Exhibit 10.91

 

PLACEMENT AGENT AGREEMENT

 

 

September 30, 2003

 

Brean Murray & Co., Inc.

570 Lexington Avenue

New York, New York 10022

 

 

Gentlemen:

 

VCampus Corporation, a Delaware corporation (the “Company”), hereby confirms its
agreement with Brean Murray & Co., Inc. (the “Placement Agent”), as follows:

 

1.             OFFERING.  (A)  THE COMPANY SHALL OFFER (THE “OFFERING”) FOR SALE
THROUGH THE PLACEMENT AGENT, AS EXCLUSIVE AGENT FOR THE COMPANY, A MAXIMUM (THE
“MAXIMUM OFFERING”) OF 2,000,000 UNITS (THE “UNITS”), EACH UNIT CONSISTING OF
ONE SHARE (COLLECTIVELY, THE “SHARES”) OF THE COMPANY’S COMMON STOCK, PAR VALUE
$0.01 PER SHARE (THE “COMMON STOCK”), AND A WARRANT (COLLECTIVELY, THE “COMMON
STOCK WARRANTS” TO PURCHASE ONE SHARE OF COMMON STOCK (THE “WARRANT SHARES”) AT
AN EXERCISE PRICE OF $2.59 PER SHARE (SUBJECT TO REDUCTION AS SET FORTH IN THE
SECURITIES PURCHASE AGREEMENT).  THE COMMON STOCK WARRANTS SHALL CONTAIN THE
TERMS AND CONDITIONS, AND BE IN SUBSTANTIALLY THE FORM, ATTACHED AS EXHIBIT A
HERETO.

 

(B)           PLACEMENT OF THE UNITS SHALL BE MADE ON A “BEST EFFORTS” BASIS. 
THE UNITS WILL BE OFFERED COMMENCING ON THE DATE OF THE EXECUTIVE SUMMARY (AS
DEFINED BELOW) AND ENDING ON SEPTEMBER 30, 2003 (THE “OFFERING PERIOD”).  THE
DATE ON WHICH THE OFFERING SHALL TERMINATE SHALL BE REFERRED TO AS THE
“TERMINATION DATE.”  THE OFFERING PERIOD MAY BE TERMINATED EARLY OR EXTENDED FOR
UP TO 30 DAYS BY THE MUTUAL CONSENT OF THE PARTIES.  THE COMPANY EXPRESSLY
ACKNOWLEDGES AND AGREES THAT THE PLACEMENT AGENT’S OBLIGATIONS HEREUNDER ARE ON
A REASONABLE EFFORTS BASIS ONLY AND THAT THE EXECUTION OF THIS AGREEMENT DOES
NOT IN ANY WAY CONSTITUTE A COMMITMENT BY THE PLACEMENT AGENT TO PURCHASE THE
UNITS AND DOES NOT ENSURE THE SUCCESSFUL PLACEMENT OF THE UNITS OR ANY PORTION
THEREOF.

 

(C)           SUBSCRIPTIONS FOR THE UNITS WILL BE ACCEPTED BY THE COMPANY AT A
PRICE OF $2.59 PER UNIT (SUBJECT TO REDUCTION AS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT, THE “OFFERING PRICE”); PROVIDED, HOWEVER, THAT THE COMPANY
SHALL NOT ACCEPT SUBSCRIPTIONS FOR, OR SELL UNITS TO, ANY PERSONS OR ENTITIES
WHO DO NOT QUALIFY AS “ACCREDITED INVESTORS,” AS SUCH TERM IS DEFINED IN RULE
501 OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”).

 

(D)           THE OFFERING WILL BE MADE BY THE COMPANY SOLELY PURSUANT TO THE
EXECUTIVE SUMMARY AND THE COMMISSION DOCUMENTS IN ACCORDANCE WITH SECTION 4(B)
OF THIS AGREEMENT.  THE EXECUTIVE SUMMARY, AT ALL TIMES, WILL BE IN FORM AND
SUBSTANCE REASONABLY

 

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acceptable to the Placement Agent and its counsel and contain such legends and
other information as the Placement Agent and its counsel may, from time to time,
deem necessary and desirable to be set forth therein.  “Executive Summary” as
used in this Agreement means the Company’s Confidential Executive Summary, dated
September 2003, inclusive of all exhibits, and all amendments, supplements and
attachments thereto.  Unless otherwise defined, each term used in this Agreement
will have the same meaning as set forth in the Executive Summary.

 

(E)           AS MORE PARTICULARLY DESCRIBED IN THAT CERTAIN SECURITIES PURCHASE
AGREEMENT BY AND AMONG THE COMPANY AND THE PURCHASERS (THE “PURCHASERS”) IN THE
OFFERING (THE “SECURITIES PURCHASE AGREEMENT,” TOGETHER WITH THIS AGREEMENT AND
THE WARRANTS, THE “TRANSACTION DOCUMENTS”), THE COMPANY SHALL PREPARE AND FILE,
WITHIN THIRTY (30) DAYS AFTER THE CLOSING DATE (AS DEFINED BELOW), A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, WHICH REGISTRATION STATEMENT
SHALL COVER THE OFFER AND RESALE OF THE SHARES, THE COMMON STOCK WARRANTS AND
THE WARRANT SHARES.  THE COMPANY SHALL USE ITS BEST EFFORTS TO CAUSE THE
REGISTRATION STATEMENT TO BECOME EFFECTIVE UNDER THE SECURITIES ACT IN
ACCORDANCE WITH THE SECURITIES PURCHASE AGREEMENT.

 

2.             REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENT.  IN
OFFERING THE UNITS FOR SALE, THE PLACEMENT AGENT PROPOSES TO OFFER THE UNITS
SOLELY AS AGENT FOR THE COMPANY FOR SALE TO ACCREDITED INVESTORS UPON THE TERMS
SET FORTH IN THE EXECUTIVE SUMMARY.  THE PLACEMENT AGENT REPRESENTS AND WARRANTS
TO THE COMPANY THAT, ASSUMING COMPLIANCE BY THE COMPANY WITH ALL RELEVANT
PROVISIONS OF THE SECURITIES ACT, THE PLACEMENT AGENT WILL CONDUCT ALL OFFERS
AND SALES OF THE UNITS IN COMPLIANCE WITH THE RELEVANT PROVISIONS OF THE
SECURITIES ACT AND THE RULES AND REGULATIONS, ALL APPLICABLE STATE SECURITIES
LAWS AND REGULATIONS AND THE BYLAWS AND RULES OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC. (THE “NASD”).  THE PLACEMENT AGENT REPRESENTS AND
WARRANTS TO THE COMPANY THAT THE PLACEMENT AGENT IS AUTHORIZED TO ENTER INTO
THIS AGREEMENT AND TO ACT IN THE MANNER PROVIDED IN THIS AGREEMENT.

 

3.             REPRESENTATIONS AND WARRANTIES.  THE COMPANY (WHICH FOR PURPOSES
OF THIS SECTION 3 INCLUDES ITS SUBSIDIARIES, AS APPLICABLE) HEREBY REPRESENTS
AND WARRANTS TO THE PLACEMENT AGENT THAT, EXCEPT AS DISCLOSED IN THE COMMISSION
DOCUMENTS:

 

(A)           THE COMPANY IS A CORPORATION DULY ORGANIZED, VALIDLY EXISTING AND
IN GOOD STANDING UNDER THE LAWS OF THE STATE OF DELAWARE. THE COMPANY HAS FULL
CORPORATE POWER AND AUTHORITY TO OWN AND HOLD ITS PROPERTIES AND TO CONDUCT ITS
BUSINESS.  THE COMPANY IS DULY LICENSED OR QUALIFIED TO DO BUSINESS, AND IN GOOD
STANDING, IN EACH JURISDICTION IN WHICH THE NATURE OF ITS BUSINESS REQUIRES
LICENSING, QUALIFICATION OR GOOD STANDING, EXCEPT FOR ANY FAILURE TO BE SO
LICENSED OR QUALIFIED OR IN GOOD STANDING THAT WOULD NOT HAVE A MATERIAL ADVERSE
EFFECT ON THE COMPANY AND EACH SUBSIDIARY OF THE COMPANY TAKEN AS A WHOLE (EACH
SUCH CORPORATION, PARTNERSHIP OR OTHER ENTITY BEING REFERRED TO HEREIN AS A
“SUBSIDIARY” AND, TOGETHER, THE “SUBSIDIARIES”) OR ITS CONSOLIDATED RESULTS OF
OPERATIONS, ASSETS, OR FINANCIAL CONDITION OR ON ITS ABILITY TO PERFORM ITS
OBLIGATIONS UNDER THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (A
“MATERIAL ADVERSE EFFECT”).

 

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(B)           SCHEDULE 6.1(B) OF THE SECURITIES PURCHASE AGREEMENT CONTAINS A
LIST OF THE NAMES OF EACH SUBSIDIARY.  SCHEDULE 6.1(B) OF THE SECURITIES
PURCHASE AGREEMENT SETS FORTH, WITH RESPECT TO EACH SUBSIDIARY, ITS TYPE OF
ENTITY AND THE JURISDICTION OF ITS ORGANIZATION.  EACH SUBSIDIARY IS WHOLLY
OWNED BY THE COMPANY.  EACH OF THE OUTSTANDING SHARES OF CAPITAL STOCK OF EACH
OF THE SUBSIDIARIES IS DULY AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND
NONASSESSABLE AND OWNED BY THE COMPANY OR ANOTHER SUBSIDIARY AND IS FREE AND
CLEAR OF ALL LIENS, CLAIMS, ENCUMBRANCES, OPTIONS, PLEDGES AND SECURITY
INTERESTS (COLLECTIVELY, “LIENS”) AND WERE NOT ISSUED IN VIOLATION OF, NOR
SUBJECT TO, ANY PREEMPTIVE, SUBSCRIPTION OR SIMILAR RIGHTS.  THERE ARE NO
OUTSTANDING WARRANTS, OPTIONS, SUBSCRIPTIONS, CALLS, RIGHTS, AGREEMENTS,
CONVERTIBLE OR EXCHANGEABLE SECURITIES OR OTHER COMMITMENTS OR ARRANGEMENTS
RELATING TO THE ISSUANCE, SALE, PURCHASE, RETURN OR REDEMPTION, VOTING OR
TRANSFER OF ANY SHARES, WHETHER ISSUED OR UNISSUED, OF ANY CAPITAL STOCK, EQUITY
INTEREST OR OTHER SECURITIES OF ANY SUBSIDIARY.  THE COMPANY AND THE
SUBSIDIARIES DO NOT OWN ANY EQUITY INTERESTS IN ANY PERSON, OTHER THAN THE
SUBSIDIARIES.  EACH ACTIVE SUBSIDIARY IS DULY ORGANIZED, VALIDLY EXISTING AND IN
GOOD STANDING UNDER THE LAWS OF THE JURISDICTION OF ITS ORGANIZATION AND HAS ALL
REQUISITE POWER AND AUTHORITY TO OWN, LEASE AND OPERATE ITS PROPERTIES AND TO
CONDUCT ITS BUSINESS.

 

(C)           AS OF THE DATE HEREOF, THE AUTHORIZED CAPITAL STOCK OF THE COMPANY
CONSISTS OF 36,000,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, AND
10,000,000 SHARES OF PREFERRED STOCK, PAR VALUE $0.01 PER SHARE.  AS OF
SEPTEMBER 1, 2003, (I) 4,593,531 SHARES OF COMMON STOCK WERE ISSUED AND
OUTSTANDING, (II) NO SHARES OF PREFERRED STOCK WERE ISSUED AND OUTSTANDING,
(III) 702,489 SHARES OF COMMON STOCK WERE RESERVED FOR ISSUANCE UPON EXERCISE OF
OUTSTANDING OPTIONS ISSUED OR ISSUABLE UNDER THE COMPANY’S 1996 STOCK PLAN AND
ITS AMENDED AND RESTATED STOCK OPTION PLAN (THE “OPTION PLANS”), (IV) NO SHARES
OF COMMON STOCK ARE RESERVED FOR ISSUANCE UNDER STOCK OPTIONS GRANTED BY THE
COMPANY OUTSIDE THE OPTION PLANS, (V) 1,955,177 SHARES OF COMMON STOCK WERE
RESERVED FOR ISSUANCE UPON THE EXERCISE OF OUTSTANDING WARRANTS AND (VI) 64,285
SHARES OF COMMON STOCK ARE ISSUABLE UPON CONVERSION OF CONVERTIBLE DEBT.  ALL
THE OUTSTANDING SHARES OF COMMON STOCK HAVE BEEN DULY AUTHORIZED AND VALIDLY
ISSUED AND ARE FULLY PAID AND NONASSESSABLE AND FREE OF PREEMPTIVE RIGHTS
CREATED BY OR THROUGH THE COMPANY.  THERE ARE NO OTHER OPTIONS, WARRANTS OR
OTHER RIGHTS, CONVERTIBLE DEBT, AGREEMENTS, ARRANGEMENTS OR COMMITMENTS OF ANY
CHARACTER OBLIGATING THE COMPANY OR ANY OF THE SUBSIDIARIES TO ISSUE OR SELL ANY
SHARES OF CAPITAL STOCK OF OR OTHER EQUITY INTERESTS IN THE COMPANY.  THE
COMPANY IS NOT OBLIGATED TO RETIRE, REDEEM, REPURCHASE OR OTHERWISE REACQUIRE
ANY OF ITS CAPITAL STOCK OR OTHER SECURITIES.

 

(D)           SUBJECT TO RECEIVING THE CONSENT OF ITS BOARD OF DIRECTORS FOR UP
TO 100% WARRANT COVERAGE AND THE PRICE REDUCTION PROVISIONS CONTAINED IN THE
SECURITIES PURCHASE AGREEMENT, THE COMPANY HAS FULL CORPORATE POWER AND
AUTHORITY TO EXECUTE, DELIVER AND ENTER INTO THIS AGREEMENT AND THE OTHER
TRANSACTION DOCUMENTS AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY.  EXCEPT WITH RESPECT TO ANY STOCKHOLDER APPROVALS AS MAY BE REQUIRED
UNDER NASDAQ MARKETPLACE RULES AND RELATED INTERPRETATIONS AND SUBJECT TO
RECEIVING THE CONSENT OF THE COMPANY’S BOARD OF DIRECTORS FOR 100% WARRANT
COVERAGE AND THE PRICE REDUCTION PROVISIONS CONTAINED IN THE SECURITIES PURCHASE
AGREEMENT, ALL ACTION REQUIRED TO BE TAKEN PRIOR

 

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to closing on the part of the Company, its directors or stockholders necessary
for the authorization, execution, delivery and performance of this Agreement and
the other Transaction Documents by the Company, the authorization, sale,
issuance and delivery of the Units contemplated by the Securities Purchase
Agreement and the performance of the Company’s obligations hereunder and
thereunder has been taken.  The Units and Common Stock Warrants to be purchased
on the Closing Date and the Warrant Shares to be purchased upon exercise of the
Common Stock Warrants have been duly authorized and, when issued in accordance
with the Securities Purchase Agreement and, in the case of the Warrant Shares,
the Common Stock Warrants, will be validly issued, fully paid and nonassessable
and will be free and clear of all Liens imposed by or through the Company other
than restrictions imposed by the Securities Purchase Agreement, the Common Stock
Warrants and applicable securities laws.  No preemptive or other rights to
subscribe for or purchase equity securities of the Company exists with respect
to the issuance and sale of the Units or the Warrant Shares by the Company
pursuant to this Agreement or the other Transaction Documents.  This Agreement
and the other Transaction Documents have been duly executed and delivered by the
Company and each such agreement constitutes a legal, valid and binding
obligation of the Company subject to receiving the consent of its Board of
Directors for 100% warrant coverage and the price reduction provisions contained
in the Securities Purchase Agreement.

 

(E)           (I) INCLUDED IN THE COMPANY’S ANNUAL REPORT ON FORM 10-K, AS
AMENDED, FOR THE YEAR ENDED DECEMBER 31, 2002 (THE “2002 10-K”), ARE TRUE AND
COMPLETE COPIES OF THE AUDITED CONSOLIDATED BALANCE SHEETS (THE “BALANCE
SHEETS”) OF THE COMPANY AS OF DECEMBER 31, 2001 AND 2002, AND THE RELATED
AUDITED STATEMENTS OF INCOME, CHANGES IN STOCKHOLDERS’ EQUITY AND CASH FLOWS FOR
THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002 (THE “FINANCIAL STATEMENTS”),
ACCOMPANIED BY THE REPORT OF ERNST & YOUNG LLP.  THE FINANCIAL STATEMENTS HAVE
BEEN PREPARED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (“GAAP”), APPLIED CONSISTENTLY WITH THE PAST PRACTICES OF THE COMPANY
(EXCEPT AS MAY BE INDICATED IN THE NOTES THERETO), AND AS OF THEIR RESPECTIVE
DATES, FAIRLY PRESENT, IN ALL MATERIAL RESPECTS, THE CONSOLIDATED FINANCIAL
POSITION OF THE COMPANY AND THE RESULTS OF ITS OPERATIONS AS OF THE TIME AND FOR
THE PERIODS INDICATED THEREIN. THE COMPANY KEEPS PROPER ACCOUNTING RECORDS IN
WHICH ALL MATERIAL ASSETS AND LIABILITIES AND ALL MATERIAL TRANSACTIONS OF THE
COMPANY ARE RECORDED IN CONFORMITY WITH GAAP.

 

(ii) The Company has provided to the Placement Agent the 2002 10-K.  A copy of
each report, schedule, effective registration statement and definitive proxy
statement filed by the Company with the Commission since December 31, 2002,
including, but not limited to the Company’s Current Reports on Form 8-K filed on
January 24, 2003, February 25, 2003, May 28, 2003, June 11, 2003, August 12,
2003 and September 23, 2003 (as the documents may have been amended since the
time of their filing, the “Commission Documents”) has also been made available
to the Placement Agent either by physical delivery or via the Commission’s EDGAR
System.  As of their respective filing dates, each Commission Document complied
in all material respects with the requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), as applicable,
and the rules and regulations of the

 

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Commission thereunder applicable to the Commission Documents, and no Commission
Document, when filed, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.  As of their respective filing dates, the financial
statements of the Company included in the Commission Documents complied as to
form in all material respects with then applicable accounting requirements and
with the published rules and regulations of the Commission with respect thereto,
were prepared in accordance with generally accepted accounting principles,
applied consistently with the past practices of the Company, and as of their
respective dates, fairly presented in all material respects the financial
position of the Company and the results of its operations as of the time and for
the periods indicated therein (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q, and
Regulations S-K and S-X of the Commission).

 

(iii)          The information contained in the Offering Materials does not
include, as of the date of such information, any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.

 

(iv)          Since December 31, 2002, neither the Company nor any of the
Company’s Subsidiaries has incurred any liabilities or obligations of any
nature, whether or not accrued, absolute, contingent or otherwise, other than
liabilities (A) disclosed in the Commission Documents filed prior to the date of
this Agreement, (B) adequately provided for in the Balance Sheets or disclosed
in any related notes thereto, (C) not required under GAAP to be reflected in the
Balance Sheets, or disclosed in any related notes thereto, (D) incurred in
connection with this Agreement, or (E) incurred in the ordinary course of
business.

 

(F)            SINCE DECEMBER 31, 2002, EXCEPT AS DISCLOSED IN THE COMMISSION
DOCUMENTS FILED SUBSEQUENT TO THAT DATE, THERE HAS NOT BEEN ANY MATERIAL ADVERSE
CHANGE IN THE BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS OF THE COMPANY
AND ITS SUBSIDIARIES.

 

(G)           EXCEPT AS CONTEMPLATED BY OR DISCLOSED IN THIS AGREEMENT, THE
SECURITIES PURCHASE AGREEMENT, THE SCHEDULES TO THE SECURITIES PURCHASE
AGREEMENT AND THE COMMISSION DOCUMENTS, SINCE DECEMBER 31, 2002, THROUGH THE
DATE IMMEDIATELY PRECEDING THE CLOSING DATE, NEITHER THE COMPANY NOR ANY OF ITS
SUBSIDIARIES HAS (A), IN ANY MATERIAL RESPECTS, ISSUED ANY STOCK, OPTIONS, BONDS
OR OTHER CORPORATE SECURITIES OTHER THAN PURSUANT TO THE OPTION PLANS, (B), IN
ANY MATERIAL RESPECT, BORROWED ANY AMOUNT OR INCURRED OR BECAME SUBJECT TO ANY
LIABILITIES (ABSOLUTE, ACCRUED OR CONTINGENT), OTHER THAN CURRENT LIABILITIES
INCURRED IN THE ORDINARY COURSE OF BUSINESS OR LIABILITIES UNDER CONTRACTS
ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS, (C), IN ANY MATERIAL RESPECT,
DISCHARGED OR SATISFIED ANY LIEN OR ADVERSE CLAIM OR PAID ANY OBLIGATION OR
LIABILITY (ABSOLUTE, ACCRUED OR CONTINGENT), OTHER THAN CURRENT LIABILITIES
SHOWN ON THE BALANCE SHEETS AND CURRENT LIABILITIES INCURRED IN THE ORDINARY
COURSE OF BUSINESS, (D) DECLARED OR MADE ANY PAYMENT OR DISTRIBUTION OF CASH OR
OTHER PROPERTY TO THE STOCKHOLDERS OF THE COMPANY OR

 

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purchased or redeemed any securities of the Company, (e) , in any material
respect, mortgaged, pledged or subjected to any lien or adverse claim any of its
properties or assets, except for liens for taxes not yet due and payable or
otherwise in the ordinary course of business, (f) sold, assigned or transferred
any of its assets, tangible or intangible, except in the ordinary course of
business or in an amount less than $250,000, (g) suffered any extraordinary
losses or waived any rights of material value other than in the ordinary course
of business, (h) made any capital expenditures or commitments therefor other
than in the ordinary course of business or in an amount less than $250,000, (i)
entered into any other transaction other than in the ordinary course of business
or in an amount less than $250,000 or entered into any material transaction,
whether or not in the ordinary course of business, (j) made any material
charitable contributions or pledges, (k) suffered any damages, destruction or
casualty loss, whether or not covered by insurance, affecting any of the
properties or assets of the Company or any other properties or assets of the
Company which reasonably could, individually or in the aggregate, have or result
in a Material Adverse Effect, (l) made any material change in the nature or
operations of the business of the Company, or (m) entered into any agreement or
commitment to do any of the foregoing.

 

(H)           (I)            THE EXECUTION AND DELIVERY BY THE COMPANY OF THIS
AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY WILL NOT
(A) RESULT IN THE VIOLATION OF ANY PROVISION OF THE CERTIFICATE OF INCORPORATION
OR BY-LAWS OF THE COMPANY, (B) RESULT IN ANY VIOLATION OF ANY LAW, STATUTE,
RULE, REGULATION, ORDER, WRIT, INJUNCTION, JUDGMENT OR DECREE OF ANY COURT OR
GOVERNMENTAL AUTHORITY TO OR BY WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS
BOUND, OR (C) CONFLICT WITH, OR RESULT IN A BREACH OR VIOLATION OF, ANY OF THE
TERMS OR PROVISIONS OF, OR CONSTITUTE (WITH DUE NOTICE OR LAPSE OF TIME OR BOTH)
A DEFAULT UNDER, ANY LEASE, LOAN AGREEMENT, MORTGAGE, SECURITY AGREEMENT, TRUST
INDENTURE OR OTHER AGREEMENT TO WHICH THE COMPANY OR ANY OF ITS SUBSIDIARIES IS
A PARTY OR BY WHICH IT IS BOUND OR TO WHICH ANY OF ITS PROPERTIES OR ASSETS IS
SUBJECT, NOR RESULT IN THE CREATION OR IMPOSITION OF ANY LIEN UPON ANY OF THE
PROPERTIES OR ASSETS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, IN THE CASE OF
CLAUSES (B) AND (C), ONLY TO THE EXTENT SUCH CONFLICT, BREACH OR VIOLATION
REASONABLY COULD, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR RESULT IN A MATERIAL
ADVERSE EFFECT.

 

(ii)           No consent, approval, license, permit, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority remains to be obtained or is
otherwise required to be obtained by the Company in connection with the
authorization, execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby, including, without limitation the issue
and sale of the Units, except (i) filings as may be required to be made by the
Company after the Closing with (A) the Commission, (B) the NASD, (C) the Nasdaq
Stock Market, Inc. and (D) state blue sky or other securities regulatory
authorities.

 

(I)            THE COMPANY AND ITS SUBSIDIARIES HAVE ALL LICENSES, PERMITS AND
OTHER GOVERNMENTAL AUTHORIZATIONS CURRENTLY REQUIRED FOR THE CONDUCT OF ITS
CURRENT BUSINESS AND THE OWNERSHIP OF ITS PROPERTIES AND IS IN ALL RESPECTS
COMPLYING THEREWITH, EXCEPT WHERE THE FAILURE TO

 

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have such licenses, permits and other governmental authorizations would not have
a Material Adverse Effect.

 

(J)            EXCEPT AS SET FORTH IN THE COMPANY’S COMMISSION DOCUMENTS, THERE
ARE NO PENDING CLAIMS, ACTIONS, SUITS, INVESTIGATIONS OR PROCEEDINGS PENDING OR,
TO THE COMPANY’S KNOWLEDGE, THREATENED PROCEEDINGS AGAINST THE COMPANY AND ITS
SUBSIDIARIES OR THEIR RESPECTIVE ASSETS, AT LAW OR IN EQUITY, BY OR BEFORE ANY
GOVERNMENTAL AUTHORITY, OR BY OR ON BEHALF OF ANY THIRD PARTY.

 

(K)           THE COMPANY IS NOT, AND FOLLOWING THE CLOSING OF THE OFFERING WILL
NOT BE, AN “INVESTMENT COMPANY” WITHIN THE MEANING OF THAT TERM UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND THE RULES AND REGULATIONS OF THE
COMMISSION THEREUNDER.

 

(L)            EXCEPT AS DESCRIBED IN SCHEDULE 6.11 TO THE SECURITIES PURCHASE
AGREEMENT, NEITHER THE COMPANY NOR ANY OF ITS SUBSIDIARIES IS (I) IN DEFAULT
UNDER OR IN VIOLATION OF ANY INDENTURE, LOAN OR CREDIT AGREEMENT OR , IN ANY
MATERIAL RESPECT, UNDER ANY OTHER AGREEMENT OR INSTRUMENT TO WHICH IT IS A PARTY
OF BY WHICH IT OR ANY OF ITS PROPERTIES IS BOUND OR (II) IN VIOLATION OF ANY
ORDER, DECREE OR JUDGMENT OF ANY COURT, ARBITRATOR OR GOVERNMENTAL BODY.

 

(M)          EXCEPT AS DISCLOSED IN THE COMMISSION DOCUMENTS, THE COMPANY HAS
NOT SINCE DECEMBER 31, 2002, RECEIVED NOTICE (WRITTEN OR ORAL) FROM ANY STOCK
EXCHANGE OR MARKET ON WHICH THE COMMON STOCK IS OR HAS BEEN LISTED (OR ON WHICH
IT HAS BEEN QUOTED) TO THE EFFECT THAT THE COMPANY IS NOT IN COMPLIANCE WITH THE
CONTINUING LISTING OR MAINTENANCE REQUIREMENTS OF THE EXCHANGE OR MARKET.

 

(N)           EXCEPT AS SET FORTH IN THE COMPANY’S 2002 10-K, THE COMPANY AND
ITS SUBSIDIARIES HAVE, OR HAVE RIGHTS TO USE, ALL PATENTS, PATENT APPLICATIONS,
TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS AND
LICENSES (COLLECTIVELY, THE “INTELLECTUAL PROPERTY RIGHTS”) WHICH ARE NECESSARY
FOR USE IN CONNECTION WITH ITS BUSINESS AS PRESENTLY CONDUCTED OR WHICH THE
FAILURE TO HAVE WOULD HAVE A MATERIAL ADVERSE EFFECT AND TO THE COMPANY’S
KNOWLEDGE, THERE IS NO EXISTING INFRINGEMENT BY ANOTHER PERSON OR ENTITY OF ANY
OF THE INTELLECTUAL PROPERTY RIGHTS WHICH ARE NECESSARY FOR USE IN CONNECTION
WITH THE COMPANY’S BUSINESS AS PRESENTLY CONDUCTED.  THERE IS NO PENDING OR, TO
THE COMPANY’S KNOWLEDGE, THREATENED ACTION, SUIT, PROCEEDING OR CLAIM BY OTHERS
CHALLENGING THE VALIDITY OR SCOPE OF THE INTELLECTUAL PROPERTY RIGHTS OR
ALLEGING THAT THE COMPANY INFRINGES OR OTHERWISE VIOLATES ANY PATENT, TRADEMARK,
COPYRIGHT, TRADE SECRET OR OTHER PROPRIETARY RIGHT OF OTHERS.

 

(O)           THE COMPANY AND ITS SUBSIDIARIES HAVE OBTAINED ALL PERMITS,
LICENSES AND OTHER AUTHORIZATIONS WHICH ARE REQUIRED UNDER UNITED STATES
FEDERAL, STATE AND LOCAL LAWS RELATING TO POLLUTION OR PROTECTION OF THE
ENVIRONMENT, INCLUDING LAWS RELATED TO EMISSIONS, DISCHARGES, RELEASES OR
THREATENED RELEASES OF POLLUTANTS, CONTAMINANTS OR HAZARDOUS OR TOXIC MATERIAL
OR WASTES INTO AMBIENT AIR, SURFACE WATER, GROUND WATER OR LAND, OR OTHERWISE
RELATING TO THE MANUFACTURE, PROCESSING, DISTRIBUTION, USE, TREATMENT, STORAGE,
DISPOSAL, TRANSPORT OR HANDLING OR POLLUTANTS, CONTAMINANTS OR HAZARDOUS OR
TOXIC MATERIALS OR WASTES (“ENVIRONMENTAL LAWS”).  THE

 

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Company and its Subsidiaries are in compliance with all terms and conditions of
the required permits, licenses and authorizations and are also in full
compliance with all other limitations, restrictions, conditions and requirements
contained in the Environmental Laws or contained in any plan, except where the
failure to so comply would not have a Material Adverse Effect.  The Company is
not aware of, nor has the Company received notice of, any events, conditions,
circumstances, actions or plans which may interfere with or prevent continued
compliance or which would give rise to any liability under any Environmental
Laws.

 

(P)           ALL MATERIAL AGREEMENTS TO WHICH THE COMPANY AND ITS SUBSIDIARIES
ARE PARTIES AND WHICH ARE REQUIRED TO HAVE BEEN FILED BY THE COMPANY PURSUANT TO
THE SECURITIES ACT, THE EXCHANGE ACT AND THE RULES AND REGULATIONS THEREUNDER
HAVE BEEN FILED BY THE COMPANY WITH THE COMMISSION.  AS OF THE DATE HEREOF,
EXCEPT FOR THOSE AGREEMENTS THAT BY THEIR TERMS ARE NO LONGER IN EFFECT, EACH
SUCH AGREEMENT, TO THE EXTENT STILL MATERIAL, IS IN FULL FORCE AND EFFECT AND IS
BINDING ON THE COMPANY AND, TO THE COMPANY’S KNOWLEDGE, IS BINDING UPON SUCH
OTHER PARTIES, IN EACH CASE IN ACCORDANCE WITH ITS TERMS, AND NEITHER THE
COMPANY NOR, TO THE COMPANY’S KNOWLEDGE, ANY OTHER PARTY THERETO IS, IN ANY
MATERIAL RESPECT, IN BREACH OF OR DEFAULT UNDER ANY SUCH AGREEMENT.  EXCEPT AS
DISCLOSED IN THE COMMISSION DOCUMENTS, THE COMPANY HAS NOT RECEIVED ANY WRITTEN
NOTICE REGARDING THE TERMINATION OF ANY SUCH AGREEMENTS.

 

(Q)           THE COMPANY HAS GOOD TITLE TO ALL THE PROPERTIES AND ASSETS
REFLECTED AS OWNED BY IT IN THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN
THE EXECUTIVE SUMMARY, SUBJECT TO NO LIEN, MORTGAGE, PLEDGE, CHARGE OR
ENCUMBRANCE OF ANY KIND EXCEPT (I) THOSE, IF ANY, REFLECTED IN SUCH CONSOLIDATED
FINANCIAL STATEMENTS OR (II) THOSE WHICH ARE NOT MATERIAL IN AMOUNT AND DO NOT
ADVERSELY AFFECT THE USE MADE AND INTENDED TO BE MADE OF SUCH PROPERTY BY THE
COMPANY.  THE COMPANY HOLDS ITS LEASED PROPERTIES UNDER VALID AND BINDING
LEASES, WITH SUCH EXCEPTIONS AS ARE NOT MATERIALLY SIGNIFICANT IN RELATION TO
ITS BUSINESS.  EXCEPT AS DISCLOSED IN THE EXECUTIVE SUMMARY, THE COMPANY OWNS OR
LEASES ALL SUCH PROPERTIES AS ARE NECESSARY TO ITS OPERATIONS AS NOW CONDUCTED.

 

(R)            THE COMPANY AND ITS SUBSIDIARIES MAINTAIN INSURANCE OF THE TYPES,
AGAINST SUCH LOSSES AND IN THE AMOUNTS AND WITH SUCH INSURERS AS ARE CUSTOMARY
IN THE COMPANY’S INDUSTRY AND OTHERWISE REASONABLY PRUDENT, INCLUDING, BUT NOT
LIMITED TO, INSURANCE COVERING ALL REAL AND PERSONAL PROPERTY OWNED OR LEASED BY
THE COMPANY AGAINST THEFT, DAMAGE, DESTRUCTION, ACTS OF VANDALISM AND ALL OTHER
RISKS CUSTOMARILY INSURED AGAINST BY SIMILARLY SITUATED COMPANIES, ALL OF WHICH
INSURANCE IS IN FULL FORCE AND EFFECT.

 

(S)           THE COMPANY AND ITS SUBSIDIARIES ARE IN COMPLIANCE IN ALL MATERIAL
RESPECTS WITH ALL APPLICABLE LAWS AND ALL ORDERS OF, AND AGREEMENTS WITH, ANY
GOVERNMENTAL AUTHORITY APPLICABLE TO THE COMPANY, ANY SUBSIDIARY OR ANY OF THEIR
RESPECTIVE ASSETS.  THE COMPANY AND THE SUBSIDIARIES HAVE ALL PERMITS,
CERTIFICATES, LICENSES, APPROVALS AND OTHER AUTHORIZATIONS REQUIRED UNDER
APPLICABLE LAWS OR NECESSARY IN CONNECTION WITH THE CONDUCT OF THEIR BUSINESSES,
EXCEPT WHERE THE FAILURE TO HAVE SUCH PERMITS, CERTIFICATES, LICENSES, APPROVALS
AND OTHER AUTHORIZATIONS WOULD NOT HAVE A MATERIAL ADVERSE EFFECT.

 

8

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(T)            THE COMPANY AND ITS SUBSIDIARIES HAVE IN ALL MATERIAL RESPECTS
FILED OR OBTAINED EXTENSIONS OF ALL FEDERAL, STATE, LOCAL AND FOREIGN INCOME,
EXCISE, FRANCHISE, REAL ESTATE, SALES AND USE AND OTHER TAX RETURNS HERETOFORE
REQUIRED BY ANY LAW TO WHICH THE COMPANY IS BOUND TO BE FILED BY IT.  ALL
MATERIAL FEDERAL, STATE, COUNTY, LOCAL, FOREIGN OR OTHER INCOME TAXES WHICH HAVE
BECOME DUE OR PAYABLE BY THE COMPANY OR ANY OF ITS SUBSIDIARIES (COLLECTIVELY,
“TAXES”), HAVE BEEN PAID IN FULL OR ARE ADEQUATELY PROVIDED FOR IN ACCORDANCE
WITH GAAP ON THE FINANCIAL STATEMENTS OF THE APPLICABLE PERSON.  NO LIENS
ARISING FROM OR IN CONNECTION WITH TAXES HAVE BEEN FILED AND ARE CURRENTLY IN
EFFECT AGAINST THE COMPANY OR ANY OF ITS SUBSIDIARIES, EXCEPT FOR LIENS FOR
TAXES WHICH ARE NOT YET DUE OR WHICH WOULD NOT HAVE A MATERIAL ADVERSE EFFECT. 
EXCEPT AS DISCLOSED IN THE COMMISSION DOCUMENTS, NO AUDITS OR INVESTIGATIONS ARE
PENDING OR, TO THE KNOWLEDGE OF THE COMPANY, THREATENED WITH RESPECT TO ANY TAX
RETURNS OR TAXES OF THE COMPANY OR ANY OF ITS SUBSIDIARIES.

 

(U)           THE COMPANY IS IN COMPLIANCE IN ALL MATERIAL RESPECTS WITH ALL
PRESENTLY APPLICABLE PROVISIONS OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED, INCLUDING THE REGULATIONS AND PUBLISHED INTERPRETATIONS
THEREUNDER (“ERISA”); NO “REPORTABLE EVENT” (AS DEFINED IN ERISA) HAS OCCURRED
WITH RESPECT TO ANY “PENSION PLAN” (AS DEFINED IN ERISA) FOR WHICH THE COMPANY
WOULD HAVE ANY MATERIAL LIABILITY; THE COMPANY HAS NOT INCURRED AND DOES NOT
EXPECT TO INCUR LIABILITY UNDER (I) TITLE IV OF ERISA WITH RESPECT TO
TERMINATION OF, OR WITHDRAWAL FROM, ANY “PENSION PLAN” OR (II) SECTIONS 412 OR
4971 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING THE REGULATIONS
AND PUBLISHED INTERPRETATIONS THEREUNDER (THE “CODE”); AND EACH “PENSION PLAN”
FOR WHICH THE COMPANY WOULD HAVE ANY LIABILITY THAT IS INTENDED TO BE QUALIFIED
UNDER SECTION 401(A) OF THE CODE IS SO QUALIFIED IN ALL MATERIAL RESPECTS AND
NOTHING HAS OCCURRED, WHETHER BY ACTION OR BY FAILURE TO ACT, WHICH WOULD CAUSE
THE LOSS OF SUCH QUALIFICATION.

 

(V)           THE COMPANY IS NOT INVOLVED IN ANY MATERIAL LABOR DISPUTE WITH ITS
EMPLOYEES NOR IS ANY SUCH DISPUTE, TO THE COMPANY’S KNOWLEDGE, THREATENED OR
IMMINENT.

 

(W)          ASSUMING THE TRUTH OF THE PURCHASERS’ REPRESENTATIONS AND
ACKNOWLEDGMENTS CONTAINED IN SECTION 5 OF THE SECURITIES PURCHASE AGREEMENT,
NEITHER THE COMPANY NOR ANY PERSON ACTING ON ITS BEHALF (OTHER THAN THE
PURCHASERS, AS TO WHOM THE COMPANY MAKES NO REPRESENTATIONS) HAS OFFERED OR SOLD
THE UNITS BY MEANS OF ANY GENERAL SOLICITATION OR GENERAL ADVERTISING WITHIN THE
MEANING OF RULE 502(C) UNDER THE SECURITIES ACT.  THE COMPANY HAS NOT SOLD THE
UNITS TO ANYONE OTHER THAN THE PURCHASERS DESIGNATED IN THE SECURITIES PURCHASE
AGREEMENT.  EACH SHARE CERTIFICATE AND WARRANT SHARE CERTIFICATE SHALL BEAR
SUBSTANTIALLY THE SAME LEGEND SET FORTH IN SECTION 8 OF THE SECURITIES PURCHASE
AGREEMENT FOR AT LEAST SO LONG AS REQUIRED BY THE SECURITIES ACT.

 

(X)            OTHER THAN BREAN MURRAY & CO., INC. (AS PLACEMENT AGENT ON BEHALF
OF THE COMPANY) AND ANY SUBAGENTS IT MAY APPOINT PURSUANT TO THE EXECUTIVE
SUMMARY, NO FINDER, BROKER, AGENT, FINANCIAL PERSON OR OTHER INTERMEDIARY HAS
ACTED ON BEHALF OF THE COMPANY IN CONNECTION WITH THE SALE OF THE UNITS BY THE
COMPANY OR THE CONSUMMATION OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY.  THE COMPANY HAS NOT HAD ANY DIRECT OR INDIRECT

 

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contact with any other investment banking firm (or similar firm) with respect to
the offer of the Units by the Company to the Purchasers or the Purchasers’
subscription for the Units.

 

4.             PLACEMENT AGENT APPOINTMENT AND COMPENSATION.  (A)  THE COMPANY
HEREBY APPOINTS THE PLACEMENT AGENT AND THE PLACEMENT AGENT AGREES TO ACT ON A
BEST EFFORTS BASIS WITH RESPECT TO THE MAXIMUM OFFERING, AS THE COMPANY’S
EXCLUSIVE AGENT IN CONNECTION WITH THE OFFERING.  THE COMPANY HAS NOT AND WILL
NOT MAKE, OR PERMIT TO BE MADE, ANY OFFERS OR SALES OF THE UNITS OTHER THAN
THROUGH THE PLACEMENT AGENT WITHOUT ITS PRIOR WRITTEN CONSENT.  THE PLACEMENT
AGENT HAS NO OBLIGATION TO PURCHASE ANY OF THE UNITS.  THE AGENCY OF THE
PLACEMENT AGENT HEREUNDER SHALL CONTINUE UNTIL THE LATER OF THE TERMINATION DATE
OR THE CLOSING (AS DEFINED BELOW).

 

(B)           THE COMPANY HAS CAUSED TO BE DELIVERED, OR MADE AVAILABLE VIA
EDGAR, TO THE PLACEMENT AGENT COPIES OF THE EXECUTIVE SUMMARY AND THE COMMISSION
DOCUMENTS AND HAS CONSENTED, AND HEREBY CONSENTS, TO THE USE OF SUCH COPIES FOR
THE PURPOSES PERMITTED BY THE SECURITIES ACT AND APPLICABLE SECURITIES LAWS, AND
HEREBY AUTHORIZES THE PLACEMENT AGENT TO USE THE EXECUTIVE SUMMARY AND THE
COMMISSION DOCUMENTS IN CONNECTION WITH THE SALE OF THE UNITS UNTIL THE
TERMINATION DATE, AND NO PERSON OTHER THAN THE PLACEMENT AGENT IS OR WILL BE
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THE EXECUTIVE SUMMARY OR THE COMMISSION DOCUMENTS OR TO USE ANY
INFORMATION OR REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE EXECUTIVE
SUMMARY OR THE COMMISSION DOCUMENTS IN CONNECTION WITH THE SALE OF THE UNITS.

 

(C)           THE COMPANY WILL COOPERATE WITH THE PLACEMENT AGENT BY MAKING
AVAILABLE TO ITS REPRESENTATIVES SUCH INFORMATION AS MAY BE REQUESTED IN MAKING
A REASONABLE INVESTIGATION OF THE COMPANY AND ITS AFFAIRS AND SHALL PROVIDE
ACCESS TO SUCH EMPLOYEES AS SHALL BE REASONABLY REQUESTED.

 

(D)           AT THE CLOSING (AS DEFINED BELOW), THE COMPANY SHALL PAY TO THE
PLACEMENT AGENT A PLACEMENT FEE (THE “PLACEMENT AGENT’S FEE”) EQUAL TO SEVEN
PERCENT (7%) OF THE OFFERING PRICE OF ALL THE UNITS SOLD IN SUCH CLOSING (AS
DEFINED BELOW) AND FOR WHICH FUNDS ARE DISBURSED TO THE COMPANY.  THE PLACEMENT
AGENT’S FEE SHALL BE PAID IN UNITS BASED UPON THE PRICE PER UNIT OF COMMON STOCK
OF $2.59.

 

(E)           IN ADDITION TO THE PLACEMENT AGENT’S FEE AND REGARDLESS OF WHETHER
THE OFFERING IS CONSUMMATED, THE COMPANY SHALL PROMPTLY, UPON REQUEST THEREFOR,
REIMBURSE THE PLACEMENT AGENT FOR ALL REASONABLE, DOCUMENTED AND ACTUAL EXPENSES
(INCLUDING WITHOUT LIMITATION FEES AND DISBURSEMENTS OF COUNSEL AND ALL TRAVEL,
LODGING, MEAL AND OTHER OUT-OF-POCKET EXPENSES) INCURRED BY THE PLACEMENT AGENT
IN CONNECTION WITH THE OFFERING UP TO A MAXIMUM OF $50,000.

 

(F)            AT OR BEFORE THE CLOSING, THE COMPANY SHALL ISSUE TO THE
PLACEMENT AGENT A WARRANT (THE “PLACEMENT AGENT’S WARRANT”) TO PURCHASE 200,000
SHARES OF COMMON STOCK AND

 

10

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such Warrant shall contain the terms and conditions, and be in substantially the
form, attached as Exhibit B hereto.

 

5.             SUBSCRIPTION AND CLOSING PROCEDURES.  (A)  EACH PROSPECTIVE
PURCHASER WILL BE REQUIRED TO COMPLETE AND EXECUTE THE SECURITIES PURCHASE
AGREEMENT AND A CONFIDENTIAL PURCHASER QUESTIONNAIRE, WHICH WILL BE FORWARDED OR
DELIVERED TO THE PLACEMENT AGENT AT THE PLACEMENT AGENT’S OFFICES AT THE ADDRESS
SET FORTH IN SECTION 12 HEREOF, TOGETHER WITH THE SUBSCRIBER’S CHECK OR WIRE
TRANSFER OF IMMEDIATELY AVAILABLE UNITED STATES FUNDS IN THE FULL AMOUNT OF THE
PURCHASE PRICE FOR THE NUMBER OF UNITS DESIRED TO BE PURCHASED.

 

(B)           THE CLOSING (THE “CLOSING”) OF THE PURCHASE AND SALE OF THE UNITS
(THE “OFFERING”) WILL TAKE PLACE AT THE OFFICES OF PIPER RUDNICK LLP, 1251
AVENUE OF THE AMERICAS, NEW YORK, NEW YORK  10020, AT OR BEFORE 11:59 P.M.,
LOCAL TIME, ON SEPTEMBER 30, 2003.  THE CLOSING MAY TAKE PLACE AT ANOTHER TIME,
PLACE OR EARLIER DATE AS IS MUTUALLY AGREED UPON BY THE COMPANY AND THE
PURCHASERS IN THE OFFERING.  THE DATE OF THE CLOSING IS REFERRED TO AS THE
“CLOSING DATE.”  AT THE CLOSING, THE COMPANY WILL REGISTER IN THE NAME OF EACH
PURCHASER THAT NUMBER OF UNITS AND THAT NUMBER OF COMMON STOCK WARRANTS BEING
PURCHASED BY SUCH PURCHASER IN ACCORDANCE WITH EXHIBIT A TO THE SECURITIES
PURCHASE AGREEMENT, AGAINST PAYMENT OF EACH PURCHASER’S PURCHASE PRICE (AS
DEFINED IN THE SECURITIES PURCHASE AGREEMENT) BY CHECK OR WIRE TRANSFER OF
IMMEDIATELY AVAILABLE UNITED STATES FUNDS PAYABLE TO THE COMPANY’S ACCOUNT.  THE
UNITS AND THE COMMON STOCK WARRANTS WILL BE REGISTERED IN THE PURCHASERS’ NAMES
OR THE NAMES OF THE NOMINEES OF THE PURCHASERS PURSUANT TO INSTRUCTIONS
DELIVERED TO THE COMPANY NOT LESS THAN TWO (2) BUSINESS DAYS PRIOR TO THE
CLOSING DATE AND WILL BE DELIVERED TO THE PURCHASERS WITHIN TEN (10) BUSINESS
DAYS AFTER THE CLOSING DATE.

 

6.             FURTHER COVENANTS.  THE COMPANY HEREBY COVENANTS AND AGREES THAT:

 

(A)           EXCEPT WITH THE PRIOR WRITTEN CONSENT OF THE PLACEMENT AGENT, THE
COMPANY SHALL NOT, AT ANY TIME PRIOR TO THE CLOSING, TAKE ANY ACTION WHICH WOULD
CAUSE ANY OF THE REPRESENTATIONS AND WARRANTIES MADE BY IT IN THIS AGREEMENT NOT
TO BE COMPLETE AND CORRECT ON AND AS OF THE CLOSING DATE WITH THE SAME FORCE AND
EFFECT AS IF SUCH REPRESENTATIONS AND WARRANTIES HAD BEEN MADE ON AND AS OF EACH
SUCH DATE.

 

(B)           IF, AT ANY TIME PRIOR TO THE CLOSING, ANY EVENT SHALL OCCUR WHICH
DOES OR MAY MATERIALLY AFFECT THE COMPANY OR AS A RESULT OF WHICH IT MIGHT
BECOME NECESSARY TO AMEND OR SUPPLEMENT THE EXECUTIVE SUMMARY SO THAT THE
REPRESENTATIONS AND WARRANTIES HEREIN REMAIN TRUE, OR IN CASE IT SHALL, IN THE
OPINION OF COUNSEL TO THE PLACEMENT AGENT, BE NECESSARY TO AMEND OR SUPPLEMENT
THE EXECUTIVE SUMMARY TO COMPLY WITH REGULATION D OR ANY OTHER APPLICABLE
SECURITIES LAWS OR REGULATIONS, THE COMPANY WILL PROMPTLY NOTIFY THE PLACEMENT
AGENT AND SHALL, AT ITS SOLE COST, PREPARE AND FURNISH TO THE PLACEMENT AGENT
COPIES OF APPROPRIATE AMENDMENTS AND/OR SUPPLEMENTS IN SUCH QUANTITIES AS THE
PLACEMENT AGENT MAY REQUEST.  THE COMPANY WILL NOT AT ANY TIME, WHETHER BEFORE
OR AFTER THE CLOSING, PREPARE OR USE ANY AMENDMENT OR SUPPLEMENT TO THE
EXECUTIVE SUMMARY OF WHICH THE PLACEMENT AGENT WILL NOT PREVIOUSLY HAVE BEEN
ADVISED AND FURNISHED WITH A COPY, OR TO WHICH THE PLACEMENT AGENT OR ITS
COUNSEL WILL HAVE

 

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objected in writing or orally (confirmed in writing within twenty-four (24)
hours), or which is not in compliance with the Securities Act and the
requirements of all other rules and regulations (the “Regulations”) and other
applicable securities laws.  As soon as the Company is advised thereof, the
Company will advise the Placement Agent and its counsel, and confirm the advice
in writing, of any order preventing or suspending the use of the Executive
Summary, or the suspension of the qualification or registration of the Units for
offering or the suspension of any exemption for such qualification or
registration of the Units for offering in any jurisdiction, or of the
institution or threatened institution of any proceedings for any of such
purposes, and the Company will use commercially reasonable efforts to prevent
the issuance of any such order and, if issued, to obtain as soon as reasonably
possible the lifting thereof.

 

(C)           THE COMPANY SHALL COMPLY WITH THE SECURITIES ACT, THE REGULATIONS,
THE EXCHANGE ACT AND THE RULES AND REGULATIONS THEREUNDER, ALL APPLICABLE STATE
SECURITIES LAWS AND THE RULES AND REGULATIONS THEREUNDER IN THE STATES IN WHICH
THE PLACEMENT AGENT’S COUNSEL HAS ADVISED THE PLACEMENT AGENT THAT THE UNITS ARE
QUALIFIED OR REGISTERED FOR SALE OR EXEMPT FROM SUCH QUALIFICATION OR
REGISTRATION, SO AS TO PERMIT THE CONTINUANCE OF THE SALES OF THE UNITS, AND
WILL FILE WITH THE COMMISSION, AND SHALL PROMPTLY THEREAFTER FORWARD TO THE
PLACEMENT AGENT, ANY AND ALL REPORTS ON FORM D AS ARE REQUIRED.

 

(D)           THE COMPANY SHALL USE ITS BEST EFFORTS TO QUALIFY THE UNITS FOR
SALE UNDER THE SECURITIES LAWS OF SUCH JURISDICTIONS (WITHIN THE UNITED STATES
AND ITS TERRITORIES) AS MAY BE MUTUALLY AGREED TO BY THE COMPANY AND THE
PLACEMENT AGENT, AND THE COMPANY WILL MAKE SUCH APPLICATIONS AND FURNISH
INFORMATION AS MAY BE REQUIRED FOR SUCH PURPOSES, PROVIDED THAT THE COMPANY WILL
NOT BE REQUIRED TO QUALIFY AS A FOREIGN CORPORATION IN ANY JURISDICTION.  THE
COMPANY WILL, FROM TIME TO TIME, PREPARE AND FILE SUCH STATEMENTS AND REPORTS AS
ARE OR MAY BE REQUIRED TO CONTINUE SUCH QUALIFICATIONS IN EFFECT FOR SO LONG A
PERIOD AS THE PLACEMENT AGENT MAY REASONABLY REQUEST.

 

(E)           THE COMPANY SHALL PLACE A LEGEND ON THE CERTIFICATES REPRESENTING
THE SHARES AND THE WARRANT SHARES STATING THAT THE SECURITIES EVIDENCED THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES
LAWS, SETTING FORTH OR REFERRING TO THE APPLICABLE RESTRICTIONS ON
TRANSFERABILITY AND SALE OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE LAWS.

 

(F)            THE COMPANY SHALL APPLY THE NET PROCEEDS FROM THE SALE OF THE
UNITS FOR THE PAYMENT OF INTEREST IN THE AGGREGATE AMOUNT OF $31,500 ON, AND THE
POTENTIAL REPAYMENT OR REDEMPTION OF, OUTSTANDING CONVERTIBLE DEBT, DUE DECEMBER
31, 2003, IN THE AMOUNT OF APPROXIMATELY $250,000 AND THE REMAINING PROCEEDS TO
GENERAL CORPORATE AND WORKING CAPITAL PURPOSES.  EXCEPT WITH RESPECT TO THE
CURRENTLY OUTSTANDING CONVERTIBLE DEBT, AND INTEREST ACCRUING THEREON, AND AS
SPECIFICALLY SET FORTH IN THE EXECUTIVE SUMMARY, THE NET PROCEEDS OF THE
OFFERING SHALL NOT BE USED TO REPAY INDEBTEDNESS TO OFFICERS, DIRECTORS OR
STOCKHOLDERS OF THE COMPANY WITHOUT THE PRIOR WRITTEN CONSENT OF THE PLACEMENT
AGENT, EXCEPT FOR THE REIMBURSEMENT FOR REASONABLE AND NECESSARY EXPENSES WHICH
ARE RELATED TO COMPANY BUSINESS OR WHICH ARE INCURRED IN CONNECTION WITH
ATTENDANCE AT BOARD, COMMITTEE OR STOCKHOLDER MEETINGS.

 

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(G)           DURING THE OFFERING PERIOD, THE COMPANY SHALL MAKE AVAILABLE FOR
REVIEW BY PROSPECTIVE PURCHASERS OF THE UNITS DURING NORMAL BUSINESS HOURS AT
THE COMPANY’S OFFICES, UPON THEIR REQUEST, COPIES OF THE COMPANY’S MATERIAL
AGREEMENTS FILED WITH THE COMMISSION TO THE EXTENT THAT SUCH DISCLOSURE SHALL
NOT VIOLATE ANY OBLIGATION ON THE PART OF THE COMPANY TO MAINTAIN THE
CONFIDENTIALITY THEREOF AND SHALL AFFORD EACH PROSPECTIVE PURCHASER OF UNITS THE
OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM AN OFFICER OF THE
COMPANY CONCERNING THE TERMS AND CONDITIONS OF THE OFFERING AND THE OPPORTUNITY
TO OBTAIN SUCH OTHER ADDITIONAL INFORMATION NECESSARY TO VERIFY THE ACCURACY OF
THE EXECUTIVE SUMMARY AND THE COMMISSION DOCUMENTS TO THE EXTENT IT POSSESSES
SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EXPENSE.

 

(H)           IN CONNECTION WITH THE PLACEMENT AGENT’S DUE DILIGENCE
INVESTIGATION, THE COMPANY SHALL COOPERATE WITH THE PLACEMENT AGENT AND THE
PLACEMENT AGENT’S COUNSEL BY MAKING AVAILABLE TO THE PLACEMENT AGENT’S
REPRESENTATIVES SUCH INFORMATION AS MAY BE APPROPRIATE IN MAKING A REASONABLE
INVESTIGATION OF THE COMPANY AND ITS AFFAIRS.

 

(I)            SUBJECT TO THE PROVISIONS OF SECTION 4(E) HEREOF, THE COMPANY
SHALL PAY ALL REASONABLE EXPENSES INCURRED IN CONNECTION WITH THE PREPARATION
AND PRINTING OF ALL NECESSARY OFFERING DOCUMENTS AND INSTRUMENTS RELATED TO THE
OFFERING AND THE ISSUANCE OF THE UNITS AND WILL ALSO PAY THE COMPANY’S OWN
EXPENSES FOR ACCOUNTING FEES, LEGAL FEES, AND OTHER COSTS INVOLVED WITH THE
OFFERING.  THE COMPANY WILL PROVIDE AT ITS OWN EXPENSE SUCH QUANTITIES OF THE
EXECUTIVE SUMMARY AND OTHER DOCUMENTS AND INSTRUMENTS RELATING TO THE OFFERING
AS THE PLACEMENT AGENT MAY REASONABLY REQUEST.  IN ADDITION, SUBJECT TO THE
PROVISIONS OF SECTION 4(E) HEREOF, THE COMPANY WILL PAY ALL REASONABLE FILING
FEES, COSTS AND LEGAL FEES FOR BLUE SKY SERVICES AND RELATED FILINGS AND
EXPENSES OF PLACEMENT AGENT’S COUNSEL WITH RESPECT TO BLUE SKY QUALIFICATIONS,
IF ANY, AND THE PREPARATION AND FILING OF THE FORM D REFERRED TO IN (L) BELOW.

 

(J)            UNTIL THE TERMINATION DATE, NEITHER THE COMPANY NOR ANY PERSON OR
ENTITY ACTING ON ITS BEHALF WILL NEGOTIATE WITH ANY OTHER PLACEMENT AGENT OR
UNDERWRITER WITH RESPECT TO A PRIVATE OR PUBLIC OFFERING OF THE COMPANY’S OR ANY
SUBSIDIARY’S DEBT OR EQUITY SECURITIES.  NEITHER THE COMPANY NOR ANYONE ACTING
ON ITS BEHALF WILL, UNTIL THE TERMINATION DATE, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE PLACEMENT AGENT, OFFER FOR SALE TO, OR SOLICIT OFFERS TO
SUBSCRIBE FOR UNITS OR OTHER SECURITIES OF THE COMPANY FROM, OR OTHERWISE
APPROACH OR NEGOTIATE IN RESPECT THEREOF WITH, ANY OTHER PERSON.

 

(K)           PRIOR TO THE CLOSING, THE COMPANY WILL NOT INCUR ANY MATERIAL
INDEBTEDNESS OR DISPOSE OF ANY MATERIAL ASSETS OR MAKE ANY MATERIAL ACQUISITION
OR CHANGE IN ITS BUSINESS OR OPERATIONS, EXCEPT WITH THE PLACEMENT AGENT’S
KNOWLEDGE.

 

(L)            THE COMPANY SHALL FILE A NOTICE OF SALES OF SECURITIES ON FORM D
WITH THE COMMISSION NO LATER THAN FIFTEEN (15) DAYS AFTER THE FIRST SALE OF THE
UNITS.  THE COMPANY SHALL FILE PROMPTLY SUCH AMENDMENTS TO SUCH NOTICE ON FORM D
AS SHALL BECOME NECESSARY AND SHALL ALSO COMPLY WITH ANY FILING REQUIREMENT
IMPOSED BY THE LAWS OF ANY STATE OF JURISDICTION IN WHICH

 

13

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offers and sales are made.  The Company shall furnish the Placement Agent with
copies of all filings.

 

(M)          THE COMPANY SHALL NOT, DURING THE PERIOD COMMENCING ON THE DATE
HEREOF AND ENDING ON THE LATER OF THE TERMINATION DATE AND THE CLOSING, ISSUE
ANY PRESS RELEASE OR OTHER PUBLIC COMMUNICATION, OR HOLD ANY PRESS CONFERENCE
WITH RESPECT TO THE COMPANY, ITS FINANCIAL CONDITION, RESULTS OF OPERATIONS,
BUSINESS, PROPERTIES, ASSETS OR LIABILITIES, OR THE OFFERING, WITHOUT THE PRIOR
KNOWLEDGE OF THE PLACEMENT AGENT.

 

7.             CONDITIONS OF PLACEMENT AGENT’S OBLIGATIONS.  THE OBLIGATIONS OF
THE PLACEMENT AGENT HEREUNDER ARE SUBJECT TO THE FULFILLMENT OR WAIVER BY THE
PLACEMENT AGENT, AT OR BEFORE THE CLOSING (UNLESS THE PLACEMENT AGENT
SPECIFICALLY AGREES IN WRITING TO ACCEPT FULFILLMENT OF SUCH CONDITION AFTER THE
CLOSING), OF THE FOLLOWING ADDITIONAL CONDITIONS:

 

(A)           EACH OF THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY
CONTAINED IN THIS AGREEMENT WHICH ARE QUALIFIED AS TO MATERIALITY MUST BE TRUE
AND CORRECT AS WRITTEN AND EACH OF THE REPRESENTATIONS AND WARRANTIES OF THE
COMPANY CONTAINED IN THIS AGREEMENT WHICH ARE NOT QUALIFIED AS TO MATERIALITY
MUST BE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE CLOSING DATE AND
THERE SHALL HAVE BEEN NO MATERIAL ADVERSE CHANGES IN THE FINANCIAL CONDITION,
BUSINESS OR PROSPECTS OF THE COMPANY.

 

(B)           THE COMPANY SHALL HAVE PERFORMED AND COMPLIED IN ALL MATERIAL
RESPECTS WITH ALL AGREEMENTS, COVENANTS AND CONDITIONS REQUIRED TO BE PERFORMED
AND COMPLIED WITH BY IT UNDER THE TRANSACTION DOCUMENTS AT OR BEFORE THE
CLOSING.

 

(C)           NO ORDER SUSPENDING THE USE OF THE EXECUTIVE SUMMARY OR ENJOINING
THE OFFERING OR SALE OF THE UNITS OR THE COMMON STOCK WARRANTS SHALL HAVE BEEN
ISSUED, AND NO PROCEEDINGS FOR THAT PURPOSE OR A SIMILAR PURPOSE SHALL HAVE BEEN
INITIATED OR PENDING, OR, TO THE BEST OF THE COMPANY’S KNOWLEDGE, ARE
CONTEMPLATED OR THREATENED NOR HAS ANY ORDER BEEN ISSUED HALTING THE TRADING OF
THE UNITS OR THE COMMON STOCK WARRANTS ON THE NASDAQ SMALLCAP MARKET .

 

(D)           IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE CLOSING, THE COMPANY
WILL HAVE AN AUTHORIZED CAPITALIZATION AS SET FORTH IN THE COMMISSION DOCUMENTS.

 

(E)           THE PLACEMENT AGENT SHALL HAVE RECEIVED CERTIFICATES OF THE CHIEF
EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF THE COMPANY, DATED AS OF THE
CLOSING DATE, CERTIFYING IN THEIR CAPACITY AS OFFICERS OF THE COMPANY, IN SUCH
DETAIL AS THE PLACEMENT AGENT MAY REASONABLY REQUEST, AS TO THE FULFILLMENT OF
THE CONDITIONS SET FORTH IN SUBPARAGRAPHS (A), (B), (C) AND (D) ABOVE.

 

(F)            THE COMPANY SHALL HAVE DELIVERED TO THE PLACEMENT AGENT (I) A
CURRENTLY DATED GOOD STANDING CERTIFICATE FROM THE SECRETARY OF STATE OF THE
STATE OF DELAWARE, (II) CERTIFIED RESOLUTIONS OF THE COMPANY’S BOARD OF
DIRECTORS APPROVING THIS AGREEMENT AND THE OTHER

 

14

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Transaction Documents, and the transactions and agreements contemplated by this
Agreement and the other Transaction Documents (iii) a copy of the Certificate of
Incorporation of the Company and all amendments thereto, certified by the
Secretary of State of the State of Delaware and the Secretary of the Company,
(iv) a copy of the Bylaws of the Company and all amendments thereto, certified
by the Secretary of the Company and (v) the names of the officers of the Company
authorized to sign this Agreement and the other Transaction Documents to be
executed by each such officer, together with the true signatures of each such
officer.

 

(G)           AT CLOSING, THE CHIEF EXECUTIVE OFFICER AND THE CHIEF FINANCIAL
OFFICER OF THE COMPANY SHALL HAVE PROVIDED A CERTIFICATE TO THE PLACEMENT AGENT
CONFIRMING THAT THERE HAVE BEEN NO MATERIAL ADVERSE CHANGES IN THE CONDITION
(FINANCIAL OR OTHERWISE)OF THE COMPANY FROM THE DATE OF THE FINANCIAL STATEMENTS
INCLUDED IN THE EXECUTIVE SUMMARY OR THE COMMISSION DOCUMENTS OTHER THAN AS SET
FORTH OR CONTEMPLATED IN THE EXECUTIVE SUMMARY.

 

(H)           AT CLOSING, THE COMPANY SHALL HAVE (I) DELIVERED TO THE PLACEMENT
AGENT THE PLACEMENT AGENT’S FEE AS SET FORTH IN SECTION 4(D) HEREOF AND THE
PLACEMENT AGENT’S WARRANT AS SET FORTH IN SECTION 4(F) HEREOF AND (II)
REIMBURSED THE PLACEMENT AGENT FOR ITS EXPENSES, INCLUDING THE FEES AND
DISBURSEMENTS OF THE PLACEMENT AGENT’S COUNSEL IN ACCORDANCE WITH SECTION 4(E)
HEREOF.

 

(I)            THERE SHALL HAVE BEEN DELIVERED TO THE PLACEMENT AGENT A SIGNED
OPINION OF COUNSEL TO THE COMPANY (THE “COMPANY COUNSEL”), DATED AS OF THE
CLOSING DATE, IN FORM AND SUBSTANCE SATISFACTORY TO COUNSEL TO THE PLACEMENT
AGENT; A FORM OF WHICH IS ATTACHED AS EXHIBIT C HERETO.

 

(J)            ALL PROCEEDINGS TAKEN AT OR PRIOR TO THE CLOSING IN CONNECTION
WITH THE AUTHORIZATION, ISSUANCE AND SALE OF THE UNITS AND THE WARRANT SHARES
WILL BE SATISFACTORY IN FORM AND SUBSTANCE TO THE PLACEMENT AGENT AND ITS
COUNSEL, AND SUCH COUNSEL SHALL HAVE BEEN FURNISHED WITH ALL SUCH DOCUMENTS AND
CERTIFICATES AS THEY MAY REASONABLY REQUEST UPON REASONABLE PRIOR NOTICE IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY.

 

8.             INDEMNIFICATION.  (A)  THE COMPANY WILL (I) INDEMNIFY AND HOLD
HARMLESS THE PLACEMENT AGENT AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
EACH PERSON, IF ANY, WHO CONTROLS THE PLACEMENT AGENT (“INDEMNITEE”) WITHIN THE
MEANING OF THE SECURITIES ACT AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR EXPENSES WHATSOEVER (OR ACTIONS OR PROCEEDINGS OR INVESTIGATIONS
IN RESPECT THEREOF), JOINT OR SEVERAL (WHICH WILL, FOR ALL PURPOSES OF THIS
AGREEMENT, INCLUDE, BUT NOT BE LIMITED TO, ALL COSTS OF DEFENSE AND
INVESTIGATION AND ALL REASONABLE ATTORNEYS’ FEES, INCLUDING APPEALS REASONABLY
INCURRED BY THE INDEMNITEE) (THE “LOSSES”), TO WHICH ANY INDEMNITEE MAY BECOME
SUBJECT, UNDER THE SECURITIES ACT OR OTHERWISE, WHETHER OR NOT INVOLVING A
THIRD-PARTY CLAIM, IN CONNECTION WITH THE PERFORMANCE OF THIS AGREEMENT,
INCLUDING THE DELIVERY OF THE EXECUTIVE SUMMARY AND COMMISSION DOCUMENTS TO EACH
PURCHASER; PROVIDED, HOWEVER, THAT THE COMPANY WILL NOT BE LIABLE IN ANY SUCH
CASE TO THE EXTENT THAT ANY SUCH CLAIM, DAMAGE OR LIABILITY RESULTS FROM (A) AN
UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN THE
EXECUTIVE SUMMARY OR AN OMISSION OR ALLEGED

 

15

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omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made in reliance upon and in conformity with
written information furnished to the Company by the Placement Agent or any such
controlling persons specifically for use in the preparation thereof, or (B) any
violations by the Placement Agent of the Securities Act or state securities laws
which do not result from a violation thereof by the Company or any of its
affiliates or (C) Placement Agent actions found by a court of competent
jurisdiction in a final determination to have been conducted in a grossly
negligent manner or to constitute gross misconduct in the performance of its
services hereunder.  In addition to the foregoing agreement to indemnify and
reimburse, the Company will indemnify and hold harmless each Indemnitee against
any and all Losses to which any Indemnitee may become subject insofar as such
costs, expenses, losses, claims, damages or liabilities arise out of or are
based upon the claim of any person or entity that he or it is entitled to
broker’s or finder’s fees from any Indemnitee in connection with the Offering. 
The Company agrees to reimburse any Indemnified Party for all such Losses, other
than third-party claims which procedure is described in Section 8(c), as they
are incurred or suffered by such Indemnified Party.  The foregoing indemnity
agreements will be in addition to any liability which the Company may otherwise
have.

 

(B)           THE PLACEMENT AGENT WILL INDEMNIFY AND HOLD HARMLESS THE COMPANY,
ITS OFFICERS, DIRECTORS, EMPLOYEES AND EACH PERSON, IF ANY, WHO CONTROLS THE
COMPANY (“COMPANY INDEMNITEE”) WITHIN THE MEANING OF THE SECURITIES ACT AGAINST
ANY AND ALL LOSSES TO WHICH THE COMPANY INDEMNITEE MAY BECOME SUBJECT UNDER THE
SECURITIES ACT OR OTHERWISE INSOFAR AS SUCH LOSSES, CLAIMS, DAMAGES OR
LIABILITIES ARE BASED UPON (I) ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT
OF ANY MATERIAL FACT CONTAINED IN THE EXECUTIVE SUMMARY, OR ARISE OUT OF OR ARE
BASED UPON THE OMISSION OR THE ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT
REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT
MISLEADING (PROVIDED, HOWEVER THAT THE INDEMNITY OF THE PLACEMENT AGENT WILL
APPLY IN EACH CASE TO THE EXTENT, BUT ONLY TO THE EXTENT, THAT SUCH UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION WAS MADE
IN THE EXECUTIVE SUMMARY IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN
INFORMATION FURNISHED TO THE COMPANY BY THE PLACEMENT AGENT SPECIFI­CALLY FOR
USE IN THE PREPARATION THEREOF) OR (II) PLACEMENT AGENT’S GROSS NEGLIGENCE OR
GROSS MISCONDUCT IN CONNECTION WITH ANY ACT OR OMISSION TO ACT BY PLACEMENT
AGENT AS A RESULT OF ITS ENGAGEMENT UNDER THIS AGREEMENT AS FOUND BY A COURT OF
COMPETENT JURISDICTION IN A FINAL DETERMINATION.  THE PLACEMENT AGENT AGREES TO
REIMBURSE ANY COMPANY INDEMNITEE FOR ALL SUCH LOSSES, OTHER THAN THIRD-PARTY
CLAIMS WHICH PROCEDURE IS DESCRIBED IN 8(C), AS THEY ARE INCURRED OR SUFFERED BY
SUCH COMPANY INDEMNITEE.  THE FOREGOING INDEMNITY AGREEMENTS WILL BE IN ADDITION
TO ANY LIABILITY WHICH THE PLACEMENT AGENT MAY OTHERWISE HAVE.

 

(C)           PROMPTLY AFTER RECEIPT BY AN INDEMNIFIED PARTY UNDER THIS SECTION
8 OF NOTICE OF THE COMMENCEMENT OF ANY ACTION, CLAIM, PROCEEDING OR
INVESTIGATION (“ACTION”), SUCH INDEMNIFIED PARTY, IF A CLAIM IN RESPECT THEREOF
IS TO BE MADE AGAINST THE INDEMNIFYING PARTY UNDER THIS SECTION 8, WILL NOTIFY
THE INDEMNIFYING PARTY OF THE COMMENCEMENT THEREOF, BUT THE OMISSION TO SO
NOTIFY THE INDEMNIFYING PARTY WILL NOT RELIEVE IT FROM ANY LIABILITY WHICH IT
MAY

 

16

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have to any indemnified party under this Section 8 unless the indemnifying party
has been substantially prejudiced by such omission.  The indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party, assume the defense thereof subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnifying party.  The indemnified party will have the right to employ
separate counsel in any such Action and to participate in the defense thereof,
but the fees and expenses of such counsel will not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
Action with counsel reasonably satisfactory to the indemnified party, provided,
however, that if the indemnified party shall be requested by the indemnifying
party to participate in the defense thereof or shall have concluded in good
faith and specifically notified the indemnifying party either that there may be
specific defenses available to it which are different from or additional to
those available to the indemnifying party, then the counsel representing it, to
the extent made necessary by such defenses, shall have the right to direct such
defenses of such Action on its behalf and in such case the reasonable fees and
expenses of such counsel in connection with any such participation or defenses
shall be paid by the indemnifying party (it being acknowledged that in
connection with any such action, the indemnifying party shall not be liable for
the expenses of more than one separate counsel).  No settlement of any Action
against an indemnified party will be made without the consent of the
indemnifying party and the indemnified party, which consent shall not be
unreasonably withheld or delayed in light of all factors of importance to such
party and no indemnifying party shall be liable to indemnify any person for any
settlement of any such claim effected without such indemnifying party’s consent.

 

9.             CONTRIBUTION.  TO PROVIDE FOR JUST AND EQUITABLE CONTRIBUTION, IF
(I) AN INDEMNIFIED PARTY MAKES A CLAIM FOR INDEMNIFICATION PURSUANT TO SECTION 8
HEREOF AND IT IS FINALLY DETERMINED, BY A JUDGMENT, ORDER OR DECREE NOT SUBJECT
TO FURTHER APPEAL, THAT SUCH CLAIMS FOR INDEMNIFICATION MAY NOT BE ENFORCED,
EVEN THOUGH THIS AGREE­MENT EXPRESSLY PROVIDES FOR INDEMNIFICATION IN SUCH CASE;
OR (II) ANY INDEMNIFIED OR INDEMNIFYING PARTY SEEKS CONTRIBUTION UNDER THE
SECURITIES ACT, THE EXCHANGE ACT OR OTHERWISE, THEN EACH INDEMNIFYING PARTY
SHALL CONTRIBUTE TO SUCH AMOUNT PAID OR PAYABLE BY SUCH INDEMNIFIED PARTY IN
SUCH PROPORTION AS IS APPROPRIATE TO REFLECT NOT ONLY SUCH RELATIVE BENEFITS BUT
ALSO THE RELATIVE FAULT OF THE COMPANY, ON THE ONE HAND, AND THE PLACEMENT
AGENT, ON THE OTHER HAND, IN CONNECTION WITH THE STATEMENTS OR OMISSIONS WHICH
RESULTED IN SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES (OR ACTIONS IN
RESPECT THEREOF), AS WELL AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS.  THE
RELATIVE BENEFITS RECEIVED BY THE COMPANY, ON THE ONE HAND, AND THE PLACEMENT
AGENT, ON THE OTHER HAND, SHALL BE DEEMED TO BE IN THE SAME PROPORTION AS THE
TOTAL NET PROCEEDS FROM THE OFFERING (BEFORE DEDUCTING EXPENSES) RECEIVED BY THE
COMPANY BEAR TO THE TOTAL COMMISSIONS AND FEES RECEIVED BY THE PLACEMENT AGENT. 
THE RELATIVE FAULT, IN THE CASE OF AN UNTRUE STATEMENT, ALLEGED UNTRUE
STATEMENT, OMISSION OR ALLEGED OMISSION WILL BE DETERMINED BY, AMONG OTHER
THINGS, WHETHER SUCH STATEMENT, ALLEGED STATEMENT, OMISSION OR ALLEGED OMISSION
RELATES TO INFORMATION SUPPLIED BY THE COMPANY OR BY THE PLACEMENT AGENT, AND
THE PARTIES’ RELATIVE INTENT, KNOWLEDGE, ACCESS TO INFORMATION AND OPPORTUNITY
TO CORRECT OR PREVENT SUCH STATEMENT, ALLEGED STATEMENT, OMISSION OR ALLEGED
OMISSION.  THE COMPANY AND THE PLACEMENT AGENT AGREE THAT IT WOULD BE UNJUST AND
INEQUITABLE

 

17

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if the respective obligations of the Company and the Placement Agent for
contribution were determined by pro rata allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other method or allocation
that does not reflect the equitable considerations referred to in this Section
9.  No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.  For purposes of
this Section 9, each person, if any, who controls the Placement Agent within the
meaning of the Securities Act will have the same rights to contribution as the
Place­ment Agent, and each person, if any, who controls the Company within the
meaning of the Securities Act will have the same rights to contribution as the
Company, subject in each case to the pro­visions of this Section 9.  Anything in
this Section 9 to the contrary notwithstanding, no party will be liable for
contribution with respect to the settlement of any claim or action effected
without its prior written consent.  This Section 9 is intended to supersede, to
the extent permitted by law, any right to contribution under the Securities Act,
the Exchange Act or otherwise available.

 

10.           TERMINATION.  (A)  THE OFFERING MAY BE TERMINATED BY THE PLACEMENT
AGENT AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFERING PERIOD AS CONTEMPLATED
IN SECTION 1(B) HEREOF (“EXPIRATION DATE”) IN THE EVENT (I) THAT THE CLOSING
SHALL NOT HAVE BEEN CONSUMMATED ON OR BEFORE SEPTEMBER 30, 2003, (II) THAT A
COURT OF COMPETENT JURISDICTION OR A GOVERNMENTAL, REGULATORY OR ADMINISTRATIVE
AGENCY OR COMMISSION SHALL HAVE ISSUED A NON-APPEALABLE FINAL ORDER, DECREE OR
RULING OR TAKEN ANY OTHER ACTION HAVING THE EFFECT OF PERMANENTLY RESTRAINING,
ENJOINING OR OTHERWISE PROHIBITING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, (III) THAT A BREACH IS MADE BY THE COMPANY OF ANY REPRESENTATION OR
WARRANTY CONTAINED IN THIS AGREEMENT WHICH IS QUALIFIED AS TO MATERIALITY OR A
MATERIAL BREACH IS MADE BY THE COMPANY OF ANY REPRESENTATION OR WARRANTY
CONTAINED IN THIS AGREEMENT WHICH IS NOT QUALIFIED AS TO MATERIALITY, IN EACH
CASE THAT CANNOT BE OR HAS NOT BEEN CURED WITHIN TEN (10) DAYS AFTER THE GIVING
OF WRITTEN NOTICE TO THE COMPANY OF SUCH BREACH, (IV) OF NONFULFILLMENT BY THE
COMPANY OF ANY COVENANT OR AGREEMENT CONTAINED IN THIS AGREEMENT THAT CANNOT BE
OR HAS NOT BEEN CURED WITHIN TEN (10) DAYS AFTER THE GIVING OF WRITTEN NOTICE TO
THE COMPANY OF SUCH BREACH, OR (V) ANY EVENT OCCURS WHICH COULD ADVERSELY AFFECT
THE TRANSACTIONS CONTEMPLATED HEREBY OR THE OTHER TRANSACTION DOCUMENTS OR THE
ABILITY OF THE PARTIES TO PERFORM THEREUNDER.  IF THE OFFERING IS TERMINATED
PURSUANT TO THIS SECTION 10(A), THE COMPANY WILL REIMBURSE THE PLACEMENT AGENT
FOR ANY AND ALL OUT-OF-POCKET EXPENSES INCURRED BY THE PLACEMENT AGENT WITH
RESPECT TO THE OFFERING AS SET FORTH IN SECTION 4(E).

 

(B)           THIS OFFERING MAY BE TERMINATED BY THE COMPANY AT ANY TIME PRIOR
TO THE EXPIRATION DATE IN THE EVENT THAT (I) THE PLACEMENT AGENT SHALL HAVE
FAILED TO PERFORM IN ANY MATERIAL RESPECT ANY OF ITS OBLIGATIONS HEREUNDER OR
(II) THERE SHALL OCCUR ANY EVENT DESCRIBED IN SECTION 10(A)(II) ABOVE NOT
OCCASIONED BY OR ARISING OUT OF OR IN CONNECTION WITH ANY MATERIAL BREACH OR
FAILURE HEREUNDER ON THE PART OF THE COMPANY.  IN THE EVENT OF ANY SUCH
TERMINATION BY THE COMPANY, THE PLACEMENT AGENT SHALL BE ENTITLED TO BE
REIMBURSED FOR ITS EXPENSES IN ACCORDANCE WITH SECTION 4(E) HEREOF, BUT THE
COMPANY SHALL OWE NO OTHER AMOUNTS WHATSOEVER

 

18

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except as may be due under any indemnity or contribution obligation provided
herein or any other Transaction Document, at law or otherwise.

 

(C)           UPON ANY SUCH TERMINATION, AT THE REQUEST OF THE PLACEMENT AGENT,
ALL MONIES RECEIVED IN RESPECT OF SUBSCRIPTIONS FOR UNITS NOT ACCEPTED BY THE
COMPANY SHALL BE PROMPTLY RETURNED TO SUCH SUBSCRIBERS WITHOUT INTEREST,
PENALTY, EXPENSE OR DEDUCTION.

 

11.           Survival.  (a)  The obligations of the parties to pay any costs
and expenses hereunder and to provide indemnification and contribution as
provided herein shall survive any termination hereunder until the later of (i)
the eighteenth (18th) month anniversary of the date hereof and (ii) the date
that the Company files its Form 10-K for the year ended December 31, 2004.

 

(B)           THE RESPECTIVE INDEMNITIES, AGREEMENTS, REPRESENTATIONS,
WARRANTIES AND OTHER STATEMENTS OF THE COMPANY SET FORTH IN OR MADE PURSUANT TO
THIS AGREEMENT WILL REMAIN IN FULL FORCE AND EFFECT, REGARDLESS OF ANY
INVESTIGATION MADE BY OR ON BEHALF OF, AND REGARDLESS OF ANY ACCESS TO
INFORMATION BY, THE COMPANY OR THE PLACEMENT AGENT, OR ANY OF THEIR OFFICERS OR
DIRECTORS OR ANY CONTROLLING PERSON THEREOF, AND WILL SURVIVE THE OFFER AND SALE
OF THE UNITS.

 

12.           NOTICES.  ALL COMMUNICATIONS HEREUNDER WILL BE IN WRITING AND,
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN OR AFTER NOTICE BY ONE PARTY TO
THE OTHER OF A CHANGE OF ADDRESS, IF SENT TO THE PLACEMENT AGENT, WILL BE MAILED
BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, SENT
BY OVERNIGHT EXPRESS DELIVERY SERVICE, DELIVERED PERSONALLY, RECEIPT
ACKNOWLEDGED, OR TELECOPIED AND CONFIRMED TO BREAN MURRAY & CO., INC., 570
LEXINGTON AVENUE, NEW YORK, NEW YORK 10022, ATTN: MR. A. BREAN MURRAY, TELECOPY:
(212) 702-6649; WITH A COPY TO PIPER RUDNICK LLP, 1251 AVENUE OF THE AMERICAS,
NEW YORK, NEW YORK 10020, ATTN: MICHAEL HIRSCHBERG, ESQ., TELECOPY: (212)
835-6001; AND IF SENT TO THE COMPANY, WILL BE MAILED BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, SENT BY OVERNIGHT EXPRESS
DELIVERY SERVICE, DELIVERED PERSONALLY, RECEIPT ACKNOWLEDGED, OR TELECOPIED AND
CONFIRMED TO VCAMPUS CORPORATION, 1850 CENTENNIAL PARK DRIVE, SUITE 200, RESTON,
VIRGINIA 20191-1517, ATTN: CHIEF FINANCIAL OFFICER, TELECOPY: (703) 893-1905;
WITH A COPY TO WYRICK ROBBINS YATES & PONTON LLP, 4101 LAKE BOONE TRAIL, SUITE
300, RALEIGH, NORTH CAROLINA 27607-7506, ATTN: KEVIN A. PRAKKE, ESQ., TELECOPY:
(919) 781-4865, OR AT SUCH OTHER ADDRESS OR TELECOPY NUMBER AS ANY PARTY MAY
FROM TIME TO TIME SPECIFY TO THE OTHERS.  SUCH NOTICE SHALL BE DEEMED GIVEN WHEN
ACTUALLY RECEIVED BY THE ADDRESSEE; PROVIDED, IF A NOTICE IS RECEIVED OTHER THAN
DURING NORMAL BUSINESS HOURS AT THE PLACE OF RECEIPT IT SHALL BE DEEMED RECEIVED
AT THE OPENING OF BUSINESS ON THE NEXT REGULAR BUSINESS DAY AT THE PLACE OF
RECEIPT.

 

13.           PARTIES IN INTEREST.  THE AGREEMENT HEREIN SET FORTH IS MADE
SOLELY FOR THE BENEFIT OF THE PLACEMENT AGENT, THE COMPANY, ANY PERSON
CONTROLLING EITHER OF THEM, AND THEIR RESPEC­TIVE EXECUTORS, ADMINISTRATORS,
SUCCESSORS AND ASSIGNS; AND NO OTHER PERSON WILL ACQUIRE OR HAVE ANY RIGHTS
UNDER OR BY VIRTUE OF THIS AGREEMENT.  THE TERM “SUCCESSORS AND ASSIGNS” WILL
NOT INCLUDE ANY PURCHASER, AS SUCH PURCHASER, OF THE UNITS.

 

19

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14.           APPLICABLE LAW, COSTS, ETC.  THIS AGREEMENT WILL BE GOVERNED BY,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE
(WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW).  THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED HEREBY, AND
THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT.  THE
COMPANY FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO
AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF A NON-CONVENIENT FORUM. 
THE COMPANY FURTHER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE
PLACEMENT AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE OR UNITED STATES FEDERAL
COURTS SITTING IN NEW YORK COUNTY.  SERVICE OF PROCESS MAY BE MADE UPON THE
COMPANY BY MAILING A COPY THEREOF TO IT, BY CERTIFIED OR REGISTERED MAIL, AT ITS
ADDRESS TO BE USED FOR THE GIVING OF NOTICES UNDER THIS AGREEMENT.  THE COMPANY
AND THE PLACEMENT AGENT EACH AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY.  THE PLACEMENT AGENT
OR THE COMPANY, AS THE CASE MAY BE, SHALL BE ENTITLED TO COSTS AND REASONABLE
ATTORNEY’S FEES IN THE EVENT IT PREVAILS IN ANY CLAIMS, ACTIONS, AWARDS OR
JUDGMENT UNDER THIS AGREEMENT.

 

15.           ADVERTISEMENTS.  UPON COMPLETION OF THE OFFERING, THE PLACEMENT
AGENT MAY PLACE ADVERTISEMENTS IN FINANCIAL AND OTHER PUBLICATIONS AT ITS OWN
EXPENSE DESCRIBING ITS SERVICES TO THE COMPANY HEREUNDER.

 

16.           DISCLOSURE TO THIRD PARTIES.  WITHOUT THE PRIOR CONSENT OF THE
PLACEMENT AGENT, THE COMPANY WILL NOT, SUBJECT TO APPLICABLE SECURITIES AND THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS LAWS AND/OR RULES AND REGULATIONS,
PUBLICLY REFER TO THE PLACEMENT AGENT OR PUBLICLY DISCLOSE OR OTHERWISE MAKE
AVAILABLE TO THIRD PARTIES OTHER THAN TO PURCHASERS (EXCEPT THE COMPANY’S
COUNSEL OR OTHER ADVISERS, PROVIDED THE COMPANY INFORMS THEM OF THIS PROVISION),
AND OTHER THAN IN THE EXECUTIVE SUMMARY ANY ADVICE OR OPINION, EITHER ORAL OR
WRITTEN, WHICH THE PLACEMENT AGENT PROVIDES TO THE COMPANY IN CONNECTION WITH
THIS ENGAGEMENT.

 

17.           MISCELLANEOUS.  NO PROVISION OF THIS AGREEMENT MAY BE CHANGED OR
TERMINATED EXCEPT BY A WRITING SIGNED BY THE PARTY OR PARTIES TO BE CHARGED
THEREWITH.  UNLESS EXPRESSLY SO PRO­VIDED, NO PARTY TO THIS AGREEMENT WILL BE
LIABLE FOR THE PERFOR­MANCE OF ANY OTHER PARTY’S OBLIGATIONS HEREUNDER.  ANY
PARTY HERETO MAY WAIVE COMPLIANCE BY THE OTHER WITH ANY OF THE

 

20

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terms, provisions and conditions set forth herein; provided, however that any
such waiver shall be in writing specifically setting forth those provisions
waived thereby.  No such waiver shall be deemed to constitute or imply waiver of
any other term, provision or condition of this Agreement.  This Agreement
contains the entire agreement between the parties hereto and is intended to
supersede any and all prior agreements between the parties relating to the same
subject matter.  This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which shall constitute a single
agreement.

 

[Remainder of page intentionally left blank.]

 

21

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If the foregoing is in accordance with your understand­ing of our agreement,
kindly sign and return this Placement Agent Agreement, whereupon it will become
a binding agreement between the Company and the Placement Agent in accordance
with its terms.

 

 

 

Very truly yours,

 

 

 

 

 

VCAMPUS CORPORATION

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

 

 

Accepted and agreed to this
30th day of September, 2003.

 

 

 

BREAN MURRAY & CO., INC.

 

 

 

 

 

By:

 

 

 

 

Name:

A. Brean Murray

 

 

Title:

Chairman and CEO

 

 

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