Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of March
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31, 2006, among Trinity Learning Corporation, a Utah corporation (the
"Company"), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a "Purchaser" and collectively the
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"Purchasers").
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WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") and Rule 506 promulgated thereunder, the Company desires to
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issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
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Agreement: (a) capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Debentures (as defined herein), and (b) the
following terms have the meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section 3.1(j).
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"Actual Minimum" means, as of any date, the maximum aggregate number of shares
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of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable upon
exercise or conversion in full of all Warrants and Debentures, ignoring any
conversion or exercise limits set forth therein, and assuming that any
previously unconverted Debentures are held until the fourth anniversary of the
Closing Date and all interest are paid in shares of Common Stock until such
fourth anniversary.
"Affiliate" means any Person that, directly or indirectly through one or more
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intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.
"Business Day" means any day except Saturday, Sunday, any day which shall be a
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federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.
"Closing" means the closing of the purchase and sale of the Securities pursuant
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to Section 2.1.
"Closing Date" means the Trading Day when all of the Transaction Documents have
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been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers' obligations to pay the Subscription
Amount and (ii) the Company's obligations to deliver the Securities have been
satisfied or waived.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the common stock of the Company, no par value per share,
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and any other class of securities into which such securities may hereafter be
reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or the
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Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, Debentures, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.
"Company Counsel" means Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP with offices
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located at 1065 Avenue of the ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇.
"Conversion Price" shall have the meaning ascribed to such term in the
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Debentures.
"Debentures" means, the Convertible Debentures due, subject to the terms
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therein, 4 years from their date of issuance, issued by the Company to the
Purchasers hereunder, in the form of Exhibit A.
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"Disclosure Schedules" shall have the meaning ascribed to such term in Section
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3.1.
"Effective Date" means the date that the initial Registration Statement filed by
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the Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.
"Escrow Agent" shall have the meaning set forth in the Escrow Agreement.
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"Escrow Agreement" shall mean the Escrow Agreement in substantially the
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form of Exhibit E hereto executed and delivered contemporaneously with this
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Agreement.
"Evaluation Date" shall have the meaning ascribed to such term in Section
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3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
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rules and regulations promulgated thereunder.
"Exempt Issuance" means the issuance of (a) shares of Common Stock or options to
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employees, consultants (up to ____________), officers or directors of the
Company pursuant to any stock or option plan duly adopted by a majority of the
non-employee members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established for such
purpose, (b) securities upon the exercise or exchange of or conversion of any
Securities issued hereunder and/or other securities exercisable or exchangeable
for or convertible into shares of Common Stock issued and outstanding on the
date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to
decrease the exercise, exchange or conversion price of any such securities, (c)
securities issued pursuant to acquisitions or strategic transactions approved by
a majority of the disinterested directors, provided any such issuance shall only
be to a Person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of 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, and (d) securities issued with the prior written
consent of each of the Purchasers.
"GAAP" shall have the meaning ascribed to such term in Section 3.1(h).
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"Intellectual Property Rights" shall have the meaning ascribed to such term in
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Section 3.1(o).
"Legend Removal Date" shall have the meaning ascribed to such term in Section
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4.1(c).
"Liens" means a lien, charge, security interest, encumbrance, right of first
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refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such term in
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Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in Section
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3.1(m).
"Maximum Rate" shall have the meaning ascribed to such term in Section 5.17.
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"Participation Maximum" shall have the meaning ascribed to such term in Section
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4.13(b).
"Person" means an individual or corporation, partnership, trust, incorporated or
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unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
"Pre-Notice" shall have the meaning ascribed to such term in Section 4.13(c).
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"Principal Amount" shall mean, as to each Purchaser, the aggregate amount to be
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paid for the Debenture purchased hereunder as specified below such Purchaser's
name on the signature page of this Agreement and next to the heading "Principal
Amount," in United States Dollars and in immediately available funds.
"Proceeding" means an action, claim, suit, investigation or proceeding
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(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prohibition Right" shall have the meaning ascribed to such term in Section
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4.13(a).
"Purchaser Party" shall have the meaning ascribed to such term in Section 4.11.
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"Registration Rights Agreement" means the Registration Rights Agreement, dated
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the date hereof, among the Company and the Purchasers, in the form of Exhibit B
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attached hereto.
"Registration Statement" means a registration statement meeting the requirements
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set forth in the Registration Rights Agreement and covering the resale of the
Underlying Shares by each Purchaser as provided for in the Registration Rights
Agreement.
"Required Approvals" shall have the meaning ascribed to such term in Section
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3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
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Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in Section 3.1(h).
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"Securities" means the Debenture, the Warrants, the Warrant Shares and the
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Underlying Shares.
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"Securities Act" means the Securities Act of 1933, as amended, and the rules and
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regulations promulgated thereunder.
"Short Sales" shall include all "short sales" as defined in Rule 200 of
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Regulation SHO under the Exchange Act (but shall not be deemed to include the
location and/or reservation of borrowable shares of Common Stock).
"SRFF" means Sichenzia ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ LLP.
"Subscription Amount" shall mean, as to each Purchaser, the aggregate amount to
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be paid for the Debentures purchased hereunder as specified below such
Purchaser's name on the signature page of this Agreement and next to the heading
"Subscription Amount", in United States Dollars and in immediately available
funds.
"Subsequent Financing" shall have the meaning ascribed to such term in Section
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4.13(b).
"Subsequent Financing Notice" shall have the meaning ascribed to such term in
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Section 4.13(c).
"Subsidiary" means any material U.S. subsidiary of the Company as set forth on
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Schedule 3.1(a).
"Trading Day" means a day on which the Common Stock is traded on a Trading
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Market.
"Trading Market" means the following markets or exchanges on which the Common
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Stock is listed or quoted for trading on the date in question: the Nasdaq
Capital Market, the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the OTC Bulletin Board.
"Transaction Documents" means this Agreement, the 15 % Senior Secured
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Convertible Debenture, the Common Stock Purchase Warrant, the Registration
Rights Agreement, the Subsidiary Guarantee, the Security Agreement, the Voting
Agreement and any other documents or agreements executed in connection with the
transactions contemplated hereunder.
"Underlying Shares" means the shares of Common Stock issued and issuable upon
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conversion of the Debentures, upon exercise of the Warrants and issued and
issuable in lieu of the cash payment of interest on the Debentures in accordance
with the terms of the Debentures.
"VWAP" means, for any date, the price determined by the first of the
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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 Trading Market on which the
Common Stock is then listed or quoted for trading as reported by Bloomberg L.P.
(based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time); (b) if the OTC Bulletin Board is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by Pink Sheets, LLC (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 (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
"Warrants" means collectively the Common Stock purchase warrants, in the form
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of Exhibit C delivered to the Purchasers at the Closing in accordance with
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Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have
a term of exercise equal to 4 years.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of the
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Warrants.
ARTICLE II
PURCHASE AND SALE
2.1 Closing. On the Closing Date, upon the terms and subject to the
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conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and each Purchaser
agrees to purchase in the aggregate, severally and not jointly, up to $8,500,000
principal amount of the Debentures, with an initial Closing of up to
$4,500,000 no later than March 31, 2006 (the "Initial Closing"). Each Purchaser
shall deliver to the Company via wire transfer or a certified check immediately
available funds equal to their Subscription Amount and the Company shall deliver
to each Purchaser their respective Debenture and Warrants as determined pursuant
to Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of SRFF, or such other location as the
parties shall mutually agree.
2.2 Deliveries.
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(a) On the Closing Date, the Company shall deliver or cause to be delivered to
each Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) a legal opinion of Company Counsel, in the form of Exhibit D attached
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hereto;
(iii) a Debenture equal to such Purchaser's Principal Amount,
registered in the name of such Purchaser;
(iv) a Warrant registered in the name of such Purchaser to purchase up
to a number of shares of Common Stock equal to 40% of such Purchaser's
Subscription Amount divided by the Conversion Price, with an exercise
price equal to 120% of the Closing Bid price for the Common Stock on
the day that is one day prior to the Closing Date;
(v) the Payoff Letter from Instream Investment Partners, LLC, and
▇▇▇▇▇▇▇ national Loan Investors, Ltd.;
(vi) the Registration Rights Agreement duly executed by the Company;
(vii) a certificate, signed by the Secretary of the Company, attaching
(i) the charter and by-laws of the Company, and (ii) resolutions
passed by its Board of Directors to authorize the transactions
contemplated hereby and by the other Transaction Documents, and
certifying that such documents are true and complete copies of the
originals and that such resolutions have not been amended or
superseded, it being understood that each Purchaser may rely on such
certificate as a representation and warranty of the Company made
herein;
(viii) a certificate, signed by the Chief Executive Officer of the
Company, certifying that the conditions specified in Section 2 have
been fulfilled as of the Closing, it being understood that each
Purchaser may rely on such certificate as though it were a
representation and warranty of the Company made herein;
(ix) the Escrow Agreement duly executed by the Company; and
(x) the written voting agreement, in the form of Exhibit F attached
hereto, of all of the officers, directors and shareholders holding
more than 5% of the issued and outstanding shares of Common Stock on
the date hereof to vote all Common Stock owned by each of such
officers, directors and shareholders as of the record date for the
annual meeting of shareholders of the Company in favor of Shareholder
Approval amounting to, in the aggregate, at least 50% of the issued
and outstanding Common Stock Such agreement is to be delivered within
5 days from Closing.
(b) On the Closing Date, each Purchaser shall deliver or cause to be delivered
to the Company the following:
(i) this Agreement duly executed by such Purchaser;
(ii) the sum of such Purchaser's Subscription Amount as to the
applicable Closing by wire transfer to the Company;
(iii) the Registration Rights Agreement duly executed by such Purchaser;
and
(iv) the Escrow Agreement duly executed by such Purchaser.
2.3 Closing Conditions.
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(a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the
Closing Date of the representations and warranties of the Purchasers
contained herein;
(ii) all obligations, covenants and agreements of the Purchasers
required to be performed at or prior to the Closing Date shall have
been performed; and
(iii) the delivery by the Purchasers of the items set forth in Section
2.2(b) of this Agreement.
(b) The respective obligations of the Purchasers hereunder in connection with
the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;
(ii) all obligations, covenants and agreements of the Company required
to be performed at or prior to the Closing Date shall have been
performed;
(iii) the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;
(iv) there shall have been no Material Adverse Effect with respect to
the Company since the date hereof;
(v) the delivery of the Subordination Agreement duly executed by the
senior creditors of the Company; and
(vi) from the date hereof to the Closing Date, trading in the Common
Stock shall not have been suspended by the Commission or the Company's
principal Trading Market (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the
Closing Date, trading in securities generally as reported by Bloomberg
L.P. shall not have been suspended or limited, or minimum prices shall
not have been established on securities whose trades are reported by
such service, or on any Trading Market, nor shall a banking moratorium
have been declared either by the United States or New York State
authorities nor shall there have occurred any material outbreak or
escalation of hostilities or other national or international calamity
of such magnitude in its effect on, or any material adverse change in,
any financial market which, in each case, in the reasonable judgment
of each Purchaser, makes it impracticable or inadvisable to purchase
the Debentures at the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
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under the corresponding section of the disclosure schedules delivered to the
Purchasers concurrently herewith (the "Disclosure Schedules") which Disclosure
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Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to each
Purchaser.
(a) Subsidiaries. All of the direct and indirect Subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or indirectly,
all of the capital stock or other equity interests of each Subsidiary free
and clear of any Liens, and all the issued and outstanding shares of
capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities. If the Company has no subsidiaries, then all other
references in the Transaction Documents to the Subsidiaries or any of them
will be disregarded.
(b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation or
default of any of the provisions of its respective certificate or articles
of incorporation, bylaws or other organizational or charter documents. Each
of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company's ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
"Material Adverse Effect") and no Proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated
by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of the Company and no further action is
required by the Company, its board of directors or its stockholders in
connection therewith other than in connection with the Required Approvals.
Each Transaction Document has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms
hereof and thereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable
law.
(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of the Company's or any Subsidiary's
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or
other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction
Documents, other than (i) filings required pursuant to Section 4.6, (ii)
the filing with the Commission of the Registration Statement, (iii) the
notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities and the listing of the Underlying
Shares for trading thereon in the time and manner required thereby and (iv)
the filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws (collectively, the
"Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than restrictions
on transfer provided for in the Transaction Documents. The Underlying
Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and
clear of all Liens imposed by the Company. The Company has reserved from
its duly authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Actual Minimum on
the date hereof.
(g) Capitalization. The capitalization of the Company is as set forth on
Schedule 3.1(g). The Company has not issued any capital stock since its
most recently filed periodic report under the Exchange Act, other than
pursuant to the exercise of employee stock options under the Company's
stock option plans, the issuance of shares of Common Stock to employees
pursuant to the Company's employee stock purchase plan and pursuant to the
conversion or exercise of Common Stock Equivalents outstanding as of the
date of the most recently filed periodic report under the Exchange Act. No
Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the
purchase and sale of the Securities, there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person
any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company
or any Subsidiary is or may become bound to issue additional shares of
Common Stock or Common Stock Equivalents. The issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or
other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the
exercise, conversion, exchange or reset price under any of such securities.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and none of such outstanding shares
was issued in violation of any preemptive rights or similar rights to
subscribe for or purchase securities. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is
required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company's capital stock to which the Company is a party or,
to the knowledge of the Company, between or among any of the Company's
stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to
file such material) (the foregoing materials, including the exhibits
thereto and documents incorporated by reference therein, being collectively
referred to herein as the "SEC Reports") on a timely basis or has received
a valid extension of such time of filing and has filed any such SEC Reports
prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, as applicable, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply in
all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC Report, (i)
there has been no event, occurrence or development that has had or that
could reasonably be expected to result in a Material Adverse Effect, (ii)
the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company's financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company
has not altered its method of accounting, (iv) the Company has not declared
or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock and (v) the Company has not issued
any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans. The Company does not have
pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated by this
Agreement or as set forth on Schedule 3.1(i), no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or
financial condition, that would be required to be disclosed by the Company
under applicable securities laws at the time this representation is made
that has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) (collectively, an "Action") which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued
any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the
Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company's or its Subsidiaries' employees is a member of
a union that relates to such employee's relationship with the Company, and
neither the Company or any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that
their relationships with their employees are good. No executive officer, to
the knowledge of the Company, is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the
foregoing matters. The Company and its Subsidiaries are in compliance with
all U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business and all such laws that affect the environment, except in each case
as could not have or reasonably be expected to result in a Material Adverse
Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to
the business of the Company and the Subsidiaries and good and marketable
title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens as do not materially affect the value of
such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases with which the Company
and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions,
copyrights, licenses and other intellectual property rights and similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received a
notice (written or otherwise) that the Intellectual Property Rights used by
the Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage at least equal to the aggregate
Subscription Amount. Neither the Company nor any Subsidiary has any reason
to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business without
a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently
a party to any transaction with the Company or any Subsidiary (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to
or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner, in each case in excess of $60,000
other than (i) for payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the Company
and (iii) for other employee benefits, including stock option agreements
under any stock option plan of the Company.
(r) ▇▇▇▇▇▇▇▇-▇▇▇▇▇; Internal Accounting Controls. The Company is in material
compliance with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 which are
applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has
established disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure
controls and procedures to ensure that information required to be disclosed
by the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. The Company's certifying
officers have evaluated the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by the
Company's most recently filed periodic report under the Exchange Act (such
date, the "Evaluation Date"). The Company presented in its most recently
filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no changes in the Company's internal
control over financial reporting (as such term is defined in the Exchange
Act) that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
(s) Certain Fees. No brokerage or finder's fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with
respect to the transactions contemplated by the Transaction Documents. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.
(t) Private Placement. Assuming the accuracy of the Purchasers representations
and warranties set forth in Section 3.2, no registration under the
Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of
the Securities hereunder does not contravene the rules and regulations of
the Trading Market.
(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be
an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(v) Registration Rights. Other than each of the Purchasers, no Person has any
right to cause the Company to effect the registration under the Securities
Act of any securities of the Company.
(w) Listing and Maintenance Requirements. The Company's Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(x) Application of Takeover Protections. The Company and its Board of Directors
have taken all necessary action, if any, in order to render inapplicable
any control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or other similar anti-takeover
provision under the Company's Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under
the Transaction Documents, including without limitation as a result of the
Company's issuance of the Securities and the Purchasers' ownership of the
Securities.
(y) Disclosure. Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any
information that it believes constitutes or might constitute material,
nonpublic information. The Company understands and confirms that the
Purchasers will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set
forth in Section 3.2 hereof.
(z) No Integrated Offering. Assuming the accuracy of the Purchasers'
representations and warranties set forth in Section 3.2, neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any
applicable shareholder approval provisions of any Trading Market on which
any of the securities of the Company are listed or designated.
(aa) Solvency. Based on the financial condition of the Company as of the Closing
Date, after giving effect to the receipt by the Company of the proceeds
from the sale of the Securities hereunder, (i) the fair saleable value of
the Company's assets exceeds the amount that will be required to be paid on
or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature, (ii) the Company's
assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its
capital needs taking into account the particular capital requirements of
the business conducted by the Company, and projected capital requirements
and capital availability thereof and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses
of the cash, would be sufficient to pay all amounts on or in respect of its
liabilities when such amounts are required to be paid. The Company does not
intend to incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable on or in
respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization
or liquidation under the bankruptcy or reorganization laws of any
jurisdiction within one year from the Closing Date. Schedule 3.1(aa) sets
forth as of the dates thereof all outstanding secured and unsecured
Indebtedness of the Company or any Subsidiary, or for which the Company or
any Subsidiary has commitments. For the purposes of this Agreement,
"Indebtedness" shall mean (a) any liabilities for borrowed money or amounts
owed in excess of $50,000 (other than trade accounts payable incurred in
the ordinary course of business), (b) all guaranties, endorsements and
other contingent obligations in respect of Indebtedness of others, whether
or not the same are or should be reflected in the Company's balance sheet
(or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease
payments in excess of $50,000 due under leases required to be capitalized
in accordance with GAAP. Neither the Company nor any Subsidiary is in
default with respect to any Indebtedness.
(bb) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal,
state and foreign income and franchise tax returns and has paid or accrued
all taxes shown as due thereon, and the Company has no knowledge of a tax
deficiency which has been asserted or threatened against the Company or any
Subsidiary.
(cc) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form
of general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other "accredited
investors" within the meaning of Rule 501 under the Securities Act.
(dd) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully
any contribution made by the Company (or made by any person acting on its
behalf of which the Company is aware) which is in violation of law or (iv)
violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended.
(ee) Accountants. The Company's accountants are set forth on Schedule 3.1(ee) of
the Disclosure Schedule. To the knowledge of the Company, such accountants,
who the Company expects will express their opinion with respect to the
financial statements to be included in the Company's Annual Report on Form
10-KSB for the year ending June 30, 2006 are a registered public accounting
firm as required by the Securities Act.
(ff) Seniority. As of the Closing Date, no Indebtedness or other equity of the
Company is senior to the Debentures in right of payment, whether with
respect to interest or upon liquidation or dissolution, or otherwise, other
than indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).
(gg) No Disagreements with Accountants and Lawyers. There are no disagreements
of any kind presently existing, or reasonably anticipated by the Company to
arise, between the Company and the accountants and lawyers formerly or
presently employed by the Company and the Company is current with respect
to any fees owed to its accountants and lawyers.
(hh) Acknowledgment Regarding Purchasers' Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any
advice given by any Purchaser or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to the Purchasers' purchase of
the Securities. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement and the other Transaction
Documents has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
(ii) Acknowledgement Regarding Purchasers' Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(f) and 4.16 hereof), it is understood and acknowledged by the
Company (i) that none of the Purchasers have been asked to agree, nor has
any Purchaser agreed, to desist from purchasing or selling, long and/or
short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any
specified term, (ii) that past or future open market or other transactions
by any Purchaser, including Short Sales, and specifically including,
without limitation, Short Sales or "derivative" transactions, before or
after the closing of this or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded
securities, (iii) that any Purchaser, and counter-parties in "derivative"
transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a "short" position in the Common Stock and
(iv) that each Purchaser shall not be deemed to have any affiliation with
or control over any arm's length counter-party in any "derivative"
transaction.The Company further understands and acknowledges that (a) one
or more Purchasers may engage in hedging activities at various times during
the period that the Securities are outstanding, including, without
limitation, during the periods that the value of the Underlying Shares
deliverable with respect to Securities are being determined and (b) such
hedging activities (if any) could reduce the value of the existing
stockholders' equity interests in the Company at and after the time that
the hedging activities are being conducted. The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any of
the Transaction Documents.
(jj) Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or, paid any
compensation for soliciting purchases of, any of the Securities, or (iii)
paid or agreed to pay to any person any compensation for soliciting another
to purchase any other securities of the Company, other than, in the case of
each of clauses (ii) and (iii), compensation paid to the Company's
placement agent in connection with the placement of the Securities.
3.2 Representations and Warranties of the Purchasers
-----------------------------------------------------
Each Purchaser hereby, for itself and for no other Purchaser, represents
and warrants as of the date hereof and as of the Closing Date to the Company as
follows:
(a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization with full right, corporate or partnership power and
authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by
applicable law.
(b) Own Account. Such Purchaser understands that the Securities are "restricted
securities" and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof in violation of the
Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the
Securities Act or any applicable state securities law and has no direct or
indirect arrangement or understandings with any other persons to distribute
or regarding the distribution of such Securities (this representation and
warranty not limiting such Purchaser's right to sell the Securities
pursuant to the Registration Statement or otherwise in compliance with
applicable federal and state securities laws) in violation of the
Securities Act or any applicable state securities law. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the Securities, it
was, and at the date hereof it is, and on each date on which it converts
any Debentures or exercises any Warrants, it will be either (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
or (a)(8) under the Securities Act or (ii) a "qualified institutional
buyer" as defined in Rule 144A(a) under the Securities Act. Such Purchaser
is not required to be registered as a broker-dealer under Section 15 of the
Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits
and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able
to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar
media or broadcast over television or radio or presented at any seminar or
any other general solicitation or general advertisement.
(f) Short Sales and Confidentiality Prior To the Date Hereof. Other than the
transaction contemplated hereunder, such Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, executed any disposition, including
Short Sales, in the securities of the Company during the period commencing
from the time that such Purchaser first received a term sheet (written or
oral) from the Company or any other Person setting forth the material terms
of the transactions contemplated hereunder until the date hereof
("Discussion Time"). Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and
the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser's
assets, the representation set forth above shall only apply with respect to
the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
Other than to other Persons party to this Agreement, such Purchaser has
maintained the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this
transaction).
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
----------------------
(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company
or to an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Purchaser under this Agreement and
the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is required by this
Section 4.1(b), of a legend on any of the Securities in the following form:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities
to a financial institution that is an "accredited investor" as defined in
Rule 501(a) under the Securities Act and who agrees to be bound by the
provisions of this Agreement and the Registration Rights Agreement and, if
required under the terms of such arrangement, such Purchaser may transfer
pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor
shall be required in connection therewith. Further, no notice shall be
required of such pledge. At the appropriate Purchaser's expense, the
Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are
subject to registration pursuant to the Registration Rights Agreement, the
preparation and filing of any required prospectus supplement under Rule
424(b)(3) under the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder.
(c) Certificates evidencing the Underlying Shares shall not contain any legend
(including the legend set forth in Section 4.1(b) hereof): (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii)
following any sale of such Underlying Shares pursuant to Rule 144, or (iii)
if such Underlying Shares are eligible for sale under Rule 144(k), or (iv)
if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission). The Company shall cause its counsel
to issue a legal opinion to the Company's transfer agent promptly after the
Effective Date if required by the Company's transfer agent to effect the
removal of the legend hereunder. If all or any Debentures or any portion of
a Warrant is converted or exercised (as applicable) at a time when there is
an effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144(k) or if
such legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission) then such Underlying Shares shall be
issued free of all legends. The Company agrees that following the Effective
Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than five Trading Days following the
delivery by a Purchaser to the Company or the Company's transfer agent of a
certificate representing Underlying Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the "Legend Removal Date"),
deliver or cause to be delivered to such Purchaser a certificate
representing such shares that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section. Certificates for
Underlying Shares subject to legend removal hereunder shall be transmitted
by the transfer agent of the Company to the Purchasers by crediting the
account of the Purchaser's prime broker with the Depository Trust Company
System.
(d) In addition to such Purchaser's other available remedies, the Company shall
pay to a Purchaser, in cash, as partial liquidated damages and not as a
penalty, for each $1,000 of Underlying Shares (based on the VWAP of the
Common Stock on the date such Securities are submitted to the Company's
transfer agent) delivered for removal of the restrictive legend and subject
to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day 5
Trading Days after such damages have begun to accrue) for each Trading Day
after the Legend Removal Date until such certificate is delivered without a
legend. Nothing herein shall limit such Purchaser's right to pursue actual
damages for the Company's failure to deliver certificates representing any
Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief.
(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the
Company's reliance that the Purchaser will sell any Securities pursuant to
either the registration requirements of the Securities Act, including any
applicable prospectus delivery requirements, or an exemption therefrom, and
that if Securities are sold pursuant to a Registration Statement, they will
be sold in compliance with the plan of distribution set forth therein.
4.2 Acknowledgment of Dilution. The Company acknowledges that the
----------------------------
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Underlying
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
---------------------------
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.
4.4 Integration. The Company shall not sell, offer for sale or solicit
-----------
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
4.5 Conversion and Exercise Procedures. The form of Notice of Exercise
-------------------------------------
included in the Warrants and the form of Notice of Conversion included in the
Debentures set forth the totality of the procedures required of the Purchasers
in order to exercise the Warrants or convert the Debentures. No additional
legal opinion or other information or instructions shall be required of the
Purchasers to exercise their Warrants or convert their Debentures. The Company
shall honor exercises of the Warrants and conversions of the Debentures and
shall deliver Underlying Shares in accordance with the terms, conditions and
time periods set forth in the Transaction Documents.
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
--------------------------------------
(New York City time) on the Trading Day immediately following the date hereof,
issue a Current Report on Form 8-K, disclosing the material terms of the
transactions contemplated hereby, and shall attach the Transaction Documents
thereto. The Company and each Purchaser shall consult with each other in
issuing any other press releases with respect to the transactions contemplated
hereby, and neither the Company nor any Purchaser shall issue any such press
release or otherwise make any such public statement without the prior consent of
the Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) as required by federal
securities law in connection with (A) any registration statement contemplated by
the Registration Rights Agreement and (B) the filing of final Transaction
Documents (including signature pages thereto) with the Commission and (ii) to
the extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this clause (ii).
4.7 Shareholder Rights Plan. No claim will be made or enforced by the
------------------------
Company or, with the consent of the Company, any other Person, that any
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that any Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.
4.8 Non-Public Information. Except with respect to the material terms
-----------------------
and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto,
----------------- ------------
the Company shall use the net proceeds from the sale of the Securities hereunder
for working capital purposes and not for the satisfaction of any portion of the
Company's debt (other than payment of trade payables in the ordinary course of
the Company's business and up to $2,500,000 to redeem Debentures purchased at
the Initial Closing), to redeem Common Stock or Common Stock Equivalents or to
settle any outstanding litigation.
4.10 Reimbursement. If any Purchaser becomes involved in any capacity in
-------------
any Proceeding by or against any Person who is a stockholder of the Company
(except as a result of sales, pledges, margin sales and similar transactions by
such Purchaser to or with any other stockholder), solely as a result of such
Purchaser's acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its reasonable legal and other expenses (including
the cost of any investigation preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement, except if such claim arises primarily from a breach of such
Purchaser's representations, warranties or covenants under the Transaction
Documents or any agreements or understandings such Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by such Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance.
4.11 Indemnification of Purchasers. Subject to the provisions of this
-------------------------------
Section 4.11, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents,
members, shareholders, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
-------------
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser's representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than on such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company's prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to any Purchaser Party's breach of
any of the representations, warranties, covenants or agreements made by such
Purchaser in this Agreement or in the other Transaction Documents.
4.12 Reservation and Listing of Securities.
-----------------------------------------
(a) Subject to Shareholder Approval, the Company shall maintain a reserve from
its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents.
(b) If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than 130% of (i) the Actual
Minimum on such date, minus (ii) the number of shares of Common Stock
previously issued pursuant to the Transaction Documents, then the Board of
Directors of the Company shall use commercially reasonable efforts to amend
the Company's certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Actual Minimum at such time (minus the number of shares of Common Stock
previously issued pursuant to the Transaction Documents), as soon as
possible and in any event not later than the 90th day after such date (the
"Shareholder Approval"); provided that the Company will not be required at
any time to authorize a number of shares of Common Stock greater than the
maximum remaining number of shares of Common Stock that could possibly be
issued after such time pursuant to the Transaction Documents.
(c) The Company shall, if applicable, (i) in the time and manner required by
the principal Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Actual Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such Trading Market as soon as possible thereafter,
(iii) provide to the Purchasers evidence of such listing, and (iv) maintain
the listing of such Common Stock on any date at least equal to the Actual
Minimum on such date on such Trading Market or another Trading Market.
4.13 Participation in Future Financing.
------------------------------------
(a) From the date hereof until such date when no Debentures remain outstanding,
upon any issuance by the Company or any of its Subsidiaries of Common Stock
or Common Stock Equivalents (a "Subsequent Financing"), each Purchaser
shall have the right to participate in up to an amount of the Subsequent
Financing equal to 100% of the Subsequent Financing (the "Participation
Maximum") on the same terms, conditions and price provided for in the
Subsequent Financing.
(b) At least 5 Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its
intention to effect a Subsequent Financing ("Pre-Notice"), which Pre-Notice
shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a "Subsequent Financing Notice"). Upon
the request of a Purchaser, and only upon a request by such Purchaser, for
a Subsequent Financing Notice, the Company shall promptly, but no later
than 1 Trading Day after such request, deliver a Subsequent Financing
Notice to such Purchaser. The Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the
amount of proceeds intended to be raised thereunder, the Person or Persons
through or with whom such Subsequent Financing is proposed to be effected,
and attached to which shall be a term sheet or similar document relating
thereto.
(c) Any Purchaser desiring to participate in such Subsequent Financing must
provide written notice to the Company by not later than 5:30 p.m. (New York
City time) on the 5th Trading Day after all of the Purchasers have received
the Pre-Notice that the Purchaser is willing to participate in the
Subsequent Financing, the amount of the Purchaser's participation, and that
the Purchaser has such funds ready, willing, and available for investment
on the terms set forth in the Subsequent Financing Notice. If the Company
receives no notice from a Purchaser as of such 5th Trading Day, such
Purchaser shall be deemed to have notified the Company that it does not
elect to participate.
(d) If by 5:30 p.m. (New York City time) on the 5th Trading Day after all of
the Purchasers have received the Pre-Notice, notifications by the
Purchasers of their willingness to participate in the Subsequent Financing
(or to cause their designees to participate) is, in the aggregate, less
than the total amount of the Subsequent Financing, then the Company may
effect the remaining portion of such Subsequent Financing on the terms and
with the Persons set forth in the Subsequent Financing Notice.
(e) If by 5:30 p.m. (New York City time) on the 5th Trading Day after all of
the Purchasers have received the Pre-Notice, the Company receives responses
to a Subsequent Financing Notice from Purchasers seeking to purchase more
than the aggregate amount of the Participation Maximum, each such Purchaser
shall have the right to purchase the greater of (a) their Pro Rata Portion
(as defined below) of the Participation Maximum and (b) the difference
between the Participation Maximum and the aggregate amount of participation
by all other Purchasers. "Pro Rata Portion" is the ratio of (x) the
Subscription Amount of Securities purchased on the Closing Date by a
Purchaser participating under this Section 4.13 and (y) the sum of the
aggregate Subscription Amounts of Securities purchased on the Closing Date
by all Purchasers participating under this Section 4.13.
(f) The Company must provide the Purchasers with a second Subsequent Financing
Notice, and the Purchasers will again have the right of participation set
forth above in this Section 4.13, if the Subsequent Financing subject to
the initial Subsequent Financing Notice is not consummated for any reason
on the terms set forth in such Subsequent Financing Notice within 60
Trading Days after the date of the initial Subsequent Financing Notice.
(g) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect
of an Exempt Issuance.
4.14 Subsequent Equity Sales.
-------------------------
(a) (i) From the date hereof until 90 days after the Effective Date, neither
the Company nor any Subsidiary shall issue shares of Common Stock or Common
Stock Equivalents; provided, however, that the 90 day period set forth in
this Section 4.14 shall be extended for the number of Trading Days during
such period in which (X) trading in the Common Stock is suspended by any
Trading Market, or (Y) following the Effective Date, the Registration
Statement is not effective or the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of the
Underlying Shares. (ii) From the date hereof until two years after the
Closing Date, the Company shall not issue any warrants or options or
reprice any currently outstanding warrants or options (other than by means
of currently existing antidilution protections), other than Exempt
Issuances, without the prior written consent of the holders of more than
30% of the Debentures outstanding at the time of such proposed issuance.
(iii) From the date hereof until two years after the Closing Date, the
Company shall not engage in any mergers or acquisitions (whether as the
surviving or the non-surviving entity and whether the consideration
consists of Company securities or only cash) without the prior written
consent of the holders of more than 30% of the Debentures outstanding at
the time of such proposed merger transaction.
(b) From the date hereof until such time as no Purchaser holds any of the
Securities, the Company shall be prohibited from effecting or entering into
an agreement to effect any Subsequent Financing involving a "Variable Rate
Transaction." 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 or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price.
(c) From the date hereof until such date when no Debentures remain outstanding,
neither the Company nor any Subsidiary shall issue Common Stock Equivalents
at an effective price per share of less than $.25 without the prior written
consent of each Purchaser of the Debentures.
(d) Notwithstanding the foregoing, this Section 4.14 shall not apply in respect
of an Exempt Issuance, except that no Variable Rate Transaction shall be an
Exempt Issuance.
4.15 Equal Treatment of Purchasers. No consideration shall be offered
------------------------------
or paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.
4.16 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
-------------------------------------------------------
severally and not jointly with the other Purchasers covenants that neither it
nor any Affiliate acting on its behalf or pursuant to any understanding with it
will execute any Short Sales during the period commencing at the Discussion Time
and ending at the time that the transactions contemplated by this Agreement are
first publicly announced as described in Section 4.6.Each Purchaser, severally
and not jointly with the other Purchasers, covenants that until such time as the
transactions contemplated by this Agreement are publicly disclosed by the
Company as described in Section 4.6, such Purchaser will maintain the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Purchaser understands and acknowledges, severally and not jointly with any other
Purchaser, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock "against the box" prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.6.Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Purchaser's
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Purchaser's assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
4.17 Market Awareness. Within 90 days of the Closing Date, the
------------------
Company shall engage the services of an investor relation firm in order to
market awareness of its business.
ARTICLE V
MISCELLANEOUS
5.1 Termination. This Agreement may be terminated by any Purchaser, as
-----------
to such Purchaser's obligations hereunder only and without any effect whatsoever
on the obligations between the Company and the other Purchasers, by written
notice to the other parties, if the Closing has not been consummated on or
before April 2, 2006; provided, however, that no such termination will affect
the right of any party to ▇▇▇ for any breach by the other party (or parties).
5.2 Fees and Expenses. At the Closing, the Company has agreed to reimburse
------------------
PEF Advisors LLC the non-accountable sums of $25,000 for its due diligence fees.
Except as expressly set forth in the Transaction Documents to the contrary, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all transfer agent fees, stamp taxes and other
taxes and duties levied in connection with the delivery of any Securities to the
Purchasers.
5.3 Entire Agreement. The Transaction Documents, together with the exhibits
----------------
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
5.4 Notices. Any and all notices or other communications or deliveries
-------
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
5.5 Amendments; Waivers. No provision of this Agreement may be waived,
--------------------
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and each Purchaser or, in the case of a
waiver, by the party against whom enforcement of any such waived provision is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.
5.6 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.7 Successors and Assigns
------------------------
This Agreement shall be binding upon and inure to the benefit of the parties
and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser (other than by merger). Any Purchaser may assign any
or all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions of
the Transaction Documents that apply to the "Purchasers".
5.8 No Third-Party Beneficiaries. This Agreement is intended for the
------------------------------
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11.
5.9 Governing Law. All questions concerning the construction, validity,
--------------
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
5.10 Survival. The representations, warranties, covenants and other
--------
agreements contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable for the applicable statue of
limitations.
5.11 Execution. This Agreement may be executed in two or more counterparts,
---------
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a ".pdf" format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or ".pdf" signature page were an original thereof.
5.12 Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
5.13 Rescission and Withdrawal Right. Notwithstanding anything to the
----------------------------------
contrary contained in (and without limiting any similar provisions of) any of
the other Transaction Documents, whenever any Purchaser exercises a right,
election, demand or option under a Transaction Document and the Company does not
timely perform its related obligations within the periods therein provided, then
such Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights; provided,
however, in the case of a rescission of a conversion of the Debentures or
exercise of a Warrant, the Purchaser shall be required to return any shares of
Common Stock subject to any such rescinded conversion or exercise notice.
5.14 Replacement of Securities. If any certificate or instrument evidencing
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any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.
5.15 Remedies. In addition to being entitled to exercise all rights
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provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described and hereby agrees to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.16 Payment Set Aside. To the extent that the Company makes a payment
------------------
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
5.17 Usury. To the extent it may lawfully do so, the Company hereby
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agrees not to insist upon or plead or in any manner whatsoever claim, and will
resist any and all efforts to be compelled to take the benefit or advantage of,
usury laws wherever enacted, now or at any time hereafter in force, in
connection with any claim, action or proceeding that may be brought by any
Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the "Maximum Rate"), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It
is agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser's election.
5.18 Independent Nature of Purchasers' Obligations and Rights. The
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obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. The Company has elected to provide all Purchasers with the same
terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers.
5.19 Liquidated Damages. The Company's obligations to pay any partial
-------------------
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
5.20 Construction. The parties agree that each of them and/or their
------------
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
TRINITY LEARNING CORPORATION
By: /s/▇▇▇ ▇▇▇▇▇
------------
Name: ▇▇▇ ▇▇▇▇▇
Title: Chief Financial Officer
Address for Notice:
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Trinity Learning Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO TTYL SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: __________________________
Signature of Authorized Signatory of Purchaser: __________________________
Name of Authorized Signatory: _________________________
Title of Authorized Signatory: __________________________
Email Address of Purchaser: ________________________________
Fax Number of Purchaser: ______________________________
Address for Notice of Purchaser:
Address for Delivery of Securities for Purchaser (if not same as above):
Subscription Amount:
Principal Amount:
Total amount payable at Closing:
Debentures:
Warrant Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
