NOTE PURCHASE AGREEMENT
BETWEEN
PCS EDVENTURES, INC.
AND
▇▇▇▇▇▇ PARTNERS LP
DATED
DECEMBER 29, 2005
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (the "Agreement") is made and entered into
as of the 29th day of December, 2005 between PCS Edventures!.COM, Inc., a
corporation organized and existing under the laws of the State of Idaho ("PCS"
or the "Company"), and ▇▇▇▇▇▇ PARTNERS LP, a Delaware limited partnership
("Investor").
PRELIMINARY STATEMENT:
WHEREAS, the Investor wishes to purchase from the Company, upon the
terms and subject to the conditions of this Agreement, a convertible
promissory note in the principal amount of One Million ($1,000,000.00) Dollars
in the form attached hereto as Exhibit A (the "Note" and, together with
certain Preferred Stock of the Company into which the Note may be converted,
the "Convertible Security") which Note will be convertible into One Million
Six Hundred and Sixty Six Thousand Six Hundred and Sixty Seven (1,666,667.0)
shares of Common Stock or Preferred Stock of the Company in accordance with
the terms of the Note. In addition, the Company will issue to the Investor
two Common Stock Purchase Warrants (the "Warrants") to purchase up to an
additional Five Million shares of common stock of the Company at exercise
prices as stated in the Warrants in the forms attached hereto as Exhibit B;
and
WHEREAS, the parties intend to memorialize the purchase and sale of the
Note and the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt
and adequacy of which are hereby conclusively acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
ARTICLE I
INCORPORATION BY REFERENCE, SUPERSEDER AND DEFINITIONS
1.1 Incorporation by Reference. The foregoing recitals and the Exhibits and
Schedules attached hereto and referred to herein, are hereby acknowledged to
be true and accurate and are incorporated herein by this reference.
1.2 Superseder. This Agreement, to the extent that it is inconsistent with
any other instrument or understanding among the parties concerning the subject
matter of this Agreement shall supersede such instrument or understanding to
the fullest extent permitted by law. A copy of this Agreement shall be filed
at the Company's principal office.
1.3 Certain Definitions. All capitalized terms used in this Agreement that
are not defined in this Article 1 shall have the meanings set forth elsewhere
in this Agreement. For purposes of this Agreement, the following capitalized
terms shall have the following meanings:
1.3.1 "1933 Act" means the Securities Act of 1933, as amended.
1.3.2 "1934 Act" means the Securities Exchange Act of 1934, as
amended.
1.3.3 "Affiliate" means a Person or Persons directly or indirectly,
through one or more intermediaries, controlling, controlled by or under common
control with the Person(s) in question. The term "control," as used in the
immediately preceding sentence, means, with respect to a Person that is a
corporation, the right to the exercise, directly or indirectly, of more than
fifty percent of the voting rights attributable to the shares of such
controlled corporation and, with respect to a Person that is not a
corporation, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such controlled Person.
1.3.4 "Articles" means the Articles of Incorporation of the Company,
as the same may be amended from time to time.
1.3.5 "Closing" shall mean the Closing of the transactions
contemplated by this Agreement on the Closing Date.
1.3.6 "Closing Date" means the date on which the payment of the
Purchase Price (as defined herein) by the Investor to the Company is completed
pursuant to this Agreement to purchase the Note and the Warrants, which shall
occur on or before December 29th, 2005.
1.3.7 "Common Stock" means shares of common stock (without par value)
of the Company.
1.3.8 "Escrow Agreement" shall mean the Escrow Agreement among the
Company, the Investor and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇, LLP, as Escrow Agent,
attached hereto as Exhibit D.
1.3.9 "Exempt Issuance" means the issuance of (a) shares of Common
Stock, warrants, options or other rights (i) to employees, officers, or
directors of the Company pursuant to any stock or option plan (including,
without limitation, the Company's 2004 Nonqualified Stock 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, (ii) to consultants or advisors to the
Company or to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings, real property lease transactions or
similar transactions, pursuant to arrangements approved by the Board of
Directors, or (iii) in payment of compensation of the Company's directors, (b)
securities upon the exercise or conversion of any securities issued hereunder,
(c) shares of Common Stock issued to (i) former shareholders of LabMentors
pursuant to the Share Exchange Agreement dated November 30, 2005 (excluding,
however, shares of Common Stock to be issued pursuant to the earnout
provisions of that agreement if issued for less than $0.50 per share), (ii)
certain financial advisors in connection with the LabMentors acquisition, and
(iii) LabMentors' president, ▇▇▇ ▇▇▇▇▇▇, pursuant to an employment agreement
made in connection with the LabMentors acquisition, (d) shares of Common Stock
and warrants issued to Cyndel & Co., Inc., a consultant to the Company,
pursuant to a Consulting Agreement effective November 1, 2005, (e) shares of
Common Stock issuable pursuant to options, warrants or rights outstanding as
of the date of this Agreement, (f) shares of Common Stock issuable in payment
of noncash dividends or upon conversion of Company's outstanding shares of
preferred stock, (g) securities issued pursuant to acquisitions or strategic
transactions provided however that there are no variable rate pricing
mechanisms without a floor price included in any such transaction (including,
without limitation, securities issued in connection with the acquisition of
Back-Up Training Corporation of Coeur d'Alene, Idaho), 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.
1.3.10 "Material Adverse Effect" shall mean any adverse effect on
the business, operations, properties or financial condition of the Company
that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole and/or any condition, circumstance, or situation
that would prohibit or otherwise materially interfere with the ability of the
Company to perform any of its material obligations under this Agreement or the
Registration Rights Agreement or to perform its obligations under any other
material agreement.
1.3.11 "Person" means an individual, partnership, firm, limited
liability company, trust, joint venture, association, corporation, or any
other legal entity.
1.3.12 "Preferred Stock" means shares of preferred stock of the Company
with rights and preferences set forth in the Certificate of Designations,
Rights and Preferences attached as Exhibit A to the Note.
1.3.13 "Purchase Price" means the One Million Dollars ($1,000,000.00)
paid by the Investor to the Company for the Note and the Warrants.
1.3.14 "Registration Rights Agreement" shall mean the Registration
Rights Agreement between the Investor and the Company attached hereto as
Exhibit C.
1.3.15 "Registration Statement" shall mean the registration
statement under the 1933 Act to be filed with the Securities and Exchange
Commission for the registration of the Shares pursuant to the Registration
Rights Agreement attached hereto as Exhibit C.
1.3.16 "SEC" means the Securities and Exchange Commission.
1.3.17 "SEC Documents" shall mean the Company's latest Form 10-K or
10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed
thereafter, and the Proxy Statement for its latest fiscal year as of the time
in question until such time as the Company no longer has an obligation to
maintain the effectiveness of a Registration Statement as set forth in the
Registration Rights Agreement.
1.3.18 "Shares" shall mean, collectively, the shares of Common Stock of
the Company issuable upon conversion of the Convertible Security and those
shares of Common Stock issuable to the Investor upon exercise of the Warrants.
1.3.19 "Subsequent Financing" shall mean any offer and sale of shares of
Preferred Stock or debt that is initially convertible into shares of Common
Stock or otherwise senior or superior to the Note.
1.3.20 "Transaction Documents" shall mean this Agreement, all Schedules
and Exhibits attached hereto, the Note, the Warrants, the Registration Rights
Agreement, the Escrow Agreement and all other documents and instruments to be
executed and delivered by the parties in order to consummate the transactions
contemplated hereby, including (without limitation) the documents listed in
Sections 3.2 and 3.3 hereof.
1.3.21 "Warrants" shall mean the Common Stock Purchase Warrants in
the forms attached hereto Exhibit B.
ARTICLE II
SALE AND PURCHASE OF COMPANY'S NOTE AND WARRANTS
PURCHASE PRICE
2.1 Sale of Note and Issuance of Warrants.
(a) Upon the terms and subject to the conditions set forth herein, and
in accordance with applicable law, the Company agrees to sell to the Investor,
and the Investor agrees to purchase from the Company, on the Closing Date the
Note and the Warrants for the Purchase Price. The Purchase Price shall be
paid by the Investor to the Company on the Closing Date by a wire transfer of
the Purchase Price into escrow to be held by the Escrow Agent pursuant to the
terms of the Escrow Agreement. The Company shall cause the Note and the
Warrants to be issued to the Investor upon the release of the Purchase Price
to the Company by the Escrow Agent pursuant to the terms of the Escrow
Agreement. The Company shall register the shares of Common Stock into which
the Note is convertible pursuant to the terms and conditions of a Registration
Rights Agreement attached hereto as Exhibit C.
(b) The Note is initially convertible into One Million Six Hundred and
Sixty Six Thousand Six Hundred and Sixty Seven (1,666,667.0) shares of Common
Stock or (following authorization of such securities) Preferred Stock;
provided, however, that the Investor shall not be entitled to convert the Note
into shares of Common Stock to the extent that Investor and its Affiliates
would beneficially own more than 4.9% of the then outstanding number of shares
of Common Stock after the conversion. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder.
(c) Upon execution and delivery of this Agreement and the Company's
receipt of the Purchase Price from the Escrow Agent pursuant to the terms of
the Escrow Agreement, the Company shall issue to the Investor the Warrants to
purchase an aggregate of Five Million (5,000,000.0) shares of Common Stock at
exercise prices as stated in the Warrants, all pursuant to the terms and
conditions of the forms of Warrants attached hereto as Exhibit B; provided,
however, that the Investor shall not be entitled to exercise the Warrants and
receive shares of Common Stock to the extent that Investor and its Affiliates
would beneficially own more than 4.9% of the then outstanding number of shares
of Common Stock after the conversion. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder.
2.2 Purchase Price. The Purchase Price shall be delivered by the Investor
in the form of a check or wire transfer made payable to the Company in United
States Dollars from the Investor to the Escrow Agent pursuant to the Escrow
Agreement on the Closing Date.
2.3 Allocation of Purchase Price. Company and Investor agree that the
amount of the Purchase Price allocable to the Warrants is less than the
product of (i) .0025, (ii) the number of full years to maturity of the Note
and (iii) the stated Principal of the Note.
ARTICLE III
CLOSING DATE AND DELIVERIES AT CLOSING
3.1 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing"), unless expressly determined herein, shall be held
at the offices of the Company, at 5:00 P.M. local time, on the Closing Date or
on such other date and at such other place as may be mutually agreed by the
parties, including closing by facsimile with originals to follow.
3.2 Deliveries by the Company. In addition to and without limiting any
other provision of this Agreement, the Company agrees to deliver, or cause to
be delivered, to the Escrow Agent under the Escrow Agreement, the following
items at or prior to Closing :
(a) The executed Agreement with all exhibits and schedules attached
hereto;
(b) The executed Note;
(c) Executed Warrants issued in the name of the Investor;
(d) The executed Registration Rights Agreement;
(e) Certifications in form and substance acceptable to the Company and
the Investor from any and all brokers or agents involved in the
transactions contemplated hereby as to the amount of commission or
compensation payable to such broker or agent as a result of the
consummation of the transactions contemplated hereby and from the
Company or Investor, as appropriate, to the effect that reasonable
reserves for any other commissions or compensation that may be
claimed by any broker or agent have been set aside;
(f) Evidence of approval of the Board of Directors and Shareholders of
the Company of the Transaction Documents and the transactions
contemplated hereby;
(g) Certificates of Existence or Authority to Transact Business of the
Company issued by the Secretary of State of the state of Idaho;
(h) An opinion from the Company's counsel concerning the Transaction
Documents and the transactions contemplated hereby in form and
substance reasonably acceptable to Investor;
(i) The executed Escrow Agreement;
(j) Copies of all executive employment agreements, all past and
present financing documentation or other documentation where stock
could potentially be issued or issued as payment, all past and
present litigation documents and historical financials; and
(k) Such other documents or certificates as shall be reasonably
requested by Investor or its counsel.
3.3 Deliveries by Investor. In addition to and without limiting any other
provision of this Agreement, the Investor agrees to deliver, or cause to be
delivered, to the Escrow Agent under the Escrow Agreement, the following:
(a) A deposit in the amount of the Purchase Price;
(b) The executed Agreement with all Exhibits and Schedules attached
hereto;
(c) The executed Registration Rights Agreement;
(d) The executed Escrow Agreement; and
(e) Such other documents or certificates as shall be reasonably
requested by the Company or its counsel.
In the event any document provided to the other party in Paragraphs 3.2 and
3.3 herein is provided by facsimile, the party shall forward an original
document to the other party within seven (7) business days.
3.4 Further Assurances. The Company and the Investor shall, upon request,
on or after the Closing Date, cooperate with each other (specifically, the
Company shall cooperate with the Investor and the Investor shall cooperate
with the Company) by furnishing any additional information, executing and
delivering any additional documents and/or other instruments and doing any and
all such things as may be reasonably required by the parties or their counsel
to consummate or otherwise implement the transactions contemplated by this
Agreement.
3.5 Waiver. The Investor at its discretion may waive any of the
requirements of Section 3.2 of this Agreement, and the Company at its
discretion may waive any of the provisions of Section 3.3 of this Agreement.
The Investor may also waive any of the requirements of the Company under the
Escrow Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PCS EDVENTURES!.COM, INC.
The Company represents and warrants to the Investor as of the date
hereof and as of Closing (which warranties and representations shall survive
the Closing regardless of what examinations, inspections, audits and other
investigations the Investor has heretofore made or may hereinafter make with
respect to such warranties and representations) as follows:
4.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state
of Idaho, and has the requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted and is duly qualified to do business in any other jurisdiction by
virtue of the nature of the businesses conducted by it or the ownership or
leasing of its properties, except where the failure to be so qualified will
not, when taken together with all other such failures, have a Material Adverse
Effect on the business, operations, properties, assets, financial condition or
results of operation of the Company and its subsidiaries taken as a whole.
4.2 Articles of Incorporation and By-Laws. Except for an Amendment to the
Company's Articles of Incorporation filed with the Idaho Secretary of State on
September 5, 2003 (a copy of which has been separately delivered to Investor),
the complete and correct copies of the Company's Articles and By-Laws, as
amended or restated to date which have been filed with the Securities and
Exchange Commission are a complete and correct copy of such document as in
effect on the date hereof and as of the Closing Date.
4.3 Capitalization.
4.3.1 The authorized and outstanding capital stock of the Company
is set forth in the Company's Annual Report on Form 10-KSB for the Company's
fiscal year ended March 31, 2005, filed on July 19, 2005 with the SEC and
updated on all subsequent SEC Documents, as of the respective dates of such
reports. All shares of capital stock have been duly authorized and are
validly issued, and are fully paid and no assessable, and free of preemptive
rights.
4.3.2 As of the date of this Agreement, the authorized capital
stock of the Company consists of 50,000,000 shares (without par value),
consisting of 40,000,000 shares of Common Stock, of which 29,682,003 shares
are issued and outstanding, and 10,000,000 shares of convertible preferred
stock, of which 15,246 shares are issued and outstanding. The preferred
shares are being converted to Common Stock at the rate of five shares of
Common Stock for each share of preferred stock, or 76,230 shares of Common
Stock in the aggregate. As of the date of this Agreement, there are
outstanding options to purchase an aggregate of 4,211,094 shares of Common
Stock. All outstanding shares of capital stock have been duly authorized and
are validly issued, fully paid and nonassessable and free of preemptive
rights. All shares of capital stock described above to be issued pursuant to
outstanding options have been duly authorized and, when issued, will be
validly issued, fully paid and nonassessable and free of preemptive rights.
The attached Schedule 4.3 contains all shares and derivatives currently and
potentially outstanding. The Company hereby represents that any and all
shares and current potentially dilutive events have been included in Schedule
4.3, including employment agreements, acquisition, consulting agreements,
debts, payments, financing or business relationships that could be paid in
equity, derivatives or resulting in additional equity issuances that could
potentially occur.
4.3.3 Except pursuant to this Agreement and as set forth in
Schedule 4.3 hereto, and as set forth in the Company's SEC Documents, filed
with the SEC, as of the date hereof and as of the Closing Date, there are not
now outstanding options, warrants, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any class of capital stock of
the Company, or agreements, understandings or arrangements to which the
Company is a party, or by which the Company is or may be bound, to issue
additional shares of its capital stock or options, warrants, scrip or rights
to subscribe for, calls or commitment of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, any shares of
any class of its capital stock. The Company agrees to inform the Investors in
writing of any additional warrants granted prior to the Closing Date.
4.3.4 The Company on the Closing Date (i) will have full right,
power, and authority to issue, sell and deliver to the Investor the Note and
the Warrants hereunder, free and clear of all liens, charges, claims, options,
pledges, restrictions, and encumbrances whatsoever; and (ii) upon conversion
of the Convertible Security or exercise of the Warrants, the Investor will
acquire good and marketable title to the Shares, free and clear of all liens,
charges, claims, options, pledges, restrictions, and encumbrances whatsoever,
except as otherwise provided in this Agreement as to the limitation on
exercise or conversion in certain circumstances.
4.4 Authority. The Company has all requisite corporate power and authority
to execute and deliver this Agreement, the Note and the Warrants, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
by the Company and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action; and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby except as
disclosed in this Agreement. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by other
equitable principles of general application.
4.5 No Conflict; Required Filings and Consents. The execution and delivery
of this Agreement by the Company does not, and the performance by the Company
of its obligations hereunder will not: (i) conflict with or violate the
Articles or Bylaws of the Company; (ii) conflict with, breach or violate any
federal, state, foreign or local law, statute, ordinance, rule, regulation,
order, judgment or decree (collectively, "Laws") in effect as of the date of
this Agreement and applicable to the Company; or (iii) result in any breach
of, constitute a default (or an event that with notice or lapse of time or
both would become a default) under, give to any other entity any right of
termination, amendment, acceleration or cancellation of, require payment
under, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company is a party or by the Company or
any of its properties or assets is bound. Excluded from the foregoing are
such violations, conflicts, breaches, defaults, terminations, accelerations,
creations of liens or encumbrances that would not, in the aggregate, have a
Material Adverse Effect.
4.6 Report and Financial Statements. The Company's Annual Report on Form 10-
KSB, filed on July 19, 2005 with the SEC, contains the audited financial
statements of the Company for the fiscal year ended March 31, 2005. The
Company has previously provided to the Investor the audited financial
statements of the Company as of March 31, 2005 and for the six months ended
September 30, 2005 (collectively, the "Financial Statements"). Each of the
balance sheets contained in or incorporated by reference into any such
Financial Statements (including the related notes and schedules thereto)
fairly presented the financial position of the Company as of its date thereof,
and each of the statements of income and changes in stockholders' equity and
cash flows or equivalent statements in such Financial Statements (including
any related notes and schedules thereto) fairly presents changes in
stockholders' equity and changes in cash flows, as the case may be, of the
Company for the periods to which they relate, in each case in accordance with
United States generally accepted accounting principles ("U.S. GAAP")
consistently applied during the periods involved, except in each case as may
be noted therein, subject to normal year-end audit adjustments in the case of
unaudited statements. The books and records of the Company have been, and are
being, maintained in all material respects in accordance with U.S. GAAP and
any other applicable legal and accounting requirements and reflect only actual
transaction.
4.7 Compliance with Applicable Laws. The Company is not in violation of,
and, to the knowledge of the Company, is not under investigation with respect
to or has not been given notice or has been charged with the violation of, any
Law of a governmental agency, except for violations which individually or in
the aggregate do not have a Material Adverse Effect.
4.8 Brokers. Except as set forth on Schedule 4.8, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
Commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
4.9 SEC Documents. The Company acknowledges that the Company is a publicly
held company and has made available to the Investor after demand true and
complete copies of any requested SEC Documents. The Company has registered its
Common Stock on form 8A pursuant to Section 12(g) of the 1934 Act, and the
Common Stock is quoted and traded on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. The Company has received no notice,
either oral or written, with respect to the continued quotation or trading of
the Common Stock on the OTC Bulletin Board. The Company has not provided to
the Investor any information that, according to applicable law, rule or
regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act, and rules and regulations of the SEC promulgated
thereunder and the SEC Documents did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.10 Litigation. To the knowledge of the Company, no litigation, claim or
other proceeding before any court or governmental agency is pending or, to the
knowledge of the Company, threatened against the Company, the prosecution or
outcome of which may have a Material Adverse Effect.
4.11 Exemption from Registration. Subject to the accuracy of the Investor's
representations in Article V, except as required pursuant to the Registration
Rights Agreement, the sale of the Note and Warrants by the Company to the
Investor will not require registration under the 1933 Act, but may require
registration under New York state securities law if applicable to the
Investor. When validly converted in accordance with the terms of the
Convertible Security, and upon exercise of the Warrants in accordance with
their terms, the Shares underlying the Convertible Security and the Warrants
will be duly and validly issued, fully paid, and non-assessable. The Company
is issuing the Note and the Warrants in accordance with and in reliance upon
the exemption from securities registration afforded, inter alia, by Rule 506
under Regulation D as promulgated by the SEC under the 1933 Act, and/or
Section 4(2) of the 1933 Act; provided, however, that certain filings and
registrations may be required under state securities "blue sky" laws depending
upon the residency of the Investor.
4.12 No General Solicitation or Advertising in Regard to this Transaction.
Neither the Company nor any of its Affiliates nor, to the knowledge of the
Company, any Person acting on its or their behalf (i) has conducted or will
conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D as promulgated by the SEC under the ▇▇▇▇ ▇▇▇) or general
advertising with respect to the sale of the Note or the Warrants, or (ii) made
any offers or sales of any security or solicited any offers to buy any
security under any circumstances that would require registration of the Note
or the Warrants under the 1933 Act, except as required herein.
4.13 No Material Adverse Effect. Except as set forth in Schedule 4.13
attached hereto, since September 30, 2005, no event or circumstance resulting
in a Material Adverse Effect has occurred or exists with respect to the
Company. No material supplier or customer has given notice, oral or written,
that it intends to cease or reduce the volume of its business with the Company
from historical levels. Since September 30, 2005, no event or circumstance
has occurred or exists with respect to the Company or its businesses,
properties, prospects, operations or financial condition that, under any
applicable law, rule or regulation, requires public disclosure or announcement
prior to the date hereof by the Company but which has not been so publicly
announced or disclosed in writing to the Investor.
4.14 Material Non-Public Information. The Company has not disclosed to the
Investor any material non-public information that (i) if disclosed, would
reasonably be expected to have a material effect on the price of the Common
Stock or (ii) according to applicable law, rule or regulation, should have
been disclosed publicly by the Company prior to the date hereof but which has
not been so disclosed.
4.15 Internal Controls And Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance
that (i) all transactions to which the Company or any subsidiary is a party or
by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated
assets is compared with existing assets at regular intervals; (iii) access to
the Company's consolidated assets is permitted only in accordance with
management's authorization; and (iv) all transactions to which the Company or
any subsidiary is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with U.S. GAAP.
4.16 Full Disclosure. No representation or warranty made by the Company in
this Agreement and no certificate or document furnished or to be furnished to
the Investor pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
4.17 Independent Board. As of the date of this Agreement, the Board of
Directors of the Company consists of four directors with a majority being
independent as defined by the NASD. At the Closing, the Board of Directors of
the Company shall consist of four directors, three of whom shall be
independent. As of the date of this Agreement, the Audit and Compensation
Committees of the Board of Directors of the Company are, and at the Closing
will be, comprised of independent directors.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company that:
5.1 Organization and Standing of the Investor. The Investor is a limited
partnership duly formed, validly existing and in good standing under the laws
of the State of Delaware. The state in which any offer to purchase shares
hereunder was made or accepted by such Investor is the state shown as such
Investor's address. The Investor was not formed for the purpose of investing
solely in the Note, the Preferred Stock, the Warrants or the Shares of Common
Stock which are the subject of this Agreement.
5.2 Authorization and Power. The Investor has the requisite power and
authority to enter into and perform this Agreement and to purchase the
securities being sold to it hereunder. The execution, delivery and performance
of this Agreement by the Investor and the consummation by the Investor of the
transactions contemplated hereby have been duly authorized by all necessary
partnership action where appropriate. This Agreement and the Registration
Rights Agreement have been duly executed and delivered by the Investor and at
the Closing shall constitute valid and binding obligations of the Investor
enforceable against the Investor in accordance with their terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application.
5.3 No Conflicts. The execution, delivery and performance of this Agreement
and the consummation by the Investor of the transactions contemplated hereby
or relating hereto do not and will not (i) result in a violation of such
Investor's limited partnership agreement or other organizational documents or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument to which the Investor is a party, or result
in a violation of any law, rule, or regulation, or any order, judgment or
decree of any court or governmental agency applicable to the Investor or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a Material Adverse Effect on such
Investor). The Investor is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of such
Investor's obligations under this Agreement or to purchase the securities from
the Company in accordance with the terms hereof, provided that for purposes of
the representation made in this sentence, the Investor is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Company herein.
5.4 Financial Risks. The Investor acknowledges that such Investor is able to
bear the financial risks associated with an investment in the securities being
purchased by the Investor from the Company and that it has been given full
access to such records of the Company and the subsidiaries and to the officers
of the Company and the subsidiaries as it has deemed necessary or appropriate
to conduct its due diligence investigation. The Investor is capable of
evaluating the risks and merits of an investment in the securities being
purchased by the Investor from the Company by virtue of its experience as an
investor and its knowledge, experience, and sophistication in financial and
business matters and the Investor is capable of bearing the entire loss of its
investment in the securities being purchased by the Investor from the Company.
5.5 Accredited Investor. The Investor is (i) an "accredited investor" as
that term is defined in Rule 501 of Regulation D promulgated under the 1933
Act by reason of Rule 501(a)(3) and (6), (ii) experienced in making
investments of the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of its general
partner and its officers (if an entity) and professional advisors (who are not
affiliated with or compensated in any way by the Company or any of its
Affiliates or selling agents), to protect its own interests in connection with
the transactions described in this Agreement, and the related documents, and
(iv) able to afford the entire loss of its investment in the securities being
purchased by the Investor from the Company.
5.6 Brokers. Except as set forth in Schedule 4.8, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
Commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Investor.
5.7 Knowledge of Company. The Investor and such Investor's advisors, if any,
have been, upon request, furnished with all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the securities being purchased by the Investor from the
Company. The Investor and such Investor's advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries.
5.8 Risk Factors. The Investor understands that such Investor's investment
in the securities being purchased by the Investor from the Company involves a
high degree of risk. The Investor understands that no United States federal
or state agency or any other government or governmental agency has passed on
or made any recommendation or endorsement of the securities being purchased by
the Investor from the Company. The Investor warrants that such Investor is
able to bear the complete loss of such Investor's investment in the securities
being purchased by the Investor from the Company.
5.9 Full Disclosure. No representation or warranty made by the Investor in
this Agreement and no certificate or document furnished or to be furnished to
the Company by the Investor pursuant to this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not misleading. Except as set forth or referred to in this Agreement,
Investor does not have any agreement or understanding with any person relating
to acquiring, holding, voting or disposing of any equity securities of the
Company.
5.10 Payment of Due Diligence Expenses. At Closing, the Escrow Agent shall
disburse to the Investor Forty Thousand Dollars ($40,000.00) for due diligence
expenses.
ARTICLE VI
COVENANTS OF THE COMPANY
6.1 Registration Rights. The Company shall cause the Registration Rights
Agreement to remain in full force and effect according to the provisions of
the Registration Rights Agreement and the Company shall comply in all material
respects with the terms thereof.
6.2 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the shares of Common Stock underlying the
Convertible Security and the Warrants.
6.3 Compliance with Laws. The Company hereby agrees to comply in all
respects with the Company's reporting, filing and other obligations under the
Laws.
6.4 Exchange Act Registration. The Company will continue its obligation to
report to the SEC under Section 13 of the 1934 Act and will use its best
efforts to comply in all respects with its reporting and filing obligations
under the 1934 Act, and will not take any action or file any document (whether
or not permitted by the 1934 Act or the rules thereunder) to terminate or
suspend its reporting and filing obligations under the 1934 until the
Investors have disposed of all of their Shares.
6.5 Corporate Existence; Conflicting Agreements. Except as otherwise
provided herein, the Company will take all steps necessary to preserve and
continue the corporate existence of the Company. The Company shall not enter
into any agreement, the terms of which agreement would restrict or impair the
right or ability of the Company to perform any of its obligations under this
Agreement or any of the other agreements attached as exhibits hereto.
6.6 Preferred Stock. On or prior to the Closing Date, the Company will cause
to be cancelled all preferred stock in the Company. For a period of two years
from the Closing or such earlier time as Investor holds less than 10% of the
Shares or a Convertible Security convertible into less than 10% of the Shares,
the Company will not issue any preferred stock of the Company (with the
exception of Preferred Stock issued to the Investor upon automatic conversion
of the Note under Section 2.1(a) of the Note) senior to or on a parity with
the Preferred Stock as to dividend, redemption or liquidation rights.
6.7 Convertible Debt. On or prior to the Closing Date, the Company will
cause to be cancelled all convertible debt in the Company. For a period of two
years from the Closing or such earlier time as Investor holds less than 10% of
the Shares or a Convertible Security convertible into less than 10% of the
Shares, Company will not issue any convertible debt with the exception of
Convertible Debt issued to the Investor.
6.8 Debt Limitation. For a period of two years from the Closing the Company
or such earlier time as Investor holds less than 10% of the Shares or a
Convertible Security convertible into less than 10% of the Shares, the Company
will not enter into any new borrowings of more than three times as much as the
sum of the EBITDA from recurring operations over the past four quarters.
6.9 Reset Equity Deals. On or prior to the Closing Date, the Company will
cause to be cancelled any and all reset features related to any shares
outstanding that could result in additional shares being issued. For a period
of two years from the Closing or such earlier time as Investor holds less than
10% of the Shares or a Convertible Security convertible into less than 10% of
the Shares the Company will not enter into any transactions that have any
reset features that could result in additional shares being issued. For the
purpose of this Agreement, a "reset feature" is a provision that would cause
the contract to qualify as a Variable Rate Transaction (as defined in Section
6.17).
6.10 Independent Directors. The Investor acknowledges and agrees that a
majority of the Company's directors are qualified independent directors, as
defined by the NASD. If at any time after Closing the Company's board of
directors shall not be comprised of a majority of qualified independent
directors, the Company shall act promptly to appoint additional independent
directors as necessary to assure that the board is comprised of a majority of
independent directors. If at any time after Closing the Company's board of
directors shall not be comprised of a majority of qualified independent
directors for reasons other than the death, disability or resignation of
independent directors, the Company shall pay to the Investor, as liquidated
damages and not as a penalty, an amount equal to one (1%) of the Purchase
Price for each month in which the Company's board is not comprised of a
majority of independent directors, payable monthly in cash or notes at the
option of the Investor. The parties agree that the only damages payable for a
violation of the terms of this Agreement with respect to which liquidated
damages are expressly provided shall be such liquidated damages. Nothing
shall preclude the Investor from pursuing or obtaining specific performance or
other equitable relief with respect to this Agreement. The parties hereto
agree that the liquidated damages provided for in this Section 6.10 constitute
a reasonable estimate of the damages that may be incurred by the Investor by
reason of the failure of the Company to appoint at least two independent
directors in accordance with the provision hereof.
6.11 Independent Directors Shall Comprise a Majority of Audit and
Compensation Committees. The Investor acknowledges and agrees that the
Company's audit and compensation committees are currently comprised of
qualified independent directors, as defined by the NASD. If at any time after
Closing the Company's audit and compensation committees shall not be comprised
of a majority of qualified independent directors, the Company shall act
promptly to appointment of a majority of outside directors to the audit and
compensation committees of the board of directors. If at any time after
Closing such independent directors do not compose the majority of the audit
and compensation committees for reasons other than the death, disability or
resignation of independent directors, the Company shall pay to the Investors,
pro rata, as liquidated damages and not as a penalty, an amount equal to one
(1%) of the Purchase Price for each month in which the Company's audit and
compensation committees are not comprised of a majority of independent
directors, payable monthly in cash or notes at the option of the Investor.
The parties agree that the only damages payable for a violation of the terms
of this Agreement with respect to which liquidated damages are expressly
provided shall be such liquidated damages. Nothing shall preclude the
Investor from pursuing other remedies or obtaining specific performance or
other equitable relief with respect to this Agreement.
6.12 Use of Proceeds. The Company will use the proceeds from the sale of the
Note and the Warrants (excluding amounts paid by the Company for legal and
administrative fees, investment banking fees or due diligence costs in
connection with the sale of such securities) for working capital and
acquisitions.
6.13 Right of First Refusal. Investor shall have the right to participate in
any subsequent funding by the Company at one hundred percent (100%) of the
offering price.
6.14 Anti-Dilution Price Adjustment. From the date hereof until such time as
Investor holds less than 20% of the Shares or a Convertible Security
convertible into less than 20% of the Shares, the Company closes on the sale
(other than an Exempt Issuance) of a note or notes, shares of Common Stock, or
shares of any class of convertible preferred stock (other than the Preferred
Stock issuable to Investor upon conversion of the Note) at a price per share
of Common Stock, or with a conversion right to acquire Common Stock at a price
per share of Common Stock that is less than the Conversion Price (as adjusted
to the capitalization per share as of the Closing Date, following any stock
splits, stock dividends, or the like) (collectively, "Dilutive Issuance"), the
Company shall make a post-Closing adjustment in the Conversion Price of the
Convertible Security and the exercise price of the Warrants so that the
effective price per share paid by the Investor is reduced to a price
determined by multiplying the current exercise price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Dilutive Issuance plus the number of shares of
Common Stock which the aggregate consideration received by the Company for the
shares of Common Stock issuable in the Dilutive Issuance would purchase at the
current Conversion Price or Warrant exercise price, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such Dilutive Issuance plus the number of additional shares of Common
Stock to be issued in the Dilutive Issuance. For the purposes of the
foregoing calculation, the number of shares of Common Stock outstanding
immediately prior to such Dilutive Issuance shall be determined on a fully
diluted basis as if, immediately prior to the Dilutive Issuance, all
convertible securities issued by the Company had been fully converted into
shares of Common Stock and all outstanding warrants (including, without
limitation, the Warrants issued pursuant to this Agreement), options or other
rights for the purchase of shares of Common Stock or convertible securities
had been fully exercised and converted (and the resulting securities fully
converted into shares of Common Stock, if so convertible). Such reduction of
the Conversion Price and Warrant Exercise Price shall be made at the time such
Dilutive Issuance is executed.
6.15 Adjustment Based on EBITDA. In the event the Company's EBITDA is less
than $4.5 million for the audited fiscal year ended March 31st, 2007 as
reported to the SEC on Form 10-KSB (where "EBITDA" means earnings before
interest, tax, depreciation and amortization as reported from continuing
operations before any non-recurring items), then the number of shares of
Common Stock or Preferred Stock into which this Note is convertible shall be
increased pro rata by the percentage decline in EBITDA; provided, however,
that the number of additional shares of Company's Common or Preferred Stock
into which this Note shall be convertible shall not exceed 300% of the number
of shares into which this Note is otherwise convertible prior to making the
adjustment required by this Section 6.15 (initially, 300% of 1,666,667 shares,
or 5,000,000 additional shares). For example, the number of shares shall
remain at 100% of 1,666,667 shares if EBITDA is $4.5 million or greater and
shall be increased proportionately to 150% of 1,666,667 shares if EBITDA is
$2.25 million (50% decrease) (for example the number of shares issued to the
Investor would be 2.5 million if the EBITDA is $2.25 million).
6.16 Employment and Consulting Contracts. For two years after the Closing or
such earlier time as Investor holds less than 10% of the Shares or a
Convertible Security convertible into less than 10% of the Shares, Company
must have a unanimous opinion from the Compensation Committee of the Board of
Directors that any awards other than salary are usual, appropriate and
reasonable for any officer, director, employee or consultant holding a similar
position in other fully reporting public companies with independent majority
boards with similar market capitalizations in the same industry with
securities listed on the OTCBB, ASE, NYSE or NASDAQ.
6.17 Subsequent Equity Sales. From the date hereof until such time as
Investor holds less than 10% of the Shares or a Convertible Security
convertible into less than 10% of the Shares, the Company shall be prohibited
from effecting or entering into an agreement to effect any Subsequent
Financing involving a "Variable Rate Transaction" or an "MFN Transaction"
(each as defined below). The term "Variable Rate Transaction" shall mean a
transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion, exercise or exchange rate or other price that is based upon and/or
varies with the trading prices of or quotations for the shares of Common Stock
at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being
reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or
indirectly related to the business of the Company or the market for the Common
Stock. The term "MFN Transaction" shall mean a transaction in which the
Company issues or sells any securities in a capital raising transaction or
series of related transactions which grants to an investor the right to
receive additional shares based upon future transactions of the Company on
terms more favorable than those granted to such investor in such offering.
Any Purchaser shall be entitled to obtain injunctive relief against the
Company to preclude any such issuance, which remedy shall be in addition to
any right to collect damages. Notwithstanding the foregoing, this Section 6.19
shall not apply in respect of an Exempt Issuance, except that no Variable Rate
Transaction or MFN Transaction shall be an Exempt Issuance.
6.18 Amendment to Certificate of Incorporation. At or before the next annual
meeting of the stockholders of the Company, the Board of Directors shall
propose and submit to the holders of the Common Stock for approval an
amendment to the Company's Articles of Incorporation that provides
substantially as follows:
"The Board of Directors is expressly vested with authority to adopt
from time to time a resolution or resolutions dividing the Preferred
Stock into one or more series and, within the limitations of the
Idaho Business Corporation Act, as amended, and these Articles of
Incorporation, fixing and determining the preferences, limitations
and relative rights of the shares of any series so established
including, without limitation, any dividend rights and preferences,
conversion rights, voting rights, rights of redemption (including
any sinking fund provisions) and liquidation preferences of such
series of Preferred Stock. The Board of Directors is also expressly
authorized to fix the number of shares constituting such series and
to increase or decrease the number of shares of any series prior to
the issue of shares of that series.
The terms and conditions of any rights, options and warrants
approved by the Board of Directors may provide that any or all of
such terms and conditions may be waived or amended only with the
consent of the holders of a designated percentage of a designated
class or classes of capital stock of the Corporation (or a
designated group or groups of holders within such class or classes,
including but not limited to disinterested holders), and the
applicable terms and conditions of any such rights, options or
warrants so conditioned may not be waived or amended absent such
consent."
6.19 Stock Splits. All forward and reverse stock splits shall effect all
equity and derivative holders proportionately.
6.20 If the Company does not receive signatures for the variable rate
convertible within 75 days of closing then the Company will pay to ▇▇▇▇▇▇ as a
liquidated damage, not as a penalty, a PIK dividend of 5% a month until the
all signatures have been received and the variable rate transaction has been
eliminated.
ARTICLE VII
COVENANTS OF THE INVESTOR
7.1 Compliance with Law. The Investor's trading activities with respect to
Shares of the Company's Common Stock will be in compliance with all applicable
state and federal securities laws, rules and regulations and rules and
regulations of any public market on which the Company's Common Stock is
listed. Specifically, but not by way of limitation, Investor will fully
comply with SEC Regulations M and SHO, and will not engage in short
investments strategies or short sales whatsoever with respect to the Company's
Common Stock while Investor owns the Convertible Note, the Preferred Stock or
the Shares of Common Stock.
7.2 Transfer Restrictions. The Investor's acknowledge that (1) the Note,
Preferred Stock, Warrants and Shares of Common Stock underlying the
Convertible Security and the Warrants have not been registered under the
provisions of the 1933 Act, and may not be transferred unless (A) subsequently
registered thereunder or (B) the Investor shall have delivered to the Company
an opinion of counsel, reasonably satisfactory in form, scope and substance to
the Company, to the effect that the Note, Preferred Stock, Warrants and Shares
underlying the Convertible Security and the Warrants to be sold or transferred
may be sold or transferred pursuant to an exemption from such registration;
and (2) any sale of the Note, Preferred Stock, Warrants and Shares underlying
the Convertible Security and the Warrants made in reliance on Rule 144
promulgated under the 1933 Act may be made only in accordance with the terms
of said Rule and further, if said Rule is not applicable, any resale of such
securities under circumstances in which the seller, or the person through whom
the sale is made, may be deemed to be an underwriter, as that term is used in
the 1933 Act, may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder.
7.3 Restrictive Legend. The Investor acknowledges and agrees that the Note,
the Preferred Stock, the Warrants and the Shares underlying the Convertible
Security and the Warrants, and, until such time as the Shares underlying the
Convertible Security and the Warrants have been registered under the 1933 Act
and sold in accordance with an effective Registration Statement, certificates
and other instruments representing any of the Preferred Stock or the Shares
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such securities):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH
SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) IN ACCORDANCE
WITH THE PROVISIONS OF REGULATION S, OR (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT."
7.4 Amendment to Certificate of Incorporation. Investor hereby agrees to
vote any shares of capital stock that it may own, directly or beneficially,
for the amendment to the Certificate of Incorporation referenced in Section
6.19. Pending adoption of such amendment, Investor hereby agrees, for itself
and its successors and assigns, that neither this Section 7.4 nor Section 6.19
above or any restriction on exercise of the Convertible Security or the
Warrants shall be amended, modified or waived without the consent of the
holders of a majority of the shares of Common Stock held by Persons who are
not Affiliates of the Company or the Investor or Affiliates of the Investor.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to consummate the transactions
contemplated hereby shall be subject to the fulfillment, on or prior to
Closing Date, of the following conditions:
8.1 No Termination. This Agreement shall not have been terminated pursuant
to Article X hereof.
8.2 Representations True and Correct. The representations and warranties of
the Investor contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as if made on as of the Closing Date.
8.3 Compliance with Covenants. The Investor shall have performed and
complied in all material respects with all covenants, agreements, and
conditions required by this Agreement to be performed or complied by it prior
to or at the Closing Date.
8.4 No Adverse Proceedings. On the Closing Date, no action or proceeding
shall be pending by any public authority or individual or entity before any
court or administrative body to restrain, enjoin, or otherwise prevent the
consummation of this Agreement or the transactions contemplated hereby or to
recover any damages or obtain other relief as a result of the transactions
proposed hereby.
ARTICLE IX
CONDITIONS PRECEDENT TO INVESTOR'S OBLIGATIONS
The obligation of the Investors to consummate the transactions
contemplated hereby shall be subject to the fulfillment, on or prior to
Closing Date unless specified otherwise, of the following conditions:
9.1 No Termination. This Agreement shall not have been terminated pursuant
to Article X hereof.
9.2 Representations True and Correct. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as if made on as of the Closing Date.
9.3 Compliance with Covenants. The Company shall have performed and complied
in all material respects with all covenants, agreements, and conditions
required by this Agreement to be performed or complied by it prior to or at
the Closing Date.
9.4 No Adverse Proceedings. On the Closing Date, no action or proceeding
shall be pending by any public authority or individual or entity before any
court or administrative body to restrain, enjoin, or otherwise prevent the
consummation of this Agreement or the transactions contemplated hereby or to
recover any damages or obtain other relief as a result of the transactions
proposed hereby.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date
10.1.1 by mutual written consent of the Investor and the Company;
10.1.2 by the Company upon a material breach of any representation,
warranty, covenant or agreement on the part of the Investor set forth in this
Agreement, or the Investor upon a material breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company or the
Investor, respectively, shall have become untrue, in either case such that any
of the conditions set forth in Article VIII or Article IX hereof would not be
satisfied (a "Terminating Breach"), and such breach, if capable of cure, shall
not have been cured within five (5) business days after receipt by the party
in breach of a notice from the non-breaching party setting forth in detail the
nature of such breach.
10.2 Effect of Termination. Except as otherwise provided herein, in the event
of the termination of this Agreement pursuant to Section 10.1 hereof, there
shall be no liability on the part of the Company or the Investor or any of
their respective officers, directors, agents or other representatives and all
rights and obligations of any party hereto shall cease; provided that in the
event of a Terminating Breach, the breaching party shall be liable to the
non-breaching party for all actual out-of-pocket costs and expenses reasonably
incurred by the non-breaching party not to exceed $50,000.00.
10.3 Amendment. This Agreement may be amended by the parties hereto any time
prior to the Closing Date by an instrument in writing signed by the parties
hereto.
10.4 Waiver. At any time prior to the Closing Date, the Company or the
Investor, as appropriate, may: (a) extend the time for the performance of any
of the obligations or other acts of other party or; (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto which have been made to it or them; or (c) waive
compliance with any of the agreements or conditions contained herein for its
or their benefit. Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party or parties to be bound
hereby.
ARTICLE XI
GENERAL PROVISIONS
11.1 Transaction Costs. Except as otherwise provided herein, each of the
parties shall pay all of its costs and expenses (including attorney fees and
other legal costs and expenses and accountants' fees and other accounting
costs and expenses) incurred by that party in connection with this Agreement;
provided, the Company shall pay Investor such due diligence expenses as
described in section 5.10.
11.2 Indemnification. The Investor agrees to indemnify, defend and hold the
Company (following the Closing Date) and its officers and directors harmless
against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities or damages, including interest, penalties
and reasonable attorney's fees, that it shall incur or suffer, which arise out
of or result from any breach of this Agreement by such Investor or failure by
such Investor to perform with respect to any of its representations,
warranties or covenants contained in this Agreement or in any exhibit or other
instrument furnished or to be furnished under this Agreement. The Company
agrees to indemnify, defend and hold the Investor harmless against and in
respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities or damages, including interest, penalties and reasonable
attorney's fees, that it shall incur or suffer, which arise out of, result
from or relate to any breach of this Agreement or failure by the Company to
perform with respect to any of its representations, warranties or covenants
contained in this Agreement or in any exhibit or other instrument furnished or
to be furnished under this Agreement. In no event shall the Company or the
Investors be entitled to recover consequential or punitive damages resulting
from a breach or violation of this Agreement nor shall any party have any
liability hereunder in the event of gross negligence or willful misconduct of
the indemnified party. In the event of a breach of this Agreement by the
Company, the Investor shall be entitled to pursue a remedy of specific
performance upon tender into the Court an amount equal to the Purchase Price
hereunder. The indemnification by either party shall be limited actual out-of-
pocket costs and expenses reasonably incurred by the non-breaching party not
to exceed $50,000.00
11.3 Headings. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.4 Entire Agreement. This Agreement (together with the Schedules, Exhibits
and documents referred to herein) constitute the entire agreement of the
parties and supersede all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof.
11.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given (i) on the date they are
delivered if delivered in person; (ii) on the date initially received if
delivered by facsimile transmission followed by registered or certified mail
confirmation; (iii) on the date delivered by an overnight courier service; or
(iv) on the third business day after it is mailed by registered or certified
mail, return receipt requested with postage and other fees prepaid as follows:
If to the Company:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
PCS Edventures!.COM, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
With a copy to:
_______________________
_______________________
Facsimile No.: ___________
Attn: _______________, Esq.
If to the Investor:
▇▇▇▇▇▇ Partners L.P.
c/▇ ▇▇▇▇▇▇ Capital Advisors, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
11.6 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any such
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
11.7 Binding Effect. All the terms and provisions of this Agreement whether
so expressed or not, shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective administrators, executors,
legal representatives, heirs, successors and assignees.
11.8 Preparation of Agreement. This Agreement shall not be construed more
strongly against any party regardless of who is responsible for its
preparation. The parties acknowledge each contributed and is equally
responsible for its preparation.
11.9 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law.
11.10 Jurisdiction. This Agreement shall be exclusively governed by and
construed in accordance with the laws of the State of New York. If any action
is brought among the parties with respect to this Agreement or otherwise, by
way of a claim or counterclaim, the parties agree that in any such action, and
on all issues, the parties irrevocably waive their right to a trial by jury.
Exclusive jurisdiction and venue for any such action shall be the Federal
Courts serving the State of New York. In the event suit or action is brought
by any party under this Agreement to enforce any of its terms, or in any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys fees to be fixed by the arbitrator, trial court, and/or
appellate court.
11.11 Preparation and Filing of Securities and Exchange Commission filings.
The Investor shall reasonably assist and cooperate with the Company in the
preparation of all filings with the SEC after the Closing Date due after the
Closing Date.
11.12 Further Assurances, Cooperation. Each party shall, upon reasonable
request by the other party, execute and deliver any additional documents
necessary or desirable to complete the transactions herein pursuant to and in
the manner contemplated by this Agreement. The parties hereto agree to
cooperate and use their respective best efforts to consummate the transactions
contemplated by this Agreement.
11.13 Survival. The representations, warranties, covenants and agreements
made herein shall survive the Closing of the transaction contemplated hereby.
11.14 Third Parties. Except as disclosed in this Agreement, nothing in
this Agreement, whether express or implied, is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other than the
parties hereto and their respective administrators, executors, legal
representatives, heirs, successors and assignees. Nothing in this Agreement
is intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement, nor shall any provision give any third
persons any right of subrogation or action over or against any party to this
Agreement.
11.15 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty, covenant or agreement herein, nor
shall nay single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
11.16 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement. A facsimile
transmission of this signed Agreement shall be legal and binding on all
parties hereto.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Investors and the Company have as of the date
first written above executed this Agreement.
COMPANY:
PCS EDVENTURES!.COM, INC.
By: /S/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
INVESTOR:
▇▇▇▇▇▇ PARTNERS LP
By: ▇▇▇▇▇▇ Capital Advisors, LLC, its General Partner
/s/▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
President
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇
Schedule 4.3
Capitalization
(as of December 21, 2005)
Outstanding preferred stock (in process of converting
to 76,230 shares of common stock) 15,249 shares
Outstanding common stock 29,682,003 shares
Commitments to Issue Common Stock
(as of December 21, 2003
Common stock issuable to former shareholders
of LabMentors (subject to possible downward
post-Closing adjustment of up to 76,956 shares) 700,000 shares
Common stock issuable to ▇. ▇▇▇▇▇▇ pursuant to
employment contract (copy attached). Contract
provides for bonus of 40% of base salary of $15,000
Cdn per quarter = $6000 Cdn per quarter; converted
to USD at $0.86 USD per Cdn $ and then divided by
$0.70 per share and multiplied by three years.
Contract is terminable 6/1/06 and each year
thereafter on 90 days notice 88,455 shares
Common stock issuable to former shareholders of
LabMentors as performance-based earnout, assuming
PCS obtains LM shareholder approval for a floor of
$0.40 per share and LM meets aggressive minimum
target EBITDA levels 2,093,750 shares
Outstanding options (see attached schedule) 4,211,094 shares
Issuable to consultant (see attached Cyndel
Consulting Agreement). Consulting fee is payable
partly in stock at option of PCS. Board approved
150,000 shares maximum. 150,000 shares
Schedule 4.8 List of Brokers
Broker, finder or investment banker for Company: Company shall pay, from the
proceeds of the Note, finder's fees of $10,000 to each of ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇.
Broker, finder or investment banker for Investor: None
Schedule 4.13 Material Adverse Events
None.
Exhibit A
Convertible Promissory Note
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED.
A NOTE PURCHASE AGREEMENT DATED AS OF DECEMBER 29, 2005 (THE "PURCHASE
AGREEMENT"), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN THE PARTIES
WITH RESPECT TO THIS NOTE.
CONVERTIBLE NOTE
Date of Issuance: December 29, 2005
Principal Amount: $1,000,000.00
Location: New York, New York
FOR VALUE RECEIVED, PCS EDVENTURES!.COM, INC, a Idaho corporation (hereinafter
called "Borrower"), hereby promises to pay to ▇▇▇▇▇▇ PARTNERS, LP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ (the "Holder"), or order, the sum
of One Million Dollars and No Cents ($1,000,000.00) ("Principal"), without
interest, on September 30, 2006 (the "Maturity Date"), but the maturity of
this Note is automatically extended on a month by month basis.
ARTICLE I
GENERAL PROVISIONS
1.1 Note Purchase Agreement. This Convertible Note ("Note") is issued
pursuant to that certain Note Purchase Agreement between Borrower and Holder
of even date herewith and is subject to the terms and conditions of that
agreement.
1.2 No Interest. This Note shall not bear interest prior to maturity.
1.3 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of ten percent (10%) per annum shall apply to
the amounts owed hereunder.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right or obligation to convert the Principal of
this Note into shares of the Borrower's Common Stock or Preferred Stock as set
forth below.
2.1. Conversion into Borrower's Stock.
(a) The Holder shall have the right, exercisable at any time from and
after the date of issuance of this Note until this Note is fully paid, to
convert the entire outstanding and unpaid Principal of this Note upon delivery
of a Notice of Conversion in the form attached hereto (the date of giving of
such Notice of Conversion being the "Conversion Date") into fully paid and
nonassessable shares of Borrower's Common Stock (without par value) at the
Conversion Price (defined below); provided, however, that effective as of the
date (the "Preferred Stock Authorization Date") of amendment of the Company's
Articles of Incorporation to authorize and designate a class of preferred
stock subject to the terms set forth in the Certificate of Designations of
Preferences, Rights and Limitations attached hereto as Exhibit A (the
"Preferred Stock"), this Note will cease to be convertible into Common Stock
and will automatically be converted into shares of such Preferred Stock at the
Conversion Price. Borrower shall issue and deliver to the Holder, within
three (3) trading days from the Conversion Date or the Preferred Stock
Authorization Date, as the case may be ("Delivery Date"), that number of
shares of Common Stock or Preferred Stock, as applicable, that equals the
Principal divided by the Conversion Price.
(b) Subject to clause (c) below and Section 6.14 of the Note Purchase
Agreement, the "Conversion Price" per share of Borrower's stock shall be
$0.60.
(c) The character and amount of securities or other property issuable
upon conversion of this Note and the Conversion Price are subject to
adjustment upon the occurrence of the following events, and all such
adjustments shall be cumulative:
(i) The Conversion Price of this Note and the number of shares of Common
Stock issuable upon conversion of this Note shall be appropriately
adjusted to reflect any stock dividend, stock split, combination of
shares, reclassification, recapitalization or other similar event
affecting the number of outstanding shares of stock or securities.
(ii) In case of any consolidation or merger of the Company with or into
any other corporation, entity or person, or any other corporate
reorganization, in which the Company shall not be the continuing or
surviving entity of such consolidation, merger or reorganization (any
such transaction being hereinafter referred to as a "Reorganization"),
then, in each case, the Holder, on conversion hereof at any time after
the consummation or effective date of such Reorganization (the "Effective
Date"), shall receive, in lieu of the shares of Borrower's stock at any
time issuable upon the conversion of the Note prior to the Effective
Date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon the Effective Date if
such Holder had converted this Note immediately prior thereto.
(iii) If a Dilutive Issuance (as that term is defined in the Note
Purchase Agreement) occurs, then the Company shall adjust the Conversion
Price in accordance with the provisions of Section 6.14 of such Note
Purchase Agreement, subject to the waiver provision of Section 6.15
thereof.
(d) In case of any adjustment or readjustment in the price or kind of
securities issuable on the conversion of this Note pursuant to clause (c)
above, the Company will promptly give written notice thereof to the Holder in
the form of a certificate, certified and confirmed by an officer of the
Company, setting forth such adjustment or readjustment and showing in
reasonable detail the facts upon which such adjustment or readjustment is
based.
(e) Borrower covenants and agrees to reserve out of its authorized and
unissued Common Stock and, on and after the Preferred Stock Authorization
Date, out of its authorized and unissued Preferred Stock, that number of
shares of capital stock into which this Note may be converted. Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. Borrower agrees that its issuance of this Note
shall constitute full authority to its officers, agents, and transfer agents
who are charged with the duty of executing and issuing stock certificates to
execute and issue the necessary certificates for shares upon the conversion of
this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part.
2.3 Maximum Exercise.
(a) The Holder shall not be entitled to convert this Note in connection
with that number of shares of Common Stock which, when added to the number of
shares of Common Stock "beneficially owned" (defined below) by the Holder and
its Affiliates immediately prior to conversion of the Note, would result in
"beneficial ownership" by the Holder and its Affiliates of more than 4.9% of
the outstanding shares of Common Stock on the Conversion Date. For the
purposes of the immediately preceding sentence, "beneficial ownership" shall
be determined in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended, and Rule 13d-3 thereunder.
(b) This Section 2.3 may be waived or amended only with the consent of
the Holder and the consent of holders of a majority of the shares of
outstanding Common Stock of the Company who are not Affiliates. For the
purposes of the immediately preceding sentence, the term "Affiliate" shall
mean: (a) any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the Company or any Holder; and (b) any Holder who beneficially owns any
shares of the Company's Common Stock.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of
Principal then remaining unpaid hereon and all other amounts payable hereunder
immediately due and payable, upon demand, without presentment, or grace
period, all of which hereby are expressly waived, except as set forth below:
3.1 Failure to Pay Principal. The Borrower fails to pay the Principal
or other sum due under this Note when due.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of the Note Purchase Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period
of fifteen (15) business days after the earlier of (i) written notice to the
Borrower from the Holder or (ii) the date that the Borrower learns of such
breach.
3.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Note Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date (as defined in the
Note Purchase Agreement).
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or
such a receiv er or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
be entered or filed against Borrower or any of its property or other assets
for more than $150,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any
law, or the issuance of any notice in relation to such event, for the relief
of debtors shall be instituted by or against the Borrower and if instituted
against Borrower are not dismissed within 45 days of initiation.
3.7 Delisting. Delisting of the Borrower's Common Stock from the OTC
Bulletin Board ("OTCBB") or such other principal exchange on which the Common
Stock is listed for trading; failure to comply with the requirements for
continued listing on the OTCBB for a period of three consecutive trading days;
or notification from the OTC Bulletin Board or any Principal Market that the
Borrower is not in compliance with the conditions for such continued listing
on the OTCBB or other principal market.
3.8 Stop Trade. An SEC or judicial stop trade order or principal market
trading suspension that lasts for five or more consecutive trading days.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be delivered in the manner and to the
address specified in the Purchase Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. The Borrower may not assign its rights and
obligations hereunder without the Holder's prior written consent, which may be
withheld in its sole discretion. This Note shall be binding upon the Borrower
and its successors and permitted assigns, and shall inure to the benefit of
the Holder and its successors and assigns.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by
either party against the other concerning the transactions contemplated by
this Note shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individual signing this Agreement on behalf of the Borrower agree to submit to
the jurisdiction of such courts. If any action is brought between the parties
with respect to this Note or otherwise, by way of a claim or counterclaim, the
parties irrevocably waive their right to a trial by jury in any such action
and on all issues. The prevailing party shall be entitled to recover from the
other party its reasonable attorney's fees and costs.
4.7 Shareholder Status. The Holder shall not have rights as a
shareholder of the Borrower prior to conversion of this Note. However, after
the Conversion Date or the Preferred Stock Authorization Date (as the case may
be), the Holder will have the right of a shareholder of the Borrower with
respect to the shares of Common Stock or Preferred Stock to be received upon
conversion of this Note.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by an authorized officer on this 29th day of December, 2005.
PCS EDVENTURES!.COM, INC
/S/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert the principal of the Note issued by
PCS EDVENTURES!.COM, INC on ____________ __, 2005 into____________ shares of
[Common] [Preferred] Stock of PCS EDVENTURES!.COM, INC. (the "Borrower")
according to the terms set forth in such Note, as of the date written below.
Date of Conversion: ____________, 2005
Shares To Be Delivered: ____________ shares of [Common] [Preferred] Stock
Signature:_______________________________________________________________
Print
Name:__________________________________________________________________
Address:________________________________________________________________
Exhibit A
Form of Certificate of Designations of Preferences, Rights and Limitations
PCS EDVENTURES!.COM, INC.
CERTIFICATE OF DESIGNATIONS OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
The undersigned, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and __________________, do hereby
certify that:
1. They are the President and Secretary, respectively, of PCS
Edventures!.COM, Inc, Idaho corporation (the "Company").
2. The Company is authorized to issue ten million (10,000,000.0)
shares of preferred stock, of which shares were previously issued, converted
into Common Stock and cancelled, returning to authorized but unissued status.
3. The following resolutions were duly adopted by the Board of
Directors:
WHEREAS, the Certificate of Incorporation of the Company has been
amended to delete the previously existing preferred stock provisions, to
authorize a class of preferred stock comprised of ten million (10,000,000)
shares of preferred stock without par value and issuable in one or more
series, and to vest the Board of Directors with authority to adopt from time
to time a resolution or resolutions dividing the preferred stock into one or
more series and, within the limitations of the Idaho Business Corporation Act,
to designate the preferences, limitations and relative rights of the shares of
any series so established including, without limitation, any dividend rights
and preferences, conversion rights, voting rights, rights of redemption
(including any sinking fund provisions) and liquidation preferences of such
series of preferred stock and to fix the number of shares constituting such
series.
WHEREAS, pursuant to such authorization the Board of Directors of the
Company is authorized to fix the dividend rights, dividend rate, voting
rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of preferred stock and the number of
shares constituting any series and the designation thereof, of any of them;
and
WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to fix the rights, preferences,
restrictions and other matters relating to a series of the preferred stock
which shall consist of up to five million (5,000,000.0) shares of the
preferred stock which the Company has the authority to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors does hereby
provide for the issuance of a series of preferred stock for cash or exchange
of other securities, rights or property and does hereby fix and determine the
rights, preferences, restrictions and other matters relating to such series of
preferred stock as follows:
TERMS OF PREFERRED STOCK
Section 1. Definitions. Capitalized terms used and not otherwise defined
herein that are defined in the Purchase Agreement (as defined below) shall
have the meanings given such terms in the Purchase Agreement. For the purposes
hereof, the following terms shall have the following meanings:
"Affiliate" means any Person that directly or indirectly, through
one or more intermediaries controls, or is controlled by, or is under
common control with the another Person.
"Bankruptcy Event" means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule
1.02(s) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any
Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or proceeding
is entered; (d) the Company or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within
60 days; (e) the Company or any Significant Subsidiary thereof makes a
general assignment for the benefit of creditors; (f) the Company or any
Significant Subsidiary thereof calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its
debts; or (g) the Company or any Significant Subsidiary thereof, by any
act or failure to act, expressly indicates its consent to, approval of
or acquiescence in any of the foregoing or takes any corporate or other
action for the purpose of effecting any of the foregoing.
"Closing Date" means the date on which the payment of the Purchase
Price (as defined herein) by the Investor to the company is completed
pursuant to this Agreement to purchase the Preferred Stock and Warrants,
which shall occur on or before December 29, 2005.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock without par value,
and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at
any time Common Stock, including without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Conversion Date" shall have the meaning set forth in Section
6(a).
"Conversion Ratio" shall have the meaning set forth in Section
6(a).
"Conversion Value" shall have the meaning set forth in Section
6(a).
"Conversion Shares" means, collectively, the shares of Common
Stock into which the shares of Series A Preferred Stock are convertible
in accordance with the terms hereof.
"Conversion Shares Registration Statement" means a registration
statement that meets the requirements of the Registration Rights
Agreement and registers the resale of all Conversion Shares by the
Holder, who shall be named as a "selling stockholder" thereunder, all as
provided in the Registration Rights Agreement.
"Dilutive Issuance" shall have the meaning set forth in Section
7(b) hereof.
"Effective Date" means the date that the Conversion Shares
Registration Statement is declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock, warrants, options or other rights (i) to employees, officers, or
directors of the Company pursuant to any stock or option plan
(including, without limitation, the Company's 2004 Nonqualified Stock
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, (ii)
to consultants or advisors to the Company or to financial institutions
or lessors in connection with commercial credit arrangements, equipment
financings, real property lease transactions or similar transactions,
pursuant to arrangements approved by the Board of Directors, or (iii) in
payment of compensation of the Company's directors, (b) securities upon
the exercise or conversion of any securities issued hereunder, (c)
shares of Common Stock issued to (i) former shareholders of LabMentors
pursuant to the Share Exchange Agreement dated November 30, 2005
(excluding, however, shares of Common Stock to be issued pursuant to the
earnout provisions of that agreement if issued for less than $0.50 per
share), (ii) certain financial advisors in connection with the
LabMentors acquisition, and (iii) LabMentors' president, ▇▇▇ ▇▇▇▇▇▇,
pursuant to an employment agreement made in connection with the
LabMentors acquisition, (d) shares of Common Stock and warrants issued
to Cyndel & Co., Inc., a consultant to the Company, pursuant to a
Consulting Agreement effective November 1, 2005, (e) shares of Common
Stock issuable pursuant to options, warrants or rights outstanding as of
the date of this Certificate of Designation, provided that such
securities have not been amended since the date of this Certificate of
Designation to increase the number of such securities, (f) shares of
Common Stock issuable in payment of noncash dividends or upon conversion
of Company's outstanding shares of preferred stock, (g) securities
issued pursuant to acquisitions or strategic transactions provided
however that there is no variable rate pricing mechanisms without a
floor price included in any such transaction (including, without
limitation, securities issued in connection with the acquisition of
Back-Up Training Corporation of Coeur d'Alene, Idaho), 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.
"Fundamental Transaction" shall have the meaning set forth in
Section 7(f)(iv) hereof.
"Holder" shall have the meaning given such term in Section 2
hereof.
"Junior Securities" means the Common Stock and all other equity or
equity equivalent securities of the Company other than those securities
that are explicitly senior in rights or liquidation preference to the
Series A Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of
any shares of the Series A Preferred Stock regardless of the number of
transfers of any particular shares of Series A Preferred Stock and
regardless of the number of certificates which may be issued to evidence
such Series A Preferred Stock.
"Person" means a Company, an association, a partnership, a limited
liability company, a business association, an individual, a government
or political subdivision thereof or a governmental agency.
"Purchase Agreement" means the Note Purchase Agreement, dated as
of the December 29, 2005, to which the Company and the original Holders
are parties, as amended, modified or supplemented from time to time in
accordance with its terms, a copy of which is on file at the principal
offices of the Company.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, to which the Company and the
original Holder are parties, as amended, modified or supplemented from
time to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Series A Preferred Stock" shall have the meaning set forth in
Section 2.
"Subscription Amount" shall mean the One Million Dollars
($1,000,000.0) to be paid for the Note purchase pursuant to the Purchase
Agreement, in United States Dollars and in immediately available funds.
"Subsidiary" shall mean a Company, limited liability company,
partnership, joint venture or other business entity of which the
Company owns beneficially or of record more than 19% of the equity
interest.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in
question: the Nasdaq SmallCap Market, the American Stock Exchange, the
New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin
Board.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"VWAP" means, for any date, the price determined by the first of
the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the daily volume weighted average
price of the Common Stock for such date (or the nearest preceding date)
on the primary Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg Financial L.P. (based on a Trading
Day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using the VAP
function; (b) if the Common Stock is not then listed or quoted on the
Trading Market and if prices for the Common Stock are then reported in
the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of
the Common Stock so reported; or (c) in all other cases, the fair market
value of a share of Common Stock as determined by a nationally
recognized-independent appraiser selected in good faith by Purchasers
holding a majority of the principal amount of Series A Preferred Stock
then outstanding.
Section 2. Designation, Amount and Par Value. The series of preferred
stock shall be designated as the Company's Series A Convertible Preferred
Stock without par value (the "Series A Preferred Stock or "Preferred Stock")
and the number of shares so designated shall be five million (5,000,000)
(which shall not be subject to increase without the consent of the holders of
a majority of the outstanding shares of the Series A Preferred Stock (each a
"Holder" and collectively, the "Holders"). Capitalized terms not otherwise
defined herein shall have the meaning given such terms in Section 1 hereof.
Section 3. Dividends and Other Distributions. No dividends shall be
payable with respect to the Series A Preferred Stock. No dividends shall be
payable with respect to the Common Stock while the Series A Preferred Stock is
outstanding. The Common Stock shall not be redeemed while the Series A
Preferred Stock is outstanding.
Section 4. Voting Rights. The Series A Preferred Stock shall have no
voting rights. However, so long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without the affirmative approval of the
Holders of the shares of the Series A Preferred Stock then outstanding, (a)
alter or change adversely the powers, preferences or rights given to the
Series A Preferred Stock or alter or amend this Certificate of Designation,
(b) authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation (as defined in Section 5) senior to
or otherwise pari passu with the Series A Preferred Stock, or any of preferred
stock possessing greater voting rights or the right to convert at a more
favorable price than the Series A Preferred Stock, (c) amend its certificate
or articles of incorporation or other charter documents in breach of any of
the provisions hereof, (d) increase the authorized number of shares of Series
A Preferred Stock, or (e) enter into any agreement with respect to the
foregoing.
Section 5. Liquidation. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "Liquidation"), the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Series A Preferred Stock
an amount equal to $0.60 (the "Liquidation Value") before any distribution or
payment shall be made to the holders of any Junior Securities, and if the
assets of the Company shall be insufficient to pay in full such amounts, then
the entire assets to be distributed to the Holders shall be distributed among
the Holders ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. At
the election of a Holder made by written notice delivered to the Company at
least two (2) business days prior to the effective date of the subject
transaction, as to the shares of Series A Preferred Stock held by such Holder,
a Fundamental Transaction (excluding for purposes of this Section 5 any
Fundamental Transaction described in Section 7(i)(iv)(A) or 7(i)(iv)(B)) or
Change of Control shall be treated as a Liquidation.
Section 6. Conversion.
a) Conversions at Option of Holder. Each share of Series A
Preferred Stock shall be initially convertible (subject to the limitations set
forth in Section 6(c)), into one (1) share of Common Stock (as adjusted as
provided below, the "Conversion Ratio") at the option of the Holders, at any
time and from time to time from and after the Original Issue Date. Holders
shall effect conversions by providing the Company with the form of conversion
notice attached hereto as Annex A (a "Notice of Conversion") as fully and
originally executed by the Holder, together with the delivery by the Holder to
the Company of the stock certificate(s) representing the number of shares of
Series A Preferred Stock so converted, with such stock certificates being duly
endorsed in full for transfer to the Company or with an applicable stock power
duly executed by the Holder in the manner and form as deemed reasonable by the
transfer agent of the Common Stock. Each Notice of Conversion shall specify
the number of shares of Series A Preferred Stock to be converted, the number
of shares of Series A Preferred Stock owned prior to the conversion at issue,
the number of shares of Series A Preferred Stock owned subsequent to the
conversion at issue, the stock certificate number and the shares of Series A
Preferred Stock represented thereby which are accompanying the Notice of
Conversion, and the date on which such conversion is to be effected, which
date may not be prior to the date the Holder delivers such Notice of
Conversion and the applicable stock certificates to the Company by overnight
delivery service (the "Conversion Date"). If no Conversion Date is specified
in a Notice of Conversion, the Conversion Date shall be the Trading Day
immediately following the date that such Notice of Conversion and applicable
stock certificates are received by the Company. The calculations and entries
set forth in the Notice of Conversion shall control in the absence of manifest
or mathematical error. Shares of Series A Preferred Stock converted into
Common Stock in accordance with the terms hereof shall be canceled and may not
be reissued. The initial value of the Series A Preferred Stock on the
Conversion Date shall be equal to $0.60 per share (as adjusted pursuant to
Section 7 or otherwise as provided herein, the "Conversion Value"). If the
initial Conversion Value is adjusted pursuant to Section 7 or as otherwise
provided herein, the Conversion Ratio shall likewise be adjusted and the new
Conversion Ratio shall equal the Liquidation Value divided by the new
Conversion Value. Thereafter, subject to any further adjustments in the
Conversion Value, each share of Series A Preferred Stock shall be initially
convertible into that number of shares of Common Stock equal to the new
Conversion Ratio.
b) Automatic Conversion.
i. Subject to Section 5, all of the outstanding
shares of Series A Preferred Stock shall be automatically converted into the
Conversion Shares upon the close of business on the business day immediately
preceding the date fixed for consummation of any transaction resulting in a
Change of Control of the Company (an "Automatic Conversion Event"). A "Change
in Control" means a consolidation or merger of the Company with or into
another company or entity in which the Company is not the surviving entity or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company in a transaction or series of transactions. The Company shall not be
obligated to issue certificates evidencing the Conversion Shares unless
certificates evidencing the shares of Series A Preferred Stock so converted
are either delivered to the Company or its transfer agent or the holder
notifies the Company or its transfer agent in writing that such certificates
have been lost, stolen, or destroyed and executes an agreement satisfactory to
the Company to indemnify the Company from any loss incurred by it in
connection therewith. Upon the conversion of the Series A Preferred Stock
pursuant to this Section 6(b)(i), the Company shall promptly send written
notice thereof, by hand delivery or by overnight delivery, to the holder of
record of all of the Series A Preferred Stock at its address then shown on the
records of the Company, which notice shall state that certificates evidencing
shares of Series A Preferred Stock must be surrendered at the office of the
Company (or of its transfer agent for the Common Stock, if applicable).
c) Beneficial Ownership Limitation. Except as provided in
Section 6(b) above, the Company shall not effect any conversion of the Series
A Preferred Stock, and the Holder shall not have the right to convert any
portion of the Series A Preferred Stock to the extent that after giving effect
to such conversion, the Holder (together with the Holder's affiliates), as set
forth on the applicable Notice of Conversion, would beneficially own in excess
of 4.9% of the number of shares of the Common Stock outstanding immediately
after giving effect to such conversion. For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the
Holder and its affiliates shall include the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock with respect to which
the determination of such sentence is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted shares of Series A Preferred Stock beneficially owned
by the Holder or any of its affiliates, so long as such shares of Series A
Preferred Stock are not convertible within sixty (60) days from the date of
such determination, and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including the
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates, so long as such other securities of the Company are not
exercisable nor convertible within sixty (60) days from the date of such
determination. For purposes of this Section 6(c), in determining the number
of outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in the most recent of the
following: (A) the Company's most recent quarterly reports, Form 10-Q, Form
10-QSB, Annual Reports, Form 10-K, or Form 10-KSB, as the case may be, as
filed with the Commission under the Exchange Act (B) a more recent public
announcement by the Company or (C) any other written notice by the Company or
the Company's transfer agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the
Company shall within two (2) Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including the Series A Preferred Stock, by the Holder or its affiliates since
the date as of which such number of outstanding shares of Common Stock was
publicly reported by the Company. This Section 6(c) may be waived or amended
only with the consent of the Holders of all of the Series A Preferred Stock
and the consent of the holders of a majority of the shares of outstanding
Common Stock of the Company who are not Affiliates. For the purpose of the
immediately preceding sentence, the term "Affiliate" shall mean any person:
(a) that directly or indirectly, through one or more intermediaries controls,
or is controlled by, or is under common control with the Company, or (b) who
beneficially owns (i) any shares of Series A Preferred Stock, or (ii) the
Company's Common Stock Purchase Warrant(s) dated December 29, 2005. For
purposes of this Section 6(c), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act.
d) Mechanics of Conversion
i. Delivery of Certificate Upon Conversion. Except
as otherwise set forth herein, not later than three Trading Days after each
Conversion Date (the "Share Delivery Date"), the Company shall deliver to the
Holder (A) a certificate or certificates which, after the Effective Date,
shall be free of restrictive legends and trading restrictions (other than
those required by the Purchase Agreement) representing the number of shares of
Common Stock being acquired upon the conversion of shares of Series A
Preferred Stock, and (B) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected or is required to pay accrued dividends
in cash). After the Effective Date, the Company shall, upon request of the
Holder, deliver any certificate or certificates required to be delivered by
the Company under this Section electronically through the Depository Trust
Company or another established clearing Company performing similar functions.
If in the case of any Notice of Conversion such certificate or certificates
are not delivered to or as directed by the applicable Holder by the third
Trading Day after the Conversion Date, the Holder shall be entitled to elect
by written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the certificates representing the
shares of Series A Preferred Stock tendered for conversion.
ii. Obligation Absolute; Partial Liquidated Damages.
The Company's obligations to issue and deliver the Conversion Shares upon
conversion of Series A Preferred Stock in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the
Holder to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Holder or
any other Person of any obligation to the Company or any violation or alleged
violation of law by the Holder or any other person, and irrespective of any
other circumstance which might otherwise limit such obligation of the Company
to the Holder in connection with the issuance of such Conversion Shares. In
the event a Holder shall elect to convert any or all of its Series A Preferred
Stock, the Company may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with the Holder of has been engaged
in any violation of law, agreement or for any other reason unless an
injunction from a court, on notice, restraining and or enjoining conversion of
all or part of this Series A Preferred Stock shall have been sought and
obtained and the Company posts a surety bond for the benefit of the Holder in
the amount of 150% of the Conversion Value of Series A Preferred Stock
outstanding, which is subject to the injunction, which bond shall remain in
effect until the completion of arbitration/litigation of the dispute and the
proceeds of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the Company
shall issue Conversion Shares or, if applicable, cash, upon a properly noticed
conversion. If the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 6(d)(i) within two Trading Days of the Share
Delivery Date applicable to such conversion, the Company shall pay to such
Holder, in cash, as liquidated damages and not as a penalty, for each $5,000
of Conversion Value of Series A Preferred Stock being converted, $200 per
Trading Day (increasing to $400 per Trading Day after three (3) Trading Days
and increasing to $800 per Trading Day six (6) Trading Days after such damages
begin to accrue) for each Trading Day after the Share Delivery Date until such
certificates are delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period
specified herein and such Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief.
iii. Compensation for Buy-In on Failure to Timely
Deliver Certificates Upon Conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to Section 6(d)(i) by a Share
Delivery Date, and if after such Share Delivery Date the Holder purchases (in
an open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the
Holder was entitled to receive upon the conversion relating to such Share
Delivery Date (a "Buy-In"), then the Company shall pay in cash to the Holder
the amount by which (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Common Stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of Common Stock that such Holder was
entitled to receive from the conversion at issue multiplied by (2) the price
at which the sell order giving rise to such purchase obligation was executed.
For example, if the Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted conversion of
shares of Series A Preferred Stock with respect to which the aggregate sale
price giving rise to such purchase obligation is $10,000, under clause (A) of
the immediately preceding sentence the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating
the amounts payable to the Holder in respect of the Buy-In, together with
applicable confirmations and other evidence reasonably requested by the
Company. Nothing herein shall limit a Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon conversion of the shares of Series A Preferred
Stock as required pursuant to the terms hereof.
iv. Reservation of Shares Issuable Upon Conversion.
The Company covenants that it will at all times reserve and keep available out
of its authorized and unissued shares of Common Stock solely for the purpose
of issuance upon conversion of the Series A Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares
of the Common Stock as shall (subject to any additional requirements of the
Company as to reservation of such shares set forth in the Purchase Agreement)
be issuable (taking into account the adjustments and restrictions of Section
7) upon the conversion of all outstanding shares of Series A Preferred Stock.
The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Conversion Shares Registration Statement is
then effective under the Securities Act, registered for public sale in
accordance with such Conversion Shares Registration Statement.Fractional
Shares. Upon a conversion hereunder, the Company shall not be required to
issue stock certificates representing fractions of shares of the Common Stock.
v. Transfer Taxes. The issuance of certificates
for shares of the Common Stock on conversion of the Series A Preferred Stock
shall be made without charge to the Holders thereof for any documentary stamp
or similar taxes that may be payable in respect of the issue or delivery of
such certificate, provided that the Company shall not be required to pay any
tax that may be payable in respect of any transfer involved in the issuance
and delivery of any such certificate upon conversion in a name other than that
of the Holder of such shares of Series A Preferred Stock so converted and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
Section 7. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Company, at any
time while the Series A Preferred Stock is outstanding: (A) shall pay a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this Series A
Preferred Stock), (B) subdivide outstanding shares of Common Stock into a
larger number of shares, (C) combine (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then the Conversion Value shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock outstanding
after such event. Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
b) Subsequent Equity Sales. 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" or an "MFN
Transaction" (each as defined below). The term "Variable Rate Transaction"
shall mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for,
or include the right to receive additional shares of Common Stock either (A)
at a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or equity
securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the
market for the Common Stock. The term "MFN Transaction" shall mean a
transaction in which the Company issues or sells any securities in a capital
raising transaction or series of related transactions which grants to an
investor the right to receive additional shares based upon future transactions
of the Company on terms more favorable than those granted to such investor in
such offering. Any Purchaser shall be entitled to obtain injunctive relief
against the Company to preclude any such issuance, which remedy shall be in
addition to any right to collect damages. Notwithstanding the foregoing, this
Section 7(b) shall not apply in respect of an Exempt Issuance, except that no
Variable Rate Transaction or MFN Transaction shall be an Exempt Issuance.
c) Subsequent Rights Offerings. The Company, at any time while
the Series A Preferred Stock is outstanding, shall not issue rights, options
or warrants to holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Conversion
Price.
d) Anti-Dilution Price Adjustment. From the date hereof until
such time as the Holder holds less than 10% of the shares of Series A
Preferred Stock issued to the original Holder, the Company closes on the sale
(other than an Exempt Issuance) of a note or notes, shares of Common Stock, or
shares of any class of convertible preferred stock at a price per share of
Common Stock, or with a conversion right to acquire Common Stock at a price
per share of Common Stock, that is less than the Conversion Value (as adjusted
to the capitalization per share as of the Closing Date, following any stock
splits, stock dividends, or the like) (collectively, "Dilutive Issuance"), the
Company shall make a post-Closing adjustment in the Conversion Value of the
Series A Preferred Stock so that the effective price per share paid by the
Investor is reduced to a price determined by multiplying the current exercise
price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Dilutive Issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the Company for the shares of Common Stock issuable in the Dilutive Issuance
would purchase at the current Conversion Value, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Dilutive Issuance plus the number of additional shares of Common Stock to
be issued in the Dilutive Issuance. For the purposes of the foregoing
calculation, the number of shares of Common Stock outstanding immediately
prior to such Dilutive Issuance shall be determined on a fully diluted basis
as if, immediately prior to the Dilutive Issuance, all convertible securities
issued by the Company (including the Series A Preferred Stock) had been fully
converted into shares of Common Stock and all outstanding warrants, options or
other rights for the purchase of shares of Common Stock or convertible
securities had been fully exercised and converted (and the resulting
securities fully converted into shares of Common Stock, if so convertible).
Such reduction of the Conversion Value shall be made at the time such Dilutive
Issuance is executed.
e) Waiver of Anti-Dilution Adjustment. Notwithstanding
anything herein to the contrary, the operation of, and any adjustment of the
Series A Conversion Value Price pursuant to this Section 7 may be waived with
respect to any specific share or shares of Series A Preferred Stock, either
prospectively or retroactively and either generally or in a particular
instance by a writing executed by the registered Holder of such share or
shares. Any waiver pursuant to this subsection 7(e) shall bind all future
Holders of such shares of Series A Preferred Stock for which such rights have
been waived
f) Adjustment Based on EBITDA. In the event the Company's
EBITDA is less than $4.5 million for the audited fiscal year ended March 31st,
2007 as reported to the SEC on Form 10-KSB (where "EBITDA" means earnings
before interest, tax, depreciation and amortization as reported from
continuing operations before any non-recurring items), then the number of
shares of Common Stock or Preferred Stock into which this Note is convertible
shall be increased pro rata by the percentage decline in EBITDA; provided,
however, that the number of additional shares of Company's Common or
Preferred Stock into which this Note shall be convertible shall not exceed
300% of the number of shares into which this Note is otherwise convertible
prior to making the adjustment required by this Section 6.15 (initially, 300%
of 1,666,667 shares, or 5,000,000 additional shares). For example, the number
of shares shall remain at 100% of 1,666,667 shares if EBITDA is $4.5 million
or greater and shall be increased proportionately to 150% of 1,666,667 shares
if EBITDA is $2.25 million (50% decrease) (for example the number of shares
issued to the Investor would be 2.5 million shares if the EBITDA is $2.25
million).
g) Pro Rata Distributions. If the Company, at any time while
Series A Preferred Stock is outstanding, shall distribute to all holders of
Common Stock (and not to Holders) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security, then in each
such case the Conversion Value shall be determined by multiplying such
Conversion Value in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the
record date mentioned above, and of which the numerator shall be such VWAP on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described in
a statement provided to the Holders of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
h) Calculations. All calculations under this Section 7 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. The number of shares of Common Stock outstanding at any given time shall
not include shares owned or held by or for the account of the Company, and the
description of any such shares of Common Stock shall be considered on issue or
sale of Common Stock. For purposes of this Section 7, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding treasury shares, if
any) actually issued and outstanding.
i) Notice to Holders.
i. Adjustment to Conversion Price. Whenever the
Conversion Value is adjusted pursuant to any of this Section 7, the Company
shall promptly mail to each Holder a notice setting forth the Conversion Value
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. If the Company issues a variable rate security,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be deemed to have issued Common Stock or Common Stock Equivalents at the
lowest possible conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction (as defined
in the Purchase Agreement), or the lowest possible adjustment price in the
case of an MFN Transaction (as defined in the Purchase Agreement).
ii. Notices of Other Events. If (A) the Company shall
declare a dividend (or any other distribution) on the Common Stock; (B) the
Company shall declare a redemption of the Common Stock; (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any rights; (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock or any
Fundamental Transaction, (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; then in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of the Series A Preferred
Stock, and shall cause to be mailed to the Holders at their last addresses as
they shall appear upon the stock books of the Company, at least 30 calendar
days prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, redemption, rights or warrants, or if a record
is not to be taken, the date as of which the holders of the Common Stock of
record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification or Fundamental Transaction;
provided, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
iii. Exempt Issuance. Notwithstanding the foregoing, no
adjustment will be made under this Section 7 in respect of an Exempt Issuance.
iv. Fundamental Transaction. If, at any time while this
Series A Preferred Stock is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series
of related transactions, (C) any tender offer or exchange offer (whether by
the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other securities,
cash or property (in any such case, a "Fundamental Transaction"), then upon
any subsequent conversion of this Series A Preferred Stock, the Holder shall
have the right to receive, for each Conversion Share that would have been
issuable upon such conversion absent such Fundamental Transaction, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of one share of
Common Stock (the "Alternate Consideration"). For purposes of any such
conversion, the determination of the Conversion Price shall be appropriately
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in
such Fundamental Transaction, and the Company shall apportion the Conversion
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
conversion of this Series A Preferred Stock following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such Fundamental
Transaction shall file a new Certificate of Designations with the same terms
and conditions and issue to the Holder new preferred stock consistent with the
foregoing provisions and evidencing the Holder's right to convert such
preferred stock into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (f)(iv) and insuring that this Series A Preferred Stock (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.
Section 8. Miscellaneous.
a) Notices. Any and all notices or other communications
or deliveries to be provided by the Holders hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service, addressed to the Company, at the address provided in the Purchase
Agreement, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇ Attn: President, or such other
address or facsimile number as the Company may specify for such purposes by
notice to the Holders delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent by
a nationally recognized overnight courier service addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the
books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or
other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:30 p.m. (New York City time), (ii) the
date after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 5:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the second Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is required to be given.
b) Absolute Obligation. Except as expressly provided
herein, no provision of this Certificate of Designation shall alter or impair
the obligation of the Company, which is absolute and unconditional, to pay the
liquidated damages (if any) on, the shares of Series A Preferred Stock at the
time, place, and rate, and in the coin or currency, herein prescribed.
c) Lost or Mutilated Preferred Stock Certificate. If a
Holder's Series A Preferred Stock certificate shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated certificate, or in lieu
of or in substitution for a lost, stolen or destroyed certificate, a new
certificate for the shares of Series A Preferred Stock so mutilated, lost,
stolen or destroyed but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership thereof, and indemnity,
if requested, all reasonably satisfactory to the Company.
d) Next Business Day. Whenever any payment or other
obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
e) Headings. The headings contained herein are for
convenience only, do not constitute a part of this Certificate of Designations
and shall not be deemed to limit or affect any of the provisions hereof.
RESOLVED, FURTHER, that the Chairman, the president or any vice-
president, and the secretary or any assistant secretary, of the Company be and
they hereby are authorized and directed to prepare and file a Certificate of
Designation of Preferences, Rights and Limitations in accordance with the
foregoing resolution and the provisions of Idaho law.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this _____th day of _________, 2006.
Name:
Title: President and Chief Executive Officer
Name:
Title: Secretary
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF SERIES
A PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock
without par value (the "Common Stock"), of PCS Edventure!.COM, Inc., an Idaho
corporation (the "Company"), according to the conditions hereof, as of the
date written below. If shares are to be issued in the name of a person other
than undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer taxes, if
any.
Conversion calculations:
Date to Effect Conversion: _____________________________________________
Number of shares of Common Stock owned prior to Conversion: _______________
Number of shares of Series A Preferred Stock to be Converted:
________________________
Value of shares of Series A Preferred Stock to be Converted:
____________________
Number of shares of Common Stock to be Issued: ___________________________
Certificate Number of Series A Preferred Stock attached
hereto:________________________
Number of Shares of Series A Preferred Stock represented by attached
certificate:__________
Number of shares of Series A Preferred Stock subsequent to Conversion:
________________
[HOLDER]
By:________________________________
Name:
Title:
Exhibit B
Warrants
Warrant "A": 2,500,000 Shares exercisable for $1.20 per share.
THE SECURITIES UNDERLYING THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
1933 ACT.
IN ADDITION, A NOTE PURCHASE AGREEMENT DATED AS OF DECEMBER 29, 2005 (THE
"PURCHASE AGREEMENT"), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN THE
PARTIES WITH RESPECT TO THIS WARRANT.
---------------------------------------
PCS EDVENTURES!.COM, INC.
COMMON STOCK PURCHASE WARRANT "A"
Number of Shares: 2,500,000 Holder: ▇▇▇▇▇▇ Partners LP
c/▇ ▇▇▇▇▇▇ Capital Advisors LLC
Original Issue Date: December 29, 2005 Managing Partner
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
Expiration Date: December 29, 2009 ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇
tel ▇▇▇-▇▇▇-▇▇▇▇
Exercise Price per Share: $1.20 fax ▇▇▇-▇▇▇-▇▇▇▇
PCS Edventures!.COM, Inc, a company organized and existing under the laws of
the State of Idaho (the "Company"), hereby certifies that, for value received,
▇▇▇▇▇▇ PARTNERS LP, or its registered assigns (the "Warrant Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
up to Two Million Five Hundred Thousand (2,500,000) shares (as adjusted from
time to time as provided in Section 7, the "Warrant Shares") of Company's
common stock without par value (the "Common Stock") at a price of One Dollar
and Twenty Cents ($1.20) per Warrant Share (as adjusted from time to time as
provided in Section 7, the "Exercise Price"), at any time and from time to
time from and after the date thereof and through and including the later of
5:00 p.m. New York City time on December 29, 2009 or eighteen months of
effectiveness of a Registration Statement subsequent to the issuance hereof
(such eighteen months to be extended by one month for each month or portion of
a month during which a Registration Statement's effectiveness has lapsed or
been suspended) (the "Expiration Date"), and subject to the following terms
and conditions:
1. Registration of Warrant. The Company shall register this Warrant
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Warrant Holder hereof from time to time.
The Company may deem and treat the registered Warrant Holder of this Warrant
as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Warrant Holder, and for all other purposes, and the
Company shall not be affected by notice to the contrary.
2. Investment Representation. The Warrant Holder by accepting this
Warrant represents that the Warrant Holder is acquiring this Warrant for its
own account or the account of an affiliate for investment purposes and not
with the view to any offering or distribution and that the Warrant Holder will
not sell or otherwise dispose of this Warrant or the underlying Warrant Shares
in violation of applicable securities laws. The Warrant Holder acknowledges
that the certificates representing any Warrant Shares will bear a legend
indicating that they have not been registered under the United States
Securities Act of 1933, as amended (the "1933 Act") and may not be sold by the
Warrant Holder except pursuant to an effective registration statement or
pursuant to an exemption from registration requirements of the 1933 Act and in
accordance with federal and state securities laws. If this Warrant was
acquired by the Warrant Holder pursuant to the exemption from the registration
requirements of the 1933 Act afforded by Regulation S thereunder, the Warrant
Holder acknowledges and covenants that this Warrant may not be exercised by or
on behalf of a Person during the one year distribution compliance period (as
defined in Regulation S) following the date hereof. "Person" means an
individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
3. Validity of Warrant and Issue of Shares. The Company represents
and warrants that this Warrant has been duly authorized and validly issued and
warrants and agrees that all of Common Stock that may be issued upon the
exercise of the rights represented by this Warrant will, when issued upon such
exercise, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof. The
Company further warrants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
4. Registration of Transfers and Exchange of Warrants.
a. Subject to compliance with the legend set forth on the face
of this Warrant, the Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant with the
Form of Assignment attached hereto duly completed and signed, to the Company
at the office specified in or pursuant to Section 13. Upon any such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Warrant Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance of such transferee of all of the rights and
obligations of a Warrant Holder of a Warrant.
b. This Warrant is exchangeable, upon the surrender hereof by
the Warrant Holder to the office of the Company specified in or pursuant to
Section 9 for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
5. Exercise of Warrants.
a. Upon surrender of this Warrant with the Form of Election to
Purchase attached hereto duly completed and signed to the Company, at its
address set forth in Section 12, and upon payment and delivery of the Exercise
Price per Warrant Share multiplied by the number of Warrant Shares that the
Warrant Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks,
to the Company, all as specified by the Warrant Holder in the Form of Election
to Purchase, the Company shall promptly (but in no event later than 7 business
days after the Date of Exercise (as defined herein)) issue or cause to be
issued and cause to be delivered to or upon the written order of the Warrant
Holder and in such name or names as the Warrant Holder may designate (subject
to the restrictions on transfer described in the legend set forth on the face
of this Warrant), a certificate for the Warrant Shares issuable upon such
exercise, with such restrictive legend as required by the 1933 Act. Any
person so designated by the Warrant Holder to receive Warrant Shares shall be
deemed to have become holder of record of such Warrant Shares as of the Date
of Exercise of this Warrant.
b. A "Date of Exercise" means the date on which the Company
shall have received (i) this Warrant (or any New Warrant, as applicable), with
the Form of Election to Purchase attached hereto (or attached to such New
Warrant) appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares so indicated by the Warrant
Holder to be purchased.
c. This Warrant shall be exercisable at any time and from time
to time for such number of Warrant Shares as is indicated in the attached Form
of Election To Purchase. If less than all of the Warrant Shares which may be
purchased under this Warrant are exercised at any time, the Company shall
issue or cause to be issued, at its expense, a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares for which no exercise
has been evidenced by this Warrant.
d. (i) Notwithstanding anything contained herein to the
contrary other than subsection (iii) below and Section 6, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the "Net
Number" of shares of Common Stock determined according to the following
formula (a "Cashless Exercise"):
Net Number = (A x (B - C))/B
(ii) For purposes of the foregoing formula:
A= the total number shares with respect to which this Warrant
is then being exercised.
B= the last reported sale price (as reported by Bloomberg) of
the Common Stock on the trading day immediately preceding the
date of the Exercise Notice.
C= the Warrant Exercise Price then in effect at the time of
such exercise.
(iii) The holder of this Warrant agrees not to elect a Cashless
Exercise for a period of six (6) months after Closing. The
holder of this Warrant also agrees not to elect a Cashless
Exercise so long as there is an effective registration
statement for the Warrant Shares.
6. Maximum Exercise.
a. The Warrant Holder shall not be entitled to exercise
thisWarrant on a Date of Exercise in connection with that number of shares of
Common Stock which, when added to the number of shares of Common Stock
"beneficially owned" (defined below) by the Holder and its Affiliates
immediately prior to exercise of this Warrant, would result in "beneficial
ownership" by the Warrant Holder and its Affiliates of more than 4.9% of the
outstanding shares of Common Stock on the Conversion Date.
b. This Section 6 may be waived or amended only with the consent
of the Warrant Holder and the consent of holders of a majority of the shares
of outstanding Common Stock of the Company who are not Affiliates. For the
purposes of this Section 6, the term "Affiliate" shall mean any person: (a)
that directly, or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, the Company, or (b) who
beneficially owns (i) any shares of the Company's Series A Convertible
Preferred Stock, (ii) the Company's Common Stock Purchase Warrant "B" dated
December 29, 2005, or (iii) this Warrant. For the purposes of this Section 6,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.
7. Adjustment of Exercise Price and Number of Shares. The character of
the shares of stock or other securities at the time issuable upon exercise of
this Warrant and the Exercise Price therefore, are subject to adjustment upon
the occurrence of the following events, and all such adjustments shall be
cumulative:
a. Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, Etc. The Exercise Price of this Warrant and the number of
shares of Common Stock or other securities at the time issuable upon exercise
of this Warrant shall be appropriately adjusted to reflect any stock dividend,
stock split, combination of shares, reclassification, recapitalization or
other similar event affecting the number of outstanding shares of stock or
securities.
b. Adjustment for Reorganization, Consolidation, Merger, Etc. In
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being
hereinafter referred to as a "Reorganization"), then, in each case, the holder
of this Warrant, on exercise hereof at any time after the consummation or
effective date of such Reorganization (the "Effective Date"), shall receive,
in lieu of the shares of stock or other securities at any time issuable upon
the exercise of the Warrant issuable on such exercise prior to the Effective
Date, the stock and other securities and property (including cash) to which
such holder would have been entitled upon the Effective Date if such holder
had exercised this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant).
c. Certificate as to Adjustments. In case of any adjustment or
readjustment in the price or kind of securities issuable on the exercise of
this Warrant, the Company will promptly give written notice thereof to the
holder of this Warrant in the form of a certificate, certified and confirmed
by the Board of Directors of the Company, setting forth such adjustment or
readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment is based.
d. Adjustment Based on EBITDA. In the event the Company's EBITDA
is less than $4.5 million for the audited fiscal year ended March 31st, 2007
as reported to the SEC on Form 10-KSB (where "EBITDA" means earnings before
interest, tax, depreciation and amortization as reported from continuing
operations before any non-recurring items), the warrant exercise price shall
be reduced proportionately by 0% if the EBITDA is $4.5 million and by a
maximum of 87.5% if the EBITDA is $563,000 or less. For example, if the
Company's EBITDA is $3.6 million, or 20% below $4.5 million, then the warrant
exercise price shall be reduced by 20%. Such reduction shall be made at the
time the March 31st, 2007 financial results are reported and shall be made
from the starting exercise price of the warrants being the exercise price of
the warrants at that time, and shall be cumulative upon any other changes to
the exercise price of the warrant that may already have been made. In the
event the Company earns below $563,000, or has a loss, the warrant exercise
price shall be reduced by a maximum of 87.5%. In no circumstance may the
warrant exercise price drop below $0.15 per share.
e. The Company sells, grants or issues any shares, options,
warrants, or any instrument convertible into shares below the exercise price
per share of this Warrant. In the event the Company sells, grants or issues
any shares of Common Stock or any option, warrant or other instrument
convertible into shares of Common Stock, other than an Exempt Issuance (as
defined below), at a price per share of Common Stock less that the then
current exercise price per share of this Warrant ("Dilutive Issuance"), then
the current exercise price per share for this Warrant shall be reduced to a
price determined by multiplying the current exercise price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Dilutive Issuance plus the number of shares of
Common Stock which the aggregate consideration received by the Company for the
shares of Common Stock issuable in the Dilutive Issuance would purchase at the
current exercise price, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Dilutive Issuance
plus the number of additional shares of Common Stock to be issued in the
Dilutive Issuance. For the purposes of the foregoing calculation, the number
of shares of Common Stock outstanding immediately prior to such Dilutive
Issuance shall be determined on a fully diluted basis as if, immediately prior
to the Dilutive Issuance, all convertible securities issued by the Company had
been fully converted into shares of Common Stock and all outstanding warrants
(including, without limitation, this Warrant and Warrant B issued
contemporaneously herewith), options or other rights for the purchase of
shares of Common Stock or convertible securities had been fully exercised (and
the resulting securities fully converted into shares of Common Stock, if so
convertible). Such reduction of the Warrant exercise price shall be made at
the time such Dilutive Issuance is executed.
"Exempt Issuance" means the issuance of (a) shares of Common Stock,
warrants, options or other rights (i) to employees, officers, or directors of
the Company pursuant to any stock or option plan (including, without
limitation, the Company's 2004 Nonqualified Stock 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, (ii) to consultants or advisors to the Company
or to financial institutions or lessors in connection with commercial credit
arrangements, equipment financings, real property lease transactions or
similar transactions, pursuant to arrangements approved by the Board of
Directors, or (iii) in payment of compensation of the Company's directors, (b)
securities upon the exercise or conversion of any securities issued hereunder,
(c) shares of Common Stock issued to (i) former shareholders of LabMentors
pursuant to the Share Exchange Agreement dated November 30, 2005 (excluding,
however, shares of Common Stock to be issued pursuant to the earnout
provisions of that agreement if issued for less than $0.50 per share), (ii)
certain financial advisors in connection with the LabMentors acquisition, and
(iii) LabMentors' president, ▇▇▇ ▇▇▇▇▇▇, pursuant to an employment agreement
made in connection with the LabMentors acquisition, (d) shares of Common Stock
and warrants issued to Cyndel & Co., Inc., a consultant to the Company,
pursuant to a Consulting Agreement effective November 1, 2005, (e) shares of
Common Stock issuable pursuant to options, warrants or rights outstanding as
of the date of this Certificate of Designation, provided that such securities
have not been amended since the date of this Certificate of Designation to
increase the number of such securities, (f) shares of Common Stock issuable in
payment of noncash dividends or upon conversion of Company's outstanding
shares of preferred stock, (g) securities issued pursuant to acquisitions or
strategic transactions provided however that there are no variable rate
pricing mechanisms without a floor price included in any such transaction
(including, without limitation, securities issued in connection with the
acquisition of Back-Up Training Corporation of Coeur d'Alene, Idaho), 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.
e. Notwithstanding the foregoing provisions of Section 7(d),
Warrant Holder hereby agrees that in the event that:
(1) the Company shall give the Warrant Holder twenty calendar
days' notice of the Company's intent to offer a Dilutive Issuance together
with the terms and conditions of such Dilutive Issuance, and
(2) the Company shall offer such Warrant Holder that portion
(a "Pro Rata Portion") of such Dilutive Issuance that equals the proportion
that the number of Shares of Common Stock issuable upon exercise of the
Warrants then held by such Holder bears to the total number of shares of
Common Stock issuable upon exercise of the Warrants then outstanding, or such
lesser portion as the Company may specify in writing, and
(3) such Warrant Holder fails to tender to the Company, other
than at the written request of the Company, the purchase price of such
Holder's Pro Rata Portion (or such lesser portion as the Company may specify
in writing) of such Dilutive Issuance on the scheduled closing of such
Dilutive Issuance (which shall not be less than 20 days after the written
notice provided in (1) above), then no adjustment of the Warrant exercise
price shall be made (other than adjustments made prior to the time of such
Dilutive Issuance), and any future adjustment shall be deemed waived, with
respect to the Warrants then held of record by such Warrant Holder. This
waiver of adjustment of the Warrant exercise price shall bind any transferee
of the Warrants. Investor agrees that, prior to transferring any of such
securities to any Person, the Warrant Holder will ensure that such transferee
shall have delivered to the Company a written agreement to be bound by the
provisions of this Section 7(e).
8. Fractional Shares. The Company shall not be required to issue
or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares that shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate
number of Warrants Shares purchasable on exercise of this Warrant so
presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 8, be issuable on the exercise of this Warrant, the
Company shall, at its option, (i) pay an amount in cash equal to the Exercise
Price multiplied by such fraction or (ii) round the number of Warrant Shares
issuable, up to the next whole number.
9. Call by the Company. If the closing public market price of the
Company's common stock is equal to or in excess of $1.80 for a period of
thirty (30) consecutive Trading Days and there is an effective Registration
Statement covering the shares of Common Stock underlying this Warrant
("Automatic Exercise") during such thirty (30) consecutive day period, the
Company shall provide the Holder with notice of such Automatic Exercise
("Automatic Exercise Notice"). Upon receipt of the Automatic Exercise Notice,
the Holder must (i) exercise this Warrant in whole (except to the extent the
exercise would violate the 4.9% maximum exercise provision in Section 6 of
this Warrant), within forty-five (45) days; or (ii) notify the Company of its
intent to transfer this Warrant pursuant to Section 4 of this Warrant. In the
event Holder elects to transfer this Warrant pursuant to Section 4 of this
Warrant, then the subsequent holder of this Warrant must exercise this Warrant
in whole on or before the forty-fifth (45) day after notification of intent to
transfer this Warrant. In the event that this Warrant is exercised, the
Holder must deliver to the Company on or before 5:00 p.m., Eastern Time, on
the required date, (i) Form of Election to Purchase properly executed and
completed by Holder or an authorized officer thereof, (ii) a check payable to
the order of the Company, in an amount equal to the product of the Exercise
Price multiplied by the number of Warrant Shares specified in the Exercise
Notice, and (iii) this Warrant. If the Holder does not exercise this Warrant
within forty-five (45) days from receipt of the Automatic Exercise Notice, in
the event that this Warrant has been transferred pursuant to Section 4 of this
Warrant, the subsequent holder of this Warrant does not exercise this Warrant
within forty-five (45) days after notification of intent to transfer this
Warrant, then this Warrant will expire. If the Adjustment Based on EBITDA in
Section 7(d) is enacted then the call feature above shall be adjusted to being
$0.50 above the new exercise price of the Warrant.
10. Sale or Merger of the Company. Upon a Change in Control, the
restriction contained in Section 6 shall immediately be released and the
Warrant Holder will have the right to exercise this Warrant concurrently with
such Change in Control event. For purposes of this Warrant, the term "Change
in Control" shall mean a consolidation or merger of the Company with or into
another company or entity in which the Company is not the surviving entity or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company in a transaction or series of transactions.
11. Notice of Intent to Sell or Merge the Company. The Company
will give Warrant Holder thirty (30) days notice before the event of a sale of
all or substantially all of the assets of the Company or the merger or
consolidation of the Company in a transaction in which the Company is not the
surviving entity.
12. Issuance of Substitute Warrant. In the event of a merger,
consolidation, recapitalization or reorganization of the Company or a
reclassification of Company shares of stock, which results in an adjustment to
the number of shares subject to this Warrant and/or the Exercise Price
hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon
the surrender of this Warrant to the Company.
13. Notice. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given (i) on the date they are
delivered if delivered in person; (ii) on the date initially received if
delivered by facsimile transmission followed by registered or certified mail
confirmation; (iii) on the date delivered by an overnight courier service; or
(iv) on the third business day after it is mailed by registered or certified
mail, return receipt requested with postage and other fees prepaid as follows:
If to the Company:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
PCS Edventures!.COM, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to the Warrant Holder:
▇▇▇▇▇▇ Partners ▇▇
▇▇▇▇▇▇ Capital Advisors LLC,
Managing Partner
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇
tel ▇▇▇-▇▇▇-▇▇▇▇
14. Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only by a writing signed by the Company and the
Warrant Holder.
b. Nothing in this Warrant shall be construed to give to any
person or corporation other than the Company and the Warrant Holder any legal
or equitable right, remedy or cause of action under this Warrant; this Warrant
shall be for the sole and exclusive benefit of the Company and the Warrant
Holder.
c. This Warrant shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof.
d. The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
e. In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceablilty of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in
good faith to agree upon a valid and enforceable provision which shall be a
commercially reasonably substitute therefore, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
f. The Warrant Holder shall not, by virtue hereof, be entitled
to any voting or other rights of a shareholder of the Company, either at law
or equity, and the rights of the Warrant Holder are limited to those expressed
in this Warrant.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by the authorized officer as of the date first above stated.
PCS Edventures!.COM, Inc, an Idaho corporation
By: /S/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: President and Chief Executive Officer
FORM OF ELECTION TO PURCHASE
(To be executed by the Warrant Holder to exercise the right to purchase shares
of Common Stock under the foregoing Warrant)
To: PCS Edventures!.COM, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase ______________
shares of Common Stock without par value ("Common Stock") of PCS
Edventures!.COM, Inc and encloses the warrant and $____ for each Warrant Share
being purchased or an aggregate of $________________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise
Price (as defined in the Warrant) together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of:
(Please print name and address)
(Please insert Social Security or Tax Identification Number)
If the number of shares of Common Stock issuable upon this exercise shall not
be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to
purchase the shares of Common Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: Name of Warrant Holder:
(Print)
(By:)
(Name:)
(Title:)
Signature must conform in all respects to
name of Warrant Holder as specified on the
face of the Warrant
Warrant "B": 2,500,000 Shares exercisable for $1.80 per share.
THE SECURITIES UNDERLYING THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY STATE SECURITIES
LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE 1933 ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
1933 ACT.
IN ADDITION, A NOTE PURCHASE AGREEMENT DATED AS OF DECEMBER 29, 2005 (THE
"PURCHASE AGREEMENT"), A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS
PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN THE
PARTIES WITH RESPECT TO THIS WARRANT.
---------------------------------------
PCS EDVENTURES!.COM INC.
COMMON STOCK PURCHASE WARRANT "B"
Number of Shares: 2,500,000 Holder: ▇▇▇▇▇▇ Partners LP
c/▇ ▇▇▇▇▇▇ Capital Advisors LLC
Original Issue Date: December 29, 2005 Managing Partner
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
Expiration Date: December 29, 2009 ▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇
tel ▇▇▇-▇▇▇-▇▇▇▇
Exercise Price per Share: $1.80 fax ▇▇▇-▇▇▇-▇▇▇▇
PCS Edventures!.COM, Inc, a company organized and existing under the laws of
the State of Idaho (the "Company"), hereby certifies that, for value received,
▇▇▇▇▇▇ PARTNERS LP, or its registered assigns (the "Warrant Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
up to Two Million Five Hundred Thousand (2,500,000.0) shares (as adjusted from
time to time as provided in Section 7, the "Warrant Shares") of Company's
common stock, without par value (the "Common Stock"), at a price of One Dollar
and Eighty Cents ($1.80) per Warrant Share (as adjusted from time to time as
provided in Section 7, the "Exercise Price"), at any time and from time to
time from and after the date thereof and through and including the later of
5:00 p.m. New York City time on December 29, 2009 or eighteen months of
effectiveness of a Registration Statement subsequent to the issuance hereof
(such eighteen months to be extended by one month for each month or portion of
a month during which a Registration Statement's effectiveness has lapsed or
been suspended) (the "Expiration Date"), and subject to the following terms
and conditions:
1. Registration of Warrant. The Company shall register this Warrant
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Warrant Holder hereof from time to time.
The Company may deem and treat the registered Warrant Holder of this Warrant
as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Warrant Holder, and for all other purposes, and the
Company shall not be affected by notice to the contrary.
2. Investment Representation. The Warrant Holder by accepting this
Warrant represents that the Warrant Holder is acquiring this Warrant for its
own account or the account of an affiliate for investment purposes and not
with the view to any offering or distribution and that the Warrant Holder will
not sell or otherwise dispose of this Warrant or the underlying Warrant Shares
in violation of applicable securities laws. The Warrant Holder acknowledges
that the certificates representing any Warrant Shares will bear a legend
indicating that they have not been registered under the United States
Securities Act of 1933, as amended (the "1933 Act") and may not be sold by the
Warrant Holder except pursuant to an effective registration statement or
pursuant to an exemption from registration requirements of the 1933 Act and in
accordance with federal and state securities laws. If this Warrant was
acquired by the Warrant Holder pursuant to the exemption from the registration
requirements of the 1933 Act afforded by Regulation S thereunder, the Warrant
Holder acknowledges and covenants that this Warrant may not be exercised by or
on behalf of a Person during the one year distribution compliance period (as
defined in Regulation S) following the date hereof. "Person" means an
individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
3. Validity of Warrant and Issue of Shares. The Company represents
and warrants that this Warrant has been duly authorized and validly issued and
warrants and agrees that all of Common Stock that may be issued upon the
exercise of the rights represented by this Warrant will, when issued upon such
exercise, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof. The
Company further warrants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
4. Registration of Transfers and Exchange of Warrants.
a. Subject to compliance with the legend set forth on the face
of this Warrant, the Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant with the
Form of Assignment attached hereto duly completed and signed, to the Company
at the office specified in or pursuant to Section 13. Upon any such
registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued to the transferring
Warrant Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance of such transferee of all of the rights and
obligations of a Warrant Holder of a Warrant.
b. This Warrant is exchangeable, upon the surrender hereof by
the Warrant Holder to the office of the Company specified in or pursuant to
Section 9 for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
5. Exercise of Warrants.
a. Upon surrender of this Warrant with the Form of Election to
Purchase attached hereto duly completed and signed to the Company, at its
address set forth in Section 12, and upon payment and delivery of the Exercise
Price per Warrant Share multiplied by the number of Warrant Shares that the
Warrant Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks,
to the Company, all as specified by the Warrant Holder in the Form of Election
to Purchase, the Company shall promptly (but in no event later than 7 business
days after the Date of Exercise (as defined herein)) issue or cause to be
issued and cause to be delivered to or upon the written order of the Warrant
Holder and in such name or names as the Warrant Holder may designate (subject
to the restrictions on transfer described in the legend set forth on the face
of this Warrant), a certificate for the Warrant Shares issuable upon such
exercise, with such restrictive legend as required by the 1933 Act. Any
person so designated by the Warrant Holder to receive Warrant Shares shall be
deemed to have become holder of record of such Warrant Shares as of the Date
of Exercise of this Warrant.
b. A "Date of Exercise" means the date on which the Company
shall have received (i) this Warrant (or any New Warrant, as applicable), with
the Form of Election to Purchase attached hereto (or attached to such New
Warrant) appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares so indicated by the Warrant
Holder to be purchased.
c. This Warrant shall be exercisable at any time and from time
to time for such number of Warrant Shares as is indicated in the attached Form
of Election To Purchase. If less than all of the Warrant Shares which may be
purchased under this Warrant are exercised at any time, the Company shall
issue or cause to be issued, at its expense, a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares for which no exercise
has been evidenced by this Warrant.
d. (i) Notwithstanding anything contained herein to the
contrary other than subsection (iii) below and Section 6, the holder of this
Warrant may, at its election exercised in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the "Net
Number" of shares of Common Stock determined according to the following
formula (a "Cashless Exercise"):
Net Number = (A x (B - C))/B
(ii) For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the last reported sale price (as reported by Bloomberg)
of the Common Stock on the trading day immediately preceding
the date of the Exercise Notice.
C= the Warrant Exercise Price then in effect at the time of
such exercise.
(iii) The holder of this Warrant agrees not to elect a Cashless
Exercise for a period of six (6) months after Closing. The
holder of this Warrant also agrees not to elect a Cashless
Exercise so long as there is an effective registration
statement for the Warrant Shares.
6. Maximum Exercise.
a. The Warrant Holder shall not be entitled to exercise
thisWarrant on a Date of Exercise in connection with that number of shares of
Common Stock which, when added to the number of shares of Common Stock
"beneficially owned" (defined below) by the Holder and its Affiliates
immediately prior to exercise of this Warrant, would result in "beneficial
ownership" by the Warranty Holder and its Affiliates of more than 4.9% of the
outstanding shares of Common Stock on the Conversion Date.
b. This Section 6 may be waived or amended only with the
consent of the Warrant Holder and the consent of holders of a majority of the
shares of outstanding Common Stock of the Company who are not Affiliates. For
the purposes of this Section 6, the term "Affiliate" shall mean any person:
(a) that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, the Company, or (b) who
beneficially owns (i) any shares of the Company's Series A Convertible
Preferred Stock, (ii) the Company's Common Stock Purchase Warrant "B" dated
December 29, 2005, or (iii) this Warrant. For the purpose of this Section 6,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder.
7. Adjustment of Exercise Price and Number of Shares. The character
of the shares of stock or other securities at the time issuable upon exercise
of this Warrant and the Exercise Price therefore, are subject to adjustment
upon the occurrence of the following events, and all such adjustments shall be
cumulative:
a. Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, Etc. The Exercise Price of this Warrant and the number of
shares of Common Stock or other securities at the time issuable upon exercise
of this Warrant shall be appropriately adjusted to reflect any stock dividend,
stock split, combination of shares, reclassification, recapitalization or
other similar event affecting the number of outstanding shares of stock or
securities.
b. Adjustment for Reorganization, Consolidation, Merger, Etc.
In case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being
hereinafter referred to as a "Reorganization"), then, in each case, the holder
of this Warrant, on exercise hereof at any time after the consummation or
effective date of such Reorganization (the "Effective Date"), shall receive,
in lieu of the shares of stock or other securities at any time issuable upon
the exercise of the Warrant issuable on such exercise prior to the Effective
Date, the stock and other securities and property (including cash) to which
such holder would have been entitled upon the Effective Date if such holder
had exercised this Warrant immediately prior thereto (all subject to further
adjustment as provided in this Warrant).
c. Certificate as to Adjustments. In case of any adjustment or
readjustment in the price or kind of securities issuable on the exercise of
this Warrant, the Company will promptly give written notice thereof to the
holder of this Warrant in the form of a certificate, certified and confirmed
by the Board of Directors of the Company, setting forth such adjustment or
readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment is based.
d. Adjustment Based on EBITDA. In the event the Company's
EBITDA is less than $4.5 million for the audited fiscal year ended March 31st,
2007 as reported to the SEC on Form 10-KSB (where "EBITDA" means earnings
before interest, tax, depreciation and amortization as reported from
continuing operations before any non-recurring items), the warrant exercise
price shall be reduced proportionately by 0% if the EBITDA is $4.5 million and
by a maximum of 91.7% if the EBITDA is $375,000 or less. For example, if the
Company's EBITDA is $3.6 million, or 20% below $4.5 million, then the warrant
exercise price shall be reduced by 20%. Such reduction shall be made at the
time the March 31st, 2007 financial results are reported and shall be made
from the starting exercise price of the warrants being the exercise price of
the warrants at that time, and shall be cumulative upon any other changes to
the exercise price of the warrant that may already have been made. In the
event the Company earns below $375,000, or has a loss, the warrant exercise
price shall be reduced by a maximum of 91.7%. In no circumstance may the
warrant exercise price drop below $0.15 per share.
e. The Company sells, grants or issues any shares, options,
warrants, or any instrument convertible into shares below the exercise price
per share of this Warrant. In the event the Company sells, grants or issues
any shares of Common Stock or any option, warrant or other instrument
convertible into shares of Common Stock, other than an Exempt Issuance (as
defined below), at a price per share of Common Stock less than the then
current exercise price per share of this Warrant ("Dilutive Issuance"), then
the current exercise price per share for this Warrant shall be reduced to a
price determined by multiplying the current exercise price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Dilutive Issuance plus the number of shares of
Common Stock which the aggregate consideration received by the Company for the
shares of Common Stock issuable in the Dilutive Issuance would purchase at the
current exercise price, and the denominator of which shall be the number of
shares of Common stock outstanding immediately prior to such Dilutive Issuance
plus the number of additional shares of Common Stock to be issued in the
Dilutive Issuance. For the purposes of the foregoing calculation, the number
of shares of Common Stock outstanding immediately prior to such Dilutive
Issuance shall be determined on a fully diluted basis as if, immediately prior
to the Dilutive Issuance, all convertible securities issued by the Company had
been fully converted into shares of Common Stock and all outstanding warrants
(including, without limitation, this Warrant and Warrant A issued
contemporaneously herewith), options or other rights for the purchase of
shares of Common Stock or convertible securities had been fully exercised (and
the resulting securities fully converted into shares of Common Stock, if so
convertible). Such reduction of the Warrant exercise price shall be made at
the time such Dilutive Issuance is executed.
"Exempt Issuance" means the issuance of (a) shares of Common
Stock, warrants, options or other rights (i) to employees, officers, or
directors of the Company pursuant to any stock or option plan (including,
without limitation, the Company's 2004 Nonqualified Stock 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, (ii) to consultants or advisors to the
Company or to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings, real property lease transactions or
similar transactions, pursuant to arrangements approved by the Board of
Directors, or (iii) in payment of compensation of the Company's directors, (b)
securities upon the exercise or conversion of any securities issued hereunder,
(c) shares of Common Stock issued to (i) former shareholders of LabMentors
pursuant to the Share Exchange Agreement dated November 30, 2005 (excluding,
however, shares of Common Stock to be issued pursuant to the earnout
provisions of that agreement if issued for less than $0.50 per share), (ii)
certain financial advisors in connection with the LabMentors acquisition, and
(iii) LabMentors' president, ▇▇▇ ▇▇▇▇▇▇, pursuant to an employment agreement
made in connection with the LabMentors acquisition, (d) shares of Common Stock
and warrants issued to Cyndel & Co., Inc., a consultant to the Company,
pursuant to a Consulting Agreement effective November 1, 2005, (e) shares of
Common Stock issuable pursuant to options, warrants or rights outstanding as
of the date of this Certificate of Designation, provided that such securities
have not been amended since the date of this Certificate of Designation to
increase the number of such securities, (f) shares of Common Stock issuable in
payment of noncash dividends or upon conversion of Company's outstanding
shares of preferred stock, (g) securities issued pursuant to acquisitions or
strategic transactions (including, without limitation, securities issued in
connection with the acquisition of Back-Up Training Corporation of Coeur
d'Alene, Idaho) provided however that there are no variable rate pricing
mechanisms without a floor price included in any such transaction, 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.
e. Notwithstanding the foregoing provisions of Section 7(d),
Warrant Holder hereby agrees that in the event that:
(1) the Company shall give the Warrant Holder twenty
calendar days' notice of the Company's intent to offer a Dilutive Issuance
together with the terms and conditions of such Dilutive Issuance, and
(2) the Company shall offer such Warrant Holder that
portion (a "Pro Rata Portion") of such Dilutive Issuance that equals the
proportion that the number of Shares of Common Stock issuable upon exercise of
the Warrants then held by such Holder bears to the total number of shares of
Common Stock issuable upon exercise of the Warrants then outstanding, or such
lesser portion as the Company may specify in writing, and
(3) such Warrant Holder fails to tender to the Company,
other than at the written request of the Company, the purchase price of such
Holder's Pro Rata Portion (or such lesser portion as the Company may specify
in writing) of such Dilutive Issuance on the scheduled closing of such
Dilutive Issuance (which shall not be less than 20 days after the written
notice provided in (1) above), then no adjustment of the Warrant exercise
price shall be made (other than adjustments made prior to the time of such
Dilutive Issuance), and any future adjustment shall be deemed waived, with
respect to the Warrants then held of record by such Warrant Holder. This
waiver of adjustment of the Warrant exercise price shall bind any transferee
of the Warrants. Investor agrees that, prior to transferring any of such
securities to any Person, the Warrant Holder will ensure that such transferee
shall have delivered to the Company a written agreement to be bound by the
provisions of this Section 7(e).
8. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares that shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of
Warrants Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section
8, be issuable on the exercise of this Warrant, the Company shall, at its
option, (i) pay an amount in cash equal to the Exercise Price multiplied by
such fraction or (ii) round the number of Warrant Shares issuable, up to the
next whole number.
9. Call by the Company. If the closing public market price of the
Company's common stock is equal to or in excess of $2.70 for a period of
thirty (30) consecutive Trading Days and there is an effective Registration
Statement covering the shares of Common Stock underlying this Warrant
("Automatic Exercise") during such thirty (30) consecutive day period, the
Company shall provide the Holder with notice of such Automatic Exercise
("Automatic Exercise Notice"). Upon receipt of the Automatic Exercise Notice,
the Holder must (i) exercise this Warrant in whole (except to the extent the
exercise would violate the 4.9% maximum exercise provision in Section 6 of
this Warrant), within forty-five (45) days; or (ii) notify the Company of its
intent to transfer this Warrant pursuant to Section 4 of this Warrant. In the
event Holder elects to transfer this Warrant pursuant to Section 4 of this
Warrant, then the subsequent holder of this Warrant must exercise this Warrant
in whole on or before the forty-fifth (45) day after notification of intent to
transfer this Warrant. In the event that this Warrant is exercised, the
Holder must deliver to the Company on or before 5:00 p.m., Eastern Time, on
the required date, (i) Form of Election to Purchase properly executed and
completed by Holder or an authorized officer thereof, (ii) a check payable to
the order of the Company, in an amount equal to the product of the Exercise
Price multiplied by the number of Warrant Shares specified in the Exercise
Notice, and (iii) this Warrant. If the Holder does not exercise this Warrant
within forty-five (45) days from receipt of the Automatic Exercise Notice, in
the event that this Warrant has been transferred pursuant to Section 4 of this
Warrant, the subsequent holder of this Warrant does not exercise this Warrant
within forty-five (45) days after notification of intent to transfer this
Warrant, then this Warrant will expire. If the Adjustment Based on EBITDA in
Section 7(d) is enacted then the call feature above shall be adjusted to being
$0.90 above the new exercise price of the Warrant.
10. Sale or Merger of the Company. Upon a Change in Control, the
restriction contained in Section 6 shall immediately be released and the
Warrant Holder will have the right to exercise this Warrant concurrently with
such Change in Control event. For purposes of this Warrant, the term "Change
in Control" shall mean a consolidation or merger of the Company with or into
another company or entity in which the Company is not the surviving entity or
the sale of all or substantially all of the assets of the Company to another
company or entity not controlled by the then existing stockholders of the
Company in a transaction or series of transactions.
11. Notice of Intent to Sell or Merge the Company. The Company will
give Warrant Holder thirty (30) days notice before the event of a sale of all
or substantially all of the assets of the Company or the merger or
consolidation of the Company in a transaction in which the Company is not the
surviving entity.
12. Issuance of Substitute Warrant. In the event of a merger,
consolidation, recapitalization or reorganization of the Company or a
reclassification of Company shares of stock, which results in an adjustment to
the number of shares subject to this Warrant and/or the Exercise Price
hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon
the surrender of this Warrant to the Company.
13. Notice. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given (i) on the date they are
delivered if delivered in person; (ii) on the date initially received if
delivered by facsimile transmission followed by registered or certified mail
confirmation; (iii) on the date delivered by an overnight courier service; or
(iv) on the third business day after it is mailed by registered or certified
mail, return receipt requested with postage and other fees prepaid as follows:
If to the Company:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive Officer
PCS Edventures!.COM, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to the Warrant Holder:
▇▇▇▇▇▇ Partners ▇▇
▇▇▇▇▇▇ Capital Advisors LLC,
Managing Partner
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇
tel ▇▇▇-▇▇▇-▇▇▇▇
14. Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only by a writing signed by the Company and the
Warrant Holder.
b. Nothing in this Warrant shall be construed to give to any
person or corporation other than the Company and the Warrant Holder any legal
or equitable right, remedy or cause of action under this Warrant; this Warrant
shall be for the sole and exclusive benefit of the Company and the Warrant
Holder.
c. This Warrant shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York without regard to
the principles of conflicts of law thereof.
d. The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
e. In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceablilty of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in
good faith to agree upon a valid and enforceable provision which shall be a
commercially reasonably substitute therefore, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
f. The Warrant Holder shall not, by virtue hereof, be entitled
to any voting or other rights of a shareholder of the Company, either at law
or equity, and the rights of the Warrant Holder are limited to those expressed
in this Warrant.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by the authorized officer as of the date first above stated.
PCS Edventures!.COM, Inc, an Idaho corporation
By: /S/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: President and Chief Executive Officer
FORM OF ELECTION TO PURCHASE
(To be executed by the Warrant Holder to exercise the right to purchase shares
of Common Stock under the foregoing Warrant)
To: PCS Edventures!.COM, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase ______________
shares of Common Stock without par value ("Common Stock") of PCS
Edventures!.COM, Inc and encloses the warrant and $____ for each Warrant Share
being purchased or an aggregate of $________________ in cash or certified or
official bank check or checks, which sum represents the aggregate Exercise
Price (as defined in the Warrant) together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of:
(Please print name and address)
(Please insert Social Security or Tax Identification Number)
If the number of shares of Common Stock issuable upon this exercise shall not
be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to
purchase the shares of Common Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: Name of Warrant Holder:
(Print)
(By:)
(Name:)
(Title:)
Signature must conform in all respects to
name of Warrant Holder as specified on the
face of the Warrant
Exhibit C
Registration Rights Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into
as of 29th day of December, 2005 by and between PCS Edventures!.COM, Inc, a
corporation organized and existing under the laws of the state of Idaho ("PCS"
or the "Company"), and ▇▇▇▇▇▇ Partners L.P., a Delaware limited partnership
(hereinafter referred to as the "Investor"). Unless defined otherwise,
capitalized terms herein shall have the identical meaning as in the Note
Purchase Agreement.
PRELIMINARY STATEMENT
WHEREAS, pursuant to the Note Purchase Agreement, of even date herewith,
by and between the Company and the Investor, as part of the consideration,
Investor shall receive a Convertible Note (hereinafter referred to as the
"Note" and, together with certain Preferred Stock of the Company into which
the Note may be converted, the "Convertible Security") and Warrants which,
upon conversion and exercise, in accordance with the terms thereof, entitle
the Investor to receive Shares of Common Stock of the Company; and
WHEREAS, the ability of the Investors to sell their Shares of Common
Stock following conversion and exercise of the Convertible Security and the
Warrants is subject to certain restrictions under the 1933 Act; and
WHEREAS, as a condition to the Note Purchase Agreement, the Company has
agreed to provide the Investor with a mechanism that will permit Investor, to
sell its Shares of Common Stock in the future.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements, and subject to the terms and conditions herein
contained, the parties hereto hereby agree as follows:
ARTICLE I
INCORPORATION BY REFERENCE, SUPERSEDER
1.1 Incorporation by Reference. The foregoing recitals are hereby
acknowledged to be true and accurate, and are incorporated herein by this
reference.
1.2 Superseder. This Agreement, to the extent that it is inconsistent with
any other instrument or understanding between the parties concerning the
subject matter of this Agreement, shall supersede such instrument or
understanding to the fullest extent permitted by law. A copy of this
Agreement shall be filed at the Company's principal office.
ARTICLE II
REGISTRATION RIGHTS
2.1 Registrable Securities. The term "Registrable Securites" means and
includes the Shares of the Company's Common Stock underlying the Convertible
Security and the Warrants issued pursuant to the Note Purchase Agreement. As
to any particular Shares, such securities will cease to be Registrable
Securities when (a) they have been effectively registered under the 1933 Act
and disposed of in accordance with the registration statement covering them,
(b) they are or may be freely traded pursuant to Rule 144 without registration
under the 1933 Act (or any similar provisions that are then in effect), (c)
they have been otherwise transferred and new certificates for them not bearing
a restrictive legend have been issued by the Company and the Company shall not
have "stop transfer" instructions against them, or (d) the Investor no longer
holds more than ten percent (10%) of the Shares of Company's Common Stock or a
Convertible Security or Warrants convertible into more than ten percent (10%)
of the Shares of Company's Common Stock. The term "Shares" shall mean,
collectively, the shares of Common Stock of the Company issuable to the
Investor upon conversion of the Convertible Security and those shares of
Common Stock of the Company issuable to the Investor upon exercise of the
Warrants.
2.2 Registration of Registrable Securities. The Company shall prepare and
file within forty-five (45) days following the date hereof (the "Filing Date")
a registration statement (the "Registration Statement") covering the resale of
all of the Shares of Registrable Securities. The Company shall use its best
efforts to cause the Registration Statement to be declared effective by the
SEC on the earlier of (i) one hundred-fifty (150) days following the Closing
Date with respect to the Registration Statement, (ii) ten (10) days following
the receipt of a "No Review" or similar letter from the SEC or (iii) the first
business day following the day the SEC determines the Registration Statement
eligible to be declared effective (the "Required Effectiveness Date").
2.3 Registration Statement Form. Registration under Section 2.2 shall be
filed on the appropriate registration form of the SEC as the Company shall be
eligible to file and as shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods of disposition
specified in the Registration Statement; provided, however, that such intended
method of disposition shall not include an underwritten offering of the
Registrable Securities.
2.4 Expenses. The Company will pay all registration expenses in connection
with the registration required by Section 2.2 herein.
2.5 Effective Registration Statement. Registration pursuant to Section 2.2
shall not be deemed to have been effected (i) unless a registration statement
with respect thereto has become effective within the time period specified
herein, provided that a registration which does not become effective after the
Company filed a registration statement with respect thereto solely by reason
of the refusal to proceed of any holder of Registrable Securities (other than
a refusal to proceed based upon the advice of counsel in the form of a letter
signed by such counsel and provided to the Company relating to a disclosure
matter unrelated to such holder) shall be deemed to have been effected by the
Company unless the holders of the Registrable Securities shall have elected to
pay all Registration Expenses in connection with such registration, (ii) if,
after it has become effective, such registration becomes subject to any stop
order, injunction or other order or extraordinary requirement of the SEC or
other governmental agency or court for any reason, or (iii) if, after it has
become effective, such registration ceases to be effective for more than the
allowable Black-Out Periods (as defined herein).
2.6 Plan Of Distribution. The Company hereby agrees that the Registration
Statement shall include a plan of distribution section reasonably acceptable
to the Investor; provided, however, such plan of distribution section shall
not include an underwritten offering of the Registrable Securities.
2.7 Liquidated Damages. If, by the date one hundred-fifty (150) days after
the date hereof, the Company has not registered the Registrable Securities
pursuant to the requirements of Section 2.2 herein or the Registration
Statement filed pursuant to Section 2.2 herein has not been declared
effective, or if the Registrable Securities have been registered pursuant to
an effective Registration Statement within such 150 day period but such
Registration Statement is not effective at any time (other than during a Black
Out Period, as defined below) during the period from one hundred-fifty days
after the date hereof through two years following the date hereof, the
Company shall, for each such day, issue to the Investor, as liquidated damages
and not as a penalty, face value or shares of the Convertible Security that
are equivalent to 548 shares of Common Stock for each such day that the
Registrable Securities are not subject to an effective Registration Statement.
Such issuance shall be made no later than the tenth business day of the
calendar month next succeeding the month in which such day occurs. In
addition, if the Company has not filed a registration statement within the
forty-five (45) day period after Closing as specified in Section 2.2, the
Company shall, for each such day after 45 days from Closing and until the
filing of a registration statement, issue to the Investor, as liquidated
damages and not as a penalty, face value or shares of the Convertible Security
that are equivalent to 548 shares of Common Stock for any such day. Such
payment shall be made no later than the tenth business day of the calendar
month next succeeding the month in which such day occurs. However, in no
event shall the Company be required to pay any liquidated damages under this
Section 2.7 in an amount exceeding the face value or shares of the Convertible
Security that are equivalent to 450,000 shares of Common Stock in the
aggregate (as adjusted pursuant to the terms of the Certificate of
Designation).
Notwithstanding the foregoing, the parties agree that such liquidated damages
shall not be payable for any day on which the lack of an effective
registration statement covering the resale of the Registrable Securities is a
consequence of matters outside the reasonable control of the Company (for
example, by way of illustration and not limitation, the failure of the SEC
staff to timely review and comment on the Company's registration statement).
The parties agree that the only damages payable for a violation of the terms
of this Agreement with respect to which liquidated damages are expressly
provided shall be such liquidated damages. Nothing shall preclude the
Investor from pursuing or obtaining specific performance or other equitable
relief with respect to this Agreement.
The parties hereto agree that the liquidated damages provided for in this
Section 2.7 constitute a reasonable estimate of the damages that may be
incurred by the Investor by reason of the failure of the Registration
Statement(s) to be filed or declared effective in accordance with the
provisions hereof.
ARTICLE III
INCIDENTAL REGISTRATION RIGHTS
3.1 Right To Include ("Piggy-Back") Registrable Securities. Provided that
the Registrable Securities have not been registered, if at any time after the
date hereof but before the second anniversary of the date hereof, the Company
proposes to register any of its securities under the 1933 Act (other than by a
registration in connection with an acquisition in a manner which would not
permit registration of Registrable Securities for sale to the public, on Form
S-8 or any successor form thereto, on Form S-4 or any successor form thereto,
and other than pursuant to Section 2), on an underwritten basis (either best-
efforts or firm-commitment), then, the Company will each such time give prompt
written notice to all holders of Registrable Securities of its intention to do
so and of the rights of such holders of Registrable Securities under this
Section 3.1. Upon the written request of any such holders of Registrable
Securities made within ten (10) days after the receipt of any such notice
(which request shall specify the Registrable Securities intended to be
disposed of by such holders of Registrable Securities and the intended method
of disposition thereof), the Company will, subject to the terms of this
Agreement, use its commercially reasonable best efforts to effect the
registration under the 1933 Act of the Registrable Securities, to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of such Registrable Securities so to be registered, by
inclusion of such Registrable Securities in the registration statement which
covers the securities which the Company proposes to register, provided that
if, at any time after written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any
reason either not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to
each holders of Registrable Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of this obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder or holders
of Registrable Securities entitled to do so to request that such registration
be effected as a registration under Section 2.2, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering
such other securities. No registration effected under this Section 3.1 shall
relieve the Company of its obligation to effect registration under Section
2.2. The Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 3.1.
The right provided the Holders of the Registrable Securities pursuant to this
Section 3.1 shall be exercisable at their sole discretion and will in no way
limit any of the Company's obligations to pay the Securities according to
their terms.
3.2 Priority In Incidental Registrations. If the managing underwriter of the
underwritten offering contemplated by Section 3.1 shall inform the Company and
holders of the Registrable Securities requesting such registration by letter
of its belief that the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, then the
Company will include in such registration, to the extent of the number which
the Company is so advised can be sold in such offering, (i) first securities
proposed by the Company to be sold for its own account, and (ii) second
Registrable Securities and (iii) securities of other selling security holders
requested to be included in such registration.
ARTICLE IV
REGISTRATION PROCEDURES
4.1 Registration Procedures. If and whenever the Company is required to
effect the registration of any Registrable Securities under the 1933 Act as
provided in Section 2.2, the Company shall, as expeditiously as possible:
(i) prepare and file with the SEC the Registration Statement, or
amendments thereto, to effect such registration (including such audited
financial statements as may be required by the 1933 Act or the rules and
regulations promulgated thereunder) and thereafter use its commercially
reasonable best efforts to cause such registration statement to be declared
effective by the SEC, as soon as practicable, but in any event no later than
the Required Effectiveness Date (with respect to a registration pursuant to
Section 2.2); provided, however, that before filing such registration
statement or any amendments thereto, the Company will furnish to the counsel
selected by the holders of Registrable Securities which are to be included in
such registration, copies of all such documents proposed to be filed;
(ii) with respect to any registration statement pursuant to Section
2.2, prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective and to comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities covered by such registration statement until the
earlier to occur of twenty-four (24) months after the date of this Agreement
(subject to the right of the Company to suspend the effectiveness thereof for
not more than 10 consecutive Trading Days or an aggregate of 10 Trading Days
during each year (each a "Black-Out Period")) or such time as all of the
securities which are the subject of such registration statement cease to be
Registrable Securities (such period, in each case, the "Registration
Maintenance Period"). The Company must notify the Investor within twenty four
(24) hours prior to any Black-Out Period;
(iii) furnish to each holder of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under
Rule 424 under the 1933 Act, in conformity with the requirements of the 1933
Act, and such other documents, as such holder of Registrable Securities and
underwriter, if any, may reasonably request in order to facilitate the public
sale or other disposition of the Registrable Securities owned by such holder
of Registrable Securities;
(iv) use its commercially reasonable best efforts to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other U.S. federal or state securities laws
or U.S. state blue sky laws as any U.S. holder of Registrable Securities
thereof shall reasonably request, to keep such registrations or qualifications
in effect for so long as such registration statement remains in effect, and to
take any other action which may be reasonably necessary to enable such holder
of Registrable Securities to consummate the disposition in such jurisdictions
of the securities owned by such holder of Registrable Securities, except that
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its commercially reasonable best efforts to cause all
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to enable the U.S. holder of Registrable Securities thereof to
consummate the disposition of such Registrable Securities;
(vi) furnish to each holder of Registrable Securities a signed
counterpart, addressed to such holder of Registrable Securities and the
underwriters, if any, of an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), reasonably satisfactory in form and
substance to such holder of Registrable Securities, and
(vii) notify the Investor and its counsel promptly and confirm such
advice in writing promptly after the Company has knowledge thereof:
(a) when the Registration Statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to the
Registration Statement has been filed, and, with respect to the Registration
Statement or any post-effective amendment thereto, when the same has become
effective;
(b) of any request by the SEC for amendments or supplements to
the Registration Statement or the prospectus or for additional information;
(c) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings by any Person for that purpose; and
(d) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable Securities
for sale under the securities or blue sky laws of any jurisdiction or the
initiation or threat of any proceeding for such purpose;
(viii) notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, upon discovery that, or upon the
happening of any event as a result of which, the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material facts required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such
holder of Registrable Securities promptly prepare and furnish to such holder
of Registrable Securities a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing;
(ix) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(x) otherwise use its commercially reasonable best efforts to comply
with all applicable rules and regulations of the SEC, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective date
of such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
(xi) enter into such agreements and take such other actions as the
Investors shall reasonably request in writing (at the expense of the
requesting or benefiting Investors) in order to expedite or facilitate the
disposition of such Registrable Securities; and
(xii) use its commercially reasonable best efforts to list all
Registrable Securities covered by such registration statement on any
securities exchange on which any of the Registrable Securities are then
listed. (Investor acknowledges that Company's Common Stock is currently
listed for traded on the Over The Counter Bulletin Board ("OTCBB") and agrees
that this subsection (xii) is not intended to require the Company to list its
Common Stock on any exchange other than the OTCBB or pink sheets.)
4.2 The Company may require each holder of Registrable Securities as to
which any registration is being effected to furnish the Company such
information regarding such holder of Registrable Securities and the
distribution of such securities as the Company may from time to time
reasonably request in writing.
4.3 The Company will not file any registration statement pursuant to Section
2.2, or amendment thereto or any prospectus or any supplement thereto to which
the Investors shall reasonably object, provided that the Company may file such
documents in a form required by law or upon the advice of its counsel.
4.4 The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Note Purchase Agreement.
4.5 Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the occurrence of any event of the kind described
in subdivision (viii) of Section 4.1, such Holder will forthwith discontinue
such holder's disposition of Registrable Securities pursuant to the
Registration Statement relating to such Registrable Securities until such
holder of Registrable Securities receives the copies of the supplemented or
amended prospectus contemplated by subdivision (viii) of Section 4.1 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such holder's
possession of the prospectus relating to such Registrable Securities current
at the time of receipt of such notice.
ARTICLE V
UNDERWRITTEN OFFERINGS
5.1 Incidental Underwritten Offerings. If the Company at any time proposes
to register any of its securities under the 1933 Act as contemplated by
Section 3.1 and such securities are to be distributed by or through one or
more underwriters, the Company will, if requested by any holder of Registrable
Securities as provided in Section 3.1 and subject to the provisions of Section
3.2, use its commercially reasonable best efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold
by such holder among the securities to be distributed by such underwriters.
In no event shall any Investor be deemed an underwriter for purposes of this
Agreement.
5.2 Participation In Underwritten Offerings. No holder of Registrable
Securities may participate in any underwritten offering under Section 3.1
unless such holder of Registrable Securities (i) agrees to sell such
securities on the basis provided in any underwriting arrangements approved,
subject to the terms and conditions hereof, by the holders of a majority of
Registrable Securities to be included in such underwritten offering and (ii)
completes and executes all questionnaires, indemnities, underwriting
agreements and other documents (other than powers of attorney) required under
the terms of such underwriting arrangements. Notwithstanding the foregoing, no
underwriting agreement (or other agreement in connection with such offering)
shall require any holder of Registrable Securities to make a representation or
warranty to or agreements with the Company or the underwriters other than
representations and warranties contained in a writing furnished by such holder
of Registrable Securities expressly for use in the related registration
statement or representations, warranties or agreements regarding such holder
of Registrable Securities, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
5.3 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the 1933 Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with
the SEC, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the 1933
Act.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company. In the event of any registration of any
securities of the Company under the 1933 Act, the Company will, and hereby
does agree to indemnify and hold harmless the holder of any Registrable
Securities covered by such registration statement, its directors and officers,
each other Person who participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who controls such holder or
any such underwriter within the meaning of the 1933 Act against any losses,
claims, damages or liabilities, joint or several, to which such holder or any
such director or officer or underwriter or controlling person may become
subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
1933 Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company will reimburse such holder and each such director, officer,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability, (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by such holder or underwriter stating that it is for
use in the preparation thereof and, provided further that the Company shall
not be liable to any Person who participates as an underwriter in the offering
or sale of Registrable Securities or to any other Person, if any, who controls
such underwriter within the meaning of the 1933 Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of such Person's failure to send or
give a copy of the final prospectus, as the same may be then supplemented or
amended, within the time required by the 1933 Act to the Person asserting the
existence of an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus or an amendment or supplement thereto. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director,
officer, underwriter or controlling person and shall survive the transfer of
such securities by such holder.
6.2 Indemnification by the Investor. The Company may require, as a condition
to including any Registrable Securities in any registration statement filed
pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the holder of such Registrable Securities,
to indemnify and hold harmless (in the same manner and to the same extent as
set forth in Section 6.1) the Company, each director of the Company, each
officer of the Company and each other Person, if any, who controls the Company
within the meaning of the 1933 Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration statement,
any preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such holder of Registrable Securities specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any
such director, officer or controlling person and shall survive the transfer of
such securities by such Investor. The indemnification by the Investors shall
be limited to Fifty Thousand ($50,000) Dollars.
6.3 Notices Of Claims, Etc. Promptly after receipt by an indemnified party
of notice of the commencement of any action or proceeding involving a claim
referred to in Sections 6.1 or Section 6.2, such indemnified party will, if
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under Sections 6.1 or
Section 6.2, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability, or a
covenant not to ▇▇▇, in respect to such claim or litigation. No indemnified
party shall consent to entry of any judgment or enter into any settlement of
any such action the defense of which has been assumed by an indemnifying party
without the consent of such indemnifying party.
6.4 Other Indemnification. Indemnification similar to that specified in
Sections 6.1 and Section 6.2 (with appropriate modifications) shall be given
by the Company and each holder of Registrable Securities (but only if and to
the extent required pursuant to the terms herein) with respect to any required
registration or other qualification of securities under any Federal or state
law or regulation of any governmental authority, other than the 1933 Act.
6.5 Indemnification Payments. The indemnification required by Sections 6.1
and Section 6.2 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
6.6 Contribution. If the indemnification provided for in Sections 6.1 and
Section 6.2 is unavailable to an indemnified party in respect of any expense,
loss, claim, damage or liability referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such expense,
loss, claim, damage or liability (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
holder of Registrable Securities or underwriter, as the case may be, on the
other from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the holder of Registrable Securities or underwriter, as
the case may be, on the other in connection with the statements or omissions
which resulted in such expense, loss, damage or liability, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the holder of Registrable Securities or
underwriter, as the case may be, on the other in connection with the
distribution of the Registrable Securities shall be deemed to be in the same
proportion as the total net proceeds received by the Company from the initial
sale of the Registrable Securities by the Company to the purchasers bear to
the gain, if any, realized by all selling holders participating in such
offering or the underwriting discounts and commissions received by the
underwriter, as the case may be. The relative fault of the Company on the one
hand and of the holder of Registrable Securities or underwriter, as the case
may be, on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission
to state a material fact relates to information supplied by the Company, by
the holder of Registrable Securities or by the underwriter and the parties'
relative intent, knowledge, access to information supplied by the Company, by
the holder of Registrable Securities or by the underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission, provided that the foregoing
contribution agreement shall not inure to the benefit of any indemnified party
if indemnification would be unavailable to such indemnified party by reason of
the provisions contained herein, and in no event shall the obligation of any
indemnifying party to contribute under this Section 6.6 exceed the amount that
such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for hereunder had been
available under the circumstances.
The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 6.6
were determined by pro rata allocation (even if the holders of Registrable
Securities and any underwriters were treated as one entity for such purpose)
or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
herein, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 6.6, no holder of
Registrable Securities or underwriter shall be required to contribute any
amount in excess of the amount by which (i) in the case of any such holder,
the net proceeds received by such holder from the sale of Registrable
Securities in the applicable Registration Statement or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased by
it and distributed to the public were offered to the public exceeds, in any
such case, the amount of any damages that such holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE VII
RULE 144
7.1 Rule 144. The Company shall file in a timely manner the reports required
to be filed by the Company under the 1933 Act and the 1934 Act (including but
not limited to the reports under Sections 13 and 15(d) of the Exchange Act
referred to in subparagraph (c) of Rule 144 adopted by the SEC under the ▇▇▇▇
▇▇▇) and the rules and regulations adopted by the SEC thereunder (or, if the
Company is not required to file such reports, will, upon the request of any
holder of Registrable Securities, make publicly available other information)
and will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable
such holder to sell Registrable Securities without registration under the 1933
Act within the limitation of the exemptions provided by (a) Rule 144 under the
1933 Act, as such Rule may be amended from time to time, or (b) any similar
rule or regulation hereafter adopted by the SEC. Upon the request of any
holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with the requirements of this
Section 7.1.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendments And Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the fifty-one percent (51%) or more of the shares of (i)
Registrable Securities issued at such time, plus (ii) Registrable Securities
issuable upon exercise or conversion of the Warrants and the Convertible
Security (if such Securities had not been exercised or converted in full as
of the date such consent ifis sought). Each holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 8.1, whether or not such Registrable Securities
shall have been marked to indicate such consent.
8.2 Nominees For Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number of percentage of Shares of Registrable Securities
held by a holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects,
the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership or such Registrable Securities.
8.3 Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall
be in writing and shall be given to such Person (a) in the case of a party
hereto other than the Company, addressed to such party in the manner set forth
in the Note Purchase Agreement or at such other address as such party shall
have furnished to the Company in writing, or (b) in the case of any other
holder of Registrable Securities, at the address that such holder shall have
furnished to the Company in writing, or, until any such other holder so
furnishes to the Company an address, then to and at the address of the last
holder of such Registrable Securities who has furnished an address to the
Company, or (c) in the case of the Company, at the address set forth on the
signature page hereto, to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding.
Each such notice, request or other communication shall be effective (i) if
given by mail, 72 hours after such communication is deposited in the mail with
first class postage prepaid, addressed as aforesaid or (ii) if given by any
other means (including, without limitation, by fax, email or air courier),
when delivered at the address specified above, provided that any such notice,
request or communication shall not be effective until received.
8.4 Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether
or not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the
Company shall also be for the benefit of and enforceable by any subsequent
holder of any Registrable Securities; Each of the Holders of the Registrable
Securities agrees, by accepting any portion of the Registrable Securities
after the date hereof, to the provisions of this Agreement including, without
limitation.
8.5 Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
8.6 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law.
8.7 Jurisdiction. This Agreement shall be exclusively governed by and
construed in accordance with the laws of the State of New York. If any action
is brought among the parties with respect to this Agreement or otherwise, by
way of a claim or counterclaim, the parties agree that in any such action, and
on all issues, the parties irrevocably waive their right to a trial by jury.
Exclusive jurisdiction and venue for any such action shall be the State or
Federal Courts serving the State of New York. In the event suit or action is
brought by any party under this Agreement to enforce any of its terms, or in
any appeal therefrom, it is agreed that the prevailing party shall be entitled
to reasonable attorneys fees to be fixed by the arbitrator, trial court,
and/or appellate court.
8.8 Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supercedes all prior agreements and understandings
relating to such subject matter.
8.9 Severability. If any provision of this Agreement, or the application of
such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons
or circumstances other than those to which it is held invalid, shall not be
affected thereby.
8.10 Binding Effect. All the terms and provisions of this Agreement whether
so expressed or not, shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective administrators, executors,
legal representatives, heirs, successors and assignees.
8.11 Preparation of Agreement. This Agreement shall not be construed more
strongly against any party regardless of who is responsible for its
preparation. The parties acknowledge each contributed and is equally
responsible for its preparation.
8.12 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty, covenant or agreement herein, nor
shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement. A facsimile
transmission of this signed Agreement shall be legal and binding on all
parties hereto.
8.14 Person. "Person" means an individual, partnership, firm, limited
liability company, trust, joint venture, association, corporation, or any
other legal entity
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Investors and the Company have as of the date first
written above executed this Agreement.
PCS EDVENTURES!.COM, INC.
By: /S/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Executive Officer
INVESTOR
▇▇▇▇▇▇ PARTNERS LP
By: ▇▇▇▇▇▇ Capital Advisors, LLC, its General Partner
By: /s/▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
President
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇
Exhibit D
Escrow Agreement
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made as of December 29, 2005 by
and among PCS Edventures!.COM, Inc., an Idaho corporation (the "Company");
▇▇▇▇▇▇ Partners L.P. ("▇▇▇▇▇▇"); and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP (the
"Escrow Agent").
WHEREAS, ▇▇▇▇▇▇ is purchasing from the Company a One Million Dollar
($1,000,000) Convertible Note and Warrants to purchase 5,000,000 shares of
Company's Common Stock, with the purchase price of $1,000,000 (the "Funds") to
be utilized by the Company (excluding amounts paid by the Company for legal
and administrative fees, investment banking fees or due diligence costs in
connection with the sale of such securities) as part of the money needed by
the Company for working capital and acquisitions; and
WHEREAS, the Company and ▇▇▇▇▇▇ desire to enter into this Agreement to
provide that (i) the Company and ▇▇▇▇▇▇ shall provide the executed Transaction
Documents (as defined below) to the Escrow Agent as of the date of this
Agreement, (ii) ▇▇▇▇▇▇ shall provide the Funds to the Escrow Agent as of the
date of this Agreement, (iii) the Escrow Agent shall thereafter hold the Funds
and the Transaction Documents pending the closing or the termination of the
issuance of Note and Warrants in accordance with the terms and provisions of
the Note Purchase Agreement by and between the Company and ▇▇▇▇▇▇ (iv) the
Escrow Agent shall either release the Funds to the Company upon the
satisfaction of the items listed in Article III of the Note Purchase Agreement
or the Escrow Agent shall return the Funds to ▇▇▇▇▇▇ upon the failure to
satisfy the closing conditions set forth therein to the extent such conditions
are not waived by the pertinent party, and (v) the Escrow Agent shall either
release to the Company and ▇▇▇▇▇▇ the fully executed Transaction Documents in
the event the Escrow Agent releases the Funds to the Company, or the Escrow
Agent shall destroy the Transaction Documents in the event the Escrow Agent
returns the Funds to ▇▇▇▇▇▇.
NOW, THEREFORE, in consideration of the covenants and mutual promises
contained herein and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
TERMS OF THE ESCROW
1.1 The parties hereby agree to have the law firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ & ▇▇▇▇▇▇ LLP act as Escrow Agent, whereby the Escrow Agent shall receive
the Funds in escrow and distribute the same as set forth in this Agreement.
Any capitalized terms not defined herein shall have the meaning ascribed to
them in the Note Purchase Agreement, dated an even date herewith between the
Company and ▇▇▇▇▇▇ (the "Note Purchase Agreement"), and the documents related
thereto, with this Agreement being an exhibit to such Note Purchase Agreement.
The various documents and instruments to be delivered to the Escrow Agent and
thereby to the parties in order to close the transaction are set forth in
Section 3.2 and 3.3 of the Note Purchase Agreement (collectively, the
"Transaction Documents"). The Escrow Agent hereby acknowledges that it is
familiar with the terms and provisions of the Purchase Agreement.
1.2 Upon the execution of this Agreement, the Company and ▇▇▇▇▇▇ shall
deliver the executed Transaction Documents to the Escrow Agent as of the date
of this Agreement and ▇▇▇▇▇▇ shall submit a wire or check in the amount of the
Funds to the Escrow Agent. The Escrow Agent shall thereafter hold the Funds
and the Transaction Documents until the first to occur of (a) such time that
the Escrow Agent has received written instructions from ▇▇▇▇▇▇ to release the
funds from Escrow to the Company or (b) January 25th, 2006. Upon receipt of
written instructions from ▇▇▇▇▇▇ to release the funds from Escrow to the
Company, the Escrow Agent shall deliver signed counterparts of the Transaction
Documents to ▇▇▇▇▇▇ and the Company and disburse the Funds to the Company. If
confirmation of the Transfer Instruction is not delivered by January 25th,
2006, upon delivery thereon or thereafter to the Escrow Agent of written
notice from ▇▇▇▇▇▇, the Escrow Agent shall immediately return the Funds and
the Transaction Documents signed by ▇▇▇▇▇▇ to ▇▇▇▇▇▇ and return to the Company
the Transaction Documents signed by the Company.
1.3 Upon the completion by the Escrow Agent of its obligations under
Section 1.2, this Agreement shall terminate and the Escrow Agent shall have no
further liability hereunder.
1.4 This Agreement may be altered or amended only with the written
consent of all of the parties hereto. In the event the Company or ▇▇▇▇▇▇
attempts to change this Agreement in a manner, which, in the Escrow Agent's
discretion, shall be undesirable, the Escrow Agent may resign as Escrow Agent
by notifying the Company and ▇▇▇▇▇▇ in writing. In the case of the Escrow
Agent's resignation, the only duty of the Escrow Agent, until receipt of a
joint written notice from the Company and ▇▇▇▇▇▇ (the "Transfer Instructions")
that a successor escrow agent has been appointed, shall be to hold and
preserve the Funds and the Transaction Documents that are in its possession.
Upon receipt by the Escrow Agent of said notice from the Company and ▇▇▇▇▇▇ of
the appointment of a successor escrow agent, the name of a successor escrow
account and a direction to transfer the Funds to such successor escrow account
to be thereafter held by such successor escrow agent, the Escrow Agent shall
promptly thereafter transfer the Funds and deliver the Transaction Documents
to said successor escrow agent. Immediately after said transfer of the Funds
and delivery of the Transaction Documents to said successor escrow agent, the
Escrow Agent shall furnish the Company and ▇▇▇▇▇▇ with proof of such transfer.
The Escrow Agent is authorized to disregard any notices, requests,
instructions or demands received by it from the Company and ▇▇▇▇▇▇ after
notice of resignation has been given, except only for the Transfer
Instructions.
1.5 The Escrow Agent shall be reimbursed by the Company for any
reasonable expenses incurred in the event there is a conflict between the
parties and the Escrow Agent shall deem it necessary to retain counsel, upon
whose advice the Escrow Agent may rely. The Escrow Agent shall not be liable
for any action taken or omitted by the Escrow Agent in good faith and in no
event shall the Escrow Agent be liable or responsible except for the Escrow
Agent's own gross negligence or willful misconduct. The Escrow Agent has made
no representations or warranties to the Company or ▇▇▇▇▇▇ in connection with
this transaction. The Escrow Agent has no liability hereunder to either party
other than to hold the Funds received from ▇▇▇▇▇▇ and to deliver the Funds
under the terms hereof. The Company and ▇▇▇▇▇▇ each agrees to indemnify and
hold harmless the Escrow Agent from and with respect to any suits, claims,
actions or liabilities arising in any way out of this transaction, including
the obligation to defend any legal action brought which in any way arises out
of or is related to this Agreement. The parties each and all acknowledge and
recognize that the Escrow Agent has also served and shall continue to serve as
the legal counsel to the Company and the parties each and all waive any claim
of any conflict of interest as a result thereof. The occurrence of any
dispute between Company and ▇▇▇▇▇▇ in connection with this Agreement shall not
disqualify Escrow Agent from continued legal representation of Company in
connection with such dispute.
1.6 The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by the Escrow Agent to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be
personally liable for any act the Escrow Agent may do or omit to do hereunder
as the Escrow Agent while acting in good faith, and any act done or omitted by
the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law
shall be conclusive evidence of such good faith.
1.7 The Escrow Agent is hereby expressly authorized to disregard any
and all warnings or orders given by any of the parties hereto or by any other
person or corporation, excepting only the Transfer Instructions and/or orders
or process of courts of law and is hereby expressly authorized to comply with
and obey orders, judgments or decrees of any court. In case the Escrow Agent
obeys or complies with any such order, judgment or decree, including but not
limited to the Transfer Instructions, then the Escrow Agent shall not be
liable to any of the parties hereto or to any other person, firm or
corporation by reason of such decree or orders being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
1.8 The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
1.9 If the Escrow Agent reasonably requires other or further documents
in connection with this Agreement, the necessary parties hereto shall join in
furnishing such documents.
1.10 It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the Funds
and/or the Transaction Documents held by the Escrow Agent hereunder, the
Escrow Agent is authorized and directed in the Escrow Agent's sole discretion
(a) to retain the Funds and the Transaction Documents in the Escrow Agent's
possession, without liability to anyone, until such disputes shall have been
settled either by mutual written agreement of the parties concerned or by a
final order, decree or judgment of a court of competent jurisdiction after the
time for appeal has expired and no appeal has been perfected, but the Escrow
Agent shall be under no duty whatsoever to institute or defend any such
proceedings or (b) to deliver the Funds and the Transaction Documents held by
the Escrow Agent hereunder to a state or federal court having competent
subject matter jurisdiction and located in the District of Columbia in
accordance with the applicable procedure therefor.
ARTICLE 2
MISCELLANEOUS
2.1 No waiver of any breach of any covenant or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension
of time for performance of any obligation or act shall be deemed any extension
of the time for performance of any other obligation or act.
2.2 This Agreement shall be binding upon and shall inure to the
benefit of the permitted successors and assigns of the parties hereto.
2.3 This Agreement is the final expression of, and contains the entire
agreement between, the parties with respect to the subject matter hereof and
supersedes all prior understandings with respect thereto. This Agreement may
not be modified, changed, supplemented or terminated, nor may any obligations
hereunder be waived, except by written instrument signed by the parties to be
charged or by its agent duly authorized in writing or as otherwise expressly
permitted herein.
2.4 Whenever required by the context of this Agreement, the singular
shall include the plural and masculine shall include the feminine. This
Agreement may be executed in two or more counterparts, all of which taken
together shall constitute one instrument. Execution and delivery of this
Agreement by exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
2.5 (a) This Agreement shall be governed and construed in accordance
with the laws of the State of New York without regard to any applicable
principles of conflicts of law.
(b) ANY ACTION OR PROCEEDING SEEKING TO ENFORCE ANY PROVISION
OF, OR BASED ON ANY RIGHT ARISING OUT OF, THIS AGREEMENT SHALL BE BROUGHT
AGAINST ANY OF THE PARTIES HERETO IN THE APPROPRIATE FEDERAL OR STATE COURT
LOCATED IN THE STATE OF NEW YORK, WITH EACH PARTY HERETO AGREEING TO SUBJECT
MATTER JURISDICTION, PERSONAL JURISDICTION AND VENUE IN SUCH COURT. EACH OF
THE PARTIES HERETO CONSENTS TO THIS JURISDICTION PROVISION IN ANY SUCH ACTION
OR PROCEEDING AND WAIVES ANY OBJECTION TO VENUE LAID THEREIN. PROCESS IN ANY
ACTION OR PROCEEDING REFERRED TO IN THE PRECEDING SENTENCE MAY BE SERVED ON
ANY PARTY HERETO ANYWHERE IN THE WORLD. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ITS RIGHTS TO TRIAL BY JURY.
2.6 All notices and other communications hereunder shall be in writing
(and shall be deemed given upon receipt) if delivered personally, telecopied
(which is confirmed), mailed by registered or certified mail (return receipt
requested), or delivered by a national overnight delivery service (e.g.,
Federal Express) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to the Company, to: If to ▇▇▇▇▇▇, to:
PCS Edventure!.COM, Inc. ▇▇▇▇▇▇ Partners L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ c/▇ ▇▇▇▇▇▇ Capital Advisors LLC
▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
If to the Escrow Agent:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
2.7 By signing this Agreement, the Escrow Agent becomes a party hereto
only for the purpose of this Agreement; the Escrow Agent does not become a
party to the Transaction Documents.
2.8 Each party acknowledges and agrees that this Agreement shall not
be deemed prepared or drafted by any one party. In the event of any dispute
between the parties concerning this Agreement, the parties agree that any rule
of construction, to the effect that any ambiguity in the language of the
Agreement is to be resolved against the drafting party, shall not apply.
2.9 This Agreement may be executed in counterparts, each one of which
will constitute an original and all of which taken together will constitute
one document. This Agreement may be executed by delivery of a signed
signature page by fax to the other parties hereto and such fax execution and
delivery will be valid in all respects.
[Signatures appear on the following page]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
ATTEST: PCS Edventures!.COM, Inc.
_______________________ By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_______________, Secretary ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chief Executive
Officer
▇▇▇▇▇▇ PARTNERS L.P.
By: ▇▇▇▇▇▇ Capital Advisors LLC,
General Partner
____________________________ By: ____________________ [SEAL]
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Witness Managing Member
ESCROW AGENT:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Partner