Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of April 19,
2012 between Blue Calypso, Inc., a Delaware corporation (the “Company”), and
each purchaser identified on the signature pages hereto (each, including its
successors and permitted assigns, a “Purchaser” and collectively, the
“Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company as more fully
described in this Agreement.

 

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

 

ARTICLE I.

 

DEFINITIONS

 

1.1                               Definitions. In addition to the terms defined
elsewhere in this Agreement: (a) capitalized terms that are not otherwise
defined herein have the meanings given to such terms in the Debentures (as
defined herein), and (b) the following terms have the meanings set forth in this
Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.7.

 

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

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

 

“Closings” shall mean, collectively, the First Closing, the Second Closing and
the Third Closing.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, $0.0001 par value per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed.

 

“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, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company Counsel” means Haynes and Boone, LLP, with offices located at 2505
North Plano Road, Suite 4000, Richardson, Texas 75082-4101.

 

“Conversion Price” shall have the meaning ascribed to such term in the
Debentures.

 

“Debentures” means the 8% Senior Secured Convertible Debentures due, subject to
the terms therein, October 19, 2012, issued by the Company to the Purchasers
hereunder, in the form of Exhibit A attached hereto.

 

“Disclosure Schedules” shall have the meaning ascribed to such term in
Section 3.1.

 

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

 

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

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

 

“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

“First Closing” means the closing of the purchase and sale of the Securities
pursuant to Section 2.1(a).

 

“First Closing Date” means the Trading Day on which all of the Transaction
Documents have been executed and delivered by the applicable parties thereto
pursuant to Section 2.2(a) and Section 2.2(b), and all conditions precedent to
(i) the Purchasers’ obligation to pay the Subscription Amount as of the First
Closing and (ii) the Company’s obligations to deliver the Securities as of the
First Closing, in each case, have been satisfied or waived.

 

“Fourth Closing” means the closing of the purchase and sale of the Securities
pursuant to Section 2.1(c).

 

“Fourth Closing Notice” shall have the meaning ascribed to such term in
Section 2.1(c).

 

“Fourth Closing Date” means the date of the Fourth Closing.

 

“FR” means Fox Rothschild LLP, with offices located at 997 Lenox Drive, Building
3, Lawrenceville, NJ 08648-2311

 

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

 

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

 

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

 

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

 

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

 

“Lock-Up Agreements” means the Lock-Up Agreements in the form of Exhibit F
annexed hereto by and between the Company and each of the Company’s stockholders
listed on Exhibit G annexed hereto;

 

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

 

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

 

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

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

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.12(b).

 

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

 

“Public Information Failure” shall have the meaning ascribed to such term in
Section 4.3(b).

 

“Public Information Failure Payments” shall have the meaning ascribed to such
term in Section 4.3(b).

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.

 

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

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then

 

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

 

issuable pursuant to the Transaction Documents, including any Underlying Shares
issuable upon exercise in full of all Warrants or conversion in full of all
Debentures, ignoring any conversion or exercise limits set forth therein, and
assuming that the Conversion Price is at all times on and after the date of
determination 75% of the then Conversion Price on the Trading Day immediately
prior to the date of determination.

 

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

 

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

 

“Second Closing” means the closing of the purchase and sale of the Securities
pursuant to Section 2.1(b).

 

“Second Closing Date” means the date of the Second Closing.

 

“Securities” means the Debentures and the Underlying Shares.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Securities Laws” means the securities laws of the United States or any state
thereof.

 

“Security Agreement” means the Security Agreement, dated the date hereof, among
the Company and the Purchasers, in the form of Exhibit B attached hereto.

 

“Security Documents” shall mean the Security Agreement, the Subsidiary
Guarantees and any other documents and filing required thereunder in order to
grant the Purchasers a first priority security interest in the assets of the
Company and the Subsidiaries as provided in the Security Agreement, including
all UCC-1 filing receipts.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).

 

“Stockholder Agreement” means the Stockholder Agreement, dated as of the date
hereof, by and between the Company and Andrew Levi, in the form of Exhibit D
attached hereto.

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for the Debentures purchased at the First, Second and Third Closing and as
specified below such Purchaser’s name on the signature page of this Agreement
and next to the heading “Subscription Amount,” in United States dollars and in
immediately available funds.

 

“Subsequent Financing” shall have the meaning ascribed to such term in
Section 4.12(a).

 

“Subsequent Financing Notice” shall have the meaning ascribed to such term in
Section 4.12(b).

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a) and shall, where applicable, also include any direct or indirect
subsidiary of the Company formed or acquired after the date hereof.

 

“Subsidiary Guarantee” means the Subsidiary Guarantee, dated the date hereof, by
each Subsidiary in favor of the Purchasers, in the form of Exhibit E attached
hereto.

 

“Third Closing” means the closing of the purchase and sale of the Securities
pursuant to Section 2.1(c).

 

“Third Closing Notice” shall have the meaning ascribed to such term in
Section 2.1(c).

 

“Third Closing Date” means the date of the Third Closing.

 

“Trading Day” means a day on which the principal Trading Market is open for
trading.

 

“Trading Market” means any of the following markets or exchanges on which the
Common Stock is listed or quoted for trading on the date in question: the NYSE
AMEX, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global
Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any
successors to any of the foregoing).

 

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

 

“Transaction Documents” means this Agreement, the Debentures, the Warrants, the
Security Agreement, the Subsidiary Guarantee, all exhibits and schedules thereto
and hereto and any other documents or agreements executed in connection with the
transactions contemplated hereunder.

 

“Transfer Agent” means Action Stock Transfer Corp., the current transfer agent
of the Company, with a mailing address of 2469 E. Fort Union Blvd., Suite 214,
Salt Lake City, UT, and any successor transfer agent of the Company.

 

“Underlying Shares” means the shares of Common Stock issued and issuable upon
conversion of the Debentures and upon exercise of the Warrants.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in
Section 4.13(b).

 

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Purchasers of a majority in interest of the Securities then outstanding and
reasonably acceptable to the Company, the fees and expenses of which shall be
paid by the Company; provided, however, if the Purchasers have not selected an
independent appraiser within 20 calendar days after the date required to do so,
such failure will not give rise to a breach of any obligations of the Company
under this Agreement and the Transaction Documents.

 

“Warrant Amendment” means the Amendment No. 1 to the Common Stock Purchase
Warrant, dated as of the date hereof, by and between the Company and LMD
Capital, LLC, in the form of Exhibit I attached hereto.

 

“Warrants” means the Common Stock Purchase Warrants to purchase an aggregate of
6,500,000 shares of Common Stock delivered to the Purchaser on the First Closing
Date, which Warrants shall be exercisable immediately and have a term of
exercise equal to five years, in the form of Exhibit H attached hereto.

 

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

 

ARTICLE II.

 

PURCHASE AND SALE

 

2.1                               Closings.

 

(a)                                 First Closing. On the First Closing Date,
upon the terms and subject to the conditions set forth herein, substantially
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and each Purchaser, severally and not
jointly, agrees to purchase, such Purchaser’s First Closing Subscription Amount
as set forth on the signature page hereto executed by such Purchaser (an
aggregate of $35,000.00) in principal amount of the Debentures. At the First
Closing, each Purchaser shall deliver to the Company, via wire transfer or a
certified check, immediately available funds equal to such Purchaser’s First
Closing Subscription Amount as set forth on the signature page hereto executed
by such Purchaser, and the Company shall deliver to each Purchaser its
respective Debenture, and the Company and each Purchaser shall deliver the other
items set forth in Section 2.2 deliverable at the First Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3
for the First Closing, the First Closing shall occur at the offices of FR or
such other location as the parties shall mutually agree.

 

(b)                                 Second Closing. On the Second Closing Date,
upon the terms and subject to the conditions set forth herein, substantially
concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and each Purchaser, severally and not
jointly, agrees to purchase, such Purchaser’s Second Closing Subscription Amount
as set forth on the signature page hereto executed by such Purchaser (an
aggregate of $65,000.00) in principal amount of the Debentures. At the Second
Closing, each Purchaser shall deliver to the Company, via wire transfer or a
certified check, immediately available funds equal to such Purchaser’s Second
Closing Subscription Amount as set forth on the signature page hereto executed
by such Purchaser, and the Company shall deliver to each Purchaser its
respective Debenture, and the Company and each Purchaser shall deliver the other
items set forth in Section 2.2 deliverable at the Second Closing. Upon

 

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

 

satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3
for the Second Closing, the Second Closing shall occur at the offices of FR or
such other location as the parties shall mutually agree.

 

(c)                                  Third Closing. On the Third Closing Date,
upon the terms and subject to the conditions set forth herein, the Company
agrees to sell, and each Purchaser, severally and not jointly, agrees to
purchase, such Purchaser’s Third Closing Subscription Amount as set forth on the
signature page hereto executed by such Purchaser (an aggregate of $200,000.00)
in principal amount of the Debentures. At the Third Closing, each Purchaser
shall deliver to the Company, via wire transfer or a certified check,
immediately available funds equal to such Purchaser’s Third Closing Subscription
Amount as set forth on the signature page hereto executed by such Purchaser, and
the Company shall deliver to each Purchaser its respective Debenture, as
determined pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver the other items set forth in Section 2.2 deliverable at the Third
Closing. Subject to the terms and conditions herein, upon the determination by
the Company for a Third Closing at any time on or after May 1, 2012, but prior
to October 19, 2012, the Company shall deliver written notice to each Purchaser
of the Third Closing (“Third Closing Notice”). Upon satisfaction of the
covenants and conditions set forth in Sections 2.2 and 2.3 for the Third Closing
and the review to the satisfaction of the Purchaser of such documents and
certifications provided pursuant to Sections 2.2 and 2.3, the Third Closing
shall occur at the offices of FR or such other location as the parties shall
mutually agree within 5 Trading Days from the date of the Third Closing Notice.

 

(d)                                 Fourth Closing. On the Fourth Closing Date,
upon the terms and subject to the conditions set forth herein, the Company
agrees to sell, and each Purchaser, severally and not jointly, agrees to
purchase, such Purchaser’s Fourth Closing Subscription Amount as set forth on
the signature page hereto executed by such Purchaser (an aggregate of $200,000)
in principal amount of the Debentures. At the Fourth Closing, each Purchaser
shall deliver to the Company, via wire transfer or a certified check,
immediately available funds equal to such Purchaser’s Fourth Closing
Subscription Amount as set forth on the signature page hereto executed by such
Purchaser, and the Company shall deliver to each Purchaser its respective
Debenture, and the Company and each Purchaser shall deliver the other items set
forth in Section 2.2 deliverable at the Fourth Closing. Subject to the terms and
conditions herein, upon the determination by the Company for a Fourth Closing at
any time after June 1, 2012, provided that the Second Closing shall have
occurred, and before October 19, 2012, the Company shall deliver written notice
to each Purchaser of the Fourth Closing (“Fourth Closing Notice”). Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3
for the Fourth Closing and the review to the satisfaction of the Purchaser of
such documents and certifications provided pursuant to Sections 2.2 and 2.3, the
Fourth Closing shall occur at the offices of FR or such other location as the
parties shall mutually agree within 5 Trading Days from the date of the Fourth
Closing Notice.

 

2.2                               Deliveries.

 

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

 

(i)                                     As to the First Closing, this Agreement
duly executed by the Company;

 

(ii)                                  as to each Closing, a Debenture with a
principal amount equal to such Purchaser’s First Closing, Second Closing, Third
Closing Subscription Amount or Fourth Closing Subscription Amount, as
applicable, as set forth on the signature page hereto executed by such Purchaser
registered in the name of such Purchaser;

 

(iii)                               as to the First Closing, the Security
Agreement, duly executed by the Company and each Subsidiary, along with all of
the Security Documents, including the Subsidiary Guarantee, duly executed by the
parties thereto; and

 

(iv)                              as to the First Closing, the Stockholder
Agreement, duly executed by the Company and Andrew Levi;

 

(v)                                 as to the Second Closing, the Escrow Shares
(as such term is defined in the Stockholder Agreement);

 

(vi)                              as to the First Closing, the Warrant
Amendment, duly executed by the Company and LMD Capital, LLC;

 

(vii)                           as to the Second Closing, the Lock-Up
Agreements, duly executed by the Company and each of the Company’s stockholders
identified on Exhibit F annexed hereto;

 

(viii)                        as to the First Closing, the Warrants;

 

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

 

(ix)                              as to the Second Closing, the Company shall
have filed the Current Report on Form 8-K pursuant to Section 4.6 hereof; and

 

(x)                                 as to the Second Closing, Third Closing and
Fourth Closing, an officer’s certificate setting forth the Company’s compliance
with its Representations and Warranties and a bring-down of the Disclosure
Schedules.

 

(b)                                 On or prior to the each Closing (except as
noted), each Purchaser shall deliver or cause to be delivered to the Company the
following:

 

(i)                                     As to the First Closing, this Agreement
duly executed by such Purchaser;

 

(ii)                                  such Purchaser’s First Closing, Second
Closing, Third Closing or Fourth Closing Subscription Amounts, as applicable, as
set forth on the signature page hereto executed by such Purchaser by wire
transfer to the account specified in writing by the Company; and

 

(iii)                               as to the First Closing, the Security
Agreement duly executed by such Purchaser.

 

2.3                               Closing Conditions.

 

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

 

(i)                                     the accuracy in all material respects on
the applicable Closing of the representations and warranties of the Purchasers
contained herein (unless as of a specific date therein in which case they shall
be accurate as of such date);

 

(ii)                                  all obligations, covenants and agreements
of each Purchaser required to be performed at or prior to the applicable Closing
shall have been performed in all material respects; and

 

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

 

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

 

(i)                                     the accuracy in all material respects
when made and on the applicable Closing of the representations and warranties of
the Company contained herein (unless as of a specific date therein in which case
they shall be accurate as of such date);

 

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

 

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

 

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

 

(v)                                 as to the Second and Third Closings, no
Event of Default (as defined in the Debentures) shall have occurred and not have
been waived in writing; and

 

(vi)                              as to the First Second and Third Closings,
respectively, (a) from the date hereof to the First Closing, (b) from 5 days
prior to the Second Closing Notice to the Second Closing and (c) from 5 days
prior to the Third Closing Notice to the Third Closing, trading in the Common
Stock shall not have been suspended by the Commission or the Company’s principal
Trading Market.

 

ARTICLE III.

 

REPRESENTATIONS AND WARRANTIES

 

3.1                               Representations and Warranties of the Company.
Except as set forth in the Disclosure Schedules and SEC Reports, which
Disclosure Schedules and SEC Reports shall be deemed a part hereof and shall
qualify any representation or otherwise made herein to the extent of the
disclosure contained in the corresponding section of the Disclosure Schedules or
in

 

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

 

the SEC Reports, the Company hereby makes the following representations and
warranties to each Purchaser:

 

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

 

(b)                                 Organization and Qualification. The Company
and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, 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
nor 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 has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

(c)                                  Authorization; Enforcement. The Company has
the requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and each of the other Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of this Agreement and each of the other 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, the Board of Directors or the Company’s stockholders in connection
herewith or therewith other than in connection with the Required Approvals. This
Agreement and each other Transaction Document to which it is a party has been
(or upon delivery will have been) duly executed by the Company and, when
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,
liquidation 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.

 

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

 

(e)                                  Filings, Consents and Approvals. The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other provincial, federal, state, local or other governmental authority or other
Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than: (i) the filings required pursuant to
Section 4.3, 4.6, 4.11 and 4.18 of this Agreement, and (ii) the filing of Form D
with the Commission and such filings as are required to be made under applicable
Securities Laws (collectively, the “Required Approvals”).

 

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

 

(f)                                   Issuance of the Securities. The Debentures
and Warrants are 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 imposed by the Company
other than restrictions on transfer provided for in the Transaction Documents.
The Underlying 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 imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Company has reserved
from its duly authorized capital stock a number of shares of Common Stock for
issuance of the Underlying Shares at least equal to the Required Minimum on the
date hereof.

 

(g)                                  Capitalization. The capitalization of the
Company as of the date hereof is as set forth on Schedule 3.1(g), which Schedule
3.1(g) shall also include the number of shares of Common Stock owned to the
knowledge of the Company, beneficially by Affiliates of the Company as of the
date hereof. Except as set forth on Schedules 3.1(g), as of the date hereof, the
Company has not issued any capital stock since its most recently filed periodic
report under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion and/or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act. Other than the Purchasers, no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the purchase and sale of the Securities under this Agreement. As
of the date hereof, except as set forth on Schedule 3.1(g) or as a result of the
purchase and sale of the Securities, there are no outstanding options, warrants,
scrip rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire any shares of Common Stock, or contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. Except as
set forth on Schedule 3.1(g), the issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. All of the outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, have been issued in compliance with all provincial, federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities. Except as set forth on Schedule 3.1(g), there are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.

 

(h)                                 SEC Reports; Financial Statements. The
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company 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, as in effect at the
time of filing 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
Company is not an issuer subject to Rule 144(i) under the Securities Act. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP and are
subject to year-end and audit adjustments, 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
year-end and audit adjustments.

 

(i)                                     Material Changes; Undisclosed Events,
Liabilities or Developments. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
a subsequent SEC Report filed prior to the date hereof or prior to the
applicable Closing Date as of which this representation and warranty is being
made and except as set forth in Schedule 3.1(i): (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables, deferred
revenue 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 purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option 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 3.1(i), no event, liability, fact,
circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Company or its Subsidiaries or
their respective businesses, properties, operations, assets 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 at least 1 Trading Day prior to the
date that this representation is made.

 

(j)                                    Litigation. There is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there were
an unfavorable decision, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under provincial, 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, to the knowledge of the Company, 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.

 

(k)                                 Labor Relations. No labor dispute exists or,
to the knowledge of the Company, is imminent with respect to any of the
employees of the Company, which could reasonably be expected to result in a
Material Adverse Effect. 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 and its
Subsidiaries believe that their relationships with their employees are good. To
the knowledge of the Company, no executive officer of the Company or any
Subsidiary, is, or is now expected by the Company 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,
which could reasonably be expected to result in a Material Adverse Effect 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
applicable 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.

 

(l)                                     Compliance. Except as set forth on
Schedule 3.1(l), neither the Company nor any Subsidiary: (i) is in default under
or in violation of (and no event has occurred that has not been waived that,
with notice or lapse of time or both, would result in a default by the Company
or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
judgment, decree or order of any court, arbitrator or other governmental
authority binding on the Company or any Subsidiary or any of their respective
assets, or (iii) is or has been in violation of any statute, rule, ordinance or
regulation of any governmental authority, including without limitation all
provincial, foreign, federal, state and local laws relating to taxes,
environmental protection, occupational health and safety, product quality and
safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.

 

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

 

(n)                                 Title to Assets. The Company and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them and good and marketable title in all personal property owned by
them that is material to the business of the Company and the Subsidiaries, in
each case free and clear of all Liens, except for Permitted Liens (as defined in
the Debentures). 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
compliance, except where

 

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

 

the non-compliance would not reasonably be expected to result in a Material
Adverse Effect.

 

(o)                                 Intellectual Property. The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade secrets,
inventions, copyrights, licenses and other intellectual property rights and
similar rights as described in the SEC Reports as necessary or required for use
in connection with their respective businesses and which the failure to so have
could have a Material Adverse Effect (collectively, the “Intellectual Property
Rights”). None of, and neither the Company nor any Subsidiary has received a
notice (written or otherwise) that any of, the Intellectual Property Rights has
expired, terminated or been abandoned, or is expected to expire or terminate or
be abandoned, within two (2) years from the date of this Agreement.  Neither the
Company nor any Subsidiary has received, since the date of the latest audited
financial statements included within the SEC Reports, a written notice of a
claim or otherwise has any knowledge that the Intellectual Property Rights owned
by the Company and the Subsidiaries violate or infringe upon the rights of any
Person, except as could not have or reasonably be expected to not have a
Material Adverse Effect. To the knowledge of the Company, all such Intellectual
Property Rights owned by the Company and the Subsidiaries are enforceable and
there is no existing infringement by another Person of any of such Intellectual
Property Rights. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties, except where failure to do so could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p)                                 Insurance. The Company and the Subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which the Company and the Subsidiaries are engaged, including, but
not limited to, directors and officers insurance coverage at least equal to the
aggregate Subscription Amount. Neither the Company nor any Subsidiary believes
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business.

 

(q)                                 Transactions With Affiliates and Employees.
Except as set forth in the SEC Reports, none of the officers or directors of the
Company or any Subsidiary and, to the knowledge of the Company, none of the
employees of the Company or any Subsidiary 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 providing for the borrowing of
money from or lending of money to, 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, stockholder, member or partner, in
each case in excess of $120,000 other than for: (i) payment of salary, bonus,
directors fees or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company or otherwise reimbursable by the
Company, and (iii) other employee benefits, including stock option agreements
under any stock option plan of the Company.

 

(r)                                    Sarbanes-Oxley; Internal Accounting
Controls. The Company and the Subsidiaries are in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the Commission thereunder that are effective as of the date hereof and as of
the applicable Closing Date as of which this representation and warranty is
being made. 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 and the Subsidiaries have established disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
the Subsidiaries and designed such disclosure controls and procedures to ensure
that information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commission’s rules and forms.
The Company’s certifying officers have evaluated the effectiveness of the
disclosure controls and procedures of the Company and the Subsidiaries 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 changes in the internal control over
financial reporting (as such term is defined in the Exchange Act) that have
materially affected, or is reasonably likely to materially affect, the internal
control over financial reporting of the Company and its Subsidiaries.

 

(s)                                   Certain Fees. No brokerage or finder’s
fees or commissions are or will be payable by the Company or any Subsidiaries to
any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents. The Purchasers shall have no obligation with

 

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

 

respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents.

 

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

 

(u)                                 Reserved.

 

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

 

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

 

(x)                                 Application of Takeover Protections. The
Company and the Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s certificate of
incorporation (or similar charter documents) or the laws of its country of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Securities and the Purchasers’ ownership
of the Securities.

 

(y)                                 Disclosure. All of the disclosure furnished
by or on behalf of the Company to the Purchasers regarding the Company and its
Subsidiaries, their respective businesses and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, taken as a whole
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.
The Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.

 

(z)                                  No Integrated Offering. Assuming the
accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, neither the Company, nor, to the knowledge of the Company, any of
its Affiliates, nor any Person acting on its or, to the knowledge of the
Company, 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 by the Company 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.

 

(aa)                          Solvency. Based on the consolidated financial
condition of the Company as of the applicable Closing Date as of which this
representation and warranty is being made, after giving effect to the receipt by
the Company of the proceeds from the sale of the Securities hereunder: (i) the
fair saleable value of the assets of the Company and its Subsidiaries taken as a
whole exceeds the amount that will be required to be paid on or in respect of
the existing debts and other liabilities (including known contingent liabilities
but excluding amounts payable to Affiliates) of the Company and its Subsidiaries
as they mature, (ii) the assets of the Company and its Subsidiaries do not
constitute unreasonably small capital to carry on their business as now
conducted and as proposed to be conducted including their capital needs taking
into account the particular capital requirements of the business conducted by
the Company and its Subsidiaries, consolidated and projected capital
requirements and capital availability thereof, and (iii) the current cash flow
of the Company and its Subsidiaries, together with the proceeds the Company and
its Subsidiaries would receive, were they to liquidate all of their assets,
after taking into account all anticipated uses of the cash, would be sufficient
to pay all amounts on or in respect of their liabilities (other than amounts due
to Affiliates) when such amounts are required to be paid. The Company does not
intend to incur debts beyond

 

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

 

its ability to pay such debts as they mature (taking into account the timing and
amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that it will
file for reorganization or liquidation under the bankruptcy or reorganization
laws of any jurisdiction within six months from the First Closing. All
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary,
or for which the Company or any Subsidiary has commitments are set forth in the
Company’s SEC Reports. For the purposes of this Agreement, “Indebtedness” means
(x) any liabilities for borrowed money or amounts owed in excess of $25,000
(other than trade accounts payable incurred in the ordinary course of business,
accounts payable for payroll in the ordinary course of business, accounts
payable for taxes, assessments and other governmental charges or levies and
deferred revenue and accrued expenses incurred in the ordinary course of
business consistent with past practice), (y) all guaranties, endorsements and
other contingent obligations in respect of indebtedness of others, whether or
not the same are or should be reflected in the Company’s consolidated balance
sheet (or the notes thereto), except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business; and (z) the present value of any lease payments in excess of
$25,000 due under leases required to be capitalized in accordance with GAAP.
Neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.

 

(bb)                          Tax Status.                                 
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
its Subsidiaries each (i) has made or filed all necessary provincial, federal,
state and local income and all foreign income and franchise tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations and (iii) has set aside on its books provision reasonably adequate
for the payment of all material taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company or of any Subsidiary know of no
reasonable basis for any such claim.

 

(cc)                            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.

 

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

 

(ee)                            Accountants.  The Company’s accounting firm is
set forth on Schedule 3.1(ee) of the Disclosure Schedules. To the knowledge and
belief of the Company, such accounting firm: (i) is a registered public
accounting firm as required by the Exchange Act and (ii) shall express its
opinion with respect to the financial statements to be included in the Company’s
Annual Report for the fiscal year ending December 31, 2010.

 

(ff)                              Seniority. As of the applicable Closing Date
as of which this representation and warranty is being made, no Indebtedness or
other claim against the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation or dissolution, or
otherwise, other than indebtedness secured by purchase money security interests
(which is senior only as to underlying assets covered thereby) and capital lease
obligations (which is senior only as to the property covered thereby).

 

(gg)                            No Disagreements with Accountants and Lawyers.
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the Company and the accountants and
lawyers formerly or presently employed by the Company and the Company is current
with respect to any fees owed to its accountants and lawyers which would
reasonably be expected to materially adversely affect the Company’s ability to
perform any of its obligations under any of the Transaction Documents.

 

(hh)                          Acknowledgment Regarding Purchasers’ Purchase of
Securities. The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The Company
further acknowledges that no Purchaser is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any Purchaser or any of their respective representatives or agents

 

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

 

in connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Purchasers’ purchase of the Securities. The
Company further represents to each Purchaser that the Company’s decision to
enter into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby by
the Company and its representatives.

 

(ii)                                  Acknowledgment Regarding Purchaser’s
Trading Activity. Anything in this Agreement or elsewhere herein to the contrary
notwithstanding (except for Sections 3.2(f) and 4.15 hereof), it is understood
and acknowledged by the Company that: (i) none of the Purchasers has been asked
by the Company to agree, nor has any Purchaser agreed, to desist from purchasing
or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities
for any specified term, (ii) past or future open market or other transactions by
any Purchaser, specifically including, without limitation, Short Sales or
“derivative” transactions, before or after the closing of this or future private
placement transactions, may negatively impact the market price of the Company’s
publicly-traded securities, (iii) any Purchaser, and counter-parties in
“derivative” transactions to which any such Purchaser is a party, directly or
indirectly, may presently have a “short” position in the Common Stock and
(iv) each Purchaser shall not be deemed to have any affiliation with or control
over any arm’s length counter-party in any “derivative” transaction. The Company
further understands and acknowledges that (y) one or more Purchasers may engage
in hedging activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value of
the Underlying Shares deliverable with respect to Securities are being
determined, and (z) such hedging activities (if any) could reduce the value of
the existing stockholders’ equity interests in the Company at and after the time
that the hedging activities are being conducted. The Company acknowledges that
such aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

 

(jj)                                Regulation M Compliance. The Company has
not, and to its knowledge no one acting on its behalf has, (i) taken, directly
or indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company 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, or (iii) paid
or agreed to pay to any Person any compensation for soliciting another to
purchase any other securities of the Company, other than, in the case of clauses
(ii) and (iii), compensation paid to the Company’s placement agent in connection
with the placement of the Securities.

 

3.2                               Representations and Warranties of the
Purchasers.  Each Purchaser, for itself and for no other Purchaser, hereby
represents and warrants as of the date hereof and as of each Closing Date to the
Company as follows (unless as of a specific date therein):

 

(a)                                 Organization; Authority. Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder.  The execution, delivery and performance
by such Purchaser of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate or similar action on the part of
Purchaser.  Each Transaction Document to which it is a party has been duly
executed by Purchaser, and when delivered by Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of
Purchaser, enforceable against it in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

 

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

 

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

 

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

 

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

 

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

 

(f)                                   Certain Transactions and Confidentiality.
Other than consummating the transactions contemplated hereunder, such Purchaser
has not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any purchases or
sales, including Short Sales, of the securities of the Company during the period
commencing as of the time that such Purchaser first received a term sheet
(written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder and
ending immediately prior to the execution hereof. Notwithstanding the foregoing,
in the case of a Purchaser that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser’s assets
and the portfolio managers have no direct knowledge of the investment decisions
made by the portfolio managers managing other portions of such Purchaser’s
assets, the representation set forth above shall only apply with respect to the
portion of assets managed by the portfolio manager that made the investment
decision to purchase the Securities covered by this Agreement. Other than to
other Persons party to this Agreement, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein
shall constitute a representation or warranty, or preclude any actions, with
respect to the identification of the availability of, or securing of, available
shares to borrow in order to effect Short Sales or similar transactions in the
future.

 

(g)                                  Certain Fees. The Company and its
Subsidiaries shall have no obligation with respect to any fees or with respect
to any claims made by or on behalf of other Persons engaged by a Purchaser for
brokerage or finder’s fees in connection with the transactions contemplated by
the Transaction Documents.

 

The Company acknowledges and agrees that the representations contained in
Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on
the Company’s representations and warranties contained in this Agreement 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.

 

ARTICLE IV.

 

OTHER AGREEMENTS OF THE PARTIES

 

4.1                               Transfer Restrictions.

 

(a)                                 The Debentures and Warrants shall be issued
in registered form. The Company shall keep at its principal executive office
registers in which the Company shall provide for the registration and transfer
of the Debentures and Warrants. The Securities may only be disposed of in
compliance with applicable Securities Laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or
Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with
a pledge as contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and the other
Transaction Documents and shall have the rights and obligations of a Purchaser
under this Agreement.

 

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

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES [INTO] [FOR] WHICH THIS SECURITY IS
[EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”) AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE

 

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

 

EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION]
OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT
IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT
OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that, to the extent permitted under
applicable securities law, a Purchaser may from time to time pledge pursuant to
a bona fide margin agreement with a registered broker-dealer or grant a security
interest in some or all of the Securities to a financial institution that is an
“accredited investor” as defined in Rule 501(a) under the Securities Act and who
agrees to be bound by the provisions of this Agreement and the other Transaction
Documents and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Securities into the name of the pledgees or
secured parties, in their respective capacities as such. Such a pledge or
transfer would not be subject to approval of the Company and no legal opinion of
legal counsel of the pledgee, secured party or pledgor shall be required in
connection therewith. Further, no notice shall be required of such pledge. At
the appropriate Purchaser’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with such a pledge or transfer of the
Securities.

 

(c)                                  Certificates evidencing the Underlying
Shares shall not contain any legend (including the legend set forth in
Section 4.1(b) hereof): (i) while a registration statement covering the resale
of such security is effective under the Securities Act, (ii) following any sale
of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares
are eligible for sale under Rule 144, without the requirement for the Company to
be in compliance with the current public information required under Rule 144 as
to such Underlying Shares and without volume or manner-of-sale restrictions or
(iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company shall cause its counsel to issue a
legal opinion to the Transfer Agent promptly for any Security if required by the
Transfer Agent to effect the removal of the legend hereunder. If all or any
portion of a Debenture is converted or Warrant is exercised at a time when there
is an effective registration statement to cover the resale of the Underlying
Shares, or if such Underlying Shares may be sold under Rule 144 and the Company
is then in compliance with the current public information required under
Rule 144, or if such Underlying Shares may be sold under Rule 144 without the
requirement for the Company to be in compliance with the current public
information required under Rule 144 as to such Underlying Shares and without
volume or manner-of-sale restrictions or if such legend is not otherwise
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) then
such Underlying Shares shall be issued free of all legends. The Company agrees
that at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the delivery
by a Purchaser to the Company or the Transfer Agent of a certificate
representing Underlying Shares, as applicable, issued with a restrictive legend
(such third Trading Day, the “Legend Removal Date”), deliver or cause to be
delivered to such Purchaser a certificate representing such shares that is free
from all restrictive and other legends. The Company may not make any notation on
its records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section 4. Certificates for
Underlying Shares subject to legend removal hereunder shall be transmitted by
the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s
prime broker with the Depository Trust Company System through its Deposit or
Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in
such system, and otherwise by physical delivery to the Purchaser.

 

(d)                                 In addition to such Purchaser’s other
available remedies, the Company shall pay to a Purchaser, in cash, as partial
liquidated damages and not as a penalty, for each $1,000 of Underlying Shares
(based on the VWAP of the Common Stock on the date such Securities are submitted
to the Transfer Agent) delivered for removal of the restrictive legend and
subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading
Day five (5) Trading Days after such damages have begun to accrue) for each
Trading Day after the Legend Removal Date until such certificate is delivered
without a legend. Nothing herein shall limit such Purchaser’s right to pursue
actual damages for the Company’s failure to deliver certificates representing
any Securities as required by the Transaction Documents, and such Purchaser
shall have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.

 

(e)                                  Each Purchaser, severally and not jointly
with the other Purchasers, agrees with the Company that such Purchaser will sell
any Securities pursuant to either the registration requirements of the
Securities Act and other applicable Securities Laws, including any applicable
prospectus delivery requirements, or an exemption therefrom, and that if
Securities are sold pursuant to a registration statement, they will be sold in
compliance with the plan of distribution set forth therein, and acknowledges
that the removal of the restrictive legend from certificates representing
Securities as set forth in this Section 4.1 is predicated upon the Company’s
reliance upon this understanding.

 

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

 

4.2                               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 Underlying Shares pursuant to the Transaction Documents, are
unconditional and absolute, but subject to the terms and conditions of the
Transaction Documents, 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.

 

4.3                               Furnishing of Information; Public Information.

 

(a)                                 Until the earliest of the time that no
Purchaser owns Securities, the Company covenants to maintain the registration of
the Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely
file (or obtain extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act even if the Company is not then subject to
the reporting requirements of the Exchange Act.

 

(b)                                 At any time during the period commencing
September 1, 2012 and ending at such time that all of the Securities may be sold
without the requirement for the Company to be in compliance with
Rule 144(c)(1) and otherwise without restriction or limitation pursuant to
Rule 144, if the Company shall fail for any reason to satisfy the current public
information requirement under Rule 144(c) (a “Public Information Failure”) then,
in addition to such Purchaser’s other available remedies, the Company shall pay
to a Purchaser, in cash, as partial liquidated damages and not as a penalty, by
reason of any such delay in or reduction of its ability to sell the Securities,
an amount in cash equal to two percent (2.0%) of the aggregate Subscription
Amount of such Purchaser’s Securities on the day of a Public Information Failure
and on every thirtieth (30th) day (pro rated for periods totaling less than
thirty days) thereafter until the earlier of (a) the date such Public
Information Failure is cured and (b) such time that such public information is
no longer required for the Purchasers to transfer the Underlying Shares pursuant
to Rule 144. The payments to which a Purchaser shall be entitled pursuant to
this Section 4.3(b) are referred to herein as “Public Information Failure
Payments.” Public Information Failure Payments shall be paid on the earlier of
(i) the last day of the calendar month during which such Public Information
Failure Payments are incurred and (ii) the third (3rd) Business Day after the
event or failure giving rise to the Public Information Failure Payments is
cured. In the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full. Nothing herein shall limit such Purchaser’s right to pursue actual
damages for the Public Information Failure, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief.

 

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

 

4.5                               Conversion and Exercise Procedures. The form
of Notice of Conversion included in the Debentures and the form of Notice of
Exercise included in the Warrants set forth the totality of the procedures
required of the Purchasers in order to convert the Debentures or exercise the
Warrants. No additional legal opinion, other information or instructions shall
be required of the Purchasers to convert their Debentures or exercise their
Warrants. The Company shall honor conversions of the Debentures and exercises of
the Warrants and shall deliver Underlying Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.

 

4.6                               Securities Laws Disclosure; Publicity. The
Company shall, by 5:30 p.m. (New York City time) on the second Trading Day
immediately following the date hereof, file a Current Report on Form 8-K
disclosing the material terms of the transactions contemplated hereby, including
the Transaction Documents as exhibits thereto. From and after the filing of such
Current Report on Form 8-K, the Company represents to the Purchasers that it
shall have publicly disclosed all material, non-public information delivered 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 and each
Purchaser shall consult with each other in issuing any other press releases or
public statement with respect to the transactions contemplated hereby, and
neither the Company nor any Purchaser shall issue any such press release nor
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Purchaser, or without the
prior consent of each Purchaser, with respect to any press release of the
Company, which consent shall not unreasonably be withheld or delayed, except if
such disclosure is required by law or this

 

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

 

Agreement, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except: (a) as required by federal securities law in
connection with (i) any registration statement and (ii) the filing of final
Transaction Documents (including signature pages thereto) with the Commission
and (b) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under this clause (b).

 

4.7                               Shareholder Rights Plan. No claim will be made
or enforced by the Company or, with the consent of the Company, any other
Person, that any Purchaser is an “Acquiring Person” under any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or similar anti-takeover plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities under the Transaction Documents or under any other agreement between
the Company and the Purchasers.

 

4.8                               Non-Public Information. Except with respect to
the material terms and conditions of the transactions contemplated by the
Transaction Documents, the Company covenants and agrees that neither it, nor any
other Person acting on its behalf, will provide any Purchaser or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have entered
into a written agreement with the Company regarding the confidentiality and use
of such information. The Company understands and confirms that each Purchaser
shall be relying on the foregoing covenant in effecting transactions in
securities of the Company.

 

4.9                               Use of Proceeds. The Company shall use the net
proceeds to the Company from the sale of the Securities hereunder in the amounts
and for the purposes set forth on Schedule 4.9, and shall not use such proceeds:
(a) for the satisfaction of any portion of the Company’s indebtedness for
borrowed money, (b) for payment to ay Affiliates, other than payments made in
the ordinary course of business for current services rendered to suppliers and
vendors, including but not limited to, Aztec Systems, Inc., (b) for the
redemption of any Common Stock or Common Stock Equivalents, (c) for the
settlement of any outstanding litigation or (d) in violation of FCPA or OFAC
regulations.

 

4.10                        Indemnification of Purchasers.  Subject to the
provisions of this Section 4.10, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling persons (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against the Purchaser Parties in any capacity, or any of them or
their respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser Party, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of a Purchaser Party’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings a Purchaser Party may
have with any such stockholder or any violations by a Purchaser Party of United
States state or federal securities or other laws or any conduct by a Purchaser
Party which constitutes fraud, gross negligence, willful misconduct or
malfeasance). If any action shall be brought against any Purchaser Party in
respect of which indemnity may be sought pursuant to this Agreement, such
Purchaser Party shall promptly notify the Company in writing, and the Company
shall have the right to assume the defense thereof with counsel of its own
choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
counsel, a material conflict on any material issue between the position of the
Company and the position of such Purchaser Party, in which case the Company
shall be responsible for the reasonable fees and expenses of no more than one
such separate counsel for all Purchaser Parties. The Company will not be liable
to any Purchaser Party under this Agreement (y) for any settlement by a
Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (z) to the extent, but only to
the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or
agreements made by a Purchaser Party in this Agreement or in the other
Transaction Documents or any violations by a Purchaser Party of United States
state or federal securities or other laws or any conduct by a Purchaser Party
which constitutes fraud, gross negligence, willful misconduct or malfeasance.
The indemnification required by this Section 4.10 shall be made by periodic
payments of

 

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

 

the amount thereof during the course of the investigation or defense, as and
when bills are received or are incurred. The indemnity agreements contained
herein shall be in addition to any cause of action or similar right of any
Purchaser Party against the Company or others, and any liabilities the Company
may be subject to pursuant to law.

 

4.11                        Reservation and Listing of Securities.

 

(a)                                 The Company shall maintain a reserve from
its duly authorized shares of Common Stock for issuance pursuant to the
Transaction Documents in such amount as may then be required to fulfill its
obligations in full under the Transaction Documents.

 

(b)                                 If, on any date, the number of authorized
but unissued shares of Common Stock reserved for issuance upon exercise of the
Debentures and Warrants is less than the Required Minimum on such date, then the
Board of Directors shall use commercially reasonable efforts to amend the
Company’s certificate or articles of incorporation to increase the number of
authorized but unissued shares of Common Stock to at least the Required Minimum
at such time, as soon as possible and in any event not later than the 75th day
after such date.

 

(c)                                  The Company shall, if applicable: (i) in
the time and manner required by the principal Trading Market, prepare and file
with such Trading Market an additional shares listing application covering a
number of shares of Common Stock at least equal to the Required Minimum on the
date of such application, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for listing or quotation on such Trading Market as
soon as possible thereafter, (iii) provide to the Purchasers evidence of such
listing or quotation and (iv) maintain the listing or quotation of such Common
Stock on any date at least equal to the Required Minimum on such date on such
Trading Market or another Trading Market.

 

4.12                        Participation in Future Financing.

 

(a)                                 From the date hereof until the date that is
the one (1) year anniversary of the First Closing Date, upon any issuance by the
Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents
(a “Subsequent Financing”), Purchasers shall have the pro-rata right to
participate in the Subsequent Financing on the same terms, conditions and price
provided for in the Subsequent Financing.

 

(b)                             At least ten (10) Trading Days prior to the
closing of the Subsequent Financing, the Company shall deliver to Purchasers a
written notice of its intention to effect a Subsequent Financing (“Pre-Notice”),
which Pre-Notice shall ask each Purchaser if it wants to review the details of
such financing (such additional notice, a “Subsequent Financing Notice”).  Upon
the request of a Purchaser, and only upon a request by such Purchaser, for a
Subsequent Financing Notice, the Company shall promptly, but no later than one
(1) Trading Day after such request, deliver a Subsequent Financing Notice to
such Purchaser.  The Subsequent Financing Notice shall describe in reasonable
detail the proposed terms of such Subsequent Financing, the amount of proceeds
intended to be raised thereunder, the Person or Persons through or with whom
such Subsequent Financing is proposed to be effected, and attached to which
shall be a term sheet or similar document relating thereto.

 

(c)                              If a Purchaser desires to participate in such
Subsequent Financing, such Purchaser must provide written notice to the Company
by not later than 5:30 p.m. (New York City time) on the 3rd Trading Day after
such Purchaser has received the Pre-Notice that the Purchaser is willing to
participate in the Subsequent Financing, the amount of the Purchaser’s
participation, and that the Purchaser has such funds ready, willing, and
available for investment on the terms set forth in the Subsequent Financing
Notice.  If the Company receives no notice from a Purchaser as of such 3rd
Trading Day after receipt of the Pre-Notice, such Purchaser shall be deemed to
have notified the Company that it does not elect to participate.

 

(d)                             If by 5:30 p.m. (New York City time) on the 3rd
Trading Day after the Purchaser has received the Pre-Notice, notifications by
Purchaser of its willingness to participate in the Subsequent Financing (or to
cause its designees to participate) is, in the aggregate, less than the total
amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and with the Persons set forth
in the Subsequent Financing Notice.

 

4.13                        Subsequent Equity Sales.

 

(a)                                 From the date hereof until the one year
anniversary of the First Closing Date, neither the Company nor any Subsidiary
shall issue, enter into any agreement to issue or announce the issuance or
proposed issuance of any shares of Common Stock or Common Stock Equivalents
except in accordance with the Stockholder Agreement.

 

(b)                                 From the date hereof until the twelve (12)
month anniversary of the First Closing Date, the Company shall be prohibited
from effecting or entering into an agreement to effect any Subsequent Financing
involving a “Variable Rate Transaction,”  The term “Variable Rate Transaction”
shall mean a transaction in which the Company issues or sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional

 

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

 

shares of Common Stock either at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or
quotations in the public secondary market for the shares of Common Stock at any
time after the initial issuance of such debt or equity securities,
or (ii) enters into any agreement, including, but not limited to, an equity line
of credit, whereby the Company may sell securities at a future determined price.

 

(c)                                  Notwithstanding the foregoing, this
Section 4.13 shall not apply in respect to the issuance of the Securities
contemplated hereby.

 

4.14                        Equal Treatment of Purchasers. No consideration
(including any modification of any Transaction Document) shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the Purchasers that are parties to such Transaction
Document. Further, the Company shall not make any regularly scheduled payment of
principal or interest on the Debentures in amounts which are disproportionate to
the respective principal amounts outstanding on the Debentures at any applicable
time, except for the payment of interest upon conversion of a Debenture. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

 

4.15                        Certain Transactions and Confidentiality. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
neither it, nor any Affiliate acting on its behalf or pursuant to any
understanding with it will execute any purchases or sales, including Short
Sales, of any of the Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the transactions
contemplated by this Agreement are first publicly announced as described in
Section 4.6. Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company pursuant to Section 4.6,
such Purchaser will maintain the confidentiality of the existence and terms of
this transaction and the information included in the Transaction Documents and
the Disclosure Schedules. Notwithstanding the foregoing, and notwithstanding
anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in effecting transactions in any
securities of the Company after the time that the transactions contemplated by
this Agreement are first publicly announced pursuant to the initial press
release as described in Section 4.6, (ii) no Purchaser shall be restricted or
prohibited from effecting any transactions in any securities of the Company in
accordance with applicable Securities Laws from and after the time that the
transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.6 and (iii) no
Purchaser shall have any duty of confidentiality to the Company or its
Subsidiaries after the issuance of the initial Current Report on Form 8-K as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

 

4.16                        Form D; Blue Sky Filings. The Company agrees to
timely file a Form D with respect to the Securities as required under Regulation
D and to provide a copy thereof, promptly upon request of any Purchaser. The
Company shall take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to qualify the Securities for,
sale to the Purchasers at each Closing under applicable securities or “Blue Sky”
laws of the states of the United States, and shall provide evidence of such
actions promptly upon request of any Purchaser.

 

4.17                        Capital Changes. Until October    , 2012, the
Company shall not undertake a reverse or forward stock split or reclassification
of the Common Stock without the prior written consent of the Purchasers holding
a majority in principal amount outstanding of the Debentures.

 

4.18                        Piggyback Registration Rights. If, at any time after
the First Closing Date, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its account or
the account of others under the Securities Act of the Company’s Common Stock,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with the stock option or other employee
benefit plans, the Company shall deliver to each Purchaser a written notice of
such determination and if, within 15 calendar days after the date of delivery of
such notice, the Purchaser (or any permitted successor or assign) shall so
request in writing, the Company shall include in such registration statement all
or any part of the Underlying Shares that such Purchaser requests to be
registered; provided, however, that the Company shall not be required to
register any Underlying Shares pursuant to this Section 4.18 that are eligible
for resale pursuant to Rule 144 under the Securities Act. Further, in the event
that the offering by the Company is a firm-commitment underwritten offering, the
Company may exclude the Underlying Shares if so requested in

 

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

 

writing by the lead underwriter of such offering. If less than all of the
Underlying Shares are required to be excluded, then such cutbacks shall be
allocated pro-rata among the Purchasers requesting to be included. In the case
of inclusion in a firm-commitment underwritten offering, the Purchasers must
sell their Underlying Shares on the same terms set by the underwriters for
shares of Common Stock to be sold for the account of the Company.

 

ARTICLE V.

 

MISCELLANEOUS

 

5.1                               Termination. This Agreement may be terminated
by any Purchaser, as to such Purchaser’s obligations hereunder only and without
any effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the First Closing has not
been consummated on or before [May 1, 2012]; provided, however, that such
termination will not affect the right of any party to sue for any breach by any
other party (or parties).

 

5.2                               Fees and Expenses. At the Second Closing, the
Company has agreed to reimburse FR a non-refundable and non-accountable document
preparation fee of $10,000. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other similar taxes and duties levied in connection
with the delivery of any Securities to the Purchasers.

 

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

 

5.4                               Notices. Any and all notices or other
communications or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on the earliest of:
(a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party, (c) the second (2nd) Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.

 

5.5                               Amendments; Waivers. No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Company and the
Purchasers holding at least a majority in interest of the Securities then
outstanding (assuming the conversion of all Debentures and the exercise of all
Warrants) or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought. No waiver of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any party to exercise any right hereunder in any manner
impair the exercise of any such right.

 

5.6                               Headings. The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.

 

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

 

5.8                               No Third-Party Beneficiaries. This Agreement
is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth
in Section 4.10.

 

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

 

5.9                               Governing Law. All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced in accordance with the
internal laws of the State of Delaware, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective affiliates, directors,
officers, shareholders, partners, members, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, Borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof via registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any other
manner permitted by law.  If either party shall commence an action, suit or
proceeding to enforce any provisions of the Transaction Documents, then, in
addition to the obligations of the Company under Section 4.10, the prevailing
party in such action, suit or proceeding shall be reimbursed by the other party
for its reasonable attorneys’ fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such action or proceeding.

 

5.10                        Survival. The representations and warranties
contained herein shall survive each Closing and the delivery of the Securities.

 

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

 

5.12                        Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

 

5.13                        Rescission and Withdrawal Right. Notwithstanding
anything to the contrary contained in (and without limiting any similar
provisions of) any of the other Transaction Documents, whenever any Purchaser
exercises a right, election, demand or option under a Transaction Document and
the Company does not timely perform its related obligations within the periods
therein provided, then such Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights; provided, however, that in the case of a rescission of a
conversion of a Debenture or exercise of a Warrant, the applicable Purchaser
shall be required to comply with the applicable provisions of the Debenture or
Warrant.

 

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

 

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

 

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

 

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

 

5.17                        Usury. To the extent it may lawfully do so, the
Company hereby agrees not to insist upon or plead or in any manner whatsoever
claim, and will resist any and all efforts to be compelled to take the benefit
or advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be brought by
any Purchaser in order to enforce any right or remedy under any Transaction
Document. Notwithstanding any provision to the contrary contained in any
Transaction Document, it is expressly agreed and provided that the total
liability of the Company under the Transaction Documents for payments in the
nature of interest shall not exceed the maximum lawful rate authorized under
applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may be
obligated to pay under the Transaction Documents exceed such Maximum Rate. It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Transaction Documents is increased or decreased by statute or
any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to
the Transaction Documents from the effective date thereof forward, unless such
application is precluded by applicable law. If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to any
Purchaser with respect to indebtedness evidenced by the Transaction Documents,
such excess shall be applied by such Purchaser to the unpaid principal balance
of any such indebtedness or be refunded to the Company, the manner of handling
such excess to be at such Purchaser’s election.

 

5.18                        Independent Nature of Purchasers’ Obligations and
Rights. The obligations of each Purchaser under any Transaction Document are
several and not joint with the obligations of any other Purchaser, and no
Purchaser shall be responsible in any way for the performance or non-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 a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchasers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Subject to the
provisions of the Security Agreement, each Purchaser shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser has been
represented by its own separate legal counsel in its review and negotiation of
the Transaction Documents. For reasons of administrative convenience only, each
Purchaser and its respective counsel have chosen to communicate with the Company
through WS. WS does not represent any of the Purchasers and only represents
Genesis. The Company has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by any of the Purchasers.

 

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

 

5.20                        Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then such action may be
taken or such right may be exercised on the next succeeding Business Day.

 

5.21                        Construction. The parties agree that each of them
and/or their respective counsel have reviewed and had an opportunity to revise
the Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement (but without duplication of any such adjustment
provided in the other Transaction Documents).

 

5.22                        WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR
PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE
PARTIES EACH

 

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

 

KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.

 

(Signature Pages Follow)

 

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

 

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

 

BLUE CALYPSO INC.

 

Address for Notice:

 

 

 

 

 

Blue Calypso, Inc.

 

 

19111 North Dallas Parkway, Suite 200

By:

/s/ Andrew Levi

 

Dallas, Texas 75287

Name:

Andrew Levi

 

Attn: Chief Executive Officer

Title:

President and CEO

 

Fax:

 

 

 

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

 

 

 

 

 

Haynes and Boone, LLP
2505 North Plano Road, Suite 4000
Richardson, Texas 75082-4101
Fax:

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

[SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

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

 

[PURCHASER SIGNATURE PAGES TO SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned Purchaser has caused this Securities
Purchase Agreement to be duly executed by its authorized signatory as of the
date first indicated above.

 

Name of Purchaser:   LMD Capital, LLC

 

Signature of Authorized Signatory of Purchaser:

/s/ Steven B. Solomon

 

 

Name of Authorized Signatory:    Steven B. Solomon

 

Title of Authorized Signatory:     Managing Member

 

Email Address of Purchaser:

 

Facsimile Number of Purchaser:

 

Jurisdiction of Organization of Purchaser:

 

Address for Notice of Purchaser:

 

 

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

 

First Closing Subscription Amount $35,000

 

Second Closing Subscription Amount $65,000

 

Third Closing Subscription Amount $200,000

 

Fourth Closing Subscription Amount $200,000

 

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