EXCHANGE AGREEMENT
 
THIS EXCHANGE AGREEMENT (this “Agreement”) is made and entered into as of the
29th day of February, 2008, between SMF Energy Corporation, a Delaware
corporation (“Company”), and the undersigned (“Purchaser” and, together with
Company, the “Parties”).
 
Subject to the terms and conditions set forth in this Agreement, Purchaser
desires to purchase and hereby subscribes for the number and dollar amount of
the Company’s Preferred Shares (defined below) as set forth on the signature
page hereto (the “Transaction”).
 
1. DESCRIPTION OF PREFERRED SHARES. Each Preferred Share refers to the Company’s
$.01 par value Series A Convertible Preferred Stock (“Preferred Stock”)
convertible into shares of Company’s $.01 par value common stock (“Common
Stock”). The shares of Common Stock into which the Preferred Shares (and the
accrued but unpaid dividends thereon) are convertible are referred to herein as
the “Common Shares”.
 
2. OFFER. Purchaser, by signing this Agreement, offers to purchase Preferred
Shares in exchange for the November 19, 2007 unsecured promissory note held by
Purchaser in the principal amount and for the purchase price set forth on the
signature page hereto (the “Investment Amount”). Company shall have the right,
in its sole and absolute discretion, to reject or accept Purchaser’s offer to
purchase the Preferred Shares pursuant to this Agreement. If Company accepts
Purchaser’s offer, Company shall execute this Agreement and return a copy of the
Agreement, and issue the Preferred Shares to Purchaser. If Company rejects
Purchaser’s offer, Company shall return to Purchaser this Agreement, together
with any payment of the Investment Amount made by Purchaser to Company together
with the interest earned on such payment, if any.
 
3. CLOSING. CLOSING. The purchases and sales of the Preferred Shares (the
“Closing”) shall take place on February 29, 2008, or such later date as may be
determined by Company, and from time to time thereafter (such date or dates
referred to collectively herein as the “Closing Date”).
 
4. RECEIPT OF DOCUMENTS. Purchaser acknowledges receipt of a copy of: (a) this
Agreement; (b) the Certificate of Designation for the Preferred Stock, attached
hereto as Attachment A; (c) the Company’s Annual Report on Form 10-K for the
year ended June 30, 2007 (the “10-K”); (d) the Company’s Quarterly Report on
Form 10-Q for the quarter ended December 31, 2007 (the “10-Q”); and (e) the
Company’s proxy statement for its December 7, 2007 shareholders meeting (the
“Proxy Statement”) (collectively, the “Documents”).
 
5. USE OF PROCEEDS; NO REFUNDS. The Investment Amounts shall be used by Company
to provide additional working capital for general corporate purposes, as well as
for evaluation and acquisition due diligence related to its current strategic
acquisition program, and pay the costs of the Transaction. Upon execution of
this Agreement by Company and delivery of it to Purchaser, the Investment Amount
shall not, under any circumstances, be refunded to Purchaser.
 
 
 

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6. CONDITIONS PRECEDENT. Notwithstanding anything to the contrary contained in
this Agreement, the obligations of Company to close the Transaction shall be
contingent upon the following:
 
(a) Company and Purchaser executing this Agreement; and
 
(b) Purchaser completing, to Purchaser’s satisfaction, all business, legal, and
accounting due diligence regarding Company and the Offering.
 
7. COMPANY’S RIGHT TO CANCEL. Company, in its sole discretion, may cancel this
Agreement with respect to Purchaser at any time prior to the Closing Date by
delivery of written notice of cancellation to Purchaser and return of the
Investment Amounts with accrued interest, if any, to Purchaser.
 
8. REGISTRATION OF SHARES. Company agrees to use reasonable commercial efforts
to cause a registration statement on Form S-3 or similar form (“Registration
Statement”) relating to the resale of the Common Shares into which the Preferred
Shares are or may be convertible to be filed with the Securities and Exchange
Commission in accordance with the Registration Rights Agreement attached hereto
as Attachment B, the terms of which are incorporated by reference and made a
part of this Agreement. Subject to the terms in Attachment B, Company further
agrees to make all reasonable commercial efforts to cause the Registration
Statement to be filed within 90 days following the Closing Date and to cause
such Registration Statement to become effective as soon thereafter as
practicable.
 
9. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Each Purchaser represents and
warrants to Company as follows:
 
(a) Purchaser, either alone or through Purchaser’s representative, as that term
is defined under Rule 501(h) of Regulation D (“Regulation D”) under the
Securities Act (the “Purchaser’s Representative”), if any, has had an
opportunity to ask questions of, and receive answers from, duly designated
representatives of Company concerning the terms and conditions of this Agreement
and has been afforded an opportunity to examine such documents and other
information which Purchaser or Purchaser’s Representative, if any, has requested
for the purpose of answering any question Purchaser or Purchaser’s
Representative, if any, may have concerning the business and affairs of Company.
 
(b) Purchaser’s principal residence or domicile is located in the State or other
jurisdiction set forth on the signature page hereto. Purchaser has received and
reviewed this Agreement and the Documents and acknowledges that Company made
available to Purchaser and Purchaser’s Representative, if any, at a reasonable
time prior to the execution of this Agreement, the opportunity to ask questions
and receive answers concerning the business and affairs of Company and the terms
and conditions of the sale of the Preferred Shares as contemplated by this
Agreement and to obtain any additional information (which Company possesses or
can acquire without unreasonable effort or expense) as may be necessary to
verify the accuracy of information furnished to Purchaser or Purchaser’s
Representative, if any. Purchaser (i) is able to bear the loss of its entire
investment without any material adverse effect on its economic stability, and
(ii) has, alone or together with Purchaser’s Representative, such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of the investment to be made by Purchaser pursuant to this
Agreement.
 
 
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(c) Purchaser and Purchaser’s Representative, if any, understand that the
Preferred Shares are being offered and sold only to “accredited investors” (as
that term is defined under Rule 501(a) of Regulation D), and Purchaser
represents that Purchaser is an accredited investor. Purchaser and Purchaser’s
Representative, if any, understand Company is relying on Purchaser with respect
to the accuracy of this representation. Purchaser has completed and returned a
copy of Attachment C, and Purchaser represents that the statements made therein
are complete and accurate.
 
(d) Purchaser and Purchaser’s Representative, if any, acknowledge that they were
encouraged by Company to request all additional information that might be
material or important in order for Purchaser to make an informed investment
decision with respect to the purchase of the Preferred Shares.
 
(e) The Preferred Shares are being purchased for investment purposes only for
such Purchaser’s own account and not with the view to, or for resale in
connection with, any distribution or public offering. Purchaser and Purchaser’s
Representative, if any, understand that the Preferred Shares have not been
registered under the Securities Act or any state securities laws by reason of
their contemplated issuance in transactions exempt from the registration
requirements of the Securities Act and applicable state securities laws, and
that the reliance of Company and others upon these exemptions is predicated in
part upon the representation by Purchaser.
 
(f) Purchaser and Purchaser’s Representative, if any, have carefully read this
Agreement, the Documents and the other information furnished to Purchaser by
Company in connection with this Agreement.
 
(g) Purchaser was not solicited to purchase the Preferred Shares by any means of
general solicitation, including, but not limited to, the following: (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio; or
(ii) any meeting where attendees were invited by any general solicitation or
general advertising.
 
(h) Purchaser and Purchaser’s Representative, if any, hereby acknowledge that
the Preferred Shares, are and will be, when issued, “restricted securities,” as
that term is defined in Rule 144 of the rules and regulations promulgated under
the Securities Act unless and until Company is successful in causing the
Registration Statement to become effective. Purchaser and Purchaser’s
Representative, if any, are aware of the applicable limitations on the resale of
the Common Shares in the absence of a successful registration of those
securities, including but not limited to Rule 144. Rule 144 only permits sales
of “restricted securities” held for at least six months and in transactions
which otherwise comply with the requirements of such Rule. Purchaser and
Purchaser’s Representative, if any, also acknowledge that (1) the trading market
for the Common Stock on the Nasdaq Stock Market is volatile, so that the trading
volume and price of Shares are subject to substantial and unpredictable
variations and (2) while Company currently meets the public information
requirements of Rule 144, there is no guarantee that it will do so at any time
in the future.
 
 
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(i) Purchaser and Purchaser’s Representative, if any, acknowledge and warrant
that, in making this investment decision, they have made their own independent
assessment of the merits and risks of an investment in the Preferred Shares
based on their examination and evaluation of Company, its business, operations,
financial condition, future prospects and the skills and qualifications of its
officers, directors and employees. Purchaser and Purchaser’s Representative, if
any, have consulted Purchaser’s own attorney, business or tax advisors for
legal, business or tax advice concerning an investment in the Preferred Shares
and have not relied on Company or its respective agents or representatives.
 
(j) Purchaser and Purchaser’s Representative, if any, represent and warrant
that, except as set forth in this Agreement and in the Documents, no
representations or warranties have been made to Purchaser or Purchaser’s
Representative, if any, by Company or any agent, employee, representative or
affiliate of Company and that, in entering into this transaction and subscribing
for Preferred Shares, neither Purchaser nor Purchaser’s Representative, if any,
is relying on any information other than that contained in this Agreement, the
Documents, and other written information obtained from Company in the course of
the independent investigation by Purchaser or Purchaser’s Representative, if
any.
 
(k) Purchaser and Purchaser’s Representative, if any, acknowledge that an
investment in Company involves substantial risks, including, without limitation,
those described in the Documents, including but not limited to the 10-K and the
10-Q.
 
10. INDEMNIFICATION BY PURCHASER. Purchaser agrees that it shall indemnify and
hold harmless Company and its officers, directors, employees, agents and
professional advisors from and against any and all loss, damage, liability, or
expense, including costs and reasonable attorneys’ fees, that any one or more of
the foregoing may incur by reason of, or in connection with, any (i)
misrepresentation, inaccurate statement or material omission or (ii) breach of
any warranties or failure to fulfill any covenants, agreements or obligations,
by Purchaser or Purchaser’s Representative, if any, in this Agreement.
 
11. AUTHORIZATION. To the extent reasonably required by Company to satisfy any
applicable law or regulation, including without limitation the PATRIOT Act,
Purchaser hereby authorizes (i) Company and its officers, employees and agents
to investigate Purchaser’s personal and business background including, without
limitation, communication with any employer, former employer, business
associate, government agency, bank or other credit reference, provided that
Company agrees to use any such information only to the extent required to comply
with applicable law or regulation, and otherwise maintains the confidentiality
of any such information not generally available to the public with at least the
same care as Company's own proprietary and confidential information, and causes
each of its officers, employees and agents to do the same, and (ii) authorizes
any person, organization or entity that may have any knowledge or information
concerning Purchaser’s personal or business background to provide such
information to Company as Company may reasonably request in connection with the
foregoing.
 
 
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12. NO BROKERS OR FINDERS. No person, firm or corporation has or will have, as a
result of any act or omission by such Purchaser, any right, interest or valid
claim against Purchaser or Company for any commission, fee or other compensation
as a finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this Agreement.
 
13. MISCELLANEOUS.
 
(a) This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware. The Parties submit to the exclusive jurisdiction
of the courts located in Broward County, Florida, with respect to any dispute
arising under this Agreement and the transactions contemplated hereby.
 
(b) This Agreement contains the entire agreement between Company and Purchaser
with regard to the subject matter hereof and may not be modified or waived
except in a writing signed by both Company and all parties to each such
agreement.
 
(c) The headings of this Agreement are for convenience and reference only, and
shall not limit or otherwise affect the interpretation of any term or provision
hereof.
 
(d) This Agreement and the rights, powers, and duties set forth herein shall,
except as otherwise expressly provided, be binding upon and inure to the benefit
of, the heirs, executors, administrators, legal representatives, successors, and
assigns of the Parties.
 
(e) This Agreement and the rights and obligations hereunder shall not be
assignable or transferable by Purchaser or Company without the prior written
consent of the other Parties, except (i) in the case of Company, by operation of
law in connection with a merger, consolidation or sale of substantially all of
its assets or (ii) in the case of a Purchaser, (1) to any Affiliates (as defined
below) of Purchaser or (2) to partners, members, beneficiaries or other equity
interest holders of Purchaser; provided, that in each case referred to in
(1) and (2) above, the third party transferee would have been eligible to be an
original purchaser of the Preferred Shares pursuant to this Agreement and
executes a counterpart signature page hereto becoming a “Purchaser” hereunder,
subject to all of the rights and obligations of this Agreement. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the Parties and their respective successors and
assigns. “Person” means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or agency or instrumentality thereof. “Affiliate” means, with
respect to any Person, any other Person who, directly or indirectly, owns or
controls, is under common ownership or control with, or is owned or controlled
by, such Person.
 
(f) This Agreement is for the sole benefit of the Parties and their permitted
assigns and nothing expressed or implied in this Agreement shall give or be
construed to give to any Person, other than the Parties and such assigns, any
legal or equitable rights hereunder.
 
(g) If any legal action or any arbitration or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute, breach,
default, or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys’ fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
 
 
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(h) This Agreement shall be construed in accordance with its intent and without
regard to any presumption or any other rule requiring construction against the
party causing the same to be drafted.
 
(i) If any provision of this Agreement, or any portion of any provision, shall
be deemed invalid or unenforceable for any reason whatsoever, such invalidity or
unenforceability shall not affect the enforceability and validity of the
remaining provisions.
 
(j) This Agreement may be executed in counterparts, each of which shall be
deemed to be an original but which taken together shall constitute
one agreement. Signatures to this Agreement may be transmitted by facsimile or
other electronic means and such transmission shall be deemed to be an original.
 
[Signature page follows.]
 
 
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SIGNATURE PAGE FOR ENTITY INVESTOR

[FOR INVESTOR THAT IS A CORPORATION, TRUST, CUSTODIANSHIP, PARTNERSHIP OR
LIMITED LIABILITY COMPANY]
 

THE UNDERSIGNED HEREBY SWEARS AND AFFIRMS THAT HE OR SHE IS DULY AUTHORIZED TO
EXECUTE THIS EXCHANGE AGREEMENT ON BEHALF OF THE ENTITY NAMED BELOW AND THAT HE
OR SHE HAS READ THAT AGREEMENT, UNDERSTANDS ITS CONTENTS, AND AFFIRMS THE
ACCURACY OF THE INVESTOR REPRESENTATIONS CONTAINED HEREIN.

Dated this ___ of ____________, 2008. 

Number of Preferred Shares at $550 per Preferred Share: ___________
Dollar Amount of Promissory Note (principal and interest) Converted
$____________

The signature(s) should be of the person(s) with the authority to make the
investment decision on behalf of the corporation, trust, custodianship,
partnership or limited liability company.

_________________________________________________________________
Name of Corporation, Trust, Custodianship, Partnership or Limited Liability
Company
 
 

      Signature    Signature             Print Name   Print Name            
Title    Title             Tax I.D. No. of Investor   Telephone #

  
State in which principal business office is located:
 
SMF ENERGY CORPORATION
         
ACCEPTED THIS ___ DAY OF _______, 2008.
Investor Mailing Address:
       
By:
     
Name:
   
Title:
                 

 
 
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SIGNATURE PAGE FOR INDIVIDUAL INVESTOR(S)

THE UNDERSIGNED HEREBY SWEARS AND AFFIRMS THAT HE OR SHE HAS READ THIS EXCHANGE
AGREEMENT, UNDERSTANDS ITS CONTENTS, AND AFFIRMS THE ACCURACY OF THE INVESTOR
REPRESENTATIONS CONTAINED HEREIN.

Dated this _____ of _____________, 2008.

Number of Preferred Shares at $550 per Preferred Share: ___________
Dollar Amount of Promissory Note (principal and interest) Converted
$____________

      
Signature
              
 
Subscriber Name (Please Print)
 
Tax ID or Social Security Number
     
Address:
         
 
     
 
 
Telephone No.:
   
Fax No.:
         
If Joint Ownership (Joint Tenants or Tenants in Common)
                     
Signature
               
Second Subscriber Name (Please Print)
 
Second Subscriber Tax ID or Social Security No.
     
Address:
         
 
     
 
 
Telephone No.:
   
Fax No.:
   

 

 
SMF ENERGY CORPORATION
 
ACCEPTED THIS ___ DAY OF _______, 2008.
 
By:
 
Name:
Title:

 
 
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Manner in which Title is to be Held (Check One):
 

_______
 
Individual Ownership
_______
Company (include a copy of Partnership Agreement, and any amendments, as
applicable, and a resolution with authorization signature)
_______
 
 
 
 
 
Joint Tenants with Rights of Survivorship (both parties must sign)
_______
Trust (include name of the trust, name of trustee and date trust was formed)
_______
 
 
Tenants in Common (both parties must sign)
_______
Corporation (include certified corporate resolution with authorization
signature)
_______
 
 
 
 
 
Community
_______
Other (please specify)
 
_____________________________
 
_____________________________

 
 
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ATTACHMENT A
 
Certificate of Designation

 
 

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ATTACHMENT B
TO
EXCHANGE AGREEMENT
 
Registration Rights Agreement
 
1. Registration Rights. This Registration Rights Agreement (the “RRA”), is
attached to and made a part of each Exchange Agreement dated February 29, 2008
(the “EA”) between SMF Energy Corporation, a Delaware corporation (the
“Company”) and the various Purchasers listed on Exhibit 1 to this RRA for the
purchase of the shares of Series A Preferred Stock sold under the EA (the
“Preferred Shares”). This RRA provides the terms and conditions governing
Company’s obligation under the SPA to use reasonable commercial efforts to
register under the Securities Act the shares of Company’s Common Stock that may
be obtained upon conversion of the Series A Preferred Stock purchased pursuant
to the SPA (collectively, the “Shares”). All capitalized terms used in the RRA
that are not defined herein have the same meaning as in the EA.
 
(a) Demand Registration. After the sale of all the Preferred Shares pursuant to
the EA has been effected, the holders of the Common Shares into which the
Preferred Shares are or may be convertible (the “Registrable Securities”) shall
be deemed to have requested registration under the Securities Act for all of the
Registrable Securities upon the terms and conditions set forth in this
Section 1(a). Promptly thereafter Company shall notify each registered holder of
the Registrable Securities (a “Holder”) in writing of such request for
registration. Company shall, as soon as practicable after the date on which such
notice is given, use reasonable commercial efforts to file a Registration
Statement with the Securities and Exchange Commission (the “SEC”) covering the
Registrable Securities and will use reasonable commercial efforts to cause the
Registration Statement to become effective. No right to registration of Shares
under this Section 1(a) shall be construed to limit any registration required
under Section 1(b) hereof. The obligations of Company under this Section 1(a)
shall expire after Company has afforded the Holders the opportunity to exercise
registration rights under this Section 1(a) for one registration.
 
(b) Piggy-back Registration. If. at any time commencing on the date of issuance
of the Preferred Shares (the “Issue Date”) and ending on the date that a
registration statement covering the Registrable Securities has been declared
effective by the Securities and Exchange Commission, Company shall determine to
prepare and file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the Securities Act of any
securities of Company, other than on Form S-4 or Form S-8 or their then
equivalents relating to equity securities to be issued solely in connection with
any acquisition of any entity or business or equity securities issuable in
connection with employee benefit plans, Company shall send to the Holders
written notice of such determination and if, within ten (10) days after receipt
of such notice, any Holder shall so request in writing, Company shall include in
such Registration Statement all or any part of the Shares that such Holder
requests to be registered, except that if, in connection with any underwritten
public offering for the account of Company, the managing underwriter(s) thereof
shall impose a limitation on the number of Registrable Securities which may be
included in the Registration Statement because, in such underwriter(s)’
judgment, such limitation is necessary to effect an orderly public distribution,
then Company shall be obligated to include in such Registration Statement only
such limited portion of the Registrable Securities with respect to which such
Holder has requested inclusion. Any exclusion of Registrable Securities shall be
made pro rata among all Holders who have requested that Registrable Securities
be included, in proportion to the number of Registrable Securities specified in
their respective requests; provided, however, that Company shall not exclude any
Registrable Securities unless Company has first excluded all outstanding
securities the holders of which are not entitled by right to inclusion of
securities in such Registration Statement; and provided further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement, based
on the number of securities for which registration is requested except to the
extent such pro rata exclusion of such other securities is prohibited under any
written agreement entered into by Company with the holder of such other
securities prior to the Issue Date in which case such other securities shall be
excluded, if at all, in accordance with the terms of such agreement. No right to
registration of Shares under this Section 1(b) shall be construed to limit any
registration required under Section 1(a) hereof. Holders of at least sixty-six
and two-thirds percent (66 2/3%) of the Registrable Securities may waive the
obligations of Company under this Section 1(b).
 
Attachment B to Exchange Agreement
 
Page 1 of 10
 
 

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(c) Obligations of Company. In connection with the registration of the Shares,
Company shall:
 
(i) prepare promptly and file with the SEC the Registration Statement provided
in Section 1(a) with respect to the Shares and thereafter to use reasonable
commercial efforts to cause such Registration Statement relating to the Shares
to become effective as soon as possible after such filing, and keep the
Registration Statement effective at all times until two (2) years from the
Expiration Date (the “Registration Period”); submit to the SEC, within three (3)
Business Days after Company learns that no review of the Registration Statement
will be made by the staff of the SEC or the staff of the SEC has no further
comments on the Registration Statement, as the case may be, a request for
acceleration of the effectiveness of the Registration Statement to a time and
date not later than forty-eight (48) hours after the submission of such request;
notify the Holders of the effectiveness of the Registration Statement on the
date the Registration Statement is declared effective; and, Company represents
and warrants to, and covenants and agrees with the Holders that the Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein, at the time it is first filed with the SEC, at the time it is
ordered effective by the SEC and at all times during which it is required to be
effective hereunder) and each such amendment and supplement at the time it is
filed with the SEC and all times during which it is available for use in
connection with the offer and sale of Shares shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
 
(ii) prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and during the Registration Period, comply with the provisions of the
Securities Act with respect to the disposition of all Shares covered by the
Registration Statement until such time as all of such Shares have been disposed
of in accordance with the intended methods of disposition by the Holders as set
forth in the Registration Statement;
 
Attachment B to Exchange Agreement
 
Page 2 of 10
 
 

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(iii) furnish to the Holders (A) promptly after the same is prepared and
publicly distributed, filed with the SEC or received by Company, one copy of the
Registration Statement and any amendment thereto, each preliminary prospectus
and prospectus and each amendment or supplement thereto, each letter written by
or on behalf of Company to the SEC or the staff of the SEC and each item of
correspondence from the SEC or the staff of the SEC relating to such
Registration Statement (other than any portion of any thereof which contains
information for which Company has sought confidential treatment) and (B) such
number of copies of a prospectus, including a preliminary prospectus and all
amendments and supplements thereto and such other documents, as any Holder
reasonably may request in order to facilitate the disposition of the Shares;
 
(iv) use reasonable commercial efforts to register and qualify the Shares
covered by the Registration Statement under such securities or blue sky laws of
such jurisdictions as the Holders of at least sixty-six and two-thirds percent
(662/3%) of the Registrable Securities being offered reasonably request and use
reasonable efforts to (A) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times until the end of the Registration Period,
(B) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period and
(C) take all other actions reasonably necessary or advisable to qualify the
Shares for sale in such jurisdictions; provided, however, that Company shall not
be required in connection therewith or as a condition thereto (A) to qualify to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 1(c)(iv), (B) to subject itself to general taxation
in any such jurisdiction, (C) to file a general consent to service of process in
any such jurisdiction or (D) to make any change in its Articles of Incorporation
or Bylaws which the Board of Directors of Company determines to be contrary to
the best interests of Company and its stockholders;
 
(v) as promptly as practicable after becoming aware of such event or
circumstance, notify the Holders of any event or circumstance of which Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its reasonable commercial efforts promptly to
prepare a supplement or amendment to the Registration Statement to correct such
untrue statement or omission, file such supplement or amendment with the SEC at
such time as shall permit the Holders to sell Shares pursuant to the
Registration Statement as promptly as practicable, and deliver a number of
copies of such supplement or amendment to any Holder as such Holder may
reasonably request;
 
Attachment B to Exchange Agreement
 
Page 3 of 10
 
 

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(vi) as promptly as practicable after becoming aware of such event, notify the
Holders (or, in the event of an underwritten offering the managing underwriters)
of the issuance by the SEC of any stop order or other suspension of
effectiveness of the Registration Statement at the earliest possible time;
 
(vii) permit one legal counsel designated by the Holders of at least sixty-six
and two-thirds percent (662/3%) of the Registrable Securities being sold to
review and comment on the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC and to pay the reasonable fees and costs incurred by such counsel;
 
(viii) make generally available to its security holders as soon as practical,
but not later than ninety (90) days after the close of the period covered
thereby, an earnings statement (in form complying with the provisions of Rule
158 under the Securities Act) covering a twelve (12) month period beginning not
later than the first day of Company’s fiscal quarter next following the
effective date of the Registration Statement;
 
(ix) during the period Company is required to maintain effectiveness of the
Registration Statement pursuant to Section 1(c)(i), Company shall not bid for or
purchase any Common Stock or other securities or any right to purchase Common
Stock or other securities or attempt to induce any person to purchase any such
security or right if such bid, purchase or attempt would in any way limit the
right of the Holders to sell Shares by reason of the limitations set forth in
Regulation M under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”); and
 
(x) take all other reasonable actions necessary to expedite and facilitate
disposition by the Holders of the Shares pursuant to the Registration Statement.
 
(d) Obligations of the Holders. In connection with the registration of the
Shares, the Holders shall have the following obligations:
 
(i) it shall be a condition precedent to the obligations of Company to complete
the registration pursuant hereto with respect to any Holder’s Shares that the
Holder shall furnish to Company such information regarding Holder, the Shares
held by Holder and the intended method of disposition of the Shares held by
Holder as shall be reasonably required to effect the registration of such Shares
and shall execute such documents in connection with such registration as Company
may reasonably request. At least ten (10) days prior to the first anticipated
filing date of the Registration Statement, Company shall notify the Holders of
the information Company requires from each Holder (the “Requested Information”)
if any of such Holder’s Shares are eligible for inclusion in the Registration
Statement. If at least two (2) Business Days prior to the filing date Company
has not received the Requested Information from any such Holder (at such time
Holder becoming a “Non-Responsive Holder”), then Company may file the
Registration Statement without including the Non-Responsive Holder’s Shares but
shall not be relieved of its obligation to file a Registration Statement with
the SEC relating to the Shares of Non-Responsive Holder promptly after
Non-Responsive Holder provides the Requested Information;
 
Attachment B to Exchange Agreement
 
Page 4 of 10
 
 

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(ii) by purchasing or accepting an assignment of the Preferred Shares or Shares,
each Holder agrees to cooperate with Company as reasonably requested by Company
in connection with the preparation and filing of the Registration Statement for
the Registrable Securities, unless such Holder has notified Company in writing
of such Holder’s election to exclude all of Holder’s Shares from the
Registration Statement;
 
(iii) in the event Holders of at least sixty-six and two-thirds percent (662/3%)
of the Registrable Securities being registered determine to engage the services
of an underwriter, each Holder agrees to enter into and perform such Holder’s
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of Shares, unless such Holder has notified Company in writing of the
Holder’s election to exclude all of Holder’s Shares from the Registration
Statement;
 
(iv) each Holder agrees that, upon receipt of any notice from Company of the
happening of any event of the kind described in Section 1(c)(v), Holder will
immediately discontinue disposition of Shares pursuant to the Registration
Statement covering such Shares until Holder’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 1(c)(v) and, if so
directed by Company, Holder shall deliver to Company (at the expense of Company)
or destroy (and deliver to Company a certificate of destruction) all copies in
such Holder’s possession of the prospectus covering such Shares current at the
time of receipt of such notice;
 
(v) Holders may not participate in any underwritten registration hereunder
unless the Holder (A) agrees to sell Holder’s Shares on the basis provided in
any underwriting arrangements approved by the Holders entitled hereunder to
approve such arrangements, (B) completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and (C) agrees to pay
its pro rata share of all underwriting discounts and commissions and other fees
and expenses of investment bankers and any manager or managers of such
underwriting and legal expenses to the underwriters applicable with respect to
its Shares, in each case to the extent not payable by Company pursuant to the
terms of this Agreement; and
 
(vi) each Holder agrees to take all reasonable actions necessary to comply with
the prospectus delivery requirements of the Securities Act applicable to its
sales of Shares.
 
(e) Expenses of Registration. All costs and expenses, other than underwriting or
brokerage discounts, commissions and other fees related to the distribution of
the Registrable Securities, incurred in connection with registrations, filings
or qualifications for sale of the Registrable Securities, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees and the fees and disbursement of counsel for Company shall be
borne by Company, provided, however, that Company shall bear the fees and
out-of-pocket expenses of the one legal counsel selected by the Holders pursuant
to Section 1(c)(vii) hereof.
 
Attachment B to Exchange Agreement
 
Page 5 of 10
 
 

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(f) Indemnification. In the event any Shares are included in a Registration
Statement under this Agreement:
 
(i) To the extent permitted by law, Company will indemnify and hold harmless the
Holders, the directors, if any, of Holders, the officers, if any, of Holders,
each person, if any, who controls Holders within the meaning of the Securities
Act or the Exchange Act, any underwriter (as defined in the Securities Act) for
Holders, the directors, if any, of such underwriter and the officers, if any, of
such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act (each, an
“Indemnified Person”), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, “Claims”) to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement or
any post-effective amendment thereof, or any prospectus included therein:
(A) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective amendment thereof
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(B) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended or
supplemented, if Company files any amendment thereof or supplement thereto with
the SEC) or the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the circumstances
under which the statements therein were made, not misleading or (C) any
violation or alleged violation by Company of the Securities Act, the Exchange
Act, any state securities law or any rule or regulation under the Securities
Act, the Exchange Act or any state securities law (the matters in the foregoing
clauses (A) through (C) being, collectively, “Violations.”) Subject to the
restrictions set forth in Section 1(f)(v) with respect to the number of legal
counsel, Company shall reimburse Holders and the other Indemnified Persons,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 1(f)(i): (A) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement, the prospectus or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by Company
pursuant to Section 1(c)(iii) hereof; (B) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Person if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by Company pursuant to
Section 1(c)(iii) hereof, and (C) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent of
Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the Shares by
Holders.
 
Attachment B to Exchange Agreement
 
Page 6 of 10
 
 

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(ii) In connection with any Registration Statement in which a Holder is
participating, each Holder agrees to indemnify and hold harmless, to the same
extent and in the same manner set forth in Section 1(f)(i), Company, each of its
directors, each of its officers who signs the Registration Statement, each
person on, if any, who controls Company within the meaning of the Securities Act
or the Exchange Act, any underwriter and any other stockholder selling
securities pursuant to the Registration Statement or any of its directors or
officers or any person who controls such stockholder or underwriter within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an “Indemnified Party”), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to Company
by such Holder expressly for use in connection with such Registration Statement,
and such Holder will reimburse any legal or other expenses reasonably incurred
by any Indemnified Party, promptly as such expenses are incurred and are due and
payable, in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 1(f)(ii) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Holder, which consent shall
not be unreasonably withheld; provided further, however, that the Holder shall
be liable under this Section 1(f)(ii) for only that amount of a Claim as does
not exceed the amount by which the net proceeds to the Holder from the sale of
Shares pursuant to such Registration Statement exceeds the cost of such Shares
to the Holder. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Shares by the Holder. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 1(f)(ii) with respect to any preliminary prospectus shall not inure to
the benefit of any Indemnified Party if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected on a timely
basis in the prospectus, as then amended or supplemented.
 
(iii) If the indemnification provided to any Indemnified Party by Section
1(f)(i) is for any reason (other than the bad faith, willful misconduct or gross
negligence of such Indemnified Party) not available or insufficient to hold an
Indemnified Party harmless, Company will contribute to the Losses involved in
such proportion as is appropriate to reflect the relative benefits received (or
anticipated to be received) by Company, on the one hand, and by the Indemnified
Party, on the other hand, with respect to the transaction or, if such allocation
is determined by a court or arbitral tribunal to be unavailable, in such
proportion as is appropriate to reflect other equitable considerations such as
the relative fault of Company on the one hand and of the Indemnified Party on
the other hand; provided, however, that, to the extent permitted by applicable
law, the Indemnified Parties shall not be responsible for amounts which in the
aggregate are in excess of the amount of all benefits actually received by the
Indemnified Party from the ownership and sale of the Shares.
 
Attachment B to Exchange Agreement
 
Page 7 of 10
 
 

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(iv) Company shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in any distribution, to the same extent as provided above, with
respect to information so furnished in writing by such persons expressly for
inclusion in the Registration Statement.
 
(v) Promptly after receipt by an Indemnified Person or Indemnified Party under
this Section 1(f) of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 1(f), deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel selected by the indemnifying party but reasonably
acceptable to the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified Party shall
have the right to retain its own counsel with the fees and expenses to be paid
by the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding. In such event, Company shall pay for only one separate legal counsel
for the Holders; such legal counsel shall be selected by the Holders of at least
sixty-six and two-thirds percent (662/3%) of the Registrable Securities included
in the Registration Statement to which the Claim relates. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section
1(f), except to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by Section 1(f)
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
 
2. The agreements, representations and warranties of Company and the Holders set
forth or provided in Section 1 shall survive the execution and delivery of the
EA and payment for the Registrable Securities under the EA and shall remain in
full force and effect, regardless of any investigation made by or on behalf of
Company and the Holder.
 
3. In the EA, Company agrees to make all reasonable commercial efforts to cause
the Registration Statement to be filed within 90 days following the Closing Date
and to cause such Registration Statement to become effective as soon thereafter
as practicable. Such obligation is subject to the receipt of a demand for such
registration from the requisite number of Holders or from the Placement Agent as
their agent hereunder. The Holders further agree that, so long as Company
proceeds in good faith, it shall not be liable for any financial penalty or
monetary damages resulting from its failure to cause such filing or
effectiveness to occur by the times specified.
 
Attachment B to Exchange Agreement
 
Page 8 of 10
 
 

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4. This Attachment B is incorporated by reference into the EA and its terms made
a part thereof.
 

Attachment B to Exchange Agreement

Page 9 of 10
 
 

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Exhibit 1 to Registration Rights Agreement

LIST OF PURCHASERS
 
Attachment B to Exchange Agreement

Page 10 of 10
 
 

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ATTACHMENT C

Accredited Investor and NASD Affiliation
 
Representations
 

 
As provided by Rule 501(a) of Regulation D, my representation that I am or
represent an accredited investor is based upon one of the following grounds that
I am or represent (please check one):
 

  o
A private business development Company as defined in Section 202(a)(22) of the
Investment Advisors Act of 1940;

 

  o
An organization described in Section 501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar business trust, or partnership, not formed
for the specific purpose of acquiring the securities offered, with total assets
in excess of Five Million Dollars ($5,000,000);

 

 
o 
A director or executive officer of Company;

 

 
o
A natural person whose individual net worth, or joint net worth with that
person’s spouse, exceeds One Million Dollars ($1,000,000);

 

 
o
A natural person who has an individual income in excess of Two Hundred Thousand
Dollars ($200,000) in each of the two (2) most recent years and has a reasonable
expectation of reaching the same income level in the current year;

 

 
o
A natural person who has a joint income with that person’s spouse in excess of
Three Hundred Thousand Dollars ($300,000) in each of the two (2) most recent
years and has a reasonable expectation of reaching the same income level in the
current year;

 

 
o
A trust, with total assets in excess of Five Million Dollars ($5,000,000), not
formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as defined by Rule 506(b)(2)(ii)
of the Securities Act; or

 
o
An entity in which all of the equity owners are accredited investors. 

 
AFFILIATION WITH A U. S. REGISTERED BROKER-DEALER:
 
Are you associated with an NASD member firm? (Please check one)
 
YES _______  NO _______

Attachment C to Exchange Agreement
 
Page 1 of 2
 
 

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(1) The NASD defines a “person associated with a member” or “associated person
of a member” as being every sole proprietor, general or limited partner,
officer, director or branch manager of any member, or any natural person
occupying a similar status or performing similar functions, or any natural
person engaged in the investment banking or securities business who is directly
or indirectly controlling or controlled by such member (for example, any
employee), whether or not any such person is registered or exempt from
registration with the NASD. Thus, “person associated with a member” or
“associated person of a member” includes a sole proprietor, general or limited
partner, officer, director or branch manager of an organization of any kind
(whether a corporation, partnership or other business entity) which itself is
either a “member” or a “person associated with a member” or “associated person
of a member.” In addition, an organization of any kind is a “person associated
with a member” or “associated person of a member” if its sole proprietor or any
one of its general or limited partners, officers, directors or branch managers
is a “member,” “person associated with a member” or “associated person of a
member.”
 
(2) The NASD defines a “member” as being any individual, partnership,
corporation or other legal entity that is a broker or dealer admitted to
membership in the NASD.
 
IF PURCHASER IS ASSOCIATED WITH AN NASD MEMBER FIRM, THE FOLLOWING
ACKNOWLEDGMENT, OR A SUBSTANTIALLY IDENTICAL ACKNOWLEDGMENT, MUST BE SIGNED AND
SUBMITTED BEFORE PURCHASER’S OFFER TO PURCHASE UNITS WILL BE ACCEPTED BY
COMPANY:
 
The undersigned NASD member firm acknowledges receipt of the notice required by
Rule 3050 of the NASD Conduct Rules or any successor rules or regulations.

DATE:
             
NAME OF NASD MEMBER FIRM
     
BY:
       
NAME:
       
TITLE:
 

 
I hereby declare that the foregoing representations concerning my qualifications
as an accredited investor and my affiliations, if any, with any NASD member
firm, are accurate and complete.
 

INDIVIDUAL:
   
ENTITY:
       
Print Name:
   
By:
 
Date:
   
Name:
 
 
   
Title:
  

Attachment C to Exchange Agreement
 
Page 2 of 2
 
 

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