EXECUTION VERSION

 

NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE AGREEMENT (this “Agreement”) is made as of December 7, 2012,
by and between Grandparents.com, Inc., a Delaware corporation (the “Company”),
and the investors listed on Exhibit A hereto, each of which is herein referred
to as an “Investor”.

 

THE PARTIES HEREBY AGREE AS FOLLOWS:

 

SECTION 1

DEFINITIONS

 

1.1          Definitions. As used in this Agreement, the following terms shall
have the following meanings (capitalized terms used herein but not otherwise
defined shall have the meanings provided therefor in this Agreement, as
hereinafter defined):

 

“Bridge Conversion Price” shall mean, with respect to a conversion of the Note
pursuant to Section 2.5(a), a conversion price per share equal to seventy five
percent (75%) of the price per share issued by the Company in the Qualified
Financing.

 

“Business Day” means any day which is not a Saturday or Sunday or a legal
holiday on which banks are authorized or required to be closed in New York, New
York.

 

“Collateral” means the property described in the Security Agreement, and all
other property now existing or hereafter acquired which may at any time be or
become subject to a Lien in favor of the Investors (or any collateral agent on
their behalf) pursuant to the Security Agreement or otherwise, securing the
payment and performance of the Obligations.

 

“Control” shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms “Controlling” and “Controlled” (and the lower-case versions of the same)
shall have meanings correlative thereto.

 

“Debt” shall mean all liabilities, obligations and indebtedness of every kind
and nature of any Person, including, without limitation: (a) indebtedness or
liability for borrowed money, or for the deferred purchase price of property or
services (including trade obligations); (b) obligations as lessee under any
leases (including under any capital leases); (c) any reimbursement or other
obligations under any performance or surety bonds or any letters of credit
issued for the account of such Person; (d) all net obligations in respect of any
derivative products; (e) all guaranties, endorsements (other than for collection
or deposit in the ordinary course of business), and other contingent obligations
to purchase, to provide funds for payment, to supply funds to invest in any
other Person, or otherwise to assure a creditor against loss; and (f)
obligations secured by any Lien on property owned by such Person, whether or not
the obligations have been assumed.

 

“GAAP” means generally accepted accounting principles as in effect in the United
States, consistently applied.

 

 

 

 

“Governmental Authority” shall mean any federal, state, local or other
governmental department, commission, board, bureau, agency or other
instrumentality or authority, domestic or foreign, exercising executive,
legislative, judicial, regulatory or administrative authority or functions of or
pertaining to government.

 

“Lien” shall mean any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other), claim
or other priority or preferential arrangement of any kind or nature whatsoever
(other than a financing statement filed by a lessor in respect of an operating
lease not intended as security).

 

“Material Adverse Effect” shall mean an event, matter, condition or circumstance
which (a) has or would reasonably be expected to have a material adverse effect
on the business, properties, results of operations, condition (financial or
otherwise) or prospects of the Company; (b) would materially impair the ability
of the Company to perform or observe its obligations under or in respect of the
Transaction Documents; or (c) affects the legality, validity, binding effect or
enforceability of any of the Transaction Documents or the perfection or priority
of any Lien granted to the Investors (or any collateral agent on behalf thereof)
under the Security Agreement.

 

“Organic Document” means, relative to any Person, its articles or certificate of
incorporation, or certificate of limited partnership or formation, its bylaws,
partnership or operating agreement or other organizational documents, and all
stockholders agreements, voting trusts and similar arrangements applicable to
any of its capital stock, partnership interests or other ownership interests.

 

“Permitted Liens” shall mean, as of any particular time, (a) Liens of taxes,
assessments or other charges of an Governmental Authority not then delinquent or
being contested as provided below, (b) Liens created in favor of the Investors
(or any collateral agent on their behalf) pursuant to the Security Agreement,
(c) any mechanic’s, worker’s, repairer’s, supplier’s, vendor’s or like Liens
securing obligations arising in the ordinary course of business that (i) are not
mature and not overdue, or (ii) both (x) are being contested in good faith and
(y) as to which adequate reserves have been established on the books of the
Company in accordance with GAAP or (z) that do not materially impair the value
of the Collateral provided to the Investors (or any collateral agent on their
behalf) pursuant to the Security Agreement and could not result in an aggregate
liability in excess of $100,000 outstanding at any time, (d) Liens upon tangible
personal property (which is acquired after the date hereof, and the cost of
which, individually or in the aggregate, does not exceed $100,000 outstanding at
any time) granted by the Company, each of which Liens was created solely to
secure Debt incurred to finance the cost of such property (provided that no such
Lien shall extend to cover any property other than the property so acquired),
(e) Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies as
to deposit accounts or other funds maintained with a creditor depository
institution, provided that such deposit account is not a dedicated cash
collateral account, and (f) any Liens disclosed in writing to Investors and
existing as of the date of the Closing under the Agreement. A contest referred
to in this definition shall be permitted only if the execution or enforcement of
the Lien being contested shall have been stayed as a result thereof and such
contest could not be reasonably be expected to have a Material Adverse Effect.

 

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“Person” shall mean an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.

 

“Required Investors” means Investors representing at least seventy percent (70%)
of the aggregate outstanding principal amount of the Notes.

 

“Subsidiary” shall mean, with respect to any Person (herein referred to as the
“parent”), any corporation, limited liability company, partnership, association
or other business entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are, at the time any
determination is being made, owned, controlled or held by the parent, or (b)
that is, at any time any determination is made, otherwise Controlled by, the
parent or by the parent and one or more Subsidiaries of the parent.

 

SECTION 2

ISSUANCE OF NOTES AND WARRANTS; CONVERSION

 

2.1          Issuance of Notes. Subject to the terms and conditions of this
Agreement, at each Closing (as defined below), the Company shall issue and sell
to each Investor a secured convertible promissory note (each such note, a “Note”
and collectively, the “Notes”) in the principal amount (the “Principal Amount”)
equal to the amount set forth beneath the caption “Principal Amount” set forth
opposite such Investor’s name on Exhibit A attached hereto, against payment
(whether by cancellation of indebtedness of the Company or any subsidiary to
such Investor or cash as contemplated below) by such Investor to the Company of
the Principal Amount. The Notes shall each be in the form of Exhibit B attached
hereto. The purchase price of each Note shall be equal to 100% of the principal
amount of such Note. In no event shall the Company issue Notes under this
Agreement in excess of an aggregate Principal Amount equal to Three Million Five
Hundred Thousand Dollars ($3,500,000). Capitalized but otherwise undefined terms
used herein shall have the meanings provided therefor in the Notes.

 

2.2          Warrants. In connection with the issuance of the Notes, each
Investor shall also be issued warrants in the form attached as Exhibit C
(“Warrants”) to purchase shares of the Company’s Common Stock, par value $0.01
per share (“Common Stock”) in the amounts contemplated herein. The number of
shares issuable upon exercise of warrants shall initially be calculated based
upon an amount equal to 100% of the Principal Amount of each Note divided by the
Exercise Price of the warrants, (“Warrant Coverage”) and shall be set forth
opposite each Investor’s name on Exhibit A; provided, however, that in the event
that an Investor does not convert his respective Note or Notes in connection
with the Qualified Financing as contemplated in Sections 2.3 and 2.5(a), then
the Warrant Coverage with respect to any such Investor shall be calculated based
upon an amount equal to 50% of the Principal Amount of each Note not so
converted by such Investor. The Investors shall have the registration rights
with respect to the shares of Common Stock issuable upon exercise of the
Warrants as set forth in Section 6.4.

 

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2.3          Qualified Financing. For purposes of this Agreement, the term
“Qualified Financing” shall mean the sale by the Company of shares of Common
Stock, preferred stock or any other equity financing of the Company (“Equity
Securities”) to investors in one or more transactions for gross cash proceeds to
the Company of not less than Seven Million Dollars ($7,000,000).

 

2.4          Use of Proceeds. The proceeds from the issuance of the Notes shall
be used for salaries, fees, general operating expenses and expenses incurred in
connection with the transactions contemplated by this Agreement. The purchase of
the Notes by you is not conditioned on the Company receiving a minimum amount of
net proceeds in this offering and Investor acknowledges and agrees that (a) the
net proceeds may not be sufficient to fund general operating expenses for any
specified time, (b) the Company, in any event, will need to obtain additional
funding for such purposes and (c) there cannot be any assurance that such
funding will be available or, if available, that it will be available on terms
acceptable to the Company.

 

2.5          Conversion.

 

(a)          Conversion into Common Stock. In the event that the Company, at any
time after the date of issuance of the Notes and prior to the payment in full of
the Notes, shall issue and sell shares of Equity Securities in connection with
the Qualified Financing, then a portion or all of the outstanding principal
amount and unpaid accrued interest of such Notes shall be converted, with the
prior written consent of each Note holder, at the closing of the Qualified
Financing, into shares of the Common Stock at a conversion price equal to the
Bridge Conversion Price. In connection with such conversion, such Note holder
agrees to execute and deliver to the Company any documents reasonably requested
by the Company to be executed by such Note holder, thereby agreeing to be bound
by all obligations and receive all rights thereunder. If the Company is unable
to obtain such Note holder’s signature on any such document within three (3)
Business Days of delivery thereof to such Note holder, whether due to any cause,
then by the acceptance of such Notes, such Note holder hereby irrevocably
designates and appoints the Company and each of its duly authorized officers and
agents as such Note holder’s agent and attorney-in-fact, to act for and on such
Note holder’s behalf and stead, to execute and deliver any such document with
the same force and effect as if executed and delivered by such Note holder.

 

(b)          Conversion Procedure.

 

(i)          Transaction Documents. Upon the conversion of any Note pursuant to
Section 2.5(a), such Note holder hereby agrees to execute and deliver to the
Company all transaction documents entered into by purchasers participating in
the Qualified Financing, including a purchase agreement, an investor rights
agreement and other ancillary agreements, with customary representations and
warranties by such purchasers and transfer restrictions, if applicable. Each
such Note holder also agrees to deliver the original Notes at the closing of the
Qualified Financing for cancellation. The Company shall, as soon as practicable
thereafter, issue and deliver to such Note holder a certificate or certificates
for the number of shares to which such Note holder shall be entitled upon such
conversion and a check payable to such Note holder for any cash amounts payable
as described in Section 2.5. Any conversion of such Note pursuant to Section 2.5
shall be deemed to have been made immediately prior to the closing of the
Qualified Financing, and on and after such date the Persons entitled to receive
the shares issuable upon such conversion shall be treated for all purposes as
the record holder of such shares.

 

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(ii)         Fractional Shares; Effect of Conversion. No fractional shares shall
be issued upon conversion of such Note. In lieu of the Company issuing any
fractional shares to such Note holder upon the conversion of such Note, the
Company shall pay to such Note holder an amount equal to the outstanding
principal amount of such Note and unpaid accrued interest thereon not so
converted. Upon conversion of such Note in full and the payment of the amounts
specified in this paragraph, the Company shall be forever released from all its
obligations and liabilities under such Note and such Note shall be deemed of no
further force or effect, whether or not the original of such Note has been
delivered to the Company for cancellation.

 

(c)          Other Conversion Right. Except as set forth in Section 2.5(a), each
Note holder shall not be entitled to convert such Note.

 

SECTION 3

CLOSINGS

 

3.1          Initial Closing. The initial closing of the purchase and sale of
Notes in the aggregate principal amount set forth on Exhibit A and the Warrants
(the “Initial Closing”) shall be held at the offices of Sills Cummis & Gross, PC
located at One Riverfront Plaza, Newark, New Jersey 07102 (“SCG”), on the date
of this Agreement. In the event there is more than one closing, the term
“Closing” shall apply to each such closing unless otherwise specified. In
connection with the Initial Closing, each Investor shall wire their respective
aggregate principal amount set forth on Exhibit A to the escrow agent pursuant
to the wire instructions set forth on Schedule I.

 

3.2          Subsequent Closings. After the Initial Closing, the Company may
sell at one or more subsequent closing (each such time and place is designated
as a “Subsequent Closing”, and with the Initial Closing, the “Closings” and
each, a “Closing”), on the same terms and conditions as those contained in this
Agreement, additional Notes and Warrants, to one or more investors, provided
that each such investor shall become a party to this Agreement and the
Transaction Agreements (as defined below) and comply with the other terms and
conditions of this Agreement. Exhibit A to this Agreement shall be updated to
reflect the principal amount of Notes and Warrants purchased at each such
Subsequent Closing and the parties purchasing such Notes and Warrants. In
connection with each Subsequent Closing, each Investor shall wire their
respective aggregate principal amount set forth on Exhibit A to the escrow agent
pursuant to the wire instructions set forth on Exhibit A.

 

3.3          Conditions to each Closing. The several obligations of the
Investors to purchase the Notes and the Warrants on the date of each Closing
shall be subject to the prior or concurrent satisfaction of each of the
conditions precedent set forth in this Section 3.3:

 

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(a)          Security Agreement. The Investors shall have received, executed and
delivered by the Company and John Thomas Financial, Inc., as collateral agent, a
security agreement (the “Security Agreement”) under which the Company grants to
the Investors (or any other collateral agent on their behalf) a blanket security
interest in all of its assets in substantially the form attached hereto as
Exhibit D.

 

(b)          Limited Guaranty of Payment. Steve Leber, Joe Bernstein and Robert
Cohen shall execute a Limited Guaranty of Payment (the “Limited Guaranty”) in
substantially the form attached hereto as Exhibit E that provides for the
guarantee of the loans made hereunder, joint and severally, provided that in no
event shall such guarantors be liable (in the aggregate) for any amounts in
excess of One Million and 00/100 Dollars ($1,000,000).

 

(c)          Other Documents, Certificates, etc. The Investors shall have
received such other documents, certificates or other materials, as they may
reasonably request from the Company.

 

(d)          Satisfactory Legal Form. This Agreement, the Notes and the Warrants
to be delivered at such Closing, the Security Agreement, the Limited Guaranty,
and any other certificates, documents, agreements and instruments delivered to
the Investors under or in connection with this Agreement (the “Transaction
Documents”) and other closing documents executed or submitted by or on behalf of
the Company or any other Person shall be reasonably satisfactory in form and
substance to the Investors, and the Investors shall have received such
counterpart originals or such certified or other copies of such Transaction
Documents and other closing documents, as the Investors may request. All legal
matters incident to the transactions contemplated by the Transaction Documents
shall be reasonably satisfactory to Investors.

 

(e)          Minimum Sale of Notes. The Company shall have sold at least Two
Hundred Fifty Thousand Dollars ($250,000) in principal amount of the Notes in
connection with the Initial Closing.

 

3.4          Delivery. At each Closing (a) each Investor shall deliver to the
Company by wire transfer of immediately available funds or by surrender of notes
or other evidence of indebtedness of the Company or any subsidiary, duly
endorsed in blank, for cancellation (or a combination thereof) in the amount of
such Investor’s Principal Amount, and (b) the Company shall execute and deliver
to each such Investor (i) a Note in the name of the Investor, in a principal
amount equal to such Investor’s Principal Amount and dated the date of such
Closing and (ii) such Investor’s Warrant. Each such Note and Warrant shall be a
binding obligation of the Company upon execution thereof by the Company and
delivery thereof to an Investor.

 

SECTION 4

REPRESENTATIONS AND WARRANTIES OF INVESTORS

 

Each Investor hereby represents, warrants and covenants to the Company as
follows:

 

4.1          Organization; Authority. If such Investor is an entity, it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by this Agreement and
otherwise to carry out its obligations hereunder.

 

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4.2          Validity; Enforcement. This Agreement and each of the Transaction
Documents has been duly and validly authorized, executed and delivered by or on
behalf of such Investor and constitutes the legal, valid and binding obligation
of such Investor enforceable against such Investor in accordance with their
respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors’ rights and remedies.

 

4.3          No Conflicts. The execution, delivery and performance by such
Investor of this Agreement and each of the Transaction Documents and the
consummation by such Investor of the transactions contemplated hereby will not
(a) result in a violation of the Organic Documents of such Investor or
(b) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Investor is a party, or
(c) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to such
Investor, except in the case of clauses (b) and (c) above, for such conflicts,
defaults, rights or violations which would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
ability of such Investor to perform its obligations hereunder.

 

4.4          Certain Trading Activities. Such Investor has not directly or
indirectly, nor has any Person (as defined below) acting on behalf of or
pursuant to any understanding with such Investor, engaged in any transactions in
the securities of the Company (including, without limitation, any Short Sales
(as defined below) involving the Company’s securities) during the period
commencing as of the time that such Investor was first contacted by the Company
regarding the specific investment in the Company contemplated by this Agreement
and ending immediately prior to the execution of this Agreement by such
Investor. “Short Sales” mean all “short sales” as defined in Rule 200
promulgated under Regulation SHO under the Securities Exchange Act of 1934, as
amended (the “1934 Act”) (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock). Notwithstanding the
foregoing, in the case of a Investor that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Investor’s
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Investor’s assets, the representation set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement. For
purposes of this Agreement, “Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.

 

4.5          Purchase for Own Account. Such Investor represents that it is
acquiring (a) the Notes and the equity securities issuable upon conversion of
the Notes, and (b) the Warrants and equity securities issuable upon exercise of
the Warrants (collectively, the “Securities”) solely for investment for such
Investor’s own account not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. The acquisition by such Investor of any of the Securities
shall constitute confirmation of the representation by such Investor that such
Investor does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer, pledge, hypothecate or grant participations to
such person or to any third person, with respect to any of the Securities.

 

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4.6          Disclosure of Information. Such Investor has received all the
information it considers necessary or appropriate for deciding whether to
acquire the Securities. Such Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Securities and the business,
properties, results of operations and financial condition of the Company and
that all such questions, if any, have been answered to such Investor’s full
satisfaction. Such Investor has reviewed the Company’s reports, filings and
registration statements filed with the SEC.

 

4.7          Investment Experience. Either (a) such Investor or its officers,
directors, managers or controlling persons has a preexisting personal or
business relationship with the Company or its officers, directors or controlling
persons, or (b) such Investor, by reason of its own business and financial
experience, has the capacity to protect its own interests in connection with the
investment contemplated hereby. Such Investor represents that it is an investor
in securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
Such Investor acknowledges that any investment in the Securities involves a high
degree of risk, and represents that it is able, without materially impairing its
financial condition, to hold the Securities for an indefinite period of time and
to suffer a complete loss of its investment.

 

4.8          Accredited Investor. Such Investor (a) represents that it is an
“accredited investor” within the meaning of Securities and Exchange Commission
(“SEC”) Rule 501 of Regulation D, as presently in effect, and (b) is aware that
the sale of Securities (including the Common Stock issuable upon the conversion
of the Notes and the exercise of the Warrants) to it is being made in reliance
on a private placement exemption from registration under the Securities Act,
based upon representations by the Investor and by other purchasers of the
Securities.

 

4.9          Risk Factors. Such Investor is aware that an investment in the
Securities involves substantial risks and such Investor has reviewed the “Risk
Factors” contained in the Company’s Confidential Private Placement Memorandum,
dated November 7, 2012. The purchase of the Securities must be regarded as the
placing of funds at high risk in a new venture with all of the unforeseen costs,
expenses, problems and difficulties to which such ventures are subject. There
can be no assurance that the Company will be able to successfully implement its
business plan or develop into a successful or profitable business.

 

4.10        No General Solicitation. Such Investor acknowledges that the
Securities were not offered to such Investor by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (a) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (b) any seminar or meeting to
which such Investor was invited by any of the foregoing means of communications.

 

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4.11        Independent Investment. No Investor has agreed to act with any other
Investor for the purpose of acquiring, holding, voting or disposing of the
Securities purchased hereunder for purposes of Section 13(d) under the 1934 Act,
and each Investor is acting independently with respect to its investment in the
Securities.

 

4.12        No Governmental Review. Such Investor understands that no United
States federal or state agency or any other governmental agency has passed on or
made recommendations or endorsement of the Securities or the suitability of the
investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Securities.

 

4.13        Participation by Affiliates. Such Investor acknowledges and agrees
that the officers, directors, affiliates and other insiders of the Company are
permitted to purchase Securities and that any such provisions shall be counted
toward the amount of the Notes.

 

4.14        Brokers. Other than to John Thomas Financial, Inc., such Investor
has no knowledge of any brokerage or finder’s fees or commissions that are or
will be payable by the Company or any Subsidiary to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other
person or entity with respect to the transactions contemplated by this
Agreement.

 

4.15        Correctness of Representation; Reliance. Such Investor understands
that the Securities are being offered and sold in reliance on a transactional
exemption from the registration requirement of federal and state securities laws
and the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of such Investor set
forth herein in order to determine the applicability of such exemptions and the
suitability of such Investor to acquire Securities. Such Investor further
represents and warrants that this Agreement does not contain any untrue
statement or material fact or omit any material fact concerning such Investor.
Such Investor agrees, acknowledges and understands that the Company and its
counsel are entitled to rely on the representations, warranties and covenants
made by such Investor herein.

 

4.16        Certain Transactions and Confidentiality. Each Investor, severally
and not jointly with the other Investors, covenants that it will not execute any
purchases or sales, including Short Sales, of any of the Company’s securities
during the period commencing with the execution of this Agreement and ending at
such time that the transactions contemplated by this Agreement are first
publicly announced pursuant to a press release as described in Section 4.10.

 

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4.17        Restrictions on Transfer. Such Investor understands that the
Securities are characterized as “restricted securities” under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the “Act”), only in certain limited
circumstances. In this connection, such Investor represents that it is familiar
with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act. Investor understands that, unless
sold pursuant to a registration statement that has been declared effective under
the Securities Act or in compliance with Rule 144, the Company may require that
the Securities bear a legend referring to the foregoing restrictions (it being
agreed that if the Securities are not certificated, other appropriate
restrictions shall be implemented to give effect to the foregoing). SUCH
INVESTOR UNDERSTANDS AND ACKNOWLEDGES HEREIN THAT AN INVESTMENT IN THE COMPANY’S
SECURITIES INVOLVES AN EXTREMELY HIGH DEGREE OF RISK AND MAY RESULT IN A
COMPLETE LOSS OF ITS INVESTMENT. Such Investor understands that the Securities
have not been and will not be registered under the Act and have not been and
will not be registered or qualified in any state in which they are offered, and
thus the Investor will not be able to resell or otherwise transfer its
Securities unless they are registered under the Act and registered or qualified
under applicable state securities laws, or an exemption from such registration
or qualification is available. Such Investor has no immediate need for liquidity
in connection with this investment and does not anticipate that it will need to
sell its Securities in the foreseeable future.

 

4.18        Further Limitations on Disposition. Without in any way limiting the
representations set forth above, such Investor further agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 and any other agreement which the purchasers of the Company’s
Common Stock are required to execute and deliver in connection with the
Qualified Financing, and:

 

(a)          there is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or

 

(b)          (i) such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Investor shall have furnished the Company with an
opinion of counsel reasonably satisfactory to the Company that such disposition
will not require registration of such shares under the Act.

 

SECTION 5

Representations and Warranties of the Company

 

The Company hereby represents and warrants to each Investor (other than any
Investor who is a director, officer or a beneficial owner of 10% or more of the
Common Stock) that:

 

5.1          Organization, Good Standing and Qualification; Licenses. The
Company is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has all requisite power and
authority, and holds all governmental licenses, permits, registrations and other
approvals required under applicable law, to own and hold under lease its
property and to carry on its business as now conducted and as proposed to be
conducted, except where the failure to hold any such licenses, permits,
registrations and other approvals could not result in a Material Adverse Effect.
The Company is qualified to do business in each jurisdiction where the nature of
its properties of the conduct of its business requires it to be so qualified to
do business and where the failure so to qualify could result in a Material
Adverse Effect.

 

10

 

 

5.2          Authorization. All action on the part of the Company necessary for
the authorization, execution and delivery of this Agreement, the performance of
all obligations of the Company hereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Securities, has been taken
or will be taken prior to the Closing. Each of the Transaction Documents to
which the Company is a party constitutes the valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, and (b) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

 

5.3          Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company’s knowledge, currently threatened against the
Company.

 

5.4          Absence of Required Consents; No Violations. No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any Governmental Authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by the Transaction Documents, except for such filing(s) pursuant to
applicable state securities laws as may be necessary, which filings will be
timely effected after the Closing, and except for recordings or filings in
connection with the perfection of the Liens on the Collateral in favor of the
Investors (or any collateral agent on their behalf). The Company is not in
violation or default (a) of any provision of its Organic Documents (as defined
below), or (b) in any material respect of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound, or, to its
knowledge, of any provision of any federal or state statute, rule or regulation
which is, to the Company’s knowledge, applicable to the Company, except in the
case of this clause (b) for such violations or defaults which could not
reasonably be expected to result in a Material Adverse Effect. The execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated thereby will not result in any such violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument,
judgment, order, writ, decree or contract or an event that results in the
creation of any Lien upon any material assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any material permit,
license, authorization or approval applicable to the Company, its business or
operations or any of its assets or properties, except for such results which
could not reasonably be expected to result in a Material Adverse Effect. For
purposes of this Agreement, the term “Organic Document” means its certificate of
incorporation, its by-laws and all stockholders agreements, voting trusts and
similar arrangements applicable to any of its capital stock.

 

5.5          Licenses and Intellectual Property Rights. The Company possesses
all licenses, patents, trademarks, trade names, service marks, copyrights, and
other intellectual property rights, free from burdensome restrictions necessary
to enable it to conduct its business as presently conducted, except for those
the lack of which could not reasonably be expected to have a Material Adverse
Effect.

 

11

 

 

5.6          Offering. Subject in part to the truth and accuracy of each
Investor’s representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Notes and Warrants as contemplated by this Agreement
are exempt from the registration requirements of the Act and will not result in
a violation of the qualification or registration requirements of the any
applicable state securities laws.

 

5.7          Warrants. The shares of Common Stock issuable upon conversion of
the Warrants, when issued, sold and delivered in accordance with the terms of
the Warrants for the consideration expressed therein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement, any agreement
reasonably requested by the Company to be executed by the Investors as if such
Investors were investors in the Qualified Financing, and under applicable state
and federal securities laws.

 

5.8          Placement Agent. The Company shall be responsible for the payment
of any placement agent’s fees, financial advisory fees, or brokers’ commissions
(other than for Persons engaged by any Investor or its investment advisor)
relating to or arising out of the transactions contemplated hereby. Other than
John Thomas Financial, Inc., neither the Company nor any of its Subsidiaries has
engaged any financial advisor, any placement agent or any other agent in
connection with the offer or sale of the Securities.

 

5.9          No Integrated Offering. None of the Company, the Subsidiaries or
any of their affiliates, nor any Person acting on 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 require approval of stockholders of the Company under any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates nor any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would cause the offering of any of the Securities to be integrated with other
offerings of securities of the Company.

 

5.10        SEC Documents; Financial Statements. Since February 23, 2012, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements, notes and
schedules thereto and documents incorporated by reference therein being referred
to herein as the “SEC Documents”). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto as in effect as of the time of
filing. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments which will not be
material, either individually or in the aggregate). No other information
provided by or on behalf of the Company to the Investors which is not included
in the SEC Documents contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements therein not
misleading, in the light of the circumstance under which they are or were made.

 

12

 

 

5.11        Absence of Certain Changes. Since February 23, 2012, except as
disclosed in subsequent SEC Documents filed prior to the date hereof, there has
been no material adverse change and no material adverse development in the
business, assets, liabilities, properties, operations (including results
thereof), condition (financial or otherwise) or prospects of the Company or any
of its Subsidiaries. Since February 23, 2012, except as disclosed in subsequent
SEC Documents filed prior to the date hereof, neither the Company nor any of its
Subsidiaries has (a) declared or paid any dividends other than by Subsidiaries
to the Company, (b) sold any material assets, individually or in the aggregate,
outside of the ordinary course of business or (c) made any material capital
expenditures, individually or in the aggregate. Neither the Company nor any of
its Subsidiaries has taken any steps to seek protection pursuant to any law or
statute relating to bankruptcy, insolvency, reorganization, liquidation or
winding up, nor does the Company or any Subsidiary have any knowledge or reason
to believe that any of their respective creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact which would
reasonably lead a creditor to do so. The Company and its Subsidiaries,
individually and on a consolidated basis, are not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
Closing will not be, insolvent. Neither the Company nor any of its Subsidiaries
has engaged in business or in any transaction, and is not about to engage in
business or in any transaction, for which the Company’s or such Subsidiary’s
remaining assets constitute unreasonably small capital.

 

5.12        Disclosure of Transactions. The Company shall, on or before 9:15
a.m., New York time, on the fourth (4th) Business Day after the date of this
Agreement, issue one or more press releases (collectively, the “Press Release”)
reasonably acceptable to John Thomas Financial, Inc. disclosing all the material
terms of the transactions contemplated hereby. On or before 9:15 a.m., New York
time, on the fourth (4th) Business Day following the date of this Agreement, the
Company shall file a Current Report on Form 8-K describing all the material
terms of the transactions contemplated hereby (including all attachments, the
“8-K Filing”).

 

5.13        Blue Sky. Without limiting any other obligation of the Company under
this Agreement, the Company shall timely make all filings and reports relating
to the offer and sale of the Securities required under all applicable securities
laws (including, without limitation, all applicable federal securities laws and
all applicable “Blue Sky” laws), and the Company shall comply with all
applicable federal, state and local laws, statutes, rules, regulations and the
like relating to the offering and sale of the Securities to the Investors.

 

13

 

 

SECTION 6

COVENANTS

 

6.1          Affirmative Covenants. So long as any indebtedness under any Note
remains outstanding, the Company shall:

 

(a)          Compliance with Laws. Comply in all material respects with
applicable laws, rules, regulations and orders, such compliance to include,
without limitation, paying before the same becomes delinquent, all taxes,
assessments, and charges imposed upon it or upon its property by any
Governmental Authority, except to the extent that the Company contests any such
tax, assessment or charge in good faith, for which adequate reserves are being
established and maintained.

 

(b)          Notice of Defaults and Events of Defaults. Provide to the Agent, as
soon as possible and in any event within three (3) days after the occurrence
thereof, with written notice of each event which either (i) is an Event of
Default, or (ii) with the giving of notice or lapse of time or both would
constitute an Event of Default, in each case setting forth the details of such
event and the action which is proposed to be taken by the Company with respect
thereto.

 

(c)          Governmental Approvals. Promptly obtain and maintain any and all
authorizations, consents, approvals, licenses, franchises, concessions, leases,
rulings, permits, certifications, exemptions, filings or registrations by or
with any Governmental Authority material and necessary for the Company to
conduct its business and own (or lease) its properties or to execute, deliver
and perform the Transaction Document.

 

(d)          Maintenance. Conduct its business in a manner consistent with
relevant industry standards.

 

6.2          Collateral Agent.

 

(a)          Each Investor hereby irrevocably designates and appoints John
Thomas Financial, Inc., as collateral agent (“Agent”) to act as its sole and
exclusive agent for such Investor in connection with the Notes, the Limited
Guaranty and the Security Agreement, and irrevocably authorizes Agent to take
such action on its behalf under the provisions of the Notes, the Limited
Guaranty and the Security Agreement, and to exercise such powers and perform all
such duties as are expressly delegated to the Agent by the terms of this
Agreement, the Limited Guaranty and the Security Agreement, together with such
other powers as are reasonably incidental thereto. Except as provided herein, in
performing its functions under this Agreement, the Agent is acting solely as an
agent of the Investors, and the Agent does not assume, and is not to be deemed
to have assumed, an agency or other fiduciary relationship with the Company.

 

(b)          Each Investor hereby covenants and agrees that only the Required
Investors shall have the right, but not the obligation, to undertake the
following actions (it being expressly understood that less than the Required
Investors hereby expressly waive the following rights that they may otherwise
have under the Transaction Documents):

 

14

 

 

(i)          Acceleration. If an Event of Default occurs, after the applicable
cure period, if any, the Required Investors may, on behalf of all the Investors,
instruct the Agent to provide to the Company notice to cure such default and/or
pursue such remedies or actions as set forth in Section 7.2 hereof or in the
Notes;

 

(ii)         Enforcement. Upon the occurrence of any Event of Default after the
applicable cure period, if any, the Required Investors may instruct the Agent to
proceed to protect, exercise and enforce, on behalf of all the Investors, their
rights and remedies under the Transaction Documents against the Company, and
such other rights and remedies as are provided by law or equity, all in
accordance with the Transaction Documents;

 

(iii)        Waiver of Past Defaults. The Required Investors may instruct the
Agent to waive any Event of Default in accordance with the terms of Section 8.7
hereof and the Notes by written notice to the Company and the other Investors;
and

 

(iv)        Amendment. The Required Investors may instruct the Agent to waive,
amend, supplement or modify any term, condition or other provision in the Notes
or Transaction Documents in accordance with the terms of the Notes or
Transaction Documents so long as such waiver, amendment, supplement or
modification is made with respect to all of the Notes and with the same force
and effect with respect to each of the Investors.

 

(v)         Permitted Subordination. The Required Investors may instruct the
Agent to agree to subordinate any Collateral to any claim and may enter into any
agreement with the Company to evidence such subordination; provided, however,
that subsequent to any such subordination, each Note shall remain pari passu
with the other Notes held by the Investors.

 

(vi)        Further Actions. The Required Investors may instruct the Agent to
take any action that it may take under this Agreement by instructing the Agent
in writing to take such action on behalf of all the Investors.

 

(c)          The Agent does not have any (i) duty, responsibility, obligation or
liability to any Investor, except for those duties, responsibilities,
obligations and liabilities expressly set forth in this Agreement, or (ii)
fiduciary relationship with any Investor, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities are to be read into this
Agreement or the other documents, or otherwise exist against the Agent.

 

(d)          Each Investor shall be bound by all actions and omissions of Agent,
and Company may rely on the authority of the Agent in all matters relating to
the Notes, and the relationship of the Investors with the Company.

 

(e)          The Investors shall not take any actions with respect to the Notes
on their own, and shall act solely through the Agent in connection with the
administration, enforcement and collection of the Notes and the perfection of
all security interests and liens securing the Notes.

 

(f)          The Agent may execute any of its duties under this Agreement and
all ancillary documents by or through agents or attorneys, and is entitled to
the advice of counsel concerning all matters pertaining to such duties.

 

15

 

 

(g)          Power of Attorney.

 

(i)          To effectuate the terms and provisions hereof, the Investors hereby
appoint the Agent as their attorney-in-fact (and the Agent hereby accepts such
appointment) for the purpose of carrying out the provisions of this Agreement
including, without limitation, taking any action on behalf of, or at the
instruction of, the Required Investors at the written direction of the Required
Investors and executing any consent authorized pursuant to this Agreement and
taking any action and executing any instrument that the Agent may deem necessary
or advisable (and lawful) to accomplish the purposes hereof.

 

(ii)         All acts done under the foregoing authorization are hereby ratified
and approved and neither the Agent nor any designee nor agent thereof shall be
liable for any acts of commission or omission, for any error of judgment, for
any mistake of fact or law except for acts of gross negligence or willful
misconduct.

 

(iii)        This power of attorney, being coupled with an interest, is
irrevocable while the Security Agreement remains in effect. Neither the Agent
nor any of its officers, directors, employees, agents, or attorneys is liable to
any Investor for any action lawfully taken or not taken by the Agent or such
person under or in connection with this Agreement and the other related
documents (except for the Agent’s or such person's gross negligence or willful
misconduct).

 

(h)          Neither the Agent nor any of its officers, directors, employees,
agents, or attorneys is liable to any Investor for any action lawfully taken or
not taken by the Agent or such person under or in connection with this Agreement
and the other related documents (except for the Agent’s or such person's gross
negligence or willful misconduct).

 

(i)          The Agent is entitled to rely, and will be fully protected in
relying, upon legal counsel, independent public accountants and experts selected
by Agent, and is not liable to the Investors for any action taken or not taken
in good faith based upon the advise of such counsel, accountants or experts. In
addition, the Agent is entitled to rely, and is fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
telecopy, telex or teletype message, statement, order or other document believed
by the Agent in good faith to be genuine and correct, and to have been signed,
sent or made by the proper person or persons. The Agent is fully justified in
taking or refusing to take any action under this Agreement and the other related
documents unless the Agent (i) receives the advice or consent of the Investors
or the Required Investors, as the case may be, in a manner that the Agent deems
appropriate, or (b) is indemnified by the Investors to the Agent’s satisfaction
against any and all liability, cost and expense which may be incurred by the
Agent by reason of taking or refusing to take any such action. The Agent is in
all cases fully protected in acting, or in refraining from acting, under this
Agreement and the other related documents in accordance with a request of all
Investors or the Required Investors, as the case may be, and such request and
any action taken or failure to act pursuant thereto is binding upon all
Investors.

 

16

 

 

(j)          The Agent may resign and be discharged of its duties hereunder at
any time by giving written notice of such resignation to the other parties
hereto, stating the date such resignation is to take effect. Within five (5)
days of the giving of such notice, a successor collateral agent shall be
appointed by the Required Investors; provided, however, that if the Investors
are unable so to agree upon a successor within such time period, and notify the
Agent during such period of the identity of the successor collateral agent, the
successor collateral agent may be a person designated by the Agent, and any and
all fees of such successor collateral agent shall be the joint and several
obligation of the Investors. The Agent shall continue to serve until the
effective date of the resignation or until its successor accepts the appointment
and receives the Collateral held by the Agent but shall not be obligated to take
any action hereunder. The Agent may deposit any Collateral with the Supreme
Court of the State of New York for New York County or any such other court in
New York State that accepts such Collateral.

 

(k)          The Investors hereby agree to indemnify, reimburse and hold
harmless the Agent and its directors, officers, employees, attorneys and agents,
jointly and severally, from and against any and all claims, liabilities, losses
and expenses that may be imposed upon, incurred by, or asserted against any of
them, arising out of or related directly or indirectly to this Agreement or the
Collateral, except such as are occasioned by the indemnified person's own gross
negligence or willful misconduct.

 

6.3          Negative Covenants. So long as any indebtedness under any Note
remains outstanding, the Company shall not incur any Debt that is senior in
right of payment to the Notes, permit any of its Subsidiaries to incur
indebtedness or permit any Lien to attach to any of the assets of the Company or
any Subsidiary, other than Permitted Liens.

 

6.4          Registration Rights. If the Company completes a Qualified
Financing, then each Investor shall have the right to include any shares of
Common Stock issued to such Investor upon the conversion of its Note or the
exercise of its Warrant in any registration statement filed to register the
resale of shares of Common Stock issued in such Qualified Financing or in any
other registration statement in which investors in such Qualified Financing
(“Qualified Financing Investor”) have the right to include shares of Common
Stock, including pursuant to any demand, piggy-back or incidental rights. The
inclusion of shares of Common Stock by any Investor pursuant hereto shall be
subject to all the requirements, limitations or qualifications to which any
Qualified Financing Investor is subject. Each Investor hereby agrees to execute
and deliver any such agreements, documents, instruments or acknowledgements as
may be required by the Company to effect the foregoing. The Company will
register for resale the shares of Common Stock issuable upon exercise of the
Warrants in connection with any registration statement that it files with
respect to a Qualified Financing, or within ninety (90) days of the Maturity
Date (as defined in the Notes), whichever is earlier. The Company shall pay all
expenses incurred by the Company in complying with this Section 6.4, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including reasonable counsel fees) incurred
in connection with complying with state securities or “blue sky” laws, and fees
of the Company’s transfer agents and registrars.

 

17

 

 

SECTION 7

DEFAULT

 

7.1          Events of Default. For purposes of this Agreement and the Notes,
any of the following events which shall occur shall constitute an “Event of
Default”:

 

(a)          any indebtedness under any Note is not paid when and as the same
shall become due and payable, whether at maturity, by acceleration, or
otherwise, and any such amount shall remain unpaid for a period of thirty (30)
days after the due date thereof;

 

(b)          default shall occur in the observance or performance of any
covenant, obligation or agreement of the Company contained in any provisions of
the Notes, this Agreement or the Security Agreement and such default shall
continue uncured for a period of thirty (30) days after the Company knew of the
event or circumstances giving rise to such default, or any “Event of Default”
shall exist under the Security Agreement (as defined therein);

 

(c)          any representation, warranty or certification made by the Company
herein or in this Agreement or the Security Agreement or in any certificate,
report, document, agreement or instrument delivered pursuant to any provision
hereof or thereof shall prove to have been false or incorrect in any material
respect on the date or dates as of which made (any such falsity being a
“Representation Default”) and, to the extent the event or circumstances giving
rise to such Representation Default is amenable to being cured such that the
Representation Default would no longer exist, such Representation Default shall
continue uncured for a period of thirty (30) days after the Company knew of the
event or circumstances giving rise to such Representation Default;

 

(d)          the Company shall (A) apply for or consent to the appointment of a
receiver, trustee, custodian or liquidator of itself or any part of its
property, (B) become subject to the appointment of a receiver, trustee,
custodian or liquidator for itself or any part of its property if such
appointment is not terminated or dismissed within ninety (90) days, (C) make an
assignment for the benefit of creditors, (D) fail generally or admit in writing
to its inability to pay its debts as they become due, (E) institute any
proceedings under the United States Bankruptcy Code or any other federal or
state bankruptcy, reorganization, receivership, insolvency or other similar law
affecting the rights of creditors generally, or file a petition or answer
seeking reorganization or an arrangement with creditors to take advantage of any
insolvency law, or file an answer admitting the material allegations of a
bankruptcy, reorganization or insolvency petition filed against it, or (F)
become subject to any involuntary proceedings under the United States Bankruptcy
Code or any other federal or state bankruptcy, reorganization, receivership,
insolvency or other similar law affecting the rights of creditors generally,
which proceeding is not dismissed within ninety (90) days of filing, or have an
order for relief entered against it in any proceeding under the United States
Bankruptcy Code;

 

(e)          the Company shall (i) liquidate, wind up or dissolve (or suffer any
liquidation, wind-up or dissolution), (ii) suspend its operations other than in
the ordinary course of business, or (iii) take any action to authorize any of
the actions or events set forth above in this Section 7.1(e);

 

18

 

 

(f)          any final judgment for the payment of money in excess of $50,000
shall be rendered against the Company which judgment is not, within ninety (90)
days after the entry thereof, bonded, discharged or stayed pending appeal, or
are not discharged within ninety (90) days after the expiration of such stay;
provided, however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not constitute an Event of Default so
long as the Company provides Investors a written statement from such insurer or
indemnity provider (which written statement shall be reasonably satisfactory to
Investors) to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within ninety (90) days of the issuance of such judgment; or

 

(g)          a change of Control of the Company.

 

7.2          Consequences of Events of Default. If any Event of Default shall
occur for any reason, whether voluntary or involuntary, and be continuing, the
Required Investors may, upon notice or demand, declare the outstanding
indebtedness under the Notes to be due and payable, whereupon the outstanding
indebtedness under all of the Notes shall be and become immediately due and
payable, and the Company shall immediately pay to the Investors all such
indebtedness. Any payments hereunder shall be paid pro rata to the Investors
(pro rata shall be based upon the outstanding principal amount of each Note).
Upon the occurrence of any of the events specified in 7.1(d), then all
indebtedness under the Notes shall automatically be due and payable immediately
without notice or demand of any kind. The Company agrees to pay Investor all
out-of-pocket costs and expenses incurred by the Investors in any effort to
collect indebtedness under the Notes, including attorneys’ fees and fees and
expenses incurred by the Agent, and to pay interest at the Applicable Rate
hereunder on such costs and expenses to the extent not paid when demanded.

 

SECTION 8

MISCELLANEOUS

 

8.1          Survival of Representations, Warranties and Covenants. The
warranties, representations and covenants of the Company and Investors contained
in or made pursuant to this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.

 

8.2          Successors and Assigns. Except as otherwise provided therein, the
terms and conditions of this Agreement and the other Transaction Documents shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of any Securities); provided,
however, that the Company may not assign or transfer its rights or obligations
hereunder or under the other Transaction Documents without the prior written
consent of all Investors. The Securities shall be transferable upon obtaining
the prior written consent of the Company and subject to compliance with
applicable securities laws and Section 3. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

19

 

 

8.3          Governing Law; Venue; Jury Trial Waiver. This Agreement is to be
construed in accordance with and governed by the laws of the State of New York.
The Company hereby agrees that any legal action or proceeding against it with
respect to this Agreement or any of the other Transaction Documents may be
brought in the state courts of the State of New York, New York County, or of the
federal courts of the United States of America located in the Southern District
of the State of New York as any Investor may elect, and, by execution and
delivery hereof, the Company accepts and consents for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts and agrees that such jurisdiction shall be exclusive, unless waived by
the Required Investors in writing, with respect to any action or proceeding
brought by the Company against the Investors. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. Nothing herein shall affect the right of any Investor
to bring proceedings against the Company in the courts of any other
jurisdiction. EACH OF THE INVESTORS AND THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE INVESTORS ENTERING INTO THIS
AGREEMENT.

 

8.4          Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

8.5          Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

8.6          Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (a) upon receipt, when
delivered personally; (b) upon receipt, when sent by facsimile or e-mail
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (c) one (1) Business Day
after deposit with an overnight courier service with next day delivery
specified, in each case, properly addressed to the party to receive the same.
The addresses and facsimile numbers for such communications shall be:

 

If to the Company:

 

Grandparents.Com, Inc.

589 Eighth Avenue, 6th floor

New York NY 10018

Telephone: (917) 365-3651

Facsimile: (847) 589-3877

Email: joebernstein@me.com

Attention: Joseph Bernstein

 

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With copies (for informational purposes only) to:

 

Sills Cummis & Gross PC

One Riverfront Plaza

Newark, New Jersey 07102

Telephone: (973) 643-7000

Facsimile: (973) 643-6500

Attention: Jeffrey L. Wasserman, Esq.

 

If to a Investor, to its address and facsimile number set forth on Exhibit A,
with copies to such Investor’s representatives as set forth on the signature
pages hereto, or to such other address and/or facsimile number and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (a), (b) or (c) above,
respectively.

 

8.7          Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only if
such amendment, modification or waiver is in writing and only with the written
consent of the Company and the Required Investors. Any amendment or waiver
affected in accordance with this section shall be binding upon each holder of
any Securities acquired under this Agreement at the time outstanding (including
securities into which such Securities are convertible), each future holder of
all such Securities, and the Company.

 

8.8          Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.

 

8.9          Register. The Company shall maintain at its principal executive
offices a register for the Securities, in which the Company shall record the
name and address of the person in whose name the Securities have been issued
(including the name and address of each transferee) and the amount of the
Securities held by such person. The Company shall keep the register open and
available during business hours for inspection by the Investors or their legal
representatives upon prior written notice.

 

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8.10        Interpretation. In this Agreement and the other Transaction
Documents, except to the extent the context otherwise requires: (a) any
reference in this Agreement or other Transaction Document to a Section, a
Schedule or an Exhibit is a reference to a Section thereof, a schedule thereto
or an exhibit thereto, respectively, and to a subsection thereof or a clause
thereof is, unless otherwise stated, a reference to a subsection or a clause of
the Section or subsection in which the reference appears; (b) the words
“hereof,” “herein,” “hereto,” “hereunder” and the like mean and refer to this
Agreement or other Transaction Document as a whole and not merely to the
specific Section, subsection, paragraph or clause in which the respective word
appears; (c) the meaning of defined terms shall be equally applicable to both
the singular and plural forms of the terms defined; (d) references to agreements
and other contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto; (e) references to statutes or
regulations are to be construed as including all statutory and regulatory
provisions consolidating, amending or replacing the statute or regulation
referred to; and (f) the captions and headings are for convenience of reference
only and shall not affect the construction of this Agreement or other
Transaction Document.

 

8.11        Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurance as may be reasonably requested by any
other party to evidence and reflect the transactions described in this Agreement
and the other Transaction Documents and contemplated hereby and thereby and to
carry into effect the intents and purposes of this Agreement and the other
Transaction Documents.

 

8.12        Independent Nature of Investors. The obligations of each Investor
under any Transaction Document are several and not joint with the obligations of
any other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under any Transaction
Document. Each Investor shall be responsible only for its own representations,
warranties, agreements and covenants hereunder. The decision of each Investor to
purchase Securities pursuant to this Agreement has been made by such Investor
independently of any other Investor and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or any of its subsidiaries which may have
been made or given by any other Investor or by any agent or employee of any
other Investor, and no Investor or any of its agents or employees shall have any
liability to any other Investor (or any other person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein or in any other Transaction Document, and no action taken by any Investor
pursuant hereto or thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Except as otherwise provided in any Transaction Document,
each Investor shall be entitled to independently protect and enforce its rights,
including without limitations the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.

 

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8.13        Confidentiality.

 

(a)          The Investors shall hold all non-public, proprietary or
confidential information with respect to the Company obtained pursuant to or in
connection with this Agreement in accordance with their customary procedures for
handling confidential information of this nature; provided, however, that the
Investors may make disclosure of any such information (a) to their respective
examiners, Affiliates, outside auditors, counsel, consultants, appraisers and
other professional advisors in connection with this Agreement, (b) to any
proposed transferee in connection with the contemplated transfer of any
Securities (subject to receipt of a confidentiality agreement in which such
transferee agrees to an obligation of confidentiality substantially similar to
the terms of this Section 8.13, (c) as required or requested by any Governmental
Authority or representative thereof or in connection with the enforcement hereof
or of any Transaction Document or related document or pursuant to legal process,
(d) when otherwise required to do so in accordance with applicable law, or (e)
with the prior written consent of the Company. Notwithstanding the foregoing,
such obligation of confidentiality shall not apply if the information or
substantially similar information (i) is rightfully received by any Investor
from a Person other than the Company or any of its Affiliates without the
Investor being under an obligation to such Person not to disclose such
information, or (ii) is or becomes part of the public domain.

 

(b)          Each Investor hereby acknowledges that it is aware that the United
States securities laws prohibit any person who has received from an issuer
material, non-public information from purchasing or selling securities of such
issuer or from communicating such information to any other person under
circumstances in which it is reasonably foreseeable that such person is likely
to purchase or sell such securities.

 

8.14        Entire Agreement. This Agreement, the Transaction Documents, the
exhibits, schedules and the documents referred to herein constitute the entire
agreement among the parties with respect to the subject matter hereof and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein.

 

*       *       *

  

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

  COMPANY:       GRANDPARENTS.COM, INC.         By:       Name: Joseph Bernstein
    Title:  Co-Chief Executive Officer

 

[Company Signature Page to Note Purchase Agreement]

  

 

 

 

[INVESTOR SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT]

 

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

 

Name of Investor:       Signature of Authorized Signatory of Investor:      
Name of Authorized Signatory:       Title of Authorized Signatory:       Email
Address of Authorized Signatory:       Facsimile Number of Authorized Signatory:
      State of Residency / Domicile:  

 

Address for Notice of Investor:

 

            Attention:     Telephone No.:     Facsimile No.:    

 

Address for Delivery of Notes and Warrants for Investor (if not same as address
for notice):

 

            Attention:          

Principal Amount of Notes: ____________ (the “Purchase Price”)

 

EIN Number or SSN: [PROVIDE THIS UNDER SEPARATE COVER]