EXHIBIT 10.2

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of February 3,
2005, among Active Power, Inc., a Delaware corporation (the “Company”), and each
purchaser identified on the signature pages and Schedule A hereto (each,
including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”); and

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act (as defined below), and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Purchaser,
and each Purchaser, severally and not jointly, desires to purchase from the
Company in the aggregate, up to $20,000,000 of shares of Common Stock and
certain Additional Investment Rights on the Closing Date.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms have the meanings
indicated in this Section 1.1:

 

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

“Additional Investment Right” means the Additional Investment Rights as
described in Section 2.2(a)(iii).

 

“Additional Investment Right Exercise Price” shall have the meaning ascribed to
such term in Section 2.2(a)(iii).

 

“Additional Investment Right Shares” means the shares of Common Stock issuable
upon exercise of the Additional Investment Rights.

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 144. With respect to a
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Purchaser will be
deemed to be an Affiliate of such Purchaser.

 

“Closing” means the closing of the purchase and sale of the Common Stock and the
Additional Investment Rights pursuant to Section 2.1.

 

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Subscription
Amount and (ii) the Company’s obligations to deliver the Securities have been
satisfied or waived.

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“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.001 per
share, together with the associated Rights, and any securities into which such
common stock may hereafter be reclassified.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

 

“Company Counsel” means Andrews Kurth LLP.

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

 

“Effective Date” means the date that the Registration Statement is first
declared effective by the Commission.

 

“Evaluation Date” shall have the meaning ascribed to such term in Section
3.1(r).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers, directors of the Company or others providing services to
the Company pursuant to the Company’s 2000 Stock Incentive Plan, as amended, or
any stock or option plan or agreement duly adopted by a majority of the
non-employee members of the Board of Directors of the Company, a majority of the
members of a committee of non-employee directors or a duly authorized committee
of the Board of Directors of the Company established for such purpose, (b)
shares of Common Stock issuable pursuant to the Company’s Employee Stock
Purchase Plan, as amended and restated, (c) securities upon the exercise of or
conversion of any Securities issued hereunder, and any convertible securities,
options or warrants issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this
Agreement to increase the number of such securities or to decrease the exercise
or conversion price of any such securities, and (d) securities issued pursuant
to acquisitions or strategic transactions, provided any such issuance shall only
be to a Person which is, itself or through its subsidiaries, and in good faith
judgment of the Board, an operating company, in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities.

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“FW” means Feldman Weinstein LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.

 

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

 

“Legend Removal Date” shall have the meaning ascribed to such term in Section
4.1(c).

 

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

 

“Material Adverse Effect” shall have the meaning ascribed to such term in
Section 3.1(b).

 

“Material Permits” shall have the meaning ascribed to such term in Section
3.1(m).

 

“Participation Maximum” shall have the meaning ascribed to such term in Section
4.13.

 

“Per Share Purchase Price” equals $3.64, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.

 

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.13.

 

“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.9.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and each Purchaser, in the
form of Exhibit A hereto.

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Purchasers of the Shares and the Additional Investment Right Shares.

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“Required Approvals” shall have the meaning ascribed to such term in Section
3.1(e).

 

“Rights” shall mean the Company’s preferred share purchase rights pursuant to
that certain Rights Agreement dated December 13, 2001, as amended or restated
from time to time.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.

 

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities” means the Shares, the Additional Investment Rights and the
Additional Investment Right Shares.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.

 

“Short Sales” shall include, without limitation, all “short sales” as defined in
Rule 3b-3 of the Exchange Act.

 

“Subscription Amount” means, as to each Purchaser, the amounts set forth below
such Purchaser’s signature block on the signature page hereto, in United States
dollars and in immediately available funds.

 

“Subsidiary” shall mean the subsidiaries of the Company, if any, set forth on
Schedule 3.1(a).

 

“Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

 

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.

 

“Transaction Documents” means this Agreement, the Additional Investment Rights
and the Registration Rights Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.

 

“VWAP” shall mean, for any period of time in question, the price determined by
the first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on a Trading Market, the volume weighted average price of the
Common Stock for such period on the primary Trading Market on which the Common
Stock is then listed

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or quoted as reported by Bloomberg Financial L.P. (based on a trading day from
9:30 a.m. ET to 4:02 p.m. Eastern Time); (b) if the Common Stock is not then
listed or quoted on a Trading Market and if prices for the Common Stock are then
quoted in the “Pink Sheets” published by the Pink Sheets LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent closing price per share of the Common Stock so reported; or (c) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Purchaser.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 Closing. On the Closing Date, each Purchaser shall purchase from the
Company, severally and not jointly with the other Purchasers, and the Company
shall issue and sell to each Purchaser, (a) a number of Shares equal to such
Purchaser’s Subscription Amount divided by the Per Share Purchase Price and (b)
the Additional Investment Rights as determined pursuant to Section 2.2(a)(iii).
The aggregate Subscription Amounts for Shares sold hereunder shall be up to
$20,000,000. Upon satisfaction of the conditions set forth in Sections 2.2 and
2.3, the Closing shall occur at the offices of FW or such other location as the
parties shall mutually agree.

 

2.2 Deliveries.

 

(a) On the Closing Date, the Company shall deliver or cause to be delivered to
each Purchaser the following:

 

(i) this Agreement duly executed by the Company;

 

(ii) a copy of the irrevocable instructions to the Company’s transfer agent
instructing the transfer agent to deliver, on an expedited basis, a certificate
evidencing a number of Shares equal to such Purchaser’s Subscription Amount
divided by the Per Share Purchase Price, registered in the name of such
Purchaser;

 

(iii) a copy of an Additional Investment Right, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right to purchase up
to the number of shares of Common Stock equal to 30% of the Shares to be issued
to such Purchaser and which shall be exercisable immediately upon issuance until
the earlier of (a) the three (3) month anniversary of the Effective Date and (b)
the 24 month anniversary of the Closing Date, at an exercise price equal to
$3.64, subject to adjustment therein (the “Additional Investment Right Exercise
Price”), which Additional Investment Right shall otherwise in the form of
Exhibit B attached hereto;

 

(iv) the Registration Rights Agreement duly executed by the Company; and

 

(v) a legal opinion of Company Counsel, covering the matters addressed in the
form of Exhibit C attached hereto.

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(b) On the Closing Date, each Purchaser shall deliver or cause to be delivered
to the Company the following:

 

(i) this Agreement duly executed by such Purchaser;

 

(ii) such Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company; and

 

(iii) the Registration Rights Agreement duly executed by such Purchaser.

 

2.3 Closing Conditions.

 

(a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

 

(i) the accuracy when made and on the Closing Date of the representations and
warranties of the Purchasers contained herein;

 

(ii) all obligations, covenants and agreements of the Purchasers required to be
performed at or prior to the Closing Date shall have been performed; and

 

(iii) the delivery by the Purchasers of the items set forth in Section 2.2(b) of
this Agreement.

 

(b) The respective obligations of the Purchasers hereunder in connection with
the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;

 

(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;

 

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;

 

(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof; and

 

(v) From the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission (except for any suspension of trading
of limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to the Closing Date,
trading in securities generally as reported by Bloomberg Financial Markets shall
not have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by such service, or

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on any Trading Market on which the Common Stock is listed or included for
quotation, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase
the Shares at the Closing.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth under the
corresponding section of the Disclosure Schedules, which Disclosure Schedules
shall be deemed a part hereof, the Company hereby makes the representations and
warranties set forth below to each Purchaser:

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of
any Liens, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, then references in the Transaction Documents to the
Subsidiaries will be disregarded.

 

(b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of

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the Transaction Documents and otherwise to carry out its obligations thereunder.
The execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith other than in
connection with the Required Approvals. Each Transaction Documents has been (or
upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

 

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Shares and the
consummation by the Company of the other transactions contemplated thereby do
not and will not (i) conflict with or violate any provision of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.

 

(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing
with the Commission of the Registration Statement, (iii) application(s) to each
applicable Trading Market for the listing of the Shares and the Additional
Investment Right Shares for trading thereon in the time and manner required
thereby, and (iv) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).

 

(f) Issuance of the Securities. The Shares and Additional Investment Rights are
duly authorized and, when issued and paid for in accordance with the Transaction

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Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company, other than restrictions on
transfer provided for in the Transaction Documents. The Additional Investment
Right Shares, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, and free and
clear of all Liens imposed by the Company, other than transfer restrictions
imposed by the Transaction Documents. The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Additional Investment Rights.

 

(g) Capitalization. The capitalization of the Company as of February 1, 2005 is
as set forth on Schedule 3.1(g) of the Disclosure Schedules. The Company has not
issued any capital stock since October 27, 2004, the date the Company filed its
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004,
other than pursuant to the exercise of employee stock options under the
Company’s stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company’s employee stock purchase plan and pursuant to
the conversion or exercise of outstanding Common Stock Equivalents. No Person
has any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction
Documents. Except as a result of the purchase and sale of the Securities, there
are no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issue and sale of the Securities will not obligate
the Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Shares. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

 

(h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law to file such material) (the
foregoing materials, including the exhibits thereto and documents incorporated
by reference therein, being collectively referred to herein as the “SEC
Reports”) on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the

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expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present in
all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

 

(i) Material Changes. Since September 30, 2004 (the date of the latest unaudited
financial statements included within the SEC Reports) except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plan or agreement or employee stock
purchase plan. The Company does not have pending before the Commission any
request for confidential treatment of information.

 

(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The

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Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

 

(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company
which could reasonably be expected to result in a Material Adverse Effect.

 

(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
applicable to its business except in each case as would not have a Material
Adverse Effect.

 

(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

 

(n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to the
business of the Company and the Subsidiaries and good and marketable title in
all personal property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and clear of all Liens, except
for Liens as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property
by the Company and the Subsidiaries and Liens for the payment of federal, state
or other taxes, the payment of which is neither delinquent nor subject to
penalties. Any real property and facilities held under lease by the Company and
the Subsidiaries are held by them under valid, subsisting and enforceable leases
of which the Company and the Subsidiaries are in compliance.

 

(o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). Neither the Company nor any Subsidiary has received a written notice
that the Intellectual Property Rights used by the Company or any

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Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights of others.

 

(p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage. To the Company’s knowledge, such insurance
contracts and policies are accurate and complete. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

 

(q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than (i) for payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) for other employee benefits, including stock option
agreements under any stock option plan of the Company or the issuance of Common
Stock under the Company’s employee stock purchase plan.

 

(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known
to the certifying officers by others within those entities, particularly during
the period in which the Company’s most recently filed periodic report under the
Exchange Act, as the case may be, was prepared. The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of the date prior to the filing date of the most recently filed

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periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item
307(b) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge,
in other factors that could significantly affect the Company’s internal
controls.

 

(s) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that may
be due in connection with the transactions contemplated by this Agreement.

 

(t) Private Placement. Assuming the accuracy of the Purchasers representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Securities
hereunder does not contravene the rules and regulations of the Trading Market.

 

(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Shares, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.

 

(v) Registration Rights. Other than each of the Purchasers, no Person has any
right to cause the Company to effect the registration under the Securities Act
of any securities of the Company.

 

(w) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.

 

(x) Application of Takeover Protections. The Company and its Board of Directors
have taken all necessary action, if any, in order to render inapplicable any

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control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s Certificate of Incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to
the Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation the Company’s issuance of the Securities and the
Purchasers’ ownership of the Securities.

 

(y) Disclosure. The Company confirms that, neither the Company nor, to the
Company’s knowledge, any other Person acting on its behalf has provided any of
the Purchasers or their agents or counsel with any information that constitutes
or would reasonably be expected to constitute material, non-public information.
The Company understands and confirms that the Purchasers will rely on the
foregoing representations and covenants in effecting transactions in securities
of the Company. All disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, furnished by or on behalf of the Company with
respect to the representations and warranties made herein are true and correct
with respect to such representations and warranties and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in Section 3.2 hereof.

 

(z) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, 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 this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations of
any Trading Market on which any of the securities of the Company are listed or
designated.

 

(aa) Solvency. Based on the financial condition of the Company as of the Closing
Date after giving effect to the receipt by the Company of the proceeds from the
sale of the Securities hereunder, (i) the Company’s fair saleable value of its
assets exceeds the amount that will be required to be paid on or in respect of
the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be conducted including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, and projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or

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in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt). The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date. The SEC Reports set forth as of the dates
thereof all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For the
purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for
borrowed money or amounts owed in excess of $50,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of
others, whether or not the same are or should be reflected in the Company’s
balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; and (c) the present value of any lease payments in
excess of $50,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

(bb) Form S-3 Eligibility. The Company is eligible to register the resale of its
Common Stock by the Purchasers under Form S-3 promulgated under the Securities
Act and the Company hereby covenants and agrees to use its reasonable best
efforts to maintain its eligibility to use Form S-3 until the Registration
Statement covering the resale of the Shares shall have been filed with, and
declared effective by, the Commission.

 

(cc) Taxes. Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary.

 

(dd) General Solicitation. Neither the Company nor, to the Company’s knowledge,
any Person acting on behalf of the Company has offered or sold any of the Shares
by any form of general solicitation or general advertising. The Company has
offered the Shares for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

 

(ee) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

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(ff) Accountants. The Company’s accountants are set forth on Schedule 3.1(ff) of
the Disclosure Schedule. To the Company’s knowledge, such accountants, who the
Company expects will express their opinion with respect to the financial
statements to be included in the Company’s Annual Report on Form 10-K for the
year ending December 31, 2004 are a registered public accounting firm as
required by the Securities Act.

 

(gg) Acknowledgment Regarding Purchasers’ Purchase of Shares. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Purchasers’
purchase of the Shares. The Company further represents to each Purchaser that
the Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.

 

(hh) Acknowledgement Regarding Purchasers’ Trading Activity. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Section 4.15 hereof), it is understood and agreed by the Company (i) that none
of the Purchasers have been asked to agree, nor has any Purchaser agreed, to
desist from purchasing or selling, long and/or short, securities of the Company,
or “derivative” securities based on securities issued by the Company or to hold
the Securities for any specified term; (ii) that past or future open market or
other transactions by any Purchaser, including Short Sales, and specifically
including, without limitation, Short Sales or “derivative” transactions, before
or after the closing of this or future private placement transactions, may
negatively impact the market price of the Company’s publicly-traded securities;
(iii) that any Purchaser, and counter parties in “derivative” transactions to
which any such Purchaser is a party, directly or indirectly, presently may have
a “short” position in the Common Stock, and (iv) that each Purchaser shall not
be deemed to have any affiliation with or control over any arm’s length
counter-party in any “derivative” transaction.

 

3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for
itself and for no other Purchaser, represents and warrants as of the date hereof
and as of the Closing Date to the Company as follows:

 

(a) Organization; Authority. Such Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by such Purchaser of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Purchaser. Each Transaction Documents to which it is
a party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid

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and legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

 

(b) Own Account. Such Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal for
its own account and not with a view to or for distributing or reselling such
Securities or any part thereof, has no present intention of distributing any of
such Securities and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty
not limiting such Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws). Such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business. Such Purchaser does not have any agreement
or understanding, directly or indirectly, with any Person to distribute any of
the Securities.

 

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it
was, and at the date hereof it is, and on each date on which it exercises any
Additional Investment Rights, it will be either: (i) an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under
the Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.

 

(d) Experience of Such Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

 

(e) General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

 

(f) Short Sales. Such Purchaser has not directly or indirectly, nor has any
Person acting on behalf of or pursuant to any understanding with such Purchaser,
executed any Short Sales in the securities of the Company (including, without
limitations, any Short Sales involving the Company’s securities) since 9 P.M.
(New York Time) on January 28, 2005 which was the time that such Purchaser was
first contacted regarding an investment in the Company (“Discussion Time”)
through the date hereof.

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The Company acknowledges and agrees that each Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the Company or
to an affiliate of a Purchaser or in connection with a pledge as contemplated in
Section 4.1(b), the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.

 

(b) The Purchasers agree to the imprinting, so long as is required by this
Section 4.1(b), of a legend on any of the Securities in the following form:

 

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.

 

The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees

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to be bound by the provisions of this Agreement and the Registration Rights
Agreement and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Securities to the pledgees or secured parties.
Such a pledge or transfer would not be subject to approval of the Company and no
legal opinion of legal counsel of the pledgee, secured party or pledgor shall be
required in connection therewith. Further, no notice shall be required of such
pledge. At the appropriate Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities, including, if the Securities are subject to registration pursuant to
the Registration Rights Agreement, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.

 

(c) Certificates evidencing the Shares and Additional Investment Right Shares
shall not contain any legend (including the legend set forth in Section 4.1(b)),
(i) while a registration statement (including the Registration Statement)
covering the resale of such security is effective under the Securities Act, or
(ii) following any sale of such Shares or Additional Investment Right Shares
pursuant to Rule 144, or (iii) if such Shares or Additional Investment Right
Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission). The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the Effective Date if required by the Company’s
transfer agent to effect the removal of the legend hereunder. If all or any
portion of an Additional Investment Right is exercised at a time when there is
an effective registration statement to cover the resale of the Warrant Shares or
Additional Investment Right Shares, such Additional Investment Right Shares, as
the case may be, shall be issued free of all legends. The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company’s transfer
agent of a certificate representing Shares or Additional Investment Right
Shares, as the case may be, issued with a restrictive legend (such date, the
“Legend Removal Date”), deliver or cause to be delivered to such Purchaser a
certificate representing such Securities that is free from all restrictive and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section. Certificates for Securities subject to
legend removal hereunder shall be transmitted by the transfer agent of the
Company to the Purchasers by crediting the account of the Purchaser’s prime
broker with the Depository Trust Company System.

 

(d) In addition to such Purchaser’s other available remedies, the Company shall
pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty,
for each $1,000 of Shares or Additional Investment Right Shares (based on the
VWAP of the Common Stock on the date such Securities are submitted to the
Company’s transfer agent) subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such damages have
begun to accrue) for each Trading Day

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after the Legend Removal Date until such certificate is delivered. Nothing
herein shall limit such Purchaser’s right to pursue actual damages for the
Company’s failure to deliver certificates representing any Securities as
required by the Transaction Documents, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.

 

(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance that the Purchaser will sell any Securities pursuant to either the
registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.

 

4.2 Furnishing of Information. As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as any
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.

 

4.3 Integration. The Company shall not sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

 

4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the Trading Day following the date hereof, issue a press release
in form reasonably acceptable to each Purchaser disclosing the material terms of
the transactions contemplated hereby. Within four (4) business days following
the date hereof, the Company shall issue a Current Report on Form 8-K disclosing
the material terms of the transactions contemplated hereby, and shall attach
each Transaction Document required to be filed as an exhibit thereto. The
Company and each Purchaser shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Purchaser shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of any Purchaser, or without the prior consent of
each Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld in either case, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly

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disclose the name of any Purchaser, or include the name of any Purchaser in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Purchaser, except (i) to the extent the name
of each Purchaser and each Purchaser’s Subscription Amount is contained in the
Transaction Documents which are filed as exhibits to the reports, forms or other
documents the Company is required to file under the Securities Act and the
Exchange Act, (ii) as required by federal securities law in connection with the
registration statement contemplated by the Registration Rights Agreement and
(iii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i), (ii) or (iii).

 

4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company
or, to the knowledge of the Company, any other Person that any Purchaser is an
“Acquiring Person” under any shareholder rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by
virtue of receiving Securities under the Transaction Documents. The Company
shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.

 

4.6 Non-Public Information. The Company covenants and agrees that neither it nor
any other Person acting on its behalf will provide any Purchaser or its agents
or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.

 

4.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the
Company shall use the net proceeds from the sale of the Securities hereunder for
working capital purposes. The Company has no present intention to use the net
proceeds from the sale of the Securities hereunder for the satisfaction of any
portion of the Company’s debt (other than payment of trade payables in the
ordinary course of the Company’s business and prior practices), to redeem any
Common Stock or Common Stock Equivalents or to settle any outstanding
litigation.

 

4.8 Reimbursement. If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Purchaser to or with any current stockholder), solely as a result of such
Purchaser’s acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser for its actual and reasonable legal and other
out-of-pocket expenses (including the cost of any investigation preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the

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Purchasers and any such Affiliate and any such Person. The Company also agrees
that neither the Purchasers nor any such Affiliates, partners, directors,
agents, employees or controlling persons shall have any liability to the Company
or any Person asserting claims on behalf of or in right of the Company solely as
a result of acquiring the Securities under this Agreement.

 

4.9 Indemnification of Purchasers. Subject to the provisions of this Section
4.9, the Company will indemnify and hold the Purchasers and their directors,
officers, shareholders, partners, employees and agents (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of
or relating to (a) any breach of any of the representations, warranties,
covenants or agreements made by the Company in this Agreement or in the other
Transaction Documents or (b) any action instituted against a Purchaser, or any
of them or their respective Affiliates, by any stockholder of the Company who is
not an Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations or alleged violation by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing. Any Purchaser Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i)
the employment thereof and the Company’s payment of such fees and expenses has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party. The Company will not be
liable to any Purchaser Party under this Agreement (i) for any settlement by a
Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (ii) to the extent, but only
to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by the Purchasers in this Agreement or in the other Transaction
Documents.

 

4.10 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and the Additional Investment Right Shares pursuant to any exercise of
the Additional Investment Rights.

 

4.11 Listing of Common Stock. The Company hereby agrees to use best efforts to
maintain the listing of the Common Stock on a Trading Market, and as soon as
reasonably practicable following the Closing (but not later than the earlier of
the

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

Effective Date and the first anniversary of the Closing Date) to list (or
qualify for inclusion for quotation) all of the Shares and Additional Investment
Right Shares on such Trading Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application all of the Shares and Additional Investment Right
Shares and will take such other action as is necessary to cause all of the
Shares and Additional Investment Right Shares to be listed on such other Trading
Market as promptly as possible. The Company will take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the Trading Market.

 

4.12 Equal Treatment of Purchasers. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents. For clarification purposes,
this provision constitutes a separate right granted to each Purchaser by the
Company and negotiated separately by each Purchaser, and is intended to treat
for the Company the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Securities or otherwise.

 

4.13 Participation in Future Financing.

 

(a) From the date hereof until twelve (12) months after the Effective Date, upon
any financing by the Company of its Common Stock or Common Stock Equivalents (a
“Subsequent Financing”), each Purchaser shall have the right to participate in
up to 30% of such Subsequent Financing (the “Participation Maximum”).

 

(b) At least 5 Trading Days prior to the closing of the Subsequent Financing,
the Company shall deliver to each Purchaser a written notice of its intention to
effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such
Purchaser if it wants to review the details of such financing (such additional
notice, a “Subsequent Financing Notice”). Upon the request of a Purchaser, and
only upon a request by such Purchaser, for a Subsequent Financing Notice, the
Company shall promptly, but no later than 1 Trading Day after such request,
deliver a Subsequent Financing Notice to such Purchaser. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person or Persons (if then known) with whom such Subsequent Financing is
proposed to be effected, and attached to which shall be a term sheet or similar
document relating thereto if the same shall exist for such proposed financing,
otherwise a summary of the proposed material terms of the Subsequent Financing.

 

(c) Any Purchaser desiring to participate in such Subsequent Financing must
provide written notice to the Company by not later than 5:30 p.m. (New York City
time) on the 5th Trading Day after the Purchaser has received the Pre-Notice
that the Purchaser is willing to participate in the Subsequent Financing, the
amount of the Purchaser’s participation, and that the Purchaser has such funds
ready, willing, and available for investment on the terms set forth in the
Subsequent Financing Notice. If the Company receives no notice from a Purchaser
as of such fifth Trading Day, such Purchaser shall be deemed to have notified
the Company that it does not elect to participate.

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

(d) If by 5:30 p.m. (New York City time) on the fifth Trading Day after all of
the Purchasers have received the Pre-Notice, notifications by the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the Participation
Maximum of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and to the Persons set forth
in the Subsequent Financing Notice.

 

(e) The Company must provide the Purchasers with a second Subsequent Financing
Notice, and the Purchasers will again have the right of participation set forth
above in this Section 4.13, if the Subsequent Financing subject to the initial
Subsequent Financing Notice is not consummated for any reason on the terms set
forth in such Subsequent Financing Notice within 60 Trading Days after the date
of the initial Subsequent Financing Notice. In the event the Company receives
responses to Subsequent Financing Notices from Purchasers seeking to purchase
more than the aggregate amount of the Subsequent Financing, each such Purchaser
shall have the right to purchase their Pro Rata Portion (as defined below) of
the Participation Maximum. “Pro Rata Portion” is the ratio of (x) the
Subscription Amount of Securities purchased by a participating Purchaser and (y)
the sum of the aggregate Subscription Amount of all participating Purchasers.

 

(f) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect
of an Exempt Issuance.

 

4.14 Subsequent Equity Sales.

 

(a) From the date hereof until 90 days after the Effective Date, neither the
Company nor any Subsidiary shall issue shares of Common Stock or Common Stock
Equivalents; provided, however, the 90 day period set forth in this Section 4.14
shall be extended for the number of Trading Days during such period in which (y)
trading in the Common Stock is suspended by any Trading Market, or (z) following
the Effective Date, the Registration Statement is not effective or the
prospectus included in the Registration Statement may not be used by the
Purchasers for the resale of the Shares and Additional Investment Right Shares.

 

(b) From the date hereof until the earlier of (i) two (2) years after the
Effective Date or (ii) such time as the Purchasers collectively hold less than
10% of the Securities issued pursuant to this Agreement (including unexercised
but unexpired Additional Investment Rights), the Company shall be prohibited
from effecting or entering into an agreement to effect any Subsequent Financing
involving a “Variable Rate Transaction” or an “MFN Transaction” (each as defined
below). The term “Variable Rate Transaction” shall mean a transaction in which
the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial

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

issuance of such debt or equity securities, or (B) with a conversion, exercise
or exchange price that is subject to being reset at some future date after the
initial issuance of such debt or equity security or upon the occurrence of
specified or contingent events directly or indirectly related to the business of
the Company or the market for the Common Stock or (ii) enters into any
agreement, including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price. The term “MFN
Transaction” shall mean a transaction in which the Company issues or sells any
securities in a capital raising transaction or series of related transactions
which grants to an investor the right to receive additional shares based upon
future transactions of the Company on terms more favorable than those granted to
such investor in such offering. Any Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance, which
remedy shall be in addition to any right to collect damages.

 

(c) Notwithstanding the foregoing, this Section 4.14 shall not apply in respect
of an Exempt Issuance, except that no Variable Rate Transaction or MFN
Transaction shall be an Exempt Issuance.

 

4.15 Short Sales. Each Purchaser covenants that neither it nor any affiliates
acting on its behalf or pursuant to any understanding with it have executed or
will execute any Short Sales during the period from the Discussion Time until
prior to the time that the transactions contemplated by this Agreement are first
publicly announced as described in Section 4.4. Notwithstanding the foregoing,
no Purchaser makes any representation, warranty or covenant hereby that it will
not engage in Short Sales in the securities of the Company after the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4.

 

4.16 Delivery of Securities After Closing. The Company shall deliver, or cause
to be delivered, the respective Shares and Additional Investment Right purchased
by each Purchaser to such Purchaser within 3 Trading Days of the Closing Date.

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Termination. This Agreement may be terminated by any Purchaser, by written
notice to the other parties, if the Closing has not been consummated on or
before February 14, 2005; provided that no such termination will affect the
right of any party to sue for any breach by the other party (or parties).

 

5.2 Fees and Expenses. Except as otherwise set forth in this Agreement, each
party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to
the negotiation, preparation, execution, delivery and performance of this
Agreement. The Company shall pay all stamp and other taxes and duties levied in
connection with the delivery of the Securities.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and
schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

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

5.4 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto prior to 5:30 p.m. (New York City
time) on a Trading Day, (b) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c)
the second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as set forth on the signature pages attached hereto.

 

5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and each Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waiver is sought. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

 

5.6 Headings. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the “Purchasers”.

 

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.9.

 

5.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and

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

any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.

 

5.10 Survival. The representations and warranties herein shall survive the
Closing and delivery of the Shares and Additional Investment Right Shares for
the duration of the statute of limitations applicable to such matter.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

 

5.12 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Documents and the Company does not timely perform its
related obligations within the periods therein provided, then such Purchaser may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

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

5.14 Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

 

5.15 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Purchasers
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.

 

5.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

 

5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Transaction Document. Nothing contained herein or in any Transaction Document,
and no action taken by any Purchaser pursuant thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents and the Company
acknowledges that, to its knowledge, the Purchasers are not acting in concert or
as a group with respect to such obligations or the transactions contemplated by
the Transaction Documents. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, Purchasers and their
respective counsel have chosen to communicate with the Company through FW. FW
does not represent the Purchasers but only RBC Capital Markets, who has acted as
placement agent to the transaction. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.

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

5.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

 

5.19 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

 

(Signature Page Follows)

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

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

 

Active Power, Inc.   Address for Notice: By:  

/s/ Joseph F. Pinkerton, III

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

 

Active Power, Inc.

2128 W. Braker Lane, BK 12

Austin, Texas 78758

Fax: 512.836

Email: jpinkerton@activepower.com

Attn: Chief Executive Officer

Name:   Joseph F. Pinkerton, III   Title:   Chairman of the Board, President and
      Chief Executive Officer                          

 

With a copy to (which shall not constitute notice):

 

Andrews Kurth LLP

111 Congress Avenue, Suite 1700

Austin, Texas 78701

Fax: 512.320.9292

Attn: J. Matthew Lyons

 

With a copy to (which shall not constitute notice):

 

Active Power, Inc.

2128 W. Braker Lane, BK 12

Austin, Texas 78758

Fax: 512.836.4511

Email: mchibib@activepower.com

Attn: General Counsel

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS FOLLOW]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Capital Ventures International Signature of Authorized
Signatory of Purchaser:  

/s/ Martin Kobinger

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

Name of Authorized Signatory: Heights Capital Management, Inc. Authorized
Signatory Title of Authorized Signatory: Investment Manager

 

Address for Notice of Purchaser:

 

Heights Capital Management, Inc.

101 California Street, Suite 3250

San Francisco, CA 94111

Attn: Martin Kobinger

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

401 City Line Avenue, Suite 220

Bala Cynwyd, PA 19004

Attn: Accounts Receivable

 

Subscription Amount: $2,500,024.80

Shares: 686,820

Additional Investment Right Shares: 206,046

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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

[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Smithfield Fiduciary LLC Signature of Authorized Signatory of
Purchaser:  

/s/ Adam J. Chill

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

Name of Authorized Signatory: Adam J. Chill Title of Authorized Signatory:
Authorized Signatory

 

Address for Notice of Purchaser:

 

c/o Highbridge Capital Management, LLC

9 West 57th Street, 27th Floor

New York, NY 10019

Attention: Ari J. Storch/Adam J. Chill

Tel: 2120287-4720

Fax: 212-751-0755

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $3,640,000

Shares: 1,000,000

Additional Investment Right Shares: 300,000

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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

[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: D.B. Zwirn Special Opportunities Fund, L.P. Signature of
Authorized Signatory of Purchaser:  

/s/ Daniel B. Zwirn

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

Name of Authorized Signatory: Daniel B. Zwirn Title of Authorized Signatory:
Managing Partner

 

Address for Notice of Purchaser:

 

745 Fifth Avenue

18th Floor

New York, NY 10151

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $1,800,009.12

Shares: 494,508

Additional Investment Right Shares: 148,352

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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

[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: D.B. Zwirn Special Opportunities Fund, Ltd. Signature of
Authorized Signatory of Purchaser:  

/s/ Daniel B. Zwirn

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

Name of Authorized Signatory: Daniel B. Zwirn Title of Authorized Signatory:
Managing Partner

 

Address for Notice of Purchaser:

 

745 Fifth Avenue

18th Floor

New York, NY 10151

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $2,700,013.68

Shares: 741,762

Additional Investment Right Shares: 222,529

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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

[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Southport Millennium Fund, L.P. Signature of Authorized
Signatory of Purchaser:  

/s/James M. Thorburn

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

Name of Authorized Signatory: Southport Millennium Management, LLC (GP), James
M. Thorburn Title of Authorized Signatory: Managing Member of GP

 

Address for Notice of Purchaser:

 

c/o Dawson-Herman Capital Management, Inc.

354 Pequot Avenue

Southport, CT 06890

Attention: James M. Thorburn

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $117,208

Shares: 32,200

Additional Investment Right Shares: 9,660

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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

[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Southport Millennium Fund II, L.P. Signature of Authorized
Signatory of Purchaser:  

/s/ James M. Thorburn

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

Name of Authorized Signatory: Southport Millennium II Management, LLC (GP),
James M. Thorburn Title of Authorized Signatory: Managing Member of GP

 

Address for Notice of Purchaser:

 

c/o Dawson-Herman Capital Management, Inc.

354 Pequot Avenue

Southport, CT 06890

Attention: James M. Thorburn

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $195,468

Shares: 53,700

Additional Investment Right Shares: 16,110

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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

[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Southport Millennium Micro Cap Fund, L.P. Signature of
Authorized Signatory of Purchaser:  

/s/ James M. Thorburn

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

Name of Authorized Signatory: Southport Micro Cap Management, LLC (GP), James M.
Thorburn Title of Authorized Signatory: Managing Member of GP

 

Address for Notice of Purchaser:

 

c/o Dawson-Herman Capital Management, Inc.

354 Pequot Avenue

Southport, CT 06890

Attention: James M. Thorburn

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $47,684

Shares: 13,100

Additional Investment Right Shares: 3,930

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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

[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Southport Millennium Offshore Fund, Inc. Signature of
Authorized Signatory of Purchaser:  

/s/ James M. Thorburn

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Name of Authorized Signatory: James M. Thorburn Title of Authorized Signatory:
Director

 

Address for Notice of Purchaser:

 

c/o Dawson-Herman Capital Management, Inc.

354 Pequot Avenue

Southport, CT 06890

Attention: James M. Thorburn

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $549,640

Shares: 151,000

Additional Investment Right Shares: 45,300

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Southport Energy Plus Partners L.P. Signature of Authorized
Signatory of Purchaser:  

/s/ Anthony Grammalva

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Name of Authorized Signatory: Anthony Grammalva Title of Authorized Signatory:
CEO-Sound Energy Partners, Inc. its Investment Manager

 

Address for Notice of Purchaser:

 

354 Pequot Avenue

Southport, CT 06890

Attention: Slavko Negulic

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Mike Farrell

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

 

Subscription Amount: $1,350,804

Shares: 371,100

Additional Investment Right Shares: 111,330

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Southport Energy Plus Offshore Fund, Inc. Signature of
Authorized Signatory of Purchaser:  

/s/ Anthony Grammalva

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

Name of Authorized Signatory: Anthony Grammalva Title of Authorized Signatory:
CEO-Sound Energy Partners, Inc. its Investment Advisor

 

Address for Notice of Purchaser:

 

354 Pequot Avenue

Southport, CT 06890

Attention: Slavko Negulic

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Mike Farrell

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

 

Subscription Amount: $341,068

Shares: 93,700

Additional Investment Right Shares: 28,110

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Sound Energy Capital Offshore Fund, Ltd. Signature of
Authorized Signatory of Purchaser:  

/s/ Anthony Grammalva

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

Name of Authorized Signatory: Anthony Grammalva Title of Authorized Signatory:
GP-Sound Energy Capital Management, L.P. its Investment Advisor

 

Address for Notice of Purchaser:

 

354 Pequot Avenue

Southport, CT 06890

Attention: Slavko Negulic

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Mike Farrell

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

 

Subscription Amount: $128,128

Shares: 35,200

Additional Investment Right Shares: 10,560

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: SF Capital Partners Ltd. Signature of Authorized Signatory of
Purchaser:  

/s/ Robert J. Barnard

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Name of Authorized Signatory: Robert J. Barnard Title of Authorized Signatory:
Authorized Signatory

 

Address for Notice of Purchaser:

 

c/o Stark Offshore Management, LLC

3600 South Lake Drive

St. Francis, WI 53235

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Subscription Amount: $1,820,000.00

Shares: 500,000

Additional Investment Right Shares: 150,000

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: Portside Growth and Opportunity Fund Signature of Authorized
Signatory of Purchaser:  

/s/ Jeffrey Smith

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Name of Authorized Signatory: Jeffrey Smith Title of Authorized Signatory:
Authorized Signatory

 

Address for Notice of Purchaser:

 

C/o Ramius Capital Group, LLC

666 Third Avenue, 26th Floor

New York, NY 10017

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Christina Pesci

Citigroup

390 Greenwich St. 5th Floor

New York, NY 10013

Telephone: 212-723-5811

 

Subscription Amount: $3,245,351.20

Shares: 891,580

Additional Investment Right Shares: 267,474

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: ALM Brand Bank Signature of Authorized Signatory of
Purchaser:  

/s/ Lars Hackenberg

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Name of Authorized Signatory: Lars Hackenberg Title of Authorized Signatory:
Senior Portfolio Manager

 

Address for Notice of Purchaser:

 

Midtermolen 7

DK – 2100 Copenhagen

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

DTC 0997 State Street Bank

Acc. 26Q2 Alm Brand Bank (ALMBDKKK)

State Street Bank

2 International Place

Boston, MA 02110

PO Box 5048

Boston MA 02107

 

Subscription Amount: $546,000

Shares:150,000

Additional Investment Right Shares: 45,000

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: IMPAX Environmental Market (Ireland) Fund Signature of
Authorized Signatory of Purchaser:  

/s/ Adrian Cornwell

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Name of Authorized Signatory: Adrian Cornwell Title of Authorized Signatory:
Marketing Manager

 

Address for Notice of Purchaser:

 

Bruce Jenkyn-Jones

IMPAX Asset Management

Broughton House, 6-8 Jackville Street

London, WIS 3PG, UK

Tel +44 (0) 20 7 434 1122

Fax: +44 (0) 20 7 437 1245

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Brown Brothers Harriman & Co.

Investor Services, 140 Broadway

New York, NY 10005-1101, USA

 

Subscription Amount: $54,600

Shares:15,000

Additional Investment Right Shares: 4,500

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: IMPAX Environmental Market PLC Signature of Authorized
Signatory of Purchaser:  

/s/ Bruce Jenkyn-Jones

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

Name of Authorized Signatory: Bruce Jenkyn-Jones Title of Authorized Signatory:
Investment Manager

 

Address for Notice of Purchaser:

 

Bruce Jenkyn-Jones

IMPAX Asset Management

Broughton House, 6-8 Jackville Street

London, WIS 3PG, UK

Tel +44 (0) 20 7 434 1122

Fax: +44 (0) 20 7 437 1245

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

Booth A Co

50 South Lasalle Street

Chicago, IL 60875, USA

 

Subscription Amount: $218,400

Shares: 60,000

Additional Investment Right Shares: 18,000

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]

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[PURCHASER SIGNATURE PAGES TO ACPW SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser: PNE Invest Ltd. Signature of Authorized Signatory of
Purchaser:  

/s/

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Name of Authorized Signatory: Title of Authorized Signatory: Email Address of
Purchaser:

 

Address for Notice of Purchaser:

 

Helvetia Court, South Esplanade

P.O. Box 474, St. Pedro Port GYL 4EE, Guernsey

Attn: Jane Davis

Ph: +44 1 481 725 440

 

Address for Delivery of Securities for Purchaser (if not same as above):

 

George Fuger

Credit Suisse Asset Management

Qiess                     , 30

PO Box 800

CH – 8070 Zurid        

 

Subscription Amount: $600,017.60

Shares: 164,840

Additional Investment Right Shares: 43,452

EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]