Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of March 31,
2004 among BIO-key International, Inc., a Minnesota corporation (the “Company”),
and the purchasers identified on the signature pages hereto (each, a “Purchaser”
and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), the Company desires to issue and sell to the Purchasers, and
the Purchasers, severally and not jointly, desire to purchase from the Company,
securities of the Company as more fully described in this Agreement.

 

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

 

ARTICLE I

DEFINITIONS

 

1.1           DEFINITIONS.  IN ADDITION TO THE TERMS DEFINED ELSEWHERE IN THIS
AGREEMENT, THE FOLLOWING TERMS HAVE THE MEANINGS INDICATED:

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act.

 

“Business Day” means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.

 

“Change of Control” means the occurrence of any of the following in one or a
series of related transactions: (i) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1) under
the Exchange Act) of more than one-half of the voting rights or equity interests
in the Company; (ii) a replacement of more than one-half of the members of the
Company’s board of directors that is not approved by those individuals who are
members of the board of directors on the date hereof (or other directors
previously approved by such individuals); (iii) a merger or consolidation of the
Company or any significant Subsidiary or a sale of more than one-half of the
assets of the Company in one or a series of related transactions, unless
following such transaction or series of transactions, the holders of the
Company’s securities prior to the first such transaction continue to hold at
least two-thirds of the voting rights and equity interests in the surviving
entity or acquirer of such assets; (iv) a recapitalization, reorganization or
other transaction involving the Company or any significant Subsidiary that
constitutes or results in a transfer of more than one-half of the voting rights
or equity interests in the Company; (v) consummation of a “Rule 13e-3

 

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transaction” as defined in Rule 13e-3 under the Exchange Act with respect to the
Company, or (vi) the execution by the Company or its controlling shareholders of
a definitive agreement providing for any of the foregoing events.

 

 “Closing” means the closing of the purchase and sale of the Shares, and the
Warrants pursuant to Section 2.1.

 

“Closing Price” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or quoted
on an Eligible Market or any other national securities exchange, the closing
price per share of the Common Stock for such date (or the nearest preceding
date) on the primary Eligible Market or exchange on which the Common Stock is
then listed or quoted; (b) if prices for the Common Stock are then quoted on the
OTC Bulletin Board, the closing price per share of the Common Stock for the last
transaction occurring on such date (or the nearest preceding date) so quoted;
(c) if prices for the Common Stock are then reported in the “Pink Sheets”
published by the National Quotation Bureau Incorporated (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent closing bid price per share of the Common Stock of the last
transaction occurring on the date so reported; or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by Purchasers holding a majority of the
Securities.

 

“Closing Date” means the date of the Closing.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $.01 per share.

 

“Common Stock Equivalents” means, collectively, Options and Convertible
Securities.

 

“Company Counsel” means Choate, Hall & Stewart, counsel to the Company.

 

“Convertible Securities” means any stock or securities (other than Options)
convertible into or exercisable or exchangeable for Common Stock.

 

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

 

“Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market or the NASDAQ OTC Bulletin Board.

 

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

 

“Excluded Stock” means the issuance of Common Stock (A) upon exercise or
conversion of any options or other securities described in Schedule 3.1(f)
(provided that such exercise or conversion occurs in accordance with the terms
thereof, without material

 

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amendment or modification, and that the applicable exercise or conversion price
or ratio is described in such schedule) or otherwise pursuant to any employee
benefit plan described in Schedule 3.1(f) or hereafter adopted by the Company
and approved by its shareholders or (B) in connection with any issuance of
shares or grant of options to employees, officers, directors or consultants of
the Company pursuant to a stock option plan or other incentive stock plan or
similar arrangement duly adopted by the Company’s board of directors or in
respect of the issuance of Common Stock upon exercise of any such options.

 

“Filing Date” means April 30, 2004.

 

“Lien” means any lien, charge, claim, security interest, encumbrance, right of
first refusal or other restriction.

 

“LP Counsel” has the meaning set forth in Section 6.2(a).

 

“Losses” means any and all losses, claims, damages, liabilities, settlement
costs and expenses, including, without limitation, costs of preparation and
reasonable attorneys’ fees.

 

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities.

 

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

 

“Per Unit Purchase Price” means $1.35.

 

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

 

“Prospectus” means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus including post effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.

 

“Purchaser Counsel” has the meaning set forth in Section 6.2(a).

 

“Registrable Securities” means any Common Stock (including Underlying Shares)
issued or issuable pursuant to the Transaction Documents, together with any

 

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securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing.

 

“Registration Statement” means the initial registration statement required to be
filed under Article VI and any additional registration statements, including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

 

“Required Effectiveness Date” means July 14, 2004.

 

“Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule 415 and Rule 424,
respectively, promulgated by the Commission pursuant to the Securities Act, as
such Rules may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect as such
Rule.

 

“Securities” means the Shares, the Warrants and the Underlying Shares.

 

“Shares” means an aggregate of 8,888,889 shares of Common Stock, which are being
issued and sold to the Purchasers at the Closing.

 

“Subsidiary” means any Person in which the Company, directly or indirectly, owns
capital stock or holds an equity or similar interest.

 

 “Trading Day” means (a) any day on which the Common Stock is listed or quoted
and traded on its primary Trading Market, (b) if the Common Stock is not then
listed or quoted and traded on any Eligible Market, then a day on which trading
occurs on the NASDAQ National Market (or any successor thereto), or (c) if
trading ceases to occur on the NASDAQ National Market (or any successor
thereto), any Business Day.

 

“Trading Market” means the NASDAQ OTC Bulletin Board or any other Eligible
Market, or any national securities exchange, market or trading or quotation
facility on which the Common Stock is then listed or quoted.

 

“Transaction Documents” means this Agreement, the Warrants, the Transfer Agent
Instructions and any other documents or agreements executed in connection with
the transactions contemplated hereunder.

 

“Transfer Agent Instructions” means the Irrevocable Transfer Agent Instructions,
in the form of Exhibit C, executed by the Company and delivered to and
acknowledged in writing by the Company’s transfer agent.

 

“Underlying Shares” means the shares of Common Stock issuable upon exercise of
the Warrants.

 

“Unit” means one Share and a Warrant to purchase .5 of a Share.

 

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“VWAP” means, with respect to any particular Trading Day or for any particular
period, the volume weighted average trading price per share of Common Stock on
such Trading Day or for such period on an Eligible Market as reported by
Bloomberg, L.P., or any successor performing similar functions.

 

“Warrants” means, collectively, the Common Stock purchase warrants issued and
sold under this Agreement, in the form of Exhibit A, and any warrants issued
upon exercise of such warrants.

 

ARTICLE II

PURCHASE AND SALE

 

2.1           CLOSING.  SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THIS
AGREEMENT, AT THE CLOSING THE COMPANY SHALL ISSUE AND SELL TO EACH PURCHASER,
AND EACH PURCHASER SHALL, SEVERALLY AND NOT JOINTLY, PURCHASE FROM THE COMPANY,
SUCH NUMBER OF UNITS INDICATED BELOW SUCH PURCHASER’S NAME ON THE SIGNATURE PAGE
OF THIS AGREEMENT AT THE PER UNIT PURCHASE PRICE.  THE CLOSING SHALL TAKE PLACE
AT THE OFFICES OF PURCHASER COUNSEL IMMEDIATELY FOLLOWING THE EXECUTION HEREOF,
OR AT SUCH OTHER LOCATION OR TIME AS THE PARTIES MAY AGREE.

 

2.2           CLOSING DELIVERIES.

 

(A)           AT THE CLOSING, THE COMPANY SHALL DELIVER OR CAUSE TO BE DELIVERED
TO EACH PURCHASER THE FOLLOWING:

 

(I)                                     ONE OR MORE STOCK CERTIFICATES, FREE AND
CLEAR OF ALL RESTRICTIVE AND OTHER LEGENDS (EXCEPT AS EXPRESSLY PROVIDED IN
SECTION 4.1(B) HEREOF), EVIDENCING SUCH NUMBER OF SHARES EQUAL TO THE NUMBER OF
UNITS INDICATED BELOW SUCH PURCHASER’S NAME ON THE SIGNATURE PAGE OF THIS
AGREEMENT, REGISTERED IN THE NAME OF SUCH PURCHASER;

 

(II)                                  A WARRANT, REGISTERED IN THE NAME OF SUCH
PURCHASER, PURSUANT TO WHICH SUCH PURCHASER SHALL HAVE THE RIGHT TO ACQUIRE SUCH
NUMBER OF UNDERLYING SHARES INDICATED BELOW SUCH PURCHASER’S NAME ON THE
SIGNATURE PAGE OF THIS AGREEMENT, ON THE TERMS SET FORTH THEREIN; AND

 

(III)                               DULY EXECUTED TRANSFER AGENT INSTRUCTIONS
ACKNOWLEDGED BY THE COMPANY’S TRANSFER AGENT.

 

(B)           AT THE CLOSING, EACH PURCHASER SHALL DELIVER OR CAUSE TO BE
DELIVERED TO THE COMPANY AN AMOUNT EQUAL TO THE PER UNIT PURCHASE PRICE
MULTIPLIED BY THE NUMBER OF UNITS INDICATED BELOW SUCH PURCHASER’S NAME ON THE
SIGNATURE PAGE OF THIS AGREEMENT, IN UNITED STATES DOLLARS AND IN IMMEDIATELY
AVAILABLE FUNDS, BY WIRE TRANSFER TO AN ACCOUNT DESIGNATED IN WRITING TO SUCH
PURCHASER BY THE COMPANY FOR SUCH PURPOSE.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

3.1           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  THE COMPANY HEREBY
REPRESENTS AND WARRANTS TO EACH OF THE PURCHASERS AS FOLLOWS:

 

(A)           SUBSIDIARIES.  THE COMPANY HAS NO DIRECT OR INDIRECT SUBSIDIARIES
OTHER THAN THOSE LISTED IN SCHEDULE 3.1(A).  EXCEPT AS DISCLOSED IN
SCHEDULE 3.1(A), THE COMPANY OWNS, DIRECTLY OR INDIRECTLY, ALL OF THE CAPITAL
STOCK OR COMPARABLE EQUITY INTERESTS OF EACH SUBSIDIARY FREE AND CLEAR OF ANY
LIEN AND ALL THE ISSUED AND OUTSTANDING SHARES OF CAPITAL STOCK OR COMPARABLE
EQUITY INTEREST OF EACH SUBSIDIARY ARE VALIDLY ISSUED AND ARE FULLY PAID,
NON-ASSESSABLE AND FREE OF PREEMPTIVE AND SIMILAR RIGHTS.

 

(B)           ORGANIZATION AND QUALIFICATION.  EACH OF THE COMPANY AND THE
SUBSIDIARIES IS AN ENTITY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING
UNDER THE LAWS OF THE JURISDICTION OF ITS INCORPORATION OR ORGANIZATION (AS
APPLICABLE), WITH THE REQUISITE POWER AND AUTHORITY TO OWN AND USE ITS
PROPERTIES AND ASSETS AND TO CARRY ON ITS BUSINESS AS CURRENTLY CONDUCTED. 
NEITHER THE COMPANY NOR ANY SUBSIDIARY IS IN VIOLATION OF ANY OF THE PROVISIONS
OF ITS RESPECTIVE CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS OR OTHER
ORGANIZATIONAL OR CHARTER DOCUMENTS.  EACH OF THE COMPANY AND THE SUBSIDIARIES
IS DULY QUALIFIED TO DO BUSINESS AND IS IN GOOD STANDING AS A FOREIGN
CORPORATION OR OTHER ENTITY IN EACH JURISDICTION IN WHICH THE NATURE OF THE
BUSINESS CONDUCTED OR PROPERTY OWNED BY IT MAKES SUCH QUALIFICATION NECESSARY,
EXCEPT WHERE THE FAILURE TO BE SO QUALIFIED OR IN GOOD STANDING, AS THE CASE MAY
BE, COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, (I) ADVERSELY AFFECT THE
LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY TRANSACTION DOCUMENT, (II) HAVE OR
RESULT IN A MATERIAL ADVERSE EFFECT ON THE RESULTS OF OPERATIONS, ASSETS,
PROSPECTS, BUSINESS OR CONDITION (FINANCIAL OR OTHERWISE) OF THE COMPANY AND THE
SUBSIDIARIES, TAKEN AS A WHOLE ON A CONSOLIDATED BASIS, OR (III) ADVERSELY
IMPAIR THE COMPANY’S ABILITY TO PERFORM FULLY ON A TIMELY BASIS ITS OBLIGATIONS
UNDER ANY OF THE TRANSACTION DOCUMENTS (ANY OF (I), (II) OR (III), A “MATERIAL
ADVERSE EFFECT”).

 

(C)           AUTHORIZATION; ENFORCEMENT.  THE COMPANY HAS THE REQUISITE
CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY EACH OF THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS
OBLIGATIONS HEREUNDER AND THEREUNDER.  THE EXECUTION AND DELIVERY OF EACH OF THE
TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY IT OF THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY HAVE BEEN DULY AUTHORIZED BY ALL
NECESSARY ACTION ON THE PART OF THE COMPANY AND NO FURTHER CONSENT OR ACTION IS
REQUIRED BY THE COMPANY, ITS BOARD OF DIRECTORS OR ITS STOCKHOLDERS.  EACH OF
THE TRANSACTION DOCUMENTS HAS BEEN (OR UPON DELIVERY WILL BE) DULY EXECUTED BY
THE COMPANY AND IS, OR WHEN DELIVERED IN ACCORDANCE WITH THE TERMS HEREOF, WILL
CONSTITUTE, THE VALID AND BINDING OBLIGATION OF THE COMPANY ENFORCEABLE AGAINST
THE COMPANY IN ACCORDANCE WITH ITS TERMS.

 

(D)           NO CONFLICTS.  THE EXECUTION, DELIVERY AND PERFORMANCE OF THE
TRANSACTION DOCUMENTS BY THE COMPANY AND THE CONSUMMATION BY THE COMPANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY DO NOT AND WILL NOT (I) CONFLICT
WITH OR VIOLATE ANY PROVISION OF THE COMPANY’S OR ANY SUBSIDIARY’S CERTIFICATE
OR ARTICLES OF INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL OR CHARTER
DOCUMENTS, (II) CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN EVENT THAT

 

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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 (WITH
OR WITHOUT NOTICE, LAPSE OF TIME OR BOTH) OF, ANY AGREEMENT, CREDIT FACILITY,
DEBT OR OTHER INSTRUMENT (EVIDENCING A COMPANY OR SUBSIDIARY DEBT OR OTHERWISE)
OR OTHER UNDERSTANDING TO WHICH THE COMPANY OR ANY SUBSIDIARY IS A PARTY OR BY
WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR ANY SUBSIDIARY IS BOUND OR
AFFECTED, OR (III) RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION, ORDER,
JUDGMENT, INJUNCTION, DECREE OR OTHER RESTRICTION OF ANY COURT OR GOVERNMENTAL
AUTHORITY TO WHICH THE COMPANY OR A SUBSIDIARY IS SUBJECT (INCLUDING FEDERAL AND
STATE SECURITIES LAWS AND REGULATIONS AND THE RULES AND REGULATIONS OF ANY
SELF-REGULATORY ORGANIZATION TO WHICH THE COMPANY OR ITS SECURITIES ARE
SUBJECT), OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR A SUBSIDIARY IS
BOUND OR AFFECTED.

 

(E)           ISSUANCE OF THE SECURITIES.  THE SECURITIES (INCLUDING THE
UNDERLYING SHARES) ARE DULY AUTHORIZED AND, WHEN ISSUED AND PAID FOR IN
ACCORDANCE WITH THE TRANSACTION DOCUMENTS, WILL BE DULY AND VALIDLY ISSUED,
FULLY PAID AND NONASSESSABLE, FREE AND CLEAR OF ALL LIENS AND SHALL NOT BE
SUBJECT TO PREEMPTIVE RIGHTS OR SIMILAR RIGHTS OF STOCKHOLDERS.  THE COMPANY HAS
RESERVED FROM ITS DULY AUTHORIZED CAPITAL STOCK THE MAXIMUM NUMBER OF SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS.

 

(F)            CAPITALIZATION.  THE NUMBER OF SHARES AND TYPE OF ALL AUTHORIZED,
ISSUED AND OUTSTANDING CAPITAL STOCK, OPTIONS AND OTHER SECURITIES OF THE
COMPANY (WHETHER OR NOT PRESENTLY CONVERTIBLE INTO OR EXERCISABLE OR
EXCHANGEABLE FOR SHARES OF CAPITAL STOCK OF THE COMPANY) IS AS SET FORTH IN
SCHEDULE 3.1(F).  ALL OUTSTANDING SHARES OF CAPITAL STOCK ARE DULY AUTHORIZED,
VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND HAVE BEEN ISSUED IN COMPLIANCE
WITH ALL APPLICABLE SECURITIES LAWS.  EXCEPT AS DISCLOSED IN THE SEC REPORTS (AS
DEFINED BELOW) OR SCHEDULE 3.1(F), THERE ARE NO OUTSTANDING OPTIONS, WARRANTS,
SCRIPT RIGHTS TO SUBSCRIBE TO, CALLS OR COMMITMENTS OF ANY CHARACTER WHATSOEVER
RELATING TO, OR SECURITIES, RIGHTS OR OBLIGATIONS CONVERTIBLE INTO OR
EXERCISABLE OR EXCHANGEABLE FOR, OR GIVING ANY PERSON ANY RIGHT TO SUBSCRIBE FOR
OR ACQUIRE, ANY SHARES OF COMMON STOCK, OR CONTRACTS, COMMITMENTS,
UNDERSTANDINGS OR ARRANGEMENTS BY WHICH THE COMPANY OR ANY SUBSIDIARY IS OR MAY
BECOME BOUND TO ISSUE ADDITIONAL SHARES OF COMMON STOCK, OR SECURITIES OR RIGHTS
CONVERTIBLE OR EXCHANGEABLE INTO SHARES OF COMMON STOCK.  EXCEPT AS SET FORTH IN
SEC REPORTS, THERE ARE NO ANTI-DILUTION OR PRICE ADJUSTMENT PROVISIONS CONTAINED
IN ANY SECURITY ISSUED BY THE COMPANY (OR IN ANY AGREEMENT PROVIDING RIGHTS TO
SECURITY HOLDERS) AND THE ISSUE AND SALE OF THE SECURITIES (INCLUDING THE
UNDERLYING SHARES) WILL NOT OBLIGATE THE COMPANY TO ISSUE SHARES OF COMMON STOCK
OR OTHER SECURITIES TO ANY PERSON (OTHER THAN THE PURCHASERS) AND WILL NOT
RESULT IN A RIGHT OF ANY HOLDER OF COMPANY SECURITIES TO ADJUST THE EXERCISE,
CONVERSION, EXCHANGE OR RESET PRICE UNDER SUCH SECURITIES.  TO THE KNOWLEDGE OF
THE COMPANY, EXCEPT AS SPECIFICALLY DISCLOSED IN FILINGS MADE WITH THE SEC AND
AVAILABLE ON EDGAR, NO PERSON OR GROUP OF RELATED PERSONS BENEFICIALLY OWNS (AS
DETERMINED PURSUANT TO RULE 13D-3 UNDER THE EXCHANGE ACT), OR HAS THE RIGHT TO
ACQUIRE, BY AGREEMENT WITH OR BY OBLIGATION BINDING UPON THE COMPANY, BENEFICIAL
OWNERSHIP OF IN EXCESS OF 5% OF THE OUTSTANDING COMMON STOCK, IGNORING FOR SUCH
PURPOSES ANY LIMITATION ON THE NUMBER OF SHARES OF COMMON STOCK THAT MAY BE
OWNED AT ANY SINGLE TIME.

 

(G)           SEC REPORTS; FINANCIAL STATEMENTS.  THE COMPANY HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY IT UNDER THE EXCHANGE ACT, INCLUDING PURSUANT TO
SECTION 13(A) OR 15(D) THEREOF, FOR THE TWO (2) YEARS PRECEDING THE DATE HEREOF
(OR SUCH SHORTER PERIOD AS THE COMPANY WAS REQUIRED BY LAW TO FILE SUCH
MATERIAL) (THE FOREGOING MATERIALS (TOGETHER WITH ANY MATERIALS

 

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FILED BY THE COMPANY UNDER THE EXCHANGE ACT, WHETHER OR NOT REQUIRED) BEING
COLLECTIVELY REFERRED TO HEREIN AS THE “SEC REPORTS” AND, TOGETHER WITH THIS
AGREEMENT AND THE SCHEDULES TO THIS AGREEMENT, THE “DISCLOSURE MATERIALS”) ON A
TIMELY BASIS OR HAS RECEIVED A VALID EXTENSION OF SUCH TIME OF FILING AND HAS
FILED ANY SUCH SEC REPORTS PRIOR TO THE EXPIRATION OF ANY SUCH EXTENSION.  THE
COMPANY HAS DELIVERED TO EACH PURCHASER TRUE, CORRECT AND COMPLETE COPIES OF ALL
SEC REPORTS FILED WITHIN THE TEN (10) DAYS PRECEDING THE DATE HEREOF.  AS OF
THEIR RESPECTIVE DATES, THE SEC REPORTS COMPLIED IN ALL MATERIAL RESPECTS WITH
THE REQUIREMENTS OF THE SECURITIES ACT AND THE EXCHANGE ACT AND THE RULES AND
REGULATIONS OF THE COMMISSION PROMULGATED THEREUNDER, AND NONE OF THE SEC
REPORTS, WHEN FILED, CONTAINED ANY UNTRUE STATEMENT OF A MATERIAL FACT OR
OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN
ORDER TO MAKE THE STATEMENTS THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER
WHICH THEY WERE MADE, NOT MISLEADING.  THE FINANCIAL STATEMENTS OF THE COMPANY
INCLUDED IN THE SEC REPORTS COMPLY IN ALL MATERIAL RESPECTS WITH APPLICABLE
ACCOUNTING REQUIREMENTS AND THE RULES AND REGULATIONS OF THE COMMISSION WITH
RESPECT THERETO AS IN EFFECT AT THE TIME OF FILING.  SUCH FINANCIAL STATEMENTS
HAVE BEEN PREPARED IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES APPLIED ON A CONSISTENT BASIS DURING THE PERIODS INVOLVED
(“GAAP”), EXCEPT AS MAY BE OTHERWISE SPECIFIED IN SUCH FINANCIAL STATEMENTS OR
THE NOTES THERETO, AND FAIRLY PRESENT IN ALL MATERIAL RESPECTS THE FINANCIAL
POSITION OF THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES AS OF AND FOR THE
DATES THEREOF AND THE RESULTS OF OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN
ENDED, SUBJECT, IN THE CASE OF UNAUDITED STATEMENTS, TO NORMAL, IMMATERIAL,
YEAR-END AUDIT ADJUSTMENTS.  ALL MATERIAL AGREEMENTS TO WHICH THE COMPANY OR ANY
SUBSIDIARY IS A PARTY OR TO WHICH THE PROPERTY OR ASSETS OF THE COMPANY OR ANY
SUBSIDIARY ARE SUBJECT ARE INCLUDED AS PART OF OR SPECIFICALLY IDENTIFIED IN THE
SEC REPORTS.

 

(H)           MATERIAL CHANGES.  SINCE THE DATE OF THE LATEST AUDITED FINANCIAL
STATEMENTS INCLUDED WITHIN THE SEC REPORTS, EXCEPT AS SPECIFICALLY DISCLOSED IN
THE SEC REPORTS OR IN SCHEDULE 3.1(H), (I) THERE HAS BEEN NO EVENT, OCCURRENCE
OR DEVELOPMENT THAT, INDIVIDUALLY OR IN THE AGGREGATE, HAS HAD OR THAT COULD
RESULT IN A MATERIAL ADVERSE EFFECT, (II) THE COMPANY HAS NOT INCURRED ANY
LIABILITIES (CONTINGENT OR OTHERWISE) OTHER THAN (A) TRADE PAYABLES AND ACCRUED
EXPENSES INCURRED IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH PAST
PRACTICE AND (B) LIABILITIES NOT REQUIRED TO BE REFLECTED IN THE COMPANY’S
FINANCIAL STATEMENTS PURSUANT TO GAAP OR REQUIRED TO BE DISCLOSED IN FILINGS
MADE WITH THE COMMISSION, (III) THE COMPANY HAS NOT ALTERED ITS METHOD OF
ACCOUNTING OR THE IDENTITY OF ITS AUDITORS, EXCEPT AS DISCLOSED IN ITS SEC
REPORTS, (IV) THE COMPANY HAS NOT DECLARED OR MADE ANY DIVIDEND OR DISTRIBUTION
OF CASH OR OTHER PROPERTY TO ITS STOCKHOLDERS OR PURCHASED, REDEEMED OR MADE ANY
AGREEMENTS TO PURCHASE OR REDEEM ANY SHARES OF ITS CAPITAL STOCK, AND (V) THE
COMPANY HAS NOT ISSUED ANY EQUITY SECURITIES TO ANY OFFICER, DIRECTOR OR
AFFILIATE, EXCEPT PURSUANT TO EXISTING COMPANY STOCK-BASED PLANS.

 

(I)            ABSENCE OF LITIGATION.  THERE IS NO ACTION, SUIT, CLAIM,
PROCEEDING, INQUIRY OR INVESTIGATION BEFORE OR BY ANY COURT, PUBLIC BOARD,
GOVERNMENT AGENCY, SELF-REGULATORY ORGANIZATION OR BODY PENDING OR, TO THE
KNOWLEDGE OF THE COMPANY, THREATENED AGAINST OR AFFECTING THE COMPANY OR ANY OF
ITS SUBSIDIARIES THAT COULD, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL
ADVERSE EFFECT.  SCHEDULE 3.1(I) CONTAINS A COMPLETE LIST AND SUMMARY
DESCRIPTION OF ANY PENDING OR, TO THE KNOWLEDGE OF THE COMPANY, THREATENED
PROCEEDING AGAINST OR AFFECTING THE COMPANY OR ANY OF ITS SUBSIDIARIES, WITHOUT
REGARD TO WHETHER IT COULD, INDIVIDUALLY OR IN THE AGGREGATE, HAVE A MATERIAL
ADVERSE EFFECT.

 

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(J)            COMPLIANCE.  NEITHER THE COMPANY NOR ANY SUBSIDIARY (I) IS IN
DEFAULT UNDER OR IN VIOLATION OF (AND NO EVENT HAS OCCURRED THAT HAS NOT BEEN
WAIVED THAT, WITH NOTICE OR LAPSE OF TIME OR BOTH, WOULD RESULT IN A DEFAULT BY
THE COMPANY OR ANY SUBSIDIARY UNDER), NOR HAS THE COMPANY OR ANY SUBSIDIARY
RECEIVED NOTICE OF A CLAIM THAT IT IS IN DEFAULT UNDER OR THAT IT IS IN
VIOLATION OF, ANY INDENTURE, LOAN OR CREDIT AGREEMENT OR ANY OTHER AGREEMENT OR
INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT OR ANY OF ITS PROPERTIES IS
BOUND (WHETHER OR NOT SUCH DEFAULT OR VIOLATION HAS BEEN WAIVED), (II) IS IN
VIOLATION OF ANY ORDER OF ANY COURT, ARBITRATOR OR GOVERNMENTAL BODY, OR (III)
IS OR HAS BEEN IN VIOLATION OF ANY STATUTE, RULE OR REGULATION OF ANY
GOVERNMENTAL AUTHORITY, INCLUDING WITHOUT LIMITATION ALL FOREIGN, FEDERAL, STATE
AND LOCAL LAWS RELATING TO TAXES, ENVIRONMENTAL PROTECTION, OCCUPATIONAL HEALTH
AND SAFETY, PRODUCT QUALITY AND SAFETY AND EMPLOYMENT AND LABOR MATTERS, EXCEPT
IN EACH CASE AS COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR RESULT IN A
MATERIAL ADVERSE EFFECT.

 

(K)           TITLE TO ASSETS.  THE COMPANY AND THE SUBSIDIARIES HAVE GOOD AND
MARKETABLE TITLE IN FEE SIMPLE TO ALL REAL PROPERTY OWNED BY THEM THAT IS
MATERIAL TO THE BUSINESS OF THE COMPANY AND THE SUBSIDIARIES AND GOOD AND
MARKETABLE TITLE IN ALL PERSONAL PROPERTY OWNED BY THEM THAT IS MATERIAL TO THE
BUSINESS OF THE COMPANY AND THE SUBSIDIARIES, IN EACH CASE FREE AND CLEAR OF ALL
LIENS, EXCEPT FOR LIENS AS DO NOT MATERIALLY AFFECT THE VALUE OF SUCH PROPERTY
AND DO NOT MATERIALLY INTERFERE WITH THE USE MADE AND PROPOSED TO BE MADE OF
SUCH PROPERTY BY THE COMPANY AND THE SUBSIDIARIES. ANY REAL PROPERTY AND
FACILITIES HELD UNDER LEASE BY THE COMPANY AND THE SUBSIDIARIES ARE HELD BY THEM
UNDER VALID, SUBSISTING AND ENFORCEABLE LEASES OF WHICH THE COMPANY AND THE
SUBSIDIARIES ARE IN COMPLIANCE.

 

(L)            CERTAIN FEES.  EXCEPT FOR THE FEES PAYABLE TO JESUP & LAMONT, ALL
OF WHICH ARE PAYABLE TO REGISTERED BROKER-DEALERS, NO BROKERAGE OR FINDER’S FEES
OR COMMISSIONS ARE OR WILL BE PAYABLE BY THE COMPANY TO ANY BROKER, FINANCIAL
ADVISOR OR CONSULTANT, FINDER, PLACEMENT AGENT, INVESTMENT BANKER, BANK OR OTHER
PERSON WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND THE
COMPANY HAS NOT TAKEN ANY ACTION THAT WOULD CAUSE ANY PURCHASER TO BE LIABLE FOR
ANY SUCH FEES OR COMMISSIONS.

 

(M)          PRIVATE PLACEMENT.  NEITHER THE COMPANY NOR ANY PERSON ACTING ON
THE COMPANY’S BEHALF HAS SOLD OR OFFERED TO SELL OR SOLICITED ANY OFFER TO BUY
THE SECURITIES BY MEANS OF ANY FORM OF GENERAL SOLICITATION OR ADVERTISING. 
NEITHER THE COMPANY NOR ANY OF ITS AFFILIATES NOR ANY PERSON ACTING ON THE
COMPANY’S BEHALF HAS, DIRECTLY OR INDIRECTLY, AT ANY TIME WITHIN THE PAST SIX
(6) MONTHS, MADE ANY OFFER OR SALE OF ANY SECURITY OR SOLICITATION OF ANY OFFER
TO BUY ANY SECURITY UNDER CIRCUMSTANCES THAT WOULD (I) ELIMINATE THE
AVAILABILITY OF THE EXEMPTION FROM REGISTRATION UNDER REGULATION D UNDER THE
SECURITIES ACT IN CONNECTION WITH THE OFFER AND SALE OF THE SECURITIES AS
CONTEMPLATED HEREBY OR (II) CAUSE THE OFFERING OF THE SECURITIES PURSUANT TO THE
TRANSACTION DOCUMENTS TO BE INTEGRATED WITH PRIOR OFFERINGS BY THE COMPANY FOR
PURPOSES OF ANY APPLICABLE LAW, REGULATION OR STOCKHOLDER APPROVAL PROVISIONS,
INCLUDING, WITHOUT LIMITATION, UNDER THE RULES AND REGULATIONS OF ANY TRADING
MARKET.  THE COMPANY IS NOT, AND IS NOT AN AFFILIATE OF, AN “INVESTMENT COMPANY”
WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.  THE
COMPANY IS NOT A UNITED STATES REAL PROPERTY HOLDING CORPORATION WITHIN THE
MEANING OF THE FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT OF 1980.

 

(N)           FORM S-3 ELIGIBILITY.  THE COMPANY IS ELIGIBLE TO REGISTER ITS
COMMON STOCK FOR RESALE BY THE PURCHASERS USING FORM S-3 PROMULGATED UNDER THE
SECURITIES ACT.

 

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(O)           LISTING AND MAINTENANCE REQUIREMENTS.  THE COMPANY HAS NOT, IN THE
TWO (2) YEARS PRECEDING THE DATE HEREOF, RECEIVED NOTICE (WRITTEN OR ORAL) FROM
ANY TRADING MARKET ON WHICH THE COMMON STOCK IS OR HAS BEEN LISTED OR QUOTED TO
THE EFFECT THAT THE COMPANY IS NOT IN COMPLIANCE WITH THE LISTING OR MAINTENANCE
REQUIREMENTS OF SUCH TRADING MARKET. THE COMPANY IS, AND HAS NO REASON TO
BELIEVE THAT IT WILL NOT IN THE FORESEEABLE FUTURE CONTINUE TO BE, IN COMPLIANCE
WITH ALL SUCH LISTING AND MAINTENANCE REQUIREMENTS.

 

(P)           REGISTRATION RIGHTS.  EXCEPT AS DESCRIBED IN SCHEDULE 3.1(P), THE
COMPANY HAS NOT GRANTED OR AGREED TO GRANT TO ANY PERSON ANY RIGHTS (INCLUDING
“PIGGY-BACK” REGISTRATION RIGHTS) TO HAVE ANY SECURITIES OF THE COMPANY
REGISTERED WITH THE COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY THAT HAVE NOT
BEEN SATISFIED.

 

(Q)           APPLICATION OF TAKEOVER PROTECTIONS.  THERE IS NO CONTROL SHARE
ACQUISITION, BUSINESS COMBINATION, POISON PILL (INCLUDING ANY DISTRIBUTION UNDER
A RIGHTS AGREEMENT) OR OTHER SIMILAR ANTI-TAKEOVER PROVISION UNDER THE COMPANY’S
CHARTER DOCUMENTS OR THE LAWS OF ITS STATE OF INCORPORATION THAT IS OR COULD
BECOME APPLICABLE TO ANY OF THE PURCHASERS AS A RESULT OF THE PURCHASERS AND THE
COMPANY FULFILLING THEIR OBLIGATIONS OR EXERCISING THEIR RIGHTS UNDER THE
TRANSACTION DOCUMENTS, INCLUDING, WITHOUT LIMITATION, AS A RESULT OF THE
COMPANY’S ISSUANCE OF THE SECURITIES AND THE PURCHASERS’ OWNERSHIP OF THE
SECURITIES.

 

(R)            DISCLOSURE.  THE COMPANY CONFIRMS THAT NEITHER IT NOR ANY OTHER
PERSON ACTING ON ITS BEHALF HAS PROVIDED ANY OF THE PURCHASERS OR THEIR AGENTS
OR COUNSEL WITH ANY INFORMATION THAT CONSTITUTES OR MIGHT CONSTITUTE MATERIAL,
NONPUBLIC INFORMATION.  THE COMPANY UNDERSTANDS AND CONFIRMS THAT EACH OF THE
PURCHASERS WILL RELY ON THE FOREGOING REPRESENTATIONS IN EFFECTING TRANSACTIONS
IN SECURITIES OF THE COMPANY.  ALL DISCLOSURE PROVIDED TO THE PURCHASERS
REGARDING THE COMPANY, ITS BUSINESS AND THE TRANSACTIONS CONTEMPLATED HEREBY,
INCLUDING THE SCHEDULES TO THIS AGREEMENT, FURNISHED BY OR ON BEHALF OF THE
COMPANY ARE TRUE AND CORRECT AND DO NOT CONTAIN ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE ANY MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS MADE THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE
MADE, NOT MISLEADING.  NO EVENT OR CIRCUMSTANCE HAS OCCURRED OR INFORMATION
EXISTS WITH RESPECT TO THE COMPANY OR ANY OF ITS SUBSIDIARIES OR ITS OR THEIR
BUSINESS, PROPERTIES, PROSPECTS, OPERATIONS OR FINANCIAL CONDITIONS, WHICH,
UNDER APPLICABLE LAW, RULE OR REGULATION, REQUIRES PUBLIC DISCLOSURE OR
ANNOUNCEMENT BY THE COMPANY BUT WHICH HAS NOT BEEN SO PUBLICLY ANNOUNCED OR
DISCLOSED.  THE COMPANY ACKNOWLEDGES AND AGREES THAT (I) NO PURCHASER MAKES OR
HAS MADE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY OTHER THAN THOSE SPECIFICALLY SET FORTH IN SECTION 3.2 OR
(II) ANY ORAL STATEMENT, COMMITMENT OR PROMISE TO THE COMPANY OR, TO ITS
KNOWLEDGE, ANY OF ITS REPRESENTATIVES WHICH IS OR WAS AN INDUCEMENT TO THE
COMPANY TO ENTER INTO THIS AGREEMENT OR OTHERWISE.

 

(S)           ACKNOWLEDGMENT REGARDING PURCHASERS’ PURCHASE OF SECURITIES.  THE
COMPANY ACKNOWLEDGES AND AGREES THAT EACH OF THE PURCHASERS IS ACTING SOLELY IN
THE CAPACITY OF AN ARM’S LENGTH PURCHASER WITH RESPECT TO THE COMPANY AND TO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.  THE COMPANY FURTHER
ACKNOWLEDGES THAT NO PURCHASER IS ACTING AS A FINANCIAL ADVISOR OR FIDUCIARY OF
THE COMPANY (OR IN ANY SIMILAR CAPACITY) WITH RESPECT TO THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND ANY ADVICE GIVEN BY ANY PURCHASER OR ANY OF
THEIR RESPECTIVE REPRESENTATIVES OR AGENTS IN CONNECTION WITH THIS AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED HEREBY IS MERELY INCIDENTAL TO THE PURCHASERS’
PURCHASE OF THE

 

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SECURITIES.  THE COMPANY FURTHER REPRESENTS TO EACH PURCHASER THAT THE COMPANY’S
DECISION TO ENTER INTO THIS AGREEMENT HAS BEEN BASED SOLELY ON THE INDEPENDENT
EVALUATION OF THE TRANSACTIONS CONTEMPLATED HEREBY BY THE COMPANY AND ITS
REPRESENTATIVES.

 

(T)            PATENTS AND TRADEMARKS.  THE COMPANY AND THE SUBSIDIARIES HAVE,
OR HAVE RIGHTS TO USE, ALL PATENTS, PATENT APPLICATIONS, TRADEMARKS, TRADEMARK
APPLICATIONS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS, LICENSES AND OTHER SIMILAR
RIGHTS THAT ARE NECESSARY OR MATERIAL FOR USE IN CONNECTION WITH THEIR
RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS AND WHICH THE FAILURE TO
SO HAVE COULD HAVE A MATERIAL ADVERSE EFFECT (COLLECTIVELY, THE “INTELLECTUAL
PROPERTY RIGHTS”). NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED A WRITTEN
NOTICE THAT THE INTELLECTUAL PROPERTY RIGHTS USED BY THE COMPANY OR ANY
SUBSIDIARY VIOLATES OR INFRINGES UPON THE RIGHTS OF ANY PERSON. TO THE KNOWLEDGE
OF THE COMPANY, ALL SUCH INTELLECTUAL PROPERTY RIGHTS ARE ENFORCEABLE AND THERE
IS NO EXISTING INFRINGEMENT BY ANOTHER PERSON OF ANY OF THE INTELLECTUAL
PROPERTY RIGHTS.

 

(U)           INSURANCE.  THE COMPANY AND THE SUBSIDIARIES ARE INSURED BY
INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH LOSSES AND RISKS
AND IN SUCH AMOUNTS AS ARE PRUDENT AND CUSTOMARY IN THE BUSINESSES IN WHICH THE
COMPANY AND THE SUBSIDIARIES ARE ENGAGED.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY HAS ANY REASON TO BELIEVE THAT IT WILL NOT BE ABLE TO RENEW ITS
EXISTING INSURANCE COVERAGE AS AND WHEN SUCH COVERAGE EXPIRES OR TO OBTAIN
SIMILAR COVERAGE FROM SIMILAR INSURERS AS MAY BE NECESSARY TO CONTINUE ITS
BUSINESS WITHOUT A SIGNIFICANT INCREASE IN COST.

 

(V)           REGULATORY PERMITS.  THE COMPANY AND THE SUBSIDIARIES POSSESS ALL
CERTIFICATES, AUTHORIZATIONS AND PERMITS ISSUED BY THE APPROPRIATE FEDERAL,
STATE, LOCAL OR FOREIGN REGULATORY AUTHORITIES NECESSARY TO CONDUCT THEIR
RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS, EXCEPT WHERE THE FAILURE
TO POSSESS SUCH PERMITS COULD NOT, INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR
RESULT IN A MATERIAL ADVERSE EFFECT (“MATERIAL PERMITS”), AND NEITHER THE
COMPANY NOR ANY SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS RELATING TO
THE REVOCATION OR MODIFICATION OF ANY MATERIAL PERMIT.

 

(W)          TRANSACTIONS WITH AFFILIATES AND EMPLOYEES.  EXCEPT AS SET FORTH IN
SEC REPORTS OR IN THE COMPANY’S ANNUAL REPORT ON FORM 10-K, NONE OF THE OFFICERS
OR DIRECTORS OF THE COMPANY AND, TO THE KNOWLEDGE OF THE COMPANY, NONE OF THE
EMPLOYEES OF THE COMPANY IS PRESENTLY A PARTY TO ANY TRANSACTION WITH THE
COMPANY OR ANY SUBSIDIARY (OTHER THAN FOR SERVICES AS EMPLOYEES, OFFICERS AND
DIRECTORS), INCLUDING ANY CONTRACT, AGREEMENT OR OTHER ARRANGEMENT PROVIDING FOR
THE FURNISHING OF SERVICES TO OR BY, PROVIDING FOR RENTAL OF REAL OR PERSONAL
PROPERTY TO OR FROM, OR OTHERWISE REQUIRING PAYMENTS TO OR FROM ANY OFFICER,
DIRECTOR OR SUCH EMPLOYEE OR, TO THE KNOWLEDGE OF THE COMPANY, ANY ENTITY IN
WHICH ANY OFFICER, DIRECTOR, OR ANY SUCH EMPLOYEE HAS A SUBSTANTIAL INTEREST OR
IS AN OFFICER, DIRECTOR, TRUSTEE OR PARTNER.

 

(X)            SOLVENCY.  BASED ON THE FINANCIAL CONDITION OF THE COMPANY AS OF
THE CLOSING DATE, (I) THE COMPANY’S FAIR SALEABLE VALUE OF ITS ASSETS EXCEEDS
THE AMOUNT THAT WILL BE REQUIRED TO BE PAID ON OR IN RESPECT OF THE COMPANY’S
EXISTING DEBTS AND OTHER LIABILITIES (INCLUDING KNOWN CONTINGENT LIABILITIES) AS
THEY MATURE; (II) THE COMPANY’S ASSETS DO NOT CONSTITUTE UNREASONABLY SMALL
CAPITAL TO CARRY ON ITS BUSINESS FOR THE CURRENT FISCAL YEAR AS NOW CONDUCTED
AND AS PROPOSED TO BE CONDUCTED INCLUDING ITS CAPITAL NEEDS TAKING INTO ACCOUNT
THE

 

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PARTICULAR CAPITAL REQUIREMENTS OF THE BUSINESS CONDUCTED BY THE COMPANY, AND
PROJECTED CAPITAL REQUIREMENTS AND CAPITAL AVAILABILITY THEREOF; AND (III) THE
CURRENT CASH FLOW OF THE COMPANY, TOGETHER WITH THE PROCEEDS THE COMPANY WOULD
RECEIVE, WERE IT TO LIQUIDATE ALL OF ITS ASSETS, AFTER TAKING INTO ACCOUNT ALL
ANTICIPATED USES OF THE CASH, WOULD BE SUFFICIENT TO PAY ALL AMOUNTS ON OR IN
RESPECT OF ITS DEBT WHEN SUCH AMOUNTS ARE REQUIRED TO BE PAID.  THE COMPANY DOES
NOT INTEND TO INCUR DEBTS BEYOND ITS ABILITY TO PAY SUCH DEBTS AS THEY MATURE
(TAKING INTO ACCOUNT THE TIMING AND AMOUNTS OF CASH TO BE PAYABLE ON OR IN
RESPECT OF ITS DEBT).

 

(Y)           GOING CONCERN.  EXCEPT AS SET FORTH ON SCHEDULE 3.1(Y), THE
COMPANY AND THE SUBSIDIARIES HAVE NO KNOWLEDGE (UPON RECEIPT OF THE PROCEEDS OF
THIS TRANSACTION) THAT THE COMPANY’S INDEPENDENT PUBLIC ACCOUNTANTS WILL ISSUE
AN AUDIT LETTER CONTAINING A “GOING CONCERN” OPINION IN CONNECTION WITH THE
COMPANY’S ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 OR 15(D) UNDER THE
EXCHANGE ACT FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 OR OTHERWISE.

 

(Z)            INTERNAL ACCOUNTING CONTROLS.  THE COMPANY AND THE SUBSIDIARIES
MAINTAIN A SYSTEM OF INTERNAL ACCOUNTING CONTROLS SUFFICIENT TO PROVIDE
REASONABLE ASSURANCE THAT (I) TRANSACTIONS ARE EXECUTED IN ACCORDANCE WITH
MANAGEMENT’S GENERAL OR SPECIFIC AUTHORIZATIONS, (II) TRANSACTIONS ARE RECORDED
AS NECESSARY TO PERMIT PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND TO MAINTAIN ASSET ACCOUNTABILITY,
(III) ACCESS TO ASSETS IS PERMITTED ONLY IN ACCORDANCE WITH MANAGEMENT’S GENERAL
OR SPECIFIC AUTHORIZATION, AND (IV) THE RECORDED ACCOUNTABILITY FOR ASSETS IS
COMPARED WITH THE EXISTING ASSETS AT REASONABLE INTERVALS AND APPROPRIATE ACTION
IS TAKEN WITH RESPECT TO ANY DIFFERENCES.

 

3.2           REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.  EACH PURCHASER
HEREBY, AS TO ITSELF ONLY AND FOR NO OTHER PURCHASER, REPRESENTS AND WARRANTS TO
THE COMPANY AS FOLLOWS:

 

(A)           ORGANIZATION; AUTHORITY.  SUCH PURCHASER IS AN ENTITY DULY
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE
JURISDICTION OF ITS ORGANIZATION WITH THE REQUISITE CORPORATE OR PARTNERSHIP
POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS
OBLIGATIONS HEREUNDER AND THEREUNDER.  THE PURCHASE BY SUCH PURCHASER OF THE
SHARES AND THE WARRANTS HEREUNDER HAS BEEN DULY AUTHORIZED BY ALL NECESSARY
ACTION ON THE PART OF SUCH PURCHASER.  THIS AGREEMENT HAS BEEN DULY EXECUTED AND
DELIVERED BY SUCH PURCHASER AND CONSTITUTES THE VALID AND BINDING OBLIGATION OF
SUCH PURCHASER, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS.

 

(B)           INVESTMENT INTENT.  SUCH PURCHASER IS ACQUIRING THE SECURITIES AS
PRINCIPAL FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR
DISTRIBUTING OR RESELLING SUCH SECURITIES OR ANY PART THEREOF, WITHOUT
PREJUDICE, HOWEVER, TO SUCH PURCHASER’S RIGHT, SUBJECT TO THE PROVISIONS OF THIS
AGREEMENT, AT ALL TIMES TO SELL OR OTHERWISE DISPOSE OF ALL OR ANY PART OF SUCH
SECURITIES PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR UNDER AN EXEMPTION FROM SUCH REGISTRATION AND IN COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.  NOTHING CONTAINED HEREIN SHALL BE
DEEMED A REPRESENTATION OR WARRANTY BY SUCH PURCHASER TO HOLD SECURITIES FOR ANY
PERIOD OF TIME.

 

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(C)           PURCHASER STATUS; INFORMATION.  AT THE TIME SUCH PURCHASER WAS
OFFERED THE SHARES AND THE WARRANTS, IT WAS, AND AT THE DATE HEREOF IT IS, AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT.  THE
INFORMATION PROVIDED BY SUCH PURCHASER IN ITS QUESTIONNAIRE (AS DEFINED BELOW)
IS TRUE AND CORRECT.

 

(D)           EXPERIENCE OF SUCH PURCHASER.  SUCH PURCHASER, EITHER ALONE OR
TOGETHER WITH ITS REPRESENTATIVES HAS SUCH KNOWLEDGE, SOPHISTICATION AND
EXPERIENCE IN BUSINESS AND FINANCIAL MATTERS SO AS TO BE CAPABLE OF EVALUATING
THE MERITS AND RISKS OF THE PROSPECTIVE INVESTMENT IN THE SECURITIES, AND HAS SO
EVALUATED THE MERITS AND RISKS OF SUCH INVESTMENT.  SUCH PURCHASER IS ABLE TO
BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE SECURITIES AND, AT THE PRESENT
TIME, IS ABLE TO AFFORD A COMPLETE LOSS OF SUCH INVESTMENT.

 

(E)           RESTRICTION ON SHORT SALES AND HEDGING.  SUCH PURCHASER WILL NOT
SELL, OFFER TO SELL, SOLICIT OFFERS TO BUY, DISPOSE OF, LOAN, PLEDGE OR GRANT
ANY RIGHT WITH RESPECT TO (COLLECTIVELY, A “DISPOSITION”), THE COMMON STOCK IN
VIOLATION OF THE SECURITIES ACT, NOR WILL SUCH PURCHASER ENGAGE IN ANY HEDGING
OR OTHER TRANSACTION WHICH IS DESIGNED TO OR COULD REASONABLY BE EXPECTED TO
LEAD TO OR RESULT IN A DISPOSITION OF COMMON STOCK BY THE PURCHASER OR ANY OTHER
PERSON OR ENTITY IN VIOLATION OF THE SECURITIES ACT, IN EACH CASE OTHER THAN TO
THE EXTENT SUCH PURCHASER HAS AN OFFSETTING POSITION IN OR BENEFICIAL OWNERSHIP
OF THE COMMON STOCK.

 

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

 

4.1           TRANSFER RESTRICTIONS.

 

(A)           SECURITIES MAY ONLY BE DISPOSED OF PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.  IN CONNECTION WITH ANY
TRANSFER OF SECURITIES OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR TO THE COMPANY OR PURSUANT TO RULE 144(K), EXCEPT AS OTHERWISE SET
FORTH HEREIN, THE COMPANY MAY REQUIRE THE TRANSFEROR TO PROVIDE TO THE COMPANY
AN OPINION OF COUNSEL SELECTED BY THE TRANSFEROR, THE FORM AND SUBSTANCE OF
WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT. 
NOTWITHSTANDING THE FOREGOING, THE COMPANY HEREBY CONSENTS TO AND AGREES TO
REGISTER ON THE BOOKS OF THE COMPANY AND WITH ITS TRANSFER AGENT, WITHOUT ANY
SUCH LEGAL OPINION, ANY TRANSFER OF SECURITIES BY A PURCHASER TO AN AFFILIATE OF
SUCH PURCHASER, PROVIDED THAT THE TRANSFEREE CERTIFIES TO THE COMPANY THAT IT IS
AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT.

 

(B)           THE PURCHASERS AGREE TO THE IMPRINTING, SO LONG AS IS REQUIRED BY
THIS SECTION 4.1(B), OF THE FOLLOWING LEGEND ON ANY CERTIFICATE EVIDENCING
SECURITIES:

 

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED

 

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WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. 
NOTWITHSTANDING THE FOREGOING, THESE SECURITIES [AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.

 

Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective under the Securities Act, or (ii) following any
sale of such Securities pursuant to Rule 144, or (iii) if such Securities are
eligible for sale under Rule 144(k), or (iv) if such legend is not required
under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission).  The
Company shall cause its counsel to issue the legal opinion included in the
Transfer Agent Instructions to the Company’s transfer agent on the Effective
Date.  Following the Effective Date or at such earlier time as a legend is no
longer required for certain Securities, the Company will no later than three (3)
Trading Days following the delivery by a Purchaser to the Company or the
Company’s transfer agent of a legended certificate representing such Securities,
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends.  The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section.  For so long as any Purchaser owns Securities, the
Company will not effect or publicly announce its intention to effect any
exchange, recapitalization or other transaction that effectively requires or
rewards physical delivery of certificates evidencing the Common Stock.

 

(C)           THE COMPANY ACKNOWLEDGES AND AGREES THAT A PURCHASER MAY FROM TIME
TO TIME PLEDGE OR GRANT A SECURITY INTEREST IN SOME OR ALL OF THE SECURITIES IN
CONNECTION WITH A BONA FIDE MARGIN AGREEMENT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES AND, IF REQUIRED UNDER THE TERMS OF SUCH
AGREEMENT, LOAN OR ARRANGEMENT, SUCH PURCHASER MAY TRANSFER PLEDGED OR SECURED
SECURITIES TO THE PLEDGEES OR SECURED PARTIES.  SUCH A PLEDGE OR TRANSFER WOULD
NOT BE SUBJECT TO APPROVAL OF THE COMPANY AND NO LEGAL OPINION OF THE PLEDGEE,
SECURED PARTY OR PLEDGOR SHALL BE REQUIRED IN CONNECTION THEREWITH.  FURTHER, NO
NOTICE SHALL BE REQUIRED OF SUCH PLEDGE.  AT THE APPROPRIATE PURCHASER’S
EXPENSE, THE COMPANY WILL EXECUTE AND DELIVER SUCH REASONABLE DOCUMENTATION AS A
PLEDGEE OR SECURED PARTY OF SECURITIES MAY REASONABLY REQUEST IN CONNECTION WITH
A PLEDGE OR TRANSFER OF THE SECURITIES, INCLUDING THE PREPARATION AND FILING OF
ANY REQUIRED PROSPECTUS SUPPLEMENT UNDER RULE 424(B)(3) OF THE SECURITIES ACT OR
OTHER APPLICABLE PROVISION OF THE SECURITIES ACT TO APPROPRIATELY AMEND THE LIST
OF SELLING STOCKHOLDERS THEREUNDER.

 

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4.2           FURNISHING OF INFORMATION.  AS LONG AS ANY PURCHASER OWNS
SECURITIES, THE COMPANY COVENANTS TO TIMELY FILE (OR OBTAIN EXTENSIONS IN
RESPECT THEREOF AND FILE WITHIN THE APPLICABLE GRACE PERIOD) ALL REPORTS
REQUIRED TO BE FILED BY THE COMPANY AFTER THE DATE HEREOF PURSUANT TO THE
EXCHANGE ACT.  UPON THE REQUEST OF ANY PURCHASER, THE COMPANY SHALL DELIVER TO
SUCH PURCHASER A WRITTEN CERTIFICATION OF A DULY AUTHORIZED OFFICER AS TO
WHETHER IT HAS COMPLIED WITH THE PRECEDING SENTENCE. AS LONG AS ANY PURCHASER
OWNS SECURITIES, IF THE COMPANY IS NOT REQUIRED TO FILE REPORTS PURSUANT TO SUCH
LAWS, IT WILL PREPARE AND FURNISH TO THE PURCHASERS AND MAKE PUBLICLY AVAILABLE
IN ACCORDANCE WITH PARAGRAPH (C) OF RULE 144 SUCH INFORMATION AS IS REQUIRED FOR
THE PURCHASERS TO SELL THE SECURITIES UNDER RULE 144.  THE COMPANY FURTHER
COVENANTS THAT IT WILL TAKE SUCH FURTHER ACTION AS ANY HOLDER OF SECURITIES MAY
REASONABLY REQUEST TO SATISFY THE PROVISIONS OF RULE 144 APPLICABLE TO THE
ISSUER OF SECURITIES RELATING TO TRANSACTIONS FOR THE SALE OF SECURITIES
PURSUANT TO RULE 144.

 

4.3           INTEGRATION.  THE COMPANY SHALL NOT, AND SHALL USE ITS BEST
EFFORTS TO ENSURE THAT NO AFFILIATE OF THE COMPANY SHALL, SELL, OFFER FOR SALE
OR SOLICIT OFFERS TO BUY OR OTHERWISE NEGOTIATE IN RESPECT OF ANY SECURITY (AS
DEFINED IN SECTION 2 OF THE SECURITIES ACT) THAT WOULD BE INTEGRATED WITH THE
OFFER OR SALE OF THE SECURITIES IN A MANNER THAT WOULD REQUIRE THE REGISTRATION
UNDER THE SECURITIES ACT OF THE SALE OF THE SECURITIES TO THE PURCHASERS OR THAT
WOULD BE INTEGRATED WITH THE OFFER OR SALE OF THE SECURITIES FOR PURPOSES OF THE
RULES AND REGULATIONS OF ANY TRADING MARKET.

 

4.4           RESERVATION OF SECURITIES.  THE COMPANY SHALL MAINTAIN A RESERVE
FROM ITS DULY AUTHORIZED SHARES OF COMMON STOCK FOR ISSUANCE PURSUANT TO THE
TRANSACTION DOCUMENTS IN SUCH AMOUNT AS MAY BE REQUIRED TO FULFILL ITS
OBLIGATIONS IN FULL UNDER THE TRANSACTION DOCUMENTS.  IN THE EVENT THAT AT ANY
TIME THE THEN AUTHORIZED SHARES OF COMMON STOCK ARE INSUFFICIENT FOR THE COMPANY
TO SATISFY ITS OBLIGATIONS IN FULL UNDER THE TRANSACTION DOCUMENTS, THE COMPANY
SHALL PROMPTLY TAKE SUCH ACTIONS AS MAY BE REQUIRED TO INCREASE THE NUMBER OF
AUTHORIZED SHARES.

 

4.5           SUBSEQUENT PLACEMENTS.

 

(A)           EXCEPT WITH RESPECT TO THE EXCLUDED STOCK, FROM THE DATE HEREOF
UNTIL THE EFFECTIVE DATE, THE COMPANY WILL NOT, DIRECTLY OR INDIRECTLY, OFFER,
SELL, GRANT ANY OPTION TO PURCHASE, OR OTHERWISE DISPOSE OF (OR ANNOUNCE ANY
OFFER, SALE, GRANT OR ANY OPTION TO PURCHASE OR OTHER DISPOSITION OF) ANY OF ITS
OR THE SUBSIDIARIES’ EQUITY OR EQUITY EQUIVALENT SECURITIES, INCLUDING WITHOUT
LIMITATION ANY DEBT, PREFERRED STOCK OR OTHER INSTRUMENT OR SECURITY THAT IS, AT
ANY TIME DURING ITS LIFE AND UNDER ANY CIRCUMSTANCES, CONVERTIBLE INTO OR
EXCHANGEABLE OR EXERCISABLE FOR COMMON STOCK OR COMMON STOCK EQUIVALENTS (ANY
SUCH OFFER, SALE, GRANT, DISPOSITION OR ANNOUNCEMENT BEING REFERRED TO AS A
“SUBSEQUENT PLACEMENT”).

 

(B)           FROM THE EFFECTIVE DATE UNTIL THE ONE YEAR ANNIVERSARY THEREOF,
THE COMPANY WILL NOT, DIRECTLY OR INDIRECTLY, EFFECT ANY SUBSEQUENT PLACEMENT
UNLESS THE COMPANY SHALL HAVE FIRST COMPLIED WITH THIS SECTION 4.5(B).

 

(I)            THE COMPANY SHALL DELIVER TO EACH PURCHASER A WRITTEN NOTICE (THE
“OFFER”) OF ANY PROPOSED OR INTENDED ISSUANCE OR SALE OR EXCHANGE OF THE
SECURITIES BEING OFFERED (THE “OFFERED SECURITIES”) IN A SUBSEQUENT PLACEMENT,
WHICH OFFER SHALL (W) IDENTIFY AND DESCRIBE THE OFFERED SECURITIES, (X) DESCRIBE
THE PRICE AND OTHER TERMS UPON WHICH THEY ARE TO BE ISSUED, SOLD OR EXCHANGED,
AND THE NUMBER OR AMOUNT OF THE OFFERED

 

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SECURITIES TO BE ISSUED, SOLD OR EXCHANGED, (Y) IDENTIFY THE PERSONS OR ENTITIES
TO WHICH OR WITH WHICH THE OFFERED SECURITIES ARE TO BE OFFERED, ISSUED, SOLD OR
EXCHANGED AND (Z) OFFER TO ISSUE AND SELL TO OR EXCHANGE WITH EACH PURCHASER (A)
A PRO RATA PORTION OF THE GREATER OF (1) ALL OF THE OFFERED SECURITIES BUT NOT
EXCEEDING $10 MILLION OF SUCH OFFERED SECURITIES AND (2) 50% OF THE OFFERED
SECURITIES, BASED ON SUCH PURCHASER’S PRO RATA PORTION OF THE AGGREGATE PURCHASE
PRICE PAID BY THE PURCHASERS FOR ALL OF THE SHARES PURCHASED HEREUNDER (THE
“BASIC AMOUNT”), AND (B) WITH RESPECT TO EACH PURCHASER THAT ELECTS TO PURCHASE
ITS BASIC AMOUNT, ANY ADDITIONAL PORTION OF THE OFFERED SECURITIES ATTRIBUTABLE
TO THE BASIC AMOUNTS OF OTHER PURCHASERS AS SUCH PURCHASER SHALL INDICATE IT
WILL PURCHASE OR ACQUIRE SHOULD THE OTHER PURCHASERS SUBSCRIBE FOR LESS THAN
THEIR BASIC AMOUNTS (THE “UNDERSUBSCRIPTION AMOUNT”).

 

(II)                                  TO ACCEPT AN OFFER, IN WHOLE OR IN PART, A
PURCHASER MUST DELIVER A WRITTEN NOTICE TO THE COMPANY PRIOR TO THE END OF THE
TEN (10) TRADING DAY PERIOD OF THE OFFER, SETTING FORTH THE PORTION OF THE
PURCHASER’S BASIC AMOUNT THAT SUCH PURCHASER ELECTS TO PURCHASE AND, IF SUCH
PURCHASER SHALL ELECT TO PURCHASE ALL OF ITS BASIC AMOUNT, THE UNDERSUBSCRIPTION
AMOUNT, IF ANY, THAT SUCH PURCHASER ELECTS TO PURCHASE (IN EITHER CASE, THE
“NOTICE OF ACCEPTANCE”).  IF THE BASIC AMOUNTS SUBSCRIBED FOR BY ALL PURCHASERS
ARE LESS THAN THE TOTAL OF ALL OF THE BASIC AMOUNTS, THEN EACH PURCHASER WHO HAS
SET FORTH AN UNDERSUBCRIPTION AMOUNT IN ITS NOTICE OF ACCEPTANCE SHALL BE
ENTITLED TO PURCHASE, IN ADDITION TO THE BASIC AMOUNTS SUBSCRIBED FOR, THE
UNDERSUBSCRIPTION AMOUNT IT HAS SUBSCRIBED FOR; PROVIDED, HOWEVER, THAT IF THE
UNDERSUBSCRIPTION AMOUNTS SUBSCRIBED FOR EXCEED THE DIFFERENCE BETWEEN THE TOTAL
OF ALL THE BASIC AMOUNTS AND THE BASIC AMOUNTS SUBSCRIBED FOR (THE “AVAILABLE
UNDERSUBSCRIPTION AMOUNT”), EACH PURCHASER WHO HAS SUBSCRIBED FOR ANY
UNDERSUBSCRIPTION AMOUNT SHALL BE ENTITLED TO PURCHASE ON THAT PORTION OF THE
AVAILABLE UNDERSUBSCRIPTION AMOUNT AS THE BASIC AMOUNT OF SUCH PURCHASER BEARS
TO THE TOTAL BASIC AMOUNTS OF ALL PURCHASERS THAT HAVE SUBSCRIBED FOR
UNDERSUBSCRIPTION AMOUNTS, SUBJECT TO ROUNDING BY THE BOARD OF DIRECTORS TO THE
EXTENT ITS DEEMS REASONABLY NECESSARY.

 

(III)                               THE COMPANY SHALL HAVE FIVE (5) TRADING DAYS
FROM THE EXPIRATION OF THE PERIOD SET FORTH IN SECTION 4.5(B)(II) ABOVE TO
ISSUE, SELL OR EXCHANGE ALL OR ANY PART OF SUCH OFFERED SECURITIES AS TO WHICH A
NOTICE OF ACCEPTANCE HAS NOT BEEN GIVEN BY THE PURCHASERS (THE “REFUSED
SECURITIES”), BUT ONLY TO THE OFFEREES DESCRIBED IN THE OFFER AND ONLY UPON
TERMS AND CONDITIONS (INCLUDING, WITHOUT LIMITATION, UNIT PRICES AND INTEREST
RATES) THAT ARE NOT MORE FAVORABLE TO THE ACQUIRING PERSON OR PERSONS OR LESS
FAVORABLE TO THE COMPANY THAN THOSE SET FORTH IN THE OFFER.

 

(IV)                              IN THE EVENT THE COMPANY SHALL PROPOSE TO SELL
LESS THAN ALL THE REFUSED SECURITIES (ANY SUCH SALE TO BE IN THE MANNER AND ON
THE TERMS SPECIFIED IN SECTION 4.5(B)(III) ABOVE), THEN EACH PURCHASER MAY, AT
ITS SOLE OPTION AND IN ITS SOLE DISCRETION, REDUCE THE NUMBER OR AMOUNT OF THE
OFFERED SECURITIES SPECIFIED IN ITS NOTICE OF ACCEPTANCE TO AN AMOUNT THAT SHALL
BE NOT LESS THAN THE NUMBER OR AMOUNT OF THE OFFERED SECURITIES THAT THE
PURCHASER ELECTED TO PURCHASE PURSUANT TO SECTION 4.5(B)(II) ABOVE MULTIPLIED BY
A FRACTION, (I) THE NUMERATOR OF WHICH SHALL BE THE NUMBER OR AMOUNT OF OFFERED
SECURITIES THE COMPANY ACTUALLY PROPOSES TO ISSUE, SELL OR EXCHANGE (INCLUDING
OFFERED SECURITIES TO BE ISSUED OR SOLD TO PURCHASERS PURSUANT TO
SECTION 4.5(B)(II) ABOVE

 

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PRIOR TO SUCH REDUCTION) AND (II) THE DENOMINATOR OF WHICH SHALL BE THE ORIGINAL
AMOUNT OF THE OFFERED SECURITIES.  IN THE EVENT THAT ANY PURCHASER SO ELECTS TO
REDUCE THE NUMBER OR AMOUNT OF OFFERED SECURITIES SPECIFIED IN ITS NOTICE OF
ACCEPTANCE, THE COMPANY MAY NOT ISSUE, SELL OR EXCHANGE MORE THAN THE REDUCED
NUMBER OR AMOUNT OF THE OFFERED SECURITIES UNLESS AND UNTIL SUCH SECURITIES HAVE
AGAIN BEEN OFFERED TO THE PURCHASERS IN ACCORDANCE WITH SECTION 4.5(B)(I) ABOVE.

 

(V)           UPON THE CLOSING OF THE ISSUANCE, SALE OR EXCHANGE OF ALL OR LESS
THAN ALL OF THE REFUSED SECURITIES, THE PURCHASERS SHALL ACQUIRE FROM THE
COMPANY, AND THE COMPANY SHALL ISSUE TO THE PURCHASERS, THE NUMBER OR AMOUNT OF
OFFERED SECURITIES SPECIFIED IN THE NOTICES OF ACCEPTANCE, AS REDUCED PURSUANT
TO SECTION 4.5(B)(IV) ABOVE IF THE PURCHASERS HAVE SO ELECTED, UPON THE TERMS
AND CONDITIONS SPECIFIED IN THE OFFER.  THE PURCHASE BY THE PURCHASERS OF ANY
OFFERED SECURITIES IS SUBJECT IN ALL CASES TO THE PREPARATION, EXECUTION AND
DELIVERY BY THE COMPANY AND THE PURCHASERS OF A PURCHASE AGREEMENT RELATING TO
SUCH OFFERED SECURITIES REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE
PURCHASERS AND THEIR RESPECTIVE COUNSEL.

 

(VI)          ANY OFFERED SECURITIES NOT ACQUIRED BY THE PURCHASERS OR OTHER
PERSONS IN ACCORDANCE WITH SECTION 4.5(B)(III) ABOVE MAY NOT BE ISSUED, SOLD OR
EXCHANGED UNTIL THEY ARE AGAIN OFFERED TO THE PURCHASERS UNDER THE PROCEDURES
SPECIFIED IN THIS AGREEMENT.

 

(C)           THE RESTRICTIONS CONTAINED IN THIS SECTION 4.5 SHALL NOT APPLY TO
EXCLUDED STOCK.

 

4.6                                 SECURITIES LAWS DISCLOSURE; PUBLICITY.  THE
COMPANY SHALL, ON OR BEFORE 8:30 A.M., NEW YORK CITY TIME, ON APRIL 2, 2004,
ISSUE A PRESS RELEASE ACCEPTABLE TO THE PURCHASERS DISCLOSING ALL MATERIAL TERMS
OF THE TRANSACTIONS CONTEMPLATED HEREBY.  ON THE CLOSING DATE, THE COMPANY SHALL
FILE A CURRENT REPORT ON FORM 8-K WITH THE COMMISSION (THE “8-K FILING”)
DESCRIBING THE TERMS OF THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION
DOCUMENTS AND INCLUDING AS EXHIBITS TO SUCH CURRENT REPORT ON FORM 8-K THIS
AGREEMENT AND THE FORM OF THE WARRANTS, IN THE FORM REQUIRED BY THE EXCHANGE
ACT.  THEREAFTER, THE COMPANY SHALL TIMELY FILE ANY FILINGS AND NOTICES REQUIRED
BY THE COMMISSION OR APPLICABLE LAW WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY AND PROVIDE COPIES THEREOF TO THE PURCHASERS PROMPTLY AFTER
FILING.  EXCEPT WITH RESPECT TO THE 8-K FILING (A COPY OF WHICH WILL BE PROVIDED
TO THE PURCHASERS FOR THEIR REVIEW AS EARLY AS PRACTICABLE PRIOR TO ITS FILING),
THE  COMPANY SHALL, AT LEAST TWO (2) TRADING DAYS PRIOR TO THE FILING OR
DISSEMINATION OF ANY DISCLOSURE REQUIRED BY THIS PARAGRAPH, PROVIDE A COPY
THEREOF TO THE PURCHASERS FOR THEIR REVIEW.  THE COMPANY AND THE PURCHASERS
SHALL CONSULT WITH EACH OTHER IN ISSUING ANY PRESS RELEASES OR OTHERWISE MAKING
PUBLIC STATEMENTS OR FILINGS AND OTHER COMMUNICATIONS WITH THE COMMISSION OR ANY
REGULATORY AGENCY OR TRADING MARKET WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY, AND NEITHER PARTY SHALL ISSUE ANY SUCH PRESS RELEASE OR
OTHERWISE MAKE ANY SUCH PUBLIC STATEMENT, FILING OR OTHER COMMUNICATION WITHOUT
THE PRIOR CONSENT OF THE OTHER, EXCEPT IF SUCH DISCLOSURE IS REQUIRED BY LAW, IN
WHICH CASE THE DISCLOSING PARTY SHALL PROMPTLY PROVIDE THE OTHER PARTY WITH
PRIOR NOTICE OF SUCH PUBLIC STATEMENT, FILING OR OTHER COMMUNICATION. 
NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL NOT PUBLICLY DISCLOSE THE NAME
OF ANY PURCHASER, OR INCLUDE THE NAME OF ANY PURCHASER IN ANY FILING WITH THE
COMMISSION OR ANY REGULATORY AGENCY OR TRADING MARKET, WITHOUT THE PRIOR WRITTEN

 

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CONSENT OF SUCH PURCHASER, EXCEPT TO THE EXTENT SUCH DISCLOSURE (BUT NOT ANY
DISCLOSURE AS TO THE CONTROLLING PERSONS THEREOF) IS REQUIRED BY LAW OR TRADING
MARKET REGULATIONS, IN WHICH CASE THE COMPANY SHALL PROVIDE THE PURCHASERS WITH
PRIOR NOTICE OF SUCH DISCLOSURE.  THE COMPANY SHALL NOT, AND SHALL CAUSE EACH OF
ITS SUBSIDIARIES AND ITS AND EACH OF THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES AND AGENTS NOT TO, PROVIDE ANY PURCHASER WITH ANY MATERIAL NONPUBLIC
INFORMATION REGARDING THE COMPANY OR ANY OF ITS SUBSIDIARIES FROM AND AFTER THE
FILING OF THE 8-K FILING WITHOUT THE EXPRESS WRITTEN CONSENT OF SUCH PURCHASER. 
IN THE EVENT OF A BREACH OF THE FOREGOING COVENANT BY THE COMPANY, ANY OF ITS
SUBSIDIARIES, OR ANY OF ITS OR THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES
AND AGENTS, IN ADDITION TO ANY OTHER REMEDY PROVIDED HEREIN OR IN THE
TRANSACTION DOCUMENTS, A PURCHASER SHALL HAVE THE RIGHT TO MAKE A PUBLIC
DISCLOSURE, IN THE FORM OF A PRESS RELEASE, PUBLIC ADVERTISEMENT OR OTHERWISE,
OF SUCH MATERIAL NONPUBLIC INFORMATION WITHOUT THE PRIOR APPROVAL BY THE
COMPANY, ITS SUBSIDIARIES, OR ANY OF ITS OR THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES OR AGENTS.  NO PURCHASER SHALL HAVE ANY LIABILITY TO THE
COMPANY, ITS SUBSIDIARIES, OR ANY OF ITS OR THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, SHAREHOLDERS OR AGENTS FOR ANY SUCH DISCLOSURE.  SUBJECT
TO THE FOREGOING, NEITHER THE COMPANY NOR ANY PURCHASER SHALL ISSUE ANY PRESS
RELEASES OR ANY OTHER PUBLIC STATEMENTS WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY; PROVIDED, HOWEVER, THAT THE COMPANY SHALL BE ENTITLED,
WITHOUT THE PRIOR APPROVAL OF ANY PURCHASER, TO MAKE ANY PRESS RELEASE OR OTHER
PUBLIC DISCLOSURE WITH RESPECT TO SUCH TRANSACTIONS (I) IN SUBSTANTIAL
CONFORMITY WITH THE 8-K FILING AND CONTEMPORANEOUSLY THEREWITH AND (II) AS IS
REQUIRED BY APPLICABLE LAW AND REGULATIONS (PROVIDED THAT IN THE CASE OF CLAUSE
(I) EACH PURCHASER SHALL BE CONSULTED BY THE COMPANY IN CONNECTION WITH ANY SUCH
PRESS RELEASE OR OTHER PUBLIC DISCLOSURE PRIOR TO ITS RELEASE).  EACH PRESS
RELEASE DISSEMINATED DURING THE TWELVE (12) MONTHS PRECEDING THE DATE OF THIS
AGREEMENT DID NOT AT THE TIME OF RELEASE CONTAIN ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR
NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES
UNDER WHICH THEY ARE MADE, NOT MISLEADING.

 

4.7           USE OF PROCEEDS.  THE COMPANY SHALL USE THE NET PROCEEDS FROM THE
SALE OF THE SECURITIES HEREUNDER FOR WORKING CAPITAL PURPOSES.

 

4.8           REIMBURSEMENT.  IF ANY PURCHASER OR ANY OF ITS AFFILIATES OR ANY
OFFICER, DIRECTOR, PARTNER, CONTROLLING PERSON, EMPLOYEE OR AGENT OF A PURCHASER
OR ANY OF ITS AFFILIATES (A “RELATED PERSON”) BECOMES INVOLVED IN ANY CAPACITY
IN ANY PROCEEDING BROUGHT BY OR AGAINST ANY PERSON IN CONNECTION WITH OR AS A
RESULT OF THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS, THE
COMPANY WILL INDEMNIFY AND HOLD HARMLESS SUCH PURCHASER OR RELATED PERSON FOR
ITS REASONABLE LEGAL AND OTHER EXPENSES (INCLUDING THE COSTS OF ANY
INVESTIGATION, PREPARATION AND TRAVEL) AND FOR ANY LOSSES INCURRED IN CONNECTION
THEREWITH, AS SUCH EXPENSES OR LOSSES ARE INCURRED, EXCLUDING ONLY LOSSES THAT
RESULT DIRECTLY FROM SUCH PURCHASER’S OR RELATED PERSON’S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.  IN ADDITION, THE COMPANY SHALL INDEMNIFY AND HOLD HARMLESS
EACH PURCHASER AND RELATED PERSON FROM AND AGAINST ANY AND ALL LOSSES, AS
INCURRED, ARISING OUT OF OR RELATING TO ANY BREACH BY THE COMPANY OF ANY OF THE
REPRESENTATIONS, WARRANTIES OR COVENANTS MADE BY THE COMPANY IN THIS AGREEMENT
OR ANY OTHER TRANSACTION DOCUMENT, OR ANY ALLEGATION BY A THIRD PARTY THAT, IF
TRUE, WOULD CONSTITUTE SUCH A BREACH.  THE CONDUCT OF ANY PROCEEDINGS FOR WHICH
INDEMNIFICATION IS AVAILABLE UNDER THIS PARAGRAPH SHALL BE GOVERNED BY
SECTION 6.4(C) BELOW.  THE INDEMNIFICATION OBLIGATIONS OF THE COMPANY UNDER THIS
PARAGRAPH SHALL BE IN ADDITION TO ANY LIABILITY THAT THE COMPANY MAY OTHERWISE
HAVE AND SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF ANY SUCCESSORS,
ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF THE

 

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PURCHASERS AND ANY SUCH RELATED PERSONS.  THE COMPANY ALSO AGREES THAT NEITHER
THE PURCHASERS NOR ANY RELATED PERSONS SHALL HAVE ANY LIABILITY TO THE COMPANY
OR ANY PERSON ASSERTING CLAIMS ON BEHALF OF OR IN RIGHT OF THE COMPANY IN
CONNECTION WITH OR AS A RESULT OF THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS, EXCEPT TO THE EXTENT THAT ANY LOSSES INCURRED BY THE
COMPANY RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE APPLICABLE
PURCHASER OR RELATED PERSON IN CONNECTION WITH SUCH TRANSACTIONS.  IF THE
COMPANY BREACHES ITS OBLIGATIONS UNDER ANY TRANSACTION DOCUMENT, THEN, IN
ADDITION TO ANY OTHER LIABILITIES THE COMPANY MAY HAVE UNDER ANY TRANSACTION
DOCUMENT OR APPLICABLE LAW, THE COMPANY SHALL PAY OR REIMBURSE THE PURCHASERS ON
DEMAND FOR ALL COSTS OF COLLECTION AND ENFORCEMENT (INCLUDING REASONABLE
ATTORNEYS FEES AND EXPENSES).  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
THE COMPANY SPECIFICALLY AGREES TO REIMBURSE THE PURCHASERS ON DEMAND FOR ALL
COSTS OF ENFORCING THE INDEMNIFICATION OBLIGATIONS IN THIS PARAGRAPH.

 

ARTICLE V

CONDITIONS

 

5.1           CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASERS.  THE
OBLIGATION OF EACH PURCHASER TO ACQUIRE SECURITIES AT THE CLOSING IS SUBJECT TO
THE SATISFACTION OR WAIVER BY SUCH PURCHASER, AT OR BEFORE THE CLOSING, OF EACH
OF THE FOLLOWING CONDITIONS:

 

(A)           REPRESENTATIONS AND WARRANTIES.  THE REPRESENTATIONS AND
WARRANTIES OF THE COMPANY CONTAINED HEREIN SHALL BE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND AS OF THE CLOSING AS THOUGH MADE
ON AND AS OF SUCH DATE; AND

 

(B)           PERFORMANCE.  THE COMPANY AND EACH OTHER PURCHASER SHALL HAVE
PERFORMED, SATISFIED AND COMPLIED IN ALL MATERIAL RESPECTS WITH ALL COVENANTS,
AGREEMENTS AND CONDITIONS REQUIRED BY THE TRANSACTION DOCUMENTS TO BE PERFORMED,
SATISFIED OR COMPLIED WITH BY IT AT OR PRIOR TO THE CLOSING.

 

5.2           CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY.  THE
OBLIGATION OF THE COMPANY TO SELL SECURITIES AT THE CLOSING IS SUBJECT TO THE
SATISFACTION OR WAIVER BY THE COMPANY, AT OR BEFORE THE CLOSING, OF EACH OF THE
FOLLOWING CONDITIONS:

 

(A)           REPRESENTATIONS AND WARRANTIES.  THE REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS CONTAINED HEREIN SHALL BE TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AS OF THE DATE WHEN MADE AND AS OF THE CLOSING DATE AS THOUGH
MADE ON AND AS OF SUCH DATE; AND

 

(B)           PERFORMANCE.  THE PURCHASERS SHALL HAVE PERFORMED, SATISFIED AND
COMPLIED IN ALL MATERIAL RESPECTS WITH ALL COVENANTS, AGREEMENTS AND CONDITIONS
REQUIRED BY THE TRANSACTION DOCUMENTS TO BE PERFORMED, SATISFIED OR COMPLIED
WITH BY THE PURCHASERS AT OR PRIOR TO THE CLOSING.

 

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ARTICLE VI

REGISTRATION RIGHTS

 

6.1           SHELF REGISTRATION

 

(A)           AS PROMPTLY AS POSSIBLE, AND IN ANY EVENT ON OR PRIOR TO THE
FILING DATE, THE COMPANY SHALL PREPARE AND FILE WITH THE COMMISSION A “SHELF”
REGISTRATION STATEMENT COVERING THE RESALE OF ALL REGISTRABLE SECURITIES FOR AN
OFFERING TO BE MADE ON A CONTINUOUS BASIS PURSUANT TO RULE 415.  THE
REGISTRATION STATEMENT SHALL BE ON FORM S-3 (EXCEPT IF THE COMPANY IS NOT THEN
ELIGIBLE TO REGISTER FOR RESALE THE REGISTRABLE SECURITIES ON FORM S-3, IN WHICH
CASE SUCH REGISTRATION SHALL BE ON ANOTHER APPROPRIATE FORM IN ACCORDANCE
HEREWITH AS THE PURCHASERS MAY CONSENT) AND SHALL CONTAIN (EXCEPT IF OTHERWISE
DIRECTED BY THE PURCHASERS) THE “PLAN OF DISTRIBUTION” ATTACHED HERETO AS
EXHIBIT B.

 

(B)           THE COMPANY SHALL USE ITS BEST EFFORTS TO CAUSE THE REGISTRATION
STATEMENT TO BE DECLARED EFFECTIVE BY THE COMMISSION AS PROMPTLY AS POSSIBLE
AFTER THE FILING THEREOF, BUT IN ANY EVENT PRIOR TO THE REQUIRED EFFECTIVENESS
DATE, AND SHALL USE ITS BEST EFFORTS TO KEEP THE REGISTRATION STATEMENT
CONTINUOUSLY EFFECTIVE UNDER THE SECURITIES ACT UNTIL THE FIFTH ANNIVERSARY OF
THE EFFECTIVE DATE OR SUCH EARLIER DATE WHEN ALL REGISTRABLE SECURITIES COVERED
BY SUCH REGISTRATION STATEMENT HAVE BEEN SOLD PUBLICLY (THE “EFFECTIVENESS
PERIOD”).

 

(C)           THE COMPANY SHALL NOTIFY EACH PURCHASER IN WRITING PROMPTLY (AND
IN ANY EVENT WITHIN ONE (1) BUSINESS DAY) AFTER RECEIVING NOTIFICATION FROM THE
COMMISSION THAT THE REGISTRATION STATEMENT HAS BEEN DECLARED EFFECTIVE.

 

(D)           UPON THE OCCURRENCE OF ANY EVENT (AS DEFINED BELOW) AND ON EVERY
MONTHLY ANNIVERSARY THEREOF UNTIL THE APPLICABLE EVENT IS CURED, AS PARTIAL
RELIEF FOR THE DAMAGES SUFFERED THEREFROM BY THE PURCHASERS (WHICH REMEDY SHALL
NOT BE EXCLUSIVE OF ANY OTHER REMEDIES AVAILABLE UNDER THIS AGREEMENT, AT LAW OR
IN EQUITY), THE COMPANY SHALL PAY TO EACH PURCHASER AN AMOUNT IN CASH, AS
LIQUIDATED DAMAGES AND NOT AS A PENALTY, EQUAL TO 1% OF THE AGGREGATE PURCHASE
PRICE PAID BY SUCH PURCHASER HEREUNDER FOR THE FIRST MONTH AND 1% FOR EACH MONTH
THEREAFTER, PRORATED FOR ANY PARTIAL MONTH.  THE PAYMENTS TO WHICH A PURCHASER
SHALL BE ENTITLED PURSUANT TO THIS SECTION 6.1(D) ARE REFERRED TO HEREIN AS
“EVENT PAYMENTS”.  ANY EVENT PAYMENTS PAYABLE PURSUANT TO THE TERMS HEREOF SHALL
APPLY ON A PRO-RATA BASIS FOR ANY PORTION OF A MONTH PRIOR TO THE CURE OF AN
EVENT.   IN THE EVENT THE COMPANY FAILS TO MAKE EVENT PAYMENTS IN A TIMELY
MANNER, SUCH EVENT PAYMENTS SHALL BEAR INTEREST AT THE RATE OF 1% PER MONTH
(PRORATED FOR PARTIAL MONTHS) UNTIL PAID IN FULL.

 

FOR SUCH PURPOSES, EACH OF THE FOLLOWING SHALL CONSTITUTE AN “EVENT”:

 

(I)            THE REGISTRATION STATEMENT IS NOT FILED ON OR PRIOR TO THE FILING
DATE OR IS NOT DECLARED EFFECTIVE ON OR PRIOR TO THE REQUIRED EFFECTIVENESS
DATE;

 

(II)           AFTER THE EFFECTIVE DATE, A PURCHASER IS NOT PERMITTED TO SELL
REGISTRABLE SECURITIES UNDER THE REGISTRATION STATEMENT (OR A SUBSEQUENT
REGISTRATION STATEMENT FILED IN REPLACEMENT THEREOF) FOR ANY REASON FOR FIVE (5)
OR MORE TRADING DAYS (WHETHER OR NOT CONSECUTIVE);

 

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(III)                               AFTER THE EFFECTIVE DATE, ANY REGISTRABLE
SECURITIES COVERED BY SUCH REGISTRATION STATEMENT ARE NOT LISTED ON AN ELIGIBLE
MARKET;

 

(IV)                              THE COMMON STOCK IS NOT LISTED OR QUOTED, OR
IS SUSPENDED FROM TRADING, ON AN ELIGIBLE MARKET FOR A PERIOD OF THREE (3)
TRADING DAYS (WHICH NEED NOT BE CONSECUTIVE TRADING DAYS);

 

(V)                                 THE COMPANY FAILS FOR ANY REASON TO DELIVER
A CERTIFICATE EVIDENCING ANY SECURITIES TO A PURCHASER WITHIN THREE (3) TRADING
DAYS AFTER DELIVERY OF SUCH CERTIFICATE IS REQUIRED PURSUANT TO ANY TRANSACTION
DOCUMENT OR THE EXERCISE RIGHTS OF THE PURCHASERS PURSUANT TO THE TRANSACTION
DOCUMENTS ARE OTHERWISE SUSPENDED FOR ANY REASON; OR

 

(VI)                              THE COMPANY FAILS TO HAVE AVAILABLE A
SUFFICIENT NUMBER OF AUTHORIZED BUT UNISSUED AND OTHERWISE UNRESERVED SHARES OF
COMMON STOCK AVAILABLE TO ISSUE UNDERLYING SHARES UPON ANY EXERCISE OF THE
WARRANTS OR, AT ANY TIME FOLLOWING THE EFFECTIVE DATE, ANY SHARES OR UNDERLYING
SHARES ARE NOT LISTED ON AN ELIGIBLE MARKET.

 

(E)                                  THE COMPANY SHALL NOT, PRIOR TO THE
EFFECTIVE DATE OF THE REGISTRATION STATEMENT, PREPARE AND FILE WITH THE
COMMISSION A REGISTRATION STATEMENT RELATING TO AN OFFERING FOR ITS OWN ACCOUNT
OR THE ACCOUNT OF OTHERS UNDER THE SECURITIES ACT OF ANY OF ITS EQUITY
SECURITIES.

 

6.2                                 REGISTRATION PROCEDURES.  IN CONNECTION WITH
THE COMPANY’S REGISTRATION OBLIGATIONS HEREUNDER, THE COMPANY SHALL:

 

(A)                                  NOT LESS THAN THREE (3) TRADING DAYS PRIOR
TO THE FILING OF A REGISTRATION STATEMENT OR ANY RELATED PROSPECTUS OR ANY
AMENDMENT OR SUPPLEMENT THERETO (INCLUDING ANY DOCUMENT THAT WOULD BE
INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY REFERENCE), THE COMPANY
SHALL (I) FURNISH TO THE COUNSEL DESIGNATED BY ANY PURCHASER (EACH, A “PURCHASER
COUNSEL”, AND VERTICAL VENTURES, L.L.C. HAS INITIALLY DESIGNATED PROSKAUER ROSE
LLP “LP COUNSEL”) COPIES OF ALL SUCH DOCUMENTS PROPOSED TO BE FILED, WHICH
DOCUMENTS (OTHER THAN THOSE INCORPORATED OR DEEMED TO BE INCORPORATED BY
REFERENCE) WILL BE SUBJECT TO THE REVIEW OF SUCH PURCHASER COUNSEL, AND (II)
CAUSE ITS OFFICERS AND DIRECTORS, COUNSEL AND INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS TO RESPOND TO SUCH INQUIRIES AS SHALL BE NECESSARY, IN THE
REASONABLE OPINION OF RESPECTIVE COUNSEL, TO CONDUCT A REASONABLE INVESTIGATION
WITHIN THE MEANING OF THE SECURITIES ACT.  THE COMPANY SHALL NOT FILE A
REGISTRATION STATEMENT OR ANY SUCH PROSPECTUS OR ANY AMENDMENTS OR SUPPLEMENTS
THERETO TO WHICH PURCHASERS HOLDING A MAJORITY OF THE REGISTRABLE SECURITIES
SHALL REASONABLY OBJECT.

 

(B)                                 (I) PREPARE AND FILE WITH THE COMMISSION
SUCH AMENDMENTS, INCLUDING POST-EFFECTIVE AMENDMENTS, TO EACH REGISTRATION
STATEMENT AND THE PROSPECTUS USED IN CONNECTION THEREWITH AS MAY BE NECESSARY TO
KEEP THE REGISTRATION STATEMENT CONTINUOUSLY EFFECTIVE AS TO THE APPLICABLE
REGISTRABLE SECURITIES FOR THE EFFECTIVENESS PERIOD AND PREPARE AND FILE WITH
THE COMMISSION SUCH ADDITIONAL REGISTRATION STATEMENTS IN ORDER TO REGISTER FOR
RESALE UNDER THE SECURITIES ACT ALL OF THE REGISTRABLE SECURITIES; (II) CAUSE
THE RELATED PROSPECTUS TO BE AMENDED OR SUPPLEMENTED BY ANY REQUIRED PROSPECTUS
SUPPLEMENT, AND AS SO SUPPLEMENTED OR

 

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amended to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably possible, and in any event within ten (10) days, to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the Purchaser
Counsel true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange Act
with respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented

 

(C)                                  NOTIFY THE PURCHASERS OF REGISTRABLE
SECURITIES AS PROMPTLY AS REASONABLY POSSIBLE, AND (IF REQUESTED BY ANY SUCH
PERSON) CONFIRM SUCH NOTICE IN WRITING NO LATER THAN ONE (1) TRADING DAY
THEREAFTER, OF ANY OF THE FOLLOWING EVENTS: (I) THE COMMISSION NOTIFIES THE
COMPANY WHETHER THERE WILL BE A “REVIEW” OF ANY REGISTRATION STATEMENT; (II) THE
COMMISSION COMMENTS IN WRITING ON ANY REGISTRATION STATEMENT (IN WHICH CASE THE
COMPANY SHALL DELIVER TO EACH PURCHASER A COPY OF SUCH COMMENTS AND OF ALL
WRITTEN RESPONSES THERETO); (III) ANY REGISTRATION STATEMENT OR ANY
POST-EFFECTIVE AMENDMENT IS DECLARED EFFECTIVE; (IV) THE COMMISSION OR ANY OTHER
FEDERAL OR STATE GOVERNMENTAL AUTHORITY REQUESTS ANY AMENDMENT OR SUPPLEMENT TO
ANY REGISTRATION STATEMENT OR PROSPECTUS OR REQUESTS ADDITIONAL INFORMATION
RELATED THERETO; (V) THE COMMISSION ISSUES ANY STOP ORDER SUSPENDING THE
EFFECTIVENESS OF ANY REGISTRATION STATEMENT OR INITIATES ANY PROCEEDINGS FOR
THAT PURPOSE; (VI) THE COMPANY RECEIVES NOTICE OF ANY SUSPENSION OF THE
QUALIFICATION OR EXEMPTION FROM QUALIFICATION OF ANY REGISTRABLE SECURITIES FOR
SALE IN ANY JURISDICTION, OR THE INITIATION OR THREAT OF ANY PROCEEDING FOR SUCH
PURPOSE; OR (VII) THE FINANCIAL STATEMENTS INCLUDED IN ANY REGISTRATION
STATEMENT BECOME INELIGIBLE FOR INCLUSION THEREIN OR ANY STATEMENT MADE IN ANY
REGISTRATION STATEMENT OR PROSPECTUS OR ANY DOCUMENT INCORPORATED OR DEEMED TO
BE INCORPORATED THEREIN BY REFERENCE IS UNTRUE IN ANY MATERIAL RESPECT OR ANY
REVISION TO A REGISTRATION STATEMENT, PROSPECTUS OR OTHER DOCUMENT IS REQUIRED
SO THAT IT WILL NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO
STATE ANY MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE
STATEMENTS THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE
MADE, NOT MISLEADING.

 

(D)                                 USE ITS BEST EFFORTS TO AVOID THE ISSUANCE
OF OR, IF ISSUED, OBTAIN THE WITHDRAWAL OF (I) ANY ORDER SUSPENDING THE
EFFECTIVENESS OF ANY REGISTRATION STATEMENT, OR (II) ANY SUSPENSION OF THE
QUALIFICATION (OR EXEMPTION FROM QUALIFICATION) OF ANY OF THE REGISTRABLE
SECURITIES FOR SALE IN ANY JURISDICTION, AS SOON AS POSSIBLE.

 

(E)                                  FURNISH TO EACH PURCHASER AND PURCHASER
COUNSEL, WITHOUT CHARGE, AT LEAST ONE (1) CONFORMED COPY OF EACH REGISTRATION
STATEMENT AND EACH AMENDMENT THERETO, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES, ALL DOCUMENTS INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY
REFERENCE, AND ALL EXHIBITS TO THE EXTENT REQUESTED BY SUCH PERSON (INCLUDING
THOSE PREVIOUSLY FURNISHED OR INCORPORATED BY REFERENCE) PROMPTLY AFTER THE
FILING OF SUCH DOCUMENTS WITH THE COMMISSION.

 

(F)                                    PROMPTLY DELIVER TO EACH PURCHASER AND
PURCHASER COUNSEL, WITHOUT CHARGE, AS MANY COPIES OF THE PROSPECTUS OR
PROSPECTUSES (INCLUDING EACH FORM OF PROSPECTUS) AND EACH AMENDMENT OR
SUPPLEMENT THERETO AS SUCH PERSONS MAY REASONABLY REQUEST.  THE COMPANY HEREBY
CONSENTS TO THE USE OF SUCH PROSPECTUS AND EACH AMENDMENT OR SUPPLEMENT

 

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thereto by each of the selling Purchasers in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any amendment
or supplement thereto.

 

(G)                                 (I) IN THE TIME AND MANNER REQUIRED BY EACH
TRADING MARKET, PREPARE AND FILE WITH SUCH TRADING MARKET AN ADDITIONAL SHARES
LISTING APPLICATION COVERING ALL OF THE REGISTRABLE SECURITIES; (II) TAKE ALL
STEPS NECESSARY TO CAUSE SUCH REGISTRABLE SECURITIES TO BE APPROVED FOR LISTING
ON EACH TRADING MARKET AS SOON AS POSSIBLE THEREAFTER; (III) PROVIDE TO THE
PURCHASERS EVIDENCE OF SUCH LISTING; AND (IV) MAINTAIN THE LISTING OF SUCH
REGISTRABLE SECURITIES ON EACH SUCH TRADING MARKET OR ANOTHER ELIGIBLE MARKET.

 

(H)                                 PRIOR TO ANY PUBLIC OFFERING OF REGISTRABLE
SECURITIES, USE ITS BEST EFFORTS TO REGISTER OR QUALIFY OR COOPERATE WITH THE
SELLING PURCHASERS AND PURCHASER COUNSEL IN CONNECTION WITH THE REGISTRATION OR
QUALIFICATION (OR EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION) OF SUCH
REGISTRABLE SECURITIES FOR OFFER AND SALE UNDER THE SECURITIES OR BLUE SKY LAWS
OF SUCH JURISDICTIONS WITHIN THE UNITED STATES AS ANY PURCHASER REQUESTS IN
WRITING, TO KEEP EACH SUCH REGISTRATION OR QUALIFICATION (OR EXEMPTION
THEREFROM) EFFECTIVE DURING THE EFFECTIVENESS PERIOD AND TO DO ANY AND ALL OTHER
ACTS OR THINGS NECESSARY OR ADVISABLE TO ENABLE THE DISPOSITION IN SUCH
JURISDICTIONS OF THE REGISTRABLE SECURITIES COVERED BY A REGISTRATION STATEMENT.

 

(I)                                     COOPERATE WITH THE PURCHASERS TO
FACILITATE THE TIMELY PREPARATION AND DELIVERY OF CERTIFICATES REPRESENTING
REGISTRABLE SECURITIES TO BE DELIVERED TO A TRANSFEREE PURSUANT TO A
REGISTRATION STATEMENT, WHICH CERTIFICATES SHALL BE FREE, TO THE EXTENT
PERMITTED BY THIS AGREEMENT, OF ALL RESTRICTIVE LEGENDS, AND TO ENABLE SUCH
REGISTRABLE SECURITIES TO BE IN SUCH DENOMINATIONS AND REGISTERED IN SUCH NAMES
AS ANY SUCH PURCHASERS MAY REQUEST.

 

(J)                                     UPON THE OCCURRENCE OF ANY EVENT
DESCRIBED IN SECTION 6.2(C)(VII), AS PROMPTLY AS REASONABLY POSSIBLE, PREPARE A
SUPPLEMENT OR AMENDMENT, INCLUDING A POST-EFFECTIVE AMENDMENT, TO THE
REGISTRATION STATEMENT OR A SUPPLEMENT TO THE RELATED PROSPECTUS OR ANY DOCUMENT
INCORPORATED OR DEEMED TO BE INCORPORATED THEREIN BY REFERENCE, AND FILE ANY
OTHER REQUIRED DOCUMENT SO THAT, AS THEREAFTER DELIVERED, NEITHER THE
REGISTRATION STATEMENT NOR SUCH PROSPECTUS WILL CONTAIN AN 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 THE LIGHT OF THE CIRCUMSTANCES
UNDER WHICH THEY WERE MADE, NOT MISLEADING.

 

(K)                                  COOPERATE WITH ANY DUE DILIGENCE
INVESTIGATION UNDERTAKEN BY THE PURCHASERS IN CONNECTION WITH THE SALE OF
REGISTRABLE SECURITIES, INCLUDING, WITHOUT LIMITATION, BY MAKING AVAILABLE ANY
DOCUMENTS AND INFORMATION; PROVIDED THAT THE COMPANY WILL NOT DELIVER OR MAKE
AVAILABLE TO ANY PURCHASER MATERIAL, NONPUBLIC INFORMATION UNLESS SUCH PURCHASER
SPECIFICALLY REQUESTS IN ADVANCE TO RECEIVE MATERIAL, NONPUBLIC INFORMATION IN
WRITING.

 

(L)                                     COMPLY WITH ALL APPLICABLE RULES AND
REGULATIONS OF THE COMMISSION.

 

IN CONNECTION WITH THE REGISTRATION OF THE REGISTRABLE SECURITIES, IT SHALL BE A
CONDITION PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO COMPLETE THE
REGISTRATION PURSUANT TO THIS AGREEMENT WITH RESPECT TO THE REGISTRABLE
SECURITIES OF A PARTICULAR PURCHASER (OR TO MAKE ANY PAYMENTS OR OTHER DAMAGES
TO SUCH PURCHASER  PURSUANT TO SECTION 6.1) THAT SUCH PURCHASER SHALL FURNISH TO
THE

 

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Company the Selling Stockholder Questionnaire set forth on Exhibit D hereto (the
“Questionnaire”).

 

6.3                                 REGISTRATION EXPENSES.  THE COMPANY SHALL
PAY (OR REIMBURSE THE PURCHASERS FOR) ALL FEES AND EXPENSES INCIDENT TO THE
PERFORMANCE OF OR COMPLIANCE WITH THIS AGREEMENT BY THE COMPANY, INCLUDING
WITHOUT LIMITATION (A) ALL REGISTRATION AND FILING FEES AND EXPENSES, INCLUDING
WITHOUT LIMITATION THOSE RELATED TO FILINGS WITH THE COMMISSION, ANY TRADING
MARKET AND IN CONNECTION WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS, (B)
PRINTING EXPENSES (INCLUDING WITHOUT LIMITATION EXPENSES OF PRINTING
CERTIFICATES FOR REGISTRABLE SECURITIES AND OF PRINTING PROSPECTUSES REQUESTED
BY THE PURCHASERS), (C) MESSENGER, TELEPHONE AND DELIVERY EXPENSES, (D) FEES AND
DISBURSEMENTS OF COUNSEL FOR THE COMPANY AND UP TO $10,000 IN THE AGGREGATE FOR
THE PURCHASER COUNSEL FOR THE PURCHASERS, (E) FEES AND EXPENSES OF ALL OTHER
PERSONS RETAINED BY THE COMPANY IN CONNECTION WITH THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND (F) ALL LISTING FEES TO BE PAID
BY THE COMPANY TO THE TRADING MARKET.

 

6.4                                 INDEMNIFICATION

 

(A)                                  INDEMNIFICATION BY THE COMPANY.  THE
COMPANY SHALL, NOTWITHSTANDING ANY TERMINATION OF THIS AGREEMENT, INDEMNIFY AND
HOLD HARMLESS EACH PURCHASER, THE OFFICERS, DIRECTORS, PARTNERS, MEMBERS,
AGENTS, BROKERS (INCLUDING BROKERS WHO OFFER AND SELL REGISTRABLE SECURITIES AS
PRINCIPAL AS A RESULT OF A PLEDGE OR ANY FAILURE TO PERFORM UNDER A MARGIN CALL
OF COMMON STOCK), INVESTMENT ADVISORS AND EMPLOYEES OF EACH OF THEM, EACH PERSON
WHO CONTROLS ANY SUCH PURCHASER (WITHIN THE MEANING OF SECTION 15 OF THE
SECURITIES ACT OR SECTION 20 OF THE EXCHANGE ACT) AND THE OFFICERS, DIRECTORS,
PARTNERS, MEMBERS, AGENTS AND EMPLOYEES OF EACH SUCH CONTROLLING PERSON, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, FROM AND AGAINST ANY AND ALL LOSSES,
AS INCURRED, ARISING OUT OF OR RELATING TO ANY UNTRUE OR ALLEGED UNTRUE
STATEMENT OF A MATERIAL FACT CONTAINED IN THE REGISTRATION STATEMENT, ANY
PROSPECTUS OR ANY FORM OF PROSPECTUS OR IN ANY AMENDMENT OR SUPPLEMENT THERETO
OR IN ANY PRELIMINARY PROSPECTUS, OR ARISING OUT OF OR RELATING TO ANY OMISSION
OR ALLEGED OMISSION OF A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR
NECESSARY TO MAKE THE STATEMENTS THEREIN (IN THE CASE OF ANY PROSPECTUS OR FORM
OF PROSPECTUS OR SUPPLEMENT THERETO, IN THE LIGHT OF THE CIRCUMSTANCES UNDER
WHICH THEY WERE MADE) NOT MISLEADING, EXCEPT TO THE EXTENT, BUT ONLY TO THE
EXTENT, THAT (I) SUCH UNTRUE STATEMENTS, ALLEGED UNTRUE STATEMENTS, OMISSIONS OR
ALLEGED OMISSIONS ARE BASED SOLELY UPON INFORMATION REGARDING SUCH PURCHASER
FURNISHED IN WRITING TO THE COMPANY BY SUCH PURCHASER EXPRESSLY FOR USE THEREIN,
OR TO THE EXTENT THAT SUCH INFORMATION RELATES TO SUCH PURCHASER OR SUCH
PURCHASER’S PROPOSED METHOD OF DISTRIBUTION OF REGISTRABLE SECURITIES AND WAS
REVIEWED AND EXPRESSLY APPROVED IN WRITING BY SUCH PURCHASER EXPRESSLY FOR USE
IN THE REGISTRATION STATEMENT, SUCH PROSPECTUS OR SUCH FORM OF PROSPECTUS OR IN
ANY AMENDMENT OR SUPPLEMENT THERETO OR (II) IN THE CASE OF AN OCCURRENCE OF AN
EVENT OF THE TYPE SPECIFIED IN SECTION 6.2(C)(V)-(VII), THE USE BY SUCH
PURCHASER OF AN OUTDATED OR DEFECTIVE PROSPECTUS AFTER THE COMPANY HAS NOTIFIED
SUCH PURCHASER IN WRITING THAT THE PROSPECTUS IS OUTDATED OR DEFECTIVE AND PRIOR
TO THE RECEIPT BY SUCH PURCHASER OF THE ADVICE CONTEMPLATED IN SECTION 6.5.  THE
COMPANY SHALL NOTIFY THE PURCHASERS PROMPTLY OF THE INSTITUTION, THREAT OR
ASSERTION OF ANY PROCEEDING OF WHICH THE COMPANY IS AWARE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

(B)                                 INDEMNIFICATION BY PURCHASERS. EACH
PURCHASER SHALL, SEVERALLY AND NOT JOINTLY, INDEMNIFY AND HOLD HARMLESS THE
COMPANY, ITS DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES,

 

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each Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent permitted
by applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising solely out of any untrue statement of a material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto, or arising solely out of any omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or supplement
thereto, in the light of the circumstances under which they were made) not
misleading to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such
Purchaser to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser’s
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5.  In no
event shall the liability of any selling Purchaser hereunder be greater in
amount than the dollar amount of the net proceeds received by such Purchaser
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.

 

(C)                                  CONDUCT OF INDEMNIFICATION PROCEEDINGS. IF
ANY PROCEEDING SHALL BE BROUGHT OR ASSERTED AGAINST ANY PERSON ENTITLED TO
INDEMNITY HEREUNDER (AN “INDEMNIFIED PARTY”), SUCH INDEMNIFIED PARTY SHALL
PROMPTLY NOTIFY THE PERSON FROM WHOM INDEMNITY IS SOUGHT (THE “INDEMNIFYING
PARTY”) IN WRITING, AND THE INDEMNIFYING PARTY SHALL ASSUME THE DEFENSE THEREOF,
INCLUDING THE EMPLOYMENT OF COUNSEL REASONABLY SATISFACTORY TO THE INDEMNIFIED
PARTY AND THE PAYMENT OF ALL FEES AND EXPENSES INCURRED IN CONNECTION WITH
DEFENSE THEREOF; PROVIDED, THAT THE FAILURE OF ANY INDEMNIFIED PARTY TO GIVE
SUCH NOTICE SHALL NOT RELIEVE THE INDEMNIFYING PARTY OF ITS OBLIGATIONS OR
LIABILITIES PURSUANT TO THIS AGREEMENT, EXCEPT (AND ONLY) TO THE EXTENT THAT IT
SHALL BE FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION (WHICH
DETERMINATION IS NOT SUBJECT TO APPEAL OR FURTHER REVIEW) THAT SUCH FAILURE
SHALL HAVE PROXIMATELY AND MATERIALLY ADVERSELY PREJUDICED THE INDEMNIFYING
PARTY.

 

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (i) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (iii) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying

 

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Party in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the Indemnifying
Party).  The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld.  No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

 

All fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing to
defend such Proceeding in a manner not inconsistent with this Section) shall be
paid to the Indemnified Party, as incurred, within ten (10) Trading Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

 

(D)                                 CONTRIBUTION.  IF A CLAIM FOR
INDEMNIFICATION UNDER SECTION 6.4(A) OR (B) IS UNAVAILABLE TO AN INDEMNIFIED
PARTY (BY REASON OF PUBLIC POLICY OR OTHERWISE), THEN EACH INDEMNIFYING PARTY,
IN LIEU OF INDEMNIFYING SUCH INDEMNIFIED PARTY, SHALL CONTRIBUTE TO THE AMOUNT
PAID OR PAYABLE BY SUCH INDEMNIFIED PARTY AS A RESULT OF SUCH LOSSES, IN SUCH
PROPORTION AS IS APPROPRIATE TO REFLECT THE RELATIVE FAULT OF THE INDEMNIFYING
PARTY AND INDEMNIFIED PARTY IN CONNECTION WITH THE ACTIONS, STATEMENTS OR
OMISSIONS THAT RESULTED IN SUCH LOSSES AS WELL AS ANY OTHER RELEVANT EQUITABLE
CONSIDERATIONS.  THE RELATIVE FAULT OF SUCH INDEMNIFYING PARTY AND INDEMNIFIED
PARTY SHALL BE DETERMINED BY REFERENCE TO, AMONG OTHER THINGS, WHETHER ANY
ACTION IN QUESTION, INCLUDING ANY UNTRUE OR ALLEGED UNTRUE STATEMENT OF A
MATERIAL FACT OR OMISSION OR ALLEGED OMISSION OF A MATERIAL FACT, HAS BEEN TAKEN
OR MADE BY, OR RELATES TO INFORMATION SUPPLIED BY, SUCH INDEMNIFYING PARTY OR
INDEMNIFIED PARTY, AND THE PARTIES’ RELATIVE INTENT, KNOWLEDGE, ACCESS TO
INFORMATION AND OPPORTUNITY TO CORRECT OR PREVENT SUCH ACTION, STATEMENT OR
OMISSION.  THE AMOUNT PAID OR PAYABLE BY A PARTY AS A RESULT OF ANY LOSSES SHALL
BE DEEMED TO INCLUDE, SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 6.4(C),
ANY REASONABLE ATTORNEYS’ OR OTHER REASONABLE FEES OR EXPENSES INCURRED BY SUCH
PARTY IN CONNECTION WITH ANY PROCEEDING TO THE EXTENT SUCH PARTY WOULD HAVE BEEN
INDEMNIFIED FOR SUCH FEES OR EXPENSES IF THE INDEMNIFICATION PROVIDED FOR IN
THIS SECTION WAS AVAILABLE TO SUCH PARTY IN ACCORDANCE WITH ITS TERMS.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.4(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph. 
Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.  No Person
guilty of fraudulent misrepresentation (within the meaning of

 

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Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.

 

The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

 

6.5                                 DISPOSITIONS.  EACH PURCHASER AGREES THAT IT
WILL COMPLY WITH THE PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT AS
APPLICABLE TO IT IN CONNECTION WITH SALES OF REGISTRABLE SECURITIES PURSUANT TO
THE REGISTRATION STATEMENT.  EACH PURCHASER FURTHER AGREES THAT, UPON RECEIPT OF
A NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OF THE KIND DESCRIBED
IN SECTIONS 6.2(C)(V), (VI) OR (VII), SUCH PURCHASER WILL DISCONTINUE
DISPOSITION OF SUCH REGISTRABLE SECURITIES UNDER THE REGISTRATION STATEMENT
UNTIL SUCH PURCHASER’S RECEIPT OF THE COPIES OF THE SUPPLEMENTED PROSPECTUS
AND/OR AMENDED REGISTRATION STATEMENT CONTEMPLATED BY SECTION 6.2(J), OR UNTIL
IT IS ADVISED IN WRITING (THE “ADVICE”) BY THE COMPANY THAT THE USE OF THE
APPLICABLE PROSPECTUS MAY BE RESUMED, AND, IN EITHER CASE, HAS RECEIVED COPIES
OF ANY ADDITIONAL OR SUPPLEMENTAL FILINGS THAT ARE INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE IN SUCH PROSPECTUS OR REGISTRATION STATEMENT.  THE
COMPANY MAY PROVIDE APPROPRIATE STOP ORDERS TO ENFORCE THE PROVISIONS OF THIS
PARAGRAPH.

 

6.6                                 NO PIGGYBACK ON REGISTRATIONS.  NEITHER THE
COMPANY NOR ANY OF ITS SECURITY HOLDERS (OTHER THAN THE PURCHASERS IN SUCH
CAPACITY PURSUANT HERETO AND THE HOLDERS OF SHARES ISSUED IN CONNECTION WITH THE
ACQUISITION BY THE COMPANY OF PUBLIC SAFETY GROUP, INC. AND THE SHAAR GROUP
LTD.) MAY INCLUDE SECURITIES OF THE COMPANY IN THE REGISTRATION STATEMENT OTHER
THAN THE REGISTRABLE SECURITIES, AND THE COMPANY SHALL NOT AFTER THE DATE HEREOF
ENTER INTO ANY AGREEMENT PROVIDING ANY SUCH RIGHT TO ANY OF ITS SECURITY
HOLDERS.

 

6.7                                 PIGGY-BACK REGISTRATIONS.  IF AT ANY TIME
DURING THE EFFECTIVENESS PERIOD THERE IS NOT AN EFFECTIVE REGISTRATION STATEMENT
COVERING ALL OF THE REGISTRABLE SECURITIES AND THE COMPANY SHALL DETERMINE TO
PREPARE AND FILE WITH THE COMMISSION A REGISTRATION STATEMENT RELATING TO AN
OFFERING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF OTHERS UNDER THE SECURITIES ACT
OF ANY OF ITS EQUITY SECURITIES, OTHER THAN ON FORM S-4 OR FORM S-8 (EACH AS
PROMULGATED UNDER THE SECURITIES ACT) 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 STOCK OPTION
OR OTHER EMPLOYEE BENEFIT PLANS, THEN THE COMPANY SHALL SEND TO EACH PURCHASER
WRITTEN NOTICE OF SUCH DETERMINATION AND IF, WITHIN FIFTEEN DAYS AFTER RECEIPT
OF SUCH NOTICE, ANY SUCH PURCHASER SHALL SO REQUEST IN WRITING, THE COMPANY
SHALL INCLUDE IN SUCH REGISTRATION STATEMENT ALL OR ANY PART OF SUCH REGISTRABLE
SECURITIES SUCH PURCHASER REQUESTS TO BE REGISTERED.

 

ARTICLE VII

MISCELLANEOUS

 

7.1                                 TERMINATION.  THIS AGREEMENT MAY BE
TERMINATED BY THE COMPANY OR ANY PURCHASER, BY WRITTEN NOTICE TO THE OTHER
PARTIES, IF THE CLOSING HAS NOT BEEN CONSUMMATED BY THE THIRD BUSINESS DAY
FOLLOWING THE DATE OF THIS AGREEMENT; PROVIDED THAT NO SUCH TERMINATION WILL
AFFECT THE RIGHT OF ANY PARTY TO SUE FOR ANY BREACH BY THE OTHER PARTY (OR
PARTIES).

 

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7.2                                 FEES AND EXPENSES.  AT THE CLOSING, THE
COMPANY SHALL PAY TO VERTICAL VENTURES, LLC AN AGGREGATE OF $30,000 FOR THEIR
LEGAL FEES AND EXPENSES INCURRED IN CONNECTION WITH ITS DUE DILIGENCE AND THE
PREPARATION AND NEGOTIATION OF THE TRANSACTION DOCUMENTS.  IN LIEU OF THE
FOREGOING PAYMENT, VERTICAL VENTURES, LLC MAY RETAIN SUCH AMOUNT AT THE
CLOSING.  EXCEPT AS EXPRESSLY SET FORTH IN THE TRANSACTION DOCUMENTS TO THE
CONTRARY, EACH PARTY SHALL PAY THE FEES AND EXPENSES OF ITS ADVISERS, COUNSEL,
ACCOUNTANTS AND OTHER EXPERTS, IF ANY, AND ALL OTHER EXPENSES INCURRED BY SUCH
PARTY INCIDENT TO THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY AND
PERFORMANCE OF THIS AGREEMENT.  THE COMPANY SHALL PAY ALL TRANSFER AGENT FEES,
STAMP TAXES AND OTHER TAXES AND DUTIES LEVIED IN CONNECTION WITH THE ISSUANCE OF
THE SECURITIES.

 

7.3                                 ENTIRE AGREEMENT.  THE TRANSACTION
DOCUMENTS, TOGETHER WITH THE EXHIBITS AND SCHEDULES THERETO, CONTAIN THE ENTIRE
UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, ORAL OR WRITTEN, WITH RESPECT
TO SUCH MATTERS, WHICH THE PARTIES ACKNOWLEDGE HAVE BEEN MERGED INTO SUCH
DOCUMENTS, EXHIBITS AND SCHEDULES.  AT OR AFTER THE CLOSING, AND WITHOUT FURTHER
CONSIDERATION, THE COMPANY WILL EXECUTE AND DELIVER TO THE PURCHASERS SUCH
FURTHER DOCUMENTS AS MAY BE REASONABLY REQUESTED IN ORDER TO GIVE PRACTICAL
EFFECT TO THE INTENTION OF THE PARTIES UNDER THE TRANSACTION DOCUMENTS.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, SECURITIES MAY BE ASSIGNED TO
ANY PERSON IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH COMPANY SECURITIES.

 

7.4                                 NOTICES.  ANY AND ALL NOTICES OR OTHER
COMMUNICATIONS OR DELIVERIES REQUIRED OR PERMITTED TO BE PROVIDED HEREUNDER
SHALL BE IN WRITING AND SHALL BE DEEMED GIVEN AND EFFECTIVE ON THE EARLIEST OF
(A) THE DATE OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA
FACSIMILE AT THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION PRIOR TO 6:30 P.M.
(NEW YORK CITY TIME) ON A TRADING DAY, (B) THE NEXT TRADING DAY AFTER THE DATE
OF TRANSMISSION, IF SUCH NOTICE OR COMMUNICATION IS DELIVERED VIA FACSIMILE AT
THE FACSIMILE NUMBER SPECIFIED IN THIS SECTION ON A DAY THAT IS NOT A TRADING
DAY OR LATER THAN 6:30 P.M. (NEW YORK CITY TIME) ON ANY TRADING DAY, (C) THE
TRADING DAY FOLLOWING THE DATE OF DEPOSIT WITH A NATIONALLY RECOGNIZED OVERNIGHT
COURIER SERVICE, OR (D) UPON ACTUAL RECEIPT BY THE PARTY TO WHOM SUCH NOTICE IS
REQUIRED TO BE GIVEN.  THE ADDRESSES AND FACSIMILE NUMBERS FOR SUCH NOTICES AND
COMMUNICATIONS ARE THOSE SET FORTH ON THE SIGNATURE PAGES HEREOF, OR SUCH OTHER
ADDRESS OR FACSIMILE NUMBER AS MAY BE DESIGNATED IN WRITING HEREAFTER, IN THE
SAME MANNER, BY ANY SUCH PERSON.

 

7.5                                 AMENDMENTS; WAIVERS.  NO PROVISION OF THIS
AGREEMENT MAY BE WAIVED OR AMENDED EXCEPT IN A WRITTEN INSTRUMENT SIGNED, IN THE
CASE OF AN AMENDMENT, BY THE COMPANY AND PURCHASERS COLLECTIVELY PURCHASING AT
LEAST 51% OF THE SHARES OR, IN THE CASE OF A WAIVER, BY THE PARTY AGAINST WHOM
ENFORCEMENT OF ANY SUCH WAIVER IS SOUGHT.  NO WAIVER OF ANY DEFAULT WITH RESPECT
TO ANY PROVISION, CONDITION OR REQUIREMENT OF THIS AGREEMENT SHALL BE DEEMED TO
BE A CONTINUING WAIVER IN THE FUTURE OR A WAIVER OF ANY SUBSEQUENT DEFAULT OR A
WAIVER OF ANY OTHER PROVISION, CONDITION OR REQUIREMENT HEREOF, NOR SHALL ANY
DELAY OR OMISSION OF EITHER PARTY TO EXERCISE ANY RIGHT HEREUNDER IN ANY MANNER
IMPAIR THE EXERCISE OF ANY SUCH RIGHT.  NOTWITHSTANDING THE FOREGOING, A WAIVER
OR CONSENT TO DEPART FROM THE PROVISIONS HEREOF WITH RESPECT TO A MATTER THAT
RELATES EXCLUSIVELY TO THE RIGHTS OF PURCHASERS UNDER ARTICLE VI AND THAT DOES
NOT DIRECTLY OR INDIRECTLY AFFECT THE RIGHTS OF OTHER PURCHASERS MAY BE GIVEN BY
PURCHASERS HOLDING AT LEAST A MAJORITY OF THE REGISTRABLE SECURITIES TO WHICH
SUCH WAIVER OR CONSENT RELATES.

 

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7.6                                 CONSTRUCTION.  THE HEADINGS HEREIN ARE FOR
CONVENIENCE ONLY, DO NOT CONSTITUTE A PART OF THIS AGREEMENT AND SHALL NOT BE
DEEMED TO LIMIT OR AFFECT ANY OF THE PROVISIONS HEREOF.  THE LANGUAGE USED IN
THIS AGREEMENT WILL BE DEEMED TO BE THE LANGUAGE CHOSEN BY THE PARTIES TO
EXPRESS THEIR MUTUAL INTENT, AND NO RULES OF STRICT CONSTRUCTION WILL BE APPLIED
AGAINST ANY PARTY.

 

7.7                                 SUCCESSORS AND ASSIGNS.  THIS AGREEMENT
SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES AND THEIR
SUCCESSORS AND PERMITTED ASSIGNS.  THE COMPANY MAY NOT ASSIGN THIS AGREEMENT OR
ANY RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE
PURCHASERS. ANY PURCHASER MAY ASSIGN ITS RIGHTS UNDER THIS AGREEMENT TO ANY
PERSON TO WHOM SUCH PURCHASER ASSIGNS OR TRANSFERS ANY SECURITIES, PROVIDED SUCH
TRANSFEREE AGREES IN WRITING TO BE BOUND, WITH RESPECT TO THE TRANSFERRED
SECURITIES, BY THE PROVISIONS HEREOF THAT APPLY TO THE “PURCHASERS.” 
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, SECURITIES MAY BE ASSIGNED TO
ANY PERSON IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

 

7.8                                 NO THIRD-PARTY BENEFICIARIES.  THIS
AGREEMENT IS INTENDED FOR THE BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE
SUCCESSORS AND PERMITTED ASSIGNS AND IS NOT FOR THE BENEFIT OF, NOR MAY ANY
PROVISION HEREOF BE ENFORCED BY, ANY OTHER PERSON, EXCEPT THAT EACH RELATED
PERSON IS AN INTENDED THIRD PARTY BENEFICIARY OF SECTION 4.8 AND EACH
INDEMNIFIED PARTY IS AN INTENDED THIRD PARTY BENEFICIARY OF SECTION 6.4 AND (IN
EACH CASE) MAY ENFORCE THE PROVISIONS OF SUCH SECTIONS DIRECTLY AGAINST THE
PARTIES WITH OBLIGATIONS THEREUNDER.

 

7.9                                 GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. 
ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY AND PURCHASERS
HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL
COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE
ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY PURCHASER HEREUNDER,
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY PURCHASER, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH
SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED
MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE
ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH
SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.  THE COMPANY AND PURCHASERS
HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

 

29

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7.10                           SURVIVAL.  THE REPRESENTATIONS, WARRANTIES,
AGREEMENTS AND COVENANTS CONTAINED HEREIN SHALL SURVIVE THE CLOSING AND THE
DELIVERY AND/OR EXERCISE OF THE SECURITIES, AS APPLICABLE.

 

7.11                           EXECUTION.  THIS AGREEMENT MAY BE EXECUTED IN TWO
(2) OR MORE COUNTERPARTS, ALL OF WHICH WHEN TAKEN TOGETHER SHALL BE CONSIDERED
ONE AND THE SAME AGREEMENT AND SHALL BECOME EFFECTIVE WHEN COUNTERPARTS HAVE
BEEN SIGNED BY EACH PARTY AND DELIVERED TO THE OTHER PARTY, IT BEING UNDERSTOOD
THAT BOTH PARTIES NEED NOT SIGN THE SAME COUNTERPART.  IN THE EVENT THAT ANY
SIGNATURE IS DELIVERED BY FACSIMILE TRANSMISSION, SUCH SIGNATURE SHALL CREATE A
VALID AND BINDING OBLIGATION OF THE PARTY EXECUTING (OR ON WHOSE BEHALF SUCH
SIGNATURE IS EXECUTED) WITH THE SAME FORCE AND EFFECT AS IF SUCH FACSIMILE
SIGNATURE PAGE WERE AN ORIGINAL THEREOF.

 

7.12                           SEVERABILITY.  IF ANY PROVISION OF THIS AGREEMENT
IS HELD TO BE INVALID OR UNENFORCEABLE IN ANY RESPECT, THE VALIDITY AND
ENFORCEABILITY OF THE REMAINING TERMS AND PROVISIONS OF THIS AGREEMENT SHALL NOT
IN ANY WAY BE AFFECTED OR IMPAIRED THEREBY AND THE PARTIES WILL ATTEMPT TO AGREE
UPON A VALID AND ENFORCEABLE PROVISION THAT IS A REASONABLE SUBSTITUTE THEREFOR,
AND UPON SO AGREEING, SHALL INCORPORATE SUCH SUBSTITUTE PROVISION IN THIS
AGREEMENT.

 

7.13                           RESCISSION AND WITHDRAWAL RIGHT.  NOTWITHSTANDING
ANYTHING TO THE CONTRARY CONTAINED IN (AND WITHOUT LIMITING ANY SIMILAR
PROVISIONS OF) THE TRANSACTION DOCUMENTS, WHENEVER ANY PURCHASER EXERCISES A
RIGHT, ELECTION, DEMAND OR OPTION UNDER A TRANSACTION DOCUMENT AND THE COMPANY
DOES NOT TIMELY PERFORM ITS RELATED OBLIGATIONS WITHIN THE PERIODS THEREIN
PROVIDED, THEN SUCH PURCHASER MAY RESCIND OR WITHDRAW, IN ITS SOLE DISCRETION
FROM TIME TO TIME UPON WRITTEN NOTICE TO THE COMPANY, ANY RELEVANT NOTICE,
DEMAND OR ELECTION IN WHOLE OR IN PART WITHOUT PREJUDICE TO ITS FUTURE ACTIONS
AND RIGHTS.

 

7.14                           REPLACEMENT OF SECURITIES.  IF ANY CERTIFICATE OR
INSTRUMENT EVIDENCING ANY SECURITIES IS MUTILATED, LOST, STOLEN OR DESTROYED,
THE COMPANY SHALL ISSUE OR CAUSE TO BE ISSUED IN EXCHANGE AND SUBSTITUTION FOR
AND UPON CANCELLATION THEREOF, OR IN LIEU OF AND SUBSTITUTION THEREFOR, A NEW
CERTIFICATE OR INSTRUMENT, BUT ONLY UPON RECEIPT OF EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY OF SUCH LOSS, THEFT OR DESTRUCTION AND CUSTOMARY AND
REASONABLE INDEMNITY, IF REQUESTED.  THE APPLICANTS FOR A NEW CERTIFICATE OR
INSTRUMENT UNDER SUCH CIRCUMSTANCES SHALL ALSO PAY ANY REASONABLE THIRD-PARTY
COSTS ASSOCIATED WITH THE ISSUANCE OF SUCH REPLACEMENT SECURITIES.

 

7.15                           REMEDIES.  IN ADDITION TO BEING ENTITLED TO
EXERCISE ALL RIGHTS PROVIDED HEREIN OR GRANTED BY LAW, INCLUDING RECOVERY OF
DAMAGES, EACH OF THE PURCHASERS AND THE COMPANY WILL BE ENTITLED TO SPECIFIC
PERFORMANCE UNDER THE TRANSACTION DOCUMENTS.  THE PARTIES AGREE THAT MONETARY
DAMAGES MAY NOT BE ADEQUATE COMPENSATION FOR ANY LOSS INCURRED BY REASON OF ANY
BREACH OF OBLIGATIONS DESCRIBED IN THE FOREGOING SENTENCE AND HEREBY AGREES TO
WAIVE IN ANY ACTION FOR SPECIFIC PERFORMANCE OF ANY SUCH OBLIGATION THE DEFENSE
THAT A REMEDY AT LAW WOULD BE ADEQUATE.

 

7.16                           PAYMENT SET ASIDE.  TO THE EXTENT THAT THE
COMPANY MAKES A PAYMENT OR PAYMENTS TO ANY PURCHASER HEREUNDER OR PURSUANT TO
THE WARRANTS, OR ANY PURCHASER ENFORCES OR EXERCISES ITS RIGHTS HEREUNDER OR
THEREUNDER, AND SUCH PAYMENT OR PAYMENTS OR THE PROCEEDS OF SUCH ENFORCEMENT OR
EXERCISE OR ANY PART THEREOF ARE SUBSEQUENTLY INVALIDATED, DECLARED TO BE
FRAUDULENT OR PREFERENTIAL, SET ASIDE, RECOVERED FROM, DISGORGED BY OR ARE
REQUIRED TO BE REFUNDED,

 

30

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repaid or otherwise restored to the Company by a trustee, receiver or any other
person under any law (including, without limitation, any bankruptcy law, state
or federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

 

7.17                           ADJUSTMENTS IN SHARE NUMBERS AND PRICES.  IN THE
EVENT OF ANY STOCK SPLIT, SUBDIVISION, DIVIDEND OR DISTRIBUTION PAYABLE IN
SHARES OF COMMON STOCK (OR OTHER SECURITIES OR RIGHTS CONVERTIBLE INTO, OR
ENTITLING THE HOLDER THEREOF TO RECEIVE DIRECTLY OR INDIRECTLY SHARES OF COMMON
STOCK), COMBINATION OR OTHER SIMILAR RECAPITALIZATION OR EVENT OCCURRING AFTER
THE DATE HEREOF, EACH REFERENCE IN ANY TRANSACTION DOCUMENT TO A NUMBER OF
SHARES OR A PRICE PER SHARE SHALL BE AMENDED TO APPROPRIATELY ACCOUNT FOR SUCH
EVENT.

 

7.18                           INDEPENDENT NATURE OF PURCHASERS’ OBLIGATIONS AND
RIGHTS.  THE OBLIGATIONS OF EACH PURCHASER UNDER ANY TRANSACTION DOCUMENT ARE
SEVERAL AND NOT JOINT WITH THE OBLIGATIONS OF ANY OTHER PURCHASER, AND NO
PURCHASER SHALL BE RESPONSIBLE IN ANY WAY FOR THE PERFORMANCE OF THE OBLIGATIONS
OF ANY OTHER PURCHASER UNDER ANY TRANSACTION DOCUMENT.  THE DECISION OF EACH
PURCHASER TO PURCHASE SHARES PURSUANT TO THIS AGREEMENT HAS BEEN MADE BY SUCH
PURCHASER INDEPENDENTLY OF ANY OTHER PURCHASER 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 OF THE SUBSIDIARY WHICH
MAY HAVE BEEN MADE OR GIVEN BY ANY OTHER PURCHASER OR BY ANY AGENT OR EMPLOYEE
OF ANY OTHER PURCHASER, AND NO PURCHASER OR ANY OF ITS AGENTS OR EMPLOYEES SHALL
HAVE ANY LIABILITY TO ANY OTHER PURCHASER (OR ANY OTHER PERSON) RELATING TO OR
ARISING FROM ANY SUCH INFORMATION, MATERIALS, STATEMENTS OR OPINIONS.  NOTHING
CONTAINED HEREIN OR IN ANY TRANSACTION DOCUMENT, AND NO ACTION TAKEN BY ANY
PURCHASER PURSUANT THERETO, SHALL BE DEEMED TO CONSTITUTE THE PURCHASERS AS A
PARTNERSHIP, AN ASSOCIATION, A JOINT VENTURE OR ANY OTHER KIND OF ENTITY, OR
CREATE A PRESUMPTION THAT THE PURCHASERS ARE IN ANY WAY ACTING IN CONCERT OR AS
A GROUP WITH RESPECT TO SUCH OBLIGATIONS OR THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENT.  EACH PURCHASER ACKNOWLEDGES THAT NO OTHER PURCHASER HAS
ACTED AS AGENT FOR SUCH PURCHASER IN CONNECTION WITH MAKING ITS INVESTMENT
HEREUNDER AND THAT NO OTHER PURCHASER WILL BE ACTING AS AGENT OF SUCH PURCHASER
IN CONNECTION WITH MONITORING ITS INVESTMENT HEREUNDER.  EACH PURCHASER SHALL BE
ENTITLED TO INDEPENDENTLY PROTECT AND ENFORCE ITS RIGHTS, INCLUDING WITHOUT
LIMITATION THE RIGHTS ARISING OUT OF THIS AGREEMENT OR OUT OF THE OTHER
TRANSACTION DOCUMENTS, AND IT SHALL NOT BE NECESSARY FOR ANY OTHER PURCHASER TO
BE JOINED AS AN ADDITIONAL PARTY IN ANY PROCEEDING FOR SUCH PURPOSE. EACH
PURCHASER REPRESENTS THAT IT HAS BEEN REPRESENTED BY ITS OWN SEPARATE LEGAL
COUNSEL IN ITS REVIEW AND NEGOTIATIONS OF THIS AGREEMENT AND THE TRANSACTION
DOCUMENTS.

 

[SIGNATURE PAGES TO FOLLOW]

 

31

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

 

 

BIO-KEY INTERNATIONAL, INC.

 

 

 

 

 

 

 

By:

 

 

 

Name:

Michael W. DePasquale

 

Title:

Chief Executive Officer

 

 

 

 

Address for Notice:

 

 

 

 

Suite 175

 

1285 Corporate Center Drive

 

Eagan, MN 55121

 

Phone: (651) 687-0414

 

Attn:  Chief Executive Officer

 

 

 

 

 

 

With a copy to:

Choate, Hall & Stewart

 

 

 

 

53 State Street

 

Boston, MA 02109

 

Facsimile No.: 617 248-4000

 

Telephone No.: 617 248-5000

 

Attn:  Charles J. Johnson, Esq.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 

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

 

 

[PURCHASER ]

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

Number of Units:                   [                        ]

 

 

 

 

Underlying Shares subject to

 

Warrants: [                        ]

 

 

 

 

 

 

 

Address for Notice:

 

 

 

 

[

]

 

[

]

 

[

]

 

[

]

 

Facsimile No.:  [

]

 

Telephone No.:  [

]

 

Attn:  [

]

 

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Exhibits:

 

A                                      Form of Warrant

B                                        Plan of Distribution

C                                        Transfer Agent Instructions

D                                       Selling Stockholder Questionnaire

 

Disclosure Schedules

 

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