EX-10.38
BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT, dated as of September 28, 2006, is
entered into by and between Sonoma College, Inc., a California corporation with
headquarters located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Company"), and Harborview Master Fund Lp (the "Lender").
W I T N E S S E T H:
WHEREAS, the Company and the Lender are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration for offers and sales to accredited investors afforded,
INTER ALIA, by Rule 506 under Regulation D ("Regulation D") as promulgated by
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and/or Section 4(2) of the
1933 Act; and
WHEREAS, the Lender wishes to lend funds to the Company, subject
to and upon the terms and conditions of this Agreement and acceptance of this
Agreement by the Company, the repayment of which will be represented by 10%
Secured Promissory Note of the Company (the "Note"), on the terms and conditions
referred to herein; and
WHEREAS, in connection with the loan to be made by the Lender, the
Company has agreed to cause the Issued Shares (as defined below) to be issued
and/or transferred to the Lender; and
WHEREAS, the Company's obligations to repay the Note will be
secured by certain real estate (the "Real Estate") pledged by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (each a "Pledgor" and together, the "Pledgors") pursuant to
separate Security Interest and Pledge Agreements (the "Pledge Agreements"), and
by a mortgage (the "Mortgage") executed by the Pledgors in favor of the Lender.
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE.
(i) Subject to the terms and conditions of this Agreement and
the other Transaction Agreements, the Lender hereby agrees to loan to the
Company $275,000 (the "Loan Amount").
(ii) The obligation to repay the loan from the Lender shall be
evidenced by the Company's issuance of the Note, which shall be shall be in the
form of ANNEX I annexed hereto. The Note will be secured by the Mortgage under
the terms of the Pledge Agreements and Mortgage, which Pledge Agreements shall
be substantially in the form of ANNEX VI hereto, which the Company will
acknowledge.
(iii) In consideration of the loan to be made by the Lender, the
Company agrees to issue to the Lender the Issued Shares and the Warrant.
Additional provisions relating to the Issued Shares and the Warrant are provided
below.
(iv) The loan to be made by the Lender and the issuance of the
Note and Warrant to the Lender and the issuance and/or transfer of the Issued
Shares to the Lender and the other transactions contemplated hereby are
sometimes referred to herein and in the other Transaction Agreements as the
purchase and sale of the Securities (as defined below), and are referred to
collectively as the "Transactions".
b. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
"Additional Issued Shares" means 1,527,777 shares of Common Stock
(half of which shall be restricted and half of which shall be free-trading or
subject to piggy-back registration rights) to be issued by the Company to the
Lender on December 29, 2006 in the event that the Note is not repaid in its
entirety on or before such date.
"Affiliate" means, with respect to a specific Person referred to
in the relevant provision, another Person who or which controls or is controlled
by or is under common control with such specified Person.
"Certificates" means the original ink-signed Note and the Issued
Share Certificates, each duly executed by the Company and issued in the name of,
or in the case of the Share Certificates, duly endorsed or accompanied by duly
executed stock powers for transfer to, the Lender.
"Closing Date" means the date of the closing of the Transactions,
as provided herein.
"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.
"Company Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Company
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as
defined below).
"Disclosure Annex" means ANNEX V to this Agreement; provided,
however, that the Disclosure Annex shall be arranged in sections corresponding
to the identified Sections of this Agreement, but the disclosure in any such
section of the Disclosure Annex shall qualify other provisions in this Agreement
to the extent that it would be readily apparent to an informed reader from a
reading of such section of the Disclosure Annex that it is also relevant to
other provisions of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means the Person holding the relevant Securities at the
relevant time.
"Issued Share Certificates" means one or more stock certificates
issued by the Company in the name of the Lender representing, in the aggregate,
the Issued Shares and the Additional Issued Shares if required.
"Issued Shares" " means $137,500 worth of Common Stock, half of
which shall be restricted and half of which shall be free-trading or subject to
piggy-back registration rights.
"Last Audited Date" means December 31, 2005.
"Lender Control Person" means each director, executive officer,
promoter, and such other Persons as may be deemed in control of the Lender
pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.
"Liens" means a lien, charge, security interest, encumbrance,
right of first refusal, preemptive right or other restriction.
"Material Adverse Effect" means an event or combination of events,
which individually or in the aggregate, would reasonably be expected to (w)
adversely affect the legality, validity or enforceability of the Securities or
any of the Transaction Agreements, (x) have or result in a material adverse
effect on the results of operations, assets, prospects, or condition (financial
or otherwise) of the Company and its subsidiaries, taken as a whole, (y)
adversely impair the Company's ability to perform fully on a timely basis its
obligations under any of the Transaction Agreements or the transactions
contemplated thereby, or (z) materially and adversely affect the value of the
rights granted to the Lender in the Transaction Agreements.
"Person" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
"Principal Trading Market" means the Over the Counter Bulletin
Board or such other market on which the Common Stock is principally traded at
the relevant time, but shall not include the "pink sheets."
"Registrable Securities" means all of the following: (i) the
Issued Shares, (ii) the Warrant Shares and (iii) the Additional Issued Shares in
the event such shares are issued, except to the extent such shares can then be
sold by the Holder without volume or other restrictions or limits.
"Registration Rights Provisions" means the piggy-back registration
rights contemplated by the terms of this Agreement, if any, including, but not
necessarily limited to, Section 4(g) hereof, and of the other Transaction
Agreements.
"Registration Statement" means an effective registration statement
covering the Registrable Securities.
"Securities" means the Note and the Shares.
"Shares" means the shares of Common Stock representing any or all
of the Issued Shares, the Additional Issued Shares in the event such shares are
issued, the Warrant Shares and, where relevant, the Pledged Shares.
"State of Incorporation" means California.
"Subsidiary" means any subsidiary of the Company as set forth on
the Disclosure Annex.
"Subsidiary Guarantee" means the Subsidiary Guarantee dated as of
September 1, 2006 between each Subsidiary and the Lender.
"Trading Day" means any day during which the Principal Trading
Market shall be open for business.
"Transaction Fees" means legal and due diligence fees incurred by
the Lender.
"Transfer Agent" means, at any time, the transfer agent for the
Company's Common Stock.
"Transaction Agreements" means this Bridge Loan Agreement, the
Note, the Subsidiary Guarantee, the Pledge Agreements, the Mortgage and the
Warrant and includes all ancillary documents referred to in those agreements.
"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 Pink Sheets, LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported; or (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 Holders
holding a majority of the principal amount of Notes then outstanding.
"Warrant Shares" means shares of Common Stock underlying the
Warrant.
c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Lender shall pay the Loan Amount by delivering
immediately available good funds in United States Dollars to the Company on the
Closing Date.
(ii) No later than one (1) business day from the Closing Date,
the Company shall deliver the Certificates, each duly executed on behalf of the
Company to the Lender.
(iii) By signing this Agreement, each of the Lender and the
Company agrees to all of the terms and conditions of the Transaction Documents,
all of the provisions of which are incorporated herein by this reference as if
set forth in full.
d. METHOD OF PAYMENT. Payment of the Loan Amount shall be made
by wire transfer of funds to:
LAW OFFICE OF ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, PLLC
ATTORNEY TRUST ACCOUNT
BANK: CITIBANK, N.A.
ADDRESS: ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
ABA ROUTING NO.: ▇▇▇▇▇▇▇▇▇
ACCOUNT NO.: 065641284
The Company shall issue disbursement instructions to effectuate transfer
of funds from the above-referenced account.
2. LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Lender represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Lender's right to sell the Securities
pursuant to an effective registration statement or otherwise in compliance with
the 1933 Act, the Lender is purchasing the Securities for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
b. The Lender is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its Affiliates or selling agents), to protect its own
interests in connection with the transactions
described in this Agreement, and the related documents, and to evaluate the
merits and risks of an investment in the Securities, and (iv) able to afford the
entire loss of its investment in the Securities.
c. All subsequent offers and sales of the Securities by the
Lender shall be made pursuant to registration of the relevant Securities under
the 1933 Act or pursuant to an exemption from registration.
d. The Lender understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of the 1933 Act and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Lender's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Lender set forth herein in order to determine the availability of such
exemptions and the eligibility of the Lender to acquire the Securities.
e. The Lender and its advisors, if any, have been furnished
with or have been given access to all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Securities which have been requested by the Lender, including those
set forth on in any annex attached hereto. The Lender and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
management and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Lender has also
had the opportunity to obtain and to review the Company's filings on ▇▇▇▇▇
listed on ANNEX IV hereto (the documents listed on such Annex IV, to the extent
available on ▇▇▇▇▇ or otherwise provided to the Lender as indicated on said
Annex IV, collectively, the "Company's SEC Documents").
f. The Lender understands that its investment in the
Securities involves a high degree of risk.
g. The Lender hereby represents that, in connection with its
purchase of the Securities, it has not relied on any statement or representation
by the Company or any of its officers, directors and employees or any of their
respective attorneys or agents, except as specifically set forth herein.
h. The Lender 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.
i. This Agreement and the other Transaction Agreements to
which the Lender is a party, and the transactions contemplated thereby, have
been duly and validly authorized, executed and delivered on behalf of the Lender
and are valid and binding agreements of the Lender enforceable in accordance
with their respective terms, subject as to enforceability to general principles
of equity and to bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Lender as of the date hereof and as of the Closing Date that,
except as otherwise provided in the Disclosure Annex or in the Company's SEC
Documents:
a. RIGHTS OF OTHERS AFFECTING THE TRANSACTIONS. There are no
preemptive rights of any shareholder of the Company, as such, to acquire the
Note, the Issued Shares or the Additional Issued Shares in the event such shares
are issued. No party other than a Lender has a currently exercisable right of
first refusal which would be applicable to any or all of the transactions
contemplated by the Transaction Agreements.
b. STATUS. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Incorporation and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have or result in a Material Adverse Effect. The Company
has registered its stock and is obligated to file reports pursuant to Section 12
or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the
"1934 Act"). The Common Stock is, or immediately following the Closing Date will
be, quoted on the Principal Trading Market. The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such quotation on the Principal Trading Market, and the Company has
maintained all requirements on its part for the continuation of such quotation.
c. AUTHORIZED SHARES.
(i) The authorized capital stock of the Company consists of
250,000,000 shares of Common Stock, $0.01 par value, 63,510,467 of which are
outstanding as of the date hereof.
(ii) All issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable. The Company
has sufficient authorized and unissued shares of Common Stock as may be
necessary to affect the issuance of the Shares on the Closing Date.
(iii) As of the Closing Date, the Shares shall have been duly authorized
by all necessary corporate action on the part of the Company, and, when issued
on the Closing Date or pursuant to other relevant provisions of the Transaction
Agreements, in each case in accordance with their respective terms, will be duly
and validly issued, fully paid and non-assessable and will not subject the
Holder thereof to personal liability by reason of being such Holder.
d. TRANSACTION AGREEMENTS AND STOCK. This Agreement and each
of the other Transaction Agreements, and the transactions contemplated thereby,
have been duly and validly authorized by the Company, this Agreement has been
duly executed and delivered by the Company and this Agreement is, and the Note
and each of the other Transaction Agreements, when executed and delivered by the
Company, will be, valid and binding agreements of the Company enforceable in
accordance with their respective terms, subject as to enforceability to general
principles of equity and
to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement and each of the other Transaction Agreements by the Company, the
issuance of the Securities, and the consummation by the Company of the other
transactions contemplated by this Agreement, each of the Notes and the other
Transaction Agreements do not and will not conflict with or result in a breach
by the Company of any of the terms or provisions of, or constitute a default
under (i) the certificate of incorporation or by-laws of the Company, each as
currently in effect, (ii) any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, including any listing agreement
for the Common Stock except as herein set forth, or (iii) to its knowledge, any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, except such conflict, breach or
default which would not have or result in a Material Adverse Effect.
f. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the shareholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Lender as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained.
g. FILINGS. None of the Company's SEC Documents contained, at
the time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. Since December 31, 2005, the Company has timely filed all
requisite forms, reports and exhibits thereto, if any, required to be filed by
the Company with the SEC.
h. ABSENCE OF CERTAIN CHANGES. Since the Last Audited Date,
there has been no material adverse change and no Material Adverse Effect, except
as disclosed in the Company's SEC Documents. Since the Last Audited Date, except
as provided in the Company's SEC Documents, the Company has not (i) incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts owed to the Company by any third party or claims of the
Company against any third party, except in the ordinary course of business
consistent with past practices; (v) waived any rights of material value, whether
or not in the ordinary course of business, or suffered the loss of any material
amount of existing business; (vi) made any increases in employee compensation,
except in the ordinary course of business consistent with past practices; or
(vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.
i. FULL DISCLOSURE. To the best of the Company's knowledge,
there is no fact known to the Company (other than general economic conditions
known to the public generally or as disclosed in the Company's SEC Documents)
that has not been disclosed in writing to the Lender that would reasonably be
expected to have or result in a Material Adverse Effect.
j. ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company before or by any governmental authority or nongovernmental
department, commission, board, bureau, agency or instrumentality or any other
person, wherein an unfavorable decision, ruling or finding would have a Material
Adverse Effect or which would adversely affect the validity or enforceability
of, or the authority or ability of the Company to perform its obligations under,
any of the Transaction Agreements. The Company is not aware of any valid basis
for any such claim that (either individually or in the aggregate with all other
such events and circumstances) could reasonably be expected to have a Material
Adverse Effect. There are no outstanding or unsatisfied judgments, orders,
decrees, writs, injunctions or stipulations to which the Company is a party or
by which it or any of its properties is bound, that involve the transaction
contemplated herein or that, alone or in the aggregate, could reasonably be
expect to have a Material Adverse Effect.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in
Section 3(e) and 3(g) hereof, (i) neither the Company nor any of its
subsidiaries is in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material
indenture, mortgage, deed of trust or other material agreement to which it is a
party or by which its property is bound, and (ii) no Event of Default (or its
equivalent term), as defined in the respective agreement to which the Company or
its subsidiary is a party, and no event which, with the giving of notice or the
passage of time or both, would become an Event of Default (or its equivalent
term) (as so defined in such agreement), has occurred and is continuing, which
would have a Material Adverse Effect.
l. ABSENCE OF CERTAIN COMPANY CONTROL PERSON ACTIONS OR
EVENTS. To the Company's knowledge, none of the following has occurred during
the past five (5) years with respect to a Company Control Person:
(1) A petition under the federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or
similar officer was appointed by a court for the business or property of
such Company Control Person, or any partnership in which he was a general
partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer
at or within two years before the time of such filing;
(2) Such Company Control Person was convicted in a criminal proceeding
or is a named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court
of competent jurisdiction, permanently or temporarily enjoining him from,
or otherwise limiting, the following activities:
(i) acting, as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or
employee of any investment company, bank, savings and loan
association or insurance company, as a futures commission
merchant, introducing broker, commodity trading advisor, commodity
pool operator, floor broker, any other Person regulated by the
Commodity Futures Trading Commission ("CFTC") or engaging in or
continuing any conduct or practice in connection with such
activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the purchase or
sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal
commodities laws;
(4) Such Company Control Person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any
federal or state authority barring, suspending or otherwise limiting for
more than 60 days the right of such Company Control Person to engage in
any activity described in paragraph (3) of this item, or to be associated
with Persons engaged in any such activity; or
(5) Such Company Control Person was found by a court of competent
jurisdiction in a civil action or by the CFTC or SEC to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the CFTC or SEC has not been subsequently reversed, suspended,
or vacated.
m. NO UNDISCLOSED LIABILITIES OR EVENTS. To the best of the Company's
knowledge, the Company has no liabilities or obligations other than those
disclosed in the Transaction Agreements or the Company's SEC Documents or those
incurred in the ordinary course of the Company's business since the Last Audited
Date, or which individually or in the aggregate, do not or would not have a
Material Adverse Effect. No event or circumstances has occurred or exists with
respect to the Company or its properties, business, operations, condition
(financial or otherwise), or results of operations, which, under 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.
There are no proposals currently under consideration or currently anticipated to
be under consideration by the Board of Directors or the executive officers of
the Company which proposal would (x) change the articles or certificate of
incorporation or other charter document or by-laws of the Company, each as
currently in effect, with or without shareholder approval, which change would
reduce or otherwise adversely affect the rights and powers of the shareholders
of the Common Stock or (y) materially or substantially change the business,
assets or capital of the Company, including its interests in subsidiaries.
n. NO INTEGRATED OFFERING. Neither the Company nor any of its
Affiliates nor any Person acting on its or their behalf has, directly or
indirectly, at any time since September 1, 2005, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
o. DILUTION. The Issued Shares and the Additional Issued Shares in
the event such shares are issued may have a dilutive effect on the ownership
interests of the other shareholders (and Persons having the right to become
shareholders) of the Company. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being sold hereby
and recognize that they have such a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company.
p. RESERVED.
q. FEES TO BROKERS, FINDERS AND OTHERS. The Company has taken no
action which would give rise to any claim by any Person for brokerage
commission, finder's fees or similar payments by Lender relating to this
Agreement or the transactions contemplated hereby. Lender shall have no
obligation with respect to such fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this paragraph that
may be due in connection with the transactions contemplated hereby. The Company
shall indemnify and hold harmless each of Lender, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as and when incurred.
r. CONFIRMATION. The Company confirms that all statements of the
Company contained herein shall survive acceptance of this Agreement by the
Lender. The Company agrees that, if any events occur or circumstances exist
prior to the Closing Date or the release of the Loan Amount to the Company which
would make any of the Company's representations, warranties, agreements or other
information set forth herein materially untrue or materially inaccurate as of
such date, the Company shall immediately notify the Lender (directly or through
its counsel, if any) in writing prior to such date of such fact, specifying
which representation, warranty or covenant is affected and the reasons therefor.
s. AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Agreements and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Agreements by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company in connection therewith other than in connection with the Required
Approvals. Each Transaction Agreement has been (or upon delivery will have been)
duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
t. SEC REPORTS; FINANCIAL STATEMENTS. Other than as previously
disclosed to the Lender, the Company has filed all reports required to be filed
by it under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials, including the exhibits thereto, being collectively
referred to herein as the "SEC REPORTS") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
u. LABOR RELATIONS. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.
v. COMPLIANCE. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business except in each case as could not have
a Material Adverse Effect.
w. REGULATORY PERMITS. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses, except where the failure to possess such permits could
not have or reasonably be expected to result in a Material Adverse Effect
("MATERIAL
PERMITS"), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
x. TITLE TO ASSETS. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and the Subsidiaries are in compliance.
y. PATENTS AND TRADEMARKS. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses and which the failure to so have could have a Material Adverse Effect
(collectively, the "INTELLECTUAL PROPERTY RIGHTS"). Neither the Company nor any
Subsidiary has received a written notice that the Intellectual Property Rights
used by the Company or any Subsidiary violates or infringes upon the rights of
any Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights of others.
z. INSURANCE. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged, at least equal to the Loan Amount. To
the best of Company's knowledge, such insurance contracts and policies are
accurate and complete. Neither the Company nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business without a significant increase in
cost.
aa. TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as disclosed in
the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $50,000 other than (i) for payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company.
bb. ▇▇▇▇▇▇▇▇-▇▇▇▇▇; INTERNAL ACCOUNTING CONTROLS. The Company is in
material compliance with all provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 which
are applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company's most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company's certifying
officers have evaluated the effectiveness of the Company's controls and
procedures as of the date prior to the filing date of the most recently filed
periodic report under the Exchange Act (such date, the "EVALUATION DATE"). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company's internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company's knowledge,
in other factors that could significantly affect the Company's internal
controls.
cc. SOLVENCY. Based on the financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the Company's fair
saleable value of its assets exceeds the amount that will be required to be paid
on or in respect of the Company's existing debts and other liabilities
(including known contingent liabilities) as they mature; (ii) the Company's
assets do not constitute unreasonably small capital to carry on its business for
the current fiscal year as now conducted and as proposed to be conducted
including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt). The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from the Closing Date.
The financial statements of the Company set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments. For the purposes of
this Agreement, "INDEBTEDNESS" shall mean (a) any liabilities for borrowed money
or amounts owed in excess of $50,000 (other than trade accounts payable incurred
in the ordinary course of business), (b) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be reflected in the Company's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.
dd. TAX STATUS. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.
ee. NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the accountants and lawyers formerly or presently
employed by the Company and the Company is current with respect to any fees owed
to its accountants and lawyers. By making this representation the Company does
not, in any manner, waive the attorney/client privilege or the confidentiality
of the communications between the Company and its lawyers.
ff. ACCOUNTANTS. The Company's accountants are ▇▇▇▇▇▇ & Kleigman. To
the Company's knowledge, such accountants, who the Company expects will express
their opinion with respect to the financial statements for the year ended
December 31, 2005, are a registered public accounting firm as required by the
Securities Act.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Lender acknowledges that (1) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Provisions or
otherwise included in an effective registration statement, the Shares have not
been and are not being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Lender 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 Securities to be sold
or transferred may be sold or transferred pursuant to an exemption from such
registration; (2) any sale of the Securities made in reliance on Rule 144
promulgated under the 1933 Act ("Rule 144") 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; and (3) neither
the Company nor any other Person is under any obligation to register the
Securities (other than pursuant to the Registration Rights Provisions) under the
1933 Act or to comply with the terms and conditions of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Lender acknowledges and agrees
that, until such time as the relevant Shares have been registered under the 1933
Act, as contemplated by the Registration Rights Provisions and sold in
accordance with an effective Registration Statement or otherwise in accordance
with another effective registration statement, the certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL
OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
c. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Securities to the Lender
under any United States laws and regulations applicable to the Company, or by
any domestic securities exchange or trading market, and to provide a copy
thereof to the Lender promptly after such filing.
d. REPORTING STATUS. So long as the Lender beneficially owns
any of the Shares or has a security interest in the Pledged Shares, the Company
shall file all reports required to be filed with the SEC pursuant to Section 13
or 15(d) of the 1934 Act, shall take all reasonable action under its control to
ensure that adequate current public information with respect to the Company, as
required in accordance with Rule 144(c)(2) of the 1933 Act, is publicly
available, and shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and regulations
thereunder would permit such termination. The Company will take all reasonable
action under its control to maintain the continued listing and quotation and
trading of its Common Stock (including, without limitation, all Registrable
Securities) on the Principal Trading Market or a listing on the NASDAQ/Small Cap
or National Markets and, to the extent applicable to it, will comply in all
material respects with the Company's reporting, filing and other obligations
under the by-laws or rules of the Principal Trading Market and/or the National
Association of Securities Dealers, Inc., as the case may be, applicable to it
for so long as the Lender beneficially owns any of the Shares or has a security
interest in the Pledged Shares.
e. USE OF PROCEEDS. The Company will use the proceeds received
hereunder (excluding amounts paid by the Company for legal fees in connection
with the sale of the Securities) for general corporate purposes.
f. ISSUED SHARES. The Company agrees to issue or cause to be
transferred the Issued Shares to the Lender on the Closing Date and the
Additional Issued Shares on December 29, 2006 in the event the Note is not
repaid in its entirety before such date. Certain terms relating to the Issued
Shares the Additional Issued Shares are provided in ANNEX VIII annexed hereto,
the terms of which are incorporated herein by reference. All of the Issued
Shares the Additional Issued Shares in the event such shares are issued shall
have Registration Rights Provisions.
g. WARRANT. The Company agrees to issue a warrant (the
"Warrant") to the Lender on the Closing Date. The terms relating to the Warrant
are provided in ANNEX VII annexed
hereto, the terms of which are incorporated herein by reference. All of the
Warrant Shares shall have Registration Rights Provisions.
h. PIGGY-BACK RIGHTS; RULE 144.
(i) The Holder shall have piggy-back registration rights with
respect to the Registrable Securities subject to the conditions set forth below.
If the Company participates (whether voluntarily or by reason of an obligation
to a third party) in the registration of any shares of the Company's stock, the
Company shall give written notice thereof to the Holder and the Holder shall
have the right, exercisable within ten (10) Trading Days after receipt of such
notice, to demand inclusion of all or a portion of the Holder's Registrable
Securities in such registration statement (a "Subsequent Registration
Statement"), without any cutbacks. If the Holder exercises such election, the
Registrable Securities so designated shall be included in the registration
statement (without any holdbacks) at no cost or expense to the Holder (other
than any commissions, if any, relating to the sale of Holder's shares). Each
Holder's rights under this Section 4(g)(i) shall expire at such time as such
Holder can sell all of such Holder's remaining Registrable Securities under Rule
144 (as defined below) without volume or other restrictions or limit. Anything
to the contrary notwithstanding, a registration statement covering the
Registrable Securities shall be filed no later than November 1, 2006.
(ii) The parties acknowledge that the damages which may be
incurred by the Holder if the Company does not fulfill its obligations under
subparagraph (i) above, which will affect the Holder's ability to sell the
shares, may be difficult to ascertain. If either (A) the Company fails to give
the Lender the notice referred to in the immediately preceding subparagraph (i)
which results in any of the Holder's shares not being included in the Subsequent
Registration Statement or (B) after giving such notice, the Company fails to
include all of the Holder's shares (to the extent requested by the Holder) in
the Subsequent Registration Statement or (C) the Company fails to file a
registration statement covering the Registrable Securities on or before November
15, 2006, then the Company will make payment to the Lender, for each Computation
Period (as defined below) an amount equal to 2% of the aggregate principal
amount of the Note then outstanding (the "Periodic Amount"). The term
"Computation Period" means each thirty (30) day period commencing on the
effective date of the Subsequent Registration Statement and ending on the date
on which there are one or more effective registration statements covering the
Lender's sale of all of the Holder's shares. The Periodic Amount shall be due
without further demand or notice from the Lender. The parties agree that the
amounts payable pursuant to the foregoing provisions of this Section 4(g)
represent a reasonable estimate on the part of the parties, as of the date of
this Agreement, of the amount of such damages.
(iii) With a view to making available to the Holder the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit Holder to sell securities of
the Company to the public without registration (collectively, "Rule 144"), the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and
(c) furnish to the Holder so long as such party owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) if not available on the SEC's ▇▇▇▇▇ system, a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company and (iii) such other information
as may be reasonably requested to permit the Holder to sell such securities
pursuant to Rule 144 without registration; and
(d) at the request of any Holder then holding Registrable
Securities, give the Transfer Agent instructions (supported by an opinion of
Company counsel, if required or requested by the Transfer Agent) to the effect
that, upon the Transfer Agent's receipt from such Holder of
(i) a certificate (a "Rule 144 Certificate") certifying (A) that the
Holder's holding period (as determined in accordance with the provisions
of Rule 144) for the Shares which the Holder proposes to sell (the
"Securities Being Sold") is not less than (1) year and (B) as to such
other matters as may be appropriate in accordance with Rule 144 under the
Securities Act, and
(ii) an opinion of counsel acceptable to the Company that, based on the
Rule 144 Certificate, Securities Being Sold may be sold pursuant to the
provisions of Rule 144, even in the absence of an effective registration
statement,
the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the Lender(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent's books and records (except to the extent any such
legend or restriction results from facts other than the identity of the relevant
Holder, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Lender). If the Transfer Agent reasonably requires any
additional documentation at the time of the transfer, the Company shall deliver
or cause to be delivered all such reasonable additional documentation as may be
necessary to effectuate the issuance of an unlegended certificate.
(iv) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the registration statement, the
Company notifies the Holder in writing of the existence of a Potential Material
Event (as defined below), the Holder shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until the Holder receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; PROVIDED, HOWEVER,
that the Company may not so suspend such right other than during a Permitted
Suspension Period. The term "Potential Material Event" means any of the
following: (i) the possession by the Company of material information not ripe
for disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a registration statement
at such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information.
i. PUBLICITY, FILINGS, RELEASES, ETC. Each of the parties
agrees that it will not disseminate any information relating to the Transaction
Agreements or the transactions contemplated thereby, including issuing any press
releases, holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects, unless in the reasonable opinion of
counsel to the party proposing such statement, such statement is legally
required to be included. In furtherance of the foregoing, the Company will
provide to the Lender drafts of the applicable text of the first filing of a
Current Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K
intended to be made with the SEC which refers to the Transaction Agreements or
the transactions contemplated thereby as soon as practicable (but at least two
(2) Trading Days before such filing will be made) will not include in such
filing any statement or statements or other material to which the other party
reasonably objects, unless in the reasonable opinion of counsel to the party
proposing such statement, such statement is legally required to be included.
Notwithstanding the foregoing, each of the parties hereby consents to the
inclusion of the text of the Transaction Agreements in filings made with the SEC
as well as any descriptive text accompanying or part of such filing which is
accurate and reasonably determined by the Company's counsel to be legally
required. Notwithstanding, but subject to, the foregoing provisions of this
Section 4(i), the Company will, after the Closing Date, promptly file a Current
Report on Form 8-K or, if appropriate, a quarterly or annual report on the
appropriate form, referring to the transactions contemplated by the Transaction
Agreements.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that, with respect to the Securities,
other than the stop transfer instructions to give effect to Section 4(a) hereof,
it will give its transfer agent no instructions inconsistent with instructions
to issue Common Stock to the Holder as contemplated in the Transaction
Agreements. Except as so provided, the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Agreements. Nothing in this
Section shall affect in any way the Lender's obligations and agreement to comply
with all applicable securities laws upon resale of the Securities. If the Lender
provides the Company with an opinion of counsel reasonably satisfactory to the
Company that registration of a resale by the Lender of any of the Securities in
accordance with clause (1)(B) of Section 4(a) of this Agreement is not required
under the 1933 Act, the Company shall (except as provided in clause (2) of
Section 4(a) of this Agreement) permit the transfer or reissue of the Shares
represented by one or more certificates for Common Stock without legend (or
where applicable, by electronic registration) in such name and in such
denominations as specified by the Lender.
b. The Company will authorize the Transfer Agent to give
information relating to the Company directly to the Holder or the Holder's
representatives upon the request of the Holder or any such representative, to
the extent such information relates to (i) the status of shares of Common Stock
issued or claimed to be issued to the Holder in connection with a Notice of
Exercise or transfer of Pledged Shares to the Holder, or (ii) the aggregate
number of outstanding shares of Common Stock of all shareholders (as a group,
and not individually) as of a current or other specified date. At the request of
the Holder, the Company will provide the Holder with a copy of the authorization
so given to the Transfer Agent.
6. CLOSING DATE.
a. The Closing Date shall occur on the date which is the first
Trading Day after each of the conditions contemplated by Sections 7 and 8 hereof
shall have either been satisfied or been waived by the party in whose favor such
conditions run.
b. The closing of the Transactions shall occur on the Closing
Date at the offices of the Lender and shall take place no later than 3:00 P.M.,
New York time, on such day or such other time as is mutually agreed upon by the
Company and the Lender.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Lender understands that the Company's obligation to sell the
Note, the Issued Shares and the Additional Issued Shares in the event such
shares are issued to the Lender pursuant to this Agreement on the Closing Date
is conditioned upon:
a. The execution and delivery of this Agreement by the Lender;
b. Delivery by the Lender to the Company of good funds as
payment in full of an amount equal to the Loan Amount in accordance with this
Agreement;
c. The accuracy on such Closing Date of the representations
and warranties of the Lender contained in this Agreement, each as if made on
such date, and the performance by the Lender on or before such date of all
covenants and agreements of the Lender required to be performed on or before
such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.
The Company understands that the Lender's obligation to purchase
the Note and the Issued Shares on the Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the other
Transaction Agreements by the Company;
b. Delivery by the Company to the Lender of the Certificates
in accordance with this Agreement;
c. The execution and delivery of the Pledge Agreements by the
Pledgors, together the Mortgage;
d. The receipt by the Lender of an independent appraisal in
connection with the Real Estate.
e. The execution and delivery of the, the Subsidiary
Guarantee;
f. The execution and delivery of the Warrant;
g. The reimbursement of the Transaction Fees;
h. The Company publicly traded on the bulletin board exchange;
i. The receipt by the Lender of current audited financials for
the Company
j. The receipt by the Lender of the Company's consolidated pro
forma and five year projected financial statements (income statement, balance
sheet and cash flow), including acquisition and total capital requirements;
k. The receipt by the Lender of any agreements to which the
Company is a party which in any way restrict the conduct and or nature of the
Company's business.
l. The accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained in this
Agreement, each as if made on such date, and the performance by the Company on
or before such date of all covenants and agreements of the Company required to
be performed on or before such date;
m. On the Closing Date, the Lender shall have received an
opinion of counsel for the Company, dated the Closing Date, in form, scope and
substance reasonably satisfactory to the Lender;
n. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained; and
o. From and after the date hereof to and including the Closing
Date, each of the following conditions will remain in effect: (i) the trading of
the Common Stock shall not have been suspended by the SEC or on the Principal
Trading Market; (ii) trading in securities generally on the
Principal Trading Market shall not have been suspended or limited; (iii) no
minimum prices shall been established for securities traded on the Principal
Trading Market; and (iv) there shall not have been any material adverse change
in any financial market.
9. INDEMNIFICATION AND REIMBURSEMENT.
a. (i) The Company agrees to indemnify and hold harmless
the Lender and its officers, directors, employees, and agents, and each Lender
Control Person from and against any losses, claims, damages, liabilities or
expenses incurred (collectively, "Damages"), joint or several, and any action in
respect thereof to which the Lender, its partners, Affiliates, officers,
directors, employees, and duly authorized agents, and any such Lender Control
Person becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred, except to the extent such Damages result primarily
from Lender's failure to perform any covenant or agreement contained in this
Agreement or the Lender's or its officer's, director's, employee's, agent's or
Lender Control Person's gross negligence, recklessness or bad faith in
performing its obligations under this Agreement.
(ii) The Company hereby agrees that, if the Lender, other
than by reason of its gross negligence, illegal or willful misconduct (in each
case, as determined by a non-appealable judgment to such effect), (x) becomes
involved in any capacity in any action, proceeding or investigation brought by
any shareholder of the Company, in connection with or as a result of the
consummation of the transactions contemplated by this Agreement or the other
Transaction Agreements, or if the Lender is impleaded in any such action,
proceeding or investigation by any Person, or (y) becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC, any
self-regulatory organization or other body having jurisdiction, against or
involving the Company or in connection with or as a result of the consummation
of the transactions contemplated by this Agreement or the other Transaction
Agreements, or (z) is impleaded in any such action, proceeding or investigation
by any Person, then in any such case, the Company shall indemnify, defend and
hold harmless the Lender from and against and in respect of all losses, claims,
liabilities, damages or expenses resulting from, imposed upon or incurred by the
Lender, directly or indirectly, and reimburse such Lender for its reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred.
The indemnification and reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Lender who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and Lender Control Persons (if any), as
the case may be, of the Lender and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Lender, any such Affiliate and any such
Person. The Company also agrees that neither the Lender nor any such Affiliate,
partner, director, agent, employee or Lender Control Person shall have any
liability to the Company or any Person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of this
Agreement or the other Transaction Agreements, except as may be expressly and
specifically provided in or contemplated by this Agreement.
b. All claims for indemnification by any Indemnified Party (as
defined below) under this Section shall be asserted and resolved as follows:
(i) In the event any claim or demand in respect of which
any Person claiming indemnification under any provision of this Section (an
"Indemnified Party") might seek indemnity under paragraph (a) of this Section is
asserted against or sought to be collected from such Indemnified Party by a
Person other than a party hereto or an Affiliate thereof (a "Third Party
Claim"), the Indemnified Party shall deliver a written notification, enclosing a
copy of all papers served, if any, and specifying the nature of and basis for
such Third Party Claim and for the Indemnified Party's claim for indemnification
that is being asserted under any provision of this Section against any Person
(the "Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. The following provisions shall also apply.
(x) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to
defend the Indemnified Party with respect to the Third Party Claim
pursuant to this paragraph (b) of this Section, then the
Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost
and expense of the Indemnifying Party, such Third Party Claim by
all appropriate proceedings, which proceedings shall be vigorously
and diligently prosecuted by the Indemnifying Party to a final
conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified
Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for
the payment of monetary damages as to which the Indemnified Party
shall not be indemnified in full pursuant to paragraph (a) of this
Section). The Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement
thereof; provided, however, that the Indemnified Party may, at the
sole cost and expense of the Indemnified Party, at any time prior
to the Indemnifying Party's delivery of the notice referred to in
the first sentence of this subparagraph (x), file any motion,
answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or
appropriate protect its interests; and provided further, that if
requested by the Indemnifying Party, the Indemnified Party will,
at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting any
Third Party Claim that the Indemnifying Party elects to contest.
The Indemnified Party may
participate in, but not control, any defense or settlement of any
Third Party Claim controlled by the Indemnifying Party pursuant to
this subparagraph (x), and except as provided in the preceding
sentence, the Indemnified Party shall bear its own costs and
expenses with respect to such participation. Notwithstanding the
foregoing, the Indemnified Party may take over the control of the
defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under paragraph (a) of
this Section with respect to such Third Party Claim.
(y) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party
desires to defend the Third Party Claim pursuant to paragraph (b)
of this Section, or if the Indemnifying Party gives such notice
but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any
notice whatsoever within the Dispute Period, then the Indemnified
Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted by
the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with
the consent of the Indemnifying Party, which consent will not be
unreasonably withheld). The Indemnified Party will have full
control of such defense and proceedings, including any compromise
or settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost
and expense of the Indemnifying Party, provide reasonable
cooperation to the Indemnified Party and its counsel in contesting
any Third Party Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this subparagraph (y),
if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its
liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and if
such dispute is resolved in favor of the Indemnifying Party in the
manner provided in subparagraph(z) below, the Indemnifying Party
will not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this subparagraph (y) or
of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable costs
and expenses incurred by the Indemnifying Party in connection with
such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the
Indemnified Party pursuant to this subparagraph (y), and the
Indemnifying Party shall bear its own costs and expenses with
respect to such participation.
(z) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its
liability to the Indemnified Party with respect to the Third Party
Claim under paragraph (a) of this Section or fails to notify the
Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its
liability to the Indemnified Party with respect to such Third
Party Claim, the amount of Damages specified in the Claim Notice
shall be conclusively deemed a liability of the Indemnifying Party
under paragraph (a) of this Section and the Indemnifying Party
shall pay the amount of such Damages
to the Indemnified Party on demand. If the Indemnifying Party has
timely disputed its liability or the amount of its liability with
respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of
such dispute; provided, however, that if the dispute is not
resolved within thirty (30) days after the Claim Notice, the
Indemnifying Party shall be entitled to institute such legal
action as it deems appropriate.
(ii) In the event any Indemnified Party should have a claim
under paragraph (a) of this Section against the Indemnifying Party that does not
involve a Third Party Claim, the Indemnified Party shall deliver a written
notification of a claim for indemnity under paragraph (a) of this Section
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim (an "Indemnity Notice") with reasonable promptness to the
Indemnifying Party. The failure by any Indemnified Party to give the Indemnity
Notice shall not impair such party's rights hereunder except to the extent that
the Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. If the Indemnifying Party notifies the Indemnified Party that it does
not dispute the claim or the amount of the claim described in such Indemnity
Notice or fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim or the amount of the claim
described in such Indemnity Notice, the amount of Damages specified in the
Indemnity Notice will be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that it the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
c. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to.
10. JURY TRIAL WAIVER. The Company and the Lender hereby waive
a trial by jury in any action, proceeding or counterclaim brought by either of
the Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Agreements.
11. GOVERNING LAW: MISCELLANEOUS.
a. (i) This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
County of New York or the state courts of the State of New York sitting in the
County of New York in connection with any dispute arising under this Agreement
or any of the other Transaction Agreements and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on FORUM
NON CONVENIENS, to the bringing of any such proceeding in such jurisdictions or
to any claim that such venue of the suit, action or proceeding is improper. To
the extent determined by such court, the Company shall reimburse the Lender for
any reasonable legal fees and disbursements incurred by the Lender in
enforcement of or protection of any of its rights under any of the Transaction
Agreements. Nothing in this Section shall affect or limit any right to serve
process in any other manner permitted by law.
(ii) The Company and the Lender acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement or the other Transaction Agreements were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
the other Transaction Agreements and to enforce specifically the terms and
provisions hereof and thereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
b. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
12. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the fifth Trading Day after deposit, postage prepaid, in
the United States Postal Service by registered or certified mail,
or
(c) the third Trading Day after mailing by domestic or
international express courier, with delivery costs and fees
prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: At the address set forth at the head of this Agreement.
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.:
LENDER: Harborview Master Fund Lp
c/o Navigator Management Ltd.
Harbour House, Second Floor
Waterfron Drive, Road Town
Tortola, British Virgin Islands
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
and the Lender's representations and warranties herein shall survive the
execution and delivery of this Agreement and the delivery of the Certificates
and the payment of the Loan Amount, and shall inure to the benefit of the Lender
and the Company and their respective successors and assigns.
[Balance of page intentionally left blank]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Lender and the Company as of the date set first above written.
HARBORVIEW MASTER FUND LP
By:
---------------------------------
Name:
Title:
SONOMA COLLEGE, INC.
By:
----------------------------------
(Signature of Authorized Person)
-------------------------------------
Printed Name and Title
ANNEX I FORM OF NOTE
ANNEX II [INTENTIONALLY LEFT BLANK]
ANNEX III [INTENTIONALLY LEFT BLANK]
ANNEX IV COMPANY'S SEC DOCUMENTS AVAILABLE ON ▇▇▇▇▇
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI PLEDGE AGREEMENTS
ANNEX VII WARRANT
ANNEX VIII ISSUED SHARES/ADDITIONAL ISSUED SHARES PROVISIONS
ANNEX IX SUBSIDIARY GUARANTEE
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