Execution Copy

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of November 4,
2005 among Beacon Power Corporation, a Delaware corporation (the “Company”), and
the purchasers identified on the signature pages hereto (each, a “Purchaser” and
collectively, the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), the Company desires to issue and sell to each Purchaser, and
each Purchaser, severally and not jointly, desires to purchase from the Company,
certain 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 of the
Purchasers, severally and not jointly, agree as follows:

ARTICLE I

DEFINITIONS

1.1     Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

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

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

 

 

voting rights and equity interests in the surviving entity or acquirer of such
assets; (iv) a recapitalization, reorganization or other transaction involving
the Company or any significant Subsidiary that constitutes or results in a
transfer of more than one-half of the voting rights or equity interests in the
Company; (v) consummation of a “Rule 13e-3 transaction” as defined in Rule 13e-3
under the Exchange Act with respect to the Company, or (vi) the execution by the
Company or its controlling shareholders of an agreement providing for or
reasonably likely to result in any of the foregoing events.

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

“Closing Date” means the date of the Closing.

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

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.01 per share.

"Common Stock Equivalents" means, collectively, Options and Convertible
Securities.

“Company Counsel” means Edwards & Angell, LLP., counsel to the Company.

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

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

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

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

 

 

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“Excluded Stock” means the (A) issuance of Common Stock upon exercise or
conversion of any options or other securities described in Schedule 3.1(f)
(provided that such exercise or conversion occurs in accordance with the terms
thereof, without amendment or modification, and that the applicable exercise or
conversion price or ratio is described in such schedule) or otherwise pursuant
to any employee benefit plan described in Schedule 3.1(f) or hereafter adopted
by the Company and approved by its shareholders, (B) issuance of shares or grant
of options to employees, officers, directors or consultants of the Company
pursuant to a stock option plan or other incentive stock plan duly adopted by
the Company’s board of directors or in respect of the issuance of Common Stock
upon exercise of any such options, (C) issuance of Common Stock in connection
with the acquisition of NxtPhase T&D Corporation in an amount not to exceed
25,000,000, (D) Common Stock issued in connection with any stock split, stock
dividend, or any other stock combination, (E) issuance of securities in
connection with a joint venture or development agreement or strategic
partnership or similar agreement approved by the Company’s board of directors,
in each case, with an entity whose primary business is not to invest in other
companies and (F) issuance of securities in connection with a merger or
acquisition by the Company in which the consideration is Common Stock in
exchange for the capital stock of such other entity, in any case, the primary
purpose of which is not to raise capital.

“Filing Date” means the 30th day following the Closing Date with respect to the
initial Registration Statement required to be filed hereunder, and, with respect
to any additional Registration Statements that may be required pursuant to
Section 6.1(f), the 10th day following the date on which the Company first
knows, or reasonably should have known, that such additional Registration
Statement is required under such Section.

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

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

“Options” means any rights, warrants or options to subscribe for or purchase
Common Stock or Convertible Securities (including all Warrants that can be
issued under the Transaction Documents).

"Perseus Investment" means the transaction described in that certain Investment
Agreement among the Company, Perseus Capital, LLC and Perseus 2000 Expansion LLC
dated April 22, 2005, including all exhibits, schedules and attachments thereto.

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

“Per Unit Purchase Price” means $1.52.

 

 

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

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

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

“Registrable Securities” means any Common Stock (including Underlying Shares)
issued or issuable pursuant to the Transaction Documents, together with any
securities issued or issuable upon any stock split, dividend or other
distribution, recapitalization or similar event with respect to the foregoing.

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

“Required Effectiveness Date” means (i) with respect to the initial Registration
Statement required to be filed hereunder, the 90th day following the Closing
Date, or in the event the Registration Statement shall be reviewed by the
Commission, the 120th day following the Closing Date, and (ii) with respect to
any additional Registration Statements that may be required pursuant to Section
6.1(f), the 90th day following the date on which the Company first knows, or
reasonably should have known, that such additional Registration Statement is
required under such Section, or in the event such additional Registration
Statement shall be reviewed by the Commission, the 120th day following the date
on which the Company first knows, or reasonably should have known, that such
additional Registration Statement is required under such Section; provided,
however, that in no event shall the Required Effectiveness Date for the initial
Registration Statement be earlier than five (5) Trading Days after the
Commission notifies the Company that it has no further comments on the Company’s
proxy statement filed on September 29, 2005, as amended from time to time, or
the Company withdraws such proxy statement; and provided further that in no
event shall the Required Effectiveness Date be later than March 1, 2005.

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

 

 

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"SEC Reports" shall have the meaning given to it in Section 3.1(g).

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

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

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

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

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

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

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

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

“Unit” means one Share and a Warrant to acquire 0.30 shares of Common Stock.

“Warrant” means each Common Stock purchase warrant in the form of Exhibit A,
collectively the “Warrants”.

 

ARTICLE II

PURCHASE AND SALE

2.1  Subject to the terms and conditions set forth in this Agreement, at the
Closing the Company shall issue and sell to each Purchaser, and each Purchaser
shall, severally and not jointly, purchase from the Company, such number of
Units indicated below such Purchaser’s name on the signature page of this
Agreement at the Per Unit Purchase Price. The Closing shall take place at the
offices of Proskauer Rose LLP immediately following the execution hereof, or at
such other location or time as the parties may agree.

 

 

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2.2

Closing Deliveries.

(a)      At the Closing, the Company shall deliver or cause to be delivered to
each Purchaser the following:

(i)         one or more stock certificates, free and clear of all restrictive
and other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing such number of Shares equal to the number of Units indicated below
such Purchaser's name on the signature page of this Agreement, registered in the
name of such Purchaser;

(ii)        a Warrant, registered in the name of such Purchaser, pursuant to
which such Purchaser shall have the right to acquire such number of Underlying
Shares indicated below such Purchaser’s name on the signature page of this
Agreement under the heading “Warrant Shares”

(iii)        a legal opinion of Company Counsel, in the form of Exhibit B,
executed by such counsel and delivered to the Purchasers;

(iv)        duly executed Transfer Agent Instructions, in the form of Exhibit C;

(v)        a duly executed Escrow Agreement, in the form of Exhibit E (the
“Escrow Agreement”); and

(vi)       a certificate from a duly authorized officer certifying on behalf of
the Company that each of the conditions set forth in Section 5.1 has been
satisfied;

(b)     At the Closing, each Purchaser shall deliver or cause to be delivered an
executed copy of this Agreement and an amount equal to the Per Unit Purchase
Price multiplied by the number of Units indicated below such Purchaser’s name on
the signature page of this Agreement under the heading "Units Purchased", in
United States dollars and in immediately available funds, by wire transfer to
Escrow Agent (as such term is defined in the Escrow Agreement) for such purpose.
The total purchase price payable by each Purchaser shall be set forth under such
Purchaser’s name on the signature page of this Agreement under the heading
“Purchase Price.”

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1     Representations and Warranties of the Company. The Company hereby
represents and warrants to each of the Purchasers as follows:

(a)     Subsidiaries. The Company has no direct or indirect Subsidiaries other
than those listed in Schedule 3.1(a). Except as disclosed in Schedule 3.1(a),
the Company owns, directly or indirectly, all of the capital stock or comparable
equity interests of each Subsidiary free and clear of any Lien and all the
issued and outstanding shares of capital stock or

 

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comparable equity interest of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights.

(b)     Organization and Qualification. Each of the Company and the Subsidiaries
is an entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization (as applicable),
with the requisite power and authority to own and use its properties and assets
and to carry on its business as currently conducted. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified to
do business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, does not or could not
reasonably be expected to, individually or in the aggregate, (i) adversely
affect the legality, validity or enforceability of any Transaction Document,
(ii) have or result in a material adverse effect on the results of operations,
assets, business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole on a consolidated basis, or (iii) adversely
impair the Company's ability to perform on a timely basis its obligations under
any of the Transaction Documents (any of (i), (ii) or (iii), a “Material Adverse
Effect”).

(c)     Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company and no further consent or action is
required by the Company, its Board of Directors or its shareholders. Each of the
Transaction Documents has been (or upon delivery will be) duly executed by the
Company and, assuming the due authorization, execution and delivery by the other
parties thereto, is, or when delivered in accordance with the terms hereof, will
constitute, the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.

(d)     No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (i) conflict with or violate
any provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, (ii)
materially and adversely conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company or Subsidiary debt or
otherwise) or other understanding to which the Company or any Subsidiary is a
party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations and the rules and
regulations of any self-regulatory organization to which the

 

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Company or its securities are subject), or by which any property or asset of the
Company or a Subsidiary is bound or affected, which violation could have a
Material Adverse Effect.

(e)      Issuance of the Securities. The Securities (including the Underlying
Shares) are duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens and shall not be subject to
preemptive rights or similar rights of shareholders. The Company has reserved
from its duly authorized capital stock the maximum number of shares of Common
Stock issuable upon exercise of the Warrants.

(f)      Capitalization. The number of shares and type of all authorized, issued
and outstanding capital stock, options and other securities of the Company
(whether or not presently convertible into or exercisable or exchangeable for
shares of capital stock of the Company) is set forth in Schedule 3.1(f). All
outstanding shares of capital stock are duly authorized, validly issued, fully
paid and nonassessable and have been issued in compliance with all applicable
securities laws. Except as disclosed in Schedule 3.1(f), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common
Stock, or securities or rights convertible or exchangeable into shares of Common
Stock. Except as disclosed in Schedule 3.1(f), there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) and the issue and sale of
the Securities (including the Underlying Shares) will not obligate the Company
to issue shares of Common Stock or other securities to any Person (other than
the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities. To the knowledge of the Company, except as specifically
disclosed in Schedule 3.1(f), no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 under the Exchange Act), or has the
right to acquire, by agreement with or by obligation binding upon the Company,
beneficial ownership of in excess of 5% of the outstanding Common Stock,
ignoring for such purposes any limitation on the number of shares of Common
Stock that may be owned at any single time.

(g)      SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law to file such material) (the
foregoing materials (together with any materials filed by the Company under the
Exchange Act, whether or not required) being collectively referred to herein as
the “SEC Reports” and, together with this Agreement and the Schedules to this
Agreement, the “Disclosure Materials”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The Company has delivered to each Purchaser
true, correct and complete SEC Reports filed by the Company within the 10 days
preceding the date hereof. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission

 

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promulgated thereunder, and none of the SEC Reports, when filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject are included as
part of or specifically identified in the SEC Reports.

(h)      Material Changes. Since June 30, 2005, except as specifically disclosed
in the SEC Reports or in Schedule 3.1(h), (i) there has been no event,
occurrence or development that, individually or in the aggregate, has had or
that could 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 and accrued expenses incurred in the ordinary course of
business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the identity of its auditors, except as
disclosed in its SEC Reports, (iv) the Company has not declared or made any
dividend or distribution of cash or other property to its shareholders or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock, and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock-based plans.

(i)       Absence of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
that could reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect. Schedule 3.1(i) contains a complete list and summary
description of any pending or, to the knowledge of the Company, threatened
proceeding against or affecting the Company or any of its Subsidiaries, without
regard to whether it could, individually or in the aggregate, have a Material
Adverse Effect.

(j)       Compliance. Except as set forth on Schedule 3.1(j), neither the
Company nor any Subsidiary (i) is in default under or in violation of (and, to
the knowledge of the Company, 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
written notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument
to which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or

 

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governmental body, or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as has not had, or could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

(k)     Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.

(l)       Certain Fees. Except for the fees described in Schedule 3.1(l), , no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement, and the Company has not taken any action that
would cause any Purchaser to be liable for any such fees or commissions.

(m)     Private Placement. Neither the Company nor any Person acting on the
Company’s behalf has sold or offered to sell or solicited any offer to buy the
Securities by means of any form of general solicitation or advertising. Neither
the Company nor any of its Affiliates nor any Person acting on the Company's
behalf has, directly or indirectly, at any time within the past six months, made
any offer or sale of any security or solicitation of any offer to buy any
security under circumstances that would (i) eliminate the availability of the
exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale of the Securities as contemplated hereby or
(ii) cause the offering of the Securities pursuant to the Transaction Documents
to be integrated with prior offerings by the Company except for the Perseus
Investment for purposes of any applicable law, regulation or stockholder
approval provisions, including, without limitation, under the rules and
regulations of any Trading Market. The Company is not, and is not an Affiliate
of, an “investment company” within the meaning of the Investment Company Act of
1940, as amended. The Company is not a United States real property holding
corporation within the meaning of the Foreign Investment in Real Property Tax
Act of 1980.

(n)      Listing and Maintenance Requirements. Except as described in Schedule
3.1(n), the Company has not, in the two years preceding the date hereof,
received notice (written or oral) from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements except as described in Schedule 3.1(n).

 

 

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(o)     Registration Rights. Except as described in Schedule 3.1(p), the Company
has not granted or agreed to grant to any Person any rights (including
“piggy-back” registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority that have not
been satisfied.

(p)     Application of Takeover Protections. Except as described in Schedule
3.1(p), there is no control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s charter documents or the laws of its
state of incorporation that is or could become applicable to any of the
Purchasers as a result of the Purchasers and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including, without limitation, as a result of the Company's issuance of the
Securities and the Purchasers' ownership of the Securities.

(q)     Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or their agents or
counsel with any information that constitutes or might constitute material,
nonpublic information. The Company understands and confirms that each of the
Purchasers will rely on the foregoing representations in effecting transactions
in securities of the Company. The Disclosure Materials taken together do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred and no information exists with respect to the Company
or any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed. The Company acknowledges and
agrees that (i) no Purchaser makes or has made any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in this Agreement or (ii) any statement, commitment or
promise to the Company or, to its knowledge, any of its representatives which is
or was an inducement to the Company to enter into this Agreement or otherwise.

(r)     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 this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by any Purchaser or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Purchasers'
purchase of the Securities. The Company further represents to each Purchaser
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.

(s)    Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the

 

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failure to so have could reasonably be expected to have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). Neither the Company
nor any Subsidiary has received a written notice that the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes upon the
rights of any Person. To the knowledge of the Company, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights.

(t)      Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

(u)      Regulatory Permits. Except as described in Schedule 3.1(u), the Company
and the Subsidiaries possess all certificates, authorizations and permits issued
by the appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess such permits could not reasonably
be expected to, individually or in the aggregate, have or result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

(v)      Transactions With Affiliates and Employees. Except as set forth in SEC
Reports filed at least ten days prior to the date hereof, none of the officers
or directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

(w)    Form S-3 Eligibility. The Company is eligible to register the resale of
its Common Stock for resale by the Purchasers under Form S-3 promulgated under
the Securities Act.

(x)      Solvency. Based on the financial condition of the Company as of the
Closing Date after giving effect to the transactions contemplated by the
Transaction Documents and receipt of the Purchase Price from each Purchaser, (i)
the Company’s fair saleable value of its assets exceeds the amount that will be
required to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature; (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to

 

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liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company does not intend to incur
debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).

(y)     Internal Accounting Controls. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

(z)      Sarbanes-Oxley Act. The Company is in compliance with applicable
requirements of the Sarbanes-Oxley Act of 2002 and applicable rules and
regulations promulgated by the Commission thereunder in effect as of the date of
this Agreement, except where such noncompliance could not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect.

 

3.2    Representations and Warranties of the Purchasers. Each Purchaser hereby,
as to itself only and for no other Purchaser, represents and warrants to the
Company as follows:

(a)      Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The purchase by such Purchaser of the Shares and the Warrants hereunder has been
duly authorized by all necessary action on the part of such Purchaser. This
Agreement has been duly executed and delivered by such Purchaser and constitutes
the valid and binding obligation of such Purchaser, enforceable against it in
accordance with its terms.

(b)     Purchaser Status. At the time such Purchaser was offered the Shares and
the Warrants, it was, and at the date hereof it is, an “accredited investor” as
defined in Rule 501(a) under the Securities Act.

(c)     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.

 

 

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ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

4.1

Transfer Restrictions.

(a)    Securities may only be disposed of pursuant to an effective registration
statement under the Securities Act or pursuant to an available exemption from
the registration requirements of the Securities Act, and in compliance with any
applicable state securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or to the Company or
pursuant to Rule 144(k), except as otherwise set forth herein, the Company may
require the transferor to provide to the Company an opinion of counsel selected
by the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register on the books of the Company
and with its transfer agent, without any such legal opinion, any transfer of
Securities by a Purchaser to an Affiliate of such Purchaser that is a 100%
parent or under 100% common ownership with such Purchaser, provided that the
transferee certifies to the Company that it is an “accredited investor” as
defined in Rule 501(a) under the Securities Act. For so long as any Purchaser
owns Securities, the Company will not effect or publicly announce its intention
to effect any exchange, recapitalization or other transaction that effectively
requires or rewards physical delivery of certificates evidencing the Common
Stock.

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

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE] HAVE [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, 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 COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE
FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a Registration Statement covering the resale of
such Securities is effective under the Securities Act, or (ii) following any
sale of such Securities pursuant to Rule 144, or (iii) if such Securities are
eligible for sale under Rule 144(k). The Company shall cause its counsel to

 

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issue the legal opinion included in the Transfer Agent Instructions to the
Company's transfer agent on the Effective Date. Following the Effective Date or
at such earlier time as a legend is no longer required for certain Securities,
the Company will use reasonable best efforts to cause its transfer agent, no
later than three Trading Days following the delivery by a Purchaser to the
Company or the Company’s transfer agent of a legended certificate representing
such Securities, deliver or cause to be delivered to such Purchaser a
certificate representing such Securities that is free from all restrictive and
other legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company that enlarge the restrictions
on transfer set forth in this Section.

(c)     The Company acknowledges and agrees that a Purchaser may from time to
time pledge or grant a security interest in some or all of the Securities in
connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Securities and, if required under the terms of such
agreement, loan or arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including the preparation and filing of
any required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act or of a post-effective
amendment to a Registration Statement to appropriately amend the list of Selling
Stockholders thereunder.

4.2    Furnishing of Information. As long as any Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. Upon the request of
any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with
paragraph (c) of Rule 144 such information as is required for the Purchasers to
sell the Securities under Rule 144. The Company further covenants that it will
take such further action as any holder of Securities may reasonably request to
satisfy the provisions of Rule 144 applicable to the issuer of securities
relating to transactions for the sale of securities pursuant to Rule 144.

4.3    Integration. The Company shall not, and shall use its reasonable best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market and could result in material harm to
the Purchasers as a result of such integration.

 

 

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4.4    Reservation and Listing of Securities. The Company shall maintain a
reserve from its duly authorized shares of Common Stock for issuance pursuant to
the Transaction Documents in such amount as may be required to fulfill its
obligations in full under the Transaction Documents. In the event that at any
time the then authorized shares of Common Stock are insufficient for the Company
to satisfy its obligations in full under the Transaction Documents, the Company
shall promptly take such actions as may be required to increase the number of
authorized shares. The Company shall in the time and manner required by its
Trading Market, prepare and file with such Trading Market an additional shares
listing application covering the number of shares of Common Stock issuable under
the Transaction Documents and shall take all steps necessary to cause such
shares of Common Stock to be approved for listing on its Trading Market as soon
as possible.

4.5

Subsequent Placements.

(a)    From the date hereof until the Effective Date, the Company will not,
directly or indirectly, offer, sell, grant any option to purchase, or otherwise
dispose of (or announce any offer, sale, grant or any option to purchase or
other disposition of) any of its or the Subsidiaries’ equity or equity
equivalent securities, including without limitation any debt, preferred stock or
other instrument or security that is, at any time during its life and under any
circumstances, convertible into or exchangeable or exercisable for Common Stock
or Common Stock Equivalents (any such offer, sale, grant, disposition or
announcement being referred to as a “Subsequent Placement”), except as set forth
under clauses (A), (B), (C) and (D) of the definition of Excluded Stock.

(b)      From the Effective Date until 30 Trading Days after the Effective Date
(the “Blockout Period”), the Company will not, directly or indirectly, effect
any Subsequent Placement except as set forth in Section 4.5(e).

(c)       The Blockout Period set forth in Section 4.5(b) above shall be
extended for the number of Trading Days during such period in which (i) trading
in the Common Stock is suspended by any Trading Market, (ii) the Registration
Statement is not effective, or (iii) the prospectus included in the Registration
Statement may not be used by the Purchasers for the resale of Registrable
Securities thereunder.

(d)     From the Closing Date until the one year anniversary thereof, the
Company will not, directly or indirectly, effect any Subsequent Placement unless
the Company shall have first complied with this Section 4.5(d).

(i)         The Company shall deliver to each Purchaser a written notice (the
"Offer") of any proposed or intended issuance or sale of the securities being
offered (the “Offered Securities”) in a Subsequent Placement, which Offer shall
(w) identify and describe the Offered Securities, (x) describe the price (the
price may be expressed as a percentage of the floating market price of the
Company’s common stock) and other terms upon which they are to be issued, sold
or exchanged, and the number or amount of the Offered Securities to be issued or
sold, (y) identify the Persons or entities to which or with which the Offered
Securities are to be offered, issued or sold and (z) offer to issue and sell to
each Purchaser a pro rata portion of fifty percent (50%) of the Offered

 

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Securities (not including any covenants regarding board representation) based on
such Purchaser’s pro rata portion of the aggregate purchase price paid by the
Purchasers for all of the Shares purchased hereunder (the "Basic Amount"), and
with respect to each Purchaser that elects to purchase its Basic Amount, a pro
rata portion of any additional portion of the Offered Securities attributable to
the Basic Amounts of other Purchasers as such Purchaser shall indicate it will
purchase or acquire should the other Purchasers subscribe for less than their
Basic Amounts (the “Undersubscription Amount”); provided, however, that the
Basic Amount and the Undersubscription Amount together for any Purchaser shall
not exceed the number of Offered Securities equal to the purchase price paid by
such Purchaser pursuant to this Agreement divided by the price of the Offered
Securities identified in clause (x) above.

(ii)        To accept an Offer, in whole or in part, a Purchaser must deliver a
written notice to the Company prior to the end of the two (2) Trading Day period
of the Offer, setting forth the portion of the Purchaser's Basic Amount that
such Purchaser elects to purchase and, if such Purchaser shall elect to purchase
all of its Basic Amount, the Undersubscription Amount, if any, that such
Purchaser elects to purchase (in either case, the "Notice of Acceptance"). If
the Basic Amounts subscribed for by all Purchasers are less than the total of
all of the Basic Amounts, then each Purchaser who has set forth an
Undersubcription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the “Available Undersubscription
Amount”), each Purchaser who has subscribed for any Undersubscription Amount
shall be entitled to purchase on that portion of the Available Undersubscription
Amount as the Basic Amount of such Purchaser bears to the total Basic Amounts of
all Purchasers that have subscribed for Undersubscription Amounts, subject to
rounding by the Board of Directors to the extent its deems reasonably necessary.

(iii)        The Company shall have ten (10) Trading Days from the expiration of
the period set forth in Section 4.5(d)(ii) above to issue, sell or exchange all
or any part of such Offered Securities as to which a Notice of Acceptance has
not been given by the Purchasers (the "Refused Securities"), but only to the
offerees described in the Offer and only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons or less favorable to the Company than those
set forth in the Offer (if the price has been expressed as a percentage of the
Company’s common stock’s floating market price in clause (x) of (i) above, then
it will not be deemed to be more favorable to the acquiring Person or less
favorable to the Company merely because the market price for the Company’s
Common Stock changed.

(iv)       In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 4.5(d)(iii) above), then each Purchaser may, at its sole option and
in its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the

 

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Offered Securities that the Purchaser elected to purchase pursuant to Section
4.5(d)(ii) above multiplied by a fraction, (i) the numerator of which shall be
the number or amount of Offered Securities the Company actually proposes to
issue, sell or exchange (including Offered Securities to be issued or sold to
Purchasers pursuant to Section 4.5(c)(ii) above prior to such reduction) and
(ii) the denominator of which shall be the original amount of the Offered
Securities. In the event that any Purchaser so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Purchasers in accordance with Section 4.5(d)(i) above.

(v)        Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Purchasers shall acquire from the
Company, and the Company shall issue to the Purchasers, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 4.5(d)(iv) above if the Purchasers have so elected, upon the terms
and conditions specified in the Offer. The purchase by the Purchasers of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement relating to
such Offered Securities reasonably satisfactory in form and substance to the
Purchasers and their respective counsel.

(vi)       Any Offered Securities not acquired by the Purchasers or other
persons in accordance with Section 4.5(d)(iii) above may not be issued, sold or
exchanged until they are again offered to the Purchasers under the procedures
specified in this Agreement.

(e)      The restrictions contained in paragraphs (b) and (d) of this Section
4.5 shall not apply to Excluded Stock.

4.6    Securities Laws Disclosure; Publicity. (a) The Company shall, on or
before 8:30 a.m., New York City time on November 7, 2005, issue a press release
acceptable to the Purchasers disclosing all material terms of the transactions
contemplated hereby. Prior to the second business day after the Closing Date,
the Company shall file a Current Report on Form 8-K with the Commission (the
“8-K Filing”) describing the terms of the transactions contemplated by the
Transaction Documents and including as exhibits to such Current Report on Form
8-K this Agreement and the form of Warrant, in the form required by the Exchange
Act. Thereafter, the Company shall timely file any filings and notices required
by the Commission or applicable law with respect to the transactions
contemplated hereby and provide copies thereof to the Purchasers promptly after
filing. (b) The Company and the Purchasers shall consult with each other in
issuing any press releases or otherwise making public statements or filings and
other communications with the Commission or any regulatory agency or Trading
Market with respect to the transactions contemplated hereby, and neither party
shall issue any such press release or otherwise make any such public statement,
filing or other communication without the prior consent of the other, except if
such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with notice of such public statement, filing or
other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission

 

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or any regulatory agency or Trading Market, without the prior written consent of
such Purchaser, except 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. (c) The Company shall not, and
shall cause each of its Subsidiaries and its and each of their respective
officers, directors, employees and agents not to, provide any Purchaser with any
material nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing without the express written consent
of such Purchaser. In the event of a breach of the foregoing covenant by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Purchaser shall have the right to make a
public disclosure, in the form of a press release, public advertisement or
otherwise, of such material nonpublic information without the prior approval by
the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Purchaser shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, shareholders or agents for any such disclosure. (d) Each
press release disseminated during the 12 months preceding the date of this
Agreement did not at the time of release contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.

4.7   Use of Proceeds. Except as set forth on Schedule 4.7, the Company shall
use the net proceeds from the sale of the Securities hereunder for working
capital purposes and not (i) for the satisfaction of any portion of the
Company’s debt (other than payment of trade payables and accrued expenses in the
ordinary course of the Company’s business and consistent with past practice),
(ii) to redeem any Company equity or equity-equivalent securities except for the
redemption of restricted stock units for the purpose of paying the withholding
tax on the issuance of the same, or (iii) to settle any outstanding litigation.

4.8    Reimbursement by the Company. If any Purchaser or any of its Affiliates
or any officer, director, partner, controlling Person, employee or agent of a
Purchaser or any of its Affiliates (a “Related Person”) becomes involved in any
capacity in any Proceeding brought by or against any Person in connection with
or as a result of the transactions contemplated by the Transaction Documents,
the Company will indemnify and hold harmless such Purchaser or Related Person
for its reasonable legal and other expenses (including the costs of any
investigation, preparation and travel) and for any Losses incurred in connection
therewith, as such expenses or Losses are incurred, excluding only Losses that
result directly from such Purchaser’s or Related Person’s gross negligence,
willful misconduct or material breach of any representation or warranty made by
such Purchaser in this Agreement. In addition, the Company shall indemnify and
hold harmless each Purchaser and Related Person from and against any and all
Losses, as incurred, arising out of or relating to any breach by the Company of
any of the representations, warranties or covenants made by the Company in this
Agreement or any other Transaction Document, or any allegation by a third party
that, if true, would constitute such a breach. The conduct of any Proceedings
for which indemnification is available under this paragraph shall be governed by
Section 6.4(c) below. The indemnification obligations of the Company under this
paragraph shall be in addition to any liability that the Company may otherwise
have and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Purchasers and any such
Related Persons. If the

 

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Company breaches its obligations under any Transaction Document, then, in
addition to any other liabilities the Company may have under any Transaction
Document or applicable law, the Company shall pay or reimburse the Purchasers on
demand for all costs of collection and enforcement (including reasonable
attorneys fees and expenses). Without limiting the generality of the foregoing,
the Company specifically agrees to reimburse the Purchasers on demand for all
costs of enforcing the indemnification obligations in this paragraph.

4.9   Reimbursement by the Purchasers. The Purchasers shall indemnify and hold
harmless the Company from and against any and all Losses arising solely out of
or relating to any breach by the Purchasers of any of the representations or
warranties made by the Purchasers in this Agreement or any other Transaction
Document.

 

ARTICLE V

CONDITIONS

 

5.1    Conditions Precedent to the Obligations of the Purchasers. The obligation
of each Purchaser to acquire Securities at the Closing is subject to the
satisfaction or waiver by such Purchaser, at or before the Closing, of each of
the following conditions:

(a)    Representations and Warranties. The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing as though made on and as of such
date; and

(b)    Performance. The Company shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by it at
or prior to the Closing.

(c)      No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents;

(d)     Adverse Changes. Since the date of execution of this Agreement, no event
or series of events shall have occurred that reasonably would be expected to
have or result in a Material Adverse Effect; and

(e)      No Suspensions of Trading in Common Stock; Listing. Trading in the
Common Stock shall not have been suspended by the Commission or any Trading
Market (except for any suspensions of trading of not more than three Trading
Days (whether or not consecutive) solely to permit dissemination of material
information regarding the Company) at any time since the date of execution of
this Agreement, and the Common Stock shall have been at all times since such
date listed for trading on an Eligible Market;

 

5.2   Conditions Precedent to the Obligations of the Company. The obligation of
the Company to sell Securities at the Closing is subject to the satisfaction or
waiver by the Company, at or before the Closing, of each of the following
conditions:

 

 

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(a)     Representations and Warranties. The representations and warranties of
the Purchasers contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made on
and as of such date; and

(b)    Performance. The Purchasers shall have performed, satisfied and complied
in all material respects with all covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with by the
Purchasers at or prior to the Closing.

ARTICLE VI

REGISTRATION RIGHTS

6.1

Shelf Registration

(a)      As promptly as possible, and in any event on or prior to the Filing
Date, the Company shall prepare and file with the Commission a “Shelf”
Registration Statement covering the resale of all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415. The Registration
Statement shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance herewith as the
Purchasers may consent) and shall contain (except if otherwise directed by the
Purchasers) the “Plan of Distribution” attached hereto as Exhibit D.

(b)     The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the Commission as promptly as possible
after the filing thereof, but in any event prior to the Required Effectiveness
Date, and shall use its best efforts to keep the Registration Statement
continuously effective under the Securities Act until the fifth anniversary of
the Effective Date or such earlier date when all Registrable Securities covered
by such Registration Statement have been sold publicly (the “Effectiveness
Period”).

(c)      The Company shall notify each Purchaser in writing promptly (and in any
event within one Trading Day) after receiving notification from the Commission
that the Registration Statement has been declared effective.

(d)      As used herein, an "Event" shall have occurred if (i) any Registration
Statement is not filed on or prior to the Filing Date (if the Company files such
Registration Statement without affording the Purchasers the opportunity to
review and comment on the same as required by Section 6.2(a) hereof, the Company
shall not be deemed to have satisfied this clause (i)), or (ii) the Company
fails to file with the Commission a request for acceleration in accordance with
Rule 461 promulgated under the Securities Act, within five Trading Days after
the date that the Company is notified (orally or in writing, whichever is
earlier) by the Commission that a Registration Statement will not be “reviewed,”
or will not be subject to further review, or (iii) the Company fails to respond
to any comments made by the Commission within 10 Trading Days after the receipt
of such comments, except if such comments relate to the financial statements of
the Company or other accounting related issues, in which case, such response
period shall be extended for such period of time as may be required for the
Company’s auditors to provide responses to such comments, or (iv) a Registration
Statement filed hereunder

 

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is not declared effective by the Commission by the Required Effectiveness Date,
or (v) after a Registration Statement is filed with and declared effective by
the Commission, such Registration Statement ceases to be effective as to all
Registrable Securities to which it is required to relate at any time prior to
the expiration of the Effectiveness Period without being succeeded within 10
Trading Days by an amendment to such Registration Statement or by a subsequent
Registration Statement filed with the Commission and if declared effective by
the Commission within 20 Trading Days, or in the event the amendment or
Registration Statement shall be reviewed by the Commission, within in 60 days,
or (vi) without duplication of clause (iii) above, an amendment to a
Registration Statement is not filed by the Company with the Commission within
ten Trading Days after the Commission’s having notified the Company that such
amendment is required in order for such Registration Statement to be declared
effective, or (vii) the Common Stock is not listed or quoted, or is suspended
from trading on an Eligible Market for a period of three Trading Days (which
need not be consecutive Trading Days) , and for purposes of clause (i) or (iv)
the date on which such Event occurs, or for purposes of clause (ii) the date on
which such five Trading Day period is exceeded, or for purposes of clauses
(iii), (v) or (vi) the date which such ten Trading Day-period is exceeded, or
for purposes of clause (vii) the date on which such three Trading Day period is
exceeded, being referred to as “‘Event Date”). On the date of the occurrence of
an Event and on each monthly anniversary thereof during which an Event Date has
occurred, or an Event is continuing, but no later than 1 year from the date
hereof, the Company shall pay to each Purchaser an amount in cash, as liquidated
damages and not as a penalty, equal to one percent (1%) of the aggregate
purchase price paid by such Purchaser pursuant to the Purchase Agreement. Such
payments shall be in partial compensation to the Purchasers and shall not
constitute the Purchaser’s exclusive remedy for such events. If the Company
fails to pay any liquidated damages pursuant to this Section in full within
seven days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Purchaser, accruing daily from the date such
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full.

(e)    The Company shall not, prior to the Effective Date of the Registration
Statement, prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others (other than
as contemplated in the Transaction Documents) under the Securities Act of any of
its equity securities except for registration statements on Form S-8 or S-4 and
except for registration statements covering the sale of the securities issued in
the Perseus Investment.

(f)     If the Company issues to the Purchasers any Common Stock pursuant to the
Transaction Documents that is not included in the initial Registration
Statement, then the Company shall file an additional Registration Statement
covering such number of shares of Common Stock on or prior to the Filing Date
and shall use its best efforts, but in no event later than the Required Filing
Date, to cause such additional Registration Statement to become effective by the
Commission.

 

6.2     Registration Procedures. In connection with the Company's registration
obligations hereunder, the Company shall:

 

 

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(a)      Not less than three Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), the Company shall (i) furnish to each Purchaser and any
individual or firm designated by any Purchaser as counsel (each, a “Purchaser
Counsel”, and Iroquois Master Fund Ltd. has initially designated Proskauer Rose
LLP, the “LP Counsel”) copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of each Purchaser and Purchaser
Counsel, and (ii) subject to Section 4.6(c) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file a Registration Statement or any such
Prospectus or any amendments or supplements thereto to which Purchasers holding
a majority of the Registrable Securities shall reasonably object.

(b)     (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith as may be necessary to keep the Registration
Statement continuously effective as to the applicable Registrable Securities for
the Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424; (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto, except if such comments relate to the
financial statements of the Company or other accounting related issues, in which
case, such response period shall be extended for such period of time as may be
required for the Company’s auditors to provide responses to such comments, and
as promptly as reasonably possible provide the Purchasers true and complete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Purchasers thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.

(c)     Notify the Purchasers and LP Counsel as promptly as reasonably possible,
and (if requested by any such Person) confirm such notice in writing no later
than five (5) Trading Days thereafter, of any of the following events: (i) the
Commission notifies the Company whether there will be a “review” of any
Registration Statement; (ii) the Commission comments in writing on any
Registration Statement (in which case the Company shall deliver to each
Purchaser a copy of such comments and of all written responses thereto); (iii)
any Registration Statement or any post-effective amendment is declared
effective; (iv) the Commission or any other Federal or state governmental
authority requests any amendment or supplement to any Registration Statement or
Prospectus or requests additional information related thereto; (v) the
Commission issues any stop order suspending the effectiveness of any
Registration Statement or initiates any Proceedings for that purpose; (vi) the
Company receives notice of any suspension of the qualification or exemption from
qualification of any Registrable

 

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Securities for sale in any jurisdiction, or the initiation or threat of any
Proceeding for such purpose; or (vii) the financial statements included in any
Registration Statement become ineligible for inclusion therein or any statement
made in any Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference is untrue in any material respect
or any revision to a Registration Statement, Prospectus or other document is
required so that it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.

(d)     Use its reasonable best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of any
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as possible.

(e)    Furnish to each Purchaser and LP Counsel, without charge, at least one
conformed copy of each Registration Statement and each amendment thereto,
including financial statements and schedules, all documents incorporated or
deemed to be incorporated therein by reference, and all exhibits to the extent
requested by such Person (including those previously furnished or incorporated
by reference) promptly after the filing of such documents with the Commission.

(f)      Promptly deliver to each Purchaser and LP Counsel, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Purchasers in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.

(g)     (i) In the time and manner required by each Trading Market, prepare and
file with such Trading Market an additional shares listing application covering
all of the Registrable Securities; (ii) take all steps necessary to cause such
Registrable Securities to be approved for listing on each Trading Market as soon
as possible thereafter; (iii) provide to the Purchasers evidence of such
listing; and (iv) maintain the listing of such Registrable Securities on each
such Trading Market or another Eligible Market.

(h)    Prior to any public offering of Registrable Securities, use its
reasonable best efforts to register or qualify or cooperate with the selling
Purchasers and each applicable Purchaser Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Purchaser requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not have to
provide a general consent to service in any jurisdiction.

 

 

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(i)     Cooperate with the Purchasers to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by this Agreement, of all restrictive legends, and
to enable such Registrable Securities to be in such denominations and registered
in such names as any such Purchasers may request.

(j)      Upon the occurrence of any event described in Section 6.2(c)(vii), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.

(k)     Cooperate with any due diligence investigation undertaken by the
Purchasers in connection with the sale of Registrable Securities, including,
without limitation, by making available any documents and information; provided
that the Company will not deliver or make available to any Purchaser material,
nonpublic information unless such Purchaser specifically requests in advance to
receive material, nonpublic information in writing.

(l)       If Holders of a majority of the Registrable Securities being offered
pursuant to a Registration Statement select underwriters for the offering, the
Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, by
providing customary legal opinions, comfort letters and indemnification and
contribution obligations.

(m)

Comply with all applicable rules and regulations of the Commission.

 

6.3   Registration Expenses. The Company shall pay (or reimburse the Purchasers
for) all fees and expenses incident to the performance of or compliance with
this Agreement by the Company, including without limitation (a) all registration
and filing fees and expenses, including without limitation those related to
filings with the Commission, any Trading Market and in connection with
applicable state securities or Blue Sky laws, (b) printing expenses (including
without limitation expenses of printing certificates for Registrable Securities
and of printing prospectuses requested by the Purchasers), (c) messenger,
telephone and delivery expenses, (d) fees and disbursements of counsel for the
Company, (e) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement, and (f) all listing fees to be paid by the Company to the Trading
Market.

6.4

Indemnification

(a)      Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Purchaser, the
officers, directors, partners, members, agents, investment advisors and
employees of each of them, each Person who controls any such Purchaser (within
the meaning of Section 15 of the Securities Act

 

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or Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto,
or arising out of or relating to any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
the light of the circumstances under which they were made) not misleading,
except to the extent, but only to the extent, that (i) such untrue statements,
alleged untrue statements, omissions or alleged omissions are based solely upon
information regarding such Purchaser furnished in writing to the Company by such
Purchaser expressly for use therein, or to the extent that such information
relates to such Purchaser or such Purchaser's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Purchaser expressly for use in the Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto (the
failure of any Purchaser to object to any such information that is provided in
writing to such Purchaser shall be deemed to be the approval of the same) or
(ii), the use by such Purchaser of an outdated or defective Prospectus after the
Company has notified such Purchaser in writing that the Prospectus is outdated
or defective and prior to the receipt by such Purchaser of notice that use of
the Prospectus (as amended or supplemented) may resume. The Company shall notify
the Purchasers promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.

(b)     Indemnification by Purchasers. Each Purchaser shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of any untrue statement of a material
fact contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
any omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of prospectus
or supplement thereto, in the light of the circumstances under which they were
made) not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Purchaser to the Company specifically for inclusion in such Registration
Statement or such Prospectus or to the extent that (i) such untrue statements or
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto (the failure of any Purchaser to object to any
such information that is provided in writing to such Purchaser shall be deemed
to be the approval of the same) or (ii) the use by such Purchaser of an outdated
or defective Prospectus after the Company has notified such Purchaser in writing
that the Prospectus is outdated or

 

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defective and prior to the receipt by such Purchaser of notice that use of the
Prospectus (as amended or supplemented) may resume. In no event shall the
liability of any selling Purchaser hereunder be greater in amount than the
dollar amount of the net proceeds received by such Purchaser upon the sale of
the Registrable Securities giving rise to such indemnification obligation.

(c)      Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
“Indemnified Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

An Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (i) the Indemnifying Party has agreed in writing to pay such fees and
expenses; or (ii) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (iii) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its prior written consent. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

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

 

 

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(d)     Contribution. If a claim for indemnification under Section 6.4(a) or (b)
is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6.4(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.4(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.

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

6.5  Dispositions. Each Purchaser agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to the Registration Statement.
Each Purchaser further agrees that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Sections 6.2(c)(v), (vi) or
(vii), such Purchaser will discontinue disposition of such Registrable
Securities under the Registration Statement until such Purchaser's receipt of
the copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 6.2(j), or until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.

 

 

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6.6     No Piggyback on Registrations. Except as set forth on Schedule 6.6,
neither the Company nor any of its security holders (other than the Purchasers
in such capacity pursuant hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities, and the Company
shall not after the date hereof enter into any agreement providing any such
right to any of its security holders.

6.7   Piggy-Back Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Purchaser requests to be registered.

6.8    Rights of Transferees Hereunder. No transferee of a Purchaser (or of a
transferee of a Purchaser) including a transferee that was a pledgee of a
Purchaser, shall have any rights under this Article VI until such transferee
shall have given the Company written notice of the transfer of Registrable
Securities to the transferee, and the Company shall have had a reasonable period
of time to file a prospectus supplement or post-effective amendment, as
necessary, in order to amend the list of selling shareholders in the
Registration Statement to include the transferee and, in the case of a
post-effective amendment, the same shall have been declared effective by the
Commission.

6.9   Obligation of Purchasers to Supply Information. If the Company shall
request in writing that any Purchaser provide information about itself for
inclusion in any registration statement or prospectus including Registrable
Securities, and if such Purchaser shall not provide such information in writing
within a reasonable time (in light of the deadlines imposed upon the Company in
this Article VI), then such Purchaser shall have no rights under this Article VI
until such time as the Purchaser provides such applicable information.

 

ARTICLE VII

MISCELLANEOUS

7.1   Termination. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).

7.2     Fees and Expenses. At the Closing, the Company shall pay to Iroquois
Master Fund Ltd. an aggregate of $30,000 for their legal fees and expenses
incurred in connection with the preparation and negotiation of this Agreement,
of which amount $15,000 has been previously

 

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paid by the Company. In lieu of the foregoing remaining payment, Iroquois
Capital LP may retain such amount at the Closing. Except as expressly set forth
in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all transfer agent fees, stamp taxes and other taxes and duties levied
in connection with the issuance of the Securities.

7.3    Entire Agreement. The Transaction Documents, together with the Exhibits
and Schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents. Notwithstanding anything to the contrary
herein, Securities may be assigned to any Person in connection with a bona fide
margin account or other loan or financing arrangement secured by such Company
Securities.

7.4    Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
or email to the email address specified in this Section prior to 6:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number or email to the email address specified in this Section on a
day that is not a Trading Day or later than 6:30 p.m. (New York City time) on
any Trading Day, (c) the Trading Day following the date of deposit with a
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The addresses, facsimile
numbers and email addresses for such notices and communications are those set
forth on the signature pages hereof, or such other address, facsimile number or
email address as may be designated in writing hereafter, in the same manner, by
any such Person.

7.5  Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right. Notwithstanding the foregoing,
a waiver or consent to depart from the provisions hereof with respect to a
matter that relates exclusively to the rights of Purchasers under Article VI and
that does not directly or indirecty affect the rights of other Purchasers may be
given by Purchasers holding at least a majority of the Registrable Securities to
which such waiver or consent relates.

 

 

30

 

 

 

 

7.6    Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

7.7    Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser transfers
any Securities, provided such transferee agrees in writing to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
the “Purchasers.” Notwithstanding anything to the contrary herein, a security
interest in Securities may be granted to any Person in connection with a bona
fide margin account or other loan or financing arrangement secured by such
Securities.

7.8    No Third-Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person, except that each Related Person is an intended third party
beneficiary of Section 4.8 and each Indemnified Party is an intended third party
beneficiary of Section 6.4 and (in each case) may enforce the provisions of such
Sections directly against the parties with obligations thereunder.

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

 

 

31

 

 

 

 

7.10  Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and/or exercise of
the Securities, as applicable.

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

7.12  Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

7.13  Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.

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

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

7.16  Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser hereunder or pursuant to the Warrants or any Purchaser
enforces or exercises its rights hereunder or thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded,

 

32

 

 

 

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

7.17  Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per share
shall be amended to appropriately account for such event.

7.18  Independent Nature of Purchasers' Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance of the obligations of any other Purchaser under any
Transaction Document. The decision of each Purchaser to purchase Securities
pursuant to this Agreement has been made by such Purchaser independently of any
other Purchaser and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of the Subsidiary which may have been made or given
by any other Purchaser or by any agent or employee of any other Purchaser, and
no Purchaser or any of its agents or employees shall have any liability to any
other Purchaser (or any other Person) relating to or arising from any such
information, materials, statements or opinions. Nothing contained herein or in
any Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. The
Company hereby confirms that it understands that the Purchasers are not acting
as a “group” as that term is used in Section 13(d) of the Exchange Act. Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser represents
that it has been represented by its own separate legal counsel in its review and
negotiations of this Agreement and the Transaction Documents and each party
represents and confirms that Proskauer Rose LLP represents only Iroquois Master
Fund Ltd. in connection with this Agreement and the other Transaction Documents.

 

[SIGNATURE PAGES TO FOLLOW]

 

 

33

 

 

 

 

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

BEACON POWER CORPORATION

 

By:

/s/ F. William Capp

 

Name:

F. William Capp

 

Title:

President and Chief Executive Officer

Address for Notice:

234 Ballardvale Street

Wilmington, MA 01887

Facsimile No.: 978-694-9127

Telephone No.: 978-694-9121

Attn: F. William Capp

 

With a copy to:

Albert L. Sokol, Esq.

Edwards Angell Palmer & Dodge LLP

101 Federal Street

Boston, MA 02110

Facsimile No.: 617-439-4170

Telephone No.: 617-439-4444

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 

CURRENT 7553660v7

 

 

 

IROQUOIS MASTER FUND LTD.

By:

/s/ Joshua Silverman

 

Name:

Joshua Silverman

 

Title:

Authorized Signatory

 

Purchase Price

$3,500,000

Units Purchased:

2,302,632

 

Warrant Shares:

690,790

 

 

Address for Notice:

 

Iroquois Master Fund Ltd.

641 Lexington Ave, 26th Floor

New York, NY 10022

Facsimile No.: (212) 207-3452

Telephone No.: (212) 974-3070

Attn: Joshua Silverman

 

With a copy to:

Proskauer Rose LLP

1585 Broadway

New York, New York 10036-8299

Facsimile No.: (212) 969-2900

Telephone No.: (212) 969-3000

Attn: Adam J. Kansler, Esq.

 

 

 

ENABLE OPPORTUNITY PARTNERS, LP

By:

/s/ Adam Epstein

Name:

Adam Epstein

 

Title:

Principal

 

 

Purchase Price

$1.52

 

Units Purchased:

263,158

Warrant Shares:

78,947

 

 

Address for Notice:

 

c/o Enable Capital Management, LLC

One Ferry Building, Ste. 255

San Francisco, CA 94111

 

Facsimile No.: 415-677-1580

Telephone No.: 415-677-1579

Attn: Adam Epstein

 

 

 

 

ENABLE GROWTH PARTNERS, LP

By:

/s/ Adam Epstein

Name:

Adam Epstein

 

Title:

Principal

 

 

Purchase Price

$1.52

 

Units Purchased:

986,842

Warrant Shares:

296,053

 

Address for Notice:

 

c/o Enable Capital Management, LLC

One Ferry Building, Ste. 255

San Francisco, CA 94111

 

Facsimile No.: 415-677-1580

Telephone No.: 415-677-1579

Attn: Adam Epstein

 

 

 

 

GRYPHON MASTER FUND, LP

By:

/s/ E. B. Lyon IV

Name:

E. B. Lyon IV

 

Title:

Authorized Agent

 

 

Purchase Price

$1,249,999.36

Units Purchased:

822,368

 

Warrant Shares:

246,710

 

 

Address for Notice:

 

100 Crescent Ct. #490

Dallas, TX 75201

 

Facsimile No.: 214-871-6711

Telephone No.: 214-871-6783

Attn: Ryan Wolters

 

 

 

 

GSSF MASTER FUND, LP

By:

/s/ E. B. Lyon IV

Name:

E. B. Lyon IV

 

Title:

Authorized Agent

 

 

Purchase Price

$650,000.64

Units Purchased:

427,632

 

Warrant Shares:

128,290

 

 

Address for Notice:

 

100 Crescent Ct. #490

Dallas, TX 75201

 

Facsimile No.: 214-871-6711

Telephone No.: 214-871-6783

Attn: Ryan Wolters

 

 

 

CAPITAL VENTURES INTERNATIONAL

 

By: Heights Capital Management, Inc.

Its authorized agent

By:

/s/ Martin Kobinger

Name:

Martin Kobinger

 

Title:

Investment Manager

 

 

Purchase Price

$1,900,000

Units Purchased:

1,250,000

 

Warrant Shares:

375,000

 

 

Address for Notice:

 

c/o Heights Capital Management, Inc.

101 California St. Suite 3250

San Francisco, CA 94111

Facsimile No.: 415-403-6525

Telephone No.: 415-403-6500

Attn: Martin Hoe

 

 

 

 

TRUK OPPORTUNITY FUND, LLC

 

By: Atoll Asset Management, LLC

By:

/s/ Michael E. Fein

Name:

Michael E. Fein

 

Title:

Principal

 

 

Purchase Price

$1.52

 

Units Purchased:

1,137,500

Warrant Shares:

341,250

 

 

Address for Notice:

 

One East 52nd Street

Sixth Floor

New York, NY 10022

Facsimile No.: 212-888-0334

Telephone No.: 212-888-2224

Attn: Antonia Kolera

EIN: 04-373-8841

 

 

 

 

TRUK INTERNATIONAL FUND, LP

 

By: Atoll Asset Management, LLC

By:

/s/ Michael E. Fein

Name:

Michael E. Fein

 

Title:

Principal

 

 

Purchase Price

$1.52

 

Units Purchased:

112,500

Warrant Shares:

33,750

 

 

Address for Notice:

 

One East 52nd Street

Sixth Floor

New York, NY 10022

Facsimile No.: 212-888-0334

Telephone No.: 212-888-2224

Attn: Antonia Kolera

EIN: 20-049-5789

 

 

 

 

UBS O’CONNOR LLC FBO O’CONNOR PIPES

CORPORATE STRATEGIES MASTER LIMITED

By:

/s/ George Locasto

Name:

George Locasto

 

Title:

Managing Director

 

 

Purchase Price

$2,000,000.00

Units Purchased: (shares)

1,315,789

 

Warrant Shares:

394,737

 

 

Address for Notice:

 

UBS O’Connor LLC

One North Wacker Drive, 32nd Floor

Chicago, IL 60606

Facsimile No.: 312-535-6271

Telephone No.: 312-535-5839

Attn: Jeff Richmond

jeff.richmond@ubs.com

 

 

 

 

NITE CAPITAL LP

By:

/s/ Keith Goodman

 

Name:

Keith Goodman

 

Title:

Manager of the General Partner

 

Purchase Price

$1,900,000.00

Units Purchased: (shares)

1,250,000

 

Warrant Shares:

375,000

 

 

Address for Notice:

 

Nite Capital LP

100 East Cook Ave. #201

Libertyville, IL 60048

Facsimile No.: 847-968-2648

Telephone No.: 847-968-2655

Attn: Keith Goodman