Execution Version

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of November
19, 2013 by and between Cyalume Technologies Holdings, Inc., a Delaware
corporation (the “Company”), and US VC Partners, L.P., a Delaware limited
partnership (the “Purchaser”).

 

RECITALS

 

A.                 The Company and the Purchaser are 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
“Securities Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated
by the United States Securities and Exchange Commission (the “Commission”) under
the Securities Act.

 

B.                 The Purchaser wishes to purchase, and the Company wishes to
sell, upon the terms and conditions stated in this Agreement, 123,077 units of
securities, each security comprising, (i) one (1) share of Series A Convertible
Preferred Stock par value $0.001 per share (each a “Share” and, collectively,
the “Shares”), of the Company, having the rights and preferences set forth in
the Certificate of Designation filed by the Company with the Secretary of State
of Delaware as of November 18, 2013 (the “Certificate of Designation”) and
convertible into fifty (50) shares of the Company’s common stock par value
$0.001 per share (the “Common Stock”, the shares of Common Stock issuable upon
conversion of the Shares (including Preferred Stock Warrant Shares, as defined
below) collectively are referred to as the “Conversion Shares”), (ii) one (1)
warrant, in substantially the form attached hereto as Exhibit A-1 (each a
“Common Stock Warrant” and, collectively, the “Common Stock Warrants”), to
acquire an additional fifty (50) shares of Common Stock (the shares of Common
Stock issuable upon exercise of or otherwise pursuant to the Common Stock
Warrants collectively are referred to herein as the “Common Stock Warrant
Shares”) and (iii) one (1) warrant, in substantially the form attached hereto as
Exhibit A-2 (each a “Preferred Stock Warrant” and, collectively, the “Preferred
Stock Warrants” and together with the Common Stock Warrants, the “Warrants”), to
acquire one (1) additional Share (the Shares issuable upon exercise of or
otherwise pursuant to the Preferred Stock Warrants collectively are referred to
herein as the “Preferred Stock Warrant Shares” and together with the Common
Stock Warrant Shares, the “Warrant Shares”).

 

C.                 The Shares, the Conversion Shares, the Warrants and the
Warrant Shares collectively are referred to herein as the “Securities”.

 

D.                 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, among other things, the
Company will agree to provide certain registration rights with respect to the
Conversion Shares and the Common Stock Warrant Shares under the Securities Act
and the rules and regulations promulgated thereunder and applicable state
securities laws.

 

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

 

ARTICLE I.
DEFINITIONS

 

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

 

“Accredited Investor” has the meaning set forth in Rule 501(a) under the
Securities Act.

 

 

 

 

“Acquiring Person” has the meaning set forth in Section 4.7.

 

“Affiliate” means, with respect to any Person, any other Person that, directly
or indirectly through one or more intermediaries, Controls, is controlled by or
is under common control with such Person, as such terms are used in and
construed under Rule 405 under the Securities Act. With respect to the
Purchaser, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager (or an Affiliate thereof) as
the Purchaser will be deemed to be an Affiliate of the Purchaser.

 

“Aggregate Purchase Price” means $4,000,003.00.

 

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

 

“Amended and Restated JFC Note” means that certain Amended and Restated
Promissory Note dated as of November 19, 2013 by and among the Company as Maker
and JFC Technologies, LLC as Payee in substantially the form attached hereto as
Exhibit C.

 

“Basic Amount” means that portion of the Offered Securities identified in an
Offer Notice which equals the proportion that the Common Stock issued and held,
or issuable (directly or indirectly) upon conversion of the Shares and/or
exercise of the Warrants, as applicable, and any other Common Stock Equivalents
then held, by the Purchaser bears to the total Common Stock of the Company
issued and held, or issuable (directly or indirectly) upon conversion of the
Shares and/or exercise of the Warrants, as applicable, and any other Common
Stock Equivalents then held, by all holders of such securities (assuming full
conversion and/or exercise, as applicable, of all Shares, Warrants and other
Common Stock Equivalents).

 

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

 

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

 

“Buy-In” has the meaning set forth in Section 4.1(f).

 

“Buy-In Price” has the meaning set forth in Section 4.1(f).

 

“Certificate of Designation” has the meaning set forth in the Recitals.

 

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

 

“Closing Bid Price” means, for any security as of any date, (a) the last
reported closing bid price per share for such security on the Principal Trading
Market, as reported by Bloomberg Financial Markets, or, (b) if the Principal
Trading Market begins to operate on an extended hours basis and does not
designate the closing bid price then the last bid price of such security prior
to 4:00 P.M., New York City time, as reported by Bloomberg Financial Markets, or
(c) if the foregoing do not apply, the last closing price of such security on a
Trading Market which the Common Stock is listed or quoted for trading on the
date in question as reported by Bloomberg Financial Markets, or (d) if no
closing bid price is reported for such security by Bloomberg Financial Markets,
the average of the bid prices of any market makers for such security as reported
in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If
the Closing Bid Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Bid Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the holder of such security. If the Company and such holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 10 of the Warrants. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

 

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“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all of the
conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2 hereof are satisfied or
waived, as the case may be, or such other date as the parties may agree.

 

“Commission” has the meaning set forth in the Recitals.

 

“Common Stock” has the meaning set forth in the Recitals, and also includes any
other class of securities into which the Common Stock may hereafter be
reclassified or changed into.

 

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

 

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

 

“Company Counsel” means Greenberg Traurig, LLP with offices located at 200 Park
Avenue, New York, NY 10166.

 

“Company Deliverables” has the meaning set forth in Section 2.2(a).

 

“Company’s Knowledge” means with respect to any statement made to the Company’s
Knowledge, that the statement is based upon the actual knowledge of the
executive officers of the Company having responsibility for the matter or
matters that are the subject of the statement.

 

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

 

“Conversion Shares” has the meaning set forth in the Recitals.

 

“Deadline Date” has the meaning set forth in Section 4.1(f).

 

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

 

“Disclosure Schedules” has the meaning set forth in Section 3.1.

 

“DTC” has the meaning set forth in Section 4.1(d).

 

“Effective Date” means the date by which a Registration Statement filed by the
Company pursuant to Section 2(a) of the Registration Rights Agreement is first
declared effective by the Commission.

 

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

 

“Exempt Issuances” has the meaning set forth in Section 4.12(j).

 

“GMS” means GMS Acquisition Partners Holdings, LLC.

 

“Indemnified Liabilities” has the meaning set forth in Section 4.9(a).

 

“Indemnified Person” has the meaning set forth in Section 4.9(b).

 

“IRA” means that certain Investor Rights Agreement by and among the Company and
the other persons and entities party thereto, dated as of December 19, 2008.

 

“JFC Asset Purchase Agreement” means that certain Asset Purchase Agreement,
dated as of August 31, 2011, by and between the Company, Cyalume Specialty
Products, Inc., JFC Technologies, LLC and James G. Schleck, as amended by the
Amendment Agreement effective as of December 27, 2012.

 

“JFC Conversion Amount” has the meaning set forth in Section 4.14.

 

“JFC Note Conversion” has the meaning set forth in Section 4.14.

 

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

 

“Legend Removal Event” has the meaning set forth in Section 4.1(d).

 

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

 

“Material Adverse Effect” means a material adverse effect on the results of
operations, assets, business or financial condition of the Company and the
Subsidiaries, taken as a whole, except that any of the following, either alone
or in combination, shall not be deemed a Material Adverse Effect: (i) effects
caused by changes or circumstances affecting general market conditions in the
U.S. economy or which are generally applicable to the industry in which the
Company operates, provided that such effects are not borne disproportionately by
the Company, (ii) effects resulting from or relating to the announcement or
disclosure of the sale of the Securities or other transactions contemplated by
this Agreement, (iii) effects caused by any event, occurrence or condition
resulting from or relating to the taking of any action by the Company as
required in accordance with this Agreement, (iv) any change in applicable laws
or the interpretation thereof, (v) any change in United States generally
acceptable accounting principles or other accounting requirements or principles,
or (vi) commencement of a war or material armed hostilities or act of terrorism
directly involving the United States of America.

 

“Material Contract” means any contract of the Company that has been filed or was
required to have been filed, in each case, within the two (2) year period prior
to the date hereof, as an exhibit to the SEC Reports pursuant to Item 601(b)(4)
or Item 601(b)(10) of Regulation S-K.

 

“Maximum Qualified Offering Amount” has the meaning set forth in Section 4.13.

 

“Mezzanine Agreement” means that certain Subordinated Loan Agreement dated as of
July 29, 2010 by and among the Company, as Guarantor, Cyalume Technologies, Inc.
as Borrower, the Subsidiary Guarantors (as defined therein), and Granite Creek
Partners Agent, LLC as Agent, and the Additional Lenders (as defined therein),
as amended.

 

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

 

“Notice of Acceptance” has the meaning set forth in Section 4.12(b).

 

“Offer” has the meaning set forth in Section 4.12(a).

 

“Offer Notice” has the meaning set forth in Section 4.12(a).

 

“Offer Period” has the meaning set forth in Section 4.12(b).

 

“Offered Securities” has the meaning set forth in Section 4.12(a).

 

“Omniglow Agreement” means the Omniglow Agreement entered into by the Company,
Cyalume Technologies, Inc., Purchaser and Cova Small Cap Holdings, LLC in the
form attached hereto as Exhibit H.

 

“Original JFC Note” means that certain Promissory Note dated as of December 31,
2012 by and among the Company as Maker and JFC Technologies, LLC as Payee.

 

“Outside Date” means the tenth day following the date of this Agreement.

 

“Payee” means JFC Technologies, LLC.

 

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

 

“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading, which, as of the date of this
Agreement and the Closing Date, shall be the OTC Bulletin Board.

 

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

 

“Purchase Price” means $32.50 per unit, with (i) $32.40 attributable to the
Share included therein, (ii) $0.05 attributable to the Common Stock Warrant
included therein to purchase fifty (50) Common Stock Warrant Shares and (iii)
$0.05 attributable to the Preferred Stock Warrant included therein to purchase
one Preferred Stock Warrant Share.

 

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

 

“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).

 

“Purchaser Party” has the meaning set forth in Section 4.9.

 

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“Purchaser Threshold Date” means the earlier of the date upon which the
Purchaser (together with its Affiliates) holds less than (i) 25% of the Shares
purchased at the Closing, or (ii) 5% of the total outstanding shares of Common
Stock (on a fully diluted, as-if converted basis).

 

“Qualified Offering” has the meaning set forth in Section 4.13.

 

“Recapitalization” shall mean any stock dividend, stock split, combination of
shares, reorganization, recapitalization, reclassification or other similar
event.

 

“Refinancing Transaction” means a transaction or series of transactions entered
into by the Company pursuant to the refinancing transaction documents dated as
of the date hereof in the forms attached hereto as EXHIBIT C and Exhibit D with
respect to (i) the Senior Loan Agreement, (ii) the Mezzanine Agreement and (iii)
the Original JFC Note.

 

“Refused Securities” has the meaning set forth in Section 4.12(c).

 

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

 

“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Purchaser of the Registrable Securities.

 

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

 

“Regulation D” has the meaning set forth in the Recitals.

 

“Required Approvals” has the meaning set forth in Section 3.1(e).

 

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

 

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

 

“Secretary’s Certificate” has the meaning set forth in Section 2.2(a)(vii).

 

“Securities” has the meaning set forth in the Recitals.

 

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

 

“Selway Issuance” means the issuance to Selway Capital, LLC of up to $157,500 of
Common Stock at a price per share of Common Stock at least equal to $0.65 (as
adjusted for any Recapitalizations) and on terms and conditions approved by the
Board, relating to monies owed to Selway Capital, LLC pursuant to the terms of
that certain Management Agreement dated October 1, 2009 by the Company and
Selway Capital, LLC, as amended.

 

“Senior Loan Agreement” means certain Amended and Restated Revolving Credit and
Term Loan Agreement dated as of July 29, 2010 by and among the Company, as
Guarantor, Cyalume Technologies, Inc. as Borrower, the Subsidiary Guarantors (as
defined therein), and TD Bank, N.A. as Agent and Lender, and the Additional
Lenders (as defined therein), as amended.

 

“Shares” has the meaning set forth in the Recitals.

 

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“Stock Certificate” has the meaning set forth in Section 2.2(a)(ii).

 

“Subsequent Placement” has the meaning set forth in Section 4.12.

 

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

 

“Trading Day” means (i) a day on which the Common Stock is listed or quoted and
traded on its Principal Trading Market, or (ii) if the Common Stock is not
listed on its Principal Trading Market, a day on which the Common Stock is
traded on any Trading Market, or (iii) if the Common Stock is not quoted on any
Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported in the “pink sheets” by OTC Markets Group
Inc. (formerly Pink Sheets LLC), or any similar organization or agency
succeeding to its functions of reporting prices; provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i), (ii) and
(iii) hereof, then Trading Day shall mean a Business Day.

 

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

 

“Transaction Documents” means this Agreement, the schedules and exhibits
attached hereto, the Warrants, the Registration Rights Agreement, the Omniglow
Agreement and any other documents or agreements explicitly contemplated
hereunder.

 

“Transfer Agent” means American Stock Transfer & Trust Company, LLC, the current
transfer agent of the Company, with a mailing address of 6201 15th Avenue,
Brooklyn, NY 11219, and a facsimile number of (718) 236-4588, or any successor
transfer agent for the Company.

 

“Warrants” has the meaning set forth in the Recitals.

 

“Warrant Shares” has the meaning set forth in the Recitals.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1           Closing.

 

(a)    Amount. Subject to the terms and conditions set forth in this Agreement,
at the Closing, the Company shall issue and sell to the Purchaser, one hundred
and twenty-three thousand, seventy-seven (123,077) units. Each such unit shall
be comprised of one (1) Share, a Common Stock Warrant to purchase fifty (50)
Common Stock Warrant Shares and a Preferred Stock Warrant to purchase one (1)
Preferred Stock Warrant Share. Each Share may be converted into fifty (50)
Conversion Shares at any time at the option of the Purchaser at the Conversion
Price as provided in the Certificate of Designation. The Common Stock Warrants
shall have an exercise price equal to $0.65 per Common Stock Warrant Share,
subject to adjustment as provided in such Common Stock Warrants. The Preferred
Stock Warrants shall have an exercise price equal to $0.05 per Preferred Stock
Warrant Share, subject to adjustment as provided in such Preferred Stock
Warrants.

 

(b)   Closing. The Closing of the purchase and sale of the Shares and Warrants
shall take place at the offices of Cadwalader Wickersham & Taft, LLP, counsel to
the Purchaser, One World Financial Center, New York, New York 10281 on the
Closing Date or at such other location or remotely by facsimile transmission or
other electronic means as the parties may mutually agree.

 

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(c)    Form of Payment. On the Closing Date, the Purchaser shall wire the
Aggregate Purchase Price, in United States dollars and in immediately available
funds, to a bank account designated by the Company.

 

2.2           Closing Deliveries.   

 

(a)                On or prior to the Closing, the Company shall issue, deliver
or cause to be delivered to the Purchaser the following (the “Company
Deliverables”):

 

(i)                 this Agreement, duly executed by the Company;

 

(ii)               One or more original stock certificates, free and clear of
all restrictive and other legends (except as provided in Section 4.1(c) hereof),
evidencing the Shares purchased by the Purchaser hereunder, registered in the
name of the Purchaser (the “Stock Certificate”);

 

(iii)             One or more original (A) Common Stock Warrants, executed by
the Company and registered in the name of the Purchaser, pursuant to which the
Purchaser shall have the right to acquire six million, one hundred and
fifty-three thousand, eight hundred and forty-six (6,153,850) Common Stock
Warrant Shares issuable to the Purchaser, on the terms set forth therein and (B)
Preferred Stock Warrants, executed by the Company and registered in the name of
the Purchaser, pursuant to which the Purchaser shall have the right to acquire
one hundred and twenty-three thousand, seventy-seven (123,077) Preferred Stock
Warrant Shares issuable to the Purchaser, on the terms set forth therein;

 

(iv)             a legal opinion of Company Counsel, dated as of the Closing
Date and in substantially the form attached hereto as Exhibit E, executed by
such counsel and addressed to the Purchaser;

 

(v)               the Registration Rights Agreement, duly executed by the
Company;

 

(vi)             a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Closing Date, (a) certifying the resolutions
adopted by the Board of Directors of the Company and the duly authorized special
committee thereof formed for the purposes of assessing the transactions
contemplated by this Agreement and the other Transaction Documents approving
such transactions, (b) certifying the current versions of the certificate of
incorporation, as amended, and by-laws of the Company and (c) certifying as to
the signatures and authority of persons signing the Transaction Documents and
related documents on behalf of the Company, in the form attached hereto as
Exhibit F;

 

(vii)           the Compliance Certificate referred to in Section 5.1(i);

 

(viii)         a certificate evidencing the good standing of the Company issued
by the Secretary of State of Delaware, as of a date within seven (7) Business
Days of the Closing Date;

 

(ix)             a certified copy of the certificate of incorporation including
the Certificate of Designation, as certified by the Secretary of State of
Delaware, as of a date within seven (7) Business Days of the Closing Date;

 

(x)               executed documentation substantially in the form of Exhibit D
hereto evidencing the Refinancing Transaction; and

 

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(xi)             the Omniglow Agreement, duly executed by the Company and
Cyalume Technologies, Inc.

 

(b)               On or prior to the Closing, the Purchaser shall deliver or
cause to be delivered to the Company the following (the “Purchaser
Deliverables”):

 

(i)                 this Agreement, duly executed by the Purchaser;

 

(ii)               the Aggregate Purchase Price, in United States dollars and in
immediately available funds, by wire transfer to an account designated by the
Company;

 

(iii)             the Registration Rights Agreement, duly executed by the
Purchaser; and

 

(iv)             the Omniglow Agreement, duly executed by Purchaser and Cova
Small Cap Holdings, LLC.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company. Except as set forth
in the schedules delivered herewith (the “Disclosure Schedules”), which
Disclosure Schedules shall be deemed a part hereof and shall qualify the
representations made herein on the corresponding Section of the Agreement and
each other Section or subsection of this Article III, but only to the extent
that it is reasonably and readily apparent that such disclosure is applicable to
such other Section or subsection of this Article III, the Company hereby
represents and warrants as of the date hereof and the Closing Date (except for
the representations and warranties that speak as of a specific date, which shall
be made as of such date), to the Purchaser:

 

(a)                Subsidiaries. The Company has no direct or indirect
subsidiaries other than those listed in Schedule 3.1(a) hereto. Except as
disclosed in Schedule 3.1(a) hereto, the Company (i) owns, directly or
indirectly, all of the capital stock or comparable equity interests of each
Subsidiary free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities, and (ii)
does not own, directly or indirectly, any long-term debt of or equity interest
in any other Person.

 

(b)               Organization and Qualification. The Company and each of its
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite corporate
power and authority to own or lease and use its properties and assets and to
carry on its business as currently conducted in all material respects. Neither
the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. The Company and each of its
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, would not have or reasonably be expected to result in a
Material Adverse Effect, and no Proceeding has been instituted, is pending, or,
to the Company’s Knowledge, has been threatened in writing in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

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(c)                Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to which it is a
party and otherwise to carry out its obligations hereunder and thereunder. The
Company’s execution and delivery of each of the Transaction Documents to which
it is a party and the consummation by it of the transactions contemplated hereby
and thereby (including, but not limited to, the sale and delivery of the Shares
and the Warrants and the reservation for issuance and the subsequent issuance of
the Conversion Shares upon conversion of the Shares and the Warrant Shares upon
exercise of the Warrants) have been duly authorized by all necessary corporate
action on the part of the Company, and no further corporate action is required
by the Company, its Board of Directors or its stockholders in connection
therewith other than in connection with the Required Approvals. Each of the
Transaction Documents to which it is a party has been (or upon delivery will
have been) duly executed by the Company and is, or when delivered in accordance
with the terms hereof, will constitute the legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
except (i) as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

 

(d)               No Conflicts. The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Shares and Warrants, the reservation for
issuance and issuance of the Conversion Shares and the Warrant Shares and
assuming the filing of the Certificate of Designation with the Delaware
Secretary of State) do not and will not (i) conflict with or violate any
provisions of the Company’s or any Subsidiary’s certificate or articles of
incorporation, bylaws or otherwise result in a violation of the organizational
documents of the Company or any Subsidiary, (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would result in a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company or any Subsidiary or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time or both) of, any Material Contract, or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations and the rules and
regulations, assuming the correctness of the representations and warranties made
by the Purchaser herein, of any self-regulatory organization to which the
Company or its securities are subject, including all applicable Trading
Markets), or by which any property or asset of the Company or a Subsidiary is
bound or affected, except in the case of clauses (ii) and (iii) such as would
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect or a material adverse effect on the legality,
validity or enforceability of any Transaction Document or on the Company’s
ability to perform in any material respect on a timely basis its obligations
under any Transaction Document.

 

(e)                Filings, Consents and Approvals. Except as set forth in
Schedule 3.1(e) hereto, neither the Company nor any of its Subsidiaries is
required to obtain any consent, waiver, approval, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority, holder of outstanding
securities of the Company or any Subsidiary or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents (including the issuance of the Securities) (collectively, the
“Required Approvals”).

 

10

 

 

(f)    Issuance of the Securities. The Shares have been duly authorized and,
when issued and paid for in accordance with the terms of the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable and
free and clear of all Liens, other than restrictions on transfer provided for in
the Transaction Documents or imposed by applicable securities laws, and shall
not be subject to preemptive or similar rights. The Warrants have been duly
authorized and, when issued and paid for in accordance with the terms of the
Transaction Documents, will be duly and validly issued, free and clear of all
Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights of stockholders. The Conversion Shares issuable
upon conversion of the Shares and the Warrant Shares issuable upon exercise of
the Warrants have been duly authorized and, when issued and paid for in
accordance with the terms of the Transaction Documents and the Warrants, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens, other than restrictions on transfer provided for in the Transaction
Documents or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights of stockholders. Assuming the accuracy of the
representations and warranties of the Purchaser in this Agreement, the
Securities will be issued in compliance with all applicable federal and state
securities laws. As of the Closing Date, the Company shall have reserved from
its duly authorized capital stock the number of shares of Common Stock issuable
upon conversion of the Shares and the exercise of the Warrants. The Company
shall, so long as any of the Shares and Warrants are outstanding, take all
action necessary to reserve and keep available out of its authorized and
unissued capital stock, solely for the purpose of effecting the conversion of
the Shares and the exercise of the Warrants, the number of shares of Common
Stock issuable upon conversion of the Shares and exercise of the Warrants.

 

(g)                Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock, options and other securities
of the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in
Schedule 3.1(g) hereto. The Company has not issued any capital stock since the
date of its most recently filed SEC Report other than to reflect stock option
and warrant exercises or vesting of restricted stock units that do not,
individually or in the aggregate, have a material adverse affect on the issued
and outstanding capital stock, options and other securities. No Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents that have not been effectively waived as of the Closing Date. Except
as set forth on Schedule 3.1(g) or a result of the purchase and sale of the
Shares and Warrants, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire any
shares of Common Stock or Common Stock Equivalents, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents. The issuance and sale of the Shares and Warrants will not obligate
the Company to issue shares of Common Stock, Common Stock Equivalents or other
securities to any Person (other than the Purchaser) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities. Other than the IRA, there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital
stock to which the Company is a party or, to the Company’s Knowledge, between or
among any of the Company’s stockholders.

 

(h)               SEC Reports; Disclosure Materials. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as
the Company was required by law or regulation to file such material) (the
foregoing materials, including the exhibits thereto and documents incorporated
by reference therein, being collectively referred to herein as the “SEC
Reports”, and the SEC Reports, together with the Disclosure Schedules, being
collectively referred to as the “Disclosure Materials”) on a timely basis or has
received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension, except where the failure
to file on a timely basis would not have or reasonably be expected to result in
a Material Adverse Effect and would not have or reasonably be expected to result
in any limitation or prohibition on the Company’s ability to register the
Conversion Shares and Common Stock Warrant Shares for resale on Form S-1 or on
the Purchaser from using Rule 144 to resell any Securities. As of their
respective filing dates, or to the extent corrected by a subsequent amendment,
the SEC Reports complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company has never been an issuer subject to Rule 144(i) under
the Securities Act. Each of the Material Contracts to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
of its Subsidiaries are subject has been filed (or incorporated by reference) as
an exhibit to the SEC Reports.

 

11

 

 

(i)                 Certain Fees. No person or entity will have, as a result of
the transactions contemplated by this Agreement, any valid right, interest or
claim against or upon the Company or the Purchaser for any commission, fee or
other compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of the Company. The Purchaser shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this paragraph (i)
that may be due in connection with the transactions contemplated by the
Transaction Documents. The Company shall indemnify, pay, and hold the Purchaser
harmless against, any liability, loss or expense (including, without limitation,
attorneys’ fees and out-of-pocket expenses) arising in connection with any such
right, interest or claim.

 

(j)                 Private Placement. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2 of this Agreement, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to the Purchaser under the Transaction Documents. The
issuance and sale of the Securities hereunder does not contravene the rules and
regulations of the Principal Trading Market.

 

(k)               Investment Company The Company is not, and immediately after
receipt of payment for the Shares and Warrants, will not be an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.

 

(l)                 Registration Rights. Other than the Purchaser or as set
forth in Schedule 3.1(l) hereto, no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company.

 

(m)             No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, none of the Company,
its Subsidiaries nor, to the Company’s Knowledge, any of its Affiliates or any
Person acting on its behalf has, directly or indirectly, at any time within the
past six (6) months, made any offers or sales of any Company security or
solicited any offers to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale by the Company of
the Securities as contemplated hereby or (ii) cause the offering of the
Securities pursuant to the Transaction Documents to be integrated with prior
offerings by the Company for purposes of any applicable law, regulation or
stockholder approval provisions, including, without limitation, under the rules
and regulations of any Trading Market on which any of the securities of the
Company are listed or designated.

 

12

 

 

(n)               No General Solicitation. Neither the Company nor, to the
Company’s Knowledge, any person acting on behalf of the Company has offered or
sold any of the Securities by any form of general solicitation or general
advertising.

 

(o)               Acknowledgment Regarding Purchaser’s Purchase of Securities. 
The Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby and thereby.  The Company further
acknowledges that the Purchaser is not acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by the Purchaser or any of its respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Purchaser’s purchase of the Securities. The
Company further represents to the Purchaser that the Company’s decision to enter
into this Agreement and the other Transaction Documents has been based solely on
the independent evaluation of the transactions contemplated hereby by the
Company and its representatives.

 

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

 

3.2           Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants as of the date hereof and as of the Closing Date
to the Company as follows:

 

(a)                Organization; Authority. The Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. The execution and delivery of this
Agreement by the Purchaser and performance by the Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if the Purchaser is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of the Purchaser.
Each Transaction Document to which it is a party has been duly executed by the
Purchaser, and when delivered by the Purchaser in accordance with the terms
hereof, will constitute the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except (i) as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

 

(b)               No Conflicts. The execution, delivery and performance by the
Purchaser of this Agreement and the Registration Rights Agreement and the
consummation by the Purchaser of the transactions contemplated hereby and
thereby will not (i) conflict with or violate any provisions of the
organizational documents of the Purchaser, (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 (with or without notice, lapse of time or both) of,
any agreement, indenture or instrument to which the Purchaser is a party, or
(iii) conflict with or result in a violation of any law, rule, regulation,
order, judgment, litigation, decree or other restriction of any court or
governmental authority to which the Purchaser is subject (including federal and
state securities laws and regulations) applicable to the Purchaser, 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 the Purchaser to
perform on a timely basis its obligations hereunder.

 

13

 

 

(c)                Investment Intent. The Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Shares and Warrants and, upon conversion of the Shares and exercise of the
Warrants, will acquire the Conversion Shares and the Warrant Shares issuable
upon exercise thereof as principal for its own account and not with a view to,
or for distributing or reselling such Securities or any part thereof in
violation of the Securities Act or any applicable state securities laws,
provided, however, that by making the representations herein, the Purchaser does
not agree to hold any of the Securities for any minimum period of time and
reserves the right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise dispose of all
or any part of such Securities pursuant to an effective registration statement
under the Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws. The Purchaser is
acquiring the Securities hereunder in the ordinary course of its business. The
Purchaser does not presently have any agreement, plan or understanding, directly
or indirectly, with any Person to distribute or effect any distribution of any
of the Securities (or any securities which are derivatives thereof) to or
through any person or entity; the Purchaser is not a registered broker-dealer
under Section 15 of the Exchange Act or an entity engaged in a business that
would require it to be so registered as a broker-dealer.

 

(d)               Purchaser Status. At the time the Purchaser was offered the
Shares and Warrants, it was, and at the date hereof it is, and on each date on
which it elects to convert the Shares and exercises the Warrants it will be, an
Accredited Investor. The Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in financial
and business matters so that such Purchaser is capable of evaluating the merits
and risks of the investment in the Shares that it is purchasing pursuant to this
Agreement, is making an informed investment decision with respect thereto and
has the capacity to protect its own interests with respect thereto.

 

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

 

(f)                Brokers and Finders. No Person will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or the Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Purchaser.

 

(g)                Residency. The Purchaser’s offices in which its investment
decision with respect to the Securities was made are located at the address
immediately below the Purchaser’s name in Section 6.3.

 

The Company and the Purchaser acknowledge and agree that no party to this
Agreement has made or makes any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
this Article III and the Transaction Documents.

  

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1           Transfer Restrictions.

 

14

 

 

(a)                Compliance with Laws. Notwithstanding any other provision of
this Article IV, the Purchaser acknowledges that the Securities may be disposed
of only pursuant to an effective registration statement under, and in compliance
with the requirements of, the Securities Act, or pursuant to an available
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, and in compliance with any applicable state
and federal securities laws. In connection with any transfer of the Securities
other than (i) pursuant to an effective registration statement, (ii) to the
Company, (iii) pursuant to Rule 144 (provided that the Purchaser provides the
Company with reasonable assurances (in the form of seller and, if applicable,
broker representation letters) that the securities may be sold pursuant to such
rule) or (iv) in connection with a bona fide pledge as contemplated in Section
4.1(c), the Company may require the transferor thereof to provide to the
Company, as a condition to its registration of such Securities in the name of
the applicable transferee(s), an opinion of counsel selected by the transferor
and reasonably acceptable to the Company, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act; provided, that no such opinion shall be required with respect to
a transfer of Securities to an Affiliate of Purchaser made in accordance with
Section 4(2) of the Securities Act and/or Rule 506 of Regulation D, and who
agrees to be bound by the terms and conditions of this Agreement.

 

(b)               Lock-Up. The Purchaser hereby agrees that it will not, without
the prior written consent of the Company (such consent not to be unreasonably
withheld, delayed or conditioned), during the period commencing on the Closing
Date and ending on the date one hundred eighty (180) days after the Closing Date
lend, offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any Securities purchased by the Purchaser pursuant to this Agreement
to any party other than an Affiliate of Purchaser (so long as such Affiliate
agrees to abide by the terms of this Section 4.1(b).

 

(c)                Legends. Certificates evidencing the Securities shall bear
any legend as required by the “blue sky” laws of any state and a restrictive
legend in substantially the following form, until such time as they are not
required under Section 4.1(d):

 

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), 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
OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS OR (II) UNLESS SOLD PURSUANT
TO RULE 144 UNDER THE SECURITIES 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.

 

15

 

 

The Company acknowledges and agrees that the Purchaser may from time to time
pledge, and/or grant a security interest in, some or all of the legended
Securities in connection with applicable securities laws, pursuant to a bona
fide margin agreement in compliance with a bona fide margin loan. Such a pledge
would not be subject to approval or consent of the Company and no legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be required in
connection with the pledge, but such legal opinion shall be required in
connection with a subsequent transfer or foreclosure following default by the
Purchaser transferee of the pledge. No notice shall be required of such pledge,
but Purchaser’s transferee shall promptly notify the Company of any such
subsequent transfer or foreclosure of such legended Securities. The Purchaser
acknowledges that the Company shall not be responsible for any pledges relating
to, or the grant of any security interest in, any of the Securities or for any
agreement, understanding or arrangement between the Purchaser and its pledgee or
secured party. At the Purchaser’s expense, the Company will execute and deliver
such reasonable documentation as a pledgee or secured party of Securities may
reasonably request in connection with a pledge or transfer of the Securities,
including the preparation and filing of any required prospectus supplement under
Rule 424(b)(3) of the Securities Act or other applicable provision of the
Securities Act to appropriately amend the list of Selling Stockholders
thereunder. The Purchaser acknowledges and agrees that, except as otherwise
provided in Section 4.1(d), any Securities subject to a pledge or security
interest as contemplated by this Section 4.1(c) shall continue to bear the
legend set forth in this Section 4.1(c) and be subject to the restrictions on
transfer set forth in Section 4.1(a).

 

(d)   Removal of Legends. The legend set forth in Section 4.1(c) above shall be
removed and the Company shall issue a certificate without such legend or any
other legend to the holder of the applicable 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 (i) such Securities are registered
for resale under the Securities Act (provided that, if the Purchaser is selling
pursuant to the effective registration statement registering the Securities for
resale, such Securities are sold only during such time that such registration
statement is effective and not withdrawn or suspended, and only as permitted by
such registration statement), or (ii) such Securities are sold or transferred
pursuant to Rule 144 (if the transferor is not an Affiliate of the Company).
Following the Effective Date, if required by the Transfer Agent, the Company
shall cause Company Counsel to issue to the Transfer Agent a legal opinion
confirming the occurrence of the registration of such Securities for resale
under the Securities Act. Any fees (with respect to the Transfer Agent, Company
Counsel or otherwise) associated with the issuance of such opinion or the
removal of such legend shall be borne by the Company. Following the Effective
Date, or at such earlier time as a legend is no longer required for certain
Securities, the Company will no later than three (3) Trading Days following the
delivery by the Purchaser to the Company (with notice to the Company) of (i) a
legended certificate representing Shares, Conversion Shares or Warrant Shares
(endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect the reissuance and/or transfer) or (ii) an Exercise
Notice in the manner stated in the Warrants to effect the exercise of such
Warrant in accordance with its terms, and an opinion of counsel to the extent
required by Section 4.1(a) (such third (3rd) Trading Day, the “Legend Removal
Date”), deliver or cause to be delivered to the transferee of the Purchaser or
the Purchaser, as applicable, a certificate representing such Securities that is
free from all restrictive and other legends. The Company may not make any
notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this Section 4.1(d). Certificates for
Shares, Conversion Shares or Warrant Shares subject to legend removal hereunder
may be transmitted by the Transfer Agent to the Purchaser by crediting the
account of the Purchaser’s prime broker with DTC as directed by the Purchaser.

 

(e)    Acknowledgement. The Purchaser acknowledges its primary responsibilities
under the Securities Act and accordingly will not sell or otherwise transfer the
Securities or any interest therein without complying with the requirements of
the Securities Act. While a Registration Statement remains effective, the
Purchaser may sell Registrable Securities in accordance with the plan of
distribution contained in such Registration Statement and if it does so it will
comply therewith and with the related prospectus delivery requirements unless an
exemption therefrom is available. The Purchaser agrees that if it is notified by
the Company in writing at any time that any Registration Statement registering
the resale of Registrable Securities is not effective or that the prospectus
included in such Registration Statement no longer complies with the requirements
of Section 10 of the Securities Act, the Purchaser will refrain from selling
such Registrable Securities without the prior written consent of the Company
(such consent not to be unreasonably withheld, delayed or conditioned) until
such time as the Purchaser is notified by the Company that such Registration
Statement is effective or such prospectus is compliant with Section 10 of the
Securities Act, unless the Purchaser is able to, and does, sell such Registrable
Securities pursuant to an available exemption from the registration requirements
of Section 5 of the Securities Act. Both the Company and its Transfer Agent, and
their respective directors, officers, employees and agents, may rely on this
Section 4.1(e) and the Purchaser will indemnify and hold harmless each of such
persons from any breaches or violations of this Section 4.1(e).

 

16

 

 

(f)    Buy-In. If the Company shall fail for any reason or for no reason to
issue to the Purchaser unlegended certificates within three (3) Trading Days
after receipt of all documents necessary for the removal of the legend set forth
above (the “Deadline Date”), then, in addition to all other remedies available
to the Purchaser, if on or after the Trading Day immediately following such
three (3) Trading Day period, the Purchaser purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the holder of shares of Common Stock that the Purchaser anticipated
receiving from the Company without any restrictive legend (a “Buy-In”), then the
Company shall, within three (3) Trading Days after the Purchaser’s request and
in the Purchaser’s sole discretion, either (i) pay cash to the Purchaser in an
amount equal to the Purchaser’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such certificate
(and to issue such shares of Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Purchaser a certificate or certificates
representing such shares of Common Stock and pay cash to the Purchaser in an
amount equal to the excess (if any) of the Buy-In Price over the product of (a)
such number of shares of Common Stock, times (b) the Closing Bid Price on the
Deadline Date.

 

4.2           Reservation of Common Stock. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance from and after the Closing Date, the number of shares of Common Stock
issuable upon conversion of the Shares and exercise of the Warrants issued at
the Closing.

 

4.3           Furnishing of Information. In order to enable the Purchaser to
sell the Securities under Rule 144, until the date that the Conversion Shares
and Common Stock Warrant Shares cease to be Registrable Securities (as defined
in the Registration Rights Agreement), the Company shall use its reasonable best
efforts to timely file (or obtain extensions in respect thereof and file within
the applicable grace period) all reports required to be filed by the Company
after the date hereof pursuant to the Exchange Act. During such period, if the
Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to the Purchaser and make publicly available in accordance
with Rule 144(c) such information as is required for the Purchaser to sell the
Securities under Rule 144.

 

4.4           Warrant Exercise Procedures. The totality of the procedures
required of the Purchaser in order to exercise its Warrants are as set forth in
the Warrants. Subject to compliance with the terms of the Transaction Documents,
no additional legal opinion or other information or instruction not otherwise
specified therein shall be required of the Purchaser to exercise the Warrants.
The Company shall honor exercises of the Warrants, and shall deliver Warrant
Shares, in each case, in accordance with the terms, conditions and time periods
set forth in the Transaction Documents.

  

17

 

 

4.5           Share Conversion Procedures. The totality of the procedures
required of the Purchaser in order to convert its Shares are as set forth in the
Certificate of Designation. Subject to compliance with the terms of the
Transaction Documents, no additional legal opinion or other information or
instruction not otherwise specified therein shall be required of the Purchaser
to convert the Shares. The Company shall honor conversions of the Shares, and
shall deliver Conversion Shares, in each case, in accordance with the terms,
conditions and time periods set forth in the Transaction Documents and the
Certificate of Designation.

 

4.6           Integration. The Company shall not, and shall use its reasonable
best efforts to ensure that no Affiliate of the Company shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the Securities Act) that will be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchaser, or that
will be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market such that it would require
stockholder approval prior to the closing of such other transaction unless
stockholder approval is obtained before the closing of such subsequent
transaction.

 

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

 

4.8           Use of Proceeds. The Company shall use the net proceeds from the
sale of the Shares and Warrants in accordance with the terms of the Refinancing
Transaction (and, in the case of any proceeds remaining after the Refinancing
Transaction, for working capital and other general corporate purposes) and shall
not use such proceeds for: (a) the redemption of any Common Stock or Common
Stock Equivalents or (b) the payment of dividends or distributions to the
holders of the Company’s Common Stock.

 

4.9           Indemnification of Purchaser.

 

(a)    Indemnification of Purchaser. In consideration of the Purchaser’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, subject to the provisions of this Section 4.9, the
Company will defend, protect, indemnify and hold the Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners, employees (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title) of such controlling persons and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(each, a “Purchaser Party”) harmless from and against any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation (“Indemnified Liabilities”) that any
such Purchaser Party may suffer or incur as a result of or relating to (i) any
breach of any of the representations or warranties made by the Company in this
Agreement or in any of the other Transaction Documents, (ii) any breach of any
covenants or agreements made by the Company in this Agreement or in any of the
other Transaction Documents, or (iii) any cause of action, suit, proceeding or
claim (including for these purposes a derivative action brought on behalf of the
Company) instituted against the Company, any Purchaser Party, or the Purchaser
in any capacity, or any of them or their respective Affiliates, by any Person
who is not an Affiliate of the Purchaser seeking indemnification, with respect
to or arising out of the negotiation, authorization, approval, execution,
delivery, performance or enforcement of any of the transactions contemplated by
the Transaction Documents (unless such action is based upon a breach of the
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings the Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser which constitutes fraud or
willful misconduct). 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 which is permissible under applicable law.

 

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(b)   Indemnification Procedures. Promptly after receipt by any such Person (the
“Indemnified Person”) of notice of any demand, claim or circumstances which
would or might give rise to a claim or the commencement of any action,
proceeding or investigation in respect of which indemnity may be sought pursuant
to this Section 4.9, such Indemnified Person shall promptly notify the Company
in writing and the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Person, and
shall assume the payment of all such Indemnified Liabilities and any and all
other fees and expenses relating to such proceeding; provided, however, that the
failure of any Indemnified Person so to notify the Company shall not relieve the
Company of its obligations hereunder except to the extent that the Company is
actually prejudiced by such failure to notify. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless: (i) the Company and the Indemnified Person have mutually agreed to the
retention of such counsel; (ii) the Company shall have failed promptly to assume
the defense of such proceeding and to employ counsel reasonably satisfactory to
such Indemnified Person in such proceeding; or (iii) in the reasonable judgment
of counsel to such Indemnified Person, representation of both parties by the
same counsel may be inappropriate due to actual or potential differing interests
between them. The Company shall keep such Indemnified Persons reasonably
apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. The Company shall not be liable for any
settlement of any proceeding effected without its written consent, which consent
shall not be unreasonably withheld, delayed or conditioned. Without the prior
written consent of the Indemnified Person, in its sole discretion, the Company
shall not effect any settlement of any pending or threatened proceeding in
respect of which any Indemnified Person is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement includes an unconditional release of such Indemnified Person
from all liability arising out of such proceeding and in no event shall such
settlement include any non-monetary limitation on the actions of any Indemnified
Person or any of its Affiliates or any admission of fault or liability on behalf
of any such Indemnified Person.

 

(c)    Survival of Representations and Warranties; Limitations on
Indemnification. All representations and warranties of the Company contained in
this Agreement or any of the other Transaction Documents, shall survive the
Closing hereunder for a period of eighteen (18) months after the Closing Date.
The aggregate amount required to be paid by the Company pursuant to
Section 4.9(a)(i) shall not exceed in the aggregate the Aggregate Purchase
Price.

 

4.10           Form D; Blue Sky. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon the written request of the Purchaser. The Company shall
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for or to qualify the Securities for sale to the
Purchaser 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 such actions promptly upon the written request of the
Purchaser.

 

19

 

 

4.11           Delivery of Shares and Warrants At Closing. On the Closing Date,
the Company shall deliver, or cause to be delivered, the Shares and Warrants
purchased by the Purchaser to the Purchaser.

 

4.12          Participation Rights. Except for Exempt Issuances, from the
Closing Date until the Purchaser Threshold Date, the Company shall not, directly
or indirectly, issue, offer, sell, grant any option or right to purchase or
otherwise dispose of (or announce any offer, sale, grant of any option or right
to purchase or other disposition of) any Common Stock, Common Stock Equivalents
or other equity security of the Company (any such issuance, offer, sale, grant,
disposition or announcement being referred to as a “Subsequent Placement”)
unless the Company shall have first complied with this Section 4.12. The Company
acknowledges and agrees that the right set forth in this Section 4.12 is a right
granted by the Company to the Purchaser; provided that in accordance with
Section 6.6, Purchaser may assign such rights, in whole or in part, to any (i)
Affiliate of the Purchaser or (ii) any venture capital, private equity or other
investment fund now or hereafter existing which is controlled by one or more
general partners or managing members of, or shares the same management company
with, Purchaser or its Affiliates.

 

(a)    Subject to Section 4.12(d), the Company shall deliver, at least ten (10)
Business Days prior to the closing of a Subsequent Placement, to the Purchaser,
a written notice (the “Offer Notice”) of such proposed sale (the “Offer”) of the
securities being offered (the “Offered Securities”) in a Subsequent Placement,
which Offer Notice shall (i) identify and describe the Offered Securities, (ii)
describe the price and other terms upon which they are to be sold, and the
number or amount of the Offered Securities to be sold and (iii) offer to sell to
the Purchaser the Basic Amount.

 

(b)   To accept an Offer, in whole or in part, the Purchaser must deliver a
written notice to the Company prior to the end of the tenth (10th) Business Day
after the Purchaser’s receipt of the Offer Notice (the “Offer Period”), setting
forth all or less than all of the portion of the Basic Amount that the Purchaser
elects to purchase (the “Notice of Acceptance”).

 

(c)    The Company shall have 60 days from the expiration of the Offer Period
above to offer or sell all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Purchaser (the “Refused
Securities”) in such Subsequent Placement, but only upon terms and conditions
(including, without limitation, the total amount of the shares, financing, 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.

 

(d)   Notwithstanding the foregoing, the Company may, at its election, choose to
comply with this Section 4.12 after the closing of a Subsequent Placement by
offering to the Purchaser, within five (5) Business Days after the closing of
such Subsequent Placement, its Basic Amount of the Offered Securities and shall
provide the Purchaser with the opportunity to purchase such Offered Securities
in accordance with the timing provisions set forth herein.

 

(e)    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 4.12(c) above), then the Purchaser may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less than the number
or amount of the Offered Securities that the Purchaser elected to purchase
pursuant to Section 4.12(b) 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 Purchaser pursuant to this Section 4.12 prior to such reduction) and
(ii) the denominator of which shall be the original amount of the Offered
Securities. In the event that the Purchaser so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Purchaser in accordance with Section 4.12(a) above.

 

20

 

 

(f)    Upon the closing of the sale of all or less than all of the Refused
Securities, the Purchaser shall acquire from the Company, and the Company shall
issue to the Purchaser, the number or amount of Offered Securities specified in
its Notices of Acceptance, as reduced pursuant to Section 4.12(e) above if the
Purchaser have so elected, upon the terms and conditions specified in the Offer.

 

(g)    Any Offered Securities not acquired by the Purchaser or other persons in
accordance with Section 4.12(b) above may not be sold until they are again
offered to the Purchaser under the procedures specified in this Section 4.12.

 

(h)   The Company and the Purchaser agree that if the Purchaser elects to
participate in the Offer, neither the securities purchase agreement, placement
agreement or any other definitive agreement with respect to such Offer shall
include any term or provision whereby the Purchaser shall be required to consent
to any amendment to or termination of, or grant any waiver, release or the like
under or in connection with, any agreement previously entered into with the
Company or any instrument received from the Company.

 

(i)     Notwithstanding anything to the contrary in this Section 4.12 and unless
otherwise agreed to by the Purchaser, the Company shall either (A) promptly
confirm in writing to the Purchaser that the transaction with respect to the
Subsequent Placement has been abandoned or (B) within four (4) business days
following the consummation of the issuance of the Offered Securities, publicly
disclose such issuance of the Offered Securities. Following the delivery of any
confirmation by the Company to the Purchaser pursuant to clause (A) above, the
Company shall, upon the Purchaser’s request, publicly disclose such information
as may be required to be disclosed in order for the Purchaser not to be in
possession of any material, non-public information regarding the Company.

 

(j)     The restrictions contained in this Section 4.12 shall not apply to the
issuance of any Common Stock or Common Stock Equivalents issued or issuable by
the Company: (i) to employees, officers, consultants or directors for services
provided to the Company that are approved by the Company’s Board of Directors;
(ii) upon the exercise or exchange of or conversion of any Securities (including
the Preferred Stock Warrant and the Preferred Stock Warrant Shares) issued
hereunder or any Common Stock or Common Stock Equivalents outstanding as of the
date hereof; (iii) pursuant to the Qualified Offering, the Mezzanine Agreement
as amended by that certain amendment dated of the date hereof in the form
attached hereto as Exhibit D, the JFC Asset Purchase Agreement or, the Amended
and Restated JFC Note, in each case, as in effect as of the date hereof, or
pursuant to the Selway Issuance, or the exercise of Common Stock Equivalents
issued in respect of such transactions in accordance with clause (iii); provided
that such securities are not amended after the date hereof to increase the
number of shares of Common Stock issuable thereunder or to lower the exercise or
conversion price thereof; (iv) for consideration other than cash pursuant to a
bona fide, arm’s length merger, consolidation acquisition or similar business
combination approved by the Board of Directors, (v) in connection with the
payment of dividends on the outstanding Shares in the form of additional Shares,
or (vi) in connection with any stock split, stock dividend or recapitalization
of the Company (collectively, the “Exempt Issuances”).

 

4.13          Qualified Offering. The Company shall, as soon as practicable
following the Closing, offer to Accredited Investors that are existing
shareholders of the Company (other than the Purchaser), up to 76,923 units of
securities of the Company, with each such unit comprised of (i) one (1) Share,
(ii) a Common Stock Warrant to purchase fifty (50) Common Stock Warrant Shares
and (iii) a Preferred Stock Warrant to purchase one (1) Preferred Stock Warrant
Share (the “Maximum Qualified Offering Amount”) at an aggregate purchase price
of $32.50 for each unit. To the extent such existing shareholders of the Company
do not acquire the entire Maximum Qualified Offering Amount, the Company shall
offer any such portion of the Maximum Qualified Offering Amount not so purchased
by existing shareholders to other Accredited Investors reasonably acceptable to
the Purchaser. The transactions described in the first two sentences of this
Section 4.13 shall be collectively referred to herein as the “Qualified
Offering”. Closing of the Qualified Offering shall occur on or before the date
that is one hundred and twenty (120) days following the Closing Date. For the
avoidance of doubt, securities issued pursuant to the Qualified Offering will
not be subject to the participation rights granted by the Company to the
Purchaser pursuant to Section 4.12.

 

21

 

 

4.14          JFC Note Conversion. Concurrent with the Closing, the Company may
offer the Payee an option to convert up to $1,000,000 of the Company’s
indebtedness to the Payee pursuant to the Amended and Restated JFC Note (the
“JFC Conversion Amount”) into equity of the Company (“the JFC Note Conversion”),
such that prior to the payment of all outstanding amounts due and payable under
the Amended and Restated JFC Note, Payee shall be entitled to convert (i) up to
$499,980 of the outstanding balance of the Amended and Restated JFC Note into
15,384 units of securities of the Company, with each such unit comprised of (x)
one (1) Share, (y) a Common Stock Warrant to purchase fifty (50) Common Stock
Warrant Shares and (z) a Preferred Stock Warrant to purchase one (1) Preferred
Stock Warrant Share and (ii) a portion of the outstanding balance of the balance
of the Amended and Restated JFC Note up to the JFC Conversion Amount into Shares
at a conversion price of $32.50 per Share; provided, that to the extent Payee
elects to convert in excess of $499,980 of the JFC Conversion Amount into
Shares, the Company shall not permit or give effect to such conversion unless
and until Payee grants to the Purchaser a proxy, in form and substance
acceptable to Purchaser, to vote (whether at a meeting or by written consent)
all of the Shares issued to Payee (including upon exercise of the Warrant) in
excess of the 15,384 Shares issuable upon the conversion of the first $499,980
of the JFC Conversion Amount. For the avoidance of doubt, securities issued
pursuant to this Section 4.14 shall not be included in calculating the Maximum
Qualified Offering Amount and will not be subject to the participation rights
granted by the Company to the Purchaser pursuant to Section 4.12.

 

4.15          Securities Law Disclosure; Publicity. No public release or
announcement concerning the transactions contemplated hereby or by any other
Transaction Document shall be issued by the Company or Purchaser without the
prior written consent of the Company (in the case of a release or announcement
by Purchaser) or Purchaser (in the case of a release or announcement by the
Company) (which consents shall not be unreasonably withheld, conditioned or
delayed), except for any such release or announcement as may be required by law
or the applicable rules or regulations of any securities exchange or securities
market, in which case the Company or Purchaser, as the case may be, shall allow
Purchaser or the Company, as applicable, to the extent reasonably practicable in
the circumstances, reasonable time to comment on such release or announcement in
advance of such issuance. The provisions of this Section 4.15 shall not restrict
the ability of the Company to summarize or describe the transactions
contemplated by this Agreement in any prospectus or similar offering document so
long as Purchaser is provided a reasonable opportunity to review and comment on
such disclosure in advance of the filing or other public dissemination of any
such document. Notwithstanding anything herein to the contrary, from and after
the Closing, the parties acknowledge and agree that Purchaser and its Affiliates
may provide general information about the subject matter of this Agreement in
connection with Purchaser’s or its Affiliates’ and affiliated investment funds’
normal fund raising, marketing, informational or reporting and communication
activities; provided that Purchaser shall not provide any material non-public
information regarding the Company pursuant to this sentence.

 

22

 

 

ARTICLE V. 

CONDITIONS PRECEDENT TO CLOSING

5.1           Conditions Precedent to the Obligations of the Purchaser to
Purchase Securities. The obligation of the Purchaser to acquire Shares and
Warrants at the Closing is subject to the fulfillment to the Purchaser’s
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by the Purchaser:

 

(a)           Representations and Warranties. The representations and warranties
made by the Company contained herein shall be true and correct in all material
respects (except for those representations and warranties which are qualified as
to materiality, in which case such representations and warranties shall be true
and correct in all respects) as of the date when made and as of the Closing
Date, as though made on and as of such date, except for such representations and
warranties that speak as of a specific date.

 

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

 

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

 

(d)           Consents. The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Securities (including all Required
Approvals), all of which shall be and remain so long as necessary in full force
and effect.

 

(e)           Adverse Changes. No event or series of events shall have occurred
that has had or would reasonably be expected to have a Material Adverse Effect.

 

(f)           No Suspensions of Trading in Common Stock. The Common Stock shall
not have been suspended, as of the Closing Date, by the Commission or the
Principal Trading Market from trading on the Principal Trading Market nor shall
suspension by the Commission or the Principal Trading Market have been
threatened, as of the Closing Date, either (A) in writing by the Commission or
the Principal Trading Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Trading Market.

 

(g)           Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a).

 

(h)           Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1(a) and
(b) in the form attached hereto as Exhibit G.

 

(i)           Refinancing. The Company shall, concurrent with the Closing, have
consummated the Refinancing Transaction in accordance with the terms thereof.

 

(j)           Approvals. The Purchaser shall have obtained the requisite
approvals to enter into the transactions contemplated by this Agreement and the
other Transaction Documents.

 

 

23

 

 

(k)           Omniglow Agreement. The Company, Cyalume Technologies, Inc.,
Purchaser and Cova Small Cap Holdings, LLC shall have executed and delivered the
Omniglow Agreement.

 

5.2           Conditions Precedent to the Obligations of the Company to sell
Securities. The Company's obligation to sell and issue the Shares and Warrants
at the Closing to the Purchaser is subject to the fulfillment to the
satisfaction of the Company, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by the Company:

 

(a)           Representations and Warranties. The representations and warranties
made by the Purchaser contained herein shall be true and correct in all material
respects (except for those representations and warranties which are qualified as
to materiality, in which case such representations and warranties shall be true
and correct in all respects) as of the date when made, and as of the Closing
Date as though made on and as of such date, except for representations and
warranties that speak as of a specific date.

 

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

 

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

 

(d)           Purchaser Deliverables. The Purchaser shall have delivered the
Purchaser Deliverables in accordance with Section 2.2(b).

 

(e)           Termination. This Agreement shall not have been terminated as to
the Purchaser in accordance with Section 6.17.

 

ARTICLE VI.
MISCELLANEOUS

 

6.1           Fees and Expenses. Except (i) as otherwise provided in this
Agreement, and (ii) for certain expenses of the Purchaser paid by the Company
prior to the date hereof, each of the Company and the Purchaser shall bear and
pay for all of its own fees and expenses of such party and their respective
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party, in connection with the due diligence with respect to,
and negotiation, preparation, execution, delivery and performance of, this
Agreement and the other Transaction Documents; provided, however, that in the
event that the Closing shall take place, then all such fees and expenses of the
Company and the Purchaser shall be paid by the Company. The Company shall pay
all Transfer Agent fees, stamp taxes and other taxes and duties levied in
connection with the sale and issuance of the Securities to the Purchaser.

 

6.2           Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules. At or after the Closing, and without further
consideration, the Company and the Purchaser will execute and deliver to the
other such further documents as may be reasonably requested in order to give
practical effect to the intention of the parties under the Transaction
Documents.

 

24

 

 

6.3           Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via email or facsimile (provided the
facsimile sender receives a machine-generated confirmation of successful
transmission) at the email address or facsimile number specified in this Section
6.3 prior to 5:00 P.M., New York City time, on a Trading Day, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via email or facsimile (provided the facsimile sender receives a
machine-generated confirmation of successful transmission) at the email address
or facsimile number specified in this Section 6.3 on a day that is not a Trading
Day or later than 5:00 P.M., New York City time, on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service specifying with business next day delivery, or (d)
upon actual receipt by the party to whom such notice is required to be given, if
by hand delivery. The address for such notices and communications shall be as
follows:

 

If to the Company:

 

Cyalume Technologies Holdings, Inc.
96 Windsor Street
West Springfield, Massachusetts 01089
Attention: Zivi Nedivi

Telephone No.: (413) 858-2500
Facsimile No.: (413) 736-5737
E-mail: znedivi@cyalume.com

 

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

 

Greenberg Traurig, P.A.
401 East Las Olas Boulevard, Suite 2000
Fort Lauderdale, Florida 33301
Telephone No.: (954) 765-0500
Facsimile No.: (954) 765-1477
Attention: Bruce I. March, Esq.
E-mail: marchb@gtlaw.com

 

If to the Purchaser:

 

US VC Partners, L.P.
c/o Columbus Nova
900 Third Avenue, 19th Floor
New York, New York 10022
Attention: Andrew Intrater
Telephone No.: (413) 858-2500
Facsimile No.:(413) 736-5737
E-mail: aintrater@columbusnova.com

 

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

 

Cadwalader Wickersham & Taft LLP
1 World Financial Center
New York, New York 10281
Telephone No.: (212) 504-6000
Facsimile No.: (212) 504-6666
Attention: Geoffrey Levin, Esq.
E-mail: Geoffrey.levin@cwt.com

 

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

 

25

 

 

6.4           Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the Purchaser. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

 

6.5           Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the other Transaction
Documents.

 

6.6           Successors and Assigns. The provisions of this Agreement shall
inure to the benefit of and be binding upon the parties and their successors and
permitted assigns. This Agreement, or any rights or obligations hereunder, may
not be assigned by either party without the prior written consent of the other
party, provided, that the Purchaser may assign its rights hereunder in whole or
in part to (i) any Affiliate of the Purchaser or (ii) any venture capital,
private equity or other investment fund now or hereafter existing which is
controlled by one or more general partners or managing members of, or shares the
same management company with, Purchaser or its Affiliates, to whom the Purchaser
assigns or transfers any Securities in compliance with the Transaction Documents
and applicable law, provided such transferee shall agree in writing to be bound,
with respect to the transferred Securities, by the terms and conditions of this
Agreement and any Transaction Documents that apply to the Purchaser.

 

6.7           No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except each Purchaser Party is an intended third party
beneficiary of Section 4.9.

 

6.8           Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OTHER TRANSACTIONS CONTEMPLATED HEREBY.

 

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

 

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

 

6.11        Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever the Purchaser exercises a material 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
the Purchaser may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights.

 

6.12        Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company and the Transfer Agent of such loss, theft or destruction and the
execution by the holder thereof of a customary lost certificate affidavit of
that fact and an agreement to indemnify and hold harmless the Company and the
Transfer Agent for any losses in connection therewith or, if required by the
Transfer Agent, a bond in such form and amount as is required by the Transfer
Agent. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities. If a replacement certificate or
instrument evidencing any Securities is requested due to a mutilation thereof,
the Company may require delivery of such mutilated certificate or instrument as
a condition precedent to any issuance of a replacement.

 

6.13        Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
will be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations by the Company as described
in the foregoing sentence and hereby agree to waive in any action for specific
performance of any such obligation (other than in connection with any action for
a temporary restraining order) the defense that a remedy at law would be
adequate.

 

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

 

27

 

 

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

 

6.16       Purchase Price Adjustment. Any indemnification payment made under
this Agreement shall be treated as an adjustment to the Aggregate Purchase Price
for all tax purposes, except as otherwise required by applicable law.

 

6.17        Termination. This Agreement may be terminated and the sale and
purchase of the Shares and the Warrants abandoned at any time prior to the
Closing by either the Company or the Purchaser upon written notice to the other,
if the Closing has not been consummated on or prior to 5:00 P.M., New York City
time, on the Outside Date; provided, however, that the right to terminate this
Agreement under this Section 6.17 shall not be available to any Person whose
failure to comply with its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such time.
Nothing in this Section 6.17 shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this
Agreement or the other Transaction Documents or to impair the right of Purchaser
to compel specific performance by the Company of its obligations under this
Agreement or the other Transaction Documents. Upon a termination in accordance
with this Section 6.17, the Company and the Purchaser shall not have any further
obligation or liability (including arising from such termination) to the other.
The Company and the Purchaser may extend the term of this Agreement in
accordance with the amendment provisions of Section 6.4 herein.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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

 

  CYALUME TECHNOLOGIES HOLDINGS, INC.               By:  /s/ Zivi Nedivi    
Name: Zivi Nedivi     Title: Chief Executive Officer               US VC
PARTNERS, L.P.               By:  /s/ Andrew Intrater     Name: Andrew Intrater
    Title: Chief Executive Officer

 

 

 

 

EXHIBITS:

 

A-1:Form of Common Stock Warrant

A-2:Form of Preferred Stock Warrant

B:Form of Registration Rights Agreement

C:Amended and Restated JFC Note

D:Loan Agreement and Mezzanine Agreement Amendment Evidencing Refinancing

E:Form of Opinion of Company Counsel

F:Form of Secretary’s Certificate

G:Form of Officer’s Certificate

H:Omniglow Agreement

 

 

SCHEDULES:

 

3.1(a)Subsidiaries

3.1(g)Capitalization

3.1(l)Registration Rights