SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 15, 2012, by
and among KIT digital, Inc., a Delaware corporation, with headquarters located
at 26 West 17th Street, 2nd Floor, New York, NY 10011 (the "Company"), and the
investors listed on the Schedule of Buyers attached hereto (individually, a
"Buyer" and collectively, the "Buyers").

 

WHEREAS:

 

A.           The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and
Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the 1933 Act.

 

B.           Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, (i) that aggregate number of
shares of the Company's common stock, par value $0.0001 per share (the "Common
Stock"), set forth opposite such Buyer's name in column (3) on the Schedule of
Buyers (which aggregate number for all Buyers together shall be 7,000,000 shares
of Common Stock and shall collectively be referred to herein as the "Common
Shares") and (ii) Warrants, in substantially the form attached hereto as Exhibit
A (the "Warrants"), representing the right to acquire up to that number of
additional shares of Common Stock set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers (as exercised, collectively, the "Warrant
Shares").

 

C.           Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit B (the
"Registration Rights Agreement"), pursuant to which the Company has agreed to
provide certain registration rights with respect to the Registrable Securities
(as defined in the Registration Rights Agreement) under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state securities
laws.

 

D.           The Common Shares, the Adjustment Shares (as defined in Section
1(b)), the Warrants and the Warrant Shares collectively are referred to herein
as the "Securities".

 

E.           The Company has engaged Canaccord Genuity Inc. as its exclusive
placement agent (the "Placement Agent") for the offering of the Securities on a
“best efforts” basis.

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1.          PURCHASE AND SALE OF COMMON SHARES AND WARRANTS; ADJUSTMENT SHARES
OBLIGATION.

 

(a)          Purchase and Sale of Common Shares and Warrants.

 

 

 

 

(i)          Purchase of Common Shares and Warrants Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Closing Date (as defined below), (x)
the number of Common Shares as is set forth opposite such Buyer's name in column
(3) on the Schedule of Buyers, along with (y) Warrants to acquire up to that
number of Warrant Shares as is set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers (the "Closing").

 

(ii)         Closing. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m., New York City time, on the date hereof (or such other date
and time as is mutually agreed to by the Company and each Buyer) after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below have been satisfied, at the offices of Schulte
Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022.

 

(iii)        Purchase Price. The aggregate purchase price for the Common Shares
and the related Warrants to be purchased by each Buyer at the Closing shall be
the amount set forth opposite each Buyer's name in column (5) of the Schedule of
Buyers (the "Purchase Price") which shall be equal to $4.17 per Common Share and
the related Warrants.

 

(iv)        Form of Payment. On or prior to the Closing Date, after all closing
conditions set forth in Section 7 have been satisfied, (i) each Buyer shall pay
its respective Purchase Price to the Company for the Common Shares and the
Warrants to be issued and sold to such Buyer at the Closing (less, in the case
of Hudson Bay Master Fund Ltd. ("Hudson Bay"), the amounts withheld pursuant to
Section 4(h)), by wire transfer of immediately available funds to an escrow
account established by the Company and the Placement Agent with JPMorgan Chase
Bank, as escrow agent, as set forth on Schedule I attached hereto. On the
Closing Date, the Company shall deliver to each Buyer (x) one or more stock
certificates, evidencing the number of Common Shares such Buyer is purchasing as
is set forth opposite such Buyer's name in column (3) of the Schedule of Buyers
and (y) Warrants (allocated in the amounts as such Buyer shall request) which
such Buyer is purchasing hereunder pursuant to which such Buyer shall have the
right to acquire up to such number of Warrant Shares as is set forth opposite
such Buyer's name in column (4) of the Schedule of Buyers, in each case duly
executed on behalf of the Company and registered in the name of such Buyer or
its designee.

 

(b)          Adjustment Shares.

 

(i)          The following terms used in this Section 1(b), shall have the
following meanings:

 

(1)         "Adjustment Date" means, as applicable, the First Adjustment Date
together with the Second Adjustment Date and/or the Third Adjustment Date.

 

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(2)         "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
"control" of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.

 

(3)         "Approved Stock Plan" means any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer or director for
services provided to the Company.

 

(4)         "Bloomberg" means Bloomberg Financial Markets.

 

(5)         "Closing Bid Price" and "Closing Sale Price" means, for any security
as of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or the last trade price,
respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the OTC Link
or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Required Holders. If the Company and the Required Holders are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 1(c). All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or other similar transaction during the applicable calculation
period.

 

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

 

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

 

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(8)         "Eligible Market" means the Principal Market, The NASDAQ Capital
Market, The NASDAQ Global Market, the NYSE MKT or The New York Stock Exchange,
Inc.

 

(9)         "First Adjustment Date" means the date that is the earliest of (1)
the date that is the fortieth (40th) Trading Day immediately following the date
that all Registrable Securities (as defined in the Registration Rights
Agreement) and the Adjustment Shares have become registered pursuant to an
effective Registration Statement that is available for the resale of all such
Registrable Securities and Adjustment Shares, (2) the date that is the twentieth
(20th) Trading Day immediately following the date that such Buyer can sell all
of the Registrable Securities and the Adjustment Shares without restriction or
limitation pursuant to Rule 144 and (3) the date that is the twentieth (20th)
Trading Day immediately following the date that is six (6) months immediately
following the Closing Date.

 

(10)        "First Adjustment Price" means ninety percent (90%) of the ten (10)
lowest Weighted Average Prices of the Common Stock during the twenty (20)
Trading Days immediately preceding the First Adjustment Date (as adjusted for
stock splits, stock dividends, recapitalizations, reorganizations,
reclassification, combinations, reverse stock splits or other similar events
during such period).

 

(11)        "Fundamental Transaction" means that (A) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(i) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) another Person or Persons, or (ii)
sell, assign, transfer, convey or otherwise dispose of all or substantially all
of the properties or assets of the Company or any of its Subsidiaries to another
Person or Persons, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the Person or Persons making or party to, or
associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (iv) consummate a stock purchase agreement or
other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than 50% of the outstanding shares of Voting
Stock of the Company (not including any shares of Voting Stock of the Company
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock or (B) any "person" or "group" (as these terms are
used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall
become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of either (x) 50% of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock, (y) 50% or more of
the shares of Voting Stock of the Company not held by such Person or Persons as
of the date hereof or (z) a percentage of the aggregate Voting Stock of the
Company sufficient to allow such Person to effect a statutory short form merger
or other transaction requiring other stockholders of the Company to surrender
their shares of Common Stock without approval of the stockholders of the
Company.

 

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(12)        "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

 

(13)        "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common shares or common
stock or equivalent equity security is quoted or listed on an Eligible Market,
or, if there is more than one such Person or Parent Entity, the Person or Parent
Entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.

 

(14)        "Second Adjustment Date" means a date after the First Adjustment
Date that is the earliest of (1) the date that is the fortieth (40th) Trading
Day immediately following the date that all Registrable Securities and the
Adjustment Shares are registered pursuant to an effective Registration Statement
that is available for the resale of all such Registrable Securities and
Adjustment Shares, (2) the date that is the twentieth (20th) Trading Day
immediately following the date that such Buyer can sell all of the Registrable
Securities and the Adjustment Shares without restriction or limitation pursuant
to Rule 144, (3) the date that is the twentieth (20th) Trading Day immediately
following the date that such Buyer can sell all of the Registrable Securities
and the Adjustment Shares without restriction or limitation pursuant to Rule 144
and without the requirement to be in compliance with Rule 144(c)(1) and (4) the
date that is the twentieth (20th) Trading Day immediately following the date
that is one (1) year immediately following the Closing Date.

 

(15)        "Second Adjustment Price" means ninety percent (90%) of the ten (10)
lowest Weighted Average Prices of the Common Stock during the twenty (20)
Trading Days immediately preceding the Second Adjustment Date (as adjusted for
stock splits, stock dividends, recapitalizations, reorganizations,
reclassification, combinations, reverse stock splits or other similar events
during such period).

 

(16)        "Successor Entity" means the Person (or, if so elected by the
Required Holders, the Parent Entity), which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person (or, if so
elected by the Required Holders, the Parent Entity) with which such Fundamental
Transaction shall have been entered into, provided that if such Person is not a
publicly traded entity whose common stock or equivalent equity security is
quoted or listed for trading on an Eligible Market, Successor Entity shall mean
such Person's Parent Entity.

 

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(17)        "Third Adjustment Date" means a date after the Second Adjustment
Date that is the twentieth (20th) Trading Day immediately following the earlier
of (i) the date that such Buyer can sell all of the Registrable Securities and
the Adjustment Shares without restriction or limitation pursuant to Rule 144 and
without the requirement to be in compliance with Rule 144(c)(1) and (ii) the
date that is one (1) year immediately following the Closing Date.

 

(18)        "Third Adjustment Price" means ninety percent (90%) of the ten (10)
lowest Weighted Average Prices of the Common Stock during the twenty (20)
Trading Days immediately preceding the Third Adjustment Date (as adjusted for
stock splits, stock dividends, recapitalizations, reorganizations,
reclassification, combinations, reverse stock splits or other similar events
during such period).

 

(19)        "Trading Day" means any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York Time).

 

(20)        "Voting Stock" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time capital stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).

 

(21)        "Weighted Average Price" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading), as reported by
Bloomberg through its "Volume at Price" function or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York time (or such other time as the Principal Market
publicly announces is the official close of trading) as reported by Bloomberg,
or, if no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly
Pink OTC Markets Inc.). If the Weighted Average Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Weighted
Average Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Required Holders. If the Company and
the Required Holders are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 1(c). All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or other similar transaction during
the applicable calculation period.

 

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(ii)         Obligation to Issue Adjustment Shares. The Company shall, without
any additional consideration, issue to each Buyer a number of shares of Common
Stock on the First Adjustment Date equal to the number (if positive) obtained by
subtracting (I) the sum of the number of Common Shares purchased by such Buyer
on the Closing Date (as adjusted for stock splits, stock dividends,
recapitalizations, reorganizations, reclassification, combinations, reverse
stock splits or other similar events) (the "Initial Shares") from (II) the
quotient determined by dividing (x) the aggregate Purchase Price paid by such
Buyer on the Closing Date, by (y) the First Adjustment Price (such number, the
"First Adjustment Share Amount"). If (A) the First Adjustment Date was triggered
by clause (1) of such definition and the Registration Statement is not available
for the resale of all Registrable Securities thereunder at all times from the
First Adjustment Date until the sixtieth (60th) day following the First
Adjustment Date, (B) the First Adjustment Date was triggered by clause (2) of
such definition and there shall occur a Public Information Failure (as
hereinafter defined) at any time on or prior to the sixtieth (60th) day
following the First Adjustment Date or (C) the First Adjustment Date was
triggered by clause (3) of such definition and clause (2) of such definition is
not satisfied, the Company shall, without any additional consideration, issue to
each Buyer a number of shares of Common Stock on the Second Adjustment Date
equal to the number (if positive) obtained by subtracting the sum of (i) the
First Adjustment Share Amount and (ii) the number of Initial Shares, from the
quotient determined by dividing (x) the aggregate Purchase Price paid by such
Buyer on the Closing Date, by (y) the Second Adjustment Price (such number, the
"Second Adjustment Share Amount"). If (A) the Second Adjustment Date was
triggered by clause (1) of such definition and the Registration Statement is not
available for the resale of all Registrable Securities and Adjustment Shares
thereunder at all times from the Second Adjustment Date until the sixtieth
(60th) day following the Second Adjustment Date or (B) the Second Adjustment
Date was triggered by either clause (2) or (3) of such definition and there
shall occur a Public Information Failure at any time on or prior to the sixtieth
(60th) day following the Second Adjustment Date, the Company shall, without any
additional consideration, issue to each Buyer a number of shares of Common Stock
on the Third Adjustment Date equal to the number (if positive) obtained by
subtracting the sum of (i) the Second Adjustment Share Amount, (ii) the First
Adjustment Share Amount and (iii) the number of Initial Shares, from the
quotient determined by dividing (x) the aggregate Purchase Price paid by such
Buyer on the Closing Date, by (B) the Third Adjustment Price (such number, the
"Third Adjustment Share Amount" and, together with the First Adjustment Share
Amount and the Second Adjustment Share Amount, the "Adjustment Shares").

 

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(iii)        Blocker. Notwithstanding anything to the contrary contained herein,
the Company shall not issue Adjustment Shares, and no Buyer shall have the right
to receive Adjustment Shares, and any such issuance shall be null and void and
treated as if never made, to the extent that after giving effect to such
issuance, such Buyer (together with such Buyer's Affiliates) would beneficially
own in excess of 9.99% (the "Maximum Percentage") of the number of shares of
Common Stock outstanding immediately after giving effect to such issuance. For
purposes of the foregoing sentence, the aggregate number of shares of Common
Stock beneficially owned by such Buyer and its Affiliates shall include the
number of shares of Common Stock issuable pursuant to Section 1(b) hereof with
respect to which the determination of such sentence is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised portion of the Warrants beneficially
owned by such Buyer or any of its Affiliates and (ii) exercise or conversion of
the unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Buyer or any of its Affiliates (including, without
limitation, any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding sentence, for purposes of
this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). For purposes of determining the number of outstanding shares of Common
Stock, the Buyers may rely on the number of outstanding shares of Common Stock
as reflected in (1) the Company's most recent Form 10-K, Form 10-Q, Form 8-K or
other public filing with the SEC, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral request of a
Buyer, the Company shall within one (1) Business Day confirm orally and in
writing to such Buyer the number of shares of Common Stock then outstanding. In
any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the issuance of the Adjustment Shares and the conversion
or exercise of securities of the Company, including the Warrants, held by each
Buyer and its Affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. By written notice to the Company, each
Buyer may from time to time increase or decrease the Maximum Percentage to any
other percentage not in excess of 9.99% specified in such notice; provided that
(i) any such increase will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company and (ii) any such increase or
decrease will apply only to such Buyer and not to any of the other Buyers. The
provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this paragraph to correct
this paragraph (or any portion hereof) which may be defective or inconsistent
with the intended beneficial ownership limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation. If a Buyer's right to receive Adjustment Shares is limited, in whole
or in part, by this Section, all such Adjustment Shares that are so limited
shall be held in abeyance for the benefit of such Buyer by the Company until
such time, if ever, as the Buyer notifies the Company that its right thereto
would not result in such Buyer exceeding the Maximum Percentage. As used herein,
"Business Day" means any day other than Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized or required by law to
remain closed.

 

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(iv)        Principal Market Regulation. The Company shall not be obligated to
issue any Adjustment Shares and no Buyer shall have the right to receive
Adjustment Shares, and any such issuance shall be null and void and treated as
if never made, to the extent the issuance of such shares of Common Stock would
exceed the aggregate number of shares of Common Stock which the Company may
issue without breaching the Company's obligations under the rules or regulations
of the Principal Market, whether or not the Common Stock is listed on the
Principal Market (the "Exchange Cap"), except that such limitation shall not
apply in the event that the Company obtains the approval of its stockholders as
required by the applicable rules of the Principal Market for issuances of shares
of Common Stock in excess of such amount. Until such approval or written opinion
is obtained, no Buyer shall be issued in the aggregate Adjustment Shares, shares
of Common Stock in an amount greater than the product of the Exchange Cap
multiplied by a fraction, the numerator of which is the total number of Common
Shares issued to such Buyer pursuant to the Securities Purchase Agreement on the
Issuance Date and the denominator of which is the aggregate number of Common
Shares issued to all Buyers pursuant to the Securities Purchase Agreement on the
Issuance Date (with respect to each Buyer, the "Exchange Cap Allocation").

 

(v)         Cash Settlement. In the event that the Company is prohibited from
issuing any Adjustment Shares as a result of the operation of Section 1(b)(iv)
or for any other reason (other than Section 1(b)(iii)), in lieu of delivering
the Adjustment Shares otherwise required to be delivered pursuant to this
Section 1(b), the Company shall pay the Buyers in cash by wire transfer of
immediately available funds in a dollar amount determined by multiplying the
number of Adjustment Shares otherwise deliverable to such Buyer pursuant to this
Section 1(b) by ninety percent (90%) of the ten (10) lowest Weighted Average
Prices of the Common Stock during the twenty (20) Trading Days immediately
preceding the date of such event. In the event the Company fails to make any
cash payments required under this Agreement by a specified deadline, such
payments shall bear interest at the rate of one and one-half percent (1.5%) per
month (prorated for partial months) (or such lesser maximum amount that is
permitted to be paid by applicable law) until paid in full.

 

(vi)        Mechanics of Issuance.

 

(1)         Delivery of Certificates Upon Adjustment. Certificates for the
Adjustment Shares shall be transmitted by the Company's transfer agent to a
Buyer by crediting the account of such Buyer's prime broker with The Depository
Trust Company through its Deposit/Withdrawal At Custodian system if the Company
is then a participant in such system and there is an effective registration
statement permitting the issuance of the Adjustment Shares to or resale of the
Adjustment Shares by Buyer and otherwise by physical delivery to the address
specified by such Buyer in a written notice delivered prior to the delivery of
such Adjustment Shares (such date, the "Adjustment Shares Delivery
Date").   Notwithstanding anything to the contrary contained herein, in no event
will any Adjustment Shares be issued with any restrictive legends or any
restrictions or limitations on resale by the Buyers. If the Company and/or its
transfer agent requires any legal opinions with respect to the issuance of any
Adjustment Shares without restrictive legends or the removal of any such
restrictive legends, the Company agrees to cause its legal counsel to issue any
such legal opinions.

 

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(2)         Company's Failure to Timely Deliver Securities. If the Company shall
fail for any reason or for no reason to issue to a Buyer on or prior to the
Adjustment Shares Delivery Date a certificate for the number of shares of Common
Stock to which such Buyer is entitled and register such shares of Common Stock
on the Company's share register or to credit such Buyer's balance account with
DTC for such number of shares of Common Stock to which such Buyer is entitled
under Section 1(b), then, in addition to all other remedies available to such
Buyer, the Company shall pay in cash to such Buyer on each day after such
Adjustment Shares Delivery Date that the issuance of such shares of Common Stock
is not timely effected an amount equal to 1.5% of the product of (A) the sum of
the number of shares of Common Stock not issued to such Buyer on a timely basis
and to which such Buyer is entitled and (B) the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the last possible date which the
Company could have issued such shares of Common Stock to the Buyer without
violating Section 1(b). In addition to the foregoing, if on or prior to the
Adjustment Shares Delivery Date the Company shall fail to issue and deliver a
certificate to the Buyer and register such shares of Common Stock on the
Company's share register or credit the Buyer's balance account with DTC for the
number of shares of Common Stock to which the Buyer is entitled pursuant to the
Company's obligation pursuant to Section 1(b)(ii) or clause (ii) below, and if
on or after such Trading Day the Buyer purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Buyer of shares of Common Stock the Buyer anticipated receiving from the Company
(a "Buy-In") under Section 1(b), then the Company shall, within three (3)
Trading Days after the Buyer's request and in the Buyer's discretion, either (i)
pay cash to the Buyer in an amount equal to the Buyer's total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the "Buy-In Price"), at which point the
Company's obligation to deliver such certificate (and to issue such shares of
Common Stock) or credit such Buyer's balance account with DTC for such shares of
Common Stock shall terminate, or (ii) promptly honor its obligation to deliver
to the Buyer a certificate or certificates representing such shares of Common
Stock or credit such Buyer's balance account with DTC and pay cash to the Buyer
in an amount equal to the excess (if any) of the Buy-In Price over the product
of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on
the applicable Adjustment Shares Delivery Date. Nothing shall limit the Buyer's
right to pursue any other remedies available to it hereunder, at law or in
equity, including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock (or to electronically deliver
such shares of Common Stock) as required pursuant to the terms hereof.

 

(3)         Charges, Taxes and Expenses.  Issuance of certificates for
Adjustment Shares shall be made without charge to the Buyers for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the respective Buyer or in such
name or names as may be directed by the respective Buyer.

 

(4)         Closing of Books.  The Company will not close its shareholder books
or records in any manner which prevents the timely exercise of the Buyer's
rights with respect to the Adjustment Shares.

 

- 10 -

 

 

(vii)       Certain Adjustments. 

 

(1)         Adjustment Upon Subdivision or Combination of Shares of Common
Stock. If the Company at any time on or after the date of this Agreement
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the number of Adjustment Shares will be proportionately
increased. If the Company at any time on or after the date of this Agreement
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
number of Adjustment Shares will be proportionately decreased. Any adjustment
under this Section 1(b)(vii) shall become effective at the close of business on
the date the subdivision or combination becomes effective.

 

(2)         Purchase Rights. While any Adjustment Shares are issuable hereunder,
the Company shall not grant, issue or sell any Purchase Rights (as defined in
the Warrants).

 

(3)         Other Events. If any event occurs of the type contemplated by the
provisions of this Section 1(b)(vii) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the number
of Adjustment Shares, as mutually determined by the Company's Board of Directors
and the holders of at least a majority of the aggregate amount of Securities
issued and issuable hereunder and under the Warrants (the "Required Holders"),
so as to protect the rights of the Buyers; provided that no such adjustment
pursuant to this Section 1(b)(vii) will decrease the number of Adjustment Shares
as otherwise determined pursuant to this Section 1(b)(vii).

 

(4)         Pro Rata Distributions.  If the Company shall declare or make any
dividend or other distributions of its assets (or rights to acquire its assets)
to any or all holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), at any time after the Closing Date and
prior to the later of the date of delivery of all Adjustment Shares which the
Company is obligated to deliver under this Agreement and the date that the right
to receive Adjustment Shares shall expire then, in each such case, each Buyer
shall be entitled to participate in such Distribution, with respect to each
unissued Adjustment Share, to the same extent that such Buyer would have
participated therein with respect to each such Adjustment Share if such Buyer
had held such unissued Adjustment Shares (without taking into account any
limitations or restrictions on the issuance of Adjustment Shares, including
without limitation, the Maximum Percentage) immediately before the date of which
a record is taken for such Distribution, or, if no such record is taken, the
date as of which the record holders of shares of Common Stock are to be
determined for the participation in such Distribution (provided, however, to the
extent that such Buyer's right to participate in any such Distribution would
result in such Buyer exceeding the Maximum Percentage, then such Buyer shall not
be entitled to participate in such Distribution to such extent (or in the
beneficial ownership of any shares of Common Stock as a result of such
Distribution to such extent) and the portion of such Distribution shall be held
in abeyance for the benefit of such Buyer until such time, if ever, as its right
thereto would not result in such Buyer exceeding the Maximum Percentage).

 

- 11 -

 

 

(5)         Fundamental Transaction. If, at any time after the Closing Date and
prior to an Adjustment Date, a Fundamental Transaction occurs, then for each
Adjustment Share otherwise issuable under Section 1(b) not issued prior to the
date of such Fundamental Transaction, the respective Buyer shall be entitled to
receive the number of shares of capital stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any
additional consideration (the "Alternate Consideration") receivable as a result
of such Fundamental Transaction by holder of a share of Common Stock immediately
prior to such Fundamental Transaction.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Buyer shall be given the same choice as to the Alternate
Consideration it receives upon the issuance of an Adjustment Share following
such Fundamental Transaction. The Company shall cause any successor entity in a
Fundamental Transaction in which the Company is not the survivor (the "Successor
Entity") to assume in writing all of the obligations of the Company under this
Section 1(b) in accordance with the provisions of this Section 1(b)(vii)(5)
pursuant to written agreements in form and substance reasonably satisfactory to
the Required Holders (as defined in the Registration Rights Agreement). If a
Fundamental Transaction is publicly announced or occurs prior to occurrence of
an Adjustment Event or the issuance of the Adjustment Shares, for all purposes
under this Subsection (5) an Adjustment Date will have deemed to have occurred
twenty (20) Trading Days immediately preceding the consummation of such
Fundamental Transaction and the applicable Adjustment Price shall be deemed to
equal ninety percent (90%) of the ten (10) lowest Weighted Average Prices of the
Common Stock during the twenty (20) Trading Days immediately following such
deemed Adjustment Date (as adjusted for stock splits, stock dividends,
recapitalizations, reorganizations, reclassification, combinations, reverse
stock splits or other similar events during such period). The Company shall
provide each Buyer with written notice, including a summary of material terms,
of any Fundamental Transaction described in the preceding sentence no less than
fifteen (15) days prior to the consummation such Fundamental Transaction,
provided that if the Company does not have knowledge of such Fundamental
Transaction or material terms thereof at least fifteen (15) days prior to the
consummation, the Company shall provide written notice, including a summary of
material terms, within two (2) Trading Days of having such knowledge.  

 

(6)         Calculations. All calculations under this Section 1(b) shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 1(b), the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.

 

 

- 12 -

 

 

(7)         Notice to Buyers. 

 

(A) Adjustment to Number of Adjustment Shares. Whenever there is an adjustment
pursuant to any provision of Section 1(b)(vii), the Company shall promptly mail
to each Buyer a notice setting forth the adjustment to the number of Adjustment
Shares and setting forth a brief statement of the facts requiring such
adjustment.

  

(B) Notice of Certain Events. If (A) the Company shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the Company
shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock, (C) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights, (D) the approval of any
shareholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common Stock
are converted into other securities, cash or property, or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, in each case prior to the later of an Adjustment
Date or the issuance of the applicable number of Adjustment Shares issuable in
respect of such Adjustment Date, then, in each case, the Company shall cause to
be mailed to each Buyer at its last address, at least twenty (20) calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.  To the extent that any notice provided hereunder constitutes,
or contains, material, non-public information regarding the Company or any of
its subsidiaries, the Company shall simultaneously file such notice with the SEC
pursuant to a Current Report on Form 8-K.

 

(c)          Dispute Resolution.  In the case of a dispute as to the
determination of the number of Adjustment Shares deliverable hereunder and/or
the amount of cash payable hereunder, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within two (2) Business
Days of event giving rise to such dispute, as the case may be, to the
Buyers.  If a Buyer and the Company are unable to agree upon such determination
or calculation of the number of shares of Common Stock issuable within three (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Buyers, then the Company shall, within two (2) Business Days
submit via facsimile (a) the disputed determination of the number of Adjustment
Shares and/or the amount of cash to an independent, reputable investment bank
selected by the Company and approved by the Required Holders or (b) the disputed
arithmetic calculation of the number of Adjustment Shares and/or the amount of
cash to the Company's independent, outside accountant.  The Company shall cause
at its expense the investment bank or accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the applicable
Buyer(s) of the results no later than ten (10) Business Days from the time it
receives the disputed determinations or calculations.  Such accountant's
determination or calculation shall be binding upon all parties absent
demonstrable error.

 

- 13 -

 

 

2.          BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and
not jointly, represents and warrants with respect to only itself that:

 

(a)          No Public Sale or Distribution. Such Buyer is (i) acquiring the
Common Shares and the Warrants and (ii) upon exercise of the Warrants (other
than pursuant to a Cashless Exercise (as defined in the Warrants)) will acquire
the Warrant Shares issuable upon exercise of the Warrants, for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act. Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities. As used herein, "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

 

(b)          Accredited Investor Status. Such Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.

 

(c)          Reliance on Exemptions. Such Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.

 

(d)          Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities. Such Buyer understands that the
Placement Agent has acted solely as the agent of the Company in this offering of
the Securities and such Buyer has not relied on the business or legal advice of
the Placement Agent or any of its agents, counsel or affiliates in making its
investment decision hereunder, and confirms that none of such Persons has made
any representations or warranties to such Buyer in connection with the
transactions contemplated herein.

 

- 14 -

 

 

(e)          No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(f)          Transfer or Resale. Such Buyer understands that except as provided
in the Registration Rights Agreement: (i) the Securities have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, "Rule 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other Person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.
Notwithstanding the foregoing, the Securities may be pledged in connection with
a bona fide margin account or other loan or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).

 

(g)          Legends. Such Buyer understands that the certificates or other
instruments representing the Common Shares and the Warrants and, until such time
as the resale of the Common Shares and Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Warrant Shares, except as set forth below, shall
bear any legend as required by the "blue sky" laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):

 

- 15 -

 

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company ("DTC"), if, unless otherwise required
by state securities laws, (i) such Securities are registered for resale under
the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such
holder provides the Company with an opinion of counsel (which in the case of the
Adjustment Shares, shall, to the extent required by the Company or its transfer
agent, be an opinion of counsel to the Company), in a generally acceptable form,
to the effect that such sale, assignment or transfer of the Securities may be
made without registration under the applicable requirements of the 1933 Act, or
(iii) the Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A. The Company shall be responsible for the fees of its transfer
agent and all DTC fees associated with such issuance. If the Company shall fail
for any reason or for no reason to issue to the holder of the Securities within
three (3) Trading Days after the occurrence of any of (i) through (iii) above a
certificate without such legend or to issue such Securities to such holder by
electronic delivery at the applicable balance account at DTC, and if on or after
such Trading Day the holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
holder of such Securities that the holder anticipated receiving without legend
from the Company (a "Buy-In"), then the Company shall, within three (3) Trading
Days after the holder's request and in the holder's discretion, either (i) pay
cash to the holder in an amount equal to the holder's total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (the "Buy-In Price"), at which point the
Company's obligation to deliver such unlegended Securities shall terminate, or
(ii) promptly honor its obligation to deliver to the holder such unlegended
Securities as provided above and pay cash to the holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price (as defined in the
Warrants) on the date of the occurrence of any of clauses (i) through (iii), as
applicable.

 

(h)          Validity; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.

 

- 16 -

 

 

(i)          No Conflicts. The execution, delivery and performance by such Buyer
of this Agreement and the Registration Rights Agreement and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer or (ii)
conflict with, or constitute a default (or an event which 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 of, any agreement,
indenture or instrument to which such Buyer is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Buyer, except in the case
of clauses (ii) and (iii) above, for such conflicts, defaults, rights or
violations which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of such Buyer to
perform its obligations hereunder.

 

(j)          Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.

 

3.          REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers and the Placement
Agent that:

 

(a)          Organization and Qualification. Each of the Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest) are entities duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own their properties and to carry
on their business as now being conducted. The Company is duly qualified as a
foreign entity to do business and is in good standing in the state of New York.
Each of the Company and its Subsidiaries is duly qualified as a foreign entity
to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, individually or taken as a whole,
or on the transactions contemplated hereby or on the other Transaction Documents
or by the agreements and instruments to be entered into in connection herewith
or therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents. The Company has no Subsidiaries
except as set forth on Schedule 3(a).

 

- 17 -

 

 

(b)          Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants, the Registration Rights Agreement, the Lock-Up
Agreements (as defined in Section 7(xii)), the Irrevocable Transfer Agent
Instructions (as defined in Section 5(b)) and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction Documents") and
to issue the Securities in accordance with the terms hereof and thereof. The
execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including, without limitation, the issuance of the Common Shares and the
Warrants, the reservation for issuance and the issuance of the Warrant Shares
issuable upon exercise of the Warrants have been duly authorized by the
Company's Board of Directors and (other than the filing with the SEC of one or
more Registration Statements (as defined in the Registration Rights Agreement)
in accordance with the requirements of the Registration Rights Agreement and
other filings as may be required by state securities agencies) no further
filing, consent, or authorization is required by the Company, its Board of
Directors or its stockholders. This Agreement and the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity, applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of applicable creditors' rights and
remedies, or limits on indemnification under applicable federal securities laws.

 

(c)          Issuance of Securities. The issuance of the Common Shares and the
Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be validly issued and free from all taxes, liens and charges with
respect to the issue thereof and the Common Shares shall be fully paid and
nonassessable with the holders being entitled to all rights accorded to a holder
of Common Stock. As of the Closing Date, a number of shares of Common Stock
shall have been duly authorized and reserved for issuance which equals or
exceeds 130% of the aggregate of the maximum number of shares of Common Stock
(the "Required Reserved Amount) (i) issuable upon exercise of the Warrants
(without taking into account any limitations on the exercise of the Warrants set
forth in the Warrants) and (ii) as Adjustment Shares, taking into account the
Adjustment Shares Cap. As of the date hereof, there are 102,058,960 shares of
Common Stock authorized and unissued. Upon exercise of the Warrants in
accordance with the Warrants, the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all preemptive or similar rights, taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock. The Adjustment
Shares, when issued in accordance with the terms of Section 1(b), will be
validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock.
Assuming the accuracy of each of the representations and warranties set forth in
Section 2 of this Agreement, the offer and issuance by the Company of the
Securities is exempt from registration under the 1933 Act.

 

(d)          No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Common Shares and the Warrants and reservation for issuance and
issuance of the Warrant Shares and the Adjustment Shares) will not (i) result in
a violation of any memorandum of association, certificate of incorporation,
certificate of formation, any certificate of designations or other constituent
documents of the Company or any of its Subsidiaries, any capital stock of the
Company or any of its Subsidiaries or the articles of association or bylaws of
the Company or any of its Subsidiaries or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) in any respect under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and the rules and
regulations of The NASDAQ Global Select Market (the "Principal Market") and
applicable laws of the State of Delaware and any other state laws) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected.

 

- 18 -

 

 

(e)          Consents. Neither the Company nor any of its Subsidiaries is
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the Closing Date, and the Company is unaware of any
facts or circumstances that might prevent the Company from obtaining or
effecting any of the registration, application or filings pursuant to the
preceding sentence. The Company is not in violation of the listing requirements
of the Principal Market and has no knowledge of any facts that would reasonably
lead to delisting or suspension of the Common Stock in the foreseeable future.
The issuance by the Company of the Securities shall not have the effect of
delisting or suspending the Common Stock from the Principal Market.

 

(f)          Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an "affiliate" of
the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to the
knowledge of the Company, a "beneficial owner" of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the 1934 Act). The
Company further acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company or any of its Subsidiaries (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby, and any advice given by a Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its
representatives.

 

(g)          No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its
or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) relating to or
arising out of the transactions contemplated hereby, including, without
limitation, placement agent fees payable to the Placement Agent in connection
with the sale of the Securities. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorney's fees and out-of-pocket expenses) arising in connection with any such
claim. The Company acknowledges that it has engaged the Placement Agent in
connection with the sale of the Securities. Other than the Placement Agent,
neither the Company nor any of its Subsidiaries has engaged any placement agent
or other agent in connection with the sale of the Securities.

 

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(h)          No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act, whether through integration with prior
offerings or otherwise, or cause this offering of the Securities to require
approval of stockholders of the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings for
purposes of any such applicable stockholder approval provisions.

 

(i)          Dilutive Effect. The Company understands and acknowledges that the
number of Warrant Shares and Adjustment Shares issuable upon exercise of the
Warrants will increase in certain circumstances. The Company understands and
acknowledges that its obligation to issue the Warrant Shares upon exercise of
the Warrants in accordance with this Agreement and the Warrants and to issue the
Adjustment Shares in accordance with Section 1(b) is, in each case, is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other stockholders of the Company.

 

(j)          Application of Takeover Protections; Rights Agreement. The Company
and its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Certificate of Incorporation (as defined in
Section 3(r)) or the laws of the jurisdiction of its formation which is or could
become applicable to any Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.

 

- 20 -

 

 

(k)          SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(k), during the two (2) years prior to the date hereof, the Company
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the 1934 Act (all of the foregoing filed prior to the date hereof or prior to
the Closing Date, and all exhibits included therein and financial statements,
notes and schedules thereto and documents incorporated by reference therein
being hereinafter referred to as the "SEC Documents"). The Company has delivered
to the Buyers or their respective representatives true, correct and complete
copies of the SEC Documents not available on the EDGAR system. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, the financial statements of the Company included
in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved ("GAAP") (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyers which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement or in the disclosure schedules to
this Agreement, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made, not misleading.

 

(l)          Absence of Certain Changes. Except as disclosed in Schedule 3(l),
since December 31, 2011, there has been no material adverse change and no
material adverse development in the business, assets, properties, operations,
condition (financial or otherwise), results of operations or prospects of the
Company or its Subsidiaries. Except as disclosed in Schedule 3(l), since
December 31, 2011, neither the Company nor any of its Subsidiaries has (i)
declared or paid any dividends, (ii) sold any assets, individually or in the
aggregate, in excess of $500,000 outside of the ordinary course of business or
(iii) had capital expenditures, individually or in the aggregate, in excess of
$500,000. Neither the Company nor any of its Subsidiaries has taken any steps to
seek protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings or any actual knowledge of any fact that would reasonably
lead a creditor to do so. The Company and its Subsidiaries, individually and on
a consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3(l), "Insolvent"
means, with respect to any Person, (i) the present fair saleable value of such
Person's assets is less than the amount required to pay such Person's total
Indebtedness (as defined in Section 3(s)), (ii) such Person is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

 

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(m)          No Undisclosed Events, Liabilities, Developments or Circumstances.
No event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.

 

(n)          Conduct of Business; Regulatory Permits. Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under any
certificate of designations of any outstanding series of preferred stock of the
Company (if any), its Certificate of Incorporation or Bylaws (as defined in
Section 3(r)) or their organizational charter or memorandum of association or
certificate of incorporation or articles of association or bylaws, respectively.
Neither the Company nor any of its Subsidiaries is in violation of any judgment,
decree or order or any statute, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries will conduct its business in violation of any of the foregoing,
except for possible violations which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Company is not in violation of any
of the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that would reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future. Except as set forth in Schedule 3(n), during the two (2) years prior to
the date hereof, the Common Stock has been designated for quotation on the
Principal Market. Except as set forth in Schedule 3(n), during the two (2) years
prior to the date hereof, (i) trading in the Common Stock has not been suspended
by the SEC or the Principal Market and (ii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding
the suspension or delisting of the Common Stock from the Principal Market. The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.

 

(o)          Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other Person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.

 

(p)          Sarbanes-Oxley Act. Except as set forth on Schedule 3(p), the
Company is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002, as amended, that are effective with respect to the
Company as of the date hereof, and any and all applicable rules and regulations
promulgated by the SEC thereunder that are effective with respect to the Company
as of the date hereof.

 

- 22 -

 

 

(q)          Transactions With Affiliates. Except as set forth on Schedule 3(q),
none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or 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
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other entity in which
any such officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.

 

(r)          Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 150,000,000 shares of Common Stock, of
which as of the date hereof, 47,941,040 shares are issued and outstanding,
6,393,753 shares are reserved for issuance pursuant to the Company's stock
option and purchase plans, 1,408,267 shares are reserved for issuance pursuant
to outstanding warrants to purchase Common Stock, and 2,159,964 shares are
reserved for issuance pursuant to securities (other than the aforementioned
options and Warrants) exercisable or exchangeable for, or convertible into,
Common Stock. No preferred stock is authorized, issued or outstanding. All of
such outstanding shares have been, or upon issuance will be, validly issued and
are fully paid and nonassessable. Except as disclosed in Schedule 3(r): (i) none
of the Company's capital stock is subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except pursuant to the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
any of its Subsidiary's' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished or made available to the Buyers true, correct and complete copies of
the Company's Certificate of Incorporation, as amended and as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's Bylaws, as
amended and as in effect on the date hereof (the "Bylaws"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.

 

- 23 -

 

 

(s)          Indebtedness and Other Contracts. Except as disclosed in Schedule
3(s), neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. Schedule 3(s) provides a detailed
description of the material terms of any such outstanding Indebtedness. For
purposes of this Agreement: (x) "Indebtedness" of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services,
including, without limitation, "capital leases" in accordance with United States
generally accepted accounting principles (other than trade payables entered into
in the ordinary course of business consistent with past practice), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness,
and (H) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above; and (y)
"Contingent Obligation" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

- 24 -

 

 

(t)          Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or its Subsidiaries' officers or directors, whether of a
civil or criminal nature or otherwise, in their capacities as such, except as
set forth in Schedule 3(t). The matters set forth in Schedule 3(t) would not
reasonably be expected to have a Material Adverse Effect.

 

(u)          Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

 

(v)         Employee Relations.

 

(i)          Neither the 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 1933 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 of its Subsidiaries, is, or is now expected
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 or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.

 

(ii)         The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and 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.

 

(w)          Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as set forth on Schedule 3(w) and do not materially affect
the value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and any of its Subsidiaries. Any real
property and facilities held under lease by the Company and any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.

 

- 25 -

 

 

(x)          Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, original works of
authorship, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor ("Intellectual Property
Rights") necessary to conduct their respective businesses as now conducted.
Except as set forth in Schedule 3(x), none of the Company's Intellectual
Property Rights have expired or terminated or have been abandoned or are
expected to expire or terminate or are expected to be abandoned, within two (2)
years after the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against the Company or any of its Subsidiaries regarding its Intellectual
Property Rights. Neither the Company nor any of its Subsidiaries is aware of any
facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.

 

(y)          Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "Environmental Laws" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

 

(z)          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.

 

- 26 -

 

 

(aa)         Investment Company Status. The Company is not, and upon
consummation of the sale of the Securities, and for so long any Buyer holds any
Securities, will not be, an "investment company," a company controlled by an
"investment company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.

 

(bb)         Tax Status. The Company and each of its Subsidiaries (i) has made
or filed all U.S. 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. 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.

 

(cc)         Internal Accounting and Disclosure Controls. The Company and each
of its Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-15 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company's management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries has received any notice or correspondence
from any accountant relating to any material weakness in any part of the system
of internal accounting controls of the Company or any of its Subsidiaries.

 

(dd)         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 1934 Act filings and is not so disclosed or that otherwise would be
reasonably likely to have a Material Adverse Effect.

 

(ee)         Eligibility for Registration. The Company is eligible to register
the Common Shares and the Warrant Shares for resale by the Buyers using Form S-3
promulgated under the 1933 Act.

 

- 27 -

 

 

(ff)         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 Buyer
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.

 

(gg)         Manipulation of Price. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result, or that could reasonably be expected to cause or
result, in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) other
than the Placement Agent, sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) other than the
Placement Agent, paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

 

(hh)                      Acknowledgement Regarding Buyers' Trading Activity.
The Company acknowledges and agrees that (i) except as set forth in Section
4(e), none of the Buyers has been asked to agree, nor has any Buyer agreed, to
desist from purchasing or selling, long and/or short, securities of the Company,
or "derivative" securities based on securities issued by the Company or to hold
the Securities for any specified term; (ii) any Buyer, and counter-parties in
"derivative" transactions to which any such Buyer is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and (iii)
each Buyer shall not be deemed to have any affiliation with or control over any
arm's length counter-party in any "derivative" transaction. The Company further
understands and acknowledges that one or more Buyers may engage in hedging
and/or trading activities at various times during the period that the Securities
are outstanding, including, without limitation, during the periods that the
value of the Warrant Shares and/or the Adjustment Shares are being determined
and (b) such hedging and/or trading activities, if any, can reduce the value of
the existing stockholders' equity interest in the Company both at and after the
time the hedging and/or trading activities are being conducted. The Company
acknowledges that such aforementioned hedging and/or trading activities do not
constitute a breach of this Agreement, the Warrants or any of the documents
executed in connection herewith.

 

(ii)         U.S. Real Property Holding Corporation. The Company is not, has
never been, and so long as any Securities remain outstanding, shall not become,
a U.S. real property holding corporation within the meaning of Section 897 of
the Internal Revenue Code of 1986, as amended, and the Company shall so certify
upon any Buyer's request.

 

(jj)         Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the "BHCA") and to regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). Neither the Company nor any of
its Subsidiaries or affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting securities
or twenty-five percent (25%) or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

 

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

 

(ll)         Disclosure. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Buyers or their respective
agents or counsel with any information that constitutes or could reasonably be
expected to constitute material, nonpublic information. The Company understands
and confirms that each of the Buyers will rely on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Buyers regarding the Company, or any of its Subsidiaries, their business
and the transactions contemplated hereby, including the disclosure schedules to
this Agreement, furnished by or on behalf of the Company is true and correct and
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
press release issued by the Company or any of its Subsidiaries during the twelve
(12) months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.

 

(mm)         Shell Company Status. The Company is not, and has never been, an
issuer identified in Rule 144(i)(1) promulgated under the 1933 Act.

 

(nn)         Stock Option Plans. Each stock option granted by the Company was
granted (i) in accordance with the terms of the applicable stock option plan of
the Company and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered
granted under GAAP and applicable law. No stock option granted under the
Company's stock option plan has been backdated. The Company has not knowingly
granted, and there is no and has been no policy or practice of the Company to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.

 

(oo)         No Disagreements with Accountants and Lawyers. There are no
material disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company and the Company is current with
respect to any fees owed to its accountants and lawyers which could affect the
Company's ability to perform any of its obligations under any of the Transaction
Documents. In addition, on or prior to the date hereof, the Company had
discussions with its accountants about its financial statements previously filed
with the SEC. Based on those discussions, the Company has no reason to believe
that it will need to restate any such financial statements or any part thereof.

 

- 29 -

 

 

4.          COVENANTS.

 

(a)          Best Efforts. Each party shall use its best efforts timely to
satisfy each of the covenants and the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.

 

(b)          Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before 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 Buyers at the Closing pursuant to this Agreement
under applicable securities or "Blue Sky" laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date. The Company shall make all filings and reports relating to the offer and
sale of the Securities required under applicable securities or "Blue Sky" laws
of the states of the United States following the Closing Date.

 

(c)          Reporting Status. Until the date on which the Investors (as defined
in the Registration Rights Agreement) shall have sold all of the Common Shares,
Adjustment Shares and Warrant Shares, none of the Warrants are outstanding and
no additional Adjustment Shares are issuable hereunder (the "Reporting Period"),
the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would no longer require or otherwise permit
such termination, and the Company shall take all actions necessary to maintain
its eligibility to register the Common Shares and Warrant Shares for resale by
the Investors on Form S-3; provided that the Company shall not be in breach of
this covenant so long as Rule 144 is available for resales of all Common Shares,
Adjustment Shares and Warrant Shares without any restriction or limitation by
the Buyers and without the requirement to be in compliance with Rule 144(c)(1).

 

(d)          Use of Proceeds. The Company will use the proceeds from the sale of
the Securities solely as set forth on Schedule 4(d).

 

- 30 -

 

 

(e)          Short Sales. During the period commencing on the date hereof and
ending with the close of trading on the Principal Market on the last Adjustment
Date hereunder (such period, the "Restricted Period"), each Buyer, severally and
not jointly with the other Buyers, covenants that neither it nor any of its
Buyer Trading Affiliates shall maintain a Net Short Position. For purposes
hereof, a "Net Short Position" by a person means a position whereby such person
has executed one or more sales of Common Stock that is marked as a "short sale"
(as defined in Rule 200 of Regulation SHO under the 1934 Act) and that is
executed at a time when such Buyer has no equivalent offsetting long position in
the Common Stock or contract for the foregoing. For purposes of determining
whether a Buyer has an equivalent offsetting long position in the Common Stock,
all Common Stock (i) that is owned by such Buyer, (ii) that may be issued as
Adjustment Shares pursuant to Section 1(b) if reasonably determinable, or (iii)
that would be issuable upon exercise in full of the Warrants then held by such
Buyer (assuming that such Warrants were then fully exercisable, notwithstanding
any provisions to the contrary) shall be deemed to be held long by such Buyer.
Notwithstanding the foregoing, for the avoidance of doubt, nothing contained
herein shall constitute a covenant, or preclude any actions, with respect to the
identification of the availability of, or securing of, available shares to
borrow in order to effect short sales or similar transactions not during the
Restricted Period. As used herein, "Buyer Trading Affiliates" means any Person
acting on behalf of or pursuant to any understanding with such Buyer which had
knowledge of the transactions contemplated hereby, (x) has or shares discretion
relating to such Buyer's investments and trading or information concerning such
Buyer's investments or (y) is subject to such Buyer's review or input concerning
such Person's investments or trading.

 

(f)          Financial Information. The Company agrees to send the following to
each Investor (as defined in the Registration Rights Agreement) during the
Reporting Period (i) unless the following are filed with the SEC through EDGAR
and are available to the public through the EDGAR system, within one (1)
Business Day after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K, any Quarterly Reports on Form 10-Q, any Current Reports on Form
8-K (or any analogous reports under the 1934 Act) and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933
Act, (ii) on the same day as the release thereof, facsimile or e-mailed copies
of all press releases issued by the Company or any of its Subsidiaries, and
(iii) copies of any notices and other information made available or given to the
stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders.

 

(g)          Listing. The Company shall promptly secure the listing of all of
the Registrable Securities (as defined in the Registration Rights Agreement)
upon each national securities exchange and automated quotation system, if any,
upon which the Common Stock is then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall maintain the authorization for quotation of the Common Stock on the
Principal Market or any other Eligible Market (as defined in the Warrants).
Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the
Common Stock on the Principal Market. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section 4(g).

 

- 31 -

 

 

(h)          Fees. The Company shall reimburse Hudson Bay (a Buyer) or its
designee(s) (in addition to any other expense amounts paid to any Buyer or its
counsel prior to the date of this Agreement) for all costs and expenses incurred
in connection with the transactions contemplated by the Transaction Documents
(including all legal fees and disbursements in connection therewith,
documentation and implementation of the transactions contemplated by the
Transaction Documents and due diligence in connection therewith), which amount
may be withheld by such Buyer from its Purchase Price at the Closing to the
extent not previously reimbursed by the Company. Such Buyer may from time to
time request that the Company reimburse such Buyer in $25,000 increments for
such costs and expenses referenced in the previous sentence, subject to refund
of any such increments to the extent such actual costs and expenses at Closing
are less than the amount prepaid. The Company shall be responsible for the
payment of any placement agent's fees, financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) relating to or arising
out of the transactions contemplated hereby, including, without limitation, any
fees or commissions payable to the Placement Agent. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, reasonable attorney's fees and out-of-pocket expenses)
arising in connection with any claim relating to any such payment. Except as
otherwise set forth in the Transaction Documents, each party to this Agreement
shall bear its own expenses in connection with the sale of the Securities to the
Buyers.

 

(i)          Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.

 

(j)          Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York City time, on the first Business Day after this
Agreement has been executed, the Company shall issue a press release and file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules and exhibits to this Agreement), the form of the
Warrant, the form of the Registration Rights Agreement and the form of Lock-Up
Agreement as exhibits to such filing (including all attachments), the "8-K
Filing"). From and after the filing of the 8-K Filing with the SEC, no Buyer
shall be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of their respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. The Company shall
not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide any Buyer
with any material, nonpublic information regarding the Company or any of its
Subsidiaries from and after the filing of the 8-K Filing with the SEC without
the express prior written consent of such Buyer. If a Buyer has, or believes it
has, received any such material, nonpublic information regarding the Company or
any of its Subsidiaries from the Company, any of its Subsidiaries or any of
their respective officers, directors, affiliates or agents, it may provide the
Company with written notice thereof. The Company shall, within two (2) Trading
Days of receipt of such notice, make public disclosure of such material,
nonpublic information. In the event of a breach of the foregoing covenant by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents, in addition to any other remedy provided herein
or in the Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents. No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such disclosure. To the
extent that the Company delivers any material, non-public information to a Buyer
without such Buyer's consent, the Company hereby covenants and agrees that such
Buyer shall not have any duty of confidentiality with respect to, or a duty not
to trade on the basis of, such material, non-public information. Subject to the
foregoing, neither the Company, its Subsidiaries nor any Buyer shall issue any
press releases or any other public statements with respect to the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i) in substantial
conformity with the 8-K Filing and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) each Buyer shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release). Except for the
Registration Statement required to be filed pursuant to the Registration Rights
Agreement, without the prior written consent of any applicable Buyer, neither
the Company nor any of its Subsidiaries or affiliates shall disclose the name of
such Buyer in any filing, announcement, release or otherwise.

 

- 32 -

 

 

(k)          Variable Securities; Dilutive Issuances. For so long as any
Warrants remain outstanding, the Company shall not, in any manner, issue or sell
any rights, warrants or options to subscribe for or purchase Common Stock or
directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price unless
the conversion, exchange or exercise price of any such security cannot be less
than the then applicable Exercise Price (as defined in the Warrants) with
respect to the Common Stock into which any Warrant is exercisable. For so long
as any Warrants remain outstanding, the Company shall not, in any manner, enter
into or affect any Dilutive Issuance (as defined in the Warrants) if the effect
of such Dilutive Issuance is to cause the Company to be required to issue upon
exercise of any Warrant any Common Stock in excess of that number of shares of
Common Stock which the Company may issue upon exercise of the Warrants without
breaching the Company's obligations under the rules or regulations of the
Principal Market or any applicable Eligible Market (as defined in the Warrants),
in each case without giving effect to (x) limitations on exercise contained in
the Warrants and (y) the application of any applicable Exercise Floor Price (as
defined in the Warrants) (the "Securities Limitations"). For so long as any
Warrants are outstanding, unless or until the Stockholder Approval (as defined
below) has been obtained, the Company shall not take any action if the effect of
such action would be to cause the Exercise Price to be reduced, in each case
without giving effect to any Securities Limitations.

 

(l)          Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall maintain its corporate existence and shall not be
party to any Fundamental Transaction (as defined in the Warrants) unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Warrants.

 

- 33 -

 

 

(m)          Reservation of Shares. So long as any Buyer owns any Securities,
the Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 130% of the number of shares
of Common Stock issuable upon exercise of the Warrants then outstanding (without
taking into account any limitations on the exercise of the Warrants set forth in
the Warrants). If at any time the number of shares of Common Stock authorized
and reserved for issuance is not sufficient to meet the Required Reserved
Amount, the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of stockholders to authorize additional
shares to meet the Company's obligations under Section 3(c), in the case of an
insufficient number of authorized shares, obtain stockholder approval of an
increase in such authorized number of shares, and voting the management shares
of the Company in favor of an increase in the authorized shares of the Company
to ensure that the number of authorized shares is sufficient to meet the
Required Reserved Amount.

 

(n)          Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

 

(o)          Additional Issuances of Securities.

 

(i)          From the date hereof until the date that is the ninety (90) day
immediately following the date the Registration Statement(s) covering the resale
of all of the Registrable Securities (as defined in the Registration Rights
Agreement) has been declared effective by the SEC, the Company will not,
directly or indirectly, file any registration statement with the SEC other than
the Registration Statement (as defined in the Registration Rights Agreement).

 

(ii)         From the date hereof until nine (9) months after the Closing Date
(the "Trigger Date"), the Company will not, unless approved by the Required
Holders, (i) directly or indirectly, offer, sell, grant any option to purchase,
or otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or its Subsidiaries' equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
Common Stock or Common Stock Equivalents (any such offer, sale, grant,
disposition or announcement being referred to as a "Subsequent Placement") or
(ii) be party to any solicitations, negotiations or discussions with regard to
the foregoing. For the avoidance of doubt, the foregoing shall not apply to debt
that is not convertible into or exchangeable or exercisable for Common Stock or
Common Stock Equivalents. Notwithstanding the foregoing, the Company shall be
permitted, prior to the Trigger Date, to sell the equity securities of each
Subsidiary with an asterisk next to the name of such Subsidiary on Schedule
3(a).

 

(iii)        From the Trigger Date until the eighteen (18) month anniversary of
the Closing Date, the Company will not, directly or indirectly, effect any
Subsequent Placement unless the Company shall have first complied with this
Section 4(o)(iv).

 

- 34 -

 

 

(1)         The Company shall deliver to each Buyer an irrevocable written
notice (the "Offer Notice") of any proposed or intended issuance or sale or
exchange (the "Offer") of the securities being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers twenty-five percent (25%) of the Offered Securities,
allocated among such Buyers (a) based on such Buyer's pro rata portion of the
Common Shares purchased hereunder (the "Basic Amount"), and (b) with respect to
each Buyer that elects to purchase its Basic Amount, any additional portion of
the Offered Securities attributable to the Basic Amounts of other Buyers as such
Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Basic Amounts (the "Undersubscription Amount"),
which process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.

 

(2)         To accept an Offer, in whole or in part, such Buyer must deliver a
written notice to the Company prior to the end of the fifth (5th) Business Day
after such Buyer's receipt of the Offer Notice (the "Offer Period"), setting
forth the portion of such Buyer's Basic Amount that such Buyer elects to
purchase and, if such Buyer shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Buyer elects to purchase (in either
case, the "Notice of Acceptance"). If the Basic Amounts subscribed for by all
Buyers are less than the total of all of the Basic Amounts, then each Buyer who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all the Basic Amounts and the Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Basic Amount of such Buyer bears to
the total Basic Amounts of all Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary. Notwithstanding anything to the contrary contained herein, if the
Company desires to modify or amend the terms and conditions of the Offer prior
to the expiration of the Offer Period, the Company may deliver to the Buyers a
new Offer Notice and the Offer Period shall expire on the tenth (10th) Business
Day after such Buyer's receipt of such new Offer Notice.

 

- 35 -

 

 

(3)         The Company shall have ten (10) Business Days from the expiration of
the Offer Period above to offer, issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Buyers (the "Refused Securities") pursuant to a definitive agreement (the
"Subsequent Placement Agreement"), but only to the offerees described in the
Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring Person or Persons or less favorable to the
Company than those set forth in the Offer Notice and (ii) to publicly announce
(a) the execution of such Subsequent Placement Agreement, and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent
Placement Agreement and any documents contemplated therein filed as exhibits
thereto.

 

(4)         In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 4(o)(iv)(3) above), then each Buyer may, at its sole option and in
its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that such Buyer elected to
purchase pursuant to Section 4(o)(iv)(2) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to Section 4(o)(iv)(3) above
prior to such reduction) and (ii) the denominator of which shall be the original
amount of the Offered Securities. In the event that any Buyer so elects to
reduce the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have
again been offered to the Buyers in accordance with Section 4(o)(iv)(1) above.

 

(5)         Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Buyers shall acquire from the Company,
and the Company shall issue to the Buyers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4(o)(iv)(3) above if the Buyers have so elected, upon the terms and
conditions specified in the Offer.

 

(6)         Any Offered Securities not acquired by the Buyers or other persons
in accordance with Section 4(o)(iv)(3) above may not be issued, sold or
exchanged until they are again offered to the Buyers under the procedures
specified in this Agreement.

 

- 36 -

 

 

(7)         The Company and the Buyers agree that if any Buyer elects to
participate in the Offer, (x) neither the Subsequent Placement Agreement with
respect to such Offer nor any other transaction documents related thereto
(collectively, the "Subsequent Placement Documents") shall include any term or
provisions whereby any Buyer shall be required to agree to any restrictions in
trading as to any securities of the Company owned by such Buyer prior to such
Subsequent Placement, and (y) any registration rights set forth in such
Subsequent Placement Documents shall be similar in all material respects to the
registration rights contained in the Registration Rights Agreement.

 

(8)         Notwithstanding anything to the contrary in this Section 4(o) and
unless otherwise agreed to by the Buyers, the Company shall either confirm in
writing to the Buyers that the transaction with respect to the Subsequent
Placement has been abandoned or shall publicly disclose its intention to issue
the Offered Securities, in either case in such a manner such that the Buyers
will not be in possession of material non-public information, by the fifteenth
(15th) Business Day following delivery of the Offer Notice. If by the fifteenth
(15th) Business Day following delivery of the Offer Notice no public disclosure
regarding a transaction with respect to the Offered Securities has been made,
and no notice regarding the abandonment of such transaction has been received by
the Buyers, such transaction shall be deemed to have been abandoned and the
Buyers shall not be deemed to be in possession of any material, non-public
information with respect to the Company. Should the Company decide to pursue
such transaction with respect to the Offered Securities, the Company shall
provide each Buyer with another Offer Notice and each Buyer will again have the
right of participation set forth in this Section 4(o)(iv). The Company shall not
be permitted to deliver more than one such Offer Notice to the Buyers in any 60
day period.

 

(iv)        The restrictions contained in subsection (ii) of this Section 4(o)
shall not apply in connection with (x) the issuance of any Excluded Securities
(as defined in the Warrants) or (y) the issuance of any warrants in connection
with the issuance or refinancing of debt that is not convertible into,
exchangeable or exercisable for Common Stock or Common Stock Equivalents,
provided, that such warrants shall not be exercisable before the earlier to
occur of (x) the date that is sixty (60) days immediately following the last
Adjustment Date hereunder and (y) the date that is eight (8) months immediately
following the Closing Date. The restrictions contained in subsection (iii) of
this Section 4(o) shall not apply in connection with the issuance of any
Excluded Securities.

 

(p)          Public Information. At any time during the period commencing from
the six (6) month anniversary of the Closing Date and ending at such time that
all of the Securities, if a registration statement is not available for the
resale of all of the Securities, may be sold without restriction or limitation
pursuant to Rule 144 and without the requirement to be in compliance with Rule
144(c)(1), if the Company shall (i) fail for any reason to satisfy the
requirements of Rule 144(c)(1), including, without limitation, the failure to
satisfy the current public information requirements under Rule 144(c) or (ii) if
the Company has ever been an issuer described in Rule 144(i)(1)(i) or becomes
such an issuer in the future, and the Company shall fail to satisfy any
condition set forth in Rule 144(i)(2) (each, a "Public Information Failure")
then, as partial relief for the damages to any holder of Securities by reason of
any such delay in or reduction of its ability to sell the Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each such holder an amount in cash equal to
one and one percent (1.0%) of the aggregate Purchase Price of such holder's
Securities on the day of a Public Information Failure and on every thirtieth day
(pro rated for periods totaling less than thirty days) thereafter until the
earlier of (i) the date such Public Information Failure is cured and (ii) such
time that such Public Information Failure no longer prevents a holder of
Securities from selling such Securities pursuant to Rule 144 without any
restrictions or limitations. The payments to which a holder shall be entitled
pursuant to this Section 4(p) are referred to herein as "Public Information
Failure Payments." Public Information Failure Payments shall be paid on the
earlier of (I) the last day of the calendar month during which such Public
Information Failure Payments are incurred and (II) the third Business Day after
the event or failure giving rise to the Public Information Failure Payments is
cured. In the event the Company fails to make Public Information Failure
Payments in a timely manner, such Public Information Failure Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full.

 

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(q)          Stockholder Approval. The Company shall provide each stockholder
entitled to vote at a special or annual meeting of stockholders of the Company
(the "Stockholder Meeting"), which shall be called as promptly as practicable
after the date hereof, but in no event later than four (4) months after the
Closing (the "Stockholder Meeting Deadline"), a proxy statement, in a form
reasonably acceptable to the Buyers, soliciting each such stockholder's
affirmative vote at the Stockholder Meeting for approval of resolutions (the
"Resolutions") providing for the issuance of all of the Securities as described
in the Transaction Documents (without the need for any Exercise Floor Price or
any other limit on the number of Adjustment Shares issuable hereunder or the
number of Warrant Shares issuable pursuant to the Warrants) in accordance with
applicable law, the provisions of the Bylaws and the rules and regulations of
the Principal Market (the "Stockholder Approval" and the date such approval is
obtained, the "Stockholder Approval Date"), and the Company shall use its
reasonable best efforts to solicit its stockholders' approval of such
Resolutions and to cause the Board of Directors of the Company to recommend to
the stockholders that they approve the Resolutions. The Company shall be
obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting
Deadline. If, despite the Company's reasonable best efforts, the Stockholder
Approval is not obtained at the Stockholder Meeting, the Company shall cause an
additional Stockholder Meeting to be held each calendar quarter thereafter until
Stockholder Approval is obtained.

 

(r)          Lock-Up. The Company shall not amend, waive, modify or terminate
any provision of any of the Lock-Up Agreements except to extend the term of the
lock-up period and shall enforce the provisions of each Lock-Up Agreement in
accordance with its terms. If any officer or director that is a party to a
Lock-Up Agreement breaches any provision of a Lock-Up Agreement, the Company
shall promptly use its best efforts to seek specific performance of the terms of
such Lock-Up Agreement.

 

(s)          Closing Documents. Promptly following the Closing Date, the Company
agrees to deliver, or cause to be delivered, to each Buyer and Schulte Roth &
Zabel LLP a complete closing set of the executed Transaction Documents,
Securities and any other documents required to be delivered to any party
pursuant to Section 7 hereof or otherwise.

 

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5.          REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

(a)          Register. The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to each holder of Securities), a register for the Warrants in which the
Company shall record the name and address of the Person in whose name the
Warrants have been issued (including the name and address of each transferee)
and the number of Warrant Shares issuable upon exercise of the Warrants held by
such Person. The Company shall keep the register open and available at all times
during business hours for inspection of any Buyer or its legal representatives.

 

(b)          Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, in the
form of Exhibit C attached hereto (the "Irrevocable Transfer Agent
Instructions") to issue certificates or credit shares to the applicable balance
accounts at DTC, registered in the name of each Buyer or its respective
nominee(s), for the Common Shares and the Warrant Shares issued at the Closing
or upon exercise of the Warrants in such amounts as specified from time to time
by each Buyer to the Company upon exercise of the Warrants. The Company warrants
that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 5(b), and stop transfer instructions to give effect
to Section 2(f) hereof, will be given by the Company to its transfer agent, and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
other Transaction Documents. If a Buyer effects a sale, assignment or transfer
of the Securities in accordance with Section 2(f), the Company shall permit the
transfer and shall promptly instruct its transfer agent to issue one or more
certificates or credit shares to the applicable balance accounts at DTC in such
name and in such denominations as specified by such Buyer to effect such sale,
transfer or assignment. In the event that such sale, assignment or transfer
involves the Warrant Shares sold, assigned or transferred pursuant to an
effective registration statement or pursuant to Rule 144 to a Person other than
an Affiliate of the Company, the transfer agent shall issue such Securities to
the Buyer, assignee or transferee, as the case may be, without any restrictive
legend. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Buyer. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.

 

6.          CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Common Shares and
the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:

 

(i)          Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.

 

(ii)         Such Buyer shall have delivered to the Company the Purchase Price
(less, in the case of Hudson Bay, the amounts withheld pursuant to Section 4(h))
for the Common Shares and the related Warrants being purchased by such Buyer at
the Closing by wire transfer of immediately available funds to an escrow account
established by the Company and the Placement Agent with JPMorgan Chase Bank, as
escrow agent, as set forth on Schedule I attached hereto.

 

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(iii)        The representations and warranties of such Buyer shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date which shall be true and correct as of such specified date), and such Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.

 

7.             CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Common Shares and the
related Warrants at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

 

(i)          The Company shall have duly executed and delivered to such Buyer
(A) each of the Transaction Documents, (B) the Common Shares (allocated in such
amounts as such Buyer shall request), being purchased by such Buyer at the
Closing pursuant to this Agreement and (C) the related Warrants (allocated in
such amounts as such Buyer shall request) being purchased by such Buyer at the
Closing pursuant to this Agreement.

 

(ii)         Such Buyer shall have received the opinion of Greenberg Traurig,
LLP, the Company's outside counsel, dated as of the Closing Date, addressed to
such Buyer and the Placement Agent, in form and substance reasonably acceptable
to such Buyer.

 

(iii)        The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit C attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.

 

(iv)        The Company shall have delivered to such Buyer a certificate (to the
extent available in the subject jurisdiction) evidencing the formation and good
standing of the Company and each of its Subsidiaries in such entity's
jurisdiction of formation issued by the Secretary of State (or comparable
office) of such jurisdiction, as of a date within ten (10) days of the Closing
Date.

 

(v)         The Company shall have delivered to such Buyer a certificate
evidencing the Company's qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business, as of a date within ten
(10) days of the Closing Date.

 

(vi)        The Company shall have delivered to such Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State (or
comparable office) of the State of Delaware within ten (10) days of the Closing
Date.

 

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(vii)       The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit D.

 

(viii)      The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date which shall be true and correct as of such specified date) and the Company
shall have performed, satisfied and complied in all respects with the covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer
of the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer in the form
attached hereto as Exhibit E.

 

(ix)         The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.

 

(x)          The Common Stock (I) shall be designated for quotation or listed on
the Principal Market and (II) shall not have been suspended, as of the Closing
Date, by the SEC or the Principal Market from trading on the Principal Market
nor shall suspension by the SEC or the Principal Market have been threatened, as
of the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.

 

(xi)         The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities.

 

(xii)        The Company shall have delivered to each Buyer a lock-up agreement
in the form attached hereto as Exhibit F executed and delivered by each of the
directors and affiliates set forth on Schedule 7(xii) (collectively, the "Lock
Up Agreements").

 

(xiii)       Such Buyer shall have received the opinion of Greenberg Traurig,
LLP, the Company's outside counsel, dated as of the Closing Date, addressed to
such Buyer, opining that (i) the holding period of the Adjustment Shares, when
issued in accordance with the terms hereof, will commence on the Closing Date
for purposes of Rule 144 and (ii) assuming the facts that exist on the Closing
Date are in effect on the date of the sale of any Adjustment Shares after the
holding period under Rule 144 has been satisfied, that the Adjustment Shares may
be sold pursuant to Rule 144 without any restrictive legend, all in form and
substance reasonably acceptable to such Buyer.

 

(xiv)      The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

 

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8.           TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before ten (10) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse Hudson Bay or its
designee(s), as applicable, for the expenses described in Section 4(h) above.

 

9.            MISCELLANEOUS.

 

(a)          Governing Law; Jurisdiction; Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of New York. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such 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 HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(b)          Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

 

(c)          Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

(d)          Severability. If any provision of this Agreement is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

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(e)          Entire Agreement; Amendments. Except for the financial obligations
of the Company set forth in the Binding Terms section of the Term Sheet dated as
of May 12, 2012 by and between the Company and Hudson Bay, which shall survive,
this Agreement and the other Transaction Documents supersede all other prior
oral or written agreements between the Buyers, the Company, their affiliates and
Persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and, except as set forth above,
the instruments referenced herein and therein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor any
Buyer makes any representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Required Holders, and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities and the
Company; provided that any such amendment or waiver that complies with the
foregoing but that disproportionately, materially and adversely affects the
rights and obligations of any Buyer relative to the comparable rights and
obligations of the other Buyers shall require the prior written consent of such
adversely affected Buyer. No provisions hereto may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the Buyers or holders of the applicable Securities then outstanding. 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 (other than the reimbursement of legal fees) also
is offered to all of the parties to the Transaction Documents, holders of Common
Shares or holders of the Warrants, as the case may be. The Company has not,
directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.

 

(f)          Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party) or by electronic mail; or (iii) one Business
Day after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be:

 

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If to the Company:

 

KIT digital, Inc.

26 West 17th Street, 2nd Floor

 

New York, NY 10011

Telephone:       (646) 553-4845

Facsimile:         (212) 730-4561
Attention:         Mr. Barak Bar-Cohen

Chief Executive Officer

E-mail:             barak.bar-cohen@kit-digital.com

 

With a copy to:

 

Greenberg Traurig, LLP

MetLife Building

200 Park Avenue

New York, New York 10166

Telephone:       (212) 801-9200
Facsimile:         (212) 801-6400
Attention:         Spencer G. Feldman, Esq.

E-mail:              feldmans@gtlaw.com

 

If to the Transfer Agent:

 

Continental Stock Transfer & Trust Co.

17 Battery Place

New York, New York 10004
Telephone:       (212) 509-4000
Facsimile:         (212) 616-7615
Attention:         Ms. Margaret Villani

 

E-mail:               fmvillani@continentalstock.com

 

If to a Buyer, to its address, facsimile number and e-mail address set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

 

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone:       (212) 756-2000
Facsimile:         (212) 593-5955
Attention:         Eleazer N. Klein, Esq.
E-mail:              eleazer.klein@srz.com

 

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or to such other address, facsimile number and/or e-mail address and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine or e-mail containing
the time, date, recipient facsimile number and an image of the first page of
such transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

(g)          Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Common Shares or the Warrants. The Company shall
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Required Holders, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Warrants). A Buyer may
assign some or all of its rights hereunder without the consent of the Company,
in which event such assignee shall be deemed to be a Buyer hereunder with
respect to such assigned rights.

 

(h)          No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Indemnitee shall have the right to
enforce the obligations of the Company with respect to Section 9(k) and except
that (i) the Placement Agent is an intended third party beneficiary of (A) the
Buyers' representations and warranties set forth in the last sentence of Section
2(d) and (B) the Company’s representations and warranties set forth in Section 3
hereof and (ii) the Placement Agent shall be an addressee of the legal opinion
identified in Section 7(a)(ii) hereof.

 

(i)          Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing. Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

 

(j)          Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

- 45 -

 

 

(k)          Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(j), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable law.
Except as otherwise set forth herein, the mechanics and procedures with respect
to the rights and obligations under this Section 9(k) shall be the same as those
set forth in Section 6 of the Registration Rights Agreement.

 

(l)          No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

(m)          Remedies. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.

 

- 46 -

 

 

(n)          Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer 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 Buyer 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.

 

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

 

(p)          Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company shall not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that the Buyers are not
acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
and each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own
counsel and advisors. Each Buyer shall be entitled to independently protect and
enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.

 

[Signature Page Follows]

 

- 47 -

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

 

  COMPANY:       KIT DIGITAL, INC.       By: /s/ Barak Bar-Cohen     Barak
Bar-Cohen     Chief Executive Officer

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

 

  BUYERS:           By:       Name:      Title:

 

[Signature Page to Securities Purchase Agreement]