--------------------------------------------------------------------------------

Exhibit 10.1
 
SECURITIES PURCHASE AGREEMENT
 
SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of March 22, 2012, by
and among Scientific Learning Corporation, a Delaware corporation with
headquarters located at 300 Frank H. Ogawa Plaza, Suite 600, Oakland, California
94612 (the “Company”), and the investors listed on the Schedule of Investors
attached hereto as Exhibit A (individually, an “Investor” and collectively, the
“Investors”).
 
BACKGROUND

A.            The Company and each Investor are executing and delivering this
Agreement in reliance upon the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule
506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the Securities Act.
 
B.             Each Investor, severally and not jointly, wishes to purchase, and
the Company wishes to sell, upon the terms and conditions stated in this
Agreement, (i) that aggregate number of shares of the common stock, par value
$0.001 per share, of the Company (the “Common Stock”), set forth opposite such
Investor’s name in column two (2) on the Schedule of Investors in Exhibit A
(which aggregate amount for all Investors together shall be 4,176,420 shares of
Common Stock and shall collectively be referred to herein as the “Common
Shares”) and (ii) warrants, in substantially the form attached hereto as Exhibit
F (the “Warrants”) to acquire up to that number of additional shares of Common
Stock set forth opposite such Investor’s name in column three (3) on the
Schedule of Investors (the shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants, collectively, the “Warrant Shares”).
 
C.             The Common Shares, the Warrants and the Warrant Shares issued
pursuant to this Agreement are collectively referred to herein as the
“Securities.”
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
 
ARTICLE I
DEFINITIONS
 
1.1            Definitions.  In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
 
“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, Controls or is Controlled by
or is under common Control with such Person.
 
“Agent” has the meaning set forth in Section 3.1(l).
 
 
1

--------------------------------------------------------------------------------

 

“Agreement” has the meaning set forth in the Preamble.
 
“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York or Oakland, California are authorized
or required by law to remain closed.
 
“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.
 
“Closing Date” has the meaning set forth in Section 2.1.
 
“Company” has the meaning set forth in the Preamble.
 
“Company Counsel” means Wilson Sonsini Goodrich & Rosati, P.C., counsel to the
Company.
 
“Common Shares” has the meaning set forth in the Preamble.
 
“Common Stock” has the meaning set forth in the Preamble.
 
“Contingent Obligation” has the meaning set forth in Section 3.1(bb).
 
“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
 
“Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for Common Stock.
 
“Deadline Date” has the meaning set forth in Section 2.1.
 
“Disclosure Materials” has the meaning set forth in Section 3.1(g).
 
“Effective Date” means the date that the Registration Statement is first
declared effective by the SEC.
 
“Effectiveness Period” has the meaning set forth in Section 6.1(b).
 
“8-K Filing” has the meaning set forth in Section 4.5.
 
“Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ
Capital Market or the OTC Bulletin Board.
 
“Environmental Laws” has the meaning set forth in Section 3.1(dd).
 
 
2

--------------------------------------------------------------------------------

 

“Event” has the meaning set forth in Section 6.1(d).
 
“Event Payments” has the meaning set forth in Section 6.1(d).
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Excluded Events” has the meaning set forth in Section 6.1(d)(ii).
 
“Filing Date” means 30 days after the Closing Date.
 
“GAAP” has the meaning set forth in Section 3.1(g).
 
“Hazardous Materials” has the meaning set forth in Section 3.1(dd).
 
“Indebtedness” has the meaning set forth in Section 3.1(bb).
 
“Indemnified Party” has the meaning set forth in Section 6.4(c).
 
“Indemnifying Party” has the meaning set forth in Section 6.4(c).
 
“Intellectual Property Rights” has the meaning set forth in Section 3.1(u).
 
“Investor” has the meaning set forth in the Preamble.
 
“Investor Counsel” has the meaning set forth in Section 6.1(e).
 
“Investor Indemnified Liabilities” has the meaning set forth in Section 4.10.
 
“Investor Party” has the meaning set forth in Section 4.10.
 
“Lead Investor” shall mean certain investment funds and entities managed by, or
Affiliated with, Harvey Partners, LLC.
 
“Lien” means any lien, charge, claim, security interest, encumbrance, right of
first refusal or other restriction.
 
“Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, reasonable attorneys’ fees.
 
“Material Adverse Effect” means (i) a material adverse effect on the results of
operations, assets, business or financial condition or prospects of the Company
and the Subsidiaries, taken as a whole on a consolidated basis, or (ii) a
material adverse effect on the Company's ability to perform its obligations
under any of the Transaction Documents.
 
“Material Permits” has the meaning set forth in Section 3.1(w).
 
 
3

--------------------------------------------------------------------------------

 

“Options” means any outstanding rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
 
“Person” means any individual or corporation, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, or
joint stock company.
 
“Press Release” has the meaning set forth in Section 4.5.
 
“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, a partial proceeding, such as a deposition),
whether commenced or threatened in writing.
 
“Prospectus” means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A, 430B or Rule 430C promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
 
“Registrable Securities” means the Common Shares and the Warrant Shares issued
or issuable pursuant to the Transaction Documents, together with any securities
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.
 
“Registration Statement” means each registration statement required to be filed
under Article VI, including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
 
“Regulation D” has the meaning set forth in the Preamble.
 
“Required Effectiveness Date” means (i) if the Registration Statement does not
become subject to review by the SEC, the date which is the earliest of (a)
ninety (90) days after the Closing Date or (b) the third (3rd) Trading Day after
the Company receives notification from the SEC that the Registration Statement
will not become subject to review, or (ii) if the Registration Statement becomes
subject to review by the SEC, the date which is one hundred thirty five (135)
days after the Closing Date.
 
“Rule 144,” “Rule 415,” “Rule 424,” “Rule 430A,” “Rule 430B,” and “Rule 430C”
means Rule 144, Rule 415, Rule 424, Rule 430A, Rule 430B, and Rule 430C
respectively, promulgated by the SEC pursuant to the Securities Act, as such
Rules may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same effect as such Rule.
 
 
4

--------------------------------------------------------------------------------

 

“Rule 415 Event” has the meaning set forth in Section 6.1(b).
 
“SEC” has the meaning set forth in the Preamble.
 
“SEC Reports” has the meaning set forth in Section 3.1(g).
 
“Securities” has the meaning set forth in the Preamble.
 
“Securities Act” has the meaning set forth in the Preamble.
 
“Shares” means shares of Common Stock.
 
“Short Sales” has the meaning set forth in Section 3.2(h).
 
“Subsidiary” means any direct or indirect subsidiary of the Company (which shall
include, without limitation, any Person in which the Company, directly or
indirectly, owns voting securities sufficient to elect at least a majority of
such Person’s Board of Directors or other governing body).
 
“Trading Day” means (a) any day on which the Common Stock is listed or quoted or
traded on its primary Trading Market, (b) if the Common Stock is not then listed
or quoted or traded on its primary Trading Market, the any date on which the
common Stock is listed or quoted or traded on any other Eligible Market (or any
respective successor thereto), or (c) if trading ceases to occur on any Eligible
Market (or any respective successor thereto), any Business Day.
 
“Trading Market” means The Nasdaq Global Market or any other Eligible Market or
any national securities exchange, market or trading or quotation facility on
which the Common Stock is then listed or quoted.
 
“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Warrants and the Transfer Agent Instructions.
 
“Transfer Agent” means Continental Stock Transfer & Trust Company or any
successor transfer agent for the Company.
 
“Transfer Agent Instructions” means, with respect to the Company, the
Irrevocable Transfer Agent Instructions, in the form of Exhibit E, executed by
the Company and delivered to and acknowledged in writing by the Transfer Agent.
 
“Warrants” has the meaning set forth in the Preamble.
 
“Warrant Shares” has the meaning set forth in the Preamble.
 
 
5

--------------------------------------------------------------------------------

 

ARTICLE II
PURCHASE AND SALE
 
2.1           Closing.  Subject to the terms and conditions set forth in this
Agreement, at the Closing the Company shall issue and sell to each Investor, and
each Investor shall, severally and not jointly, purchase from the Company, such
number of Common Shares and Warrants for the price set forth opposite such
Investor's name on Exhibit A hereto under the headings “Common Shares” and
“Warrants”.  The date and time of the Closing shall be 11:00 a.m., New York City
Time, on March 28, 2012, or such later date as mutually agreed to by the Company
and each Investor (the “Closing Date”).  The Closing shall take place at the
offices of the Company’s Counsel.
 
2.2           Closing Deliveries.
 
(a)           At the Closing, the Company shall deliver or cause to be delivered
to each Investor the following:
 
(i)             one or more stock certificates (or copies thereof provided by
the Transfer Agent, provided, that, the original stock certificates are
delivered to such Investor via overnight mail for next Business Day delivery),
containing the restrictive and other legends provided in Section 4.1(b) hereof,
evidencing such number of Common Shares set forth opposite such Investor’s name
on Exhibit A hereto under the heading “Common Shares,” registered in the name of
such Investor;
 
(ii)            a Warrant, issued in the name of such Investor, pursuant to
which such Investor shall have the right to acquire such number of Warrant
Shares set forth opposite such Investor’s name on Exhibit A hereto under the
heading “Warrant Shares”;
 
(iii)           a legal opinion of Company Counsel, in the form of Exhibit C,
executed by such counsel and delivered to the Investors.
 
(iv)          a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Closing Date, certifying (a) the resolutions
adopted by the Board of Directors of the Company or a duly authorized committee
thereof approving the transactions contemplated by this Agreement and the other
Transaction Documents and the issuance of the Securities, (b) the current
versions of the certificate of incorporation, as amended, and by-laws of the
Company and (c) as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company;
 
(v)           a certificate, dated as of the Closing Date and signed by its
Chief Executive Officer, certifying to the fulfillment of the conditions
specified in Sections 5.1(a) and (c); and
 
(vi)          a Lock-Up Agreement, substantially in the form of Exhibit G
hereto, executed by each of the officers and directors of the Company.
 
 
6

--------------------------------------------------------------------------------

 

(b)           At the Closing, each Investor shall deliver or cause to be
delivered to the Company the purchase price set forth opposite such Investor’s
name on Exhibit A hereto under the heading “Purchase Price” in United States
dollars and in immediately available funds, by wire transfer to an account
designated in writing to such Investor by the Company for such purpose.
 
ARTICLE III
REPRESENTATIONS AND WARRANTIES
 
3.1           Representations and Warranties of the Company.  Except as
disclosed in the corresponding section of the Schedules, which Schedules shall
be deemed a part hereof, the Company hereby represents and warrants to the
Investors and the Agent as follows:
 
(a)            Subsidiaries.  The Company has no Subsidiaries other than those
listed in Schedule 3.1(a) hereto.  Except as disclosed in Schedule 3.1(a)
hereto, the Company owns, directly or indirectly, all of the capital stock or
comparable equity interests of each Subsidiary free and clear of any Lien and
all the issued and outstanding shares of capital stock or comparable equity
interest of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights and were issued in full
compliance with applicable state and federal securities laws.
 
(b)            Organization and Qualification.  Each of the Company and the
Subsidiaries is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite corporate authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents.  Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
 
(c)            Authorization; Enforcement.  The Company has the requisite
corporate authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents to which it is a party and
otherwise to carry out its obligations hereunder and thereunder.  The execution
and delivery of each of the Transaction Documents to which it is a party by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including the issuance of the Securities and the Warrant Shares upon
exercise of the Warrants) have been duly authorized by all necessary corporate
action on the part of the Company and no further consent or action is required
by the Company, its Board of Directors or its stockholders.  Each of the
Transaction Documents to which it is a party has been (or upon delivery will be)
duly executed by the Company and is, or 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 as may be
limited by (i) applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting the enforcement of creditors
rights generally, and (ii) the effect of rules of law governing the availability
of specific performance and other equitable remedies.
 
 
7

--------------------------------------------------------------------------------

 

(d)            No Conflicts.  The execution, delivery and performance of the
Transaction Documents to which it is a party by the Company and the consummation
by the Company of the transactions contemplated hereby and thereby do not, and
will not, (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, (ii) conflict with, or constitute a default
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, credit facility, debt or other instrument or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound, or
affected, except to the extent that such conflict, default or rights would not
reasonably be expected to have a Material Adverse Effect, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including, assuming the accuracy of the representations
and warranties of the Investors set forth in Section 3.2 hereof, federal and
state securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company or a Subsidiary is bound or affected, except to the extent that such
violation would not reasonably be expected to have a Material Adverse Effect.
 
(e)            The Securities.  The Securities (including the Warrant Shares)
are duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens (other than those created by the
Investors) and will not be subject to preemptive or similar rights (“Preemptive
Rights”) of stockholders.  The Company has reserved from its duly authorized
capital stock the maximum number of shares of Common Stock issuable upon
exercise of the Warrants.  The offer, issuance and sale of the Shares, the
Warrants and the Warrant Shares to the Investors pursuant to this Agreement, and
in the case of the Warrant Shares, pursuant to the Warrants as of the date
hereof, are exempt from the registration requirements of the Securities Act.
 
(f)            Capitalization.  The aggregate number of shares and type of all
authorized, issued and outstanding classes of capital stock, options and other
securities of the Company (whether or not presently convertible into or
exercisable or exchangeable for shares of capital stock of the Company) is set
forth in Schedule 3.1(f) hereto.  All outstanding shares of capital stock are
duly authorized, validly issued, fully paid and nonassessable and have been
issued in compliance in all material respects with all applicable securities
laws.  Except as disclosed in Schedule 3.1(f) hereto, the Company does not have
outstanding as of the date hereof any other options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or entered into any agreement giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock, and neither the Company
nor any of its Subsidiaries is currently in negotiations for the issuance of any
equity securities of any kind (other than the issuance of the Securities to the
Investors).  Except as set forth on Schedule 3.1(f) hereto, no Person is
entitled to, or has, Preemptive Rights with respect to any securities of the
Company.  Except as set forth on Schedule 3.1(f) hereto, and except for
customary adjustments as a result of stock dividends, stock splits, combinations
of shares, reorganizations, recapitalizations, reclassifications or other
similar events, there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders).  The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Investors) and will not result in a right of any holder
of securities to adjust the exercise, conversion, exchange or reset price under
such securities.  There are no voting agreements, buy-sell agreements, option or
right of first purchase agreements or other agreements of any kind among the
Company and any of the securityholders of the Company relating to the securities
of the Company held by them.  To the knowledge of the Company, except as
disclosed in the SEC Reports and any Schedules filed with the SEC pursuant to
Rule 13d-1 of the Exchange Act by reporting persons or in Schedule 3.1(f)
hereto, no Person or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 under the Exchange Act), or has the right to acquire, by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the outstanding Common Stock.
 
 
8

--------------------------------------------------------------------------------

 

(g)            SEC Reports; Financial Statements.  Since December 31, 2010, the
Company has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof.  Such reports required to
be filed by the Company under the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, together with any materials filed or furnished by the
Company under the Exchange Act, whether or not any such reports were required
being collectively referred to herein as the “SEC Reports” and, together with
this Agreement and the Schedules to this Agreement, the “Disclosure
Materials”.  As of their respective dates, the SEC Reports filed by the Company
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed by the Company, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC 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, the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP or may be
condensed or summary statements, and fairly present in all material respects the
consolidated 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,
year-end audit adjustments.  All material agreements to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as part of or identified in the SEC Reports,
to the extent such agreements are required to be included or identified pursuant
to the rules and regulations of the SEC.
 
 
9

--------------------------------------------------------------------------------

 

(h)            Material Adverse Effect.  Since the date of its Quarterly Report
on Form 10-Q for the period ended September 30, 2011, except as disclosed in
Schedule 3.1(h) hereto (i) there has been no event, occurrence or development
that, individually or in the aggregate, has had or that would result in a
Material Adverse Effect, (ii) the Company has not incurred any material
liabilities other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company's financial statements pursuant to
GAAP or required to be disclosed in filings made with the SEC, (iii) the Company
has not altered its method of accounting or changed its auditors, except as
disclosed in Schedule 3.1(h) hereto, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its stockholders, in
their capacities as such, or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock (except for repurchases by
the Company of shares of capital stock held by employees, officers, directors,
or consultants pursuant to an option to repurchase such shares upon the
termination of employment or services), and (v) the Company has not issued any
equity securities to any officer, director or Affiliate, except pursuant to
current or previously existing Company stock-based plans.  Except for the
issuance of the Common Shares and Warrants contemplated by this Agreement and
except as disclosed on Schedule 3.1(h), no event, liability or development has
occurred or exists with respect to the Company or its Subsidiaries or their
respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws at
the time this representation is made that has not been publicly disclosed at
least one Trading Day prior to the date that this representation is made.
 
(i)             Absence of Litigation.  Except as disclosed in Schedule 3(i),
there is no (i) Proceeding which adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the Securities
or (ii) Proceeding or, to the Company’s knowledge, inquiry or investigation,
before or by any court, public board, government agency, or self-regulatory
organization pending or, to the knowledge of the Company, affecting the Company
or any of its Subsidiaries that could, individually or in the aggregate, have a
Material Adverse Effect.  During the past five (5) years, neither the Company
nor any Subsidiary, nor to the Company’s knowledge any director or officer
thereof, is or has been the subject of any Proceeding involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty.  There has not been, and to the Company’s knowledge
there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company.  During the
past five years, the SEC has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company under the
Exchange Act or the Securities Act.
 
(j)             Compliance.  Except as described in Schedule 3.1(j), 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 written 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
material statute, rule or regulation of any governmental authority, except in
the case of (i) and (iii) as would not, individually or in the aggregate, have
or reasonably be expected to have or result in a Material Adverse Effect.
 
 
10

--------------------------------------------------------------------------------

 

(k)            Title to Assets.  The Company and the Subsidiaries have good and
marketable title to all real property owned by them that is material to the
business of the Company and the Subsidiaries have 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 that do not, individually or in the aggregate, have or result in a
Material Adverse Effect.  To the Company’s knowledge, any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid and subsisting leases of which the Company and the Subsidiaries are
in material compliance.
 
(l)             No General Solicitation; Placement Agent's Fees.  Neither the
Company, nor any of its Affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities.  The Company shall be responsible for the payment of any placement
agent’s fees, financial advisory fees, or brokers’ commission (other than for
persons engaged by any Investor or its investment advisor) relating to or
arising out of the issuance of the Securities pursuant to this Agreement.  The
Company acknowledges that it has engaged First Analysis Securities Corp. as its
exclusive placement agent (the “Agent”) in connection with the sale of the
Securities.  Other than the Agent and except as described in Schedule 3.1(l),
the Company has not engaged any placement agent or other agent in connection
with the sale of the Securities.
 
(m)           No Integration.  Neither the Company nor any of its Affiliates
nor, any Person acting on the Company’s behalf has, directly or indirectly, at
any time within the past six months, made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale by the Company of
the Securities as contemplated hereby or (ii) cause the offering of the
Securities pursuant to the Transaction Documents to be integrated with prior
offerings by the Company for purposes of any applicable law, regulator or
stockholder approval provisions, including, without limitation, under the rules
and regulations of any Trading Market.
 
(n)            Investment Company Act. The Company is not required to be
registered as, and is not an Affiliate of, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.  The Company shall
conduct its business in a manner so that it will not become subject to the
Investment Company Act of 1940, as amended.  The Company is not required to be
registered as, a United States real property holding corporation within the
meaning of the Foreign Investment in Real Property Tax Act of 1980.
 
 
11

--------------------------------------------------------------------------------

 

(o)            Private Placement. Assuming the accuracy of the representations
and warranties of the Investors contained in Section 3.2 of this Agreement and
the compliance by the Investors with the provisions set forth herein, it is not
necessary, in connection with the issuance and sale of any Securities, in the
manner contemplated by the Transaction Documents, to register any Securities
under the Securities Act.
 
(p)            Listing and Maintenance Requirements.  The Company’s Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to terminate the registration of the Common
Stock under the Exchange Act, nor has the Company received any notification that
the Commission is contemplating terminating such registration.  The Company has
not, in the twelve months preceding the date hereof, received written notice
from any Trading Market on which the Common Stock is or has been listed or
quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market.
 
(q)            Registration Rights.  The Company has not granted or agreed to
grant to any Person any rights (including “piggy-back” registration rights) to
have any securities of the Company registered with the SEC or any other
governmental authority that have not been satisfied or waived.
 
(r)            Application of Takeover Protections.  The Company and the Board
of Directors of the Company have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other simila  r
anti-takeover provision under the Company’s charter documents or the laws of its
state of incorporation that is or could become applicable to any of the
Investors as a result of the Investors and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company’s issuance of the
Securities and the Investors’ ownership of the Securities.
 
(s)            Disclosure.  Except as provided in Schedule 3.1(s), the Company
confirms that it has not provided, and none of its officers or directors nor, to
the Company’s knowledge, any other Person acting on its or their behalf has
provided, and it has not authorized the Agent to provide, any Investor or its
respective agents or counsel with any information that it believes constitutes
material, non-public information except insofar as the existence, provisions and
terms of the Transaction Documents and the proposed transactions hereunder may
constitute such information, all of which will be disclosed by the Company in
the Press Release as contemplated by Section 4.5 hereof.  The Company
understands and confirms that each of the Investors will rely on the foregoing
representations in effecting transactions in securities of the Company.  All
disclosure provided by the Company to the Investors regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to
this Agreement, furnished by or on the behalf of the Company are true and
correct in all material respects and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.  Each press release issued by the Company or any of its
Subsidiaries during the twelve (12) months preceding the date of this Agreement
did not at the time of release 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 the light of the circumstances under
which they were made, not misleading.  No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.  The Company acknowledges and agrees that no Investor makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those set forth in Section 3.2 of this Agreement.
 
 
12

--------------------------------------------------------------------------------

 

(t)             Acknowledgment Regarding Investors' Purchase of Securities.  The
Company acknowledges and agrees that each of the Investors is acting solely in
the capacity of an arm's length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby.  The Company
further acknowledges that no Investor is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by any
Investor or any of their respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Investors’ purchase of the Securities.  The Company
further represents to each Investor that the Company’s decision to enter into
this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.
 
(u)            Patents and Trademarks.  The Company and its Subsidiaries own, or
possess or could obtain on commercially reasonably terms adequate rights or
licenses to use, all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent applications, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets, know-how and other intellectual property rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses as currently
conducted.  Except as set forth in Schedule 3.1(u), none of the Company nor any
of its Subsidiaries has received a notice (written or otherwise) or has any
other knowledge that any of the Intellectual Property Rights used by the Company
or any Subsidiary violates or infringes upon the patent, trademark, copyright,
trade secret or other proprietary rights of any Person. Except as set forth in
Schedule 3.1(u), none of the Company’s Intellectual Property Rights have expired
or terminated, or are expected to expire or terminate, within three years from
the date of this Agreement.  Except as disclosed in Schedule 3(u), there is no
Proceeding pending or, to the Company’s knowledge, threatened by any Person (i)
claiming that the Company’s or any Subsidiary’s business as now conducted
infringes or otherwise violates the Intellectual Property Rights of any other
Person or (ii) challenging the Company’s or any Subsidiary’s rights in or to any
of its material Intellectual Property Rights, or challenging inventorship,
validity or scope of any of such Intellectual Property Rights.  To the Company’s
knowledge, there is no existing infringement by another Person of any of the
Intellectual Property Rights that would have or would reasonably be expected to
result in a Material Adverse Effect.  The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all of its and its
Subsidiaries’ Intellectual Property Rights, except where failure to do so would
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. None of the technology employed by the Company or any
of its Subsidiaries has been obtained or is being used by the Company or any
Subsidiary in violation of any contractual obligation binding on the Company or
any Subsidiary or, to the Company’s knowledge, any of its or its Subsidiaries’
officers, directors or employees or otherwise in violation of the rights of any
Person, which violation would have or would reasonably be expected to have a
Material Adverse Effect.
 
 
13

--------------------------------------------------------------------------------

 

(v)            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 and location
in which the Company and the Subsidiaries are engaged.  None of the Company or
any of its Subsidiaries has received any notice of cancellation of any such
insurance, nor, to the Company’s knowledge, will it or any Subsidiary be unable
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 material increase in cost.
 
(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 as described in the SEC Reports (“Material Permits”),
except where the failure to possess such permits does not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, and neither the Company nor any Subsidiary has received any written
notice of proceedings relating to the revocation or modification of any Material
Permit.
 
(x)            Transactions With Affiliates.  Except as set forth or
incorporated by reference in the Company’s SEC Reports or as described in
Schedule 3.1(x), none of the officers or directors of the Company is presently a
party to any transaction that would be required to be disclosed pursuant to Item
404 of Regulation S-K with the Company or any of its Subsidiaries (other than
for ordinary course services as officers or 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 such officer or director or, to the Company's
knowledge, any corporation, partnership, trust or other entity in which any such
officer or director has a substantial interest or is an officer, director,
trustee or partner.
 
(y)            Internal Accounting Controls.  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
generally accepted accounting principles 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.
 
 
14

--------------------------------------------------------------------------------

 

(z)             Sarbanes-Oxley Act. The Company is in compliance in all material
respects with applicable requirements of the Sarbanes-Oxley Act of 2002 and
applicable rules and regulations promulgated by the SEC thereunder.
 
(aa)           Foreign Corrupt Practices.  Neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company, any director, officer, agent,
employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
 
(bb)          Indebtedness.  Except as disclosed in Schedule 3.1(bb), neither
the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as
defined below) or (ii) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company's officers, has or is expected to have a Material Adverse Effect.  For
purposes of this Agreement:  (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; (y) “Contingent Obligation” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto; and
(z) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
 
 
15

--------------------------------------------------------------------------------

 

(cc)           Labor Matters.  The Company and its Subsidiaries are in
compliance in all material respects with all federal, state, local and foreign
laws and regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect.
 
(dd)          Environmental Laws.  To the Company’s knowledge, the Company and
its Subsidiaries (i) are in compliance in all material respects with any and all
Environmental Laws (as hereinafter defined) and are not subject to any claim
relating to any Environmental Laws, (ii) have received the permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance in all material respects
with all terms and conditions of any such permit, license or approval where, in
each of the foregoing clauses (i), (ii) and (iii), the failure to so comply
would be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.  The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
 
(ee)           Tax Status.  The Company and each of its Subsidiaries (i) has
accurately and timely prepared and filed all foreign, federal and state income
and all other material tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith with respect to which adequate reserves have been
set aside on the books of the Company and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations
apply.  There are no unpaid taxes in any material amount claimed to be due by
the Company or any Subsidiary by the taxing authority of any jurisdiction, and
the officers of the Company know of no basis for any such claim.
 
(ff)           Disclosure Controls and Procedures.  The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-15 of
the General Rules and Regulations under the Exchange Act) that comply with the
requirements of the Exchange Act; such disclosure controls and procedures have
been designed to ensure that information required to be disclosed by the Company
and its Subsidiaries is accumulated and communicated to the Company’s
management, including the Company’s principal executive officer and principal
financial officer by others within those entities, such disclosure controls and
procedures are effective.
 
 
16

--------------------------------------------------------------------------------

 

(gg)          Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Company, any Subsidiary and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in the SEC Reports and is not so disclosed.
 
(hh)          Regulation M Compliance. The Company has not, and to the Company’s
Knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for or purchased, or paid any compensation
for soliciting purchases of, any of the Securities in violation of Regulation M
under the Exchange Act, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation paid to
the Agent in connection with the placement of the Securities.
 
(ii)            Eligibility for Registration.  The Company is eligible to use
Form S-3 promulgated under the Securities Act.
 
(jj)            Acknowledgement Regarding Investors’ Trading Activity.  The
Company acknowledges and agrees that (i) none of the Investors has been asked to
agree, nor has any Investor agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any specified
term on or after the public announcement of this transaction; (ii) any Investor,
and counter-parties in "derivative" transactions to which any such Investor is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock in accordance with applicable law, and (iii) each Investor shall
not be deemed to have any affiliation with or control over any arm's length
counter-party in any "derivative" transaction.  The Company further understands
and acknowledges that (a) one or more Investors may engage in hedging and/or
trading activities at various times during the period that the Securities are
outstanding and (b) such hedging and/or trading activities, if any, can reduce
the value of the existing stockholders' equity interest in the Company both at
and after the time the hedging and/or trading activities are being
conducted.  The Company acknowledges that such aforementioned hedging and/or
trading activities do not constitute a breach of this Agreement or any of the
documents executed in connection herewith.
 
(kk)          Shell Company Status.  The Company is not, and has never been, an
issuer identified in Rule 144(i)(1) under the Securities Act.
 
(ll)            No Disagreements with Accountants and Lawyers.  There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers which could affect the
Company’s ability to perform any of its obligations under any of the Transaction
Documents.
 
 
17

--------------------------------------------------------------------------------

 

3.2           Representations, Warranties and Covenants of the Investors.  Each
Investor hereby, as to itself only and for no other Investor, represents and
warrants to the Company and the Agent as follows:
 
(a)            Organization; Authority.  If such Investor is an entity, such
Investor is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite
corporate, partnership or other power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder.  If such
Investor is an entity, the purchase by such Investor of the Securities hereunder
has been duly authorized by all necessary corporate, partnership or other action
on the part of such Investor.  This Agreement has been duly executed and
delivered by such Investor and constitutes the valid and binding obligation of
such Investor, enforceable against it in accordance with its terms, except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors rights generally, and (ii) the effect of rules of law governing the
availability of specific performance and other equitable remedies.
 
(b)            No Public Sale or Distribution.  Such Investor is (i) acquiring
the Common Shares and the Warrants and (ii) upon exercise of the Warrants will
acquire the Warrant Shares issuable upon exercise thereof, in the ordinary
course of business for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered under the Securities Act or under an exemption from
such registration and in compliance with applicable federal and state securities
laws, and such Investor does not have a present arrangement to effect any
distribution of the Securities to or through any person or
entity.  Notwithstanding the foregoing, by making the representations herein,
such Investor does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any
time in accordance with or pursuant to a registration statement or an exemption
under the Securities Act.
 
(c)            Investor Status.  At the time such Investor was offered the
Securities, it was, and at the date hereof it is, either (A) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act or (B)
an “accredited investor” as defined in Rule 501 under the Securities Act.  Such
Investor is not a registered broker dealer registered under Section 15(a) of the
Exchange Act, or a member of FINRA or an entity engaged in the business of being
a broker dealer.  Except as otherwise disclosed in writing to the Company on
Exhibit B-2 (attached hereto) on or prior to the date of this Agreement, such
Investor is not affiliated with any broker dealer registered under Section 15(a)
of the Exchange Act, or a member of the FINRA or an entity engaged in the
business of being a broker dealer.
 
 
18

--------------------------------------------------------------------------------

 

(d)            Experience of Such Investor.  Such Investor, either alone or
together with its representatives has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.  Such Investor understands
that it must bear the economic risk of this investment in the Securities
indefinitely, and is able to bear such risk and is able to afford a complete
loss of such investment.
 
(e)            Access to Information.  Such Investor acknowledges that it has
reviewed the Disclosure Materials and has been afforded:  (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information (other than material non-public
information) about the Company and the Subsidiaries and their respective
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment.  Neither such
inquiries nor any other investigation conducted by or on behalf of such Investor
or its representatives or counsel shall modify, amend or affect such Investor’s
right to rely on the truth, accuracy and completeness of the Disclosure
Materials and the Company’s representations and warranties contained in the
Transaction Documents.  Such Investor acknowledges that it has obtained copies
of the SEC Reports through the SEC’s EDGAR database.
 
(f)             No Governmental Review.  Such Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
 
(g)            No Conflicts.  The execution, delivery and performance by such
Investor of this Agreement and the consummation by such Investor of the
transactions contemplated hereby will not (i) result in a violation of the
organizational documents of such Investor or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
such Investor is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws) applicable to such Investor, except in the case of clauses (ii) and (iii)
above, for such that are not material and do not otherwise affect the ability of
such Investor to consummate the transactions contemplated hereby.
 
(h)            Prohibited Transactions.  Such Investor has not, directly or
indirectly, and no Person acting on behalf of or pursuant to any understanding
with such Investor, has engaged in any purchases or sales of any securities,
including any derivatives, of the Company (including, without limitation, any
Short Sales involving any of the Company’s securities) (a “Transaction”) since
the time that such Investor was first contacted by the Company, the Agent or any
other Person regarding the investment in the Company contemplated hereby.  Such
Investor covenants that neither it nor any Person acting on its behalf or
pursuant to any understanding with such Investor will engage, directly or
indirectly, in any Transactions prior to the time the transactions contemplated
by this Agreement are publicly disclosed.  “Short Sales” include, without
limitation, all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, short sales, swaps,
derivatives and similar arrangements (including on a total return basis), and
sales and other transactions through non-U.S. broker-dealers or foreign
regulated brokers.
 
 
19

--------------------------------------------------------------------------------

 

(i)             Restricted Securities.  The Investors understand that the
Securities are characterized as “restricted securities” under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances.
 
(j)             Legends.  It is understood that, except as provided in Section
4.1(b) of this Agreement, certificates evidencing such Securities may bear the
legend set forth in Section 4.1(b)
 
(k)            No Legal, Tax or Investment Advice.  Such Investor understands
that nothing in this Agreement or any other materials presented by or on behalf
of the Company to the Investor in connection with the purchase of the Securities
constitutes legal, tax or investment advice.  Such Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in con­nection with its purchase of the
Securities.  Such Investor understands that the Agent has acted solely as the
agent of the Company in this placement of the Securities, and that the Agent
makes no representation or warranty with regard to the merits of this
transaction or as to the accuracy of any information such Investor may have
received in connection therewith.  Such Investor acknowledges that he has not
relied on any information or advice furnished by or on behalf of the Agent.
 
(l)             Brokers or Finders.  Such Investor has not engaged any brokers,
finders or agents, and neither the Company nor any Investor has, nor will,
incur, directly or indirectly, as a result of any action taken by each Investor,
any liability for brokerage or finders’ fees or agents’ commissions or any
similar charges in connection with the Transaction Documents.
 
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
 
4.1           Transfer Restrictions.
 
(a)            Each Investor, severally but not jointly, covenants that the
Securities will only be disposed of pursuant to an effective registration
statement under, and in compliance with the requirements of, the Securities Act
or pursuant to an available exemption from the registration requirements of the
Securities Act, and in each case in compliance with any applicable state
securities laws.  In connection with any transfer of Securities other than (i)
pursuant to an effective registration statement (ii) to the Company, (iii)
pursuant to Rule 144 (provided that the Investor provides the Company with
reasonable assurances (in the form of seller and, if applicable, broker
representation letters)) that the securities may be sold pursuant to such rule),
(iv) in connection with a bona fide pledge as contemplated in the second
paragraph of this Section 4.1(a) in accordance with U.S. federal and state
securities laws), or (v) a partnership transferring to its partners or former
partners in accordance with partnership interests or a limited liability company
transferring to its members or former members in accordance with their interest
in the limited liability company, the Company may require the transferor to
provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration under
the Securities Act.  Notwithstanding the foregoing, the Company hereby consents
to and agrees to register on the books of the Company and with its Transfer
Agent, without any such legal opinion, except to the extent that the Transfer
Agent requests such legal opinion, any transfer of Securities by an Investor to
an Affiliate of such Investor, provided that the transferee certifies to the
Company that it is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and provided that such Affiliate does not request any removal of
any existing legends on any certificate evidencing the Securities.
 
 
20

--------------------------------------------------------------------------------

 

The Company acknowledges and agrees that an Investor may from time to time
pledge, and/or grant a security interest in, some or all of the legended
Securities, pursuant to a bona fide margin agreement in compliance with a bona
fide margin loan in accordance with U.S. federal and state securities
laws.  Such a pledge would not be subject to approval or consent of the Company
and no legal opinion of legal counsel to the pledgee, secured party or pledgor
shall be required in connection with the pledge, but such legal opinion shall be
required in connection with a subsequent transfer or foreclosure following
default by the Investor transferee of the pledge.  No notice shall be required
of such pledge, but Investor’s transferee shall promptly notify the Company of
any such subsequent transfer or foreclosure of such legended Securities.  Each
Investor acknowledges that the Company shall not be responsible for any pledges
relating to, or the grant of any security interest in, any of the Securities or
for any agreement, understanding or arrangement between any Investor and its
pledgee or secured party.  At the appropriate Investor’s expense, the Company
will execute and deliver such reasonable documentation as a pledgee or secured
party of Securities may reasonably request in connection with a pledge or
transfer of the Securities, including the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.  Each Investor acknowledges and agrees that,
except as otherwise provided in Section 4.1(b), any Securities subject to a
pledge or security interest as contemplated by this Section 4.1(a) shall
continue to bear the legend set forth in Section 4.1(b) and be subject to the
restrictions on transfer set forth herein.
 
(b)           Each Investor, severally but not jointly, agrees to the
imprinting, so long as is required by this Section 4.1(b), of the following
legend on any certificate evidencing any of the Securities:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.
 
 
21

--------------------------------------------------------------------------------

 

Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) at such time as such Securities are registered pursuant
to an effective registration statement (including the Registration Statement)
covering the resale of the Securities (provided that, if an Investor is selling
pursuant to the Registration Statement, such Investor agrees to only sell such
Registrable Securities during such time that the Registration Statement is
effective and not withdrawn or suspended), (ii) following any sale of such
Securities pursuant to Rule 144 (if the transferor is not an Affiliate of the
Company), (iii) at such time as such Securities are eligible for sale under Rule
144, without the requirement for the Company to be in compliance with the
current public information required under Rule 144 as to such securities and
without volume or manner-of-sale restrictions, or (iv) if the holder provides
the Company with a legal opinion (and the documents upon which the legal opinion
is based) reasonably acceptable to the Company to the effect that the legend is
not required under applicable requirements of the Securities Act (including
controlling judicial interpretations and pronouncements issued by the Staff of
the SEC).  The Company shall cause its counsel to issue the notice included in
the Transfer Agent Instructions to the Transfer Agent on the earlier of (i) the
Effective Date or (ii) Rule 144 becoming available for the resale of Securities,
without the requirement for the Company to be in compliance with the current
public information required under Rule 144 as to such securities and without
volume or manner-of-sale restrictions.  Any fees (with respect to the Transfer
Agent or otherwise) associated with the removal of such legend shall be borne by
the Company.

Following the Effective Date or at such earlier time as a legend is no longer
required for certain Securities (in which case an Investor shall also be
required to provide reasonable assurances (in the form of seller and, if
applicable, broker representation letters), the Company will no later than three
Trading Days following the delivery by an Investor to the Company or the
Transfer Agent of (i) a legended certificate representing such Securities or
(ii) an Exercise Notice and payment of the applicable exercise price in the
manner stated in the Warrants to effect the exercise of such Warrant in
accordance with its terms, and an opinion of counsel to the extent required by
Section 4.1(a), deliver or cause to be delivered to such Investor a certificate
representing such Securities that is free from all restrictive and other
legends.  The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer set
forth in this Section.
 
 
22

--------------------------------------------------------------------------------

 

If within three Trading Days after the Company’s receipt of a legended
certificate and the other documents as specified in the paragraph immediately
above (the “Deadline Date”), the Company shall fail to issue and deliver to such
Investor a certificate representing such Securities that is free from all
restrictive and other legends, and if on or after such Trading Day the Investor
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Investor of shares of Common Stock that
the Investor anticipated receiving from the Company without any restrictive
legend (the “Covering Shares”), then in addition to all other remedies available
to such Investor, the Company shall, within three Trading Days after such
Investor’s request and in such Investor’s sole discretion, either (i) pay cash
to such Investor in an amount equal to such Investor’s total purchase price
(including brokerage commissions, if any) for the Covering Shares, at which
point the shares of Common Stock held by such Investor equal to the number of
Covering Shares shall be forfeited to the Company and the Company’s obligation
to deliver such certificate (and to issue such shares of Common Stock) shall
terminate or (ii) promptly honor its obligation to deliver to such Investor a
certificate or certificates representing such shares of Common Stock and pay
cash to such Investor in an amount equal to the excess (if any) of the
Investor’s total purchase price (including brokerage commissions, if any) for
the Covering Shares, over the product of (A) the number of Covering Shares,
times (B) the closing bid price on the Deadline Date.
 
4.2            Furnishing of Information.  While any of the Warrants remain
outstanding, the Company covenants to use its reasonable best efforts to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act.  The Company further covenants that it will
take such further action as any holder of Securities may reasonably request to
satisfy the provisions of this Section 4.2.
 
4.3            Integration.  The Company shall not, and shall use its reasonable
best efforts to ensure that no Affiliate thereof shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investors or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market.
 
4.4            Reservation of Securities.  The Company shall at all times
maintain a reserve from its duly authorized shares of Common Stock for issuance
pursuant to the Transaction Documents in such amount as may be required to
fulfill its obligations to issue such Common Shares and Warrant Shares under the
Transaction Documents.  In the event that at any time the then authorized shares
of Common Stock are insufficient for the Company to satisfy its obligations to
issue such Common Shares and Warrant Shares under the Transaction Documents, the
Company shall use reasonable best efforts to take such actions as may be
required to increase the number of authorized shares.
 
 
23

--------------------------------------------------------------------------------

 

4.5            Securities Laws Disclosure; Publicity.  The Company shall, on or
before 8:30 a.m., New York time, on the first Trading Day following execution of
this Agreement, issue a press release (the “Press Release”) disclosing all
material terms of the transactions contemplated hereby.  On the Closing Date,
the Company shall file a Current Report on Form 8-K with the SEC (the “8-K
Filing”) describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to the 8-K Filing the
Transaction Documents and the form of Warrant, in the form required by the
Exchange Act.  Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor or an Affiliate of any Investor, or include
the name of any Investor or an Affiliate of any Investor in any press release or
filing with the SEC (other than the Registration Statement) or any regulatory
agency or Trading Market, without the prior written consent of such Investor,
except (i) as required by federal securities law in connection with (A) any
Registration Statement contemplated by this Agreement and (B) the filing of
final Transaction Documents (including signature pages thereto) with the SEC,
(ii) to the extent such disclosure is required by law, request of the Staff of
the SEC or Trading Market regulations, in which case the Company shall provide
the Investors with prior written notice of such disclosure permitted under this
subclause (ii), or (iii) as otherwise required by applicable law.  The Press
Release shall not specify the name of any particular Investor including, without
limitation, the name of the Lead Investor.  From and after the issuance of the
Press Release, no Investor shall be in possession of any material, non-public
information received from the Company or any of its officers, directors,
employees or agents, that is not disclosed in the Press Release unless an
Investor shall have executed a written agreement regarding the confidentiality
and use of such information.
 
4.6            Use of Proceeds.  The Company intends to use the net proceeds
from the sale of the Securities for working capital and general corporate
purposes.  The Company also may use a portion of the net proceeds, currently
intended for general corporate purposes, to acquire or invest in technologies,
products or services that complement its business, although the Company has no
present plans or commitments and is not currently engaged in any material
negotiations with respect to these types of transactions.  Pending these uses,
the Company intends to invest the net proceeds from this offering in short-term,
interest-bearing, investment-grade securities, or as otherwise pursuant to the
Company's customary investment policies.
 
4.7            Listing of Common Stock.  The Company shall promptly secure the
listing of all of the Registrable Securities upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is
then listed (subject to official notice of issuance) and shall maintain such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents.   The Company hereby agrees to use reasonable best
efforts to maintain the listing of the Common Stock on the Nasdaq Global Market
or another Eligible Market.  Neither the Company nor any of its Subsidiaries
shall take any action which would be reasonably expected to result in the
delisting or suspension of the Common Stock on the Trading Market.  The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section 4.7.
 
4.8            Form D; Blue Sky Filings.  The Company agrees to timely file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof, promptly upon request of any Investor. The Company shall
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for, or to qualify the Securities for, sale to the
Investors at the Closing under applicable securities or “Blue Sky” laws of the
states of the United States, and shall provide evidence of such actions promptly
upon request of any Investor.
 
 
24

--------------------------------------------------------------------------------

 

4.9            Covenant Regarding No Offerings.  For a period (the “Lock-Up
Period”) from the later of 120 days after the Closing Date or thirty (30) days
from the effective date of the Registration Statement (provided, however, such
thirty (30) day period shall be extended for the number of Trading Days during
such period (a) in which trading in the Common Stock is suspended by any Trading
Market or (b) that the Registration Statement is not effective or the prospectus
included in the Registration Statement may not be used by the Investors for the
resale of the Common Shares and the Warrant Shares), provided that such Lock-Up
Period shall in no event exceed six (6) months from the Closing Date, the
Company shall refrain from selling, contracting to sell or otherwise disposing
of or issuing any securities of the Company, except (i) in connection with the
Company’s stock and option plans; (ii) upon exercise of the Warrants; (iii) in
connection with any acquisition by the Company, whether through an acquisition
of stock or a merger of any business, assets or technologies the primary purpose
of which is not to raise equity capital; (iv) in connection with any other
strategic transaction or alliance the primary purpose of which is not to raise
equity capital; and (v) upon conversion or exercise of any Options or
Convertible Securities which are outstanding on the date hereof so long as the
terms of such Options or Convertible Securities are not amended or modified in
any manner on or after the date hereof.
 
4.10          Indemnification of Investors.  Subject to the provisions of this
Section 4.10, the Company will indemnify and hold each Investor and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Investor (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Investor Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Investor Party may suffer or incur
(“Investor Indemnified Liabilities”) as a result of or relating to (a) any
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in the other Transaction Documents or (b)
any action instituted against a Investor in any capacity, or any Investor Party
or their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Investor seeking indemnification, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of such Investor’s representations, warranties or covenants
under the Transaction Documents or any agreements or understandings such
Investor may have with any such stockholder or any violations by the Investor of
state or federal securities laws or any conduct by such Investor which
constitutes fraud, gross negligence, willful misconduct or malfeasance).  To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Investor Indemnified Liabilities which is
permissible under applicable law.  Promptly after receipt by any such Investor
Party of notice of any demand, claim or circumstances which would or might give
rise to a claim or the commencement of any action, proceeding or investigation
in respect of which indemnity may be sought pursuant to this Section 4.10, such
Investor Party shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Investor Party, and shall assume the payment of all fees
and expenses relating to such action, proceeding or investigation;  provided,
however, that the failure of any Investor Party so to notify the Company shall
not relieve the Company of its obligations hereunder except to the extent that
the Company is actually and materially prejudiced by such failure to notify. In
any such proceeding, any Investor Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Investor Party unless: (i) the Company and the Investor Party shall have
mutually agreed to the retention of such counsel; (ii) the Company shall have
failed promptly to assume the defense of such proceeding and to employ counsel
reasonably satisfactory to such Investor Party in such proceeding; or (iii) in
the reasonable judgment of counsel to such Investor Party, representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Company shall not be liable for
any settlement of any proceeding effected without its written consent, which
consent shall not be unreasonably withheld, delayed or conditioned. Without the
prior written consent of the Investor Party, which consent shall not be
unreasonably withheld, delayed or conditioned, the Company shall not effect any
settlement of any pending or threatened proceeding in respect of which any
Investor Party is or could have been a party and indemnity could have been
sought hereunder by such Investor Party, unless such settlement includes an
unconditional release of such Investor Party from all liability arising out of
such proceeding.
 
 
25

--------------------------------------------------------------------------------

 

4.11           Equal Treatment of Investors.  No consideration shall be offered
or paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents.  For
clarification purposes, this provision constitutes a separate right granted to
each Investor by the Company and negotiated separately by each Investor, and is
intended for the Company to treat the Investors as a class and shall not in any
way be construed as the Investors acting in concert or as a group with respect
to the purchase, disposition or voting of Securities or otherwise.
 
ARTICLE V
CONDITIONS
 
5.1           Conditions Precedent to the Obligations of the Investors.  The
obligation of each Investor to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Investor, at or before the Closing, of each
of the following conditions:
 
 
26

--------------------------------------------------------------------------------

 

(a)            Representations and Warranties.  The representations and
warranties of the Company contained herein shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing as
though made on and as of such date;
 
(b)            Closing Deliveries.  The Company shall have delivered or caused
to be delivered to the Investors the Closing Deliveries specified in Section
2.2(a);
 
(c)            Performance.  The Company and each other Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by it at or prior to the Closing, or shall have
received waivers of such covenants, agreements or conditions prior to the
Closing; and
 
(d)            Common Stock.  The Common Stock shall be authorized for quotation
or trading on the Trading Market, trading in the Common Stock shall not have
been suspended for any reason, and all the Common Shares and Warrant Shares
shall be approved for listing or trading on the Trading Market.
 
(e)            No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
 
(f)             Consents.  The Company shall have obtained in a timely fashion
any and all consents, permits, approvals, registrations and waivers necessary
for consummation of the purchase and sale of the Securities, all of which shall
be and remain so long as necessary in full force and effect.
 
(g)            Listing.  The Company shall have filed a Notification: Listing of
Additional Shares with the NASDAQ Global Market with respect to the Shares and
the Warrant Shares.
 
(h)            No Suspensions of Trading in Common Stock.  The Common Stock
shall not have been suspended by the SEC or the Trading Market from trading on
the Trading Market nor shall such suspension have been threatened by the
Commission or the Trading Market.
 
5.2           Conditions Precedent to the Obligations of the Company.  The
obligation of the Company to sell the Securities at the Closing is subject to
the satisfaction or waiver by the Company, at or before the Closing, of each of
the following conditions:
 
(a)            Representations and Warranties.  The representations and
warranties of the Investors contained herein shall be true and correct in all
material respects (except for those representations and warranties that are
qualified by materiality or Material Adverse Effect, which shall be true and
correct in all respects) as of the date when made and as of the Closing Date as
though made on and as of such date;
 
 
27

--------------------------------------------------------------------------------

 

(b)           Closing Deliveries.  Each Investor shall have delivered or caused
to be delivered to the Company the Closing deliveries specified in Section
2.2(b); and
 
(c)           Performance.  The Investors shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Investors at or prior to the Closing.
 
ARTICLE VI
REGISTRATION RIGHTS
 
6.1           Registration Statement.
 
(a)           On or prior to the Filing Date, the Company shall prepare and file
with the SEC a Registration Statement covering the resale of all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415.  The Registration Statement shall be on Form S-3 (except if the Company is
not then eligible to register for resale the Registrable Securities on Form S-3,
in which case such registration shall be on another appropriate form in
accordance with the Securities Act and the Exchange Act) and shall contain
(except if otherwise directed by the Investors or requested by the SEC) the Plan
of Distribution in substantially the form attached hereto as Exhibit D.
 
(b)           The Company shall use its reasonable best efforts to cause the
Registration Statement to be declared effective by the SEC as promptly as
possible after the filing thereof, but in any event prior to the Required
Effectiveness Date, and shall use its reasonable best efforts to keep the
Registration Statement continuously effective under the Securities Act until the
earlier of the date that all Common Shares and Warrant Shares covered by such
Registration Statement have been sold or can be sold publicly under Rule 144
without the requirement for the Company to be in compliance with the current
public information requirement thereunder and without volume or manner-of-sale
restrictions (the “Effectiveness Period”); provided that, upon notification by
the SEC that a Registration Statement will not be reviewed or is no longer
subject to further review and comments, the Company shall request acceleration
of such Registration Statement within three (3) Trading Days after receipt of
such notice and request that it becomes effective on 4:00 p.m. New York City
time on the Effective Date and file a prospectus supplement for any Registration
Statement, whether or not required under Rule 424 (or otherwise), by 9:00 a.m.
New York City time the day after the Effective Date.  Notwithstanding the
foregoing, if the SEC, by written or oral comment or otherwise, informs the
Company that all of the Registrable Securities cannot, as a result of the
application of Rule 415, be registered for resale as a secondary offering on a
single Registration Statement, then the Company shall (i) promptly inform the
Investors thereof and use its commercially reasonable efforts to file amendments
to the initial Registration Statement as required by the SEC and/or (ii)
withdraw the initial Registration Statement and file a new Registration
Statement, in either case, covering the maximum number of Registrable Securities
permitted to be registered by the SEC on Form S-3 or such other form available
to register for resale the Registrable Securities as a secondary offering;
provided, however, that prior to filing such amendment to the initial
Registration Statement or new Registration the Company uses its commercially
reasonable efforts to advocate with the Commission for the registration of all
of the Registrable Securities in accordance with the SEC Guidance, including
without limitation, the Manual of Publicly Available Telephone Interpretations
D.29 and Compliance and Disclosure Interpretations.  The Company shall not be
deemed to be in default of its obligations under this Article VI as a result of
the limitation of the number of Registrable Securities in accordance with the
immediately preceding sentence (a “Rule 415 Event”). Any limitations on the
number of Registrable Securities pursuant to Rule 415 will be made pro rata to
each Investor.
 
 
28

--------------------------------------------------------------------------------

 

(c)           The Company shall notify the Investors in writing promptly (and in
any event within three Trading Days) after receiving notification from the SEC
that the Registration Statement has been declared effective.
 
(d)           Should an Event (as defined below) occur, then upon the occurrence
of such Event, and on every monthly anniversary thereof until the applicable
Event is cured, the Company shall pay to each Investor affected by such Event an
amount in cash, as liquidated damages and not as a penalty, equal to one percent
(1.0%) of (i) the number of Registrable Securities held by such Investor as of
the date of such Event, multiplied by (ii) the aggregate purchase price paid by
such Investor for such Registrable Securities; provided, however, that the total
amount of payments pursuant to this Section 6.1(d) shall not exceed, on a per
Investor basis, ten percent (10%) of the aggregate purchase price paid by such
Investor pursuant to this Agreement. The payments to which an Investor shall be
entitled pursuant to this Section 6.1(d) are referred to herein as “Event
Payments.”  Any Event Payments payable pursuant to the terms hereof shall apply
on a pro rated basis for any portion of a month prior to the cure of an
Event.  In the event the Company fails to make Event Payments in a timely
manner, such Event Payments shall bear interest at the rate of one and one-half
percent (1.5%) per month (prorated for partial months) until paid in full.  All
pro rated calculations made pursuant to this paragraph shall be based upon the
actual number of days in such pro rated month.
 
For such purposes, each of the following shall constitute an “Event”:

(i)            the Registration Statement is not filed on or prior to the Filing
Date or is not declared effective on or prior to the Required Effectiveness
Date; provided that a limitation on the number of Registrable Securities that
may be included in a Registration Statement as a result of a Rule 415 Event
shall not be deemed to constitute an Event with respect to those Registrable
Securities that are required to be excluded as a result of such Rule 415 Event;
 
(ii)           except as provided for in Section 6.1(e) (the “Excluded Events”),
after the Effective Date, an Investor is not permitted to sell Registrable
Securities under the Registration Statement (or a subsequent Registration
Statement filed in replacement thereof) for any reason (other than the fault of
such Investor) for five or more Trading Days (whether or not consecutive);
 
 
29

--------------------------------------------------------------------------------

 

(iii)          the Common Stock is not listed or quoted, or is suspended from
trading, on an Eligible Market for a period of three Trading Days (which need
not be consecutive Trading Days) during the Effectiveness Period;
 
(iv)          with respect to an Investor, the Company fails for any reason to
deliver a certificate evidencing any Securities to such Investor within five
Trading Days after delivery of such certificate is required pursuant to any
Transaction Document or the exercise rights of the Investors pursuant to the
Warrants are otherwise suspended for any reason; or
 
(v)          the Company fails to satisfy the current public information
requirement pursuant to Rule 144(c)(1) as a result of which the Investors who
are not Affiliates are unable to sell Registrable Securities without restriction
under Rule 144 (or any successor thereto).
 
The Company’s obligation to make an Event Payment under (ii) or (iv) of the
definition of Event above is only to the extent that the Investor is affected by
such Event.
 
(e)           Notwithstanding anything in this Agreement to the contrary, the
Company may, by written notice to the Investors, suspend sales under a
Registration Statement after the Effective Date thereof and/or require that the
Investors immediately cease the sale of shares of Common Stock pursuant thereto
and/or defer the filing of any subsequent Registration Statement if the Company
is engaged in a material merger, acquisition or sale and the Board of Directors
determines in good faith, by appropriate resolutions, that, as a result of such
activity, (A) it would be materially detrimental to the Company (other than as
relating solely to the price of the Common Stock) to maintain a Registration
Statement at such time or (B) it is in the best interests of the Company to
suspend sales under such registration at such time.  Upon receipt of such
notice, each Investor shall immediately discontinue any sales of Registrable
Securities pursuant to such registration until such Investor is advised in
writing by the Company that the current Prospectus or amended Prospectus, as
applicable, may be used.  In no event, however, shall this right be exercised to
suspend sales beyond the period during which (in the good faith determination of
the Company’s Board of Directors) the failure to require such suspension would
be materially detrimental to the Company.  The Company’s rights under this
Section 6.1(e) may be exercised for a period of no more than 10 Trading Days at
a time and no more than 30 Trading Days in any twelve-month period (and the
Company may not suspend the Registration Statement for a minimum of 5 Trading
Days following the end of any previous suspension of the Registration Statement
by the Company), without such suspension being considered as part of an Event
Payment determination.  Immediately after the end of any suspension period under
this Section 6.1(e), the Company shall take all necessary actions (including
filing any required supplemental prospectus) to restore the effectiveness of the
applicable Registration Statement and the ability of the Investors to publicly
resell their Registrable Securities pursuant to such effective Registration
Statement.
 
 
30

--------------------------------------------------------------------------------

 

6.2           Registration Procedures.  In connection with the Company’s
registration obligations hereunder, the Company shall:
 
(a)            Not less than three Trading Days prior to the filing of a
Registration Statement or any related Prospectus or any amendment or supplement
thereto, furnish via email to those Investors have requested the Company to
provide them copies of all such documents and who have supplied the Company with
email addresses, copies of all such documents proposed to be filed, which
documents (other than any document that is incorporated or deemed to be
incorporated by reference therein) will be subject to the review of such
Investors.  The Company shall reflect in each such document when so filed with
the SEC such comments regarding the Investors and the Plan of Distribution as
the Investors may reasonably and promptly request no later than two Trading Days
after the Investors have been so furnished with copies of such documents as
aforesaid.
 
(b)            (i) Subject to Section 6.1(e), prepare and file with the SEC such
amendments, including post-effective amendments, to each Registration Statement
and the Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective, as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the SEC such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within 15 Trading
Days (except to the extent that the Company reasonably requires additional time
to respond to accounting or Rule 415 comments), to any comments received from
the SEC with respect to the Registration Statement or any amendment thereto; and
(iv) comply in all material respects with the provisions of the Securities Act
and the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Investors thereof set
forth in the Registration Statement as so amended or in such Prospectus as so
supplemented.
 
(c)            Notify the Investors as promptly as reasonably possible, and (if
requested by the Investors) confirm such notice in writing no later than three
Trading Days thereafter, of any of the following events:  (i) the SEC notifies
the Company whether there will be a “review” of any Registration Statement; (ii)
the SEC comments in writing on any Registration Statement; (iii) any
Registration Statement or any post-effective amendment is declared effective;
(iv) the SEC or any other Federal or state governmental authority requests any
amendment or supplement to any Registration Statement or Prospectus or requests
additional information related thereto; (v) the SEC issues any stop order
suspending the effectiveness of any Registration Statement or initiates any
Proceedings for that purpose; (vi) the Company receives notice of any suspension
of the qualification or exemption from qualification of any Registrable
Securities for sale in any jurisdiction, or the initiation or threat of any
Proceeding for such purpose; or (vii) the financial statements included in any
Registration Statement become ineligible for inclusion therein or any
Registration Statement or Prospectus or other document contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
 
 
31

--------------------------------------------------------------------------------

 

(d)            Use its reasonable best efforts to avoid the issuance of or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
any Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as possible.
 
(e)            If requested by an Investor, provide such Investor and any
counsel selected by a majority of holders of the Securities (“Investor
Counsel”), without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the SEC.
 
(f)            Promptly deliver to each Investor, without charge, as many copies
of the Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Investors in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto to the extent permitted by federal and state
securities laws and regulations.
 
(g)            Prior to any public offering of Registrable Securities, use
reasonable best efforts to register or qualify or cooperate with the selling
Investors in connection with the registration or qualification (or exemption
from such registration or qualification) of such Registrable Securities for
offer and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any Investor requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective for so long as
required, but not to exceed the duration of the Effectiveness Period, and to do
any and all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
 
(h)            Cooperate with the Investors to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be delivered
to a transferee pursuant to a Registration Statement, which certificates shall
be free, to the extent permitted by this Agreement and under law, of all
restrictive legends.
 
(i)             Upon the occurrence of any event described in Section
6.2(c)(vii), promptly prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain 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,
in the light of the circumstances under which they were made, not misleading.
 
 
32

--------------------------------------------------------------------------------

 

(j)             Cooperate with any reasonable due diligence investigation
undertaken by the Investors in connection with the sale of Registrable
Securities, including, without limitation, by making available documents and
information; provided that the Company will not deliver or make available to any
Investor material, nonpublic information unless such Investor requests in
advance in writing to receive material, nonpublic information and agrees to keep
such information confidential.
 
(k)            It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of any particular Investor or to make any Event
Payments set forth in Section 6.1(d) to such Investor that such Investor furnish
to the Company the information specified in Exhibits B-1, B-2 and B-3 hereto and
such other information regarding itself, the Registrable Securities and other
shares of Common Stock held by it and the intended method of disposition of the
Registrable Securities held by it (if different from the Plan of Distribution
set forth on Exhibit D hereto) as shall be reasonably required to effect the
registration of such Registrable Securities and shall complete and execute such
documents in connection with such registration as the Company may reasonably
request.
 
(l)             The Company shall comply with all applicable rules and
regulations of the SEC under the Securities Act and the Exchange Act, including,
without limitation, Rule 172 under the Securities Act, file any final
Prospectus, including any supplement or amendment thereof, with the SEC pursuant
to Rule 424 under the Securities Act, promptly inform the Investors in writing
if, at any time during the Effectiveness Period, the Company does not satisfy
the conditions specified in Rule 172 and, as a result thereof, the Investors are
required to make available a Prospectus in connection with any disposition of
Registrable Securities and take such other actions as may be reasonably
necessary to facilitate the registration of the Registrable Securities
hereunder.
 
6.3           Registration Expenses.  The Company shall pay all fees and
expenses incident to the performance of or compliance with Article VI of this
Agreement by the Company, including without limitation (a) all registration and
filing fees and expenses, including without limitation those related to filings
with the SEC, any Trading Market, any required filing with FINRA by the Agent,
and in connection with applicable state securities or Blue Sky laws, (b)
printing expenses (including without limitation expenses of printing
certificates for Registrable Securities), (c) messenger, telephone and delivery
expenses, (d) fees and disbursements of counsel for the Company, (e) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, and (f) all
listing fees to be paid by the Company to the Trading Market.
 
 
33

--------------------------------------------------------------------------------

 

6.4           Indemnification
 
(a)            Indemnification by the Company.  In connection with its
registration obligations under this Article VI, the Company shall indemnify and
hold harmless each Investor, the officers, directors, partners, members, agents
and employees of each of them, each Person who controls any such Investor
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, partners, members, agents and
employees of each such controlling Person from and against any and all Losses,
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of Company prospectus or in any amendment or supplement
thereto used in connection with the resale of the Registrable Securities, or
arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto and
for the resale of such Registrable Securities, in the light of the circumstances
under which they were made) not misleading, except to the extent, but only to
the extent, that (A) such untrue statements, alleged untrue statements,
omissions or alleged omissions are based solely upon information regarding such
Investor furnished in writing to the Company by such Investor  for use therein,
or to the extent that such information relates to such Investor or such
Investor's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved by such Investor expressly for use in the
Registration Statement, or (B) with respect to any prospectus, if the untrue
statement or omission of material fact contained in such prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
if such corrected prospectus was timely made available by the Company to the
Investor, and the Investor seeking indemnity hereunder was advised in writing
not to use the incorrect prospectus prior to the use giving rise to Losses.
 
(b)            Indemnification by Investors.  Each Investor shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses arising
solely out of any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto used in connection with the resale of the
Registrable Securities, or arising out of or relating to any omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or supplement
thereto used in connection with the resale of the Registrable Securities, in the
light of the circumstances under which they were made) not misleading (i) to the
extent, but only to the extent, that such untrue statements or omissions are
based solely upon information regarding such Investor furnished to the Company
by such Investor in writing expressly for use therein, or (ii) to the extent
that such information relates to such Investor or such Investor’s proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved by such Investor expressly for use in the Registration Statement (it
being understood that the information provided by the Investor to the Company in
Exhibits B-1, B-2 and B-3 and the Plan of Distribution set forth on Exhibit D,
as the same may be modified by such Investor, constitutes information reviewed
and expressly approved by such Investor in writing expressly for use in the
Registration Statement), such Prospectus or such form of Prospectus or in any
amendment or supplement thereto.  In no event shall the liability of any selling
Investor hereunder be greater in amount than the dollar amount of the net
proceeds (after discounts and commissions but before expenses) received by such
Investor upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
 
 
34

--------------------------------------------------------------------------------

 

(c)            Conduct of Indemnification Proceedings.  If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except to the extent such failure shall have adversely prejudiced the
Indemnifying Party.
 
An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (i) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (iii) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and the reasonable fees and expenses of separate counsel shall be at the
expense of the Indemnifying Party).  It being understood, however, that the
Indemnifying Party shall not, in connection with any one such Proceeding
(including separate Proceedings that have been or will be consolidated before a
single judge) be liable for the fees and expenses of more than one separate firm
of attorneys at any time for all Indemnified Parties, which firm shall be
appointed by a majority of the Indemnified Parties.  The Indemnifying Party
shall not be liable for any settlement of any such Proceeding effected without
its written consent, which consent shall not be unreasonably withheld.  No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
 
(d)            Contribution.  If a claim for indemnification under Section
6.4(a) or  (b) is unavailable to an Indemnified Party (by reason of public
policy or otherwise), 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 Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 6.4(c),
any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
 
 
35

--------------------------------------------------------------------------------

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.4(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding
paragraph.  Notwithstanding the provisions of this Section 6.4(d), no Investor
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the net proceeds actually received by such Investor (after
discounts and commissions but before expenses) from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Investor has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.  No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
 
The indemnity and contribution agreements contained in this Section 6.4(d) are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
 
6.5            Dispositions.  Each Investor agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement and shall sell its Registrable Securities in accordance with the Plan
of Distribution set forth in the Prospectus.  Each Investor further agrees that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Sections 6.2(c)(v), (vi) or (vii), such Investor will
discontinue disposition of such Registrable Securities under the Registration
Statement until such Investor is advised in writing by the Company that the use
of the Prospectus, or amended Prospectus, as applicable, may be used.  The
Company may provide appropriate stop orders to enforce the provisions of this
paragraph.
 
6.6            No Piggyback on Registrations.  Neither the Company nor any of
its security holders (other than the Investors in such capacity pursuant hereto)
may include securities of the Company in the Registration Statement other than
the Registrable Securities.
 
 
36

--------------------------------------------------------------------------------

 

ARTICLE VII
MISCELLANEOUS
 
7.1            Termination.  This Agreement may be terminated by the Company or
any Investor, by written notice to the other parties, if the Closing has not
been consummated by the third Business Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).
 
7.2            Fees and Expenses.  Except as expressly set forth in the
Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this
Agreement.  Notwithstanding the foregoing, the Company shall pay all of the fees
and expenses (including, without limitation, attorneys’ fees) incurred by the
Lead Investor in connection with the transactions contemplated by this
Agreement, subject to a cap of Fifty Thousand Dollars ($50,000).  The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the sale and issuance of their applicable Securities.
 
7.3            Entire Agreement.  The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.  At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Investors such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents.
 
7.4            Notices.  Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile or
email at the facsimile number or email address specified in this Section at or
prior to 6:30 p.m. (New York City time) on a Trading Day, (b) the next Trading
Day after the date of transmission, if such notice or communication is delivered
via facsimile or email at the facsimile number or email address specified in
this Section on a day that is not a Trading Day or later than 6:30 p.m. (New
York City time) on any Trading Day, (c) the Trading Day following the date of
deposit with a nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given.  The
addresses, facsimile numbers and email addresses for such notices and
communications are those set forth on the signature pages hereof, or such other
address or facsimile number as may be designated in writing hereafter, in the
same manner, by any such Person.
 
7.5            Amendments; Waivers.  No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and each of the Investors or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought.  No waiver
of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such
right.  Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Investors under Article VI may be given by Investors holding at least
a majority of the Registrable Securities to which such waiver or consent
relates.
 
 
37

--------------------------------------------------------------------------------

 

7.6            Construction.  The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
 
7.7            Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted
assigns.  Any Investor may assign its rights under this Agreement to any Person
to whom such Investor assigns or transfers any Securities, provided (i) such
transferor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company after such
assignment, (ii) the Company is furnished with written notice of (x) the name
and address of such transferee or assignee and (y) the Registrable Securities
with respect to which such registration rights are being transferred or
assigned, (iii)  such transferee agrees in writing to be bound, with respect to
the transferred Securities, by the provisions hereof that apply to the
“Investors” and (iv) such transfer shall have been made in accordance with the
applicable requirements of this Agreement and with all laws applicable thereto.
 
7.8            Persons Entitled to Benefit of Agreement.  Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, other than those persons mentioned in Section 7.7 or otherwise
explicitly mentioned in this Agreement, any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein contained,
this Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person; except that each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Section directly against the parties with obligations thereunder.
 
7.9            Governing Law; Venue; Waiver of Jury Trial.  THE CORPORATE LAWS
OF THE STATE OF NEW YORK SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS
OF THE COMPANY AND ITS STOCKHOLDERS.  ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.  THE COMPANY
AND INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN
FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR
HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE
TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN
ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  THE COMPANY AND INVESTORS
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.
 
 
38

--------------------------------------------------------------------------------

 

7.10          Survival.  Unless this Agreement is terminated pursuant to Section
7.1, the representations and warranties of the Company and the Investors
contained herein, and the agreements and covenants set forth herein shall
survive the Closing. Each Investor shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
 
7.11          Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart.  In the event that any signature is
delivered by facsimile transmission or email attachment, such signature shall
create a valid and binding obligation of the party executing (or on whose behalf
such signature is executed) with the same force and effect as if such facsimile
or email-attached signature page were an original thereof.
 
7.12          Severability.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
7.13          Rescission and Withdrawal Right.  Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option owed to such Investor by the Company under a Transaction Document and
the Company does not timely perform its related obligations within the periods
therein provided, then, prior to the performance by the Company of the Company's
related obligation, such Investor may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
 
 
39

--------------------------------------------------------------------------------

 

7.14          Replacement of Securities.  If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and the execution by the holder
thereof of a customary lost certificate affidavit of that fact and an agreement
to indemnify and hold harmless the Company for any losses in connection
therewith.  The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.
 
7.15          Remedies.  In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to seek specific performance under
the Transaction Documents.  The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation (other than in
connection with any action for temporary restraining order) the defense that a
remedy at law would be adequate.
 
7.16          Payment Set Aside.  To the extent that the Company makes a payment
or payments to any Investor hereunder or any Investor enforces or exercises its
rights hereunder or thereunder, and such payment or payments or the proceeds of
such enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company
by a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
 
 
40

--------------------------------------------------------------------------------

 
 
7.17          Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to this Agreement has been made by such Investor
independently of any other Investor and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Investor or by any agent or employee of any other Investor, and no
Investor or any of its agents or employees shall have any liability to any other
Investor (or any other person) relating to or arising from any such information,
materials, statements or opinions. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no other
Investor will be acting as agent of such Investor in connection with monitoring
its investment hereunder. Each Investor shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Investor to be joined as an additional party in
any proceeding for such purpose. Each Investor has been represented by its own
separate legal counsel in its review and negotiation of the Transaction
Documents.
[SIGNATURE PAGES TO FOLLOW]
 
 
41

--------------------------------------------------------------------------------

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 

  SCIENTIFIC LEARNING CORPORATION         By:  /s/ D. Andrew Myers   Name: D.
Andrew Myers   Title:   Chief Executive Officer   Address for Notice:  300 Frank
H. Ogawa Plaza,                                        Suite 600  
                                     Oakland, CA 94612         Facsimile
No.:     (510) 874-1886   Telephone No.:  (510) 625-2290   Attn:  General
Counsel         With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.  
Facsimile: (650) 493-6811   Telephone: (650) 493-9300   Attn: Steven V. Bernard
and Michael A. Occhiolini

 
COMPANY SIGNATURE PAGE

 
 

--------------------------------------------------------------------------------

 

Investor Signature Page

By its execution and delivery of this signature page, the undersigned Investor
hereby joins in and agrees to be bound by the terms and conditions of the
Securities Purchase Agreement dated as of March 22, 2012 (the “Purchase
Agreement”) by and among Scientific Learning Corporation and the Investors (as
defined therein), as to the number of shares of Common Stock and Warrants set
forth below, and authorizes this signature page to be attached to the Purchase
Agreement or counterparts thereof.
 

 
Name of Investor:
         
/s/
         
By:
   
Name:
     
Title:
             
Address:
           
Telephone No.:
   
Facsimile No.:
   
Email Address:
   
Number of Shares:
   
Number of Warrants:
   
Aggregate Purchase Price: $
 

 
 

--------------------------------------------------------------------------------

 

Exhibits:

A
Schedule of Investors

B
Instruction Sheet for Investors

C
Opinion of Company Corporate Counsel

D
Plan of Distribution

E
Company Transfer Agent Instructions

F
Form of Warrant

G
Form of Lock-Up Agreement

 
 

--------------------------------------------------------------------------------

 

Exhibit A

Schedule of Investors

Investor
 
Common Shares
   
Warrant Shares
   
Purchase Price
 
Blackwell Partners LLC
    243,085       145,851     $ 420,537.05  
Bowen, Bob
    28,900       17,340     $ 49,997.00  
Cranshire Capital Master Fund, Ltd.
    161,850       97,110     $ 280,000.50  
Feller, Bob
    5,780       3,468     $ 9,999.40  
Freestone Advantage Partners II, LP
    11,555       6,933     $ 19,990.15  
Harbour Holdings Ltd.
    74,740       44,844     $ 129,300.20  
Harvey QP, LP
    213,870       128,322     $ 369,995.10  
Harvey SMidcap Fund, LP
    98,265       58,959     $ 169,998.45  
Harvey SMidcap Offshore Fund, Ltd
    265,895       159,537     $ 459,998.35  
Hawk Ridge Partners, L.P.
    433,525       260,115     $ 749,998.25  
Instanz Nominees PTY LTD
    12,440       7,464     $ 21,521.20  
Kingsbrook Opportunities Master Fund LP
    160,000       96,000     $ 276,800.00  
Moorhead, III, Rodman R.
    200,000       120,000     $ 346,000.00  
Myers, Andy
    11,560       6,936     $ 19,998.80  
Nantahala Capital Partners, Limited Partnership
    177,940       106,764     $ 307,836.20  
Nantahala Capital Partners II, Limited Partnership
    527,710       316,626     $ 912,938.30  
Nantahala Capital Partners CL, Limited Partnership
    207,310       124,386     $ 358,646.30  
Osmium Capital LP
    81,395       48,837     $ 140,813.35  
Osmium Capital II, LP
    167,550       100,530     $ 289,861.50  
Osmium Spartan, LP
    27,625       16,575     $ 47,791.25  
Park, Ron
    5,780       3,468     $ 9,999.40  
RJ Partners LLC
    265,895       159,537     $ 459,998.35  
Simon, Shari
    1,445       867     $ 2,499.85  
Skylands Quest LLC
    22,505       13,503     $ 38,933.65  
Skylands Special Investment LLC
    62,885       37,731     $ 108,791.05  
Skylands Special Investment II LLC
    13,275       7,965     $ 22,965.75  
Trigran Investments, L.P.
    436,300       261,780     $ 754,799.00  
Trigran Investments, L.P. II
    257,340       154,404     $ 445,198.20  
Total:
    4,176,420       2,505,852     $ 7,225,206.60  

 
 

--------------------------------------------------------------------------------

 

Exhibit B
 
INSTRUCTION SHEET FOR INVESTOR
 
(to be read in conjunction with the entire Securities Purchase Agreement)
 
A.
Complete the following items in the Securities Purchase Agreement:

 
 
1.
Complete and execute the Investor Signature Page.  The Agreement must be
executed by an individual authorized to bind the Investor.

 
 
2.
Exhibit B-1 - Stock Certificate Questionnaire:

Provide the information requested by the Stock Certificate Questionnaire;
 
 
3.
Exhibit B-2 - Registration Statement Questionnaire:

Provide the information requested by the Registration Statement Questionnaire.
 
 
4.
Exhibit B-3 - Investor Certificate:

Provide the information requested by the Certificate for Individual Investors
(B-I) or the Certificate for Corporate, Partnership, Trust, Foundation and Joint
Investors (B-II), as applicable.
 
 
5.
Return, via facsimile, the signed Securities Purchase Agreement including the
properly completed Exhibits B-1 through B-3, to:

 
Facsimile:
Telephone:
Attn:
 
 
6.
After completing instruction number five (5) above, deliver the original signed
Securities Purchase Agreement including the properly completed Exhibits  B-1
through B-3 to:

 
Facsimile:
Telephone:
Attn:
 
B.
Instructions regarding the wire transfer of funds for the purchase of the Shares
will be telecopied to the Investor by the Company at a later date.

 
C.
Upon the resale of any Shares by the Investor after the Registration Statement
covering any Shares is effective, as described in the Securities Purchase
Agreement, the Investor must send a letter in the form of Exhibit D to the
Company and the Company’s transfer agent so that the Shares may be properly
transferred.

 
 

--------------------------------------------------------------------------------

 

 
Exhibit B-1
 
SCIENTIFIC LEARNING CORPORATION
 
STOCK CERTIFICATE QUESTIONNAIRE

 
Please provide us with the following information:
 
1.
The exact name that the Securities are to be registered in (this is the name
that will appear on the stock certificate(s)).  You may use a nominee name if
appropriate:

 

--------------------------------------------------------------------------------

 
2.
The relationship between the Investor of the Securities and the Registered
Holder listed in response to item 1 above:

 

--------------------------------------------------------------------------------

 
3.
The mailing address, telephone and telecopy number and email address of the
Registered Holder listed in response to item 1 above:

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 
4.
The Tax Identification Number of the Registered Holder listed in response to
item 1 above:

 

--------------------------------------------------------------------------------

 
 

--------------------------------------------------------------------------------

 
 
Exhibit B-2
 
SCIENTIFIC LEARNING CORPORATION
 
REGISTRATION STATEMENT QUESTIONNAIRE
 
In connection with the Registration Statement, please provide us with the
following information regarding the Investor.

1.             Please state your name or your organization’s name exactly as it
should appear in the Registration Statement:
 

--------------------------------------------------------------------------------

 
Except as set forth below, you do not hold any equity securities of the Company
on behalf of another person or entity.
 
State any exceptions here:
   

 
2.             Your address:
 

                  Telephone:        
Fax:
       
Contact Person: 
     

 
3.             Have you or your organization had any position, office or other
material relationship within the past three years with the Company or its
affiliates?  (Include any relationships involving you or your affiliates,
officers, directors, or principal equity holders (5% or more) that has held any
position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years.)
 
 
 Yes
 
 
 No
 

If yes, please indicate the nature of any such relationship below:
 

--------------------------------------------------------------------------------

 
 

--------------------------------------------------------------------------------

 

4.             Are you the beneficial owner of any other securities of the
Company?  (Include any equity securities that you beneficially own or have a
right to acquire within 60 days after the date hereof, and as to which you have
sole voting power, shared voting power, sole investment power or shared
investment power.)
 
 
 Yes
 
 
 No
 

If yes, please describe the nature and amount of such ownership as of a recent
date.
 

--------------------------------------------------------------------------------

 
 

--------------------------------------------------------------------------------

 
5.             Except as set forth below, you wish that all the shares of the
Company’s common stock, issued pursuant to the Securities Purchase Agreement,
beneficially owned by you or that you have the right to acquire from the Company
be offered for your account in the Registration Statement.
 
State any exceptions here:
   

6.             Have you made or are you aware of any arrangements relating to
the distribution of the shares of the Company pursuant to the Registration
Statement?
 
 
 Yes
 
 
 No
 

 
If yes, please describe the nature and amount of such arrangements.
 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 
7.
FINRA Matters

 
(a)           State below whether (i) you or any associate or affiliate of yours
are a member of FINRA, a controlling shareholder of a FINRA member, a person
associated with a member, a direct or indirect affiliate of a member, or an
underwriter or related person with respect to the proposed offering; (ii) you or
any associate or affiliate of yours owns any stock or other securities of any
FINRA member not purchased in the open market; or (iii) you or any associate or
affiliate of yours has made any outstanding subordinated loans to any FINRA
member. If you are a general or limited partnership, a no answer asserts that no
such relationship exists for you as well as for each of your general or limited
partners.
 
 
 Yes
 
 
 No
 

 
 
 

--------------------------------------------------------------------------------

 

If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner:
 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 
If you answer “no” to Question 7(a), you need not respond to Question 7(b).
 
State below whether you or any associate or affiliate of yours has been an
underwriter, or a controlling person or member of any investment banking or
brokerage firm which has been or might be an underwriter for securities of the
Corporation or any affiliate thereof including, but not limited to, the common
stock now being registered.
 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 
If “yes,” please identify the FINRA member and describe your relationship,
including, in the case of a general or limited partner, the name of the partner.
 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 
ACKNOWLEDGEMENT
 
The undersigned hereby agrees to notify the Company promptly of any changes in
the foregoing information which should be made as a result of any developments,
including the passage of time.  The undersigned also agrees to provide the
Company and the Company’s counsel any and all such further information regarding
the undersigned promptly upon request in connection with the preparation,
filing, amending, and supplementing of the Registration Statement (or any
prospectus contained therein).  The undersigned hereby consents to the use of
all such information in the Registration Statement.
 
The undersigned understands and acknowledges that the Company will rely on the
information set forth herein for purposes of the preparation and filing of the
Registration Statement.
 
The undersigned understands that the undersigned may be subject to serious civil
and criminal liabilities if the Registration Statement, when it becomes
effective, either contains an untrue statement of a material fact or omits to
state a material fact required to be stated in the Registration Statement or
necessary to make the statements in the Registration Statement not
misleading.  The undersigned represents and warrants that all information it
provides to the Company and its counsel is currently accurate and complete and
will be accurate and complete at the time the Registration Statement becomes
effective and at all times subsequent thereto, and agrees during the
Effectiveness Period and any additional period in which the undersigned is
making sales of Shares under and pursuant to the Registration Statement, and
agrees during such periods to notify the Company immediately of any misstatement
of a material fact in the Registration Statement, and of the omission of any
material fact necessary to make the statements contained therein not misleading.
 
Dated:  
                       
Name
                 
Signature
                 
Name and Title of Signatory
 

 
 

--------------------------------------------------------------------------------

 

Exhibit B-3
 
SCIENTIFIC LEARNING CORPORATION
 
INVESTOR REPRESENTATION LETTER
 
I.
If investor is an individual or a trust:

 
The undersigned certifies that the representations and responses below are true
and accurate:
 
(a)           The investor has full power and authority to invest in the
Company.
 
(b)           In order for the Company to offer and sell the Securities in
conformance with state and federal securities laws, the following information
must be obtained regarding your investor status.  Please initial each category
applicable to you has an investor in the Company.
 
____               1.     Any director, executive officer, or general partner of
the issuer of the securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
 
____               2.     Any natural person whose individual net worth, or
joint net worth with that person's spouse, exceeds $1,000,000.
(i)     For purposes of calculating net worth hereunder:
(A)  The person's primary residence shall not be included as an asset;
(B)  Indebtedness that is secured by the person's primary residence, up to the
estimated fair market value of the primary residence at the time of the sale of
securities, shall not be included as a liability (except that if the amount of
such indebtedness outstanding at the time of sale of securities exceeds the
amount outstanding 60 days before such time, other than as a result of the
acquisition of the primary residence, the amount of such excess shall be
included as a liability); and
(C)  Indebtedness that is secured by the person's primary residence in excess of
the estimated fair market value of the primary residence at the time of the sale
of securities shall be included as a liability;
 
____               3.     Any natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current year;
 
 
 

--------------------------------------------------------------------------------

 
 
____               4.      Any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as described in § 230.506 (b) (2)
(ii).
 
II.
If the investor is a corporation, partnership, limited liability company, trust,
pension plan, foundation, joint Investor (other than a married couple) or other
entity, an authorized officer, partner, or trustee must complete, date and sign
this Certificate:

 
The undersigned certifies that the representations and responses below are true
and accurate:
 
(a)           The investor has been duly formed and is validly existing and has
full power and authority to invest in the Company.  The person signing on behalf
of the undersigned has the authority to execute and deliver the Securities
Purchase Agreement on behalf of the Investor and to take other actions with
respect thereto.

(b)           Indicate the form of entity of the undersigned:
 
____        Limited Partnership
____        General Partnership
____        Limited Liability Company
____        Corporation
____        Revocable Trust (identify each grantor and indicate under what
circumstances the trust is revocable by the grantor):
 

--------------------------------------------------------------------------------

                                                                                                                     

(Continue on a separate piece of paper, if necessary.)
____        Other type of Trust (indicate type of trust and, for trusts other
than pension trusts, name the grantors and beneficiaries):
 

--------------------------------------------------------------------------------

                                                                                                                                       
(Continue on a separate piece of paper, if necessary.)
____           Other form of organization (indicate form of organization
(______________________________________________________________________________________________ ).

(c)           Indicate the approximate date the undersigned entity was formed: .
 
(d)           In order for the Company to offer and sell the Securities in
conformance with state and federal securities laws, the following information
must be obtained regarding your investor status.  Please initial each category
applicable to you as an investor in the Company.
 
 
___
1.
A bank as defined in Section 3(a)(2) of the Securities Act, or any savings and
loan association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity;

 
 
___
2.
A broker or dealer registered pursuant to Section 15 of the Securities Exchange
Act of 1934;

 

 
 

--------------------------------------------------------------------------------

 

 
___
3.
An insurance company as defined in Section 2(13) of the Securities Act;

 
 
___
4.
An investment company registered under the Investment Company Act of 1940 or a
business development company as defined in Section  2(a)(48) of that Act;

 
 
___
5.
A Small Business Investment Company licensed by the U.S.  Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958;

 
 
___
6.
A plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;

 
 
___
7.
An employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;

 
 
___
8.
A private business development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940;

 
 
___
9.
Any partnership or corporation or any organization described in Section
501(c)(3) of the Internal Revenue Code or similar business trust, not formed for
the specific purpose of acquiring the Shares, with total assets in excess of
$5,000,000;

 
 
___
10.
A trust, with total assets in excess of $5,000,000, not formed for the specific
purpose of acquiring the Shares, whose purchase is directed by a sophisticated
person as described in Rule  506(b)(2)(ii) of the Exchange Act;

 
 
___
11.
An entity in which all of the equity owners qualify under any of the above
subparagraphs.  If the undersigned belongs to this investor category only, list
the equity owners of the undersigned, and the investor category which each such
equity owner satisfies:
 

                          

--------------------------------------------------------------------------------

(Continue on a separate piece of paper, if necessary.)
 
 
(e)
As of the date hereof, please set forth below the dollar amount of securities in
the aggregate in your portfolio or under management, including investments held
by wholly owned subsidiaries.
 

 

--------------------------------------------------------------------------------

 
 
 

--------------------------------------------------------------------------------

 

 
(f)
Please set forth in the space provided below the (i) states, if any, in the U.S.
in which you maintained your principal office during the past two years and the
dates during which you maintained your office in each state, (ii) state(s), if
any, in which you are incorporated or otherwise organized and (iii) state(s), if
any, in which you pay income taxes.
 

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 
Dated:__________________________, 2012
 
 
___________________________________
Print Name of Investor
 

___________________________________
Name:
Title:
(Signature and title of authorized officer, partner or trustee)
 
 
 

--------------------------------------------------------------------------------

 

SECURITIES DELIVERY INSTRUCTIONS
 
Please instruct us as to where you would like the Securities delivered to at
Closing:
 
Name:
     
Company:
     
Address:
     
Telephone:
 

 
Other Special Instructions: 
         

 
 
 

--------------------------------------------------------------------------------

 
 
Exhibit C
 
OPINION OF COMPANY CORPORATE COUNSEL

 
 

--------------------------------------------------------------------------------

 
 
Exhibit D
 
PLAN OF DISTRIBUTION
 
The selling stockholders may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions.  These sales may be at fixed
prices, at prevailing market prices at the time of the sale, at varying prices
determined at the time of sale, or negotiated prices.  The selling stockholders
may use any one or more of the following methods when selling shares:
 
 
·
ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 
 
·
block trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to facilitate
the transaction;

 
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 
 
·
an exchange distribution in accordance with the rules of the applicable
exchange;

 
 
·
privately negotiated transactions;

 
 
·
short sales;

 
 
·
broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;

 
 
·
a combination of any such methods of sale; and

 
 
·
any other method permitted pursuant to applicable law.

 
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
 
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales.  Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated.  The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions
involved.  Any profits on the resale of shares of common stock by a
broker-dealer acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act.  Discounts, concessions, commissions
and similar selling expenses, if any, attributable to the sale of shares will be
borne by a selling stockholder.  The selling stockholders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares if liabilities are imposed on that person under the
Securities Act.  In connection with sales of the shares of common stock or
otherwise, the selling stockholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the shares of common
stock in the course of hedging in positions they assume.  The selling
stockholders may also sell shares of common stock short and deliver shares of
common stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales.  The selling
stockholders may also loan or pledge shares of common stock to broker-dealers
that in turn may sell such shares.
 
 
 

--------------------------------------------------------------------------------

 

The selling stockholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933
supplementing or amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
 
The selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed a supplement to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 supplementing or
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.
 
The selling stockholders and any broker-dealers or agents that are involved in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales.  In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
 
Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers.  In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
 
There can be no assurance that any selling stockholder will sell any or all of
the shares of common stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.
 
We are required to pay all fees and expenses incident to the registration of the
shares of common stock.  We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
 
 
 

--------------------------------------------------------------------------------

 

The selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder.  If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus.  If the selling stockholders use this
prospectus for any sale of the shares of common stock, they will be subject to
the prospectus delivery requirements of the Securities Act.
 
The selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person.  Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock.  All of the foregoing may affect the marketability of the shares of
common stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
 
Once sold under the shelf registration statement, of which this prospectus forms
a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
 
 
 

--------------------------------------------------------------------------------

 
 
Exhibit E
 
COMPANY TRANSFER AGENT INSTRUCTIONS
 
Continental Stock Transfer & Trust Company
[Address]

Attention:
 
Ladies and Gentlemen:
 
Reference is made to that certain Securities Purchase Agreement, dated as of
March 22, 2012 (the “Agreement”), by and among Scientific Learning Corporation,
a Delaware corporation (the “Company”), and the investors named on the Schedule
of Investors attached thereto (collectively, the “Holders”), pursuant to which
the Company is issuing to the Holders shares (the “Common Shares”) of Common
Stock of the Company, par value $0.01 per share (the “Common Stock”), and
Warrants (the “Warrants”), which are exercisable into shares of Common Stock.
 
This letter shall serve as our irrevocable authorization and direction to you
(provided that you are the transfer agent of the Company at such time):
 
(i)  to issue shares of Common Stock upon transfer or resale of the Common
Shares; and
 
(ii)  to issue shares of Common Stock upon the exercise of the Warrants (the
“Warrant Shares”) to or upon the order of a Holder from time to time upon
delivery to you of a properly completed and duly executed Exercise Notice, in
the form attached hereto as Exhibit I, which has been acknowledged by the
Company as indicated by the signature of a duly authorized officer of the
Company thereon.
 
You acknowledge and agree that so long as you have previously received (a)
written confirmation from the Company’s legal counsel that either (i) a
registration statement covering resales of the Common Shares and the Warrant
Shares has been declared effective by the Securities and Exchange Commission
(the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”)
and that resales of the Common Shares and the Warrant Shares may be made
thereunder, or (ii the Shares and the Warrant Shares have been sold in
conformity with Rule 144 under the Securities Act (“Rule 144”) or are eligible
for sale under Rule 144, without the requirement for the Company to be in
compliance with the current public information required under Rule 144 as to
such securities and without volume or manner-of-sale restrictions, and (b) if
applicable, a copy of such registration statement, then, unless otherwise
required by law, within three (3) business days of your receipt of a notice of
transfer, the Common Shares or the Warrant Shares, you shall issue the
certificates representing the Common Shares and/or the Warrant Shares, as the
case may be, registered in the names of such Holders or transferees, as the case
may be, and such certificates shall not bear any legend restricting transfer of
the Common Shares and the Warrant Shares thereby and should not be subject to
any stop-transfer restriction.
 
 
 

--------------------------------------------------------------------------------

 

A form of written confirmation (to be used in connection with any sale) from the
Company’s outside legal counsel that a registration statement covering resales
of the Common Shares and the Warrant Shares has been declared effective by the
SEC under the Securities Act is attached hereto as Exhibit II.
 
Please be advised that the Holders are relying upon this letter as an inducement
to enter into the Agreement and, accordingly, each Holder is a third party
beneficiary to these instructions.
 
Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions.  Should you have any questions
concerning this matter, please contact me at ________________.
 

 
Very truly yours,
     
SCIENTIFIC LEARNING CORPORATION
     
By: 
     
Name:
   
Title:

 
THE FOREGOING INSTRUCTIONS ARE
ACKNOWLEDGED AND AGREED TO
this day of March __, 2012

Continental Stock Transfer & Trust Company
                                 
By:
       
Name: 
     
Title:
   

 
Enclosures

 
 

--------------------------------------------------------------------------------

 
 
Exhibit F
 
FORM OF WARRANT

 
 

--------------------------------------------------------------------------------

 
 
Exhibit G
 
FORM OF LOCK-UP AGREEMENT

Lock-Up Agreement
 
March __, 2012
 
To the Investors set forth on the
Schedule of Investors to that certain
Securities Purchase Agreement to be
Entered into with Scientific Learning Corporation

Ladies and Gentlemen:
 
 
The undersigned understands that you, as Investors, propose to enter into the
Securities Purchase Agreement (the “Purchase Agreement”) with Scientific
Learning Corporation, a Delaware corporation (the “Company”), providing for the
offering (the “Offering”) of shares (the “Shares”) of common stock, par value
$0.001 per share (the “Common Stock”) and warrants to purchase common Stock (the
“Warrants”, and together with the Shares, the “Securities”), of the Company.
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Purchase Agreement.
 
 
In consideration of the foregoing, and in order to induce you to participate in
the Offering, and for other good and valuable consideration receipt of which is
hereby acknowledged, the undersigned hereby agrees that, without your prior
written consent (which consent may be withheld in your sole discretion), the
undersigned will not, during the period (the “Lock-Up Period”) beginning on the
date hereof and ending on the date 90 days after the date of the Closing Date
(as such term is defined in the Purchase Agreement), directly or indirectly, (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock; (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise; or (3) execute, or authorize the filing
of, any registration statement with the SEC relating to the offering of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.

Notwithstanding anything to the contrary contained herein, the foregoing
restrictions shall not apply to (a) any transfer of the undersigned’s shares of
Common Stock (i)  as a bona fide gift or gifts, (ii) to any trust for the direct
or indirect benefit of the undersigned or the immediate family of the
undersigned, or (iii) by will or intestate succession upon the death of the
undersigned; provided that in the case of any such transfer or distribution, (x)
each trustee, trust, transferee, transferees, donee or donees, as applicable,
agrees to be bound in writing by the restrictions set forth herein, and (y) any
such transfer or distribution shall not involve a disposition for value, (b) the
exercise of options or other equity awards issued to the undersigned pursuant to
any stock option or similar equity incentive or compensation plan in existence
prior to the date hereof for the issuance to employees, directors advisors or
consultants of the Company of stock options or equity grants (“Equity Incentive
Grants”), (it being understood that any subsequent transfer, distribution or
other disposition of the undersigned’s shares of Common Stock issued upon
exercise of such Equity Incentive Grants shall be subject to the restrictions
set forth in this Lock-Up Agreement), (c)  the sale of shares of Common Stock
under a trading plan pursuant to Rule 10b5-1 under the Exchange Act entered into
prior to the date hereof, (d) sales only to the extent necessary to generate
such amount of cash needed for the payment of taxes (including estimated taxes)
due as a result of the exercise of such options or warrants or vesting of
restricted stock units, and (e) transfers to the Company in connection with the
repurchase of the undersigned's shares of Common Stock issued pursuant to Equity
Incentive Grants or pursuant to agreements pursuant to which such shares were
issued.  For purposes of this Lock-Up Agreement, “immediate family” shall mean
any relationship by blood, marriage or adoption, not more remote than first
cousin.
 
 
 

--------------------------------------------------------------------------------

 

The foregoing restrictions are expressly agreed to preclude the undersigned from
engaging in any hedging or other transaction that is designed to or reasonably
expected to lead to or result in a sale or disposition of the Common Stock even
if such Common Stock would be disposed of by someone other than the
undersigned.  Such prohibited hedging or other transactions would include
without limitation any short sale or any purchase, sale or grant of any right
(including without limitation any put option or put equivalent position or call
option or call equivalent position) with respect to any of the Common Stock or
with respect to any security that includes, relates to, or derives any
significant part of its value from such Common Stock.
 
The undersigned hereby represents and warrants that the undersigned has full
power and authority to enter into this Lock-Up Agreement.  All authority herein
conferred or agreed to be conferred and any obligations of the undersigned shall
be binding upon the successors, assigns, heirs or personal representatives of
the undersigned.

The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company’s transfer agent and registrar against the
transfer of the undersigned’s shares of Common Stock except in compliance with
the foregoing restrictions.
 
The undersigned understands that, if the Purchase Agreement does not become
effective, or if the Purchase Agreement (other than the provisions thereof that
survive termination) shall terminate or be terminated prior to payment for and
delivery of the Securities to be sold thereunder, the undersigned shall be
released from all obligations under this Lock-Up Agreement.

 
 

--------------------------------------------------------------------------------

 

This Lock-Up Agreement shall be governed by and construed in accordance with the
laws of the State of California, without regard to the conflict of laws
principles thereof.
 

 
Very truly yours,
       
Print Name:
         
Print Title:
         
Signature:
 

 
 

--------------------------------------------------------------------------------