Document:

EXHIBIT 10.1

SALES AND PURCHASING CONTRACT

                                                            DATE:  July 14, 2003
WALTER WAGNER JR., CO., LLC                           Will Duncan/Jody Zimmerman
BROKER                                                 BROKER OR SALES ASSOCIATE

1.  Through  you as agent  we will  give for the  following  described  property
located at 2211  Greene  Way,  Block  2570,  Lot 1 in the  County of  Jefferson,
Commonwealth of Kentucky,  being in size 2.14 acres more or less,  together with
all improvements  thereon and fixtures and  appurtenances  therein but shall not
include any personal  property  therein that is not owned by Seller,  the sum of
One  Million  Two-hundred  Thousand  Dollars  ($1,200,000.00)  payable all cash,
including the deposit,

2. An unencumbered,  marketable title to said property to be conveyed by Deed of
General  Warranty,  with the  usual  covenants  such as any title  company  will
insure,  except easements of record,  restrictive  covenants of record as to use
and improvement of said property,  and except applicable  regulations imposed by
the Planning and Zoning Commission.

3. All real  estate  taxes  payable in the  calendar  year of  closing  shall be
prorated  between  Purchaser and Seller from January 1, of said year, to date of
deed.

4. This offer is made with the understanding  that three (3) leases encumber the
property.

5. As evidence of good faith  binding this contract a deposit of $10,000 is made
upon acceptance,  said deposit is to be held by the Walter Wagner,  Jr. Company,
LLC and is to be applied to the purchase  price upon passing of deed or refunded
should title prove uninsurable or if this offer is not accepted.

6. Should title to said property prove defective, according to the terms of the
Contract, the Seller is to pay the examination cost.

7. This  offer to  purchase  is  contingent  upon the  following  matters  being
resolved to the sole and complete satisfaction of Purchaser.

         a) Purchasers reserve the right to have Property  inspected.  Purchaser
         may contact a qualified  inspector of Purchaser's  choice to obtain any
         inspections  it  deems  necessary.   Inspections  are  to  be  made  at
         Purchaser's expense and must be to Purchaser's satisfaction.
         b)  Seller  will   provide   copies  of  leases   (which  shall  remain
         confidential)   of  the  present  tenants  within  three  (3)  days  of
         acceptance  of  this  Contract,  all  of  which  shall  be  subject  to
         Purchaser's sole satisfaction.
         c) Exercise of this  Contract is  contingent  upon Seller  providing to
         Purchaser  within five (5) calendar days of  acceptance,  evidence that
         tenant has declined

<PAGE>

Re: Sales & Purchase Contract
Re: 2211 Greene Way
Dare:  July 14, 2003
Page Two

         or failed to exercise  their  First  Right of Refusal to purchase  this
         property.

If these  contingencies  are not removed in writing by Purchaser,  within thirty
(30) days from the execution of this  Contract,  this Contract shall become null
and void, the parties shall be relieved from all  obligations,  liabilities  and
rights contained herein and the deposit called for, hereunder, shall be refunded
in full to Purchaser.

8. If these  contingencies are not removed in writing by Purchaser,  in the time
periods  provided for above,  this  Contract  shall  become null and voice,  the
parties shall be relieved from all obligations, liabilities and rights contained
herein  and the  deposit  called  for  hereunder  shall be  refunded  in full to
Purchaser.  This transaction shall be closed on or before fifteen (15) days from
the  removal of the last  contingency  contain  in  Section 9 of this  Contract.
Possession shall be given to Purchaser, on the date of the Deed.

9. TAX FREE  EXCHANGE.  Seller  acknowledges  that Buyer may elect to effect the
purchase of the Property as an exchange pursuant to Section 1031 of the Internal
Revenue Treasury Regulation 1.1031 (k)-(g)(4)(iii)("Intermediary").

Seller  shall  incur  no  liability  or  expense  beyond  those  inherent  to an
acquisition of the Property for a cash payment nor be delayed in the Closing.

Seller  agrees  to  execute  such  documents  as  are  reasonably  necessary  or
appropriate  and to otherwise  cooperate with Buyer to effectuate a Section 1031
exchange,  and Buyer hereby holds Seller free and harmless of any tax  liability
to Buyer of Such  Section  1031  exchange  except  insofar as such  liability is
attributable to the failure of Seller to perform as required hereunder.

10. the Seller  agrees to pay a  commission,  at closing,  equaling six percent
(6%) of the purchase  price called for in this  contract,  to the Walter Wagner,
Jr. Company, LLC

11. All risk of loss with respect to damages to the  Property  shall remain with
Seller  until the closing and  delivery of the deed to  Purchaser.  Purchaser is
advised to obtain  casualty  insurance  in the amount of the  purchase  price to
protect its interest.

12.  Purchaser agrees that it is Purchaser's  responsibility  to verify that the
zoning classification and form district of the property will permit its intended
use and that all utilities,  including  sanitary and storm water sewer, exist in
sufficient size and capacity for Purchaser's intended use.

<PAGE>

Re: Sales & Purchase Contract
Re: 2211 Greene Way
Dare:  July 14, 2003
Page Three

******************************************************************************
13. We have read the entire contents of this contract and acknowledge receipt of
a copy of same. It is expressly  agreed that all terms and conditions  pertinent
to this  transaction are included herein,  and no verbal  agreements of any kind
shall be  binding  upon the  parties  hereto.  We further  certify  that we have
examined  the  property  described   hereinabove  and  that  we  are  thoroughly
acquainted  with its condition and accept it as such. The parties  further agree
that  no  real  estate  broker,  salesman  or  agent  or  either  has  made  any
representation  as to the  nature  or  condition  of the  property,  or any part
thereof, nor do such brokers, salesmen, or agents, expressly or implicitly, make
any warranty or representation with regard to the property, its size or acreage,
zoning  classification,  construction condition or materials used, or any of the
fixtures,  appliances  or  appurtenances  located  on it.  Agent and the  Walter
Wagner,  Jr.  Company  LLC are no aware  of any  hidden  or  latent  defects  or
hazardous or toxic  materials,  waste or substances of any kind or nature on kin
or under the property,  though they have not made any  investigation  into these
matters. Therefore,  Purchaser releases Agent and the Walter Wagner, Jr. Company
LLC and holds them harmless from any and all loss,  costs,  claims,  damages and
expenses,  including court costs and attorneys' fees, they may incur because any
such conditions or materials are present in, on or under the property.
********************************************************************************

Unless  accepted  by 4 p.m.  on the 16th day of July  2003,  this offer null and
void.

I hereby acknowledge receipt of a copy of this offer.

                                PURCHASER:

                                /s/
                                ___________________________________

                                Time:
                                Date:

                              ACCEPTANCE BY SELLER

The above offer is accepted at ________m., on _________________ day of, 2003.

I hereby acknowledge receipt of a copy of this offer.
                                                         SELLER:
____________________________________                     _______________________

<PAGE>

COUNTER OFFER

This is a counter offer dated July 24, 2003 to the Sales and Purchasing Contract
("Contract")  dated July 14, 2003 between  ERWIN  INVESTMENTS,  as Purchaser and
LINCOLN INTERNATIONAL  CORPORATION,  as Seller, for the real property located at
2211 Greene Way, Louisville, KY.

Seller  agrees to all the  terms and  conditions  of the  Contract  in which the
purchase  price  shall be ONE MILLION TWO  HUNDRED  SIXTY  THOUSAND  DOLLARS and
no/cents ($1,260,000.00).

The Walter  Wagner Jr., Co Realtors  agrees to a maximum  five (5) percent  Real
Estate commission on this contract.

Unless accepted by 5:00 PM on July 24, 2003 this counter offer is null and void.

SELLER:  LINCOLN INTERNATIONAL CORP

BY: ____________________________________________

ITS ____________________________________________

TIME __________________  DATE __________________

ACCEPTED      ______PM ON JULY ________, 2003

PURCHASER:  ERWIN INVESTMENTS

BY: ____________________________________________

ITS ____________________________________________

TIME __________________  DATE __________________

ACCEPTED      ______PM ON JULY ________, 2003Exhibit 10.1

 

TIME AMERICA, INC.

 

SECURITIES PURCHASE AGREEMENT

 

March 22, 2004

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  Agreement to Sell and Purchase

  	
   

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Fees and Warrant

  	
   

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Closing, Delivery and Payment

  	
   

  
	
   

  	
  3.1

  	
  Closing

  	
   

  
	
   

  	
  3.2

  	
  Delivery

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Representations and Warranties of the
  Company

  	
   

  
	
   

  	
  4.1

  	
  Organization, Good Standing and Qualification

  	
   

  
	
   

  	
  4.2

  	
  Subsidiaries

  	
   

  
	
   

  	
  4.3

  	
  Capitalization; Voting Rights

  	
   

  
	
   

  	
  4.4

  	
  Authorization; Binding Obligations

  	
   

  
	
   

  	
  4.5

  	
  Liabilities

  	
   

  
	
   

  	
  4.6

  	
  Agreements; Action

  	
   

  
	
   

  	
  4.7

  	
  Obligations to Related Parties

  	
   

  
	
   

  	
  4.8

  	
  Changes

  	
   

  
	
   

  	
  4.9

  	
  Title to Properties and Assets; Liens, Etc.

  	
   

  
	
   

  	
  4.10

  	
  Intellectual Property

  	
   

  
	
   

  	
  4.11

  	
  Compliance with Other Instruments

  	
   

  
	
   

  	
  4.12

  	
  Litigation

  	
   

  
	
   

  	
  4.13

  	
  Tax Returns and Payments

  	
   

  
	
   

  	
  4.14

  	
  Employees

  	
   

  
	
   

  	
  4.15

  	
  Registration Rights and Voting Rights

  	
   

  
	
   

  	
  4.16

  	
  Compliance with Laws; Permits

  	
   

  
	
   

  	
  4.17

  	
  Environmental and Safety Laws

  	
   

  
	
   

  	
  4.18

  	
  Valid Offering

  	
   

  
	
   

  	
  4.19

  	
  Full Disclosure

  	
   

  
	
   

  	
  4.20

  	
  Insurance

  	
   

  
	
   

  	
  4.21

  	
  SEC Reports

  	
   

  
	
   

  	
  4.22

  	
  Listing

  	
   

  
	
   

  	
  4.23

  	
  No Integrated Offering

  	
   

  
	
   

  	
  4.24

  	
  Stop Transfer

  	
   

  
	
   

  	
  4.25

  	
  Dilution

  	
   

  
	
   

  	
  4.26

  	
  Patriot Act

  	
   

  
	
   

  	
  4.27

  	
  Eligibility for Resales

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Representations and Warranties of the
  Purchaser

  	
   

  
	
   

  	
  5.1

  	
  No Shorting

  	
   

  
	
   

  	
  5.2

  	
  Requisite Power and Authority

  	
   

  
	
   

  	
  5.3

  	
  Investment Representations

  	
   

  
	
   

  	
  5.4

  	
  Purchaser Bears Economic Risk

  	
   

  
	
   

  	
  5.5

  	
  Acquisition for Own Account

  	
   

  
	
   

  	
  5.6

  	
  Purchaser Can Protect Its Interest

  	
   

  
	
   

  	
  5.7

  	
  Accredited Investor

  	
   

  
	
   

  	
  5.8

  	
  Legends

  	
   

  

 

i

 

	
   

  	
  5.9

  	
  Subsequent Purchaser Notification.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Covenants of the Company

  	
   

  
	
   

  	
  6.1

  	
  Stop-Orders

  	
   

  
	
   

  	
  6.2

  	
  Listing

  	
   

  
	
   

  	
  6.3

  	
  Market Regulations

  	
   

  
	
   

  	
  6.4

  	
  Reporting Requirements

  	
   

  
	
   

  	
  6.5

  	
  Use of Funds

  	
   

  
	
   

  	
  6.6

  	
  Access to Facilities

  	
   

  
	
   

  	
  6.7

  	
  Taxes

  	
   

  
	
   

  	
  6.8

  	
  Insurance

  	
   

  
	
   

  	
  6.9

  	
  Intellectual Property

  	
   

  
	
   

  	
  6.10

  	
  Properties

  	
   

  
	
   

  	
  6.11

  	
  Confidentiality

  	
   

  
	
   

  	
  6.12

  	
  Required Approvals

  	
   

  
	
   

  	
  6.13

  	
  Reissuance of Securities

  	
   

  
	
   

  	
  6.14

  	
  Opinion

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Covenants of the Purchaser

  	
   

  
	
   

  	
  7.1

  	
  Confidentiality

  	
   

  
	
   

  	
  7.2

  	
  Non-Public Information

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Covenants of the Company and Purchaser
  Regarding Indemnification

  	
   

  
	
   

  	
  8.1

  	
  Company Indemnification

  	
   

  
	
   

  	
  8.2

  	
  Purchaser’s Indemnification

  	
   

  
	
   

  	
  8.3

  	
  Procedures

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Conversion of Convertible Note

  	
   

  
	
   

  	
  9.1

  	
  Mechanics of Conversion

  	
   

  
	
   

  	
  9.2

  	
  Maximum Conversion

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Registration Rights, Indemnification.

  	
   

  
	
   

  	
  10.1

  	
  Registration Rights Granted

  	
   

  
	
   

  	
  10.2

  	
  Indemnification

  	
   

  
	
   

  	
  10.3

  	
  Offering Restrictions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Miscellaneous

  	
   

  
	
   

  	
  11.1

  	
  Governing Law

  	
   

  
	
   

  	
  11.2

  	
  Survival

  	
   

  
	
   

  	
  11.3

  	
  Successors

  	
   

  
	
   

  	
  11.4

  	
  Entire Agreement

  	
   

  
	
   

  	
  11.5

  	
  Severability

  	
   

  
	
   

  	
  11.6

  	
  Amendment and Waiver

  	
   

  
	
   

  	
  11.7

  	
  Delays or Omissions

  	
   

  
	
   

  	
  11.8

  	
  Notices

  	
   

  
	
   

  	
  11.9

  	
  Attorneys’ Fees

  	
   

  
	
   

  	
  11.10

  	
  Titles and Subtitles

  	
   

  
	
   

  	
  11.11

  	
  Facsimile Signatures; Counterparts

  	
   

  
	
   

  	
  11.12

  	
  Broker’s Fees

  	
   

  
	
   

  	
  11.13

  	
  Construction

  	
   

  
					

 

ii

 

	
  LIST OF EXHIBITS

  	
   

  
	
  Form of Convertible Term Note

  	
  Exhibit A

  
	
  Form of Warrant

  	
  Exhibit B

  
	
  Form of Opinion

  	
  Exhibit C

  
	
  Form of Escrow Agreement

  	
  Exhibit D

  
	
  Form of Disbursement Letter

  	
  Exhibit E

  

 

iii

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this
“Agreement”) is made and entered into as of March 22, 2004, by and between
TIME AMERICA, INC., a Nevada corporation (the “Company”), and Laurus Master
Fund, Ltd., a Cayman Islands company (the “Purchaser”).

 

RECITALS

 

WHEREAS, the Company desires to issue and
sell to the Purchaser, Purchaser desires to purchase from the Company, a
three-year Convertible Term Note in the aggregate principal amount of Two
Million Dollars ($2,000,000.00) (the “Note”) in the from and substance
identical to Exhibit A attached hereto, on the terms and conditions set forth
herein, which Note shall be convertible into shares of the Company’s common
stock, $0.005 par value per share (the “Common Stock”), at $1.17  per share of Common Stock (“Fixed Conversion
Price”);

 

WHEREAS, in consideration for the purchase of
the Note, the Company has agreed to issue a warrant to the Purchaser to
purchase an aggregate of 280,000 shares of the Company’s Common Stock (the
“Warrant”), which warrant shall be the form and substance identical to Exhibit
B hereto;

 

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the
foregoing recitals and the mutual promises, representations, warranties and
covenants hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

 

1.                                       Agreement to Sell and Purchase.  Subject to the terms and conditions set
forth herein, on the Closing Date (as defined in Section 3), the Company agrees
to sell to the Purchaser, and the Purchaser hereby agrees to purchase from the
Company, the Note in the aggregate principal amount of $2,000,000.  The principal amount of the Note shall be  convertible into shares of the Company’s
Common Stock in accordance with the terms of the Note and this Agreement. The
Note purchased on the Closing Date shall be known as the “Offering.” A form of
the Note is attached hereto as Exhibit A. The Note will have a maturity date
thirty six (36) months from the date hereof (“Maturity Date”). The Note,
Warrant and shares of Common Stock issuable upon conversion of the Note and
upon exercise of the Warrant are collectively referred to herein as the
“Securities.”

 

2.                                       Fees; Warrant. 
Subject to the terms and conditions set forth herein on the Closing
Date:

 

(a)                                  The
Company will issue and deliver to the Purchaser a Warrant to purchase an
aggregate of 280,000 shares of Common Stock in connection with the Offering
(the “Warrant”) pursuant to Section 1 hereof.  The Warrant must be delivered on the Closing Date. The form of
Warrant is attached hereto as Exhibit B. All the

 

 

representations, covenants, warranties,
undertakings, and indemnification, and other rights made or granted to or for
the benefit of the Purchaser by the Company are hereby also made and granted in
respect of the Warrant and shares of the Company’s Common Stock issuable upon
exercise of the Warrant (the “Warrant Shares”).

 

(b)                                 Subject
to the terms of Section 2(d) below, the Company shall pay to Laurus
Capital Management, LLC, manager of Purchaser a closing payment in an amount
equal to $74,000(the “Closing Payment”).

 

(c)                                  The
Company shall reimburse the Purchaser for its reasonable legal fees for
services rendered to the Purchaser in preparation of this Agreement and the
Related Agreements (as hereinafter defined), and out of pocket expenses
incurred in connection with the Purchaser’s due diligence review of the
Company. Total due diligence fees shall not exceed $17,500 in the aggregate,
excluding any costs related to required third-party appraisals or extraordinary
due diligence, which costs shall be agreed to in advance by the Purchaser and
the Company or the Company shall have no obligation whatsoever to reimburse
Purchaser for the same.  Legal expenses
will not exceed $27,000.  Amounts
required to be paid hereunder will be paid at the Closing.

 

(d)                                 The
Closing Payment, legal fees and due diligence fees (net of deposits previously
paid by the Company shall be paid at Closing (as defined below) out of funds
held pursuant to a Funds Escrow Agreement of even date herewith among the
Company, Purchaser, and an Escrow Agent (the “Funds Escrow Agreement”) in the
form attached hereto as Exhibit “D” and a disbursement letter (the
“Disbursement Letter”) in the form attached hereto as Exhibit “E”.

 

3.                                       Closing,
Delivery and Payment.

 

3.1                                 Closing. 
Subject to the terms and conditions set forth herein, the closing of the
transactions contemplated hereby (the “Closing”), shall take place on such
date, and at such time and place as the Company and Purchaser shall mutually
agree upon (the “Closing Date”).

 

3.2                                 Delivery. 
Pursuant to the Funds Escrow Agreement, at the Closing on the Closing
Date, the Company will deliver to the Purchaser, among other things, a Note in
the form attached as Exhibit A in the principal amount of $2,000,000 and a
Warrant in the form attached as Exhibit B in the Purchaser’s name representing
280,000 Warrant Shares and the Purchaser will deliver to the Company, among
other things, the amounts set forth in the Disbursement Letter by wire transfer
of immediately available funds to an account of the Company as per the
Company’s written instructions to the Purchaser.

 

4.                                       Representations and Warranties of
the Company.  The Company hereby
represents and warrants to the Purchaser as of the date of this Agreement as
set forth below which disclosures shall be deemed to be supplemented by, and
subject to the Company’s filings with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, (collectively, the
“Exchange Act Filings”), copies of which have been provided to the Purchaser.

 

2

 

4.1                                 Organization,
Good Standing and Qualification.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
The Company has the corporate power and authority to own and operate its
properties and assets, to execute and deliver this Agreement, and the Note and
the Warrant to be issued in connection with this Agreement, the Security
Agreement relating to the Note dated as of March 22, 2004 between the
Company and the Purchaser, the Registration Rights Agreement relating to the
Securities dated as of March 22, 2004 between the Company and the
Purchaser and all other agreements referred to herein (collectively, the
“Related Agreements”), to issue and sell the Note and the shares of Common
Stock issuable upon conversion of the Note (the “Note Shares”), to issue and
sell the Warrant and the Warrant Shares, and to carry out the provisions of
this Agreement and the Related Agreements and to carry on its business as
presently conducted.  The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or its business.

 

4.2                                 Subsidiaries. 
Except for the Company’s wholly-owned subsidiary, Time America, Inc., an
Arizona corporation, the Company does not own or control any equity security or
other interest of any other corporation, limited partnership or other business
entity.

 

4.3                                 Capitalization; Voting Rights.

 

(a)                                  As
of the date of this Agreement, the authorized capital stock of the Company
consists of 60,000,000 shares of which 50,000,000 are shares of common stock,
par value $0.005 per share (the “Common Stock”), 13,546,052 shares of which are issued and outstanding as of
February 6, 2004, and 10,000,000 are shares of preferred stock, par value
$0.01 per share (the “Preferred Stock”), none of which shares of Preferred
Stock are issued and outstanding.

 

(b)                                 Except
as disclosed on Schedule 4.3, other than: 
(i) the shares reserved for issuance under the Company’s stock option
plans; and (ii) shares which may be granted pursuant to this Agreement and the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule 4.3, neither the offer, issuance nor sale of any of
the Note or Warrant, or the issuance of any of the Note Shares or Warrant
Shares, nor the consummation of any transaction contemplated hereby will result
in a change in the price or number of any securities of the Company
outstanding, under anti-dilution or other similar provisions contained in or
affecting any such securities.

 

(c)                                  All
issued and outstanding shares of the Company’s Common Stock:  (i) have been duly authorized and validly
issued and are fully paid and nonassessable; and (ii) were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities.

 

3

 

(d)                                 The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Company’s Certificate of Incorporation (the
“Charter”).  The Note Shares and Warrant
Shares have been duly and validly reserved for issuance. When issued in
compliance with the provisions of this Agreement and the Company’s Charter, the
Securities will be validly issued, fully paid and nonassessable, and will be
free of any liens or encumbrances; provided, however, that the Securities may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time a
transfer is proposed.

 

4.4                                 Authorization; Binding Obligations.  All corporate action on the part of the
Company, its officers and directors necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of the
Company hereunder at the Closing and, the authorization, sale, issuance and
delivery of the Note and Warrant has been taken or will be taken prior to the
Closing. The Agreement and the Related Agreements, when executed and delivered
and to the extent it is a party thereto, will be valid and binding obligations
of the Company enforceable in accordance with their terms, except:

 

(a)                                  as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and

 

(b)                                 general
principles of equity that restrict the availability of equitable or legal
remedies.

 

The sale of the Note and the subsequent
conversion of the Note into Note Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with. The issuance of the Warrant and the subsequent exercise of
the Warrant for Warrant Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with.

 

4.5                                 Liabilities. 
To the Company’s knowledge, it has no material contingent liabilities,
except current liabilities incurred in the ordinary course of business and
liabilities disclosed in any Exchange Act Filings or any filings with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the “Securities Act Filings”).

 

4.6                                 Agreements; Action.  Except as set forth on Schedule 4.6 or as disclosed in any
Exchange Act Filings:

 

(a)                                  There
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company is a
party or to its knowledge by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business);
or (ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of “off the shelf” or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company’s
products or 

 

4

 

services; or (iv) indemnification by the
Company with respect to infringements of proprietary rights.

 

(b)                                 Since
December 31,2003, the Company has not: 
(i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $50,000 or,
in the case of indebtedness and/or liabilities individually less than $50,000,
in excess of $100,000 in the aggregate; (iii) made any loans or advances to any
person not in excess, individually or in the aggregate, of $100,000, other than
ordinary advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory
in the ordinary course of business.

 

(c)                                  For
the purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such subsections.

 

4.7                                 Obligations to Related Parties.  Except as set forth on Schedule 4.7, there
are no obligations of the Company to officers, directors, stockholders or
employees of the Company other than:

 

(a)                                  for
payment of salary for services rendered and for bonus payments;

 

(b)                                 reimbursement
for reasonable expenses incurred on behalf of the Company;

 

(c)                                  for
other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company); and

 

(d)                                 obligations
listed in the Company’s financial statements or disclosed in any of its
Exchange Act Filings.

 

Except as described above, none of the
officers, directors or, to the best of the Company’s knowledge, key employees
or stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than
one percent (1%) of such company) which may compete with the Company. Except as
described above, no officer, director or stockholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company and no agreements, understandings or proposed
transactions are contemplated between the Company and any such person.  Except as set forth on Schedule 4.7,
the Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.

 

5

 

4.8                                 Changes.  Since
December 31, 2003, except as disclosed in any Security Act or Exchange Act
Filing or in any Schedule to this Agreement or to any of the Related
Agreements, there has not been:

 

(a)                                  Any
change in the assets, liabilities, financial condition, prospects or operations
of the Company, other than changes in the ordinary course of business, none of
which individually or in the aggregate has had or is reasonably expected to
have a material adverse effect on such assets, liabilities, financial
condition, prospects or operations of the Company;

 

(b)                                 Any
resignation or termination of any officer, key employee or group of employees
of the Company;

 

(c)                                  Any
material change, except in the ordinary course of business, in the contingent
obligations of the Company by way of guaranty, endorsement, indemnity, warranty
or otherwise;

 

(d)                                 Any
damage, destruction or loss, whether or not covered by insurance, materially
and adversely affecting the properties, business or prospects or financial
condition of the Company;

 

(e)                                  Any
waiver by the Company of a valuable right or of a material debt owed to it;

 

(f)                                    Any
direct or indirect material loans made by the Company to any stockholder,
employee, officer or director of the Company, other than advances made in the
ordinary course of business;

 

(g)                                 Any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder;

 

(h)                                 Any
declaration or payment of any dividend or other distribution of the assets of
the Company;

 

(i)                                     Any
labor organization activity related to the Company;

 

(j)                                     Any
debt, obligation or liability incurred, assumed or guaranteed by the Company,
except those for immaterial amounts and for current liabilities incurred in the
ordinary course of business;

 

(k)                                  Any
sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets;

 

(l)                                     Any
change in any material agreement to which the Company is a party or by which it
is bound which may, in the reasonable judgment of the Company, materially and
adversely affect the business, assets, liabilities, financial condition,
operations or prospects of the Company;

 

6

 

(m)                               Any
other event or condition of any character that, either individually or
cumulatively, has or may materially and adversely affect the business, assets,
liabilities, financial condition, prospects or operations of the Company; or

 

(n)                                 Any
arrangement or commitment by the Company to do any of the acts described in
subsection (a) through (m) above.

 

4.9                                 Title to Properties and Assets; Liens, Etc.  Except as set forth on Schedule 4.9,
the Company has good and marketable title to its properties and assets, and
good title to its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:

 

(a)                                  those
resulting from taxes which have not yet become delinquent;

 

(b)                                 minor
liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company;
and

 

(c)                                  those
that have otherwise arisen in the ordinary course of business.

 

All facilities, machinery, equipment,
fixtures, vehicles and other properties owned, leased or used by the Company
are in good operating condition and repair, ordinary wear and tear excepted,
and are reasonably fit and usable for the purposes for which they are being
used.  Except as set forth on
Schedule 4.9, the Company is in compliance with all material terms of each
lease to which it is a party or is otherwise bound.

 

4.10                           Intellectual Property.

 

(a)                                  The
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes necessary for its business as now
conducted and to the Company’s knowledge as presently proposed to be conducted
(the “Intellectual Property”), without any known infringement of the rights of
others.  There are no outstanding options,
licenses or agreements of any kind relating to the foregoing proprietary
rights, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of “off the shelf” or standard
products.

 

(b)                                 The
Company has not received any communications alleging that the Company has
violated any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity, nor
is the Company aware of any basis therefor.

 

(c)                                  The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees made prior to

 

7

 

their employment by the Company, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company.

 

4.11                           Compliance with Other Instruments.  Except as set forth on Schedule 4.11,
the Company is not in violation or default of any term of its Charter or
Bylaws, or of any material provision of any mortgage, indenture, contract,
agreement, instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order or writ applicable to the Company or its
properties.  The execution, delivery and
performance of and compliance with this Agreement and the Related Agreements to
which it is a party, and the issuance and sale of the Note by the Company and
the other Securities by the Company each pursuant hereto, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or constitute a default under any such term or provision, or result
in the creation of any mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.

 

4.12                           Litigation. 
Except as set forth on Schedule 4.12 hereto, there is no action,
suit, proceeding or investigation pending or, to the Company’s knowledge,
currently threatened against the Company that prevents the Company to enter
into this Agreement or the Related Agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or
any change in the current equity ownership of the Company, nor is the Company
aware that there is any basis for any of the foregoing. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.

 

4.13                           Tax Returns and Payments.  The Company has timely filed all tax returns
(federal, state and local) required to be filed by it.  All taxes shown to be due and payable on
such returns, any assessments imposed, and to the Company’s knowledge all other
taxes due and payable by the Company on or before the Closing, have been paid
or will be paid prior to the time they become delinquent, except for such taxes
listed in Schedule 4.13 that are being contested in good faith by the
Company.  Except as set forth on
Schedule 4.13, the Company has not been advised:

 

(a)                                  that
any of its returns, federal, state or other, have been or are being audited as
of the date hereof; or

 

(b)                                 of
any deficiency in assessment or proposed judgment to its federal, state or
other taxes.

 

The Company has no knowledge of any liability
of any tax to be imposed upon its properties or assets as of the date of this
Agreement that is not adequately provided for.

 

8

 

4.14                           Employees. 
Except as set forth on Schedule 4.14, the Company has no collective
bargaining agreements with any of its employees.  There is no labor union organizing activity pending or, to the
Company’s knowledge, threatened with respect to the Company.  Except as disclosed in the Exchange Act
Filings or on Schedule 4.14, the Company is not a party to or bound by any
currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. 
To the Company’s knowledge, no employee of the Company, nor any consultant
with whom the Company has contracted, is in violation of any term of any
employment contract, proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract
with, the Company because of the nature of the business to be conducted by the
Company; and to the Company’s knowledge the continued employment by the Company
of its present employees, and the performance of the Company’s contracts with
its independent contractors, will not result in any such violation.  The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with their duties to the Company.  The
Company has not received any notice alleging that any such violation has
occurred.  Except for employees who have
a current effective employment agreement with the Company, no employee of the
Company has been granted the right to continued employment by the Company or to
any material compensation following termination of employment with the
Company.  Except as set forth on
Schedule 4.14, the Company is not aware that any officer, key employee or
group of employees intends to terminate his, her or their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.

 

4.15                           Registration Rights and Voting Rights.  Except as set forth on Schedule 4.15
and except as disclosed in Securities Act or Exchange Act Filings, the Company
is not presently under any obligation, and has not granted any rights, to
register any of the Company’s presently outstanding securities or any of its
securities that may hereafter be issued. 
Except as set forth on Schedule 4.15 and except as disclosed in
Securities Act or Exchange Act Filings, to the Company’s knowledge, no
stockholder of the Company has entered into any agreement with respect to the
voting of equity securities of the Company.

 

4.16                           Compliance with Laws; Permits.  Except as set forth on Schedule 4.16,
to its knowledge, the Company is not in violation in any material respect of
any applicable statute, rule, regulation, order or restriction of any domestic
or foreign government or any instrumentality or agency thereof in respect of
the conduct of its business or the ownership of its properties which violation
would, in the Company’s reasonable judgment, materially and adversely affect
the business, assets, liabilities, financial condition, operations or prospects
of the Company.  No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection
with the execution and delivery of this Agreement and the issuance of any of
the Securities, except such as has been duly and validly obtained or filed, or
with respect to any filings that must be made after the Closing, as will be
filed in a timely manner.  The Company
has all material franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the
lack of which would materially and adversely affect the business, properties, prospects
or financial condition of the Company.

 

9

 

4.17                           Environmental and Safety Laws.  To the Company’s knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and no material expenditures are
or will be required in order to comply with any such existing statute, law or
regulation. Except as set forth on Schedule 4.17, no Hazardous Materials
(as defined below) are used or have been used, stored, or disposed of by the
Company or, to the Company’s knowledge, by any other person or entity on any
property owned, leased or used by the Company. For the purposes of the
preceding sentence, “Hazardous Materials” shall mean:

 

(a)                                  materials
which are listed or otherwise defined as “hazardous” or “toxic” under any
applicable local, state, federal and/or foreign laws and regulations that
govern the existence and/or remedy of contamination on property, the protection
of the environment from contamination, the control of hazardous wastes, or
other activities involving hazardous substances, including building materials;
or

 

(b)                                 any
petroleum products or nuclear materials.

 

4.18                           Valid Offering. 
Assuming the accuracy of the representations and warranties of the
Purchaser contained in this Agreement, the offer, sale and issuance of the
Securities will be exempt from the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), and will have been registered
or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.

 

4.19                           Full Disclosure.  The Company has provided the Purchaser with all information requested
by the Purchaser in connection with its decision to purchase the Note and
Warrant, including all information the Company believes is reasonably necessary
to make such investment decision. 
Neither this Agreement, the exhibits and schedules hereto, the Related
Agreements nor any other document delivered by the Company to Purchaser or its
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, to the Company’s knowledge contain
any untrue statement of a material fact nor omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they are made, not misleading.  Any financial projections and other
estimates provided to the Purchaser by the Company were based on the Company’s
experience in the industry and on assumptions of fact and opinion as to future
events which the Company, at the date of the issuance of such projections or
estimates, believed to be reasonable.

 

4.20                           Insurance. 
The Company has general commercial, product liability, fire and casualty
insurance policies with coverages which the Company believes are customary for
companies similarly situated to the Company in the same or similar business.

 

4.21                           SEC Reports. 
Except as set forth on Schedule 4.21, the Company has filed all
proxy statements, reports and other documents required to be filed by it under
the Exchange Act.  The Company has
furnished the Purchaser with copies of: 
(i) its Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2003; and (ii) its Quarterly Reports on Form 10-QSB for the
fiscal quarters ended September 30, 2003, and December 31, 2003, and
the Form 8-K filings which it has made since the filing of its Form 10-KSB
(collectively, the “SEC

 

10

 

Reports”). Except as set forth
on Schedule 4.21, each SEC Report was, at the time of its filing, in
substantial compliance with the requirements of its respective form and none of
the SEC Reports, nor the financial statements (and the notes thereto) included
in the SEC Reports, as of their respective filing dates, contained any untrue
statement of a material fact or omitted to state a 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.

 

4.22                           Listing.  The
Company’s shares of Common Stock (the “Traded Securities”) are listed for
trading on the National 
Association  of  Securities Dealers,  Inc. Over the Counter Bulletin Board (“NASD
OTCBB”) and the Traded Securities satisfy all requirements for the continuation
of such listings.  The Company has not
received any notice that any of its Traded Securities will be delisted from
NASD OTCBB or that any of its Traded Securities do not meet all requirements
for listing.

 

4.23                           No Integrated Offering.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers  or sales of
any security or solicited any offers to buy any security under circumstances
that would cause the offering of the Securities pursuant to this Agreement to
be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from selling the Securities
pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will the Company or any
of its affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.

 

4.24                           Stop Transfer. 
The Securities are restricted securities as of the date of this
Agreement.  The Company will not issue
any stop transfer order or other order impeding the sale and delivery of any of
the Securities at such time as the Securities are registered for public sale or
an exemption from registration is available, except as required by state and
federal securities laws.

 

4.25                           Dilution.  The Company specifically acknowledges that
its obligation to issue the shares of Common Stock upon conversion of the Note
and exercise of the Warrant is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company.

 

4.26                           Patriot
Act.                                   If
the Company is a corporation, trust, partnership, limited liability Purchaser
or other organization, the Company certifies that, to its knowledge, the
Company has not been designated, and is not owned or controlled, by a
“suspected terrorist” as defined in Executive Order 13224.  The Company hereby acknowledges that the
Purchaser seeks to comply with all applicable laws concerning money laundering
and related activities.  In furtherance
of those efforts, the Company hereby represents, warrants and agrees that:  (i) none of the cash or property that the
Company will pay or will contribute to the Purchaser has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Company to the
Purchaser, to the extent that they are within the Company’s control shall cause
the Purchaser to be in violation of the United States Bank Secrecy Act, the
United States International Money Laundering Control Act of 1986 or the United
States International Money Laundering Abatement and Anti-Terrorist Financing
Act of

 

11

 

2001.  The Company shall
promptly notify the Purchaser if any of these representations ceases to be true
and accurate regarding the Company.  The
Company agrees to provide the Purchaser any additional information regarding
the Company that the Purchaser deems necessary or convenient to ensure
compliance with all applicable laws concerning money laundering and similar
activities.  The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering similar activities, the Purchaser may
undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Company’s investment in the Purchaser. 
The Company further understands that the Purchaser may release
confidential information about the Company and, if applicable, any underlying
beneficial owners, to proper authorities if the Purchaser, in its sole
discretion, determines that it is in the best interests of the Purchaser in
light of relevant rules and regulations under the laws set forth in
subsection (ii) above.

 

5.                                       Representations and Warranties of
the Purchaser.  The Purchaser
hereby represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement)

 

5.1                                 No Shorting. 
The Purchaser or any of its affiliates and investment partners has not,
will not and will not cause any person or entity, directly or indirectly, to
engage in “short sales” of the Company’s Traded Securities or any other hedging
strategies as long as the Note shall be outstanding.

 

5.2                                 Requisite Power and Authority.  Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser’s part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except:

 

(a)                                  as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights;
and

 

(b)                                 as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.

 

5.3                                 Investment Representations.  Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon Purchaser’s representations contained
in the Agreement, including, without limitation, that the Purchaser is an
“accredited investor” within the meaning of Regulation D under the Securities
Act.  The Purchaser confirms that it has
received or has had full access to all the information it considers necessary
or appropriate to make an informed investment decision with respect to the Note
and the Warrant to be purchased by it under this Agreement and the Note Shares
and the Warrant Shares purchasable by it upon the conversion of the Note and
the exercise of the Warrant, respectively. 
The Purchaser further confirms that it has had an

 

12

 

opportunity to ask questions
and receive answers from the Company regarding the Company’s business,
management and financial affairs and the terms and conditions of the Offering,
the Note, the Warrant and the Securities and to obtain additional information
(to the extent the Company possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify any information
furnished to the Purchaser or to which the Purchaser had access.

 

5.4                                 Purchaser Bears Economic Risk.  Purchaser has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this investment until
the Securities are sold pursuant to: (i) an effective registration statement
under the Securities Act; or (ii) an exemption from registration is available
with respect to such sale.

 

5.5                                 Acquisition for Own Account.  Purchaser is acquiring the Note and Warrant
and the Note Shares and the Warrant Shares for Purchaser’s own account for
investment only, and not as a nominee or agent and not with a view towards or
for resale in connection with their distribution.

 

5.6                                 Purchaser Can Protect Its Interest.  Purchaser represents that by reason of its,
or of its management’s, business and financial experience, Purchaser has the
capacity to evaluate the merits and risks of its investment in the Note, the
Warrant and the Securities and to protect its own interests in connection with
the transactions contemplated in this Agreement, and the Related
Agreements.  Further, Purchaser is aware
of no publication of any advertisement in connection with the transactions
contemplated in the Agreement or the Related Agreements.

 

5.7                                 Accredited Investor.  Purchaser represents that it is an accredited
investor  within the meaning of
Regulation D under the Securities Act and a Qualified Institutional Buyer
within the meaning of Rule 144A under the Securities Act.

 

5.8                                 Legends.

 

(a)                                  The
Note shall bear substantially the following legend:

 

“THIS NOTE AND THE COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE OR SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO TIME
AMERICA, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

13

 

(b)                                 The
Note Shares and the Warrant Shares, if not issued by DWAC system (as
hereinafter defined), shall bear a legend which shall be in substantially the
following form until such shares are covered by an effective registration
statement filed with the SEC:

 

“THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE, STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO TIME AMERICA, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.”

 

(c)                                  The
Warrant shall bear substantially the following legend:

 

“THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING SHARES OF COMMON
STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO TIME AMERICA, INC. THAT SUCH REGISTRATION IS
NOT REQUIRED.”

 

5.9                                 Subsequent Purchaser Notification.   The Purchaser will take
reasonable steps to inform, and cause each of its affiliates in the United
States to take reasonable steps to inform, persons acquiring Notes from the
Purchaser or its affiliates that the Notes (A) have not been and will not be
registered under the Securities Act, (B) are being sold to them without
registration under the Securities Act in reliance on Rule 144A or in accordance
with another exemption from registration under the Securities Act, as the case
may be, and (C) may not be offered, sold or otherwise transferred except (1) to
the Company, (2) outside the United States in accordance with Regulation S
under the Securities Act or (3) inside the United States in accordance with (x)
Rule 144A to a person whom the seller reasonably believes is a Qualified
Institutional Buyer that is purchasing such Notes for its own account or for
the account of a Qualified Institutional Buyer to whom notice is given that the
offer, sale or transfer is being made in reliance on Rule 144A or (y) pursuant
to another available exemption from registration under the Securities Act.

 

6.                                       Covenants of the Company.  The Company covenants and agrees with the
Purchaser as follows:

 

14

 

6.1                                 Stop-Orders. 
The Company will advise the Purchaser, promptly after it receives notice
of issuance by the Securities and Exchange Commission (the “SEC”), any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.

 

6.2                                 Listing. 
The Company shall promptly secure the listing of the shares of Common
Stock issuable upon conversion of the Note and upon the exercise of the Warrant
on the NASD OTCBB (the “Principal Market”) upon which shares of Common Stock
are listed (subject to official notice of issuance) and shall maintain such
listing so long as any other shares of Common Stock shall be so listed. The
Company will maintain the listing of its Common Stock on the Principal Market,
and will comply in all material respects with the Company’s reporting, filing
and other obligations under the bylaws or rules of the National Association of
Securities Dealers (“NASD”) and such exchanges, as applicable.

 

6.3                                 Market Regulations.  The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to Purchaser and
promptly provide copies thereof to Purchaser.

 

6.4                                 Reporting Requirements.  The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file
reports thereunder even if the Exchange Act or the rules or regulations
thereunder would permit such termination.

 

6.5                                 Use of Funds. 
The Company agrees that it will use the proceeds of the sale of the Note
and Warrant for general corporate and working capital purposes and for
implementation of the Company’s acquisition strategy.

 

6.6                                 Access to Facilities. The Company will
permit any representatives designated by the Purchaser (or any successor of the
Purchaser), upon reasonable notice and during normal business hours, at such
person’s expense and accompanied by a representative of the Company, to:

 

(a)                                  visit
and inspect any of the properties of the Company;

 

(b)                                 examine
the corporate and financial records of the Company (unless such examination is
not permitted by federal, state or local law or by contract) and make copies
thereof or extracts therefrom; and

 

(c)                                  discuss
the affairs, finances and accounts of the Company with the directors, officers
and independent accountants of the Company.

 

Notwithstanding the foregoing, the Company
will not provide any material, non-public information to the Purchaser unless
the Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.

 

15

 

6.7                                 Taxes.  The
Company will promptly pay and discharge, or cause to be paid and discharged,
when due and payable, all lawful taxes, assessments and governmental charges or
levies imposed upon the income, profits, property or business of the Company;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto, and provided, further, that the Company
will pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien which may have attached as
security therefor.

 

6.8                                 Insurance.  The Company will keep its assets which are
of an insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in similar business similarly situated as the Company; and
the Company will maintain, with financially sound and reputable insurers,
insurance against other hazards and risks and liability to persons and property
to the extent and in the manner which the Company reasonably believes is
customary for companies in similar business similarly situated as the Company
and to the extent available on commercially reasonable terms. The Company and
each of its subsidiaries set forth in Section 4.2 hereof (the
“Subsidiaries”) will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for its obligations hereunder and under the Related
Agreements. At the Company’s own cost and expense in amounts and with carriers
reasonably acceptable to Purchaser, the Company and each of the Subsidiaries
shall (i) keep all its insurable properties and properties in which it has an
interest insured against the hazards of fire, flood, sprinkler leakage, those
hazards covered by extended coverage insurance and such other hazards, and for
such amounts, as is customary in the case of companies engaged in businesses
similar to the Company’s or the respective Subsidiary’s including business
interruption insurance; (ii) maintain a bond in such amounts as is customary in
the case of companies engaged in businesses similar to the Company’s or the
Subsidiaries’ insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company either directly or through governmental authority to draw upon such
funds or to direct generally the disposition of such assets; (iii) maintain
public and product liability insurance against claims for personal injury,
death or property damage suffered by others; (iv) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any state
or jurisdiction in which the Company or the Subsidiaries are engaged in
business; and (v) furnish Purchaser with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, (y) excepting the Company’s workers’ compensation policy,
endorsements to such policies naming Purchaser as “co-insured” or “additional
insured” and appropriate loss payable endorsements in form and substance
satisfactory to Purchaser, naming Purchaser as loss payee within five (5) days
after Closing, and (z) evidence that as to Purchaser the insurance coverage
shall not be impaired or invalidated by any act or neglect of the Company or
any of its Subsidiaries and the insurer will provide Purchaser with at least thirty
(30) days notice prior to cancellation. 
The Company and each of its Subsidiaries shall instruct the insurance
carriers that in the event of any loss thereunder, the carriers shall make
payment for such loss to the Company and/or any of the Subsidiaries and
Purchaser jointly.  In the event that as
of the date of receipt of each loss recovery upon any such insurance, the
Purchaser has not declared an event of default with

 

16

 

respect to this Agreement or any of the Related Agreements, then the
Company shall be permitted to direct the application of such loss recovery
proceeds toward investment in property, plant and equipment that would comprise
“Collateral” secured by Purchaser’s security interest pursuant to its security
agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to Purchaser. In the event that Purchaser has
properly declared an event of default with respect to this Agreement or any of
the Related Agreements, then all loss recoveries received by Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to
Purchaser) shall be paid by Purchaser to the Company or applied as may be
otherwise required by law.  Any
deficiency thereon shall be paid by the Company or any of the Subsidiaries, as
applicable, to Purchaser, on demand.

 

6.9                                 Intellectual Property.  The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and
other rights to use Intellectual Property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.

 

6.10                           Properties. 
The Company will keep its properties in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a material adverse
effect.

 

6.11                           Confidentiality.  Neither the Company nor the Purchaser shall disclose, and shall
not include in any public announcement, the name of either party unless
expressly agreed to by both parties or unless and until such disclosure is required
by law or applicable regulation, and then only to the extent of such
requirement.  The Company may disclose
Purchaser’s identity and the terms of this Agreement to its current and
prospective debt and equity financing sources.

 

6.12                           Required Approvals.  For so long as fifty percent (50%) of the aggregate principal
amount of the Note is outstanding, the Company, without the prior written
consent of the Purchaser, shall not:

 

(a)                                  directly
or indirectly declare or pay any dividends, other than dividends with respect
to its preferred stock;

 

(b)                                 initiate
bankruptcy, insolvency, reorganization or liquidation proceedings;

 

(c)                                  become
subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under
any circumstances) restrict the Company’s right to perform the provisions of
this Agreement or any of the agreements contemplated thereby;

 

(d)                                 materially
alter or change the scope of the business of the Company to other lines of
businesses that the Company is not presently involved in;

 

17

 

(e)                                  create, incur, assume
or suffer to exist any indebtedness (exclusive of trade debt and debt incurred
to finance the purchase of equipment (not in excess of ten percent (10%) per
annum of the Company’s assets) whether secured or unsecured other than the
Company’s indebtedness to Laurus, indebtedness that is by its subordinated
right of payment to the indebtedness to Laurus, and as set forth on Schedule 6.12(e)
attached hereto and made a part hereof or any refinancings or replacements
thereof or any debt incurred in connection with the purchase of assets or in
connection with operating lines of credit as necessary to operate such assets,
or any refinancings or replacements thereof; (ii) cancel any debt owing to it
in excess of $50,000 in the aggregate during any 12 month period; (iii) assume,
guarantee, endorse or otherwise become directly or contingently liable in
connection with any obligations of any other Person, except the endorsement of
negotiable instruments by a Company for deposit or collection or similar
transactions in the ordinary course of business or guarantees provided to any
of the lenders set forth in subparagraph (i) immediately above.

 

6.13                           Reissuance of Securities.  The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.8
above at such time as:

 

(a)                                  the
holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or

 

(b)                                 upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act.

 

The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule
144(k) and provide legal opinions necessary to allow such resales provided the
Company and its counsel receive reasonably requested representations from the
selling Purchaser and broker, if any.

 

6.14                           Opinion.  On the
Closing Date, the Company will deliver to the Purchaser an opinion in the form
attached hereto as Exhibit C. The Company will provide, at the Company’s
expense, such other legal opinions in the future as are reasonably necessary
for the conversion of the Note and exercise of the Warrant.

 

7.                                       Covenants of the Purchaser.  The Purchaser covenants and agrees with the
Company as follows:

 

7.1                                 Confidentiality.  The Purchaser agrees that it will not
disclose, and will not include in any public announcement, the name of the
Company, unless expressly agreed to by the Company or unless and until such
disclosure is required by law or applicable regulation, and then only to the
extent of such requirement.

 

7.2                                 Non-Public Information.  The Purchaser agrees not to effect any sales
in the shares of the Company’s Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.

 

18

 

8.                                       Covenants of the Company and Purchaser
Regarding Indemnification.

 

8.1                                 Company Indemnification.  The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser’s officers,
employees, directors, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the Purchaser which results, arises out of or is based upon: (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Company of any
covenant or undertaking to be performed by Company hereunder, or any other agreement
entered into by the Company and Purchaser relating hereto.

 

8.2                                 Purchaser’s Indemnification.  Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company’s officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon:  (i) any misrepresentation by Purchaser or
breach of any warranty by Purchaser in this Agreement or in any exhibits or
schedules attached hereto or any Related Agreement; or (ii) any breach or
default in performance by Purchaser of any covenant or undertaking to be
performed by Purchaser hereunder, or any other agreement entered into by the
Company and Purchaser relating hereto.

 

8.3                                 Procedures. 
The procedures and limitations set forth in Section 10.2(c) and (d)
shall apply to the indemnifications set forth in Sections 8.1 and 8.2 above.

 

9.                                       Conversion of Convertible Note.

 

9.1                                 Mechanics of Conversion.

 

(a)                                  Provided
the Purchaser has notified the Company of the Purchaser’s intention to sell the
Note Shares and the Note Shares are included in an effective registration
statement or are otherwise exempt from registration when sold:  (i) Upon the conversion of the Note or part
thereof, the Company shall, at its own cost and expense, take all necessary
action (including the issuance of an opinion of counsel) to assure that the
Company’s transfer agent shall issue shares of the Company’s Common Stock in
the name of the Purchaser (or its nominee) or such other persons as designated
by the Purchaser in accordance with Section 9.1(b) hereof and in such
denominations to be specified representing the number of Note Shares issuable
upon such conversion; and (ii)  The
Company warrants that no instructions other than these instructions have been
or will be given to the transfer agent of the Company’s Common Stock and that after
the Effectiveness Date (as defined in the Registration Rights Agreement) the
Note Shares issued will be freely transferable subject to the prospectus
delivery requirements of the Securities Act and the provisions of this
Agreement, and will not contain a legend restricting the resale or
transferability of the Note Shares.

 

(b)                                 Purchaser
will give notice of its decision to exercise its right to convert the Note or
part thereof by telecopying or otherwise delivering an executed and completed

 

19

 

notice of the number of shares to be
converted to the Company (the “Notice of Conversion”). The Purchaser will not
be required to surrender the Note until the Purchaser receives a credit to the
account of the Purchaser’s prime broker through the DWAC system (as defined
below), representing the Note Shares or until the Note has been fully
satisfied.  Each date on which a Notice
of Conversion is telecopied or delivered to the Company in accordance with the
provisions hereof shall be deemed a “Conversion Date.”  Pursuant to the terms of the Notice of
Conversion, the Borrower will use its best efforts to issue instructions to the
transfer agent accompanied by an opinion of counsel within two (2) business day
of the date of the delivery to Borrower of the 
Notice of Conversion  and shall
cause the transfer agent to transmit the certificates representing the
Conversion Shares to the Holder by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company (“DTC”) through its Deposit
Withdrawal Agent Commission (“DWAC”) system within three (3) business days
after receipt by the Company of the Notice of Conversion (the “Delivery Date”).

 

(c)                                  The
Company understands that a delay in the delivery of the Note Shares in the form
required pursuant to Section 9 hereof beyond the Delivery Date could
result in economic loss to the Purchaser. 
In the event that the Company fails to direct its transfer agent to
deliver the Note Shares to the Purchaser via the DWAC system within the time
frame set forth in Section 9.1(b) above and the Note Shares are not
delivered to the Purchaser by the Delivery Date, as compensation to the
Purchaser for such loss, the Company agrees to pay late payments to the
Purchaser for late issuance of the Note Shares in the form required pursuant to
Section 9 hereof upon conversion of the Note in the amount equal to the
greater of:  (i) $250 per business day
after the Delivery Date; or (ii) the Purchaser’s actual damages from such
delayed delivery. Notwithstanding the foregoing, the Company will not owe the
Purchaser any late payments if the delay in the delivery of the Note Shares
beyond the Delivery Date is solely out of the control of the Company and the
Company is actively trying to cure the cause of the delay.  The Company shall pay any payments incurred
under this Section in immediately available funds upon demand and, in the
case of actual damages, accompanied by reasonable documentation of the amount
of such damages.  Such documentation shall
show the number of shares of Common Stock the Purchaser is forced to purchase
(in an open market transaction) which the Purchaser anticipated receiving upon
such conversion, and shall be calculated as the amount by which (A) the
Purchaser’s total purchase price (including customary brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (B) the aggregate
principal and/or interest amount of the Note, for which such Conversion Notice
was not timely honored.

 

Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to a Purchaser and thus refunded to the Company.

 

9.2                                 Maximum Conversion.  The Purchaser shall not be entitled to convert on a Conversion
Date, that amount of a Note in connection with that number of shares of Common

 

20

 

Stock which would be (a) in excess
of the sum of: (i) the number of shares of Common Stock beneficially owned by
the Purchaser on a Conversion Date; and (ii) the number of shares of Common
Stock issuable upon the conversion of the Note with respect to which the
determination of this proviso is being made on a Conversion Date, which would
result in beneficial ownership by the Purchaser of more than 4.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date and
(b) (ii) exceed twenty five percent (25%) of the aggregate dollar trading
volume of the Common Stock for the ten (10) day trading period immediately
preceding delivery of a Notice of Conversion to the Borrower.  For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder. Upon
the occurrence and continuation of an Event of Default under a Note, the
conversion limitation in this Section 9.2 shall become null and void.

 

10.                                 Registration Rights, Indemnification.

 

10.1                           Registration Rights Granted.  The Company hereby grants registration
rights to the Purchaser pursuant to a Registration Rights Agreement dated as of
even date herewith between the Company and the Purchaser.

 

10.2                           Indemnification. (a) In the event of a
registration of any Registrable Securities under the Securities Act pursuant to
the Registration Rights Agreement, the Company will indemnify and hold harmless
the Purchaser, and its officers, directors and each other person, if any, who
controls the Purchaser within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the
Purchaser, or such persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities were registered under the
Securities Act pursuant to the Registration Rights Agreement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Purchaser, and each such person for any reasonable legal or other expenses
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will
not be liable in any such case if and to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by or on behalf of the Purchaser or any such person
in writing specifically for use in any such document.

 

(b)           In
the event of a registration of the Registrable Securities under the Securities
Act pursuant to the Registration Rights Agreement, the Purchaser will indemnify
and hold harmless the Company, and its officers, directors and each other
person, if any, who controls the Company within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such persons may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement

 

21

 

of any material fact contained
in the registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to the Registration Rights
Agreement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such person for any reasonable legal or other
expenses incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
Purchaser will be liable in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made
in conformity with information furnished in writing to the Company by or on
behalf of the Purchaser specifically for use in any such document.

 

(c)           Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of any action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party hereunder, notify the indemnifying
party in writing thereof, but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to such indemnified
party other than under this Section 10.2(c) and shall only relieve it from
any liability which it may have to such indemnified party under this
Section 10.2(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.2(c) for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof; if
the indemnified party retains its own counsel, then the indemnified party shall
pay all fees, costs and expenses of such counsel, provided, however, that, if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the right
to select one separate counsel and to assume such legal defenses and otherwise
to participate in the defense of such action, with the reasonable expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.

 

(d)           In
order to provide for just and equitable contribution in the event of joint
liability under the Securities Act in any case in which either:  (i) the Purchaser, or any controlling person
of the Purchaser, makes a claim for indemnification pursuant to this
Section 10.2 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this
Section 10.2 provides for indemnification in such case; or (ii)
contribution under the Securities Act may be required on the part of the
Purchaser or controlling person of the Purchaser in circumstances for which
indemnification is provided under this Section 10.2; then, and in each such
case, the

 

22

 

Company and the Purchaser will
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
the Purchaser is responsible only for the portion represented by the percentage
that the public offering price of its securities offered by the registration
statement bears to the public offering price of all securities offered by such
registration statement, provided, however, that, in any such case, (A) the
Purchaser will not be required to contribute any amount in excess of the public
offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10 of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.

 

10.3                           Offering Restrictions.  Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or shares of preferred stock issued to
pay dividends in respect of the Company’s preferred stock; or equity or debt
issued in connection with an acquisition of a business or assets by the
Company; or the issuance by the Company of stock in connection with the
establishment of a joint venture partnership or licensing arrangement (these
exceptions hereinafter referred to as the “Excepted Issuances”), the Company
will not issue any securities with a continuously variable/floating conversion
feature which are or could be (by conversion or registration) free-trading
securities (i.e. common stock subject to a registration statement) prior to the
full repayment or conversion of the Note (the “Exclusion Period”).

 

11.                                 Miscellaneous.

 

11.1                           Governing Law. 
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.  ANY ACTION BROUGHT BY EITHER
PARTY AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE
FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK.  BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND
OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION
OF SUCH COURTS AND WAIVE TRIAL BY JURY. 
IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW.  ANY SUCH PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER
ANY LAW SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION
OF ANY AGREEMENT.

 

11.2                           Survival.  The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby to the extent provided therein. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company

 

23

 

pursuant hereto in connection
with the transactions contemplated hereby shall be deemed to be representations
and warranties by the Company hereunder solely as of the date of such certificate
or instrument.

 

11.3                           Successors. 
Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, heirs,
executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by the Purchaser pursuant to Rule 144 or an effective registration
statement. Purchaser may not assign its rights hereunder to a competitor of the
Company.

 

11.4                           Entire Agreement.  This Agreement, the exhibits and schedules hereto, the Related
Agreements and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.

 

11.5                           Severability. 
In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

 

11.6                           Amendment and Waiver.

 

(a)                                  This
Agreement may be amended or modified only upon the written consent of the
Company and the Purchaser.

 

(b)                                 The
obligations of the Company and the rights of the Purchaser under this Agreement
may be waived only with the written consent of the Purchaser.

 

(c)                                  The
obligations of the Purchaser and the rights of the Company under this Agreement
may be waived only with the written consent of the Company.

 

11.7                           Delays or Omissions.  It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring.  All remedies,
either under this Agreement, the Note or the Related Agreements, by law or
otherwise afforded to any party, shall be cumulative and not alternative.

 

11.8                           Notices.  All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:

 

(a)                                  upon
personal delivery to the party to be notified;

 

24

 

(b)                                 only
as to conversion notices, when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
with the original of such notice to be sent through a reputable national
overnight courier to arrive the next day;

 

(c)                                  three
(3) business days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or

 

(d)                                 one
(1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.

 

All communications shall be sent as follows:

 

	
  If to the Company,
  to:

  	
   

  	
  TIME
  AMERICA, INC.

  
	
   

  	
   

  	
  51 West
  Third Street, Suite 310

  
	
   

  	
   

  	
  Tempe,
  Arizona 85281

  
	
   

  	
   

  	
  Attention:

  	
  Craig J.
  Smith

  
	
   

  	
   

  	
   

  	
   Chief Financial Officer

  
	
   

  	
   

  	
  Facsimile:

  	
  (480)
  967-5444

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Gregory R.
  Hall, Esq.

  
	
   

  	
   

  	
  Squire,
  Sanders & Dempsey L.L.P.

  Two Renaissance Square

  
	
   

  	
   

  	
  40 North
  Central Avenue, Suite 2700

  
	
   

  	
   

  	
  Phoenix,
  Arizona 85004

  
	
   

  	
   

  	
  Facsimile:
  (602) 253-8129

  
	
   

  	
   

  	
   

  
	
  If to the
  Purchaser, to:

  	
   

  	
  Laurus
  Master Fund, Ltd.

  
	
   

  	
   

  	
  c/o
  Ironshore Corporate Services ltd.

  
	
   

  	
   

  	
  P.O. Box
  1234 G.T.

  
	
   

  	
   

  	
  Queensgate
  House, South Church Street

  
	
   

  	
   

  	
  Grand
  Cayman, Cayman Islands

  
	
   

  	
   

  	
  Facsimile:
  (345) 949-9877

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  John E.
  Tucker, Esq. 

  
	
   

  	
   

  	
  825 Third Avenue
  14th Floor

  
	
   

  	
   

  	
  New York, NY
  10022

  
	
   

  	
   

  	
  Facsimile:
  (212) 541-4434

  

 

or at such other address as the Company or
the Purchaser may designate by written notice to the other parties hereto given
in accordance herewith.

 

25

 

11.9                           Attorneys’ Fees. 
In the event that any suit or action is instituted to enforce any
provision in this Agreement, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of enforcing
any right of such prevailing party under or with respect to this Agreement,
including, without limitation, such reasonable fees and expenses of attorneys
and accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.

 

11.10                     Titles and Subtitles.  The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.

 

11.11                     Facsimile Signatures; Counterparts.  This Agreement may be executed by facsimile
signatures and in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.

 

11.12                     Broker’s Fees. 
Except as set forth on Schedule 11.12 hereof, each party hereto
represents and warrants that no agent, broker, investment banker, person or
firm acting on behalf of or under the authority of such party hereto is or will
be entitled to any broker’s or finder’s fee or any other commission directly or
indirectly in connection with the transactions contemplated herein.  Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 11.12 being
untrue.

 

11.13                     Construction. 
Each party acknowledges that its legal counsel participated in the
preparation of this Agreement and the Related Agreements and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation of this
Agreement to favor any party against the other.

 

 

[THE REMAINDER OF THIS PAGE IS
INTENTIONALLY LEFT BLANK

 

26

 

IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.

 

	
  COMPANY:

  	
  PURCHASER:

  
	
   

  	
   

  
	
  TIME
  AMERICA, INC.

  	
  LAURUS
  MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  

 

27

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.3

CAPITALIZATION; VOTING RIGHTS

 

 

Schedule 4.3 Capitalization; Voting
Rights

 

The Company
has the following warrant agreements outstanding:

 

During the year ended June 30, 2001 the Company granted 12,000
warrants to an entity for consulting services. 
The exercise price of the warrants ranges from $1.25 per share to $4.30
per share and are exercisable through March 2006.  The fair value was $21,000 at the date of
grant, determined based on the value of services performed.  None of the warrants have been exercised.

 

During the year ended June 30, 2002 the Company granted 62,958
warrants to a related party in consideration for entering into a promissory
note agreement with the Company.  The
exercise price of the warrant is $.25 per share and is exercisable through
September 2006.  None of the
warrants have been exercised.

 

During the year ended June 30, 2002 the Company granted 25,000
warrants to a related party in consideration for entering into a revolving line
of credit agreement with the Company. 
The exercise price of the warrant is $.15 per share and is exercisable
through November 2006.  None of the
warrants have been exercised.

 

In December 2003, the Company granted 20,000 warrants to a related
party in consideration for extending the term of revolving line of credit
agreements with the Company.  The
exercise price of the warrant is $1.20 per share and is exercisable through
December 2008.  None of the
warrants have been exercised.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.6

AGREEMENTS; ACTION

 

Schedule 4.6 Agreements; Action

 

None.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.7

OGLIGATIONS TO RELATED PARTIES

 

Schedule 4.7 Obligations to Related
Parties

 

On March 31, 2001, the Company borrowed $400,000 from Joseph L.
Simek, a significant stockholder of the Company.  The loan bears interest at an annual rate of prime plus one
percent (1%) and is secured by all of the Company’s assets.  Principal and interest payments of
approximately $8,500 are due monthly, with the outstanding principal balance
due on October 1, 2004.  On
November 2, 2001, Mr. Simek agreed to provide the Company with a $200,000 line
of credit, which is also secured by all of the Company’s assets.  On September 24, 2002, Mr. Simek agreed
to provide the Company with an additional $200,000 line of credit.  Borrowings under the lines of credit bear interest
at an annual rate of 10%.  The lines of
credit have a maturity date of December 31, 2003.  At June 30, 2003, $277,557 was
outstanding under the $400,000 loan and $150,000 was outstanding under the line
of credit.

 

On September 4, 2001, the Company borrowed $500,000 from Frances
Simek, the spouse of Mr. Simek.  This
loan bears interest at an annual rate of 10% and is secured by all of the
Company’s assets.  Principal and
interest payments of $6,600 are due and payable monthly over a 60-month
period.  At June 30, $476,856 was
outstanding under this loan.

 

On September 24, 2002, Mr. Simek agreed to provide the Company
with a $200,000 line of credit.  No
amount has been drawn on this line of credit.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.9

TITLE TO PROPERTIES AND ASSETS; LIENS, ETC.

 

 

Schedule 4.9 Title to Properties and
Assets; Liens, etc.

 

1.                                       Arizona UCC1,
dated March 30, 2001

Debtor: Vitrix Incorporated

Secured Party:  Joseph L. Simek

 

2.                                       Nevada UCC1,
dated October 18, 2001

Debtor: Vitrix, Inc.

Secured Party:  Frances L. Simek

 

3.                                       Arizona UCC1,
dated August 27, 2001

Debtor:  Time America, Inc.

Secured Party:  Colonial Pacific
Leasing (later assigned to GE Capital Finance)

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.11

COMPLIANCE WITH OTHER INSTRUMENTS

 

 

Schedule 4.11 Compliance with Other Instruments

 

None.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.12

LITIGATION

 

 

Schedule 4.12 Litigation

 

None.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.13

TAX RETURNS AND PAYMENTS

 

 

Schedule 4.13 Tax Returns and Payments

 

None.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.14

EMPLOYEES

 

 

Schedule 4.14 Employees

 

None.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.15

REGISTRATION RIGHTS AND VOTING RIGHTS

 

 

Schedule 4.15 Registration Rights and
Voting Rights

 

 

In November 2003, the Company completed a private placement of
1,433,999 shares of common stock at $0.75 per share. Pursuant to this private
placement, if, on any one occasion, the Company shall receive from the holders
of at least thirty-five percent (35%) of the Shares (the “Initiating Holders”),
a written request that the Company effect the registration of at least 35% of
the outstanding Shares, the Company will promptly give written notice of the
proposed registration to all other holders; and as soon as practicable, use its
best efforts to effect such registration as may be so requested and as would
permit or facilitate the sale and distribution of such portion of such Shares
as are specified in such request, together with such portion of the Shares of
any holder or holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of the Company’s notice.

 

The Company’s currently pending Registration Statement of Form on S-2
will register the shares of the above offering.  As of March 18, 2004, the Company has not received any
notifications from a potential Initiating Holder requesting registration.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.16

COMPLIANCE WITH LAWS; PERMITS

 

 

Schedule 4.16 Compliance with Laws;
Permits

 

None.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.17

ENVIRONMENTAL AND SAFETY LAWS

 

 

Schedule 4.17 Environmental and Safety
Laws

 

None.

 

 

TIME AMERICA, INC.

SECURITIES PURCHASE AGREEMENT

SCHEDULE 4.21

SEC REPORTS

 

 

Schedule 4.21 SEC Reports

 

None.

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