Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of October 26,
2007, among CRDENTIA CORP., a Delaware corporation (the “Company”), and the
investors identified on the signature pages hereto (each, including its
successors and assigns, an “Investor” and collectively, the “Investors”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Investor, and each Investor, 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 Investor agree
as follows:

 

ARTICLE I.
DEFINITIONS

 

Section 1.1                                      Definitions. In addition to the
terms defined elsewhere in this Agreement, for all purposes of this Agreement,
the following terms shall have the meanings indicated in this Section 1.1:

 

“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.

 

“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 an Investor, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Investor will be deemed to be an Affiliate of such Investor.

 

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

 

“Closing” means the closing of the purchase and sale of the Securities pursuant
to Article II.

 

“Closing Date” means the Business Day on which all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Investors’ obligations to pay the Investment
Amount and (ii) the Company’s

 

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obligations to deliver the Shares and Warrants have been satisfied or waived.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any securities into which such common stock may hereafter be
reclassified.

 

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

 

“Company Counsel” means Morrison & Foerster LLP.

 

“Disclosure Materials” has the meaning set forth in Section 3.1(h).

 

“Disclosure Schedules” has the meaning set forth in Article III.

 

“Discussion Time” has the meaning set forth in Section 3.2(f).

 

“Effective Date” means the date that the Registration Statement required by
Section 2(a) of the Registration Rights Agreement is first declared effective by
the Commission.

 

“Evaluation Date” has the meaning set forth in Section 3.1(q).

 

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

 

“GAAP” means U.S. generally accepted accounting principles.

 

“Intellectual Property Rights” has the meaning set forth in Section 3.1(n).

 

“Investment Amount” means, as to each Investor, the aggregate amount to be paid
for the Shares and Warrants purchased hereunder as specified below such
Investor’s name on the signature page of this Agreement and next to the heading
“Investment Amount”, in United States Dollars and in immediately available
funds.

 

“Investor” has the meaning set forth in the Preamble.

 

“Investor Party” has the meaning set forth in Section 4.11.

 

“Legend Removal Date” has the meaning set forth in Section 4.1(c).

 

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

 

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“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, business or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (iii) an adverse impairment to the Company’s ability to perform on a
timely basis its obligations under any Transaction Document.

 

“New York Courts” means the state and federal courts sitting in the City of New
York, Borough of Manhattan.

 

“Per Share Purchase Price” equals $0.30.

 

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

 

“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.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of this Agreement, among the Company and the Investors, in the
form of Exhibit A hereto.

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investors of the Shares and the Warrant Shares.

 

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

 

“SEC Reports” has the meaning set forth in Section 3.1(h).

 

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

 

“Securities Act” has the meaning set forth in the Preamble.

 

“Shares” means up to a maximum of $7,500,000 worth of the shares of Common Stock
issued or issuable to the Investors pursuant to this Agreement.

 

“Short Sales” include, without limitation, all “short sales” as defined in
Rule 200 promulgated under Regulation SHO under the Exchange Act and all types
of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, swaps and similar arrangements (including on a total return basis), and
sales and other transactions through non-US broker dealers or foreign regulated
brokers.

 

“Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of

 

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the Regulation S-X promulgated by the Commission under the Exchange Act.

 

“Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed on a Trading Market (other than the OTC Bulletin Board), a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding to its functions of reporting prices);
provided, that in the event that the Common Stock is not listed or quoted as set
forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.

 

“Transaction Documents” means this Agreement, the Warrant and the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

 

“Warrants” means collectively the Common Stock purchase warrants, in the form of
Exhibit B hereto, delivered to the Investors at the Closing in accordance with
Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have
a term of exercise equal to five (5) years.

 

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

 

ARTICLE II
PURCHASE AND SALE

 

Section 2.1                                      Closing. Subject to the terms
and conditions set forth in this Agreement, at each Closing (as defined below),
the Company shall issue and sell to each Investor participating in such Closing,
and each such Investor shall, severally and not jointly, purchase from the
Company, the Shares and Warrants representing such Investor’s Investment Amount
as set forth on Schedule A hereto, for aggregate gross proceeds to the Company
of up to a maximum of $7.5 million, as follows:

 

(a)                                  Initial Closing. Each Investor shall
deliver to the Company via wire transfer or a certified check immediately
available funds equal to their Investment Amount and the Company shall deliver
to each Investor their respective Shares and Warrants as determined pursuant to
Section 2.2(a) and the other items set forth in Section 2.2 issuable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.3 and 2.4,
the Closing shall occur at the offices of Morrison & Foerster LLP, 12531 High
Bluff Drive, San Diego, California, or such other location as the parties shall
mutually agree (which time and place are designated as the “Initial Closing”).

 

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(b)                                 Subsequent Closing. The Company may sell up
to the balance of the authorized number of Securities not sold at the Initial
Closing to such Investors as it shall select provided that any such sale shall
be consummated no later than ten (10) Business Days following the Initial
Closing. All additional Invesment Amounts invested hereunder shall be reflected
on Schedule A, which shall be automatically amended without any further action
by any party hereto. The subsequent purchases and sales of the Shares and
Warrants shall take place at the offices of Morrison & Foerster LLP, 12531 High
Bluff Drive, Suite 100, San Diego, California 92130, at such time or at such
other place as the Company and the Investors acquiring the Shares and Warrants
mutually agree upon orally or in writing (which such time and place, together
with the Initial Closing, are each designated as a “Closing”).

 

Section 2.2                                      Closing Deliveries.   (a)  At
the Closing, the Company shall deliver or cause to be delivered to each Investor
the following:

 

(i)                                     this Agreement duly executed by the
Company;

 

(ii)                                  a certificate evidencing a number of
Shares equal to such Investor’s Investment Amount divided by the Per Share
Purchase Price, registered in the name of such Investor;

 

(iii)                               a Warrant registered in the name of such
Investor to purchase up to a number of shares of Common Stock equal to 50% of
such Investor’s Investment Amount divided by $0.30, with an exercise price equal
to $0.35, subject to adjustment therein; and

 

(iv)                              the Registration Rights Agreement, duly
executed by the Company.

 

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

 

(i)                                     this Agreement duly executed by such
Investor;

 

(ii)                                  such Investor’s Investment Amount, in
United States dollars and in immediately available funds, by check or by wire
transfer to an account specified in writing by the Company for such purpose; and

 

(iii)                               the Registration Rights Agreement, duly
executed by such Investor.

 

Section 2.3                                      Closing Conditions.

 

(a)                                  The obligation of each Investor to acquire
Securities at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:

 

(i)                                     with respect to the Initial Closing, the
Company shall have received commitments from Investors to purchase an amount of
Securities with an aggregate

 

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purchase price of at least $4 million;

 

(ii)                                  the accuracy in all material respects on
the Closing Date of the representations and warranties of the Company contained
herein;

 

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

 

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

 

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

 

(b)                                 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:

 

(i)                                     the accuracy in all material respects
when made and on the Closing Date of the representations and warranties of the
Investors contained herein;

 

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

 

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

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES

 

Section 3.1                                      Representations and Warranties
of the Company. Except as set forth under the corresponding section of the
disclosure schedules delivered to the Investors concurrently herewith (the
“Disclosure Schedules”), which Disclosure Schedules shall be deemed a
part hereof, the Company hereby makes the following representations and
warranties to each Investor:

 

(a)                                  Subsidiaries. The Company has no direct or
indirect Subsidiaries other than as specified in the SEC Reports. The Company
owns, directly or indirectly, all of the capital stock of each Subsidiary free
and clear of any and all Liens, and all the issued and outstanding shares of
capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights. Neither the Company
nor any Subsidiary is party to any material joint venture, nor has any ownership
interest in any entity that is material to the Company or as disclosed in the
SEC Reports.

 

(b)                                 Organization and Qualification. The Company
and each Subsidiary are duly incorporated or otherwise organized and validly
existing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own

 

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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
material provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. The Company and each
Subsidiary are duly qualified to conduct its respective businesses and are in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, have
or reasonably be expected to result in 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 thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company in connection therewith. Each Transaction Document has been (or upon
delivery will have been) duly executed by the Company and, 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, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.

 

(d)                                 No Conflicts. Except as otherwise disclosed
on Schedule 3.1(d), the execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, 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) to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.

 

(e)                                  Filings, Consents and Approvals. The
Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing with the Commission of one or
more

 

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Registration Statements in accordance with the requirements of the Registration
Rights Agreement, (ii) filings required by state securities laws, (iii) the
filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act, (iv) the filings required in accordance with
Sections 4.6 and 4.15, (v) such consents or waivers as may be required under
registration rights agreements entered into in connection with business
acquisitions effected prior to the date of this Agreement, and (vi) the filing
of any requisite notices with the Trading Market and (vii) those that have been
made or obtained prior to the date of this Agreement.

 

(f)                                    Issuance of the Securities. The
Securities have been 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. The Company has reserved from its
duly authorized capital stock the Shares issuable pursuant to this Agreement.

 

(g)                                 Capitalization. The number of shares and
type of all authorized, issued and outstanding capital stock of the Company, and
all shares of Common Stock reserved for issuance under the Company’s various
option and incentive plans as of June 30, 2007, is accurately set forth in the
SEC Reports. Except as specified in the SEC Reports, no securities of the
Company are entitled to preemptive or similar rights. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as specified in the SEC Reports, and other than stock options granted
pursuant to the Company’s stock option plans following June 30, 2007, there are
no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or 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.
The issue and sale of the Securities will not, immediately or with the passage
of time, obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Investors) 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.

 

(h)                                 SEC Reports; Financial Statements. The
Company has filed all reports, forms and schedules required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof
(or such shorter period as the Company was required by law to file such reports)
(the foregoing materials being collectively referred to herein as the “SEC
Reports” and, together with the Schedules to this Agreement (if any), the
“Disclosure Materials”) on a timely basis or has timely filed a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The SEC Reports, as amended, when filed,
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, as amended, 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
light of the circumstances under which they were made, not misleading. The
financial

 

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statements of the Company included in the SEC Reports, as amended, comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved, 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, year-end audit adjustments.

 

(i)                                     Material Changes. Since the date of the
latest audited financial statements included within the SEC Reports, except as
specifically disclosed in the SEC Reports, (i) there has been no event,
occurrence or development that has had or that could reasonably be expected to
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities 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, (iv) the Company has
not declared or made any dividend or distribution of cash or other property to
its stockholders or purchased, redeemed or made any agreements to purchase or
redeem any shares of its capital stock (other than in connection with
repurchases of unvested stock issued to employees of the Company), and (v) the
Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock option plans.

 

(j)                                     Litigation. There is no Action which
(i) adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) except as
specifically disclosed in the SEC Reports, could, if there were an unfavorable
decision, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor
any director or officer thereof (in his or her capacity as such), is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty, except
as specifically disclosed in the SEC Reports. There has not been, and to the
knowledge of the Company, there is not pending any investigation by the
Commission involving the Company or any current or former director or officer of
the Company (in his or her capacity as such). The Commission has not issued any
stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

 

(k)                                  Compliance. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
that has not been waived that, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been waived),
(ii) is in violation of, or in receipt of notice that it is in violation of,

 

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any order of any court, arbitrator or governmental body, or (iii) is or has been
in violation of, or in receipt of notice that it is 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, employment and labor matters and, to its knowledge, privacy, except in
each case as could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect. The Company is in compliance
with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended,
and the rules and regulations thereunder, that are applicable to it, except
where such noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect.

 

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

 

(m)                               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 their respective businesses and good and
marketable title in all personal property owned by them that is material to
their respective businesses, 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 leases valid,
subsisting and enforceable against the Company and the Subsidiaries, and the
Company and the Subsidiaries are in compliance with such leases, except as could
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.

 

(n)                                 Patents and Trademarks. The Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could, individually or in the aggregate, have or
reasonably be expected to result in 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
and the Company has no knowledge of any such violation or infringement. Except
as set forth in the SEC Reports, to the knowledge of the Company, all such
Intellectual Property Rights are enforceable.

 

(o)                                 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 for
enterprises of similar size and stage of development in the businesses

 

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in which the Company and the Subsidiaries are engaged. The Company has no reason
to believe that it will not be able to renew its and the Subsidiaries’ 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 on
terms consistent with market for the Company’s and such Subsidiaries’ respective
lines of business.

 

(p)                                 Transactions With Affiliates and Employees.
Except as set forth in the SEC Reports, 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 required to be disclosed in the SEC Reports (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.

 

(q)                                 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 GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the Company and designed such disclosure controls and procedures
to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those
entities. The Company’s certifying officers have evaluated the effectiveness of
the Company’s controls and procedures in accordance with Item 307 of Regulation
S-K under the Exchange Act for the Company’s fiscal quarter ended June 30, 2007
(such date, the “Evaluation Date”). The Company presented in its most recently
filed Form 10-Q the conclusions of the certifying officers about the
effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no significant changes in the Company’s internal controls (as such term is
defined in Item 308 of Regulation S-K under the Exchange Act) or, to the
Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls which was required to be disclosed in the SEC
Reports and was not so disclosed.

 

(r)                                    Certain Fees. Other than fees that may be
payable to Global Hunter Securities, LLC, no agent or broker will receive
brokerage or finder fees or commissions payable by the Company with respect to
the transactions contemplated by this Agreement. The Investors shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by an Investor pursuant to written agreements
executed by such Investor which fees or commissions shall be the sole
responsibility of such Investor) made by or on behalf of other Persons for fees
of a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement.

 

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(s)                                  Certain Registration Matters. Assuming the
accuracy of the Investors’ representations and warranties set forth in
Section 3.2, no registration under the Securities Act is required for the offer
and sale of the Shares and Warrants by the Company to the Investors under the
Transaction Documents.

 

(t)                                    Listing and Maintenance Requirements.
Except as specified in the SEC Reports, the Company has not, in the two years
preceding the date hereof, received notice from any Trading Market to the effect
that the Company is not in compliance with the listing or maintenance
requirements thereof. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with the listing and
maintenance requirements for continued listing of the Common Stock on the
Trading Market on which the Common Stock is currently listed or quoted. The
issuance and sale of the Securities under the Transaction Documents does not
contravene the rules and regulations of the Trading Market on which the Common
Stock is currently listed or quoted, and no approval of the shareholders of the
Company thereunder is required for the Company to issue and deliver to the
Investors the Securities contemplated by Transaction Documents.

 

(u)                                 Investment Company. The Company is not, and
is not an Affiliate of, and immediately following the Closing will not have
become, an “investment company” within the meaning of the Investment Company Act
of 1940, as amended.

 

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

 

(w)                               No Additional Agreements. The Company does not
have any agreement or understanding with any Investor with respect to the
transactions contemplated by the Transaction Documents other than as specified
in the Transaction Documents.

 

(x)                                   Disclosure. The Company confirms that
neither it nor any Person acting on its behalf has provided any Investor or its
respective agents or counsel with any information that the Company believes
constitutes material, non-public information except insofar as the existence and
terms of the proposed transactions hereunder may constitute such information.
The Company understands and confirms that the Investors will rely on the
foregoing representations and covenants in effecting transactions in securities
of the Company. All disclosure provided to the Investors regarding the Company,
its business and the transactions contemplated hereby, furnished by or on behalf
of the Company (including the Company’s representations and warranties set forth
in this Agreement) are true and correct and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.

 

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(y)                                 Insolvency. The Company is not as of the
date hereof, and after giving effect to the transactions contemplated hereby to
occur at the Closing will not, be Insolvent. For purposes of this Agreement,
“Insolvent” shall mean, with respect to any Person, that (i) such Person is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured or (ii) such Person
intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature.

 

(z)                                   Transfer Taxes. On the Closing Date, all
stock transfer or other taxes (other than income or similar taxes) which are
required to be paid in connection with the sale and transfer of the Securities
to be sold to each Investor hereunder will be, or will have been, fully paid or
provided for by the Company, and all laws imposing such taxes will be or will
have been complied with by the Company, except where such noncompliance could
not have or reasonably be expected to result in a Material Adverse Effect.

 

(aa)                            Tax Status. The Company and each of its
Subsidiaries (i) has made or filed all foreign, federal and state income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and (iii) has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply, except where the failure to do so could
not have or reasonably be expected to result in a Material Adverse Effect. There
are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

 

(bb)                          Undisclosed Liabilities. No event, liability,
development or circumstance has occurred or exists with respect to the Company
or its respective business, properties, prospects, operations or financial
condition, that would be required to be disclosed by the Company under the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder relating to an issuance and sale by the
Company of its securities and which has not been reported in accordance with
such rules and regulations of the Commission.

 

(cc)                            Employee Relations. Neither Company nor any of
its Subsidiaries is a party to any collective bargaining agreement or employs
any member of a union. The Company and its Subsidiaries believe that their
relations with their employees are good. No executive officer of the Company or
any of its Subsidiaries (as defined in Rule 501(f) of the Securities Act) has
notified the Company or any such Subsidiary that such officer intends to leave
the Company or any such Subsidiary or otherwise terminate such officer’s
employment with the Company or any such Subsidiary. No executive officer of the
Company or any of its Subsidiaries, to the knowledge of the Company or any such
Subsidiary, is now, or expects to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract, agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any such Subsidiary to any liability
with respect to any of the foregoing matters. The Company and its Subsidiaries
are in compliance with all federal, state and local laws and

 

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regulations respecting labor, employment and employment practices and benefits,
terms and conditions of employment and wages and hours, except where failure to
be in compliance would not, either individually or in the aggregate, reasonably
be expected to result in a Material Adverse Effect. There are no complaints or
charges against the Company or its Subsidiaries pending or, to the knowledge of
the Company and its Subsidiaries, threatened to be filed with any governmental
authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by the Company
or its Subsidiaries of any individual, that would be reasonably likely to result
in a Material Adverse Effect.

 

(dd)                          Subsidiary Rights. The Company or one of its
Subsidiaries has the unrestricted right to vote, and (subject to limitations
imposed by applicable law) to receive dividends and distributions on, all
capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.

 

(ee)                            Off Balance Sheet Arrangements. There is no
transaction, arrangement, or other relationship between the Company and an
unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its SEC Reports and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.

 

Section 3.2                               Representations and Warranties of the
Investors. Each Investor hereby, for itself and for no other Investor,
represents and warrants to the Company as follows:

 

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

 

(b)                                 Own Account. Such Investor understands that
the Securities are “restricted securities” and have not been registered under
the Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for
distributing or reselling such Securities or any part thereof in violation of
the Securities Act or any applicable state securities law, has no present
intention of distributing any of such Securities in violation of the Securities
Act or any applicable state securities law and has no arrangement or
understanding with any other persons regarding the distribution of such

 

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Securities (this representation and warranty not limiting such Investor’s right
to sell the Securities pursuant to the Registration Statement or otherwise in
compliance with applicable federal and state securities laws) in violation of
the Securities Act or any applicable state securities law. Such Investor is
acquiring the Securities hereunder in the ordinary course of its business. Such
Investor does not have any agreement or understanding, directly or indirectly,
with any Person to distribute any of the Securities.

 

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

 

(d)                                 Experience of Such Investor. Such Investor,
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
Investor is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.

 

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

 

(f)                                    Short Sales and Confidentiality Prior To
The Date Hereof. Other than the transaction contemplated hereunder, such
Investor has not directly or indirectly, nor has any Person acting on behalf of
or pursuant to any understanding with such Investor, executed any disposition,
including Short Sales, in the securities of the Company during the period
commencing from the time that such Investor first received a term sheet from the
Company or any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion Time”).
Notwithstanding the foregoing, in the case of a Investor that is a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions
of such Investor’s assets and the portfolio managers have no direct knowledge of
the investment decisions made by the portfolio managers managing other portions
of such Investor’s assets, the representation set forth above shall only apply
with respect to the portion of assets managed by the portfolio manager that made
the investment decision to purchase the Securities covered by this Agreement.
Other than to other Persons party to this Agreement, such Investor has
maintained the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).

 

The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

 

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ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES

 

Section 4.1                                      Transfer Restrictions.

 

(a)                                  The Securities may only be disposed of in
compliance with state and federal securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or Rule 144, to the Company or to an affiliate of a Investor or in
connection with a pledge as contemplated in Section 4.1(b), the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. As a condition of transfer, any
such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights of a Investor under this Agreement and the
Registration Rights Agreement.

 

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

 

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE] HAVE 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. 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 SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Investor may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Investor 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 legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Investor’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

 

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transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

 

(c)                                  Certificates evidencing the Warrant Shares
shall not contain any legend (including the legend set forth in
Section 4.1(b) hereof): (i) while a registration statement (including the
Registration Statement) covering the resale of such security is effective under
the Securities Act, or (ii) following any sale of such Warrant Shares pursuant
to Rule 144, or (iii) if such Warrant Shares are eligible for sale under
Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Company shall cause
its counsel to issue a legal opinion to the Company’s transfer agent promptly
after the Effective Date if required by the Company’s transfer agent to effect
the removal of the legend hereunder. If all or any portion of a Warrant is
exercised at a time when there is an effective registration statement to cover
the resale of the Warrant Shares, or if such Warrant Shares may be sold under
Rule 144(k) or if such legend is not otherwise required under applicable
requirements of the Securities Act (including judicial interpretations thereof)
then such Warrant Shares shall be issued free of all legends. The Company agrees
that following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than ten Trading Days
following the delivery by a Investor to the Company or the Company’s transfer
agent of a certificate representing Warrant Shares, as applicable, issued with a
restrictive legend (such tenth Trading Day, the “Legend Removal Date”), deliver
or cause to be delivered to such Investor a certificate representing such shares
that is free from all restrictive and other legends. The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.
Certificates for Securities subject to legend removal hereunder shall be
transmitted by the transfer agent of the Company to the Investors by crediting
the account of the Investor’s prime broker with the Depository Trust Company
System.

 

(d)                                 Each Investor, severally and not jointly
with the other Investors, agrees that the removal of the restrictive legend from
certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company’s reliance that the Investor will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom.

 

(e)                                  Until the one year anniversary of the
Effective Date, the Company shall not undertake a reverse or forward stock split
or reclassification of the Common Stock without the prior written consent of the
Investors holding a majority of the Shares, unless the Board of Directors
determines that a particular reverse split is necessary in order to secure the
inclusion or listing of the Common Stock on the Nasdaq Stock Market or a
national securities exchange.

 

Section 4.2                                      Acknowledgment of Dilution. The
Company acknowledges that the issuance of the Securities may result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial
under certain market conditions. The Company further acknowledges that its
obligations under the Transaction Documents, including without limitation

 

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its obligation to issue the Warrant Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set
off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against any Investor and regardless
of the dilutive effect that such issuance may have on the ownership of the other
stockholders of the Company.

 

Section 4.3                                      Furnishing of Information. As
long as any Investor 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. As long as any Investor owns Securities, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Investors and make publicly available in accordance
with Rule 144(c) such information as is required for the Investors 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, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.

 

Section 4.4                                      Integration. The Company shall
not sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the sale of the
Securities to the Investors or that would be integrated with the offer or sale
of the Securities for purposes of the rules and regulations of any Trading
Market.

 

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

 

Section 4.6                                      Securities Laws Disclosure;
Publicity. The Company shall, by 8:30 a.m. Eastern time on the Trading Day
following the date hereof, issue a Current Report on Form 8-K, reasonably
acceptable to each Investor disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto. The
Company and each Investor shall consult with each other in issuing any other
press releases with respect to the transactions contemplated hereby, and neither
the Company nor any Investor shall issue any such press release or otherwise
make any such public statement without the prior consent of the Company, with
respect to any press release of any Investor, or without the prior consent of
each Investor, with respect to any press release of the Company, which consent
shall not unreasonably be withheld, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Investor, or
include the name of any Investor in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Investor, except (i) as required by federal securities law in connection with
the registration statement

 

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contemplated by the Registration Rights Agreement and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Investors with prior notice of such disclosure
permitted under subclause (i) or (ii).

 

Section 4.7                                      Shareholder Rights Plan. No
claim will be made or enforced by the Company or, to the knowledge of the
Company, any other Person that any Investor is an “Acquiring Person” under any
shareholder rights plan or similar plan or arrangement in effect or hereafter
adopted by the Company, or that any Investor could be deemed to trigger the
provisions of any such plan or arrangement, by virtue of receiving Securities
under the Transaction Documents or under any other agreement between the Company
and the Investors. The Company shall conduct its business in a manner so that it
will not become subject to the Investment Company Act.

 

Section 4.8                                      Non-Public Information. The
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Investor or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Investor shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Investor shall be relying on the foregoing representations in
effecting transactions in securities of the Company.

 

Section 4.9                                      Use of Proceeds. The Company
shall use the net proceeds from the sale of the Securities hereunder for
acquisitions and for general working capital purposes.

 

Section 4.10                                Reimbursement. If any Investor
becomes involved in any capacity in any Proceeding by or against any Person who
is a stockholder of the Company (except as a result of sales, pledges, margin
sales and similar transactions by such Investor to or with any current
stockholder), solely as a result of such Investor’s acquisition of the
Securities under this Agreement, the Company will reimburse such Investor for
its reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection
therewith, as such expenses are incurred. The reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliates of the Investors who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
controlling persons (if any), as the case may be, of the Investors and any such
Affiliate, and shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, the Investors and
any such Affiliate and any such Person. The Company also agrees that neither the
Investors nor any such Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or any Person
asserting claims on behalf of or in right of the Company solely as a result of
acquiring the Securities under this Agreement.

 

Section 4.11                                Indemnification of Investors.
 Subject to the provisions of this Section 4.11, the Company will indemnify and
hold each Investor and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Investor (within the meaning of
Section 15 of the

 

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Securities Act and Section 20 of the Exchange Act), and the directors, officers,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, a
“Investor Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Investor Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a Investor,
or any of them or their respective Affiliates, by any stockholder of the Company
who is not an Affiliate of such Investor, with respect to any of the
transactions contemplated by the Transaction Documents (unless such action is
based upon a breach of such Investor’s representations, warranties or covenants
under the Transaction Documents or any agreements or understandings such
Investor may have with any such stockholder or any violations by the Investor of
state or federal securities laws or any conduct by such Investor which
constitutes fraud, gross negligence, willful misconduct or malfeasance). If any
action shall be brought against any Investor Party in respect of which indemnity
may be sought pursuant to this Agreement, such Investor Party shall promptly
notify the Company in writing, and the Company shall have the right to assume
the defense thereof with counsel of its own choosing. Any Investor Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Investor Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Investor Party. The Company
will not be liable to any Investor Party under this Agreement (i) for any
settlement by a Investor Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Investor Party’s breach of any of the representations,
warranties, covenants or agreements made by the Investors in this Agreement or
in the other Transaction Documents.

 

Section 4.12                                Reservation and Listing of
Securities.

 

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

 

(b)                                 If, on any date, the number of authorized
but unissued (and otherwise unreserved) shares of Common Stock is less than the
Required Minimum on such date, then the Board of Directors of the Company shall
use commercially reasonable efforts to amend the Company’s certificate or
articles of incorporation to increase the number of authorized but unissued
shares of Common Stock to at least the Required Minimum at such time, as soon as
possible and in any event not later than the 90th day after such date.

 

(c)                                  The Company shall, if applicable: (i) in
the time and manner required by

 

20

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the Trading Market, prepare and file with such Trading Market an additional
shares listing application covering a number of shares of Common Stock at least
equal to the Required Minimum on the date of such application, (ii) take all
steps necessary to cause such shares of Common Stock to be approved for listing
on the Trading Market as soon as possible thereafter, (iii) provide to the
Investors evidence of such listing, and (iv) maintain the listing of such Common
Stock on any date at least equal to the Required Minimum on such date on such
Trading Market or another Trading Market.

 

Section 4.13                                Equal Treatment of Investors. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents.

 

Section 4.14                                Short Sales and Confidentiality
After The Date Hereof. Each Investor severally and not jointly with the other
Investors covenants that neither it nor any affiliates acting on its behalf or
pursuant to any understanding with it will execute any Short Sales during the
period after the Discussion Time and ending at the time that the transactions
contemplated by this Agreement are first publicly announced as described in
Section 4.6. Further, each Investor severally and not jointly with the other
Investors covenants that until such Investor does not hold any of the Warrants,
such Investor shall not create any “net short” position in the Company’s Common
Stock, whereby the Investor shall have engaged in a Short Sale which would make
such Investor’s short position greater than the number of shares of Common Stock
which such Investor could obtain by exercising its Warrants held at the time of
such determination. Each Investor, severally and not jointly with the other
Investors, covenants that until such time as the transactions contemplated by
this Agreement are publicly disclosed by the Company as described in
Section 4.6, such Investor will maintain, the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction). Each Investor understands and acknowledges,
severally and not jointly with any other Investor, that the Commission currently
takes the position that coverage of short sales of shares of the Common Stock
“against the box” prior to the Effective Date of the Registration Statement with
the Securities is a violation of Section 5 of the Securities Act, as set forth
in Item 65, Section 5 under Section A, of the Manual of Publicly Available
Telephone Interpretations, dated July 1997, compiled by the Office of Chief
Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no
Investor makes any representation, warranty or covenant hereby that it will not
engage in Short Sales in the securities of the Company after the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.6. Notwithstanding the foregoing, in the case of a
Investor that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Investor’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Investor’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

 

Section 4.15                                Form D; Blue Sky Filings. The
Company agrees to timely file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof,

 

21

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promptly upon request of any Investor. The Company shall, on or before or after
the Closing Date, take such action as the Company shall reasonably determine is
necessary in order to obtain an exemption for, or to qualify the Securities for,
sale to the Investors at the Closing under applicable securities or “Blue Sky”
laws of the states of the United States, and shall provide evidence of such
actions promptly upon request of any Investor.

 

ARTICLE V
MISCELLANEOUS

 

Section 5.1                                      Fees and Expenses. 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 the Transaction
Documents. The Company shall pay all stamp and other taxes and duties levied in
connection with the sale of the Shares.

 

Section 5.2                                      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, understandings, discussions and
representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules.

 

Section 5.3                                      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 (provided the sender receives a machine-generated
confirmation of successful transmission and reasonably promptly following such
transmission sends such notice or communication via U.S. mail or overnight
courier) at the facsimile number specified in this Section prior to 5:00 p.m.
(New York City time) on a Business Day, (b) the next Business Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number specified in this Section on a day that is not a Business
Day or later than 5:00 p.m. (New York City time) on any Business Day, (c) the
Business Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The address for such notices and
communications shall be as follows:

 

If to the Company:

 

Crdentia Corp.

 

 

5001 LBJ Freeway, Suite 850

 

 

Dallas, Texas 75244

 

 

Facsimile No.:  (972) 850-0780

 

 

Telephone No.: (972) 392-2722

 

 

Attention: Chief Executive Officer

 

 

 

With a copy to:

 

Morrison & Foerster LLP

 

 

12531 High Bluff Drive, Suite 100

 

 

San Diego, CA 92130

 

 

Facsimile No.:  (858) 720-5125

 

 

Attention:  Steven G. Rowles, Esq.

 

22

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If to an Investor:

 

To the address set forth under such Investor’s
name on the signature pages hereof

 

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

 

Section 5.4                       Amendments; Waivers; No Additional
Consideration. No provision of this Agreement may be waived, modified,
supplemented or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Investors holding a majority of the Shares or,
in the case of a waiver, by the party against whom enforcement of 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.

 

Section 5.5                       Headings. The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof. 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.

 

Section 5.6                       Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Other than in connection with a merger, consolidation, sale
of all or substantially all of the Company’s assets or other similar change in
control transaction, the Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investors. Any
Investor may assign any or all of its rights under this Agreement to any Person
to whom such Investor assigns or transfers any Securities, provided such
transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions hereof that apply to the Investors.

 

Section 5.7                       No Third-Party Beneficiaries. This Agreement
is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except as otherwise set forth
in Section 4.11.

 

Section 5.8                       Governing Law. All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced in accordance with the
internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all Proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the New York Courts. Each party hereto hereby
irrevocably submits to the exclusive jurisdiction of the New York Courts for the
adjudication of any dispute hereunder or in connection herewith or with any

 

23

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transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any such New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such 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. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce any provisions of a Transaction
Document, then the prevailing party in such Proceeding shall be reimbursed by
the other party for its reasonable attorneys’ fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such Proceeding.

 

Section 5.9                                      Survival. The agreements,
covenants, representation and warranties contained herein shall survive the
Closing and the delivery or exercise of the Securities, as applicable, until the
third anniversary of the Closing.

 

Section 5.10                                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.

 

Section 5.11                                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.

 

Section 5.12                                Rescission and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting any
similar provisions of) the Transaction Documents, whenever any Investor
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 Investor may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights; provided, however, in the case of a rescission of an
exercise of a Warrant, the Investor shall be required to return any shares of
Common Stock subject to any such rescinded exercise notice.

 

Section 5.13                                Replacement of Securities. If any
certificate or instrument evidencing any

 

24

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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. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.

 

Section 5.14                                Remedies. In addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of damages, each of the Investors 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.

 

Section 5.15                                Payment Set Aside. To the extent
that the Company makes a payment or payments to any Investor pursuant to any
Transaction Document or an Investor enforces or exercises its rights thereunder,
and such payment or payments or the proceeds of such enforcement or exercise or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to the
extent of any such restoration the obligation or part thereof originally
intended to be satisfied 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.

 

Section 5.16                                Independent Nature of Investors’
Obligations and Rights. The obligations of each Investor under any Transaction
Document are several and not joint with the obligations of any other Investor,
and no Investor shall be responsible in any way for the performance of the
obligations of any other Investor under any Transaction Document. The decision
of each Investor to purchase Securities pursuant to the Transaction Documents
has been made by such Investor independently of any other Investor. Each
Investor’s obligations hereunder are expressly not conditioned on the purchase
by any or all of the other Investors of the Shares. Nothing contained herein or
in any Transaction Document, and no action taken by any Investor pursuant
thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Investor acknowledges that no other Investor has
acted as agent for such Investor in connection with making its investment
hereunder and that no Investor will be acting as agent of such Investor in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Investor 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

 

25

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necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. Each Investor has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents.

 

Section 5.17                                Construction. The parties agree that
each of them and/or their respective counsel has reviewed and had an opportunity
to revise the Transaction Documents and, therefore, the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of the Transaction
Documents or any amendments hereto.

 

[Remainder of Page Intentionally Left Blank]

 

26

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

 

 

CRDENTIA CORP.

 

 

 

By:

 

 

 

 

Name: John Kaiser

 

 

 

Title: Chief Executive Officer

 

 

[Signature Pages for Investors Follows]

 

27

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

 

 

NAME OF INVESTOR

 

 

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

Investment Amount: $

 

 

 

 

Tax ID No.:

 

 

 

 

ADDRESS FOR NOTICE

 

 

 

c/o:

 

 

 

 

Street:

 

 

 

 

City/State/Zip:

 

 

 

 

Attention:

 

 

 

 

Tel:

 

 

 

 

Fax:

 

 

 

 

DELIVERY INSTRUCTIONS

 

(if different from above)

 

 

 

c/o:

 

 

 

 

Street:

 

 

 

 

City/State/Zip:

 

 

 

 

Attention:

 

 

 

 

 

Tel:

 

 

 

28

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SCHEDULE A

 

SCHEDULE OF INVESTORS

 

Closing Dated: October 26, 2007

 

Name/Address

 

Investment Amount

 

FatBoy Capital, LP

 

 

 

9611 North U.S. Highway 1, Box 390

 

 

 

Sebastian, FL 32958

 

 

 

Phone:

(973) 426-0300

 

 

 

Fax:

(973) 426-0313

 

$

1,640,000

 

 

 

 

 

MedCap Partners L.P.

 

 

 

c/o MedCap Management and Research LLC

 

 

 

500 Third Street, Suite 535

 

 

 

San Francisco, CA 94107

 

 

 

Phone:

(415) 495-1010

 

 

 

Fax:

(415) 495-1012

 

$

715,000

 

 

 

 

 

MedCap Master Fund L.P.

 

 

 

c/o MedCap Management and Research LLC

 

 

 

500 Third Street, Suite 535

 

 

 

San Francisco, CA 94107

 

 

 

Phone:

(415) 495-1010

 

 

 

Fax:

(415) 495-1012

 

$

635,000

 

 

 

 

 

C. Fred Toney

 

 

 

c/o MedCap Management and Research LLC

 

 

 

500 Third Street, Suite 535

 

 

 

San Francisco, CA 94107

 

 

 

Phone:

(415) 495-1010

 

 

 

Fax:

(415) 495-1012

 

$

500,000

 

 

 

 

 

Catalysis Partners, LLC

 

 

 

429 Santa Monica Blvd., Suite 320

 

 

 

Santa Monica, CA 90401

 

 

 

Phone:

(310) 260-9708

 

 

 

Fax:

(310) 260-9718

 

$

54,000

 

 

 

 

 

Catalysis Offshore, Ltd.

 

 

 

429 Santa Monica Blvd., Suite 320

 

 

 

Santa Monica, CA 90401

 

 

 

Phone:

(310) 260-9708

 

 

 

Fax:

(310) 260-9718

 

$

46,000

 

 

29

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Patrick F. Latteral Living Trust

 

 

 

c/o Patrick Latteral

 

 

 

1 Blockfield Drive, #161

 

 

 

Tiburon, CA 94920

 

 

 

Phone:

(415) 248-2785

 

$

100,000

 

 

 

 

 

The Sandra L. Jones Revocable Trust Dated 1/12/06

 

 

 

930 Tahoe Boulevard, Suite 802-193

 

 

 

Incline Village, NV 89451

 

 

 

Phone:

(775) 830-8192

 

 

 

Fax:

(775) 832-6884

 

$

100,000

 

 

 

 

 

Norman C. Roberts Trust

 

 

 

c/o Norman Roberts

 

 

 

2810 Hidden Valley Road

 

 

 

La Jolla, CA 92037-7925

 

 

 

Phone:

(858) 459-2481)

 

 

 

Fax:

(858) 456-7925)

 

$

100,000

 

 

 

 

 

William Kuni

 

$

60,000

 

 

 

 

 

Black Forest International, LLC

 

 

 

c/o BCGU, LLC

 

 

 

2038 Corte del Nogal, Suite 110

 

 

 

Carlsbad, CA 92011

 

 

 

Phone:

(760 804-8844)

 

 

 

Fax:

(760 804-8845)

 

$

250,000

 

 

 

 

 

 

Valens Offshore SPV I, Ltd.

 

 

 

c/o Valens Capital Management, LLC

 

 

 

335 Madison Avenue, 10th Floor

 

 

 

New York, NY 10017

 

$

500,000

 

 

30

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Closing Dated:               , 2007

 

Name/Address

 

Investment Amount

 

 

 

 

 

 

TOTAL

 

 

 

 

31

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EXHIBIT A

 

REGISTRATION RIGHTS AGREEMENT

 

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

 

EXHIBIT B

 

FORM OF WARRANT

 

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