Exhibit 10.1
 
BROADCAST INTERNATIONAL, INC.

SECURITIES PURCHASE AGREEMENT

 
This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of March ___,
2012, is made and entered into by and between Broadcast International, Inc., a
Utah corporation with its principal executive offices located at 7050 Union Park
Ave. #600, Salt Lake City, Utah 84047 (the “Company”), and each of the
purchasers listed on Schedule A hereto (the “Purchasers”).
 
WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the rules and regulations as promulgated by the U.S. Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the
“Securities Act”);
 
WHEREAS, the Purchasers, severally and not jointly, desire to purchase and the
Company desires to issue and sell to the Purchasers, in each case upon the terms
and subject to the conditions set forth in this Agreement: (i) an aggregate of
24,000,000 shares (the “Shares”) of common stock, $0.05 par value per share, of
the Company (together with any securities into which such shares may be
reclassified, whether by merger, charter amendment or otherwise, the “Common
Stock”), at a purchase price of $0.25 per share (the “Per Share Purchase
Price”), and (ii) (x) Series A Warrants, in the form attached hereto as Exhibit
A-1 (the “Series A Warrants”), to purchase an aggregate of up to 12,000,000
shares of Common Stock (subject to adjustment) at an exercise price of $0.35 per
share (subject to adjustment) (the “Series A Warrant Shares”) and (y) Series B
Warrants, in the form attached hereto as Exhibit A-2 (the “Series B Warrants”,
and together with the Series A Warrants, the “Warrants”), to purchase shares of
Common Stock upon certain conditions described therein (at an exercise price of
$0.05 per share (subject to adjustment) (the “Series B Warrant Shares”, and
together with the Series A Warrant Shares, the “Warrant Shares”) (the Common
Stock, the Warrants and the Warrant Shares, collectively, the “Securities”);
 
WHEREAS, each Purchaser, severally and not jointly, wishes to purchase, upon the
terms and conditions stated in this Agreement, such number of shares of Common
Stock and Warrants as is set forth immediately next to such Purchaser’s name on
Schedule A hereto;
 
WHEREAS, simultaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit B (the “Registration Rights Agreement” and
collectively with this Agreement, the Escrow Agreement (as defined below), the
Warrants, and the Registration Rights Agreement, the “Transaction Documents”)
pursuant to which the Company has agreed to provide to the Purchasers certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws; and
 
WHEREAS, the Company has engaged MDB Capital Group, LLC as its exclusive
placement agent (the “Placement Agent”) for the offering contemplated hereby.
 
NOW THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the Company and each
Purchaser severally (and not jointly) hereby agree as follows:

 
 

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

 

1.           Purchase and Sale of Common Stock and Warrants.
 
(a)           Purchase of Common Stock and Warrants.  Subject to the terms and
conditions set forth in this Agreement, on the Closing Date (as defined below),
the Company shall issue and sell to each Purchaser and each Purchaser, severally
and not jointly, agrees to purchase from the Company such number of Shares and
such number of Warrants as is set forth next to such Purchaser’s name on
Schedule A hereto for an aggregate purchase price of $__________ (the “Aggregate
Purchase Price”).
 
(b)           Participation Right. From the date hereof until one year after the
Closing Date, in the event that the Company effects any issuance, offer, sale,
grant, disposition (or the announcement of any issuance, offer, sale, grant,
disposition) by the Company, directly or indirectly, of any equity security or
any equity-linked or related security (including, without limitation, any
“equity security” (as that term is defined under Rule 405 promulgated under the
Securities Act), any Convertible Securities (as defined in the Warrants), any
Option (as defined in the Warrants), any preferred stock or any purchase rights)
(a “Subsequent Financing”), each Purchaser shall have the right to participate
in such Subsequent Financing as provided herein.
 
(i)           At least five (5) Business Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a written
notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which
Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “Subsequent Financing Notice”) which
Pre-Notice shall not contain any information (including, without limitation,
material, non-public information) other than: (i) a statement that the Company
proposes or intends to effect a Subsequent Financing, (ii) a statement that the
statement in clause (i) above does not constitute material, non-public
information and (iii) a statement informing such Purchaser that it is entitled
to receive an Offer Notice (as defined below) with respect to such Subsequent
Financing upon its written request.  Upon the request of a Purchaser, and only
upon a request by such Purchaser, for a Subsequent Financing Notice, the Company
shall promptly, but no later than one Business Day after such request, deliver a
Subsequent Financing Notice to such Purchaser.  The Subsequent Financing Notice
shall describe in reasonable detail the proposed the securities to be issued in
such Subsequent Financing (the “Offered Securities”), the terms of such
Subsequent Financing, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Financing is proposed to be effected, and
attached to which shall be a term sheet or similar document relating
thereto.  Each Purchaser may deliver a written notice (a “Notice of Acceptance”)
to the Company by 6:30 p.m. (New York City time) on the fifth (5th) Business Day
after its receipt of the Subsequent Financing Notice (the “Offer Period”) of its
willingness to provide the Subsequent Financing, in whole or in part, on the
terms described in the Subsequent Financing Notice, subject to completion of
mutually acceptable documentation.  If one or more Purchasers shall fail to so
notify the Company of their willingness to participate in the Subsequent
Financing, the Purchasers agreeing to participate in the Subsequent Financing
(the “Participating Purchasers”) shall have the right to provide all of the
Subsequent Financing.  If one or more Purchasers fail to notify the Company of
their willingness to provide all of the Subsequent Financing and the
Participating Purchasers do not agree to provide all of the Subsequent
Financing, the Company may effect the remaining portion of such Subsequent
Financing (such remaining securities to be sold, the “Refused Securities”) on
terms no less favorable to the Company and to the Persons set forth in the
Subsequent Financing Notice; provided that the Company must provide the
Purchasers with a second Subsequent Financing Notice, and the Purchasers will
again have the right of first refusal set forth above in this Section 1(b), if
the Subsequent Financing subject to the initial Subsequent Financing Notice is
not consummated for any reason on the terms set forth in such Subsequent
Financing Notice within 20 Business Days after the date of the initial
Subsequent Financing Notice with the Person

 
2

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

 
 
identified in the Subsequent Financing Notice.  In the event the Company
receives responses to Subsequent Financing Notices from Purchasers seeking to
purchase more than the financing sought by the Company in the Subsequent
Financing such Purchasers shall have the right to purchase their Pro Rata
Portion (as defined below) of the Common Stock or Common Stock Equivalents to be
issued in such Subsequent Financing.  “Pro Rata Portion” is the ratio of (x) the
amount invested by such Purchaser pursuant to this Agreement (the “Subscription
Amount”) and (y) the aggregate sum of all of the Subscription
Amounts.  Notwithstanding the foregoing, if the Company desires to modify or
amend the terms and conditions of the Offer prior to the expiration of the Offer
Period, the Company may deliver to each Purchaser a new Subsequent Financing
Notice and the Offer Period shall expire on the fifth (5th) Business Day after
such Purchaser’s receipt of such new Subsequent Financing Notice .
 
(ii)           The Company shall have five (5) Business Days from the expiration
of the Offer Period above (i) to offer, issue, sell or exchange all or any part
of such Offered Securities as to which a Notice of Acceptance has not been given
by a Purchaser (the “Refused Securities”) pursuant to a definitive agreement(s)
(the “Subsequent Financing Agreement”), but only to the offerees described in
the Subsequent Financing Notice (if so described therein) 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 Subsequent Financing Notice and (ii)
to publicly announce (a) the execution of such Subsequent Financing Agreement,
and (b) either (x) the consummation of the transactions contemplated by such
Subsequent Financing Agreement or (y) the termination of such Subsequent
Financing Agreement, which shall be filed with the SEC on a Current Report on
Form 8-K with such Subsequent Financing Agreement and any documents contemplated
therein filed as exhibits thereto.
 
(iii)           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 1(b)(i) above), then such 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 such Purchaser elected to
purchase pursuant to Section 1(b)(i) 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 this Section 1(b)
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 1(b)(i) above.
 
(iv)           Notwithstanding anything to the contrary in this Section 1(b) and
unless otherwise agreed to by such Purchaser, the Company shall either confirm
in writing to such Purchaser that the transaction with respect to the Subsequent
Financing has been abandoned or shall publicly disclose its intention to issue
the Offered Securities, in either case, in such a manner such that such
Purchaser will not be in possession of any material, non-public information, by
the fifth (5th) Business Day following delivery of the Subsequent Financing
Notice . If by such fifth (5th) Business Day, no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice
regarding the abandonment of such transaction has been received by such
Purchaser, such transaction shall be deemed to have been abandoned and such
Purchaser shall not be in possession of any material, non-public information
with respect to the Company or any of its Subsidiaries. Should the Company
decide to pursue such transaction with
 
 
3

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

 

respect to the Offered Securities, the Company shall provide such Purchaser with
another Subsequent Financing Notice and such Purchaser will again have the right
of participation set forth in this Section 1(b). The Company shall not be
permitted to deliver more than one Subsequent Financing Notice to such Purchaser
in any sixty (60) day period, except as expressly contemplated by the last
sentence of Section 1(b)(i).
 
(v)           Notwithstanding the foregoing, this Section 1(b) shall not apply
in respect of the issuance of (A) capital stock, options or convertible
securities issued to directors, officers, employees or consultants of the
Company in connection with their service as directors of the Company, their
employment by the Company or their retention as consultants by the Company
pursuant to an employee benefit plan or other issuance, employment agreement or
option grant or similar agreement which has been approved by the Board of
Directors of the Company; (B) shares of Common Stock issued upon the conversion
or exercise of options or convertible securities issued prior to the date
hereof, provided such securities are not amended after the date hereof to
increase the number of shares of Common Stock issuable thereunder or to lower
the exercise or conversion price thereof; (C) Securities issued pursuant to this
Agreement and Common Stock issued upon the exercise or conversion of those
Securities; (D) shares of Common Stock issued or issuable by reason of a
dividend, stock split or other distribution on shares of Common Stock; (E)
shares of Common Stock or Convertible Securities issued or issuable in
connection with pursuant to a bona fide retail firm commitment underwritten
public offering (other than an "at-the-market offering" as defined in Rule
415(a)(4) under the 1933 Act or "equity lines", “confidential market public
offerings”, “unregistered direct offerings”, “wall-crossed offerings”,
“pre-marketed offerings” and such other public offerings that are announced
after confidential marketing to investors) with a nationally recognized
underwriter (which, for the avoidance of doubt, includes the Placement Agent)
and (F) capital stock, options or convertible securities issued as consideration
for an acquisition or strategic transaction approved by a majority of the
disinterested directors of the Company, provided that any such issuance shall
only be a person (or to the equity holders of a person) which is, itself or
through its subsidiaries, an operating company or an owner of an asset in a
business synergistic with the business of the Company and shall provide to the
Company additional benefits in addition to the investment of funds, but shall
not, for the purposes of this clause, include a transaction in which the Company
is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities (collectively, the
“Excluded Securities”).
 
(c)           Closing Date.  Subject to the satisfaction (or written waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Shares and Warrants pursuant to this
Agreement (the “Closing Date”) shall be 9:00 a.m., Pacific time, on the date
first written above, or such other mutually agreed upon time.  The closing of
the transactions contemplated by this Agreement (the “Closing”) shall occur on
the Closing Date at such location as may be agreed to by the parties and may be
undertaken remotely by facsimile or other electronic transmission.

(d)           Closing and Escrow.  Unless other arrangements have been made
between the Company and a specific Purchaser, on or prior to the Closing, each
Purchaser shall deliver or cause to be delivered the following in accordance
with the subscription procedures described in Section 1(e) below:
 
(i)           this Agreement and the Registration Rights Agreement, duly
executed by such Purchaser; and
 
(ii)           an amount equal to the Per Share Purchase Price multiplied by the
number of Shares to be purchased by such Purchaser as set forth next to such
Purchaser’s name on Schedule A hereto (less, in the case of any Purchaser, the
amounts withheld pursuant to Section 4(f)(such product, the “Subscription
Amount”), in the form of a wire transfer to the Escrow Agent, in accordance with
the Escrow Agent’s written instructions.
 
 
4

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

 
 
The funds (or notes being converted in lieu of the funds) received pursuant to
this Section 1(d)(ii) will be placed with U.S. Bank National Association, who
will serve as escrow agent for the Closing (the “Escrow Agent”).  At the
Closing, as evidenced by a written certificate signed by the Company and the
Placement Agent certifying that the conditions to closing hereon have been met,
the Escrow Agent will deliver the applicable funds to the Company.  If this
Agreement is terminated pursuant to Section 9(k), each Purchaser shall receive
back his, her or its Subscription Amount promptly, without interest.
 
The Closing will not take place until all the Transaction Documents have been
duly delivered as provided herein, and the Company has provided to the Placement
Agent, and the Purchasers upon their request, a PDF or equivalent copy of the
stock certificates representing the Shares and of an executed Series A Warrant
and Series B Warrant representing the securities being purchased hereunder.

(e)           Subscription Procedure.  Each Purchaser shall deliver or cause to
be delivered a duly executed copy of this Agreement and the Registration Rights
Agreement at the following address:  MDB Capital Group, LLC, Attention:
Compliance Department, 401 Wilshire Blvd., Suite 1020, Santa Monica, CA
90401.  Unless other arrangements have been made with a particular Purchaser,
each Purchaser shall also deliver or cause to be delivered the Subscription
Amount pursuant to Section 1(d)(ii) hereof.
 
(f)           Acceptance.  This Agreement sets forth various representations,
warranties, covenants and agreements of the Company and the Purchasers, as the
case may be, all of which shall be deemed made, and shall be effective without
further action by the Company and the Purchasers, immediately upon the Company’s
acceptance of a Purchaser’s subscription and shall thereupon be binding upon the
Company and the applicable Purchasers.  Acceptance is evidenced only by
execution of this Agreement by the Company on its signature page attached hereto
and the Company shall have no obligation hereunder to a Purchaser until the
Company shall have delivered to such Purchaser an executed copy of this
Agreement.

2.      Representations and Warranties of the Purchasers.  Each Purchaser
severally (and not jointly) represents and warrants to the Company solely as to
such Purchaser that, as of the date hereof and as of the Closing Date:
 
(a)           Investment Purpose.  The Securities to be acquired by such
Purchaser are being acquired or will be acquired for investment for such
Purchaser’s own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the Securities Act,
and such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same in violation of the
Securities Act.  Such Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities in violation of the Securities Act. Such Purchaser has not been
formed for the specific purpose of acquiring the Securities.

(b)           Accredited Investor Status.  Such Purchaser is an “accredited
investor,” as that term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act (an “Accredited Investor”).
 
(c)           Reliance on Exemptions.  Such Purchaser understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of  United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and such Purchaser’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Purchaser set forth
herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Securities.
 
 
5

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

 
 
(d)           Information.  Such Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, financial condition,
results of operations, management and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested by
such Purchaser or its advisors, and considered all factors such Purchaser deems
material in deciding on the advisability of investing the Securities.  Such
Purchaser and its advisors, if any, have been afforded the opportunity to ask
questions of the Company.  Notwithstanding the foregoing representations,
neither such inquiries nor any other due diligence investigation conducted by
Purchaser or any of its advisors or representatives shall modify, amend or
affect Purchaser’s right to rely on the Company’s representations and warranties
contained in Section 3 below.
 
(e)           No Governmental Review.  Such Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
 
(f)           Restricted Securities.  Such Purchaser understands that the Shares
and Warrants have not been registered under the Securities Act, by reason of a
specific exemption from the registration provisions of the Securities Act which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of such Purchaser’s representations as expressed herein.  Such
Purchaser understands that the Securities are characterized as “restricted
securities” under applicable U.S. federal and state securities laws and that,
pursuant to these laws, Purchaser must hold the Securities indefinitely unless
subsequently registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available.
 
(g)           Legends.  It is understood that, except as provided below,
certificates evidencing the Securities may bear the following or substantially
similar legend:
 
[This warrant and any shares acquired upon exercise of this warrant][The
securities represented hereby] have not been registered under the Securities Act
of 1933, as amended, and  may not be transferred, sold or otherwise disposed of
except (i) pursuant to an effective registration statement under said act, (ii)
unless sold or eligible to be sold pursuant to Rule 144 or 144A of said act, or
(iii) an opinion of counsel reasonably satisfactory to the Company that
registration is not required under said act.  The securities may be pledged in
connection with a bona fide margin account or other loan or financing
arrangement secured by the securities.
 
(h)           Authorization; Enforcement.  Each Transaction Document to which
such Purchaser is a party: (i) has been duly and validly authorized by such
Purchaser, (ii) has been duly executed and delivered by or on behalf of such
Purchaser, and (iii) will constitute, upon execution and delivery by such
Purchaser thereof and the Company, the valid and binding agreements of such
Purchaser enforceable in accordance with their terms, except to the extent
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors’ rights and
general principles of equity that restrict the availability of equitable or
legal remedies.
 
(i)           Residency.  If such Purchaser is an individual, then such
Purchaser resides in the state or province identified in the address of such
Purchaser set forth on the signature pages hereto.  If such Purchaser is a
partnership, corporation, limited liability company or other entity, then the
office or offices of such Purchaser in which its principal place of business is
identified in the address or addresses of such Purchaser set forth on the
signature pages hereto and such entity is duly organized in its state of
formation.
 
 
6

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

 
 
(j)           Investment Experience.  Such Purchaser is experienced in
investments and business matters, has made investments of a speculative nature
and has purchased securities of United States companies in private placements in
the past, and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable such Purchaser to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment.  Such Purchaser is able to
bear the economic risk of an investment in the Securities and is able to afford
a complete loss of such investment.

(k)           Communication of Offer. Such Purchaser was contacted by either the
Company or the Placement Agent with respect to a potential investment in the
Securities.  Such Purchaser, to its knowledge, is not purchasing the Securities
as a result of any “general solicitation” or “general advertising,” as such
terms are defined in Regulation D of the Securities Act, which includes, but is
not limited to, any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or on the internet or broadcast over television, radio or the internet or
presented at any seminar or any other general solicitation or general
advertisement.

(l)           Brokers and Finders. Other than the Placement Agent with respect
to the Company, no person will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or
upon the Company or any Purchaser for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding entered into by or on
behalf of such Purchaser.  The Company has agreed to pay a commission and
expense reimbursement to the Placement Agent in connection with the sale of the
Securities.  Such Purchaser acknowledges that it is purchasing the Securities
directly from the Company and not from the Placement Agent.

(m)           FINRA.  Such Purchaser (i) has had no position, office or other
material relationship within the past three years with the Company or persons
known to it to be affiliates of the Company, and (ii) if such Purchaser is a
member of the Financial Industry Regulatory Authority (“FINRA”) or an associated
person of a member of FINRA, such Purchaser, together with its affiliates and
any other associated persons of such member of FINRA, does not, and as of the
Closing will not, directly or indirectly have a beneficial interest (as
determined under FINRA Rule 5130(i)(1)) of more than 50% of the
outstanding voting securities of the Company.

(n)           No Assurance of Future Offerings.  The Purchaser acknowledges that
the Company has no obligation, and has given no assurance, that after the sale
of the Securities it will conduct or be able to conduct any future offerings or
sales of any of its securities, whether debt or equity, or engage in any other
form of financing to raise additional capital.  The Purchaser acknowledges that
the fact that the Company has a letter of intent with an investment bank, which
contemplates future offerings of securities of the company, is neither assurance
nor a representation nor covenant that the Company will or will be able to offer
for sale or consummate any sale of securities in the future.  The Purchaser
acknowledges that MDB Capital Group, LLC, the placement agent of the Securities,
and each of Philadelphia Brokerage Corp. and Ascediant Capital Markets, LLC,
sub-placement agents of the Securities, neither jointly nor severally, have any
obligation to conduct any future offerings or sales of any kind of securities of
or for the Company, whether on an underwritten or agency basis, or to locate any
potential investors or lenders to invest in or lend to the Company.  The
Purchaser acknowledges that the letter of intent that has been entered into
between the Company and MDB Capital Group, LLC, and subsequently amended, which
grants to MDB certain rights as to future offerings by the Company on an

 
7

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

 

exclusive basis, is not an obligation of MDB Capital Group, LLC to commence,
conduct, or participate in any manner in any offer or sale of securities by or
for the Company or by or for any of its security holders or to arrange any other
form of financing  or borrowing for the Company and that the letter of intent is
an agreement solely between the Company and MDB Capital Group, LLC under which
the Purchaser is neither a direct nor indirect third party beneficiary in any
respect.

(o)           Prohibited Transactions.  Since the time the Purchaser was first
contacted by the Company or the Placement Agent regarding the transactions
contemplated hereby, neither the Purchaser nor any Affiliate of the Purchaser
which (x) had knowledge of the transactions contemplated hereby, (y) has or
shares discretion relating to the Purchaser’s investments or trading or
information concerning the Purchaser’s investments, including in respect of the
Securities, or (z) is subject to the Purchaser’s or a Purchaser’s Affiliate
review or input concerning an investment or trading activity (collectively,
“Trading Affiliates”) has, directly or indirectly, effected or agreed to effect
any Short Sale (as defined below) .  “Short Sales” include, without limitation,
all “short sales” as defined in Rule 200 promulgated under Regulation SHO under
the Exchange Act (“Regulation SHO”) and all types of direct and indirect stock
pledges, forward sales contracts, options, puts, calls, swaps and similar
arrangements (including on a total return basis), and sales and other
transactions through non-U.S. broker dealers or foreign regulated brokers (but
shall not be deemed to include the location and/or reservation of borrowable
shares of Common Stock).

3.      Representations and Warranties of the Company.  The Company hereby
represents and warrants to each Purchaser, severally and jointly, that, as of
the date hereof and as of the Closing Date:
 
(a)           Organization and Qualification.  The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
or default of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and no Proceeding of which the Company has received
written notice or otherwise has Knowledge has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
 
(b)           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 action is required by
the Company, its Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals (as defined
below). Each Transaction Document to which the Company is a party has been (or
upon the execution and delivery thereof by the Company will have been) duly
executed by the Company and, when
 
 
8

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

 

delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
 
(c)           Capitalization.  As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of preferred stock, no par
value, of which no shares are issued and outstanding, 180,000,000 shares of
Common Stock, of which 75,975,656 shares are issued and outstanding.  There are
3,602,191 shares of common stock are reserved for issuance pursuant to the
Company’s shareholder approved equity incentive plans, 2,550,000 shares of
common stock are reserved for issuance pursuant to awarded restricted stock
units, [5,740,741 shares of common stock are reserved for issuance to the
holders of convertible notes with an aggregate principal amount of
$6,500,000][TBD], 16,868,360 shares of common stock are reserved for issuance
pursuant to outstanding warrants, and 3,295,420 shares of common stock are
reserved for issuance pursuant to the company’s two stock option plans and other
equity based award plans, all of which is fully set out on Schedule 3(c) to this
Agreement.  Each of the Company’s equity incentive plans (including the 2004
Long-term Incentive Plan, the 2008 Equity Incentive Plan and the RSU program)
are collectively known as the “Employee Benefit Plans” and are fully detailed on
Schedule 3(c) to this Agreement.  All of the outstanding shares of capital stock
are duly authorized, validly issued, fully paid and non-assessable and free of
pre-emptive rights and were issued in compliance in all material respects with
applicable state and federal securities law and any rights of third
parties.  ________________ shares of the Company’s issued and outstanding Common
Stock on the date hereof are as of the date hereof owned by Persons who are
“affiliates” (as defined in Rule 405 of the Securities Act and calculated based
on the assumption that only officers, directors and holders of at least 10% of
the Company’s issued and outstanding Common Stock are “affiliates” without
conceding that any such Persons are “affiliates” for purposes of federal
securities laws) of the Company or any of its Subsidiaries. To the Company’s
knowledge, except as set forth in the SEC Reports, no Person owns 10% or more of
the Company’s issued and outstanding shares of Common Stock (calculated based on
the assumption that all Convertible Securities (as defined below), whether or
not presently exercisable or convertible, have been fully exercised or
converted (as the case may be) taking account of any limitations on exercise or
conversion (including “blockers”) contained therein without conceding that such
identified Person is a 10% stockholder for purposes of federal securities
laws).  The Warrant Shares have been duly reserved for future issuance.  All of
the issued and outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued and are fully paid, non-assessable and free
of pre-emptive rights, were issued in full compliance with applicable state and
federal securities law and any rights of third parties and are owned by the
Company, beneficially and of record, subject to no Lien (as defined below).  No
shares of capital stock of the Company or any Subsidiary are subject to
preemptive rights or any other similar rights of the stockholders or any
mortgage, lien, title claim, assignment, encumbrance, security interest, adverse
claim, contract of sale, restriction on use or transfer or other defect of title
of any kind, other than those arising under applicable securities laws (each, a
“Lien”).  Except as described in Schedule 3(c) hereto and for the Transaction
Documents and options/awards issued under Employee Benefit Plans and other
equity based securities set forth on Schedule 3(c) to this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, puts,
calls, rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares of capital
stock of the Company or any of its Subsidiaries, (ii) other than the
Registration Rights Agreement, there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under
 
 
9

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

 

the Securities Act, (iii) none of the Company’s or any Subsidiary’s capital
stock is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company or any Subsidiary, (iv)
there are no outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (v) there are no financing statements
securing obligations in any amounts filed in connection with the Company or any
of its Subsidiaries; (vi) there are no outstanding securities or instruments of
the Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vii)
there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company or any Subsidiary (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Securities, and the Company is not currently contemplating any issuances of its
debt or equity securities which would trigger the anti-dilution or price
adjustment provisions contained in the Warrants  and (viii) neither the Company
nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (ix) neither the Company nor
any of its Subsidiaries have any liabilities or obligations required to be
disclosed in the SEC Reports which are not so disclosed in the SEC Reports,
other than those incurred in the ordinary course of the Company’s or its
Subsidiaries’ respective businesses and which, individually or in the aggregate,
do not or could not have a Material Adverse Effect.  Except as set forth on
Schedule 4(c), and except for the Registration Rights Agreement, there are no
voting agreements, buy-sell agreements, options, warrants, or right of first
purchase agreements or other agreements of any kind among the Company and any of
the security holders of the Company relating to the securities of the Company
held by them.  The Certificate of Incorporation of the Company as in effect on
the date hereof (“Certificate of Incorporation”) and the Company’s By-laws, as
in effect on the date hereof (the “By-laws”) have been made available to the
Purchasers.
 
(d)           Issuance of Shares.  The Shares have been duly authorized and,
when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens, with the holders being entitled to all rights accorded
to a holder of Common Stock. The Warrants are duly authorized and upon issuance
in accordance with the terms of the Transaction Documents shall be validly
issued, fully paid and non-assessable and free and clear of all Liens with
respect to the issue thereof.  The Warrant Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens. The Company has reserved from
its duly authorized capital stock a number of shares of Common Stock for
issuance of the Warrant Shares.  As of the Closing, the Company shall have
reserved from its duly authorized capital stock not less than 100% of the
maximum number of Warrant Shares issuable upon exercise of the Warrants as of
such date (without taking into account any limitations on the exercise of the
Warrants set forth therein and assuming no Dilutive Issuance (as defined in the
Series A Warrant) has occurred).  Subject to the accuracy of the representations
and warranties of the Purchasers in this Agreement, the offer and issuance by
the Company of the Securities is exempt from registration under the Securities
Act.

(e)           Acknowledgment of Dilution.  The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Warrant
Shares pursuant to the Transaction Documents, are unconditional and absolute and
not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.

 
10

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

 

(f)           No Conflicts.  The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
other 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, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the “Principal Market”), or by which any property or asset of
the Company or a Subsidiary is bound; except in the case of each of clauses (ii)
and (iii), such as could not have and would not reasonably be expected to result
in a Material Adverse Effect.
 
(g)           SEC Reports; Financial Statements.  The Company has filed all
reports, schedules, exhibits, forms, statements and other documents required to
be filed by the Company with the SEC under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law or regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as applicable, 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 GAAP, except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.  No
other information provided by or on behalf of the Company to any of the
Purchasers which is not included in the SEC Reports contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein not misleading, in the light of the
circumstance under which they are or were made.
 
(h)           Absence of Certain Changes.  Since the date of the latest audited
financial statements included in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
material 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 disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or

 
11

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

 

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 (as defined in Rule 405), except pursuant to
the Employee Benefit Plans. The Company does not have pending before the
Commission any request for confidential treatment of information. Except for the
issuance of the Securities contemplated by this Agreement or as set forth on
Schedule 3(h) and as set forth in SEC Reports, no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed prior to the date hereof.  Neither the
Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any law or statute relating to bankruptcy, insolvency,
reorganization, receivership, liquidation or winding up, nor does the Company or
any Subsidiary have any knowledge or reason to believe that any of their
respective creditors intend to initiate involuntary bankruptcy proceedings or
any actual knowledge of any fact which would reasonably lead a creditor to do
so. The Company and its Subsidiaries, individually and on a consolidated basis,
are not as of the date hereof, and after giving effect to the transactions
contemplated hereby to occur at the Closing, will not be Insolvent (as defined
below). For purposes of this Section 3(h), “Insolvent” means, (I) with respect
to the Company and its Subsidiaries, on a consolidated basis, (i) the present
fair saleable value of the Company’s and its Subsidiaries’ assets is less than
the amount required to pay the Company’s and its Subsidiaries’ total
Indebtedness (as defined below), (ii) the Company and its Subsidiaries are
unable to pay their debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured or (iii)
the Company and its Subsidiaries intend to incur or believe that they will incur
debts that would be beyond their ability to pay as such debts mature; and (II)
with respect to the Company and each Subsidiary, individually, (i) the present
fair saleable value of the Company’s or such Subsidiary’s (as the case may be)
assets is less than the amount required to pay its respective total
Indebtedness, (ii) the Company or such Subsidiary (as the case may be) is unable
to pay its respective debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured or (iii)
the Company or such Subsidiary (as the case may be) intends to incur or believes
that it will incur debts that would be beyond its respective ability to pay as
such debts mature. Neither the Company nor any of its Subsidiaries has engaged
in any business or in any transaction, and is not about to engage in any
business or in any transaction, for which the Company’s or such Subsidiary’s
remaining assets constitute unreasonably small capital.
 
(i)           Absence of Litigation.  There is no material action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the
Knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) except as disclosed in
the SEC Reports. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the Knowledge of the
Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other order
suspending the effectiveness of any registration statement filed by the Company
or any Subsidiary under the Exchange Act or the Securities Act.
 
(j)                 Intellectual Property.  The Company owns all trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, original works, inventions, licenses, approvals,
governmental authorizations, trade secrets, licenses, formulae, mask works,
customer lists, internet domain names, know-how and other intellectual property,
including
 

 
12

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

 

trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems, procedures or registrations or applications
relating to the same (collectively, “Intellectual Property”) as described in its
SEC Reports.  The Company owns valid title, free and clear of any Liens, or
possesses the requisite valid and current licenses or rights, free and clear of
any Liens, to use all Intellectual Property in connection with the conduct its
business as now operated.  Except as disclosed in SEC Reports, there is no claim
or action by any person pertaining to, or proceeding pending, or to the
Company’s Knowledge threatened, which challenges the right of the Company or of
a Subsidiary to use any Intellectual Property as such Intellectual Property is
currently being used in the business.  To the Company’s Knowledge, the Company
or its Subsidiaries’ current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person,
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing.  Except as disclosed in SEC Reports, the Company has
not received any notice of infringement of, or conflict with, the asserted
rights of others with respect to the Intellectual Property.  The Company and
each of its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of their Intellectual Property.
 
(k)           Tax Matters.  Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has (i) timely filed all necessary
federal, state and foreign income and franchise tax returns, (ii) set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply
and timely paid or accrued all taxes shown as due thereon, and, to the Company’s
Knowledge no tax deficiency has been asserted or threatened against the Company
or any Subsidiary.  The Company has not received notice that any of its tax
returns is presently being audited by any taxing authority.  There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the Company has no Knowledge of any basis for any such
claim.  The Company is not operated in such a manner as to qualify as a passive
foreign investment company, as defined in Section 1297 of the U.S. Internal
Revenue Code of 1986, as amended.
 
(l)           Certain Transactions.  None of the officers or directors of the
Company and, to the Knowledge of the Company, none of the employees of the
Company is presently a party to any transaction with the Company or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $120,000
other than for (i) payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any Employee
Benefit Plan of the Company.
 
(m)           Disclosure.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, 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 it believes 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 furnished by or on behalf of the
Company to the Purchasers regarding the Company, its business and the
transactions contemplated hereby, including the schedules to this Agreement, is
true and correct and does not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The press releases disseminated by the Company during the twelve
months preceding the date of this Agreement taken as a whole do not 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 were made and when made, not misleading.
 
 
13

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

 
 
(n)           No General Solicitation. Neither the Company nor any person acting
on behalf of the Company has offered or sold any of the Securities by any form
of general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
 
(o)           No Integrated Offering.  Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder approval
provisions of any Trading Market on which any of the securities of the Company
are listed or designated.
 
(p)           No Brokers.  The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions contemplated
hereby, other than to the Placement Agent.
 
(q)           Permits; Compliance.  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, except where the failure to possess such permits could
not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit.
 
(r)           ERISA. There are no employee benefit plans maintained, established
or sponsored by the Company, or in or to which the Company participates or
contributes, which is subject to the Employee Retirement Income Security Act of
1974, as amended (“ERISA”).  The Company has made all required contributions and
has no liability to any such employee benefit plan, other than liability for
health plan continuation coverage described in Part 6 of Title I(B) of
ERISA,  and has complied with all applicable laws for any such employee benefit
plan.
 
(s)           Title to Property.  The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good 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 currently made of such property by the Company
and the Subsidiaries and Liens for the payment of federal, state or other taxes,
the payment of which is neither delinquent nor subject to penalties. Any real
property and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in material compliance.
 
(t)           Insurance.  The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged.  To the Knowledge of the Company, there is no circumstance currently
existing that would result in the Company or any Subsidiary not being 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 at a cost that would not have a Material Adverse Effect.  The
Company has made available to Purchaser, to the extent requested, true and
correct copies of all policies relating to directors’ and officers’ liability
coverage, errors and omissions coverage, and commercial general liability
coverage.
 
 
14

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

 
 
(u)           Internal Controls.  The Company is in compliance with the
provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Company
and all related applicable rules and regulations promulgated by the SEC
thereunder that are effective as of the date hereof.  The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including the Subsidiaries, is
made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed
periodic report under the Exchange Act, as the case may be, is being
prepared.  The Company's certifying officers have evaluated the effectiveness of
the Company's controls and procedures as of the end of the period covered by the
most recently filed periodic report under the Exchange Act (such date, the
"Evaluation Date").  The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date.  Since the Evaluation Date, there have
been no significant changes in the Company's internal controls (as such term is
defined in Item 308 of Regulation S-K) or, to the Company's Knowledge, in other
factors that could significantly affect the Company's internal controls.  The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP and the applicable
requirements of the Exchange Act.
 
(v)           Questionable Payments.  Neither the Company nor any of its
Subsidiaries nor, to the Company’s Knowledge, any of their respective current or
former directors, officers, employees, agents or other Persons acting on behalf
of the Company or any Subsidiary, has on behalf of the Company or any Subsidiary
or in connection with their respective businesses: (a) used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity; (b) made any direct or indirect unlawful
payments to any governmental officials or employees from corporate funds; (c)
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; (d) made any false or fictitious entries on the books and records
of the Company or any Subsidiary; or (e) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment of any nature.
 
(w)           Investments in Other Persons.  Neither the Company nor any of its
Subsidiaries has made any loan or advance to any person which is outstanding,
nor is it committed or obligated to make any such loan or advance, nor does the
Company or any of its Subsidiaries own any capital stock (excluding cash and
cash equivalents held by third parties), assets comprising the business of,
obligations of, or any equity, ownership or other interest in, any person that
is not a Subsidiary.
 
(x)           No Investment Company.  The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an “investment company” an affiliate of an
“investment company,” a company controlled by an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.

 
15

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

 

(y)           Material Contracts.  Except as disclosed on Schedule 3(y) (each
contract, agreement, commitment or understanding disclosed on Schedule 3(y)
being hereinafter referred to as a “Material Agreement”), or as contemplated by
this Agreement or another Transaction Document, there are no agreements,
understandings, commitments, instruments, contracts, employment agreements,
proposed transactions or judgments to which the Company is a party or by which
it is bound which may involve obligations (contingent or otherwise), or a
related series of obligations (contingent or otherwise), of, or payments, or a
related series of payments, by the Company in excess of $100,000 in any one
year.  All Material Agreements are in full force and effect and constitute
legal, valid and binding obligations of the Company and, to the Company’s
Knowledge, the other parties thereto and are enforceable in accordance with
their respective terms.  To the Company’s Knowledge, neither the Company nor any
person is in default under the terms of any Material Agreement, and no
circumstance exists that would, with the giving of notice or the passage of
time, constitute a default under any Material Agreement.  The Purchasers have
been furnished with complete and correct copies of all Material Agreements
requested by them or their counsel to the extent requested.
 
(z)           Employees.  No material labor dispute exists or, to the Knowledge
of the Company, is threatened or imminent with respect to any of the employees
of the Company which could reasonably be expected to result in a Material
Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member
of a union that relates to such employee’s relationship with the Company or such
Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company believes that their
relationships and their Subsidiaries’ relationships with their respective
employees are good. No executive officer is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
 
(aa)           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 Material
Agreement to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws applicable to its business and all such laws that affect the
environment, except in each case as could not have or would not reasonably be
expected to result in a Material Adverse Effect.  Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the Principal Market and has no knowledge
of any facts or circumstances that could reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future. Since January 1, 2009, other than as set forth in the SEC Reports, (i)
the Common Stock has been listed or designated for quotation on the Principal
Market, (ii) trading in the Common Stock has not been suspended by the SEC or
the Principal Market and (iii) the Company has received no communication,
written or oral, from the SEC or the Principal Market regarding the suspension
or delisting of the Common Stock from the Principal Market

 
16

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

 

(bb)           Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the execution
of, delivery and performance by the Company of the Transaction Documents, other
than (i) filings with the Commission of the Registration Statement and Form 8-K,
(ii) the notice and/or application(s) to each applicable Trading Market for the
issuance and sale of the Securities, and (iii) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required Approvals”). Subject to the
accuracy of the representations and warranties of each Purchaser set forth in
Section 2 hereof, the Company has taken all action necessary to exempt (i) the
issuance and sale of the Securities, (ii) the issuance of the Warrant Shares
upon due exercise of the Warrants, and (iii) the other transactions contemplated
by the Transaction Documents from the provisions of any stockholder rights plan
or other “poison pill” arrangement, any anti-takeover, business combination or
control share law or statute binding on the Company or to which the Company or
any of its assets and properties may be subject and any provision of the
Company’s Certificate of Incorporation or Bylaws that is or could reasonably be
expected to become applicable to the Purchasers as a result of the transactions
contemplated hereby, including without limitation, the issuance of the
Securities and the ownership, disposition or voting of the Securities by the
Purchasers or the exercise of any right granted to the Purchasers pursuant to
this Agreement or the other Transaction Documents.
 
(cc)           Environmental Matters.  The Company and its Subsidiaries (A) are
in compliance with all Environmental Laws (as defined below), (B) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (C) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the foregoing clauses (A), (B) and (C), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect.  The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
 
(dd)           OTCBB Compliance.  The Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is quoted on The OTC Bulletin Board
quotation service (the “OTCBB”), and the Company has taken no action designed
to, or likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act or removal from quotation of the Common Stock from
the OTCBB, nor has the Company received any notification that the SEC, the OTCBB
or FINRA is contemplating terminating such registration or quotation.
 
(ee)           Acknowledgment Regarding Purchaser’s Purchase of Securities. The
Company acknowledges and agrees that to its actual knowledge each Purchaser is
acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby and
that no Purchaser is (i) an officer or director of the Company or any of its
Subsidiaries, (ii) to its actual knowledge, an “affiliate” (as defined in Rule
144 of the Securities Act) of the Company or any of its Subsidiaries or (iii) to
its actual knowledge, a “beneficial owner” of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of Exchange Act). The
Company further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company or any of its Subsidiaries (or in any similar
capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by a Purchaser or any of
its representatives or agents in connection with the Transaction Documents and
the transactions contemplated hereby and thereby is merely incidental to such
Purchaser’s purchase of the Securities. The Company further represents to each
Purchaser that the Company’s decision to enter into the Transaction Documents to
which it is a party has been based solely on the independent evaluation by the
Company and its representatives.
 
 
17

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

 
 
(ff)           No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists, or is reasonably expected to exist or occur with respect to the Company,
any of its Subsidiaries or any of their respective businesses, properties,
liabilities, prospects, operations (including results thereof) or condition
(financial or otherwise), that (i) would be required to be disclosed by the
Company under applicable securities laws on a registration statement on Form S-1
filed with the SEC relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly announced, (ii) would reasonably be
expected to have a Material Adverse Effect or (iii) could have a material
adverse effect on any Purchaser’s investment hereunder.
 
(gg)           Foreign Corrupt Practices.  Neither the Company nor any of its
Subsidiaries nor, to the Company’s knowledge, any director, officer, agent,
employee or other Person acting on behalf of the Company or any of its
Subsidiaries has, in the course of its actions for, or on behalf of, the Company
or any of its Subsidiaries (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
 
(hh)           Indebtedness and Other Contracts. Neither the Company nor any of
its Subsidiaries, (i) except as disclosed in the SEC Reports, has any
outstanding Indebtedness (as defined below), (ii) is a party to any contract,
agreement or instrument, the violation of which, or default under which, by the
other party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of, or in default under, any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
“Indebtedness” of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services (including, without limitation,
“capital leases” in accordance with generally accepted accounting principles)
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional sale
or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, claim, lien, tax, right
of first refusal, pledge, charge, security interest or other encumbrance upon or
in any property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; and (y) “Contingent
Obligation” means, as to any Person, any direct or indirect liability,
contingent or otherwise, of that Person with respect to any indebtedness, lease,
dividend
 

 
18

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

 

or other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.
 
(ii)           Subsidiary Rights.  The Company or one of its Subsidiaries has
the unrestricted right to vote, and (subject to limitations imposed by
applicable law) to receive dividends and distributions on, all capital
securities of its Subsidiaries as owned by the Company or such Subsidiary.
 
(jj)           Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Company or any of its
Subsidiaries and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in the SEC Reports and is not so
disclosed or that otherwise could be reasonably likely to have a Material
Adverse Effect.
 
(kk)           Acknowledgement Regarding Purchasers’ Trading Activity.  It is
understood and acknowledged by the Company that (i) following the public
disclosure of the transactions contemplated by the Transaction Documents, in
accordance with the terms thereof, none of the Purchasers have been asked by the
Company or any of its Subsidiaries to agree, nor has any Purchaser agreed with
the Company or any of its Subsidiaries, to desist from effecting any
transactions in or with respect to (including, without limitation, purchasing or
selling, long and/or short) any securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term; (ii) any Purchaser, and counterparties in “derivative”
transactions to which any such Purchaser is a party, directly or indirectly,
presently may have a “short” position in the Common Stock which was established
prior to such Purchaser’s knowledge of the transactions contemplated by the
Transaction Documents; and (iii) each Purchaser shall not be deemed to have any
affiliation with or control over any arm’s length counterparty in any
“derivative” transaction. The Company further understands and acknowledges that
following the public disclosure of the transactions contemplated by the
Transaction Documents pursuant to the Press Release (as defined below) one or
more Purchasers may engage in hedging and/or trading activities at various times
during the period that the Securities are outstanding, including, without
limitation, during the periods that the value and/or number of the Warrant
Shares deliverable with respect to the Securities are being determined and (b)
such hedging and/or trading activities, if any, can reduce the value of the
existing stockholders’ equity interest in the Company both at and after the time
the hedging and/or trading activities are being conducted. The Company
acknowledges that such aforementioned hedging and/or trading activities do not
constitute a breach of this Agreement, the Warrants or any other Transaction
Document or any of the documents executed in connection herewith or therewith.
 
(ll)           Manipulation of Price.  Neither the Company nor any of its
Subsidiaries has, and, to the knowledge of the Company, no Person acting on
their behalf has, directly or indirectly, (i) taken any action designed to cause
or to result in the stabilization or manipulation of the price of any security
of the Company or any of its Subsidiaries to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities (other than the Placement
Agent), or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchase any other securities of the Company or any of its
Subsidiaries.
 
 
19

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

 
 
(mm)           U.S. Real Property Holding Corporation.  Neither the Company nor
any of its Subsidiaries is, or has ever been, and so long as any of the
Securities are held by any of the Purchasers, shall become, a U.S. real property
holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company and each Subsidiary shall so certify
upon any Purchaser’s request.
 
(nn)           Registration Eligibility.  The Company is eligible to register
the Registrable Securities for resale by the Purchasers using Form S-1
promulgated under the Securities Act.
 
(oo)           Transfer Taxes.  On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the issuance, sale and transfer of the Securities to be sold to
each Purchaser hereunder will be, or will have been, fully paid or provided for
by the Company, and all laws imposing such taxes will be or will have been
complied with.
 
(pp)           Bank Holding Company Act.  Neither the Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
“BHCA”) and to regulation by the Board of Governors of the Federal Reserve
System (the “Federal Reserve”).  Neither the Company nor any of its Subsidiaries
or affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
 
(qq)           Shell Company Status. The Company is not, and has never been, an
issuer identified in, or subject to, Rule 144(i) promulgated under the
Securities Act.
 
(rr)            Money Laundering.  The Company and its Subsidiaries are in
compliance with, and have not previously violated, the USA Patriot Act of 2001
and all other applicable U.S. and non-U.S. anti-money laundering laws and
regulations, including, but not limited to, the laws, regulations and Executive
Orders and sanctions programs administered by the U.S. Office of Foreign Assets
Control, including, but not limited, to (i) Executive Order 13224 of September
23, 2001 entitled, “Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism” (66 Fed. Reg. 49079
(2001)); and (ii) any regulations contained in 31 CFR, Subtitle B, Chapter V.
 
(ss)           Management.  Except as set forth in the SEC Reports, during the
past five year period, no current or, to the knowledge of the Company, former
officer, director or stockholder of the Company or any of its Subsidiaries has
been the subject of:
 
(i)           a petition under bankruptcy laws or any other insolvency or
moratorium law or the appointment by a court of a receiver, fiscal agent or
similar officer for such Person, or any partnership in which such person was a
general partner at or within two years before the filing of such petition or
such appointment, or any corporation or business association of which such
person was an executive officer at or within two years before the time of the
filing of such petition or such appointment;
 
(ii)           a conviction in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations);
 
 
20

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

 
 
(iii)           any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining any such person from, or otherwise limiting, the following
activities:
 
1.            Acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the United States Commodity
Futures Trading Commission or an associated person of any of the foregoing, or
as an investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity;
 
2.            Engaging in any type of business practice; or
 
3.            Engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of securities
laws or commodities laws;

(iv)            any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any authority barring, suspending or otherwise limiting
for more than 60 days the right of any such person to engage in any activity
described in the preceding sub paragraph, or to be associated with persons
engaged in any such activity;
 
(v)           a finding by a court of competent jurisdiction in a civil action
or by the SEC or other authority to have violated any securities law, regulation
or decree and the judgment in such civil action or finding by the SEC or any
other authority has not been subsequently reversed, suspended or vacated; or
 
(vi)           a finding by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any federal
commodities law, and the judgment in such civil action or finding has not been
subsequently reversed, suspended or vacated.
 
(tt)           Public Utility Holding Act.  None of the Company nor any of its
Subsidiaries is a “holding company,” or an “affiliate” of a “holding company,”
as such terms are defined in the Public Utility Holding Act of 2005.
 
(uu)           Federal Power Act.  None of the Company nor any of its
Subsidiaries is subject to regulation as a “public utility” under the Federal
Power Act, as amended.
 
(vv)           No Additional Agreements.  The Company does not have any
agreement or understanding with any Purchaser with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
 
4.      Covenants.  In addition to the other agreements and covenants set forth
herein, unless otherwise consented to in writing by the Company and a majority
in interest of the Purchasers, the applicable parties hereto hereby covenant as
follows:
 
 
21

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

 
 
(a)           (a)           Affirmative Obligations. The Company will furnish to
the Purchasers and/or their assignees such information relating to the Company
and its Subsidiaries as from time to time may reasonably be requested by the
Purchasers and/or their assignees so long as they hold any of the Securities;
provided, however, that the Company shall not disclose material nonpublic
information to the Purchasers, or to advisors to or representatives of the
Purchasers, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides
the Purchasers, such advisors and representatives with the opportunity to accept
or refuse to accept such material nonpublic information for review and any
Purchaser wishing to obtain such information enters into an appropriate
confidentiality agreement with the Company with respect thereto.  The Company
shall maintain the quotation of its Common Stock on the OTC Bulletin Board or
the listing of the Common Stock on a national securities exchange such as those
maintained by The NASDAQ Stock Market LLC (“Trading Markets”) and maintain such
listing so long as any Registrable Securities continue to be held by the
Purchasers and/or their assignees or so long as the Company is obligated under
the Registration Rights Agreement to register or maintain a registration
statement with respect to the Securities.  The Company will use its reasonable
best efforts to promptly as practicable after the Closing Date to list the
Common Stock on a national stock exchange, with preference for a national stock
exchange operated by The NASDAQ Stock Market LLC. The obligations contained in
this Section 4(a) are referred to as the “Affirmative Obligations”.
 
(b)           Restriction on Price Dilutive Private Financings. The Company
shall not, without the prior written consent of each Purchaser purchasing at
least $500,000 of the Shares, during the first 180 days following the Closing
Date, conduct any Subsequent Financing for a price of less than $0.25 per share,
as adjusted for splits, stock dividends, combinations, recapitalizations and
similar events.  For the avoidance of doubt, the provisions of this Section 4(b)
shall not apply to the issuance of any Excluded Securities.
 
(c)           Form D; Blue Sky Laws.  The Company agrees to file a Form D with
respect to the Securities as required under Regulation D with each of the SEC
and the states in which a Purchaser is resident, and to comply with the State of
New York Martin Act, including filing the Forms M-11 or 99, consent to service
of process and state and further state notices.  The Company shall take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Purchasers at the applicable closing pursuant to this
Agreement under applicable securities or “blue sky” laws of the states of the
United States (or to obtain an exemption from such qualification).
 
(d)           Reporting Status; Press Release.  So long as any Warrants remain
outstanding, the Company shall use its reasonable best efforts file timely to
file all reports required to be filed with the SEC pursuant to the Exchange Act,
and the Company shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination.   The Company shall issue
a press release describing the materials terms of the transaction contemplated
hereby as soon as practicable following the Closing Date but in no event more
than one (1) business day after the Closing Date.  The Company agrees that such
press release shall not disclose the names of the Purchasers unless expressly
consented to in writing by the Purchasers or unless required by applicable law
or regulation, and then only to the extent of such requirement.
 
(e)           Use of Proceeds.  The Company shall use the proceeds from the sale
of the Shares and Warrants for the development, commercialization and
exploitation of present and future intellectual property, retirement of existing
debt set forth on Schedule 4(e) attached hereto and working capital purposes and
shall not, directly or indirectly, use such proceeds for (i) any loan to or
investment in any other corporation, partnership, enterprise or other person,
including any director or officer of the Company (except in connection with its
currently existing direct or indirect Subsidiaries), (ii) except as set forth on
Schedule 4(e) attached hereto, the satisfaction of any Indebtedness of the
Company or any of its Subsidiaries, (iii) the redemption or repurchase of any
securities of the Company or any of its Subsidiaries or (iv) the settlement of
any outstanding litigation.
 
 
22

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

 
 
(f)           Expenses.  The Company shall reimburse Greenberg Traurig, LLP
(counsel to the lead Purchaser, but not any other Purchaser) for all reasonable,
documented costs and expenses incurred by it in connection with preparing and
delivering the Transaction Documents (including, without limitation, all
reasonable, documented legal fees and disbursements in connection therewith, and
due diligence in connection with the transactions contemplated thereby), which
amount may be withheld by such Purchaser (at the request of Greenberg Traurig,
LLP) from its Per Share Purchase Price at the Closing or paid by the Company
upon termination of this Agreement on demand by Greenberg Traurig, LLP.  The
Company shall be responsible for the payment of any placement agent’s fees,
financial advisory fees, transfer agent fees, DTC (as defined below) fees or
broker’s commissions (other than for Persons engaged by any Purchaser) relating
to or arising out of the transactions contemplated hereby (including, without
limitation, any fees payable to the Placement Agent, who is the Company’s sole
placement agent in connection with the transactions contemplated by this
Agreement). The Company shall pay, and hold each Purchaser harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys’
fees and out-of-pocket expenses) arising in connection with any claim relating
to any such payment. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
sale of the Securities to the Purchasers.

(g)           Authorization and Reservation of Shares.  The Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full exercise of its options
under Employee Benefit Plans, other securities which may be converted or
exercised into Common Stock, and issuance of the Warrant Shares (based on the
exercise prices in effect from time to time) (the “Reserved Amount”).  The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon exercise of the Warrants without the consent of a
majority-in-interest of the Purchasers.  If at any time the number of shares of
Common Stock authorized and reserved for issuance (“Authorized and Reserved
Shares”) is below the Reserved Amount, the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company’s obligations under this
Section 4(g), in the case of an insufficient number of authorized shares, obtain
stockholder approval of an increase in such authorized number of shares, and
shall use reasonable best efforts to obtain the favorable vote of the Company’s
officer’s and directors.  The Company shall use its best efforts to obtain such
stockholder approval within sixty (60) days following the date on which the
number of Reserved Amount exceeds the Authorized and Reserved Shares.
 
(h)           Corporate Existence.  The Company shall maintain its corporate
existence, except in connection with a consolidation or merger of the Company
with or into another corporation or any transfer of all or substantially all of
the assets of the Company.
 
(i)           Sarbanes-Oxley Matters.  When required to do so, the Company will
comply with any and all applicable requirements of the Sarbanes-Oxley Act of
2002 that are effective for the Company, and any and all applicable rules and
regulations promulgated by the SEC thereunder.  The Company shall implement such
programs and shall take such steps reasonably necessary to provide for its
future compliance (not later than the relevant statutory and regulatory deadline
therefor) with all provisions of Section 404 of the Sarbanes-Oxley Act that
shall become applicable to the Company.
 
(j)           ERISA.  (i) The Company shall not terminate any plan (“Plan”) of a
type described in Section 402l(a) of ERISA in respect of which the Company is an
“employer” as defined in Section 3(5) of ERISA so as to result in any material
liability to the Pension Benefit Guaranty Corporation (the “PBGC”) established
pursuant to Subtitle A of Title IV of ERISA; (ii) engage in or permit any person
to engage in any “prohibited transaction” (as defined in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code of 1986, as amended) involving any
Plan which would subject the Company to any material tax, penalty or other
liability; (iii) incur or suffer to exist any material “accumulated funding
deficiency” (as defined in Section 302 of ERISA), whether or not waived,
involving any Plan; or (iv) allow or suffer to exist any event or condition,
which presents a material risk of incurring a material liability to the PBGC by
reason of termination of any Plan.
 
 
23

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

 
 
(k)           No Integration.  The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause the offering of the Securities to be integrated with any
other offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
 
(l)           Intellectual Property.  Subject to the Company’s reasonable
business judgment, each of the Company and each of its Subsidiaries shall use
commercially reasonable efforts maintain in full force and effect its existence,
rights and franchises and all licenses and other rights to use Intellectual
Property owned or possessed by it and reasonably deemed to be necessary to the
conduct of its business.

(m)           Taxes.  The Company shall duly pay and discharge all material
taxes or other material claims, which might become a lien upon any of its
material property except to the extent that any thereof are being disputed in
good faith appropriately contested with adequate reserves provided therefor.
 
(n)           Reasonable Best Efforts . Each Purchaser shall use its reasonable
best efforts to timely satisfy each of the conditions to be satisfied by it as
provided in Section 6 of this Agreement. The Company shall use its best efforts
to timely satisfy each of the conditions to be satisfied by it as provided in
Section 7 of this Agreement.
 
(o)           Financial Information. The Company agrees to send the following to
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with or furnished to the SEC
through EDGAR and are available to the public through the EDGAR system, within
one (1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or
any consolidated balance sheets, income statements, stockholders’ equity
statements and/or cash flow statements for any period other than annual that are
made publicly available, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the
Securities Act, (ii) copies of any notices and other information made available
or given to the stockholders of the Company generally, contemporaneously with
the making available or giving thereof to the stockholders.
 
(p)           Pledge of Securities. Notwithstanding anything to the contrary set
forth herein, the Company acknowledges and agrees that the Securities may be
pledged by a Purchaser in connection with a bona fide margin agreement or other
bona fide loan or financing arrangement that is secured by the Securities. The
pledge of Securities shall not be deemed to be a transfer, sale or assignment of
the Securities hereunder except as may otherwise be required under applicable
securities laws, and no Purchaser effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document. The Company hereby agrees to execute and deliver such documentation as
a pledgee of the Securities may reasonably request in connection with a pledge
of the Securities to such pledgee by a Purchaser.
 
 
24

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

 
 
(q)           Disclosure of Transactions and Other Material Information. The
Company shall, on or before 8:30 a.m., New York time, on the first (1st)
Business Day after the date of this Agreement, issue a press release (the “Press
Release”) reasonably acceptable to the Purchasers disclosing all the material
terms of the transactions contemplated by the Transaction Documents. On or
before 8:30 a.m., New York time, on the first (1st) Business Day after the date
of this Agreement, the Company shall file a Current Report on Form 8-K
describing all the material terms of the transactions contemplated by the
Transaction Documents in the form required by the Exchange Act and attaching all
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules to this Agreement), the forms of the Warrants and
the form of the Registration Rights Agreement) (including all attachments, the
“8-K Filing”). From and after the filing of the 8-K Filing, the Company shall
have disclosed all material, non-public information (if any) provided to any of
the Purchasers by the Company or any of its Subsidiaries or any of their
respective officers, directors, employees or agents in connection with the
transactions contemplated by the Transaction Documents. The Company shall not,
and the Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents not to, provide any
Purchaser with any material, non-public information regarding the Company or any
of its Subsidiaries from and after the issuance of the Press Release without the
express prior written consent of such Purchaser. In the event of a breach of any
of the foregoing covenants, including, without limitation, Section 4(o) of this
Agreement, or any of the covenants or agreements contained in any other
Transaction Document, by the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees and agents (as determined in the
reasonable good faith judgment of such Purchaser), in addition to any other
remedy provided herein or in the Transaction Documents, such Purchaser shall
notify the Company in writing of the need to make a public disclosure and, no
earlier than one business day after such notice, solely to the extent such
Purchaser believes it then possesses material non-public information with
respect to the Company, such Purchaser shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such breach or such material, non-public information, as applicable, without
the prior approval by the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees or agents.  No Purchaser shall
have any liability to the Company, any of its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents, for any
such disclosure. Subject to the foregoing, neither the Company, its Subsidiaries
nor any Purchaser shall issue any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, 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). Without the prior written consent of the applicable Purchaser, the
Company shall not (and shall cause each of its Subsidiaries and affiliates to
not) disclose the name of such Purchaser in any filing, announcement, release or
otherwise, except as otherwise required by any law, rule or regulation
applicable to the Company.
 
(r)           Restrictions on Certain Subsequent Financings. The Company agrees
that for the period commencing on the date hereof and ending on the date
immediately following the thirtieth (30th) calendar day after the Applicable
Date (as defined below) (provided that such period shall be extended by the
number of Trading Days during such period and any extension thereof contemplated
by this proviso on which any Registration Statement is not effective or any
prospectus contained therein is not available for use), neither the Company nor
any of its Subsidiaries shall consummate a Subsequent Financing pursuant to any
registration statement, prospectus or prospectus supplement or any other primary
or secondary offering pursuant to a registration statement, prospectus or
prospectus supplement under the Securities Act, except with respect to capital
stock, options or convertible securities issued to directors, officers,
employees or consultants of the Company in connection with their service as
directors of the Company, their employment by the Company or their retention as
consultants by the Company pursuant to an employee benefit plan or other
issuance, employment agreement or option grant or similar agreement which has
been approved by the Board of Directors of the Company.  “Applicable Date” means
the later of (i) the first date on which the resale by the Purchasers of all
Registrable Securities is covered by one or more effective Registration
Statements (as defined in the Registration Rights Agreement) (and each
prospectus contained therein is available for use on such date) and (ii) the six
month anniversary of the Closing Date (or, if a Current Public Information
Failure (as defined in the Registration Rights Agreement) has occurred and is
continuing, such later date after which the Company has cured such Current
Public Information Failure).
 
 
25

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

 
 
(s)           Additional Issuance of Securities. So long as any Purchaser
beneficially owns any Securities, the Company will not, without the prior
written consent of the Required Holders, issue any other securities that would
cause a breach or default under the Warrants.
 
(t)           Conduct of Business.  The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.
 
(u)           Variable Rate Transaction.  Until none of the Warrants are
outstanding, the Company and each Subsidiary shall be prohibited from effecting
or entering into an agreement to effect any Subsequent Financing involving a
Variable Rate Transaction. “Variable Rate Transaction” means a transaction in
which the Company or any Subsidiary (i) issues or sells any Convertible
Securities either (A) at a conversion, exercise or exchange rate or other price
that is based upon and/or varies with the trading prices of, or quotations for
the shares of Common Stock at any time after the initial issuance of such
Convertible Securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial issuance of
such Convertible Securities or upon the occurrence of specified or contingent
events directly or indirectly related to the business of the Company or the
market for the Common Stock, other than pursuant to a customary “weighted
average” anti-dilution provision or (ii) enters into any agreement (including,
without limitation, an equity line of credit) whereby the Company or any
Subsidiary may sell securities at a future determined price (other than standard
and customary “preemptive” or “participation” rights). Each Purchaser shall be
entitled to obtain injunctive relief against the Company and its Subsidiaries to
preclude any such issuance, which remedy shall be in addition to any right to
collect damages.
 
(v)           Passive Foreign Investment Company.  The Company shall conduct its
business in such a manner as will ensure that the Company will not be deemed to
constitute a passive foreign investment company within the meaning of Section
1297 of the U.S. Internal Revenue Code of 1986, as amended.
 
(w)           Restriction on Redemption and Cash Dividends.  So long as any
Warrants are outstanding, the Company shall not, directly or indirectly, redeem,
or declare or pay any cash dividend or distribution on, any securities of the
Company without the prior express written consent of the Required Holders.
 
(x)           Stock Splits.  Until no Warrants remain outstanding, the Company
shall not effect any stock combination, reverse stock split or other similar
transaction (or make any public announcement or disclosure with respect to any
of the foregoing) without the prior written consent of the Required Holders (as
defined below) such consent not to be unreasonably withheld;  provided, however
, that such consent shall not be required if the Board of Directors of the
Company deems a reverse stock split to be necessary to initially list the Common
Stock of the Company on the Nasdaq Capital Market (or, alternatively, the NYSE
Amex).
 
 
26

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

 
 
(y)           Closing Documents.  On or prior to fourteen (14) calendar days
after the Closing Date, the Company agrees to deliver, or cause to be delivered,
to each Purchaser and Greenberg Traurig, LLP executed copies of the Transaction
Documents, Securities and other document required to be delivered to any party
pursuant to Section 7 hereof.
 

5.      Register; Transfer Agent Instructions; Legends.
 
(a)           Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Warrants in which the
Company shall record the name and address of the Person in whose name the
Warrants have been issued (including the name and address of each transferee, to
the extent it is appropriately notified of transfers) and the number of Warrant
Shares issuable upon exercise of the Warrants held by such Person. The Company
shall keep the register open and available at all times during normal business
hours for inspection of any Purchaser or its legal representatives so long as
Purchaser continues to hold any Warrants.
 
(b)           Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent and any subsequent transfer agent in a form
acceptable to each of the Purchasers (the “Irrevocable Transfer Agent
Instructions”) to issue certificates or credit shares to the applicable balance
accounts at The Depository Trust Company (“DTC”), registered in the name of each
Purchaser or its respective nominee(s), for the Warrant Shares in such amounts
as specified from time to time by each Purchaser to the Company upon the
exercise of the Warrants (as the case may be). The Company represents and
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(c) hereof, will be given by the Company to its transfer
agent with respect to the Securities, and that the Securities shall otherwise be
freely transferable on the books and records of the Company, as applicable, to
the extent provided in this Agreement and the other Transaction Documents. If a
Purchaser effects a sale, assignment or transfer of the Securities in accordance
with Section 2(c), the Company shall permit the transfer and shall promptly
instruct its transfer agent to issue one or more certificates or credit shares
to the applicable balance accounts at DTC in such name and in such denominations
as specified by such Purchaser to effect such sale, transfer or assignment. In
the event that such sale, assignment or transfer involves Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or in
compliance with Rule 144 (assuming the transferor is not an affiliate of the
Company), the transfer agent shall issue such shares to such Purchaser, assignee
or transferee (as the case may be) without any restrictive legend in accordance
with Section 5(c) below. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Purchaser shall be entitled, in addition to all other available remedies, to
seek an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall cause its
counsel to issue the legal opinion referred to in the Irrevocable Transfer Agent
Instructions to the Company’s transfer agent promptly following each Effective
Date (as defined in the Registration Rights Agreement). Any fees (with respect
to the transfer agent, counsel to the Company or otherwise) associated with the
issuance of such opinion or the removal of any legends on any of the Securities
shall be borne by the Company.
 
 
27

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

 
 
(c)           Legend Removal.  In connection with any sale or disposition of the
Securities by a Purchaser pursuant to Rule 144 or pursuant to any other
exemption under the Securities Act such that the purchaser acquires freely
tradable shares and upon compliance by the Purchaser with the requirements of
this Agreement, the Company shall or, in the case of Common Stock, shall cause
the transfer agent for the Common Stock (the “Transfer Agent”) to issue
replacement certificates representing the Securities sold or disposed of without
restrictive legends.  Upon the earlier of (i) registration for resale pursuant
to the Registration Rights Agreement, or (ii) the Shares becoming freely
tradable by a non-affiliate pursuant to Rule 144 or 144A, the Company shall (A)
deliver to the Transfer Agent irrevocable instructions that the Transfer Agent
shall reissue a certificate representing shares of Common Stock without legends
upon receipt by such Transfer Agent of the legended certificates for such
shares, together with either (1) a customary representation by the Purchaser
that Rule 144 applies to the shares of Common Stock represented thereby or (2) a
statement by the Purchaser that such Purchaser has sold the shares of Common
Stock represented thereby in accordance with the Plan of Distribution contained
in the Registration Statement, and (B) cause its counsel to deliver to the
Transfer Agent one or more blanket opinions to the effect that the removal of
such legends in such circumstances may be effected under the Securities
Act.  From and after the earlier of such dates, upon a Purchaser’s written
request, the Company shall promptly cause certificates evidencing the
Purchaser’s Securities to be replaced with certificates which do not bear such
restrictive legends, and Warrant Shares subsequently issued upon due exercise of
the Warrants shall not bear such restrictive legends provided the provisions of
either clause (i) or clause (ii) above, as applicable, are satisfied with
respect to such Warrant Shares.  If a legend is not required pursuant to the
foregoing, the Company shall no later than two (2) Trading Days following the
delivery by a Purchaser to the Company or the transfer agent (with notice to the
Company) of a legended certificate representing such Securities (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer, if applicable), together
with any other deliveries from such Purchaser as may be required above in this
Section 5(c), as directed by such Purchaser, either: (A) provided that the
Company’s transfer agent is participating in the DTC Fast Automated Securities
Transfer Program and such Securities are Shares or Warrant Shares, credit the
aggregate number of shares of Common Stock to which such Purchaser shall be
entitled to such Purchaser’s or its designee’s balance account with DTC through
its Deposit/Withdrawal at Custodian system or (B) if the Company’s transfer
agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and deliver (via reputable overnight courier) to such Purchaser,
a certificate representing such Securities that is free from all restrictive and
other legends, registered in the name of such Purchaser or its designee (the
date by which such credit is so required to be made to the balance account of
such Purchaser’s or such Purchaser’s nominee with DTC or such certificate is
required to be delivered to such Purchaser pursuant to the foregoing is referred
to herein as the “Required Delivery Date”).  The Company shall be responsible
for any transfer agent fees or DTC fees with respect to any issuance of
Securities or the removal of any legends with respect to any Securities in
accordance herewith.  When the Company is required to cause an unlegended
certificate to replace a previously issued legended certificate, if: (1) the
unlegended certificate is not delivered to a Purchaser within three (3) Business
Days of submission by that Purchaser of a legended certificate and supporting
documentation to the Transfer Agent as provided above and (2) prior to the time
such unlegended certificate is received by the Purchaser, the Purchaser, or any
third party on behalf of such Purchaser or for the Purchaser’s account,
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Purchaser of shares represented by such
certificate (a “Buy-In”), then the Company shall, within three (3) Trading Days
after such Purchaser’s request and in such Purchaser’s sole discretion, either
(i) pay cash to such Purchaser in an amount equal to such Purchaser’s total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “Buy-In Price”), at which point the Company’s
obligation to deliver such certificate or credit such Purchaser’s balance
account shall terminate and such shares shall be cancelled, or (ii) promptly
honor its obligation to deliver to such Purchaser a certificate or certificates
or credit such Purchaser’s DTC account representing such number of shares of
Common Stock that would have been issued if the Company timely complied with its
obligations hereunder and pay cash to such Purchaser in an amount equal to the
excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Shares or Warrant Shares (as the case may be) that the Company was
required to deliver to such Purchaser by the Required Delivery Date times (B)
the Closing Sale Price (as defined in the Warrants) of the Common Stock on the
Trading Day immediately preceding the Required Delivery Date.  The Purchaser
shall provide the Company written notice indicating the amounts payable to the
Purchaser in respect of the Buy-In.
 
 
28

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

 
 
6.      Conditions to the Company’s Obligation to Sell.  The obligation of the
Company hereunder to issue and sell the Common Stock Shares and Warrants to a
Purchaser at the Closing is subject to the satisfaction, at or before the
Closing Date of each of the following conditions, provided that these conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion:
 
(a)           The applicable Purchaser shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Company.
 
(b)           The applicable Purchaser shall have delivered the Subscription
Amount in accordance with Section 1(d) above, provided that if the constituent
documents of the Purchaser require that the Subscription Amount only be
delivered against the actual issued certificates for the Shares and Warrants,
the Subscription Amount may be delivered after satisfaction of the delivery
requirements of the Company set forth below in Section 7.

(c)           The representations and warranties of the applicable Purchaser
shall be true and correct in all material respects, and the applicable Purchaser
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement and the other
Transaction Documents to be performed, satisfied or complied with by the
applicable Purchaser at or prior to the Closing Date.
 
(d)           No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement and the other Transaction Documents.
 
7.      Conditions to Each Purchaser’s Obligation to Purchase.  The obligation
of each Purchaser hereunder to purchase the Common Stock Shares and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Purchaser’s sole benefit and may be waived by such Purchaser at any time in its
sole discretion:
 
(a)           The Company shall have executed and delivered to such Purchaser
this Agreement and each other Transaction Document to which the Company is a
party.
 
(b)           Not less than one business day prior to the Closing, the Company
shall have provided a PDF or other copy of the certificates representing the
Shares and Warrants to be issued to the Purchaser to both the Placement Agent
and the Purchaser.
 
(c)           The Company shall have delivered irrevocable instructions to the
Transfer Agent to deliver, as the case may be, to such Purchaser (i) a stock
certificate of the Company certifying that each Purchaser is the holder of
record of the number of Common Stock set forth opposite such Purchaser’s name on
Schedule A and (ii) a Warrant to purchase the number of Warrant Shares set forth
opposite such Purchaser’s name on Schedule A in accordance with Section 1(c)
above.
 
 
29

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

 
 
(d)           The representations and warranties made by the Company in Section
4 hereof qualified as to materiality shall be true and correct at all times
prior to and on the Closing Date, except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case such
representation or warranty shall be true and correct as of such earlier date,
and, the representations and warranties made by the Company in Section 3 hereof
not qualified as to materiality shall be true and correct in all material
respects at all times prior to and on the Closing Date, except to the extent any
such representation or warranty expressly speaks as of an earlier date, in which
case such representation or warranty shall be true and correct in all material
respects as of such earlier date.  The Company shall have performed in all
material respects all obligations and covenants herein required to be performed
by it on or prior to the Closing Date.
 
(e)           The Company shall have obtained any and all consents, permits,
approvals, registrations and waivers  necessary or appropriate for consummation
of the purchase and sale of the Securities and the consummation of the other
transactions contemplated by the Transaction Documents, all of which shall be in
full force and effect, and the Company will have made all pre-Closing filings
under the Blue Sky laws, including those of New York State.
 
(f)           The Company shall have received Subscription Amounts or signed,
enforceable agreements for Subscription Amount, aggregating at least $6 million
in gross proceeds from the sale of the Shares and Warrants as contemplated
hereby.

(g)           No judgment, writ, order, injunction, award or decree of or by any
court, or judge, justice or magistrate, including any bankruptcy court or judge,
or any order of or by any governmental authority, shall have been issued, and no
action or proceeding shall have been instituted by any governmental authority,
enjoining or preventing the consummation of the transactions contemplated hereby
or in the other Transaction Documents.
 
(h)           No event shall have occurred which would reasonably be expected to
have a Material Adverse Effect on the Company.
 
(i)           The Company’s counsel shall have delivered the opinion in the form
attached as Exhibit C hereto.
 
(j)           All Company Directors and all Company executive officers shall
have entered into a form of lock up agreement, in the form of Exhibit D, whereby
each agrees to not sell, transfer, make any short sale of, grant any option for
the purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, any Common Stock (or other securities) of the Company
held by him during the 180-day period following the Effective Date.
 

(k)           The Company shall have delivered a Certificate, executed on behalf
of the Company by its Chief Executive Officer or its Chief Financial Officer,
dated as of the Closing Date, certifying to the fulfillment of the conditions of
this Section 7.
 
(l)           The Company shall have delivered a Certificate, executed on behalf
of the Company by its Secretary, dated as of the Closing Date, certifying the
resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities, certifying the current versions of the
Certificate of Incorporation and Bylaws of the Company and certifying as to the
signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company.
 
(m)           No stop order or suspension of trading shall have been imposed by
the SEC or any other governmental or regulatory body with respect to public
trading in the Common Stock.
 
 
30

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

 
 
(n)           The Company will have paid or made arrangements to pay to the
Placement Agent the cash compensation due upon the Closing and will issue to the
Placement Agent a warrant in the form reasonably satisfactory to the Placement
Agent representing the right to purchase Common Stock of the Company in an
amount equal to the number of Shares and the Warrant Shares being sold or to be
sold to the Purchasers, which form of warrant may be different from the Warrant
to the Purchasers.
 
(o)           The Company shall have delivered to such Purchaser a letter from
the Company’s transfer agent certifying the number of shares of Common Stock
outstanding on the Closing Date immediately prior to the Closing.
 
(p)           Such Purchaser shall have received a letter on the letterhead of
the Company, duly executed by the Chief Executive Officer of the Company,
setting forth the wire instructions of the Company.
 
(q)           The Company shall have delivered to such Purchaser a copy of the
Irrevocable Transfer Agent Instructions, in the form acceptable to such
Purchaser, which instructions shall have been delivered to and acknowledged in
writing by the Company’s transfer agent.
 

8.      Termination of Obligations to Effect Closing; Effects. The obligations
of the Company, on the one hand, and the Purchasers, on the other hand, to
effect the Closing shall terminate as follows:
 
(a)           Upon the mutual written consent of the Company and the Purchasers;
 
(b)           By the Company if any of the conditions set forth in Section 6
shall have become incapable of fulfillment, and shall not have been waived by
the Company;
 
(c)           By a Purchaser (with respect to itself only) if any of the
conditions set forth in Section 7 shall have become incapable of fulfillment,
and shall not have been waived by the Purchaser; or
 
(d)           By either the Company or any Purchaser (with respect to itself
only) if the Closing has not occurred on or prior to the 5th date after the date
hereof;
 
provided, however, (i) the right to terminate this Agreement under this Section
8 shall not be available to such Purchaser if the failure of the transactions
contemplated by this Agreement to have been consummated by such date is the
result of such Purchaser’s breach of this Agreement and (ii) the abandonment of
the sale and purchase of the Shares and the Warrants shall be applicable only to
such Purchaser providing such written notice, provided further that no such
termination shall affect any obligation of the Company under this Agreement to
reimburse such Purchaser for the expenses described in Section 4(f) above,
provided, further, that, except in the case of clause (a) above, the party
seeking to terminate its obligation to effect the Closing shall not then be in
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or the other Transaction Documents if such breach
has resulted in the circumstances giving rise to such party’s seeking to
terminate its obligation to effect the Closing.

In the event of termination by the Company or any Purchaser of its obligations
to effect the Closing pursuant to this Section 8, written notice thereof shall
forthwith be given to the other Purchasers by the Company and the other
Purchasers shall have the right to terminate their obligations to effect the
Closing upon written notice to the Company and the other Purchasers.  Nothing in
this Section 8 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.
 
 
31

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

 
 
9.      Governing Law; Jurisdiction; Waiver of Jury Trial.
 
(a)           This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of New York without regard to the choice of
law principles thereof.  Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York located in New
York County and the United States District Court for the Southern District of
New York for the purpose of any suit, action, proceeding or judgment relating to
or arising out of this Agreement and the transactions contemplated
hereby.  Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Agreement.  Each
of the parties hereto irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such
court.  Each party hereto irrevocably waives any objection to the laying of
venue of any such suit, action or proceeding brought in such courts and
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum.  EACH OF THE PARTIES
HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH
RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED
SPECIFICALLY AS TO THIS WAIVER.
 
10.           Miscellaneous.
 
(a)           Counterparts; Signatures by Facsimile.  This Agreement may be
executed in one or more counterparts (with the Purchasers each executing the
counterpart in the form of Annex A hereto).  Each of such counterparts shall be
deemed an original, and all of which shall, when taken together, constitute one
and the same agreement, and shall become effective when counterparts have been
signed by each party and delivered to the other party.  This Agreement, once
executed by a party (including in the manner described above), may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
 
(b)           Headings; Gender.  The headings of this Agreement are for
convenience of reference only and shall not form part of, or affect the
interpretation of, this Agreement.  Unless the context clearly indicates
otherwise, each pronoun herein shall be deemed to include the masculine,
feminine, neuter, singular and plural forms thereof. The terms “including,”
“includes,” “include” and words of like import shall be construed broadly as if
followed by the words “without limitation.”  The terms “herein,” “hereunder,”
“hereof” and words of like import refer to this entire Agreement instead of just
the provision in which they are found.
 
(c)           Severability.  If any provision of this Agreement is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
 
 
32

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

 
 
(d)           Entire Agreement; Amendments.  This Agreement, the other
Transaction Documents and the instruments, documents, exhibits and schedules
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Purchaser makes any
representation, warranty, covenant or undertaking with respect to such
matters.  No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Required Holders and (I) if
on or prior to the Closing Date, all the Purchasers or (II) if after the Closing
Date, the Required Holders (but all the Purchasers with respect to any amendment
of Section 1(b), Schedule A or Section 9 hereof), and any amendment to any
provision of this Agreement made in conformity with the provisions of this
Section 9(d) shall be binding on all Purchasers and holders of Securities, as
applicable, provided that no such amendment shall be effective to the extent
that it (1) applies to less than all of the holders of the Securities then
outstanding or (2) imposes any obligation or liability on any Purchaser without
such Purchaser’s prior written consent (which may be granted or withheld in such
Purchaser’s sole discretion).  Neither the Company nor the Purchasers make any
representation or warranty as to any matter of fact except as expressly
contained in this Agreement or the other Transaction Agreements.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, all holders of the Shares or all holders of the Warrants
(as the case may be).  No waiver shall be effective unless it is in writing and
signed by an authorized representative of the waiving party, provided that after
the Closing Date, the Required Holders may waive any provision of this Agreement
(other than Section 1(b) or this Section 9), and any waiver of any provision of
this Agreement made in conformity with the provisions of this Section 9(d) shall
be binding on all Purchasers and holders of Securities, as applicable, provided
that no such waiver shall be effective to the extent that it (1) applies to less
than all of the holders of the Securities then outstanding (unless a party gives
a waiver as to itself only) or (2) imposes any obligation or liability on any
Purchaser without such Purchaser’s prior written consent (which may be granted
or withheld in such Purchaser’s sole discretion).  The Company has not, directly
or indirectly, made any agreements with any Purchasers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement, no Purchaser has
made any commitment or promise or has any other obligation to provide any
financing to the Company, any Subsidiary or otherwise. As a material inducement
for each Purchaser to enter into this Agreement, the Company expressly
acknowledges and agrees that (i) no due diligence or other investigation or
inquiry conducted by a Purchaser, any of its advisors or any of its
representatives shall affect such Purchaser’s right to rely on, or shall modify
or qualify in any manner or be an exception to any of, the Company’s
representations and warranties contained in this Agreement or any other
Transaction Document and (ii) unless a provision of this Agreement or any other
Transaction Document is expressly preceded by the phrase “except as disclosed in
the SEC Reports,” nothing contained in any of the SEC Reports shall affect such
Purchaser’s right to rely on, or shall modify or qualify in any manner or be an
exception to any of, the Company’s representations and warranties contained in
this Agreement or any other Transaction Document. Without limiting any other
provision of this Agreement, it is expressly understood and agreed that no
inquiries by Purchaser or any of its affiliates, advisors or representatives nor
any other due diligence investigation conducted by Purchaser or any of its
affiliates, advisors or representatives shall modify, amend or affect
Purchaser’s right to rely on the Company’s representations and warranties
contained herein or any representations and warranties contained in any other
Transaction Document or any other document or instrument executed and/or
delivered in connection with this Agreement or the consummation of the
transaction contemplated hereby.  “Required Holders” means (i) prior to the
Closing Date, each Purchaser entitled to purchase Shares at the Closing and (ii)
on or after the Closing Date, holders of a majority of all Registrable
Securities (excluding any Registrable Securities held by the Company or any of
its Subsidiaries) issued or issuable hereunder or pursuant to the Warrants (or
the Purchasers, with respect to any waiver or amendment of Section 1(b)).
 
 
33

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

 
 
(e)           Notices.  Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile transmission and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile transmission, with
printed confirmation of receipt, in each case addressed to a party.  The
addresses for such communications shall be:
 

If to the Company:

Broadcast International, Inc.
7050 Union Park Ave. #600
Salt Lake City, Utah 84047
Attention: Mr. Rodney M. Tiede , President and CEO
Telephone: (801) 562-2252
Facsimile:

 
 
If to a Purchaser:
To the address and fax number set forth immediately below such Purchaser’s name
on the counterpart signature pages hereto.

With copy to:

MDB Capital Group, LLC
401 Wilshire Blvd., Suite 1020
Santa Monica, California 90401
Attention: Compliance Department
Telephone: (310) 526-5006
Facsimile:  (310) 526-5020

with a copy (for informational purposes only) to:
 
Greenberg Traurig, LLP
MetLife Building
200 Park Avenue
New York, NY 10166
Telephone:  (212) 801-9200
Facsimile:  (212) 805-9222
Attention:  Michael A. Adelstein, Esq.
 

Each party shall provide notice to the other party of any change in address,
telephone or facsimile number (including, if a Purchaser is holding any
Securities purchased hereunder in street name, the address, telephone and
facsimile of the beneficial owner of such Securities), and each Purchaser and
its assignees under Section 10(f) acknowledge and agree that such parties must
provide such notice and contact information promptly (but in any event within 30
days of any change in such information or assignment of any rights hereunder).
 
 
34

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

 
 
(f)           Successors and Assigns.  This Agreement may not be assigned by a
party hereto without the prior written consent of the Company or the Purchasers,
as applicable, provided, however, that a Purchaser may assign its rights and
delegate its duties hereunder in whole or in part to an Affiliate or to a third
party acquiring some or all of its Securities in a transaction complying with
applicable securities laws, in compliance with the provisions of the Securities
as applicable, without the prior written consent of the Company or the other
Purchasers.  The provisions of this Agreement shall inure to the benefit of and
be binding upon the respective permitted successors and assigns of the
parties.  Without limiting the generality of the foregoing, in the event that
the Company is a party to a merger, consolidation, share exchange or similar
business combination transaction in which the Common Stock is converted into the
equity securities of another Person, from and after the effective time of such
transaction, such Person shall, by virtue of such transaction, be deemed to have
assumed the obligations of the Company hereunder, the term “Company” shall be
deemed to refer to such Person and the term “Shares” shall be deemed to refer to
the securities received by the Purchasers in connection with such
transaction.  Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
 
(g)           Survival; Indemnification.
 
(i)           The representations and warranties of the Company set forth in
Section 3 hereof shall survive the Closing Date, notwithstanding any due
diligence investigation conducted by or on behalf of the Purchasers.  The
representations and warranties of each Purchaser set forth in Section 2 shall
survive the Closing notwithstanding any due diligence investigation conducted by
or on behalf of the Company.

(ii)           The Company agrees to indemnify and hold harmless each Purchaser
and its Affiliates and their respective stockholders, partners, members,
directors, officers, trustees, members, managers, employees and agents and
direct or indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) and their respective
successors and assign (collectively, the “Indemnitees”) s, from and against any
and all losses, claims, damages, liabilities and expenses (including without
limitation reasonable attorney fees and disbursements and other expenses
incurred in connection with investigating, preparing or defending any action,
claim or proceeding, pending or threatened and the costs of enforcement thereof)
(collectively, “Losses”) to which such Person may become subject as a result of
(a) any misrepresentation or breach of representation, warranty, covenant or
agreement made by or to be performed on the part of the Company under the
Transaction Documents, or (b) any cause of action, suit or claim brought or made
against such Indemnitee by a third party (including for these purposes a
derivative action brought on behalf of the Company or any Subsidiary) and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of any of the Transaction Documents, (ii) any transaction financed
or to be financed in whole or in part, directly or indirectly, with the proceeds
of the issuance of the Securities, or (iii) the status of such Purchaser or
holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Transaction Documents, and will reimburse any
such Person for all such amounts as they are incurred by such Person.  To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Losses which is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(g) shall be the same as those
set forth in Section 6 of the Registration Rights Agreement.
 
 
35

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

 
 
(h)            Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(i)             No Strict Construction.  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.
 
(j)             No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, other than the Indemnitees referred to in Section 9(g).
 
(k)            Construction. 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.  No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty.  Each and every reference to share prices,
shares of Common Stock and any other numbers in this Agreement that relate to
the Common Stock shall be automatically adjusted for stock splits, stock
combinations and other similar transactions that occur with respect to the
Common Stock after the date of this Agreement.
 
(l)             Remedies.  Each Purchaser and each holder of any Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it or any Subsidiary
fails to perform, observe, or discharge any or all of its or such Subsidiary’s
(as the case may be) obligations under the Transaction Documents, any remedy at
law may prove to be inadequate relief to the Purchasers. The Company therefore
agrees that the Purchasers shall be entitled to seek specific performance and/or
temporary, preliminary and permanent injunctive or other equitable relief from
any court of competent jurisdiction in any such case without the necessity of
proving actual damages and without posting a bond or other security.
 
(m)           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 or any Subsidiary 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 or such Subsidiary (as the case may be), any
relevant notice, demand or election in whole or in part without prejudice to its
future actions and rights
 
 
36

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

 
 
(n)           Payment Set Aside; Currency. To the extent that the Company makes
a payment or payments to any Purchaser hereunder or pursuant to any of the other
Transaction Documents or any of the Purchasers enforce or exercise their 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, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, foreign, 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. Unless otherwise expressly
indicated, all dollar amounts referred to in this Agreement and the other
Transaction Documents are in United States Dollars (“U.S. Dollars”), and all
amounts owing under this Agreement and all other Transaction Documents shall be
paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall
be converted into the U.S. Dollar equivalent amount in accordance with the
Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to
any amount of currency to be converted into U.S. Dollars pursuant to this
Agreement, the U.S. Dollar exchange rate as published in the Wall Street Journal
on the relevant date of calculation.
 
(o)           Independent Nature of Purchasers’ Obligations and Rights.  The
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document.  Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant hereto
or thereto, shall be deemed to constitute the Purchasers as, and the Company
acknowledges that the Purchasers do not so constitute, a partnership, an
association, a joint venture or any other kind of group or entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
or entity with respect to such obligations or the transactions contemplated by
the Transaction Documents or any matters, and the Company acknowledges that the
Purchasers are not acting in concert or as a group, and the Company shall not
assert any such claim, with respect to such obligations or the transactions
contemplated by the Transaction Documents. The decision of each Purchaser to
purchase Securities pursuant to the Transaction Documents has been made by such
Purchaser independently of any other Purchaser. Each Purchaser acknowledges that
no other Purchaser has acted as agent for such Purchaser in connection with such
Purchaser making its investment hereunder and that no other Purchaser will be
acting as agent of such Purchaser in connection with monitoring such Purchaser’s
investment in the Securities or enforcing its rights under the Transaction
Documents. The Company and each Purchaser confirms that each Purchaser has
independently participated with the Company and its Subsidiaries in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. 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 any 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.  The use of a single agreement to effectuate the
purchase and sale of the Securities contemplated hereby was solely in the
control of the Company, not the action or decision of any Purchaser, and was
done solely for the convenience of the Company and its Subsidiaries and not
because it was required or requested to do so by any Purchaser.  It is expressly
understood and agreed that each provision contained in this Agreement and in
each other Transaction Document is between the Company, each Subsidiary and a
Purchaser, solely, and not between the Company, its Subsidiaries and the
Purchasers collectively and not between and among the Purchasers.
 
(p)           Definitions.  In addition to those terms defined above and
elsewhere in this Agreement, for the purposes of this Agreement, the following
terms shall have the meanings set forth below:
 
“Affiliate” means, with respect to any Person, any other Person which directly
or indirectly through one or more intermediaries Controls, is controlled by, or
is under common Control with, such Person.
 
 
37

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

 
 
“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City are open for the general transaction of business.

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

“Company’s Knowledge,” “Knowledge of the Company” and words of similar import
means the actual knowledge of the executive officers (as defined in Rule 405
under the Securities Act) of the Company, after due inquiry.

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.

“Effective Date” means the date on which the initial Registration Statement is
declared effective by the SEC.

“Effectiveness Deadline” means the date on which the initial Registration
Statement is required to be declared effective by the SEC under the terms of the
Registration Rights Agreement.

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

“Person” means an individual, corporation, partnership, limited liability
company, trust, business trust, association, joint stock company, joint venture,
sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.

“Registration Statement” has the meaning set forth in the Registration Rights
Agreement.

“Subsidiary” of any Person means another Person, an amount of the voting
securities, other voting ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of Directors or other
governing body (or, if there are no such voting interests, 50% or more of the
equity interests of which) is owned directly or indirectly by such first Person.

[Remainder of page intentionally left blank; signature pages follow.]

 
38

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

 

IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first above
written.
 
 

  BROADCAST INTERNATIONAL, INC.                
 
By:
        Name:        Title:                      PURCHASERS:           The
Purchasers executing the Signature Page in the form attached hereto as Annex A
and delivering the same to the Company or its agents shall be deemed to have
executed this Agreement and agreed to the terms hereof.        

 

 
39

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

 

Annex A

Securities Purchase Agreement
Purchaser Counterpart Signature Page

The undersigned, desiring to: (i) enter into that certain Securities Purchase
Agreement, dated  March __, 2012 (the “Agreement”), between the undersigned,
Broadcast International, Inc., a Utah corporation (the “Company”), and the other
parties thereto, in or substantially in the form furnished to the undersigned
and (ii) purchase the securities of the Company appearing next to the
undersigned’s name on Schedule A to the Agreement, on the terms and subject to
conditions contained therein, hereby agrees to purchase such securities from the
Company as of the Closing and further agrees to join the Agreement as a party
thereto, with all the rights and privileges appertaining thereto, and to be
bound in all respects by the terms and conditions thereof.
 
IN WITNESS WHEREOF, the undersigned has executed the Agreement as of March ___,
2012.
 

 
PURCHASER:
 
 
Name, Address, Fax No. and Social Security No./EIN of Purchaser:
 
 
______________________________________
 
______________________________________
 
______________________________________
 
______________________________________
 
Fax No.: _______________________________
Soc. Sec. No./EIN: _______________________
     
If a partnership, corporation, trust or other business entity:
 
 
By:___________________________________                                                                
 
       Name:
 
       Title:
 
 
If an individual:
_____________________________________
 
 
Signature

S-1
 
 

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

 

Schedule A

Purchasers

Purchaser
Subscription
Amount
Common Stock
Shares Purchased
Number of
Series A
Warrant Shares
Number of
Series B
Warrant Shares*
                                                                               
                                                 

*Estimated by the Company solely for registration purposes

 
 

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

 

Exhibit A

Form of Warrant
 
 
 
 
 
 
 

 
 

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

 

Exhibit B

Form of Registration Rights Agreement
 
 
 
 
 
 

 

 
 

 
 

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

 

Exhibit C

Form of Opinion

1.      The Company and each of the Subsidiaries is an entity duly incorporated
or otherwise organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted.
 
2.      The Company has all necessary corporate power and authority to execute,
deliver, enter into and perform its obligations under each of the Transaction
Documents and to consummate the transactions contemplated thereby.  The
execution, delivery, and performance of each of the Transaction Documents have
been duly authorized by all necessary corporate action on the part of the
Company.
 
3.      The Transaction Documents have been duly executed and delivered by the
Company and constitute legal, valid and binding obligations of the Company and
are enforceable against the Company in accordance with their respective terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy.
 
4.      The Securities to be issued pursuant to the Purchase Agreement have been
duly authorized by the Company’s Board of Directors.
 
5.      The Securities, upon issuance and receipt by the Company of the purchase
price of the Securities from the Purchasers therefor will be validly issued and
non-assessable. The shares of Common Stock to be issued upon exercise of the
Warrants, if exercised in accordance with their terms, will, upon issuance, be
validly issued, fully paid and non-assessable.  No Person is entitled to any
preemptive right or right of first refusal with respect to the issuance of the
Securities pursuant to the Company’s Certificate of Incorporation or Bylaws, New
York or Delaware law or any Material Agreement (as defined below).
 
6.      The execution and delivery by the Company of the Transaction Documents
do not and the consummation of the transactions contemplated thereby will not
(A) violate any provision of the Certificate of Incorporation or Bylaws of the
Company, or (B) violate any law, statute, rule, regulation, order, judgment or
decree of any court or governmental authority which, to our knowledge, is
applicable to the Company, or (C) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or require a consent under, any agreement, arrangement or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which its properties are subject that have been
identified as material to the Company and its Subsidiaries, taken as a whole, in
the attached Officer’s Certificate (collectively, the “Material Agreements”),
except for, in the case of clauses (B) and (C), any violation, breach or default
which would not reasonably be expected to have a material adverse effect to the
Company’s business, operations or financial condition.
 
8.      Except for filings, authorizations or approvals as have been made and
are in full force and effect, no authorizations or approvals of, and no filings
with, any governmental authority are necessary or required by the Company for
the execution and delivery of the Transaction Documents or the consummation of
the transactions contemplated thereby.
 
9.      The initial sale of the Securities as contemplated by the Transaction
Documents is exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended.
 

 
 

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

 

Exhibit D

Form of Lock-Up Agreement
 
March __, 2012
 
Broadcast International, Inc.
7050 Union Park Ave. #600
Salt Lake City, Utah 84047
Attention: Mr. Rodney M. Tiede , President and CEO

 
Re:  Broadcast International, Inc. – Lock-Up Agreement

 
Dear Sirs:
 
This Lock-Up Agreement is being delivered to you in connection with the
Securities Purchase Agreement (the "Purchase Agreement"), dated as of March __,
2012 (the “Subscription Date”), by and among Broadcast International, Inc., a
Delaware corporation  (the "Company") and the investors party thereto (the
"Purchasers"), with respect to the issuance of (i) shares of the Company's
common stock, par value $0.05 per share (the "Common Stock") and (ii) warrants
which will be exercisable to purchase shares of Common Stock.  Capitalized terms
used herein and not otherwise defined herein shall have the respective meanings
set forth in the Purchase Agreement.
 
In order to induce the Purchasers to enter into the Purchase Agreement, the
undersigned agrees that during the period commencing on the Subscription Date
and ending 180 calendar days after the Effective Date, the undersigned will not
(i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant
any option to purchase, make any short sale or otherwise dispose of or agree to
dispose of, directly or indirectly, any securities of the Company, or establish
or increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Securities and Exchange Act of
1934, as amended and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder with respect to any securities of the Company
owned directly by the undersigned (including holding as a custodian) or with
respect to which the undersigned has beneficial ownership within the rules and
regulations of the Securities and Exchange Commission or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of any securities of the Company, owned
directly by the undersigned (including holding as a custodian) or with respect
to which the undersigned has beneficial ownership within the rules and
regulations of the Securities and Exchange Commission, whether any such
transaction is to be settled by delivery of such securities, in cash or
otherwise, (collectively, the "Undersigned’s Shares").
 
The foregoing restriction is expressly agreed to preclude the undersigned or any
affiliate of the undersigned from engaging in any hedging or other transaction
which is designed to or which reasonably could be expected to lead to or result
in a sale or disposition of the Undersigned’s Shares even if the Undersigned’s
Shares would be disposed of by someone other than the undersigned.  Such
prohibited hedging or other transactions would include, without limitation, any
short sale or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any of the Undersigned’s
Shares or with respect to any security that includes, relates to, or derives any
significant part of its value from the Undersigned’s Shares.
 
 
 

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

 
 
Notwithstanding the foregoing, the undersigned may transfer the Undersigned’s
Shares (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree to be bound in writing by the restrictions set forth herein or
(ii) to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, provided that the trustee of the trust
agrees to be bound in writing by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value.  For
purposes of this Lock-Up Agreement, “immediate family” shall mean any
relationship by blood, marriage or adoption, not more remote than first
cousin.  The undersigned now has, and, except as contemplated by clauses (i) and
(ii) above, for the duration of this Lock-Up Agreement will have, good and
marketable title to the Undersigned’s Shares, free and clear of all liens,
encumbrances, and claims whatsoever.  The undersigned also agrees and consents
to the entry of stop transfer instructions with the Company’s transfer agent and
registrar against the transfer of the Undersigned’s Shares except in compliance
with the foregoing restrictions.
 
The undersigned understands and agrees that this Lock-Up Agreement is
irrevocable and shall be binding upon the undersigned’s heirs, legal
representatives, successors, and assigns.
 
This Lock-Up Agreement may be executed in two counterparts, each of which shall
be deemed an original but both of which shall be considered one and the same
instrument.
 
This Lock-Up Agreement will be governed by and construed in accordance with the
laws of the State of New York, without giving effect to any choice of law or
conflicting provision or rule (whether of the State of New York, or any other
jurisdiction) that would cause the laws of any jurisdiction other than the State
of New York to be applied.  In furtherance of the foregoing, the internal laws
of the State of New York will control the interpretation and construction of
this Lock-Up Agreement, even if under such jurisdiction's choice of law or
conflict of law analysis, the substantive law of some other jurisdiction would
ordinarily apply.
 

 
 

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

 

 
 
Very truly yours,

 
 
______________________________

 
Exact Name of Stockholder

 
 
______________________________

 
Authorized Signature

 
 
______________________________

 
Title

  Agreed to and Acknowledged:

  BROADCAST INTERNATIONAL, INC.

  By:  _______________________
         Name:
         Title:

 

 
 

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

 

Schedule 3(c) – Capitalization exceptions

Schedule 3(h) – SEC documents

Schedule 3(v) – Material documents
 
 
 
 
 
 

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