the Company:
Mr.
Xiqun
Yu, CEO
China
Education Alliance, Inc.
80
▇▇▇▇
▇▇▇▇ Road, Kun Lun Shopping Mall
Harbin,
CHINA 150090
Attention:
Mr.
Xiqun
Yu, CEO
E-mail:
▇▇▇▇▇▇▇@▇▇▇.▇▇▇
and
▇▇▇▇▇▇▇▇▇▇▇.▇▇@▇▇▇▇▇.▇▇▇
With
a
copy to:
Sichenzia
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇
▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ PC
E-mail:
▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
If
to
▇▇▇▇▇▇:
▇▇▇▇▇▇
Partners L.P.
c/o
Barron Capital Advisors, LLC
▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
E-mail:
▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
and
▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Fax:
(▇▇▇)
▇▇▇-▇▇▇▇
If
to the
other Investors, at their addresses set forth on Appendix A.
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PURCHASE AGREEMENT BETWEEN
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11.6
Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon
such
determination that any such term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
11.7
Binding
Effect.
All the
terms and provisions of this Agreement whether so expressed or not, shall be
binding upon, inure to the benefit of, and be enforceable by the parties and
their respective administrators, executors, legal representatives, heirs,
successors and assignees.
11.8
Preparation
of Agreement.
This
Agreement shall not be construed more strongly against any party regardless
of
who is responsible for its preparation. The parties acknowledge each contributed
and is equally responsible for its preparation. In
resolving any dispute regarding, or construing any provision in, this Agreement,
there shall be no presumption made or inference drawn because of the drafting
history of the Agreement, or because of the inclusion of a provision not
contained in a prior draft or the deletion or modification of a provision
contained in a prior draft.
11.9
Governing
Law.
This
Agreement shall be governed by, and construed in accordance with, the laws
of
the State of New York, without giving effect to applicable principles of
conflicts of law.
11.10 Jurisdiction;
Waiver of Jury Trial.
If
any action is brought among the parties with respect to this Agreement or
otherwise, by way of a claim or counterclaim, the parties agree that in any
such
action, and on all issues, the parties irrevocably waive their right to a trial
by jury.
Exclusive jurisdiction and venue for any such action shall be the federal and
state courts situated in the City, County and State of New York. In the event
suit or action is brought by any party under this Agreement to enforce any
of
its terms, or in any appeal therefrom, it is agreed that the prevailing party
shall be entitled to reasonable attorneys fees to be fixed by the arbitrator,
trial court, and/or appellate court if such party prevails on substantially
all
issues in dispute.
11.11
Preparation
and Filing of Securities and Exchange Commission
filings.
The
Investors shall reasonably assist and cooperate with the Company in the
preparation of all filings with the SEC after the Closing Date due after the
Closing Date.
11.12
Further
Assurances, Cooperation.
Each
party shall, upon reasonable request by the other party, execute and deliver
any
additional documents necessary or desirable to complete the transactions herein
pursuant to and in the manner contemplated by this Agreement. The parties hereto
agree to cooperate and use their respective best efforts to consummate the
transactions contemplated by this Agreement.
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11.13
Survival.
The
representations, warranties, covenants and agreements made herein shall survive
the Closing of the transaction contemplated hereby.
11.14 Third
Parties.
Except
as disclosed in this Agreement, nothing in this Agreement, whether express
or
implied, is intended to confer any rights or remedies under or by reason of
this
Agreement on any persons other than the parties hereto and their respective
administrators, executors, legal representatives, heirs, successors and
assignees. Nothing in this Agreement is intended to relieve or discharge the
obligation or liability of any third persons to any party to this Agreement,
nor
shall any provision give any third persons any right of subrogation or action
over or against any party to this Agreement.
11.15
Failure
or Indulgence Not Waiver; Remedies Cumulative.
No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall nay single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights
and
remedies existing under this Agreement are cumulative to, and not exclusive
of,
any rights or remedies otherwise available.
11.16
Counterparts.
This
Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original, but all of which taken together shall constitute
one
and the same agreement. A facsimile transmission of this signed Agreement shall
be legal and binding on all parties hereto.
[SIGNATURES
ON FOLLOWING PAGE]
SECURITIES
PURCHASE AGREEMENT BETWEEN
CHINA
EDUCATION ALLIANCE, INC. AND ▇▇▇▇▇▇ PARTNERS
LP
PAGE
27
IN
WITNESS WHEREOF,
the
Investors and the Company have as of the date first written above executed
this
Agreement.
THE
COMPANY:
CHINA
EDUCATION ALLIANCE, INC.
By:_/s/
Xiqun Yu _______
Name:
Title:
INVESTORS:
▇▇▇▇▇▇
PARTNERS LP
By:
▇▇▇▇▇▇ Capital Advisors, LLC, its General Partner
_/s/
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, President
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, President
EOS
HOLDINGS
By:
/s/
▇▇▇ ▇.
▇▇▇▇▇▇
▇▇▇
▇.▇▇▇▇▇▇, President
HUA-MEI
21ST CENTURY PARTNERS, LP
By:/s/
▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇, CEO
The
undersigned hereby agrees to be bound by the provisions of Sections 6.15, 6.16,
6.19 and 6.23 of this Agreement.
/s/
Xiqun
Yu
Xiqun
Yu
The
undersigned hereby agrees to be bound by the provisions of Sections 6.16 and
6.23 of this Agreement.
/s/ ▇▇▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇
SECURITIES
PURCHASE AGREEMENT BETWEEN
CHINA
EDUCATION ALLIANCE, INC. AND ▇▇▇▇▇▇ PARTNERS
LP
SIGNATURE
PAGE
Schedule
A
|
Name
and
Address
|
Amount
of Investment
|
Principal
Amount
of
Note
|
Number
of Shares
of
Preferred Stock
into
Which Note
is
Convertible
|
Number
of Shares
Underlying
$.69 Warrants
|
Number
of Shares
Underlying
$.80 Warrants
|
Number
of Shares
Underlying
$1.00 Warrants
|
|||||||||||||
|
▇▇▇▇▇▇
Partners LP
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
|
$
|
2,175,000
|
$
|
2,175,000
|
5,878,378
|
5,437,500
|
2,718,750
|
2,718,750
|
|||||||||||
|
Eos
Holdings
▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇ ▇. ▇▇▇▇▇▇, President
|
$
|
125,000
|
$
|
125,000
|
337,838
|
312,500
|
156,250
|
156,250
|
|||||||||||
|
Hua-Mei
21st Century Partners, LP
▇▇▇▇▇
▇▇▇▇▇, CEO
▇▇▇
▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇,
▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇
|
$
|
100,000
|
$
|
100,000
|
270,270
|
250,000
|
125,000
|
125,000
|
|||||||||||
|
$
|
2,400,000
|
$
|
2,400,000
|
6,486,486
|
6,000,000
|
3,000,000
|
3,000,000
|
||||||||||||
Schedule
4.3.1
|
China
Education Alliance, Inc.
|
|||||||
|
Outstanding
shares
|
57,965,000
|
||||||
|
Options
|
0
|
||||||
|
Warrants:
|
|||||||
|
Bridge
investors
|
1,530,000
|
||||||
|
▇▇▇▇▇
▇▇▇▇▇▇
|
250,000
|
1,780,000
|
|||||
|
Convertible
Securities
|
0
|
||||||
|
Total:
|
59,745,000
|
||||||
|
▇▇▇▇▇▇
Securities:
|
|||||||
|
Preferred
|
6,486,486
|
||||||
|
Warrants
|
12,000,000
|
18,486,486
|
|||||
|
Fully-Diluted
total
|
78,231,486
|
||||||
Schedule
4.8
Schedule
of Brokers
▇▇▇▇▇
▇▇▇▇▇▇ Carret & Co. - cash fee of $60,000 (2.5%) and warrants to purchase
250,000 shares at $.75 per share.
▇▇▇▇▇
Jun
- cash fee of $48,000
▇▇▇
▇▇▇▇
Bo - cash fee of $24,000
Exhibit
A
Certificate
of Amendment
1. Article
2
of the Articles of Incorporation shall be amended to read as
follows:
(a) The
total
number of shares of capital stock which this Corporation is authorized to issue
is one hundred sixty five million (165,000,000) shares, of which:
(i) fifteen
million (15,000,000) shares shall be designated as Preferred Stock, and shall
have a par value of $.001 per share; and
(ii) one
hundred fifty million (150,000,000) shares shall be designated as Common Stock,
and shall have a par value of $.001 per share.
(b) The
Board
of Directors is expressly authorized at any time, and from time to time, to
provide for the issuance of shares of Preferred Stock in one or more series,
with such voting powers, full or limited, or without voting powers and with
such
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors and as are not stated and expressed in these
Articles of Incorporation, or any amendment thereto, including (but without
limiting the generality of the foregoing) the following:
(i) the
designation of such series;
(ii) the
dividend rate of such series, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such dividends shall bear
to
the dividends payable on any other class or classes or of any other series
of
capital stock, whether such dividends shall be cumulative or noncumulative,
and
whether such dividends may be paid in shares of any class or series of capital
stock or other securities of the Corporation;
(iii) whether
the shares of such series shall be subject to redemption by the Corporation,
and, if made subject to such redemption, the times, prices and other terms
and
conditions of such redemption;
(iv) the
terms
and amount of any sinking fund provided for the purchase or redemption of the
shares of such series;
(v) whether
or not the shares of such series shall be convertible into or exchangeable
for
shares of any other class or classes or series of capital stock or other
securities of the Corporation, and, if provision be made for conversion or
exchange, the times, prices, rates, adjustment and other terms and conditions
of
such conversion or exchange;
(vi) the
extent, if any, to which the holders of the shares of such series shall be
entitled to vote, as a class or otherwise, with respect to the election of
the
directors or otherwise, and the number of votes to which the holder of each
share of such series shall be entitled;
A-1
(vii) the
restrictions, if any, on the issue or reissue of any additional shares or series
of Preferred Stock; and
(viii) the
rights of the holders of the shares of such series upon the dissolution of,
or
upon the distribution of assets of, the Corporation.
(c) No
holder
of any stock of the Corporation of any class or series now or hereafter
authorized, shall, as such holder, be entitled as of right to purchase or
subscribe for any shares of stock of the Corporation of any class or any series
now or hereafter authorized, or any securities convertible into or exchangeable
for any such shares, or any warrants, options, rights or other instruments
evidencing rights to subscribe for, or purchase, any such shares, whether such
shares, securities, warrants, options, rights or other instruments be unissued
or issued and thereafter acquired by the Corporation.
(d) The
terms
and conditions of any rights, options and warrants approved by the Board of
Directors may provide that any or all of such terms and conditions may not
be
waived or amended or may be waived or amended only with the consent of the
holders of a designated percentage of a designated class or classes of capital
stock of the Corporation (or a designated group or groups of holders within
such
class or classes, including but not limited to disinterested holders), and
the
applicable terms and conditions of any such rights, options or warrants so
conditioned may not be waived or amended or may not be waived or amended absent
such consent.
A-2
Exhibit
B
Form
of Certificate of Deisgnation of Preferences, Rights and
Limitations
CHINA
EDUCATION ALLIANCE, INC.
Statement
of Designations
Section
1.
Definitions.
Capitalized terms used and not otherwise defined herein that are defined in
the
Purchase Agreement (as defined below) shall have the meanings given such terms
in the Purchase Agreement. For the purposes hereof, the following terms shall
have the following meanings:
“4.9%
Limitation”
shall
have the meaning set forth in the Purchase Agreement.
“Bankruptcy
Event”
means
any of the following events: (a) the Company or any Significant Subsidiary
(as
such term is defined in Rule 1.02(s) of Regulation S-X) thereof commences a
case
or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not stayed
or
dismissed within 90 days after commencement; (c) the Company or any Significant
Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief
or other order approving any such case or proceeding is entered; (d) the Company
or any Significant Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property that is not
discharged or stayed within 90 days; (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors;
(f)
the Company or any Significant Subsidiary thereof calls a meeting of its
creditors with a view to arranging a composition, adjustment or restructuring
of
its debts; or (g) the Company or any Significant Subsidiary thereof, by any
act
or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for
the purpose of effecting any of the foregoing.
“Closing
Date”
means
the Closing Date, as defined in the Purchase Agreement.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the Company’s common stock, par value $.001 per share, and stock of any other
class into which such shares may hereafter have been reclassified or
changed.
“Common
Stock Equivalents”
means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation,
any
debt, preferred stock, rights, options, warrants or other instrument that is
at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
“Conversion
Date”
shall
have the meaning set forth in Section 6(a).
“Conversion
Ratio”
shall
mean the number of shares of Common Stock issuable upon conversion of one share
of Series A Preferred Stock. Each share of Series A Preferred Stock shall be
convertible into one (1) share of Common Stock (the “Conversion Ratio”), subject
to adjustment as provided in this Statement of Designations.
B-1
“Conversion
Price”
shall
mean thirty seven cents ($.37), subject to adjustment as provided in this
Statement of Designations.
“Conversion
Shares”
means,
collectively, the shares of Common Stock into which the shares of Series A
Preferred Stock are convertible in accordance with the terms
hereof.
“Conversion
Shares Registration Statement”
means
a
registration statement that meets the requirements of the Registration Rights
Agreement and registers the resale of the Conversion Shares by the Holder,
who
shall be named as a “selling stockholder” thereunder, all as provided in the
Registration Rights Agreement.
“Conversion
Value”
means
an amount determined by multiplying the number of Conversion Shares as to which
a value is to be determined by the average of the closing prices of the Common
Stock on the principal market or exchange on which the Common Stock is traded
for the five days prior to the date as of which a Conversion Value is being
determined.
“Dilutive
Issuance”
shall
have the meaning set forth in Section 7(b) hereof.
“Effective
Date”
means
the date that the Conversion Shares Registration Statement is declared effective
by the Commission.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Exempt
Issuance”
shall
have the meaning set forth in the Purchase Agreement.
“Fundamental
Transaction”
shall
have the meaning set forth in Section 7(f)(iv) hereof.
“Holder”
shall
have the meaning given such term in Section 2 hereof.
“Investors”
shall
mean the persons named in Schedule A to the Purchase Agreement.
“Net
Income”
shall
have the meaning set forth in the Purchase Agreement.
“Original
Issue Date”
shall
mean the date of the first issuance of any shares of the Series A Preferred
Stock regardless of the number of transfers of any particular shares of Series
A
Preferred Stock and regardless of the number of certificates which may be issued
to evidence such Series A Preferred Stock.
“Person”
means
a
corporation, an association, a partnership, a limited liability company, a
business association, an individual, a trust, a government or political
subdivision thereof or a governmental agency.
“Purchase
Agreement”
means
the Securities Purchase Agreement dated as of May 8, 2007, relating to the
issuance of the Company’s 3% Convertible Subordinated Notes due September 30,
2007 in the aggregate principal amount of $2,400,000, as amended, modified
or
supplemented from time to time in accordance with its terms, a copy of which
is
on file at the principal offices of the Company.
“Registration
Rights Agreement”
means
the Registration Rights Agreement, dated as of the Closing Date, to which the
Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.
B-2
“Securities”
shall
have the meaning set forth in Section 1.3.32 of the Purchase
Agreement.
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Series
A Preferred Stock”
shall
have the meaning set forth in Section 2.
“Subsidiary”
shall
mean a corporation, limited liability company, partnership, joint venture or
other business entity of which the Company owns beneficially or of record more
than a majority of the equity interest.
“Trading
Day”
means
a
day on which the Common Stock is traded on a Trading Market.
“Trading
Market”
means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the Nasdaq SmallCap Market, the American
Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
the
OTC Bulletin Board.
“Transaction
Documents”
shall
have the meaning set forth in the Purchase Agreement.
“VWAP”
means,
for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or
the nearest preceding date) on the primary Trading Market on which the Common
Stock is then listed or quoted as reported by Bloomberg Financial L.P. (based
on
a Trading Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in the
“Pink
Sheets” published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by a nationally recognized-independent appraiser selected in good faith by
Purchasers holding a majority of the principal amount of Series A Preferred
Stock then outstanding.
“Warrants”
shall
have the meaning set forth in the Purchase Agreement.
Rank
of Series.
For
purposes of this Statement of Designations, any stock of any series or class
of
the Corporation shall be deemed to rank:
(a)
senior to the shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if the holders
of
such class or classes shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or priority to the holders of
shares of Series A Preferred Stock;
B-3
(b)
on a
parity with shares of Series A Preferred Stock, as to dividends or upon
liquidation, dissolution or winding up, as the case may be, whether or not
the
dividend rates, dividend payment dates or redemption or liquidation prices
per
share or sinking fund provisions, if any, be different from those of Series
A
Preferred Stock, if the holders of such stock shall be entitled to the receipt
of dividends or of amounts distributable upon dissolution, liquidation or
winding up of the Corporation, as the case may be, in proportion to their
respective dividend rates or liquidation prices, without preference or priority,
one over the other, as between the holders of such stock and the holders of
shares of Series A Preferred Stock;
(c)
junior to shares of Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up, as the case may be, if such class shall
be Common Stock or if the holders of shares of Series A Preferred Stock shall
be
entitled to receipt of dividends or of amounts distributable upon dissolution,
liquidation or winding up of the Corporation, as the case may be, in preference
or priority to the holders of shares of such class or classes.
Section
2.
Designation
and Amount.
The
series of preferred stock, par value $.001 per share (“Preferred Stock”)
consisting of fifteen million (15,000,000) shares shall be designated as the
Company’s Series A Convertible Preferred Stock (the “Series
A Preferred Stock”)
and
the number of shares so designated shall be (which shall not be subject to
increase without the consent of all of the holders of 75% of the then
outstanding shares of Series A Preferred Stock (each a “Holder”
and
collectively, the “Holders”).
In
the event of the conversion of shares of Series A Preferred Stock into this
Company’s Common Stock, pursuant to Section 6 hereof, or in the event that the
Company shall otherwise acquire and cancel any shares of Series A Preferred
Stock, the shares of Series A Preferred Stock so converted or otherwise acquired
and canceled shall have the status of authorized but unissued shares of
preferred stock, without designation as to series until such stock is once
more
designated as part of a particular Series by the Company’s Board of Directors.
In addition, if the Company shall not issue the maximum number of shares of
Series A Preferred Stock, the Company may, from time to time, by resolution
of
the Board of Directors and the approval of the holders of a majority of the
outstanding shares of Series A Preferred Stock, reduce the number of shares
of
Series A Preferred Stock authorized, provided, that no such reduction shall
reduce the number of authorized shares to a number which is less than the number
of shares of Series A Preferred Stock then issued or reserved for issuance.
The
number of shares by which the Series A Preferred Stock is reduced shall have
the
status of authorized but unissued shares of Preferred Stock, without designation
as to series, until such stock is once more designated as part of a particular
Series by the Company’s Board of Directors. The Board of Directors shall cause
to be filed with the Secretary of State of the State of North Carolina such
certificate as shall be necessary to reflect any reduction in the number of
shares constituting the Series A Preferred Stock.
Section
3.
Dividends
and Other Distributions.
No
dividends shall be payable with respect to the Series A Preferred Stock. No
dividends shall be declared or payable with respect to the Common Stock while
the Series A Preferred Stock is outstanding. The Company shall not redeem or
purchase any shares of Common Stock or any other class or series of capital
stock which is junior to or on a parity with the Series A Preferred Stock while
the Series A Preferred Stock is outstanding.
Section
4.
Voting
Rights.
The
Series A Preferred Stock shall have no voting rights except as required by
law.
However, so long as any shares of Series A Preferred Stock are outstanding,
the
Company shall not, without the affirmative approval of the Holders of 75% of
the
shares of the Series A Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Series A Preferred
Stock or alter or amend this Statement of Designations, (b) authorize or create
any class of stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 5) senior to or otherwise pari passu with
the
Series A Preferred Stock, or any of preferred stock possessing greater voting
rights or the right to convert at a more favorable price than the Series A
Preferred Stock, (c) amend its certificate of incorporation or other charter
documents in breach of any of the provisions hereof, (d) increase the authorized
number of shares of Series A Preferred Stock or the number of authorized shares
of Preferred Stock, or (e) enter into any agreement with respect to the
foregoing. Notwithstanding any other provision of the Statement of Designations;
the provisions of Section 6(c) of this Statement of Designations may not be
amended or waived.
B-4
Section
5.
Liquidation.
Upon
any liquidation, dissolution or winding-up of the Company, whether voluntary
or
involuntary (a “Liquidation”),
the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Series A Preferred Stock
an amount equal to thirty seven cents ($.37) per share of Series A Preferred
Stock, which amount is referred to as the “Liquidation
Value,”
before
any distribution or payment shall be made to the holders of any securities
which
are junior to the Series A Preferred Stock upon voluntary or involuntary
liquidation, dissolution or winding up and after any distributions or payments
made to holders of any class or series of securities which are senior to the
Series A Preferred Stock upon voluntary or involuntary liquidation, dissolution
or winding up, and if the assets of the Company shall be insufficient to pay
in
full such amounts, then the entire assets to be distributed to the Holders
shall
be distributed among the Holders ratably in accordance with the respective
amounts that would be payable on such shares if all amounts payable thereon
were
paid in full. In the event the assets of the Company available for distribution
to the holders of shares of Series A Preferred Stock upon dissolution,
liquidation or winding up of the Company, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 5, no such distribution shall be made on account
of
any shares of any other class or series of capital stock of the Company ranking
on a parity with the shares of Series A Preferred Stock upon such dissolution,
liquidation or winding up unless proportionate distributive amounts shall be
paid on account of the shares of Series A Preferred Stock, ratably, in
proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such dissolution, liquidation
or
winding up. At the election of a Holder made by written notice delivered to
the
Company at least two (2) business days prior to the effective date of the
subject transaction, as to the shares of Series A Preferred Stock held by such
Holder, a Fundamental Transaction (excluding for purposes of this Section 5
any
Fundamental Transaction described in Section 7(f)(iv)(A) or 7(f)(iv)(B)) or
Change of Control shall be treated as a Liquidation as to such Holder.
Section
6. Conversion.
(a) Conversions
at Option of Holder.
Each
share of Series A Preferred Stock shall be initially convertible (subject to
the
limitations set forth in Section 6(c)), into such number of shares of Common
Stock based on the Conversion Ratio at the option of the Holders, at any time
and from time to time from and after the Original Issue Date. Holders shall
effect conversions by providing the Company with the form of conversion notice
attached hereto as Annex
A
(a
“Notice
of Conversion”)
as
fully and originally executed by the Holder, together with the delivery by
the
Holder to the Company of the stock certificate(s) representing the number of
shares of Series A Preferred Stock so converted, with such stock certificates
being duly endorsed in full for transfer to the Company or with an applicable
stock power duly executed by the Holder in the manner and form as deemed
reasonable by the transfer agent of the Common Stock. Each Notice of Conversion
shall specify the number of shares of Series A Preferred Stock to be converted,
the number of shares of Series A Preferred Stock owned prior to the conversion
at issue, the number of shares of Series A Preferred Stock owned subsequent
to
the conversion at issue, the stock certificate number and the shares of Series
A
Preferred Stock represented thereby which are accompanying the Notice of
Conversion, and the date on which such conversion is to be effected, which
date
may not be prior to the date the Holder delivers such Notice of Conversion
and
the applicable stock certificates to the Company by overnight delivery service
(the “Conversion
Date”).
If no
Conversion Date is specified in a Notice of Conversion, the Conversion Date
shall be the Trading Day immediately following the date that such Notice of
Conversion and applicable stock certificates are received by the Company. The
calculations and entries set forth in the Notice of Conversion shall control
in
the absence of manifest or mathematical error. Shares of Series A Preferred
Stock converted into Common Stock in accordance with the terms hereof shall
be
canceled and may not be reissued. If the Conversion Price is adjusted pursuant
to Section 7 or as otherwise provided in this Statement of Designations, the
Conversion Ratio shall likewise be adjusted and the new Conversion Ratio shall
determined by multiplying the Conversion Ratio in effect by a fraction, the
numerator of which is the Conversion Price in effect before the adjustment
and
the denominator of which is the new Conversion Price. Thereafter, subject to
any
further adjustments in the Conversion Price, each share of Series A Preferred
Stock shall be initially convertible into Common Stock based on the new
Conversion Ratio.
B-5
(b) Automatic
Conversion Upon Change of Control.
Subject
to Section 5, all of the outstanding shares of Series A Preferred Stock shall
be
automatically converted into the Conversion Shares upon the close of business
on
the business day immediately preceding the date fixed for consummation of any
transaction resulting in a Change of Control of the Company (an “Automatic
Conversion Event”). A “Change in Control” means a consolidation or merger of the
Company with or into another company or entity in which the Company is not
the
surviving entity or the sale of all or substantially all of the assets of the
Company to another company or entity not controlled by the then existing
stockholders of the Company in a transaction or series of transactions. The
Company shall not be obligated to issue certificates evidencing the Conversion
Shares unless certificates evidencing the shares of Series A Preferred Stock
so
converted are either delivered to the Company or its transfer agent or the
holder notifies the Company or its transfer agent in writing that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred
by
it in connection therewith. Upon the conversion of the Series A Preferred Stock
pursuant to this Section 6(b), the Company shall promptly send written notice
thereof, by hand delivery or by overnight delivery, to the holders of record
of
all of the Series A Preferred Stock at their addresses then shown on the records
of the Company, which notice shall state that certificates evidencing shares
of
Series A Preferred Stock must be surrendered at the office of the Company (or
of
its transfer agent for the Common Stock, if applicable).
(c) Beneficial
Ownership Limitation.
Except
as provided in Section 6(b) of this Statement of Designations, which shall
apply
as stated therein if an Automatic Conversion Event shall occur, the right of
the
Holder to convert the Series A Preferred Stock shall be subject to the 4.9%
Limitation, with the result that Company shall not effect any conversion of
the
Series A Preferred Stock, and the Holder shall not have the right to convert
any
portion of the Series A Preferred Stock, to the extent that after giving effect
to such conversion, the Holder (together with the Holder’s affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in excess
of 4.9% of the number of shares of the Common Stock outstanding immediately
after giving effect to such conversion. For
the
purposes of this Agreement beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act, and Regulation 13d-3
thereunder. For
purposes of this Section 6(c), in determining the number of outstanding shares
of Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in the most recent of the following: (A) the Company’s
most recent quarterly reports (Form 10-Q or Form 10-QSB), Annual Reports (Form
10-K or Form 10-KSB), or definitive proxy statement or information statement
as
filed with the Commission under the Exchange Act, (B) a more recent public
announcement by the Company, or (C) any other written notice by the Company
or
the Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of the Holder, the Company
shall within two (2) Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
the
Series A Preferred Stock, by the Holder or its affiliates since the date as
of
which such number of outstanding shares of Common Stock was publicly reported
by
the Company. The 4.9% Limitation may be not be waived or amended.
B-6
(d) Mechanics
of Conversion
(i) Delivery
of Certificate Upon Conversion.
Except
as otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the “Share
Delivery Date”),
the
Company shall deliver to the Holder (A) a certificate or certificates which,
after the Effective Date, shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of
shares of Series A Preferred Stock, and (B) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to
pay
accrued dividends in cash). After the Effective Date, the Company shall, upon
request of the Holder, deliver any certificate or certificates required to
be
delivered by the Company under this Section electronically through the
Depository Trust Company or another established clearing Company performing
similar functions if the Company’s transfer agent has the ability to deliver
shares of Common Stock in such manner. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the third Trading Day after the Conversion Date,
the
Holder shall be entitled to elect by written notice to the Company at any time
on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return
the
certificates representing the shares of Series A Preferred Stock tendered for
conversion.
(ii) Obligation
Absolute; Partial Liquidated Damages.
The
Company’s obligations to issue and deliver the Conversion Shares upon conversion
of Series A Preferred Stock in accordance with the terms hereof are absolute
and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation
to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any or all of its Series A Preferred Stock, the Company may not refuse
conversion based on any claim that such Holder or any one associated or
affiliated with the Holder of has been engaged in any violation of law,
agreement or for any other reason (other than the inability of the Company
to
issue shares of Common Stock as a result of the limitation set forth in Section
6(c) hereof) unless an injunction from a court, on notice, restraining and
or
enjoining conversion of all or part of this Series A Preferred Stock shall
have
been sought and obtained and the Company posts a surety bond for the benefit
of
the Holder in the amount of 150% of the Conversion Value of Series A Preferred
Stock which is subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Holder to the extent it obtains judgment.
In
the absence of an injunction precluding the same, the Company shall issue
Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
If the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 6(d)(i) within two Trading Days of the Share Delivery Date
applicable to such conversion, the Company shall pay to such Holder, in cash,
as
liquidated damages and not as a penalty, for each $5,000 of Conversion Value
of
Series A Preferred Stock being converted, $50 per Trading Day (increasing to
$100 per Trading Day after three (3) Trading Days and increasing to $200 per
Trading Day six (6) Trading Days after such damages begin to accrue) for each
Trading Day after the Share Delivery Date until such certificates are delivered.
Nothing herein shall limit a Holder’s right to pursue actual damages for the
Company’s failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.
B-7
(iii) Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion.
If the
Company fails to deliver to the Holder such certificate or certificates pursuant
to Section 6(d)(i) by a Share Delivery Date, and if after such Share Delivery
Date the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by such Holder of the Conversion
Shares which the Holder was entitled to receive upon the conversion relating
to
such Share Delivery Date (a “Buy-In”),
then
the Company shall pay in cash to the Holder the amount by which (x) the Holder’s
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from the conversion
at
issue multiplied by (2) the price at which the sell order giving rise to such
purchase obligation was executed. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to
an attempted conversion of shares of Series A Preferred Stock with respect
to
which the aggregate sale price giving rise to such purchase obligation is
$10,000, under clause (A) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In, together with applicable confirmations and other evidence reasonably
requested by the Company. Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of the shares of Series
A
Preferred Stock as required pursuant to the terms hereof.
(iv) Reservation
of Shares Issuable Upon Conversion.
The
Company covenants that it will at all times reserve and keep available out
of
its authorized and unissued shares of Common Stock solely for the purpose of
issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares
of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 7)
upon the conversion of all outstanding shares of Series A Preferred Stock.
The
Company covenants that all shares of Common Stock that shall be so issuable
shall, upon issue, be duly and validly authorized, issued and fully paid,
nonassessable and, if the Conversion Shares Registration Statement is then
effective under the Securities Act, registered for public sale in accordance
with such Conversion Shares Registration Statement provided that the holder
or
its broker delivers confirmation to the Company or its transfer agent to the
effect that the Conversion Shares have been sold pursuant to such registration
statement.
B-8
(v) Fractional
Shares.
Upon a
conversion of the Series A Preferred Stock, the Company shall not be required
to
issue stock certificates representing fractional shares of Common Stock. All
fractional shares shall be carried forward and any fractional shares which
remain after a Holder converts all of his or her Series A Preferred Stock shall
be dropped and eliminated.
(vi) Transfer
Taxes.
The
issuance of certificates for shares of the Common Stock on conversion of the
Series A Preferred Stock shall be made without charge to the Holders thereof
for
any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate, provided that the Company shall not
be
required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name
other than that of the Holder of such shares of Series A Preferred Stock so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
(vii) Absolute
Obligation.
Except
as expressly provided herein, no provision of this Statement of Designations
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the liquidated damages (if any) on, the shares of Series
A
Preferred Stock at the time, place, and rate, and in the coin or currency,
herein prescribed.
Section
7.
Certain
Adjustments.
(a) Stock
Dividends and Stock Splits.
If the
Company, at any time subsequent to the Closing Date as long as the Series A
Preferred Stock is outstanding: (i) shall pay a stock dividend or otherwise
make
a distribution or distributions on shares of its Common Stock or any other
equity or equity equivalent securities payable in shares of Common Stock (which,
for avoidance of doubt, shall not include any shares of Common Stock issued
by
the Company pursuant to this Series A Preferred Stock), (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, (iii) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of shares
of
the Common Stock any shares of capital stock of the Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares
of
Common Stock outstanding after such event. Any adjustment made pursuant to
this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case
of a
subdivision, combination or re-classification.
(b) Price
Adjustment.
From
and after the Closing Date and until such time as the Investors hold no
Securities, except for (i) Exempt Issuances, (ii) issuances
covered by Sections 7(a) and 7(c) hereof or (iii) an issuance of Common Stock
upon exercise or upon conversion of warrants, options or other convertible
securities for which an adjustment has already been made pursuant to this
Section 7,
as to
all of which this Section 7(b) does not apply, if the Company closes on the
sale
or issuance of Common Stock at a price, or issues warrants, options, convertible
debt or equity securities with a exercise price per share or conversion price
which is less than the Conversion Price then in effect (such lower sales price,
conversion or exercise price, as the case may be, being referred to as the
“Lower Price”), the Conversion Price in effect from and after the date of such
transaction shall be reduced to the Lower Price. For purpose of determining
the
exercise price of warrants issued by the Company, the price, if any, paid per
share for the warrants shall be added to the exercise price of the
warrants.
B-9
(c) Pro
Rata Distributions.
If the
Company, at any time from and after the Closing Date and as long as the Series
A
Preferred Stock is outstanding, shall distribute to all holders of Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case
the
Conversion Price shall be determined by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the
then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case
the
adjustments shall be described in a statement provided to the Holders of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) Calculations.
All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held
by or
for the account of the Company or any of its subsidiaries. For purposes of
this
Section 7, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares and shares owned by subsidiaries, if
any) actually issued and outstanding.
(e) Notice
to Holders.
(i) Adjustment
to Conversion Price.
Whenever the Conversion Price is adjusted pursuant to any of this Section 7,
the
Company shall promptly mail to each Holder a notice setting forth the Conversion
Price after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be
deemed to have issued Common Stock or Common Stock Equivalents at the lowest
possible conversion or exercise price at which such securities may be converted
or exercised in the case of a Variable Rate Transaction (as defined in the
Purchase Agreement), or the lowest possible adjustment price in the case of
an
MFN Transaction (as defined in the Purchase Agreement).
(ii) Notices
of Other Events.
If (A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a redemption of the Common Stock; (C)
the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock
or
any Fundamental Transaction, (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or
winding up of the affairs of the Company; then in each case, the Company shall
cause to be filed at each office or agency maintained for the purpose of
conversion of the Series A Preferred Stock, and shall cause to be mailed
to
the Holders at their last addresses as they shall appear upon the stock
books of
the
Company, at least 30 calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x)
the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled
to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification is expected to become
effective or close, and the date as of which it is expected that holders of
the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification or Fundamental Transaction; provided,
that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
B-10
(f) Exempt
Issuance.
Notwithstanding the foregoing, no adjustment in the Conversion Price will be
made in respect of an Exempt Issuance.
(g) Fundamental
Transaction.
If, at
any time while this Series A Preferred Stock is outstanding, (i) the Company
effects any merger or consolidation of the Company with or into another Person,
(ii) the Company effects any sale of all or substantially all of its assets
in
one or a series of related transactions, (iii) any tender offer or exchange
offer (whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental
Transaction”),
then
upon any subsequent conversion of this Series A Preferred Stock, the Holder
shall have the right to receive, for each Conversion Share that would have
been
issuable upon such conversion absent such Fundamental Transaction, the same
kind
and amount of securities, cash or property as it would have been entitled to
receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share
of
Common Stock (the “Alternate
Consideration”).
For
purposes of any such conversion, the determination of the Conversion Price
shall
be appropriately adjusted to apply to such Alternate Consideration based on
the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration
it
receives upon any conversion of this Series A Preferred Stock following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental
Transaction shall file a new Statement of Designations with the same terms
and
conditions and issue to the Holder new preferred stock consistent with the
foregoing provisions and evidencing the Holder’s right to convert such preferred
stock into Alternate Consideration. The terms of any agreement pursuant to
which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this paragraph
(f)(iv) and insuring that this Series A Preferred Stock (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction. Notwithstanding the foregoing or any other
provisions of this Statement of Designations, in the event that the agreement
relating to a Fundamental Transaction provides for the conversion or exchange
of
the Series A Preferred Stock into equity or debt securities, cash or other
consideration and the agreement is approved by the holders of a majority of
the.
then-outstanding shares of Series A Preferred Stock, then the holders of the
Series A Preferred Stock shall have only the rights set forth in such
agreement.
B-11
Section
8.
Miscellaneous.
(a) Notices.
Any and
all notices or other communications or deliveries to be provided by the Holders
hereunder, including, without limitation, any Notice of Conversion, shall be
in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service, addressed to the Company, at its principal address
as
reflected in its most recent filing with the Commission. Any and all notices
or
other communications or deliveries to be provided by the Company hereunder
shall
be in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service addressed to each Holder at the facsimile
telephone number or address of such Holder appearing on the books of the
Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication
or
deliveries hereunder shall be deemed given when received, and any notice by
telecopier shall be effective if confirmation of receipt is given by the party
to whom the notice is transmitted.
(b) Lost
or Mutilated Preferred Stock Certificate.
If a
Holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in lieu
of
or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series A Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership thereof, and indemnity,
if
requested, all reasonably satisfactory to the Company.
(c) Next
Business Day.
Whenever any payment or other obligation hereunder shall be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day.
(d) Headings.
The
headings contained herein are for convenience only, do not constitute a part
of
this Statement of Designations and shall not be deemed to limit or affect any
of
the provisions hereof.
(e) Amendment.
This
Statement of Designations may be amended with the approval of the Company’s
board of directors and the consent of the holders of seventy-five percent (75%)
of the outstanding shares of Series A Preferred Stock, except that the 4.9%
Limitation may not be waived.
B-12
ANNEX
A
NOTICE
OF
CONVERSION
(TO
BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES A
PREFERRED STOCK)
The
undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $0.01 per share (the “Common
Stock”),
of
China Education Alliance, Inc., a North Carolina corporation (the “Company”),
according to the conditions hereof, as of the date written below. If shares
are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion
calculations:
|
Date
to Effect Conversion:
________________________________________
|
|
Number
of shares of Common Stock owned prior to Conversion:
_______________
|
|
Number
of shares of Series A Preferred Stock to be Converted:
________________
|
|
Value
of shares of Series A Preferred Stock to be Converted:
____________________
|
|
Number
of shares of Common Stock to be Issued:
___________________________
|
|
Certificate
Number of Series A Preferred Stock attached
hereto:_________________
|
|
Number
of Shares of Series A Preferred Stock represented by attached
certificate:_________
|
|
Number
of shares of Series A Preferred Stock subsequent to Conversion:
________________
|
|
[HOLDER]
|
||
| By: | /s/ | |
|
Name: |
||
| Title | ||
B-13
Exhibit
C
Closing
Escrow Agreement
See
Exhibit 99.6
C-1
Exhibit
D
Form
of Note
See
Exhibits 99.2, 99.3 and 99.4
D-1
Exhibit
E
Registration
Rights Agreement
See
Exhibit 99.5
E-1
Exhibits
F-1, F-2 and F-3
$.69
Warrants
NEITHER
THE
WARRANTS
REPRESENTED BY THIS CERTIFICATE NOR
THE SHARES OF COMMON STOCK HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“1933
ACT”),
OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT,
OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933
ACT
AND ANY APPLICABLE STATE SECURITIES LAWS
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY AS TO SUCH EXEMPTION.
IN
ADDITION, A SECURITIES PURCHASE AGREEMENT DATED AS OF MAY 8, 2007, AS AMENDED
(THE “PURCHASE AGREEMENT”), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT
ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN
THE PARTIES WITH RESPECT TO THIS WARRANT.
---------------------------------------
CHINA
EDUCATION ALLIANCE, INC.
COMMON
STOCK PURCHASE WARRANT “A1”
Number
of
Shares: [no of shares]
Holder:
Original
Issue Date: May 8, 2007
Expiration
Date: May 8, 2012
Exercise
Price per Share: ▇.▇▇▇
▇▇▇▇▇
Education Alliance, Inc., a North Carolina corporation (the
“Company”), hereby certifies that, for value received,
, or registered assigns (the “Warrant
Holder”), is entitled, subject to the terms set forth below, to
purchase from the Company up to [number
( )]
shares (as adjusted from time to time as provided in Section 7 of this Warrant,
the “Warrant Shares”) of common stock, $.001 par value
(the “Common Stock”), of the Company at a price of sixty
nine cents ($.69)1 per Warrant Share (as adjusted from time to
time as provided in Section 7, the “Exercise Price”), at
any time
and
from time to time from and after the date thereof and through and including
5:00
p.m. New York City time on May
8,
2012
(the
“Expiration Date”), and subject to the following terms and
conditions:
1 For
the
“B” warrant, the designation is “B”, and for the “C” warrant, the designation is
“C”.
2 For
the
“B” warrant, the exercise price is $.80, and for the “C” warrant, the exercise
price is $1.00.
3 For
the
“B” warrant, the exercise price is $.80, and for the “C” warrant, the exercise
price is $1.00.
F-1
1. Registration
of Warrant.
The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose (the “Warrant
Register”),
in
the name of the record Warrant Holder hereof from time to time. The Company
may
deem and treat the registered Warrant Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to
the
Warrant Holder, and for all other purposes, and the Company shall not be
affected by notice to the contrary.
2. Investment
Representation.
The
Warrant Holder by accepting this Warrant represents that the Warrant Holder
is
acquiring this Warrant for its own account or the account of an affiliate
that
is
an accredited investor which has been identified to and approved by (such
approval not to be unreasonably withheld or delayed) for
investment purposes and not with the view to any offering or distribution and
that the Warrant Holder will not sell or otherwise dispose of this Warrant
or
the underlying Warrant Shares in violation of applicable securities laws. The
Warrant Holder acknowledges that the certificates representing any Warrant
Shares will bear a legend indicating that they have not been registered under
the 1933
Act,
and may
not be sold by the Warrant Holder except pursuant to an effective registration
statement or pursuant to an exemption from registration requirements of the
1933
Act and in accordance with federal and state securities laws. If this Warrant
was acquired by the Warrant Holder pursuant to the exemption from the
registration requirements of the 1933 Act afforded by Regulation S thereunder,
the Warrant Holder acknowledges and covenants that this Warrant may not be
exercised by or on behalf of a Person during the one year distribution
compliance period (as defined in Regulation S) following the date hereof.
“Person”
means an
individual, partnership, firm, limited liability company, trust, joint venture,
association, corporation, or any other legal entity.
3. Validity
of Warrant and Issue of Shares.
The
Company represents and warrants that this Warrant has been duly authorized
and
validly issued and warrants and agrees that all of Common Stock that may be
issued upon the exercise of the rights represented by this Warrant will, when
issued upon such exercise, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof
other
than those incurred by the Holder.
The
Company further warrants and agrees that during the Exercise
Period,
the
Company will at all times have authorized and reserved a sufficient number
of
Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. Registration
of Transfers and Exchange of Warrants.
a. Subject
to compliance with the federal
and state securities laws,
the
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the office
specified in or pursuant to Section 13. Upon any such registration or transfer,
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a “New
Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Warrant Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed
the
acceptance of such transferee of all of the rights and obligations of a Warrant
Holder of a Warrant.
F-2
b. This
Warrant is exchangeable, upon the surrender hereof by the Warrant Holder to
the
office of the Company specified in or pursuant to Section 9 for one or more
New
Warrants, evidencing in the aggregate the right to purchase the number of
Warrant Shares which may then be purchased hereunder. Any such New Warrant
will
be dated the date of such exchange.
| 5. |
Exercise
of Warrants.
|
a. Upon
surrender of this Warrant with the Form of Election to Purchase attached hereto
duly completed and signed to the Company, at its address set forth in Section
13, and upon payment and delivery of the Exercise Price per Warrant Share
multiplied by the number of Warrant Shares that the Warrant Holder intends
to
purchase hereunder, in lawful money of the United States of America,
by
wire
transfer
or by
certified or official bank check or checks, to the Company, all as specified
by
the Warrant Holder in the Form of Election to Purchase, the Company shall
promptly (but in no event later than 7 business days after the Date of Exercise
(as defined herein)) issue or cause to be issued and cause to be delivered
to or
upon the written order of the Warrant Holder and in such name or names as the
Warrant Holder may designate (subject to the restrictions on transfer described
in the legend set forth on the face of this Warrant), a certificate for the
Warrant Shares issuable upon such exercise, with such restrictive legend as
required by the 1933 Act. Any person so designated by the Warrant Holder to
receive Warrant Shares shall be deemed to have become holder of record of such
Warrant Shares as of the Date of Exercise of this Warrant.
b. A
“Date
of Exercise” means the date on which the Company shall have received (i) this
Warrant (or any New Warrant, as applicable), with the Form of Election to
Purchase attached hereto (or attached to such New Warrant) appropriately
completed and duly signed, and (ii) payment of the Exercise Price for the number
of Warrant Shares so indicated by the Warrant Holder to be
purchased.
c. This
Warrant shall be exercisable at any time and from time to time
during
the Exercise Period
for such
number of Warrant Shares as is indicated in the attached Form of Election To
Purchase. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to
be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced
by
this Warrant.
d. (i) Notwithstanding
anything contained herein to the contrary,
but
subject to
Section
5(e) and
Section
6, the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the “Net
Number”
of
shares of Common Stock determined according to the following formula (a
“Cashless
Exercise”):
Net
Number = (A x (B - C))/B
(ii) For
purposes of the foregoing formula:
A=
the
total number shares with respect to which this Warrant is then being
exercised.
B=
the
last reported sale price (as reported by Bloomberg) of the Common Stock on
the
trading day immediately preceding the date of the Exercise Notice.
F-3
C=
the
Warrant Exercise Price then in effect at the time of such exercise.
e. The
holder of this Warrant may
not
make
a
Cashless Exercise (i)
during the twelve (12) months following the Original Issue Date and (ii)
thereafter if the sale by the Holder of the Warrant Shares is covered
by
an
effective registration statement.
6. Maximum
Exercise.
The
Warrant Holder shall not be entitled to exercise this Warrant
on a Date of Exercise in connection with that number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Warrant Holder and its affiliates on the
Date
of Exercise,
and
(ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being
made
on an Date
of
Exercise,
which
would result in beneficial ownership by the Warrant Holder and its affiliates
of
more than 4.9% of the outstanding shares of Common Stock on such date. This
Section 6 may be not be waived or amended. As used in this Warrant, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13d-3
thereunder.
7. Adjustment
of Exercise Price and Number of Shares.
The
character of the shares of stock or other securities at the time issuable upon
exercise of this Warrant and the Exercise Price therefore, are subject to
adjustment upon the occurrence any of the following events which shall have
occurred or which shall occur at any time on or after the Closing Date, as
defined in the Purchase Agreement, and all such adjustments shall be
cumulative:
a. Adjustment
for Stock Splits, Stock Dividends, Recapitalizations, Etc.
The
Exercise Price of this Warrant and the number of shares of Common Stock or
other
securities at the time issuable upon exercise of this Warrant shall be
appropriately adjusted to reflect any stock dividend, stock split, stock
distribution, combination
of shares,
reverse
split,
reclassification, recapitalization or other similar event affecting the number
of outstanding shares of stock or securities.
b. Adjustment
for Reorganization, Consolidation, Merger, Etc.
In case
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a “Reorganization”),
then, in
each case, the holder of this Warrant, on exercise hereof at any time after
the
consummation or effective date of such Reorganization (the “Effective
Date”),
shall
receive, in lieu of the shares of stock or other securities at any time issuable
upon the exercise of the Warrant issuable on such exercise prior to the
Effective Date, the stock and other securities and property (including cash)
to
which such holder would have been entitled upon the Effective Date if such
holder had exercised this Warrant immediately prior thereto (all subject to
further adjustment as provided in this Warrant).
c. Certificate
as to Adjustments.
In case
of any adjustment or readjustment in the price or kind of securities issuable
on
the exercise of this Warrant, the Company will promptly give written notice
thereof to the holder of this Warrant in the form of a certificate, certified
and confirmed by the Board of Directors of the Company, setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon
which
such adjustment or readjustment is based.
F-4
d. Sales
of Common Stock at less than the Exercise Price. From
the
date hereof until such time as the Investors, as defined in the Purchase
Agreement, hold no Securities, as defined in the Purchase Agreement, except
for
(i) Exempt Issuances, as defined in the Purchase Agreement, (ii) issuances
covered by Sections 7(a), 7(b) and 7(e) hereof or (iii) an issuance of Common
Stock upon exercise or upon conversion of warrants, options or other convertible
securities for which an adjustment has already been made pursuant to this
Section 7,
as to
all of which this Section 7(d) does not apply, if the Company closes on the
sale
or issuance of Common Stock at a price, or warrants, options, convertible debt
or equity securities with an exercise price per share or a conversion price
which is less than the Exercise Price then in effect, the Exercise Price shall
be adjusted immediately thereafter so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received or receivable for the issuance of such additional shares
would purchase at the Exercise Price then in effect, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares (including the exercise or
conversion of all options, warrants and other convertible securities). Such
adjustment shall be made successively whenever such an issuance is made. An
adjustment pursuant to this Section 7(d) shall not result in any change in
the
number of shares of Common Stock issuable upon exercise of this Warrant.
e. Price
Adjustments
Based on Pre-Tax Income
per Share.
| i. |
In
the event the Company’s consolidated Pre-Tax Income, as defined in the
Purchase Agreement, for the year ended December 31, 2007 is less
than the
Target Number per share on a fully-diluted basis, then the Exercise
Price
shall be reduced by the percentage shortfall, up to a maximum of
50%.
Thus, if Net Income for the year ended December 31, 2007 is 30% per
share
on a fully-diluted basis less than the Target Number, the Exercise
Price
shall be reduced by 30%. Such reduction shall be made at the time
the
Company files its Form 10-KSB for the year ended December 31, 2007,
and
shall apply to the Warrants which are outstanding on the date the
Form
10-KSB is filed, or, if not filed on time, on the date that filing
was
required, after giving effect to any extension pursuant to Rule 12b-25
of
the Exchange Act. In the event that the Form 10-KSB is not filed
with the
SEC within thirty (30) days after the date that filing was required,
the
Exercise Price shall automatically be reduced by
50%.
|
| ii. |
For
purpose of determining Pre-Tax Income Per Share on a fully-diluted
basis,
all shares of Common Stock issuable upon conversion of convertible
securities and upon exercise of warrants and options (whether or
not
vested) shall be deemed to be outstanding, regardless of whether
(i) such
shares are treated as outstanding for determining diluted earnings
per
share under GAAP, (ii) such securities are “in the money,” or (iii) such
shares may be issued as a result of the 4.9% Limitation; provided,
however, that neither the 2,000,000 shares of Series A Preferred
Stock
held in escrow pursuant to Section 6.15.1 of the Purchase Agreement
nor
the shares of Common Stock issuable upon conversion of such Series
A
Preferred Stock shall be deemed outstanding for purpose of
7(e).
|
F-5
| iii. |
An
adjustment pursuant to Sections 7(d) or 7(e) of this Warrant shall
not
affect the number of shares of Common Stock issuable upon exercise
of this
Warrant.
|
8. Fractional
Shares.
The
Company shall not be required to issue or cause to be issued fractional Warrant
Shares on the exercise of this Warrant. The number of full Warrant Shares that
shall be issuable upon the exercise of this Warrant shall be computed on the
basis of the aggregate number of Warrants Shares purchasable on exercise of
this
Warrant so presented. If any fraction of a Warrant Share would, except for
the
provisions of this Section 8, be issuable on the exercise of this Warrant,
the
Company shall, at its option, (i) pay an amount in cash equal to the Exercise
Price multiplied by such fraction or (ii) round the number of Warrant Shares
issuable, up to the next whole number.
9. Sale
or Merger of the Company.
Upon
a
Merger
Transaction,
the
restriction contained in Section 6 shall immediately be released and the Warrant
Holder will have the right to exercise this Warrant concurrently with such
Merger
Transaction.
For
purposes of this Warrant, the term “Merger
Transaction”
shall
mean a consolidation or merger of the Company into
another company or entity in which the Company is not the surviving entity
or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company.
10. Notice
of Intent to Sell or Merge the Company.
The
Company will give Warrant Holder ten (10) business days notice before
any
Merger Transaction.
11. Issuance
of Substitute Warrant.
In the
event of a merger, consolidation, recapitalization or reorganization of the
Company or a reclassification of Company shares of stock, which results in
an
adjustment to the number of shares subject to this Warrant and/or the Exercise
Price hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon
the
surrender of this Warrant to the Company.
However,
in the event that the Company does not issue a substitute warrant, the number
and class of Warrant Shares or other securities and the Exercise Price shall
be
adjusted as provided in this Warrant, and this Warrant shall relate the adjusted
number of Warrant Shares and Exercise Price.
| 12. |
Right
of Redemption.
|
| a. i. |
The
Company shall have the right at any time, on written notice given
not less
than forty five (45) days prior to the Redemption Date, to redeem
the
outstanding Warrants at the Redemption Price of one cent ($.01) per
share
of Common Stock issuable upon exercise of the Warrants, provided
the
Market Price of the Common Stock shall equal or exceed the “Target Price”
and the “Trading Volume” shall equal or exceed the “Target Volume” on each
trading day in the twenty (20) trading days in the period ending
on the
trading day prior to the date that the Company calls the Warrants
for
redemption. Notice of redemption shall be mailed by first class mail,
postage prepaid, and sent by telecopier and e-mail not later than
three
(3) business days after the date the Warrants are called for redemption,
and shall be deemed given on the date of receipt of the notice by
the
Holder. All Warrants must be redeemed if any Warrants are redeemed;
provided, however, that if the exercise by the Company of its right
of
redemption pursuant to this Section 12(a)(i) would result in a violation
of the 4.9% Limitation, the Company shall not have the right to redeem
the
Holders’ Warrants to the extent that the exercise of the Warrants as to
which the redemption notice is given would result in such a violation.
In
such event, the Company may subsequently exercise it right to redeem
the
remaining Warrants held by the Holder on and subject to the provisions
of
this Section 12(a)(i).
|
F-6
| ii. |
As
used in this Section 12, the following terms shall have the meanings
set
forth below:
|
| 1. |
“Redemption
Date” shall mean the date on which the Warrants are to be redeemed as set
forth in the notice of redemption from the Company to the Holders
of the
Warrants, as the same may be extended pursuant to Section 12(b)(ii)
of
this Warrant.
|
| 2. |
“Market
Price” shall mean the closing bid price of the Common Stock (as reported
by Bloomberg L.P. or, if the Common Stock is traded on the Nasdaq
Stock
Market or the New York or American Stock Exchange, as reported by
such
market or exchange).
|
| 3. |
“Target
Price” shall mean the greater of (x) one and 38/100 dollars
($1.38)4
For the “B” warrant, the Target Price is $1.38, and for the “C” warrant,
the Target Price is $1.75.,
which price shall be subject to adjustment for events described in
Section
7(a) of this Warrant, or (y) two hundred percent (200%)5
For the “B” warrant, the percentage is 172.5%, and for the “C” warrant,
the percentage is 175%.
of
the Exercise Price.
|
| 4. |
“Trading
Volume” shall mean the trading volume in the Common Stock (as reported by
Bloomberg L.P. or the Nasdaq Stock Market or the New York or American
Stock Exchange, as the case may
be).
|
| 5. |
“Target
Volume” shall mean two hundred thousand (200,000)
shares.
|
| b. |
Notwithstanding
any other provision of this Section
12:
|
| i. |
The
Company may only exercise the right of redemption pursuant to Section
12(a)(i) of this Warrant if a registration statement covering the
sale by
the Holder of the shares of Common Stock issuable upon exercise of
this
Warrant is current and effective on each day in the period commencing
on
the on the first day of the twenty day period and ending sixty (60)
days
after the Redemption Date.
|
| ii. |
In
the event that, at any time subsequent to the date on which the Warrants
are called for redemption and before the Redemption Date, the shares
of
Common Stock issuable upon exercise or conversion of the Warrants
are not
subject to a current and effective registration statement, the Company’s
right to call the Warrants for redemption shall terminate with respect
to
all Warrants that have not then been exercised or converted. Nothing
in
the preceding sentence shall be construed to prohibit or restrict
the
Company from thereafter calling the Warrants for redemption in the
manner
provided for, and subject to the provisions of, this Section
12.
|
4 For
the
“B” warrant, the Target Price is $1.38, and for the “C” warrant, the Target
Price is $1.75.
5 For
the
“B” warrant, the percentage is 172.5%, and for the “C” warrant, the percentage
is 175%.
F-7
| iii. |
The
Redemption Date shall be postponed for two (2) trading days for each
day
after the Warrants are called for redemption that the Market Price
of the
Common Stock is less than the Target Price; provided, however, that
if the
Market Price shall be less than the Target Price for ten (10) consecutive
trading days or fifteen (15) trading days during the period from
the date
the Warrants are called for redemption to the Redemption Date, the
Company’s right to redeem any Warrants not theretofore exercised or
converted shall terminate, subject to the right of the Company to
call the
remaining Warrants for redemption pursuant to this Section
12.
|
| c. |
The
notice of redemption shall specify (i) the Redemption Price, (ii)
the
Redemption Date, (iii) the place where the Warrants shall be delivered
and
the Redemption Price shall be paid, (iv) the representation required
by
Section 12(b)(i), (v) the number of Warrants being called for redemption
if less than all of the Warrants are being redeemed, and (vi) that
the
right to exercise the Warrants shall terminate at 5:30 p.m. (New
York City
time) on the trading day immediately preceding the Redemption Date.
No
failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption
except as to a Holder (x) to whom notice was not mailed or (y) whose
notice was defective. An affidavit of the Chief Financial Officer
of the
Company that notice of redemption has been mailed shall, in the absence
of
fraud, be prima facie evidence of the facts stated
therein.
|
| d. |
Any
right to exercise or convert a Warrant to the extent that the Warrant
was
called for redemption shall terminate at 5:30 p.m. (New York City
time) on
the Redemption Date. After such time, Holders of the Warrants shall
have
no further rights except to receive, upon surrender of the Warrant,
the
Redemption Price without interest, subject to the provisions of applicable
laws relating to the treatment of abandoned property.
|
13. Notice.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given (i) on the date they are delivered if delivered in
person; (ii) on the date initially received if delivered by facsimile
transmission followed by registered or certified mail confirmation; (iii) on
the
date delivered by an overnight courier service; or (iv) on the date
of
delivery
after it
is mailed by registered or certified mail, return receipt requested with postage
and other fees prepaid as follows:
If
to
the Company:
Mr.
Xiqun
Yu, CEO
China
Education Alliance, Inc.
80
▇▇▇▇
▇▇▇▇ Road, Kun Lun Shopping Mall
Harbin,
CHINA 150090
Attention:
Mr.
Xiqun
Yu, CEO
E-mail:
▇▇▇▇▇▇▇@▇▇▇.▇▇▇
and
▇▇▇▇▇▇▇▇▇▇▇.▇▇@▇▇▇▇▇.▇▇▇
F-8
With
a
copy to:
Sichenzia
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇
▇▇▇▇▇▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ PC
E-mail:
▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
Fax:
(▇▇▇) ▇▇▇-▇▇▇▇
If
to
the Warrant Holder:
at
the
address or telecopier number and to the attention of the person shown on the
Company’s warrant register.:
| 14. |
Miscellaneous.
|
a. This
Warrant shall be binding on and inure to the benefit of the parties hereto
and
their respective successors and permitted assigns. This Warrant may be amended
only by a writing signed by the Company and the Warrant Holder.
b. Nothing
in this Warrant shall be construed to give to any person or corporation other
than the Company and the Warrant Holder any legal or equitable right, remedy
or
cause of action under this Warrant; this Warrant shall be for the sole and
exclusive benefit of the Company and the Warrant Holder.
c. This
Warrant shall be governed by, construed and enforced in accordance with the
internal laws of the State of New York without regard to the principles of
conflicts of law thereof.
d. The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
e. In
case
any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonably
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
f. The
Warrant Holder shall not, by virtue hereof, be entitled to any voting or other
rights of a stockholder of the Company, either at law or equity, and the rights
of the Warrant Holder are limited to those expressed in this
Warrant.
F-9
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
the
authorized officer as of the date first above stated.
| CHINA EDUCATION ALLIANCE, INC. | ||
| |
|
|
| Date: , 2007 | By: | /s/ |
|
Xiqun Yu, Chief Executive Officer |
||
F-10
FORM
OF ELECTION TO PURCHASE
(To
be executed by the Warrant Holder to exercise the right to purchase shares
of
Common Stock under the foregoing Warrant)
To:
China
Education Alliance, Inc.:
In
accordance with the Warrant enclosed with this Form of Election to Purchase,
the
undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock (“Common Stock”), $.001 par value, of China Education Alliance,
Inc. and encloses the warrant and $____ for each Warrant Share being purchased
or an aggregate of $________________ in cash or certified or official bank
check
or checks, which sum represents the aggregate Exercise Price (as defined in
the
Warrant) together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of:
(Please
print name and address)
(Please
insert Social Security or Tax Identification Number)
If
the
number of shares of Common Stock issuable upon this exercise shall not be all
of
the shares of Common Stock which the undersigned is entitled to purchase in
accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:
(Please
print name and address)
Dated:
Name
of
Warrant Holder:
(Print)
(By:)
(Name:)
(Title:)
Signature
must conform in all respects to name of
Warrant
Holder as specified on the face of the Warrant
F-11