SECURITIES PURCHASE AGREEMENT

 

Units comprised of Secured Convertible Notes and Warrants

 

This Securities Purchase Agreement (this “Agreement”) is dated as of December
21, 2012, between BOLDFACE Group, Inc., a Nevada corporation (the “Company”),
and each purchaser identified on the Omnibus Signature Pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively, the
“Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Rule 506 under Section 4(2) and/or Regulation S under the Securities
Act, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.

 

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

 

ARTICLE I.
DEFINITIONS

 

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

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.6.

 

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

 

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

 

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

 

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

 

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

 

“Closing Date” means the Trading Day on of any such Closing on which all of the
Transaction Documents have been executed and delivered by the applicable parties
thereto, and all conditions precedent to (i) the Purchaser(s)’ obligations to
pay the Subscription Amount and (ii) the Company’s obligations to deliver the
Securities, in each case, have been satisfied or waived.

 

 

 

 

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

 

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

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company Counsel” means Gottbetter & Partners, LLP, with offices located at 488
Madison Avenue, 12th Floor, New York, NY 10022.

 

“Conversion Shares” means the shares of Common Stock to be issued upon
conversion of the Notes in accordance with the terms of the Notes.

 

“Disclosure Materials” means any private placement memorandum or similar
document prepared or authorized by the Company and delivered to the Purchaser in
connection with the transactions contemplated by this Agreement, and any
supplement or amendment thereto, the Schedules and any other written information
prepared or authorized by the Company and delivered to the Purchaser prior to
the Purchaser’s execution of this Agreement, and any such document delivered to
the Purchaser after the Purchaser’s execution of this Agreement and acknowledged
in writing by the Purchaser prior to the Closing of the Purchaser’s subscription
hereunder, excluding, in each case, the SEC Reports.

 

“Effective Date” means the earliest of the date that (a) the initial
Registration Statement has been declared effective by the Commission, (b) all of
the Registrable Securities have been publicly sold or may be sold immediately
without registration under the Securities Act either pursuant to Rule 144 of the
Securities Act or otherwise or (c) following the one year anniversary of the
final Closing Date provided that a holder of Registrable Securities is not an
Affiliate of the Company, all of the Registrable Securities may be sold pursuant
to an exemption from registration under Section 4(1) of the Securities Act.

 

“Environmental Laws” shall have the meaning ascribed to such term in Section
3.1(dd).

 

“Escrow Agent” means CSC Trust Company of Delaware, with offices located at 2711
Centerville Road, One Little Falls Centre, Wilmington, DE 19808, and a facsimile
number of (302) 636-8666.

 

“Escrow Agreement” means the escrow agreement, in the form attached hereto as
Exhibit G, entered on or prior to the date hereof, by and among the Company, the
Escrow Agent, Aegis Capital Corp. and Gottbetter Capital Markets, LLC pursuant
to which the Purchasers shall deposit Subscription Amounts with the Escrow Agent
to be applied to the transactions contemplated hereunder.

 

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

 

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

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options
under the Company’s 2012 Equity Incentive Plan or to employees, officers,
directors or consultants of the Company pursuant to any stock or option plan
duly adopted for such purpose, by a majority of the non-employee members of the
Board of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (b) securities upon the conversion,
exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, (c)
securities issued pursuant to acquisitions or strategic transactions approved by
a majority of the disinterested directors of the Company, (d) shares of Common
Stock or options issued pursuant to Form S-8 or (e) securities issued pursuant
to Form S-4.

 

“Fundamental Transaction” shall have the meaning ascribed to such term in the
Warrants.

 

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

 

“G&P” means Gottbetter & Partners, LLP with offices located at 488 Madison
Avenue, 12th Floor, New York, NY 10022.

 

“Guaranties” means each of the Guaranties substantially in the form of Exhibit A
attached hereto executed by each of the Company’s Subsidiaries (as defined
below) in favor of each Purchaser, pursuant to which each of them guarantees the
obligations of the Company under the Transaction Documents (as defined below).

 

“Hazardous Materials” shall have the meaning ascribed to such term in Section
3.1(dd).

 

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

 

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

 

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

 

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

 

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

 

“Notes” means 12% secured convertible notes of the Company, with an original
issue discount of 0.2% (or $400), substantially in the form of Exhibit B
attached hereto, which will be secured by a perfected security interest in all
of the assets of the Company and its Subsidiaries (as defined below), and will
be guaranteed each of the Company’s Subsidiaries.

 

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“Permitted Liens” means a (i) first priority security interest in all rights,
title and interests of the Company and its Subsidiaries granted to Star Funding,
Inc. under the Factoring Agreement, dated as of October 17, 2012, the Supply
Agreement, dated as of October 17, 2012, and related agreements, (ii) equipment
lease financing created by the Company or any Subsidiary in the ordinary course
of business after the date hereof, where the sole collateral for such financing
is the equipment so leased, (iii) any factoring arrangements entered into by the
Company and/or any of its Subsidiaries with a third-party factor, and (iv) as
set forth on Schedule 1.1.

 

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

 

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

 

“Purchase Price” equals Two Hundred Thousand ($200,000.00) U.S. Dollars per
Unit.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.9.

 

“Purchaser Warrants” means, collectively, warrants registered in the name of and
delivered to the Purchaser at the Closing in accordance with Section 2.2(a)
hereof, consisting of (i) a five-year warrant substantially in the form of
Exhibit C-1 attached hereto, to purchase 400,000 shares of Common Stock, with an
exercise price equal to $0.50 per share (the “First Warrant”), and (ii) a
five-year warrant substantially in the form of Exhibit C-2 attached hereto, to
purchase 400,000 shares of Common Stock, with an exercise price equal to $1.00
per share (the “Second Warrant”), subject to adjustment as provided therein.

 

“Registrable Securities” shall have the meaning ascribed to such term in the
Registration Rights Agreement.

 

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

 

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

 

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

 

“Required Delivery Date” shall have the meaning ascribed to such term in Section
4.3(c).

 

“Right of First Refusal” shall have the meaning set forth in Section 4.19.

 

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

 

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

 

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

 

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

 

“Securities” means the Units, the Notes, the Conversion Shares, the Warrants and
the Warrant Shares.

 

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

 

“Security Agreement” means the Security Agreement substantially in the form of
Exhibit D attached hereto, between the Company and each of its Subsidiaries on
the one hand and each of the Purchasers on the other hand.

 

“Security Documents” means the Security Agreement and the other security
documents and agreements entered into in connection with this Agreement and each
of such other documents and agreements.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (and shall be deemed to include the location and/or
reservation of borrowable shares of Common Stock). 

 

“Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Notes and Warrants purchased hereunder as specified below such
Purchaser’s name on the Omnibus Signature Page of this Agreement and above the
heading “Subscription Amount,” in United States dollars and in immediately
available funds.

 

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

 

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

 

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

 

“Transaction Documents” means this Agreement, the Notes, the Warrants, the
Registration Rights Agreement, the Security Documents, the Guaranties, the
Escrow Agreement, all exhibits and schedules hereto and thereto and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

 

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“Transfer Agent” means VStock Transfer, LLC, the current transfer for the
Company’s Common Stock, with a mailing address of 77 Spruce Street, Suite 201,
Cedarhurst, New York, 11516, and a facsimile number of (646) 536-3179, and any
successor transfer agent of the Company.

 

“Units” mean the Company’s units, with each unit consisting of: (i) a Note in
denomination of Two Hundred Thousand Dollars ($200,000), which will be
convertible into shares of the Company’s Common Stock and (ii) the Purchaser
Warrants.

 

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City
time)), (b) if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then
listed or quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets” published by Pink OTC
Markets, Inc. (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock so
reported, or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Purchasers of a majority in interest of the principal amount of Notes then
outstanding and reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.

 

“Warrants” means, collectively, all of the Purchaser Warrants issued to the
Purchasers.

 

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

 

ARTICLE II.
PURCHASE AND SALE

 

2.1          Closing.

 

(a)          On a Closing Date, upon the terms and subject to the conditions set
forth herein, substantially concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and the Purchasers,
severally and not jointly, agree to purchase, up to a maximum of fifteen (15)
Units at the Purchase Price per Unit (the “Maximum Amount”). Each Purchaser
shall deliver to the Escrow Agent, via wire transfer or a certified check,
immediately available funds equal to such Purchaser’s Subscription Amount as set
forth on the Omnibus Signature Page hereto executed by such Purchaser, and the
Company shall deliver to each Purchaser its respective Note and Warrants, as
determined pursuant to Section 2.2(a), and the Company and each Purchaser shall
deliver the other items set forth in Section 2.2 deliverable at the Closing. The
Company may accept any Purchaser’s subscription for a fraction of a Unit at any
Closing. Each Note carries an original issue discount of 0.2% (or $400) (the
“OID”), which will be used to pay for the acquisition of shares of Common Stock
by the Purchaser from certain stockholder(s) of the Company.

 

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(b)          The initial Closing shall take place upon the satisfaction of the
covenants and conditions to the Closing set forth in Section 2.2 and 2.3 and on
such date and time as is mutually agreed to by the Company and the Purchaser(s).
Upon satisfaction of such covenants and conditions, the Closing shall occur at
the offices of Gottbetter & Partners, LLP, 488 Madison Avenue, New York, New
York 10022 (or such other place as is mutually agreed to by the Company and the
Purchaser(s)). There may be multiple Closings, subject to prior termination,
until such time as subscriptions for the Maximum Amount are accepted by the
Company. The Units may be offered and sold through January 31, 2012, unless such
offering period is mutually extended in writing by the Company and Aegis Capital
Corp.

 

2.2          Deliveries.

 

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

 

(i)          this Agreement duly executed by the Company;

 

(ii)          a legal opinion of Company Counsel, dated as of the initial
Closing Date, in the form and substance to be agreed to by the parties;

 

(iii)          a certificate evidencing the formation and good standing of the
Company and each of its Subsidiaries in each such entity’s jurisdiction of
formation issued by the Secretary of State (or comparable office) of such
jurisdiction of incorporation or formation as of a date within twenty (20) days
of the Closing Date;

 

(iv)          a certificate executed by the Secretary of the Company and dated
as of the Closing Date, certifying the resolutions adopted by its board of
directors (i) approving and authorizing the execution and delivery of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
(ii) certifying the current versions of its Amended and Restated Articles of
Incorporation and By-laws, each as in effect at the Closing, and (iii)
certifying as to the signatures and authority of persons signing this Agreement
and the other Transaction Documents by the Company. The foregoing certificate
shall only be required to be delivered on the first Closing Date, unless any
information contained in the certificate has changed;

 

(v)          a certificate executed by the Secretary of each Subsidiary and
dated as of the Closing Date, certifying the resolutions adopted by its board of
directors (i) approving and authorizing the execution and delivery of the
applicable Transaction Documents by the Subsidiary and the consummation by the
Subsidiary of the transactions contemplated under such agreements, (ii)
certifying the current versions of its Articles of Incorporation and By-laws,
each as in effect at the Closing, and (iii) certifying as to the signatures and
authority of persons signing the applicable Transaction Documents by the
Subsidiary. The foregoing certificate shall only be required to be delivered on
the first Closing Date, unless any information contained in the certificate has
changed;

 

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(vi)          a Note, duly executed on behalf of the Company, registered in the
name of such Purchaser, in a principal amount equal to such Purchaser’s
Subscription Amount (or such Note certificate may be delivered within five (5)
Trading Days after the final Closing Date if agreed to by the Purchaser and the
Company);

 

(vii)          a First Warrant, duly executed on behalf of the Company,
registered in the name of such Purchaser to purchase up to a number of shares of
Common Stock equal to fifty percent (50%) of the number of shares of Common
Stock into which such Purchaser’s Notes are initially convertible (or such
Warrant certificate may be delivered within five (5) Trading Days after the
final Closing Date if agreed to by the Purchaser and the Company);

 

(viii)          a Second Warrant, duly executed on behalf of the Company,
registered in the name of such Purchaser to purchase up to a number of shares of
Common Stock equal to fifty percent (50%) of the number of shares of Common
Stock into which such Purchaser’s Notes are initially convertible (or such
Warrant certificate may be delivered within five (5) Trading Days after the
final Closing Date if agreed to by the Purchaser and the Company);

 

(ix)          the Registration Rights Agreement duly executed by the Company;

 

(x)          a Guaranty, duly executed on behalf of each Subsidiary of the
Company;

 

(xi)          the Security Agreement, duly executed on behalf of the Company and
each Subsidiary of the Company;

 

(xii)          the Escrow Agreement duly executed by the Company, the Escrow
Agent and Aegis Capital Corp.;

 

(xiii)          in accordance with the terms of the Security Documents,
appropriate financing statements on Form UCC-1 for the Company and each
Subsidiary to be duly filed with the Secretary of State of Nevada, Secretary of
State of California and Los Angeles County, CA; and

 

(xiv)          such other documents relating to the transactions contemplated by
this Agreement as such Purchaser or its counsel may reasonably request.

 

(b)          On or prior to each Closing Date, each Purchaser shall deliver or
cause to be delivered to the Company or the Escrow Agent, as applicable, the
following:

 

(i)          the Omnibus Signature Page to this Agreement duly executed by such
Purchaser;

 

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(ii)          to the Escrow Agent, such Purchaser’s Subscription Amount by wire
transfer, in same-day funds, to the account specified in the Escrow Agreement or
by certified or bank check, in United States Dollars, in immediately available
funds;

 

(iii)          completed and executed Accredited Investor Certification,
Investor Profile and Anti-Money Laundering Information Form, in the form
attached to this Agreement;

 

(iv)          an executed subordination agreement with Star Funding, Inc. in the
form and substance satisfactory to Aegis and the Company, unless such
requirement is waived by the Company and Aegis; and

 

(v)          such other documents relating to the transactions contemplated by
this Agreement as the Company or its counsel may request.

 

2.3          Closing Conditions.

 

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

 

(i)          funds have been deposited in escrow as described in Section
2.2(b)(ii) and corresponding documentation with respect to such amounts has been
delivered by the Purchasers as described in Section 2.2(b);

 

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

 

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

 

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

 

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

 

(i)          the representations and warranties of the Company contained in this
Agreement (when read without regard to any qualification as to materiality or
Material Adverse Effect contained therein) shall be true and correct as of the
date of this Agreement and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that speak as of a specific date),
except for any untrue or incorrect representation and warranty that,
individually or in the aggregate, does not have a Material Adverse Effect, and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date;

 

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

 

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

 

(iv)          the Company shall have received the consent of Star Funding, Inc.
with respect to the transactions contemplated under the Transaction Documents,
satisfactory to Aegis.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1          Representations and Warranties of the Company. Except as set forth
in the Company’s SEC Reports and the schedules referred to in this Section 3.1
(collectively with the other Schedules to this Agreement, the “Schedules”),
which Schedules shall be deemed a part hereof and shall qualify any
representation or otherwise made herein, the Company hereby makes the following
representations and warranties to each Purchaser as of the Closing Date (unless
as of a specific date therein in which case as of such date):

 

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

 

(b)          Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation nor default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets or business (as currently conducted) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”); and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

 

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(c)          Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of each of this Agreement and the other Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company, the Board of Directors
or the Company’s stockholders in connection herewith or therewith other than in
connection with the Required Approvals. This Agreement and each other
Transaction Document to which it is a party has been (or upon delivery will have
been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof and signed by the Purchasers hereto and the parties
thereto, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

 

(d)          No Conflicts. Except as set forth on Schedule 3(d), the execution,
delivery and performance by the Company of this Agreement and the other
Transaction Documents to which it is a party, the issuance and sale of the
Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of
the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) 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 agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations and the rules and regulations of the applicable Trading Market), or
by which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.

 

(e)          Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than: (i) the filings required pursuant to Section 4.4 of this Agreement,
(ii) the filing with the Commission pursuant to the Registration Rights
Agreement and (iii) the filing of Form D with the Commission and such filings as
are required to be made under applicable state securities laws (collectively,
the “Required Approvals”).

 

11

 

 

(f)          Issuance of the Securities. The Notes and the Warrants have been
duly authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens other than as may have been imposed
by the Purchaser and other than restrictions on transfer provided for in the
Transaction Documents. The Conversion Shares and the Warrant Shares have been
duly authorized and, when issued in accordance with the terms of the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens other than as may have been imposed by the Purchaser and other than
restrictions on transfer provided for in the Transaction Documents. The Company
has reserved from its duly authorized capital stock 100% of the maximum number
of shares of Common Stock issuable pursuant to the Notes and the Warrants
(without taking into account any limitations on the conversion of the Notes or
exercise of the Warrants set forth therein).

 

(g)          Capitalization. The authorized and outstanding capitalization of
the Company is as set forth on Schedule 3.1(g). The Company has not issued any
capital stock since its most recently filed periodic report under the Exchange
Act, other than as indicated in Schedule 3.1(g) and pursuant to the exercise of
awards under the Company’s equity compensation plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion and/or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic report under the
Exchange Act. To the Company’s knowledge, except as disclosed in Schedule
3.1(g), no Person owns 10% or more of the Company’s issued and outstanding
shares of Common Stock (calculated based on the assumption that all Common Stock
Equivalents, whether or not presently exercisable or convertible, have been
fully exercised or converted (as the case may be) taking account of any
limitations on exercise or conversion (including “blockers”) contained therein
without conceding that such identified Person is a 10% stockholder for purposes
of federal securities laws). Other than as indicated in Schedule 3.1(g), no
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. Except as a result of the purchase and sale of the
Securities, as set forth in the SEC Reports and as set forth in Schedule 3.1(g),
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. Other than as set forth in the warrants listed in
Schedule 3.1(g), the issuance and sale of the Securities will not obligate the
Company to issue shares of Common Stock or other securities to any Person (other
than the Purchasers) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under any
of such securities. Except as set forth in the Company’s SEC Reports and other
than as indicated in Schedule 3.1(g), there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries. Other than as indicated in Schedule 3.1(g), neither the Company
nor any Subsidiary has any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement. All of the outstanding shares of
capital stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, have been issued in compliance with all 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. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

 

12

 

 

(h)          SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) and, other than a report that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of Form
8-K, has filed such SEC Reports on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i)          Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within the
SEC Reports, except as set forth in Schedule 3.1(i) and as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof: (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company equity compensation
plans. The Company does not have pending before the Commission any request for
confidential treatment of information. Except for the issuance of the Securities
contemplated by this Agreement or as set forth on Schedule 3.1(i), no event,
liability, fact, circumstance, occurrence or development has occurred or exists,
or is reasonably expected to occur or exist, with respect to the Company or its
Subsidiaries or their respective businesses, properties, operations, assets or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least one (1) Trading Day prior to
the date that this representation is made.

 

13

 

 

(j)          Litigation. Except as set forth in the Company’s SEC Reports and
Schedule 3.1(j), there is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.

 

(k)          Labor Relations. No labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company,
which could reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company or such Subsidiary, and
neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement, and the Company and its Subsidiaries believe that their
relationships with their employees are good. To the knowledge of the Company, no
executive officer of the Company or any Subsidiary is, or is now expected to be,
in violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement, or
any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with respect
to any of the foregoing matters. The Company and its Subsidiaries are in
compliance with all U.S. federal, state, local and foreign laws and regulations
relating to employment and employment practices, terms and conditions of
employment and wages and hours, except where the failure to be in compliance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

14

 

 

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

 

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

 

(n)          Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for (i) Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and (ii) Liens for the
payment of federal, state or other taxes, for which appropriate reserves have
been made therefor in accordance with GAAP and the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance.

 

(o)          Intellectual Property. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights as described
in the SEC Reports as necessary or required for use in connection with their
respective businesses and which the failure to so have could have a Material
Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and
neither the Company nor any Subsidiary has received a notice (written or
otherwise) that any of, the Intellectual Property Rights has expired, terminated
or been abandoned, or is expected to expire or terminate or be abandoned, within
two (2) years from the date of this Agreement. Except as described in the SEC
Reports and Schedule 3.1(o), neither the Company nor any Subsidiary has
received, since the date of the latest audited financial statements included
within the SEC Reports, a written notice of a claim or otherwise has any
knowledge that the Intellectual Property Rights violate or infringe upon the
rights of any Person, except as could not have or reasonably be expected to not
have a Material Adverse Effect. Except as described in the SEC Reports and
Schedule 3.1(o), to the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another Person
of any of the Intellectual Property Rights. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

15

 

 

(p)          Transactions with Affiliates and Employees. Except as set forth in
the SEC Reports, none of the officers or directors of the Company or any
Subsidiary and, to the knowledge of the Company, none of the employees of the
Company or any Subsidiary is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, providing for the borrowing of money from or lending of
money to or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, stockholder, member or partner, in each case in
excess of $100,000 other than for: (i) payment of salary or consulting fees for
services rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including equity compensation
agreements under any equity compensation plan of the Company.

 

(q)          Sarbanes-Oxley; Internal Accounting Controls. The Company and the
Subsidiaries are in material compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and
any and all applicable rules and regulations promulgated by the Commission
thereunder that are effective as of the date hereof and as of the Closing Date.
Except as disclosed in its SEC Reports, the Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that: (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. Except as disclosed in its SEC Reports, the Company and the
Subsidiaries have established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries
and designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the disclosure controls
and procedures of the Company and the Subsidiaries as of the end of the period
covered by the most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the internal control over financial reporting (as such
term is defined in the Exchange Act) of the Company and its Subsidiaries that
have materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting of the Company or its Subsidiaries.

 

16

 

 

(r)          Certain Fees. No brokerage or finder’s fees or commissions are or
will be payable by the Company or any Subsidiary to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other
Person with respect to the transactions contemplated by the Transaction
Documents except as set forth on on Schedule 3.1(s) (the “Placement Agents”) for
the offering contemplated hereby. The Company shall be responsible for the
payment of such fees. Other than the Placement Agents, neither the Company nor
any of its Subsidiaries has engaged any placement agent, broker or other agent
in connection with the sale of the Securities.

 

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

 

(t)          Investment Company. The Company is not, and is not an Affiliate of,
and immediately after receipt of payment for the Securities, will not be or be
an Affiliate of, 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 an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.

 

(u)          Registration Rights. Except as disclosed in the SEC Reports, other
than each of the Purchasers and other than as disclosed on Schedule 3.1(v), no
Person has any right to cause the Company to effect the registration under the
Securities Act of any securities of the Company or any Subsidiary.

 

(v)          Listing and Maintenance Requirements. Other than as indicated in
Schedule 3.1(w), the Company has not, in the 12 months preceding the date
hereof, received notice from any Trading Market on which the Common Stock is or
has been listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.

 

(w)          Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that it believes constitutes or might constitute material, non-public
information. The Company understands and confirms that the Purchasers will rely
on the foregoing representation in effecting transactions in securities of the
Company. All of the Disclosure Materials furnished by or on behalf of the
Company to the Purchasers regarding the Company and its Subsidiaries, their
respective businesses and the transactions contemplated hereby are true and
correct and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading.

 

17

 

 

(x)          No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of (i) the Securities Act which would require the registration of
any such securities under the Securities Act, or (ii) any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

 

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

 

(z)          Tax Status. Except as set forth on Schedule 3.1(z) and except for
matters that would not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, the Company and its
Subsidiaries each (i) has made or filed all United States federal, state and
local income and all foreign income and franchise tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations
and (iii) has set aside on its books provision reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. Except as set forth on Schedule
3.1(z), there are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of the Company or of
any Subsidiary know of no basis for any such claim.

 

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

 

18

 

 

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

 

(cc)          No General Solicitation. Neither the Company nor any Subsidiary
nor any person acting on behalf of the Company has, directly or indirectly,
offered or sold any of the Securities by any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act). The Company has offered the Securities for sale only to the Purchasers and
certain other “accredited investors” within the meaning of Rule 501 under the
Securities Act.

 

(dd)          Accountants. The Company’s independent accounting firm is set
forth on Schedule 3.1(dd). To the knowledge and belief of the Company, such
accounting firm: (i) is a registered public accounting firm as required by the
Exchange Act and (ii) shall express its opinion with respect to the financial
statements to be included in the Company’s Annual Report for the fiscal year
ending June 30, 2013.

 

(ee)          No Disagreements with Accountants and Lawyers. Except as set forth
on Schedule 3.1(ee), there are no disagreements of any kind presently existing,
or reasonably anticipated by the Company to arise, between the Company and the
accountants and lawyers formerly or presently employed by the Company and the
Company is current with respect to any fees owed to its accountants and lawyers
which could affect the Company’s ability to perform any of its obligations under
any of the Transaction Documents.           

 

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

 

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

 

19

 

 

(hh)          Office of Foreign Assets Control. Neither the Company nor any
Subsidiary nor, to the Company's knowledge, any director, officer, agent,
employee or Affiliate of the Company or any Subsidiary is currently subject to
any U.S. sanctions administered by the Office of Foreign Assets Control of the
U.S. Treasury Department (“OFAC”).

 

(ii)          Ranking of Notes. Except as set forth on Schedule 3.1(ii), no
Indebtedness of the Company, at the Closing, will be senior to, or pari passu
with, the Notes in right of payment, whether with respect to payment or
redemptions, interest, damages, upon liquidation or dissolution or otherwise.

 

3.2          Representations and Warranties of the Purchasers. Each Purchaser,
for itself and for no other Purchaser, hereby represents and warrants to the
Company as follows as of the Closing Date (unless as of a specific date therein
in which case they shall be accurate as of such date):

 

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

 

(b)          Own Account. Such 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, or upon conversion or
exercise will acquire, the Securities as principal for its own account and not
with a view to or for distributing or reselling such Securities or any part
thereof in violation of the Securities Act or any applicable state securities
law, has no present intention of distributing any of such Securities in
violation of the Securities Act or any applicable state securities law and has
no direct or indirect arrangement or understandings with any other persons to
distribute or regarding the distribution of such Securities in violation of the
Securities Act or any applicable state securities law (this representation and
warranty not limiting such Purchaser’s right to sell the Securities pursuant to
the Registration Statement or otherwise in compliance with applicable federal
and state securities laws). Such Purchaser is acquiring the Securities hereunder
in the ordinary course of its business.

 

20

 

 

(c)          Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and as of the date hereof it is, and on each date on which
it converts any Notes or exercises any Warrants, it will be: (i) an “accredited
investor” as defined in Rule 501 under the Securities Act, (ii) a “qualified
institutional buyer” as defined in Rule 144A(a) under the Securities Act or
(iii) not a “U.S. Person” as that term is defined in Rule 902(k) of Regulation
S. Such Purchaser is not required to be registered as a broker-dealer under
Section 15 of the Exchange Act.

 

(d)           Non-U.S. Person. If such Purchaser is not a person in the United
States or a U.S. Person (as defined in Rule 902(k) of Regulation S) or is not
purchasing the Units on behalf of a person in the United States or a U.S.
Person:

 

(i)           neither such Purchaser nor any disclosed principal is a U.S.
Person nor are they subscribing for the Units for the account of a U.S. Person
or for resale in the United States and such Purchaser confirms that the Units
have not been offered to the Purchaser in the United States and that this
Agreement has not been signed in the United States;

 

(ii)           such Purchaser acknowledges that the Units have not been
registered under the Securities Act and may not be offered or sold in the United
States or to a U.S. Person unless the securities are registered under the
Securities Act and all applicable state securities laws or an exemption from
such registration requirements is available, and further agrees that hedging
transactions involving such securities may not be conducted unless in compliance
with the Securities Act;

 

(iii)           such Purchaser and if applicable, the disclosed principal for
whom the Purchaser is acting, understands that the Company is the seller of the
Units and underlying securities and that, for purposes of Regulation S, a
“distributor” is any underwriter, dealer or other person who participates
pursuant to a contractual arrangement in the distribution of securities sold in
reliance on Regulation S and that an “affiliate” is any partner, officer,
director or any person directly or indirectly controlling, controlled by or
under common control with any person in question. Except as otherwise permitted
by Regulation S, such Purchaser and if applicable, the disclosed principal for
whom the Purchaser is acting, agrees that it will not, during a one year
distribution compliance period, act as a distributor, either directly or through
any affiliate, or sell, transfer, hypothecate or otherwise convey the Units or
underlying securities other than to a non-U.S. Person;

 

(iv)           such Purchaser and if applicable, the disclosed principal for
whom the Purchaser is acting, acknowledges and understands that in the event the
Units are offered, sold or otherwise transferred by the Purchaser or if
applicable, the disclosed principal for whom the Purchaser is acting, to a
non-U.S Person prior to the expiration of a one year distribution compliance
period, the purchaser or transferee must agree not to resell such securities
except in accordance with the provisions of Regulation S, pursuant to
registration under the Securities Act, or pursuant to an available exemption
from registration; and must further agree not to engage in hedging transactions
with regard to such securities unless in compliance with the Securities Act; and

 

21

 

 

(v)           neither such Purchaser nor any disclosed principal will offer,
sell or otherwise dispose of the Units or the underlying securities in the
United States or to a U.S. Person unless (A) the Company has consented to such
offer, sale or disposition and such offer, sale or disposition is made in
accordance with an exemption from the registration requirements under the
Securities Act and the securities laws of all applicable states of the United
States or, (B) the Commission has declared effective a registration statement in
respect of such securities.

 

(e)          Experience of Such Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Purchaser is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment. Such Purchaser
understands that an active public market for the Company’s Common Stock may not
exist or continue to exist. Such Purchaser, its advisers, if any, and designated
representatives, if any, have received and reviewed information about the
Company and have had an opportunity to discuss the Company’s business,
management and financial affairs with its management. Such Purchaser understands
that such discussions, as well as any written information provided by the
Company, were intended to describe the aspects of the Company’s business and
prospects which the Company believes to be material, but were not necessarily a
thorough or exhaustive description, and except as expressly set forth in this
Agreement, the Company makes no representation or warranty with respect to the
completeness of such information and makes no representation or warranty of any
kind with respect to any information provided by any entity other than the
Company. Some of such information may include projections as to the future
performance of the Company, which projections may not be realized, may be based
on assumptions which may not be correct and may be subject to numerous factors
beyond the Company’s control. Additionally, such Purchaser understands and
represents that such Purchaser is purchasing the Securities notwithstanding the
fact that the Company may disclose in the future certain material information
the Subscriber has not received, including its financial results for its current
fiscal quarter.

 

(f)          Buyer Relationship with Brokers. Such Purchaser’s substantive
relationship with any broker for the transactions contemplated hereby or
subagent thereof (collectively, “brokers”) through which the Purchaser is
subscribing for the Securities predates such brokers’ contact with the Purchaser
regarding an investment in the Securities.

 

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

 

22

 

 

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

 

(i)          Anti-Terrorism. Such Purchaser represents that neither it nor, to
its knowledge, any person or entity controlling, controlled by or under common
control with it, nor any person having a beneficial interest in it, nor any
person on whose behalf such Purchaser is acting: (i) is a person listed in the
Annex to Executive Order No. 13224 (2001) issued by the President of the United
States (Executive Order Blocking Property and Prohibiting Transactions with
Persons Who Commit, Threaten to Commit, or Support Terrorism); (ii) is named on
the List of Specially Designated Nationals and Blocked Persons maintained by the
U.S. Office of Foreign Assets Control; (iii) is a non-U.S. shell bank or is
providing banking services indirectly to a non-U.S. shell bank; (iv) is a senior
non-U.S. political figure or an immediate family member or close associate of
such figure; or (v) is otherwise prohibited from investing in the Company
pursuant to applicable U.S. anti-money laundering, anti-terrorist and asset
control laws, regulations, rules or orders (categories (i) through (v), each a
“Prohibited Subscriber”). If such Purchaser is a financial institution that is
subject to the USA Patriot Act, such Purchaser represents that it has met all of
its obligations under the USA Patriot Act.

 

          (j)          Buyer’s Advisors. Such Purchaser and the Purchaser’s
attorney, accountant, purchaser representative and/or tax advisor, if any
(collectively, the “advisors”), as the case may be, has such knowledge and
experience in financial, tax, and business matters, and, in particular,
investments in securities, so as to enable it to utilize the information made
available to it in connection with the Securities to evaluate the merits and
risks of an investment in the Securities and the Company and to make an informed
investment decision with respect thereto.

 

          (k)          Purchaser’s Liquidity. Such Purchaser has adequate means
of providing for such Purchaser’s current financial needs and foreseeable
contingencies and has no need for liquidity of its investment in the Units for
an indefinite period of time.

 

23

 

 

          (l)          Speculative Nature of Investment; Review of Risk Factors.
Such Purchaser or its duly authorized representative realizes that because of
the inherently speculative nature of businesses of the kind conducted and
contemplated by the Company, the Company’s financial results may be expected to
fluctuate from month to month and from period to period and will, generally,
involve a high degree of financial and market risk that could result in
substantial or, at times, even total losses for investors in securities of the
Company. Such Purchaser is aware that an investment in the Units, including the
underlying securities, involves a number of very significant risks, including
those set forth in Exhibit F hereto, and has carefully reviewed and understands
the risks of, and other considerations relating to, the purchase of the Units,
including the underlying securities.

 

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

 

          (n)          Information. Such Purchaser and its advisors have been
furnished with all documents and materials relating to the business, finances
and operations of the Company and information that such Purchaser requested and
deemed material to making an informed investment decision regarding its purchase
of the Units and the underlying securities. Such Purchaser and its advisors have
been afforded the opportunity to review such documents and materials, as well as
the Company’s SEC Reports (hard copies of which were made available to the
Purchaser upon request to the Company or were otherwise accessible to the
Purchaser via the SEC’s EDGAR system), and the information contained therein.
Such Purchaser and its advisors have been afforded the opportunity to ask
questions of the Company and its management. Such Purchaser understands that
such discussions, as well as any written information provided by the Company,
were intended to describe the aspects of the Company’s business and prospects
which the Company believes to be material, but were not necessarily a thorough
or exhaustive description, and except as expressly set forth in this Agreement,
the Company makes no representation or warranty with respect to the completeness
of such information and makes no representation or warranty of any kind with
respect to any information provided by any entity other than the Company. Some
of such information may include projections as to the future performance of the
Company, which projections may not be realized, may be based on assumptions
which may not be correct and may be subject to numerous factors both beyond and
within the Company’s control. Additionally, such Purchaser understands and
represents that he is purchasing the Units notwithstanding the fact that the
Company may disclose in the future certain material information the Subscriber
has not received, including its financial results for its current fiscal
quarter. Neither such inquiries nor any other due diligence investigations
conducted by such Purchaser or its advisors shall modify, amend or affect such
Purchaser’s right to rely on the Company’s representations and warranties
contained in Section 3.1 below. Such Purchaser has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Units.

 

24

 

 

          (o)          No Other Representations or Information. In evaluating
the suitability of an investment in the Units, such Purchaser has not relied
upon any representation or information (oral or written) other than as stated in
this Agreement. No oral or written representations have been made, or oral or
written information furnished, to such Purchaser or its advisors, if any, in
connection with the offering of the Units.

 

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

 

          (q)          Trading Activities. Such Purchaser’s trading activities
with respect to the Company’s Common Stock shall be in compliance with all
applicable federal and state securities laws, rules and regulations and the
rules and regulations of the principal market on which the Company’s Common
Stock is listed or traded. Neither such Purchaser nor its affiliates has an open
short position in the Company’s Common Stock and, except as set forth below,
such Purchaser shall not, and shall not cause any of its affiliates under common
control with the Purchaser, to engage in any short sale as defined in any
applicable SEC or Financial Industry Regulatory Authority (FINRA) rules on any
hedging transactions with respect to the Common Stock until the later to occur
of (i) the conversion of such Purchaser’s Notes and (ii) the maturity of such
Purchaser’s Notes. Without limiting the foregoing, such Purchaser agrees not to
engage in any naked short transactions in excess of the amount of shares owned
(or an offsetting long position) by the Purchaser.

 

(r)          Complete Information. All of the information that such Purchaser
has heretofore furnished or which is set forth herein is correct and complete as
of the date of this Agreement, and, if there should be any material change in
such information prior to the admission of the undersigned to the Company, such
Purchaser will immediately furnish revised or corrected information to the
Company.

 

(s)          Receipt of Documents. Such Purchaser and its counsel have received
and read in their entirety: (i) this Agreement, the Risk Factors applicable to
an investment in the Units as set forth in Exhibit F attached hereto, and each
representation, warranty and covenant set forth herein; and (ii) all due
diligence and other information necessary to verify the accuracy and
completeness of such representations, warranties and covenants; such Purchaser
has received answers to all questions such Purchaser submitted to the Company
regarding an investment in the Company; and such Purchaser has relied on the
information contained therein and has not been furnished any other documents,
literature, memorandum or prospectus.

 

(t)          No Legal Advice from the Company. Such Purchaser acknowledges that
it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with its own legal counsel and investment and tax
advisors. Such Purchaser is relying solely on such advisors and not on any
statements or representations of the Company or any of its representatives or
agents for legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.

 

25

 

 

(u)          (For ERISA plan Purchasers only). The fiduciary of the ERISA plan
represents that such fiduciary has been informed of and understands the
Company’s investment objectives, policies and strategies, and that the decision
to invest “plan assets” (as such term is defined in ERISA) in the Company is
consistent with the provisions of ERISA that require diversification of plan
assets and impose other fiduciary responsibilities. Such Purchaser fiduciary or
Plan (a) is responsible for the decision to invest in the Company; (b) is
independent of the Company or any of its affiliates; (c) is qualified to make
such investment decision; and (d) in making such decision, the Purchaser
fiduciary or Plan has not relied primarily on any advice or recommendation of
the Company or any of its affiliates.

 

(v)          OFAC. [The Buyer should check the Office of Foreign Assets Control
(“OFAC”) website at http://www.treas.gov/ofac before making the following
representations.] Such Purchaser represents that the amounts invested by it in
the Company in the Units were not and are not directly or indirectly derived
from activities that contravene federal, state or international laws and
regulations, including anti-money laundering laws and regulations. Federal
regulations and Executive Orders administered by OFAC prohibit, among other
things, the engagement in transactions with, and the provision of services to,
certain foreign countries, territories, entities and individuals. The lists of
OFAC prohibited countries, territories, persons and entities can be found on the
OFAC website at http://www.treas.gov/ofac. In addition, the programs
administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals1 or
entities in certain countries regardless of whether such individuals or entities
appear on the OFAC lists.

 

To the best of such Purchaser’s knowledge, none of: (1) such Purchaser, (2) any
person controlling or controlled by such Purchaser, (3) if such Purchaser is a
privately-held entity, any person having a beneficial interest in the Buyer, or
(4) any person for whom such Purchaser is acting as agent or nominee in
connection with this investment is a country, territory, individual or entity
named on an OFAC list, or a person or entity prohibited under the OFAC Programs.
Please be advised that the Company may not accept any amounts from a prospective
investor if such prospective investor cannot make the representation set forth
in the preceding paragraph. Such Purchaser agrees to promptly notify the Company
should the Purchaser become aware of any change in the information set forth in
these representations. Such Purchaser understands and acknowledges that, by law,
the Company may be obligated to “freeze the account” of the Purchaser, either by
prohibiting additional subscriptions from the Purchaser, declining any
redemption requests and/or segregating the assets in the account in compliance
with governmental regulations, and a broker may also be required to report such
action and to disclose the Purchaser’s identity to OFAC. Such Purchaser further
acknowledges that the Company may, by written notice to the Purchaser, suspend
the redemption rights, if any, of the Purchaser if the Company reasonably deems
it necessary to do so to comply with anti-money laundering regulations
applicable to the Company or any broker or any of the Company’s other service
providers. These individuals include specially designated nationals, specially
designated narcotics traffickers and other parties subject to OFAC sanctions and
embargo programs.

 

 

1   These individuals include specially designated nationals, specially
designated narcotics traffickers and other parties subject to OFAC sanctions and
embargo programs.

 

26

 

 

(w)          Senior Foreign Political Figure.  To the best of such Purchaser’s
knowledge, none of: (1) the Purchaser, (2) any person controlling or controlled
by the Purchaser, (3) if the Purchaser is a privately-held entity, any person
having a beneficial interest in the Purchaser, or (4) any person for whom the
Purchaser is acting as agent or nominee in connection with this investment is a
senior foreign political figure2, or any immediate family3 member or close
associate4 of a senior foreign political figure, as such terms are defined in
the footnotes below.

 

(x)          Affiliation With a Non-U.S. Banking Institution. If such Purchaser
is affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if such
Purchaser receives deposits from, makes payments on behalf of, or handles other
financial transactions related to a Foreign Bank, the Purchaser represents and
warrants to the Company that: (1) the Foreign Bank has a fixed address, other
than solely an electronic address, in a country in which the Foreign Bank is
authorized to conduct banking activities; (2) the Foreign Bank maintains
operating records related to its banking activities; (3) the Foreign Bank is
subject to inspection by the banking authority that licensed the Foreign Bank to
conduct banking activities; and (4) the Foreign Bank does not provide banking
services to any other Foreign Bank that does not have a physical presence in any
country and that is not a regulated affiliate.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

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

 

4.2          Transfer Restrictions.

 

(a)          The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an Affiliate of a Purchaser or in connection with a pledge as contemplated
in Section 4.2(b), the Company may require the transferor thereof to provide to
the Company an opinion of counsel selected by the transferor and reasonably
acceptable to the Company, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such transferred Securities under the Securities
Act. As a condition of transfer, any such transferee shall agree in writing to
be bound by the terms of this Agreement and the Registration Rights Agreement
and shall have the rights and obligations of a Purchaser under this Agreement
and the Registration Rights Agreement.

 

 

2.  A “senior foreign political figure” is defined as a senior official in the
executive, legislative, administrative, military or judicial branches of a
foreign government (whether elected or not), a senior official of a major
foreign political party, or a senior executive of a foreign government-owned
corporation. In addition, a “senior foreign political figure” includes any
corporation, business or other entity that has been formed by, or for the
benefit of, a senior foreign political figure.

3.  “Immediate family” of a senior foreign political figure typically includes
the figure’s parents, siblings, spouse, children and in-laws.

4.  A “close associate” of a senior foreign political figure is a person who is
widely and publicly known to maintain an unusually close relationship with the
senior foreign political figure, and includes a person who is in a position to
conduct substantial domestic and international financial transactions on behalf
of the senior foreign political figure.

 

27

 

 

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

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the Registration Rights Agreement and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser’s expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including, if the Securities are subject
to registration pursuant to the Registration Rights Agreement, the preparation
and filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders therein.

 

Each Note that has more than a de minimis amount of original issue discount for
U.S. Federal Income Tax purposes shall bear a legend in substantially the
following form:

 

28

 

 

THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF SECTION 1271 ET
SEQ. OF THE INTERNAL REVENUE CODE.

 

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

 

(d)          The Company was, until July 18, 2012, a “shell company” as defined
in Rule 12b-2 under the Exchange Act. Pursuant to Rule 144(i), securities issued
by a current or former shell company (that is, the Securities) that otherwise
meet the holding period and other requirements of Rule 144 nevertheless cannot
be sold in reliance on Rule 144 until one year after the Company (a) is no
longer a shell company; and (b) has filed current “Form 10 information“ (as
defined in Rule 144(i)) with the Commission reflecting that it is no longer a
shell company, and provided that at the time of a proposed sale pursuant to Rule
144, the Company is subject to the reporting requirements of section 13 or 15(d)
of the Exchange Act and has filed all reports and other materials required to be
filed by section 13 or 15(d) of the Exchange Act, as applicable, during the
preceding 12 months (or for such shorter period that the issuer was required to
file such reports and materials), other than Form 8-K reports. As a result, the
restrictive legends on certificates for the Securities cannot be removed except
in connection with an actual sale meeting the foregoing requirements or pursuant
to an effective registration statement.

 

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

 

4.4          Securities Laws Disclosure; Publicity. The Company shall file a
Current Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby, including the Transaction Documents as exhibits thereto,
with the Commission within the time required by the Exchange Act. The Company
and each Purchaser shall consult with each other in issuing any press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release nor otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser, or without the prior consent of each Purchaser,
with respect to any press release of the Company, which consent shall not
unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party
with prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except: (a) as required by federal securities law in connection with
(i) any registration statement contemplated by the Registration Rights Agreement
and (ii) the filing of final Transaction Documents (including signature pages
thereto) with the Commission and (b) to the extent such disclosure is required
by law or Trading Market regulations, in which case the Company shall provide
Aegis Capital Corp. with prior notice of such disclosure permitted under this
clause (b).

 

29

 

 

4.5          Resales Absent Effective Registration Statement. Each of the
Purchasers understands and acknowledges that (i) this Agreement and the
agreements contemplated hereby may require the Company to issue and deliver the
Securities to the Purchasers with legends restricting their transferability
under the Securities Act, and (ii) it is aware that resales of such Securities
may not be made unless, at the time of resale, there is an effective
registration statement under the Securities Act covering such Purchaser’s
resale(s) or an applicable exemption from registration.

 

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

 

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

 

4.8          Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities hereunder as set forth on Schedule 4.8.

 

30

 

 

4.9          Indemnification.

 

(a)          Subject to the provisions of this Section, the Company will
indemnify and hold each Purchaser and its directors, officers, shareholders,
members, partners, employees and agents, each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act) (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and reasonable
attorneys’ fees and costs of investigation that any such Purchaser Party may
suffer or incur as a result of or relating to (a) any material breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any cause of action,
suit or claim brought or made against such Purchaser Party and arising out of or
resulting from the execution, delivery, performance or enforcement of this
Agreement or the other Transaction Documents by any Purchaser Party. If any
action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party. The Company will not be liable to any Purchaser Party
under this Agreement (x) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed, (y) to the extent that a loss, liability, obligation,
claim, contingency, damage, cost or expense (including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation) is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents or any agreements
or understandings such Purchaser Parties may have with any other person, or (z)
for any violations by such Purchaser Parties of state or federal securities laws
or any conduct by such Purchaser Parties which constitutes fraud, gross
negligence, willful misconduct or malfeasance. The indemnity agreements
contained herein shall be in addition to any cause of action or similar right of
any Purchaser Party against the Company or others and any liabilities the
Company may be subject to pursuant to law.

 

(b)          Each of the Purchasers agrees to indemnify and hold harmless the
Company, Aegis Capital Corp. (including any Selected Dealers of Aegis Capital
Corp.) and their respective officers, directors, employees, agents, control
persons and affiliates from and against all losses, liabilities, claims,
damages, costs, fees and expenses whatsoever (including, but not limited to, any
and all expenses incurred in investigating, preparing or defending against any
litigation commenced or threatened) based upon or arising out of any actual or
alleged false acknowledgment, representation or warranty, or misrepresentation
or omission to state a material fact, or breach by the Purchaser of any covenant
or agreement made by the Purchaser herein or in any other document delivered in
connection with this Agreement.

 

4.10          Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a number of shares of Common Stock equal to
100% of the maximum number of Conversion Shares issuable pursuant to any
conversion of the Notes and Warrant Shares issuable pursuant to any exercise of
the Warrants (without taking into account any limitations on the conversion of
the Notes or exercise of the Warrants set forth therein).

 

4.11          Listing of Common Stock. The Company hereby agrees to use best
efforts to maintain the listing or quotation of the Common Stock on the Trading
Market on which it is currently listed, and concurrently with the Closing, the
Company shall apply, if required, to list or quote all of the Conversion Shares
and Warrant Shares on such Trading Market and promptly secure the listing or
quotation of all of the Conversion Shares and Warrant Shares on such Trading
Market. The Company further agrees, if the Company applies to have the Common
Stock traded on any other Trading Market, it will then include in such
application all of the Conversion Shares and Warrant Shares, and will take such
other action as is necessary to cause all of the Conversion Shares and Warrant
Shares to be listed or quoted on such other Trading Market as promptly as
possible. The Company will then take all action reasonably necessary to continue
the listing or quotation and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.

 

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

 

4.13          Restriction on Redemption and Cash Dividends. So long as any
Purchaser owns any Notes, the Company shall not, directly or indirectly, redeem,
or declare or pay any cash dividend or distribution on, any securities of the
Company without the prior express written consent of the Purchasers holding then
outstanding Notes.

 

4.14          Corporate Existence. So long as any Note is outstanding, the
Company shall not be party to any Fundamental Transaction unless the Company is
in compliance with the applicable provisions governing Fundamental Transactions
set forth in the Warrants.

 

4.15          Equal Treatment of Purchasers. Except as contemplated by the
Company and the Purchasers prior to the final Closing Date, no consideration
(including any modification of any Transaction Document) shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents. For
clarification purposes, this provision constitutes a separate right granted to
each Purchaser by the Company and negotiated separately by each Purchaser, and
is intended for the Company to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

 

4.16          Certain Transactions and Confidentiality. Each Purchaser,
severally and not jointly with the other Purchasers, represents and covenants
that neither it, nor any Affiliate acting on its behalf or pursuant to any
understanding with it has since becoming aware of the offering of the
Securities, nor will, execute any purchases or sales, including Short Sales, of
any of the Company’s securities during the period commencing with the execution
of this Agreement and ending on the later of (x) the conversion of such
Purchaser’s Note(s) and (y) the Maturity Date (as defined in the Notes) of such
Notes.  Each Purchaser, severally and not jointly with the other Purchasers,
covenants that until such time as the transactions contemplated by this
Agreement are publicly disclosed by the Company pursuant to the filing of a
Current Report on Form 8-K as described in Section 4.4, such Purchaser will
maintain the confidentiality of the existence and terms of this transaction and
the information included in the Transaction Documents and the Schedules. 

 

4.17          Form D; Blue Sky Filings. The Company agrees to timely file a Form
D with respect to the Securities as required under Regulation D. The Company
shall take such action as the Company shall reasonably determine is necessary in
order to obtain an exemption for, or to qualify the Securities for, sale to the
Purchasers under applicable securities or “Blue Sky” laws of the states of the
United States.

 

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4.18          Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including, without limitation, its obligation to issue the Conversion
Shares and Warrant Shares pursuant to the Transaction Documents, are (except as
otherwise provided herein) unconditional and absolute and not subject to any
right of set off, counterclaim, delay or reduction, regardless of the effect of
any such dilution or any claim the Company may have against any Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership
of the other stockholders of the Company.

 

4.19          Investor’s Right of First Refusal.

 

(a)          For any private capital raising transactions of Common Stock and
Common Stock Equivalents by the Company which close after the date hereof and on
or prior to the date that is eight (8) months after the date of this Agreement,
the Company agrees to deliver to each Purchaser, at least three (3) days prior
to the closing of such transaction, written notice describing the proposed
transaction, including the terms and conditions thereof, and providing such
Purchaser an option (the “Right of First Refusal”) during the three (3) day
period following delivery of such notice to purchase the securities being
offered in such transaction on the same terms as contemplated by such
transaction. If the Purchasers do not exercise the Right of First Refusal in
full, the Company may consummate the remaining portion of the transaction with
any new investor(s) on the terms contemplated by such transaction. If there is
more than one Purchaser exercising its Right of First Refusal, the provisions of
this Section 4.19 shall apply pro rata among them (based on their relative
amount of Units purchased).

 

(b)          Notwithstanding the above, the Right of First Refusal shall not
apply to any transaction involving issuances of securities by the Company to a
company being acquired by the Company, as payment to such company for such
acquisition, in connection with a merger, consolidation, acquisition or sale of
assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company
or any other transaction that is not for the primary purpose of raising capital,
or a primary underwritten offering of the Company’s Common Stock. The Right of
First Refusal also shall not apply to (a) the issuance of securities upon
exercise or conversion of the Company’s options, warrants or other convertible
securities outstanding as of the date hereof, (b) the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option or restricted stock plan for the benefit of the Company’s officers,
employees, directors or consultants, or (c) the issuance of debt securities,
with no equity feature.

 

ARTICLE V.
MISCELLANEOUS

 

5.1          Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

 

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

 

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

 

5.4          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 Purchasers holding at least 50.1%
in interest of the principal amount of the Notes then outstanding or, in the
case of a waiver, by the party against whom enforcement of any such waived
provision is sought. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right.

 

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

 

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

 

5.7          No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.9.

 

34

 

 

5.8          Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, partners, members,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then in addition to the obligations of the Company
under Section 4.9, the prevailing party in such action, suit or proceeding shall
be reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.

 

5.9          Survival. The representations and warranties contained herein shall
survive the applicable Closing for a period of 12 months after the Closing Date
applicable to such Closing.

 

5.10          Execution; Omnibus Signature Page. (a) This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to each other party,
it being understood that the parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission or by electronic
delivery of a data file containing an electronic facsimile of a signature, 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 were an original thereof.

 

(b)           This Agreement is intended to be read and construed in conjunction
with the Notes, the Warrants, Registration Rights Agreement, the Security
Documents and the Guaranties. Accordingly, pursuant to the terms and conditions
of this Agreement, the Registration Rights Agreement, the Security Agreement and
the Guaranties, it is hereby agreed that the execution by the Purchaser of this
Agreement, in the place set forth on the Omnibus Signature Page below, shall
constitute agreement to be bound by the terms and conditions hereof and the
terms and conditions of the Registration Rights Agreement, the Security
Agreement and the Guaranties, with the same effect as if each of such separate
but related agreement were separately signed by such Purchaser.

 

35

 

 

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

 

5.12          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 (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction. The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

 

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

 

5.14          Independent Nature of Purchasers’ Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant hereof or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Purchaser shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been represented by its own
separate legal counsel in its review and negotiation of the Transaction
Documents. For reasons of administrative convenience only, each Purchaser and
its respective counsel have chosen to communicate with the Company through G&P.
G&P does not represent any of the Purchasers and only represents the Company.
The Company has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by any of the Purchasers.

 

36

 

 

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

 

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

 

5.17          Construction. The parties agree that each of them and/or their
respective counsel have reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments thereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after
the date of this Agreement.

 

5.18          WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.

 

(Signature Pages Follow)

 

37

 

 

          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.

 

BOLDFACE Group, inc.   Address for Notice:     BOLDFACE Group, Inc.     1309
Pico Blvd., Suite A     Santa Monica, CA 90405  By:     Fax: (310) 421-9274  
Name: Nicole Ostoya       Title:  Chief Executive Officer and President        
  With a copy to (which shall not constitute notice):   Gottbetter & Partners,
LLP     488 Madison Avenue, 12th Floor     New York, NY 10022     Attention:
Adam S. Gottbetter      

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

SCHEDULES AND INSTRUCTIONS FOR PURCHASERS TO SUBSCRIBE FOR UNITS IN THE PRIVATE
OFFERING OF BOLDFACE GROUP, INC. FOLLOW.]

 

38

 

 

Schedule of Purchasers

 

1.

2.

3.

4.

5.

6.

 

39

 

 

To subscribe for Units in the private offering of BOLDFACE Group, Inc.:

 

1.Date and Fill in the number of Units being purchased and the subscription
amount and Complete and Sign the Signature Page of the Securities Purchase
Agreement.

 

2.Complete and Sign the Anti-Money Laundering Information Form.

 

3.Initial the Accredited Investor Certification page attached to this letter.

 

4.Complete and Sign the Investor Profile.

 

5.Fax or email all forms and then send all signed original documents to:

 

Gottbetter & Partners, LLP

488 Madison Avenue, 12th Floor

New York, NY 10022

Facsimile Number:         212.400.6901

Telephone Number:       212.400.6900

Attention:   Kathleen Rush

Email:           klr@gottbetter.com

 

6.If you are paying the Purchase Price by check, a check for the exact dollar
amount of the Purchase Price for the number of Units you are offering to
purchase should be made payable to the order of “CSC Trust Company of Delaware,
as Escrow Agent for BOLDFACE Group, Inc.” and should be sent to CSC Trust
Company of Delaware, 2711 Centerville Road, One Little Falls Centre, Wilmington,
DE 19808, Attention: Alan R. Halpern.

 

7.If you are paying the Purchase Price by wire transfer, you should send a wire
transfer for the exact dollar amount of the Purchase Price of the number of PPO
Units you are offering to purchase according to the following instructions:

 

Bank Name: PNC Bank   300 Delaware Avenue   Wilmington, DE 19899 ABA Routing
Number: 031100089 Account Name: CSC Trust Company of Delaware Account Number:
5605012373 Reference: BOLDFACE Group, Inc. #2; 79-1828 [insert Purchaser’s name]
Escrow Agent Contact: Alan R. Halpern; telephone: (302) 636-8628;   email:
ahalpern@cscinfo.com

 

40

 

 

BOLDFACE GROUP, INC.

OMNIBUS SIGNATURE PAGE TO

SECURITIES PURCHASE AGREEMENT,

REGISTRATION RIGHTS AGREEMENT,

SECURITY AGREEMENT AND GUARANTY

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement, the Registration Rights Agreement, the Security Agreement and the
Guaranty to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

PURCHASER (individual)     PURCHASER (entity)                 Signature     Name
of Entity                 Print Name     Signature of Authorized Person        
              Print Name:  _______________________________________ Signature (if
Joint Tenants or Tenants in Common)             Title:
 ____________________________________________         Address of Principal
Residence:     Address of Executive Offices:                                    
    Social Security Number(s):     IRS Tax Identification Number:              
  Telephone Number:     Telephone Number:                 Facsimile Number:    
Facsimile Number:                 E-mail Address:     E-mail Address:        

 

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

 

     

 

(NOTE: To be completed by Purchaser):
$_____________________            _________________    (Subscription Amount)
(Number of Units)

 

Date (NOTE: To be completed by Purchaser): __________________

 

41

 

 

ANTI MONEY LAUNDERING REQUIREMENTS

 

The USA PATRIOT Act

 

The USA PATRIOT Act is designed to detect, deter, and punish terrorists in the
United States and abroad. The Act imposes new anti-money laundering requirements
on brokerage firms and financial institutions. Since April 24, 2002 all
brokerage firms have been required to have new, comprehensive anti-money
laundering programs.

 

To help you understand these efforts, we want to provide you with some
information about money laundering and our steps to implement the USA PATRIOT
Act.

 

What is money laundering?

 

Money laundering is the process of disguising illegally obtained money so that
the funds appear to come from legitimate sources or activities. Money laundering
occurs in connection with a wide variety of crimes, including illegal arms
sales, drug trafficking, robbery, fraud, racketeering, and terrorism.

 

How big is the problem and why is it important?

 

The use of the U.S. financial system by criminals to facilitate terrorism or
other crimes could well taint our financial markets. According to the U.S. State
Department, one recent estimate puts the amount of worldwide money laundering
activity at $1 trillion a year.

 

What are we required to do to eliminate money laundering?

 

Under rules required by the USA PATRIOT Act, our anti-money laundering program
must designate a special compliance officer, set up employee training, conduct
independent audits, and establish policies and procedures to detect and report
suspicious transaction and ensure compliance with such laws. As part of our
required program, we may ask you to provide various identification documents or
other information. Until you provide the information or documents we need, we
may not be able to effect any transactions for you.

 

42

 

 

ANTI-MONEY LAUNDERING INFORMATION FORM

The following is required in accordance with the AML provision of the USA
PATRIOT ACT.

(Please fill out and return with requested documentation.)

 

INVESTOR NAME:   LEGAL ADDRESS:       SSN# or TAX ID#   OF INVESTOR:  

 

FOR INVESTORS WHO ARE INDIVIDUALS:

 

YEARLY INCOME:       AGE:  

 

NET WORTH (excluding value of primary
residence):   ___________________________________________

 

OCCUPATION:   __________________________________________________________________________

 

ADDRESS OF EMPLOYER:          

 

INVESTMENT OBJECTIVE(S):  

 

IDENTIFICATION & DOCUMENTATION AND SOURCE OF FUNDS:

 

1.Please submit a copy of non-expired identification for the authorized
signatory(ies) on the investment documents, showing name, date of birth, address
and signature. The address shown on the identification document MUST match the
Investor’s address shown on the Investor Signature Page.

 

Current Driver’s License or Valid Passport or Identity Card

(Circle one or more)

 

2.If the Investor is a corporation, limited liability company, trust or other
type of entity, please submit the following requisite documents: (i) Articles of
Incorporation, By-Laws, Certificate of Formation, Operating Agreement, Trust or
other similar documents for the type of entity; and (ii) Corporate Resolution or
power of attorney or other similar document granting authority to signatory(ies)
and designating that they are permitted to make the proposed investment.

 

3.Please advise where the funds were derived from to make the proposed
investment:

 

Investments Savings Proceeds of Sale Other ____________

(Circle one or more)

Signature:   _________________________ Print Name:  ________________________
Title (if applicable):  ___________________ Date:  _____________________________

 

43

 

 

BOLDFACE GROUP, INC.

ACCREDITED INVESTOR CERTIFICATION

 

       

For Individual Investors Only

(all Individual Investors must INITIAL where appropriate):

          Initial             I have a net worth (including homes, furnishings
and automobiles, but excluding for these purposes the value of my primary
residence) in excess of $1 million either individually or through aggregating my
individual holdings and those in which I have a joint, community property or
other similar shared ownership interest with my spouse. Initial             I
have had an annual gross income for the past two years of at least $200,000 (or
$300,000 jointly with my spouse) and expect my income (or joint income, as
appropriate) to reach the same level in the current year. Initial             I
am a director or executive officer of BOLDFACE Group, Inc.                  

For Non-Individual Investors

(all Non-Individual Investors must INITIAL where appropriate):

          Initial             The investor certifies that it is a partnership,
corporation, limited liability company or business trust that is 100% owned by
persons who meet at least one of the criteria for Individual Investors set forth
above. Initial             The investor certifies that it is a partnership,
corporation, limited liability company or business trust that has total assets
of at least $5 million and was not formed for the purpose of investing in the
Company. Initial             The investor certifies that it is an employee
benefit plan whose investment decision is made by a plan fiduciary (as defined
in ERISA §3(21)) that is a bank, savings and loan association, insurance company
or registered investment adviser. Initial             The investor certifies
that it is an employee benefit plan whose total assets exceed $5,000,000 as of
the date of this Agreement. Initial             The undersigned certifies that
it is a self-directed employee benefit plan whose investment decisions are made
solely by persons who meet either of the criteria for Individual Investors.
Initial             The investor certifies that it is a U.S. bank, U.S. savings
and loan association or other similar U.S. institution acting in its individual
or fiduciary capacity. Initial             The undersigned certifies that it is
a broker-dealer registered pursuant to §15 of the Securities Exchange Act of
1934. Initial             The investor certifies that it is an organization
described in §501(c)(3) of the Internal Revenue Code with total assets exceeding
$5,000,000 and not formed for the specific purpose of investing in the Company.
Initial             The investor certifies that it is a trust with total assets
of at least $5,000,000, not formed for the specific purpose of investing in the
Company, and whose purchase is directed by a person with such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the prospective investment. Initial             The
investor certifies that it is a plan established and maintained by a state or
its political subdivisions, or any agency or instrumentality thereof, for the
benefit of its employees, and which has total assets in excess of $5,000,000.
Initial             The investor certifies that it is an insurance company as
defined in §2(13) of the Securities Act of 1933, as amended, or a registered
investment company.

 

44

 

 

       

For Non-U.S. Person Investors

(all Investors who are not a U.S. Person must INITIAL this section):

          Initial            

The investor is not a “U.S. Person” as defined in Regulation S; and specifically
the investor is not:

A.      a natural person resident in the United States of America, including its
territories and possessions (“United States”);

 

B.       a partnership or corporation organized or incorporated under the laws
of the United States;

 

C.       an estate of which any executor or administrator is a U.S. Person;

 

D.       a trust of which any trustee is a U.S. Person;

 

E.       an agency or branch of a foreign entity located in the United States;

 

F.       a non-discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person;

 

G.       a discretionary account or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; or

 

H.       a partnership or corporation: (i) organized or incorporated under the
laws of any foreign jurisdiction; and (ii) formed by a U.S. Person principally
for the purpose of investing in securities not registered under the Securities
Act, unless it is organized or incorporated, and owned, by accredited investors
(as defined in Rule 501(a) under the Securities Act) who are not natural
persons, estates or trusts.

 

And, in addition:

 

I.        the investor was not offered the securities in the United States;

 

J.        at the time the buy-order for the securities was originated, the
investor was outside the United States; and

 

K.       the investor is purchasing the securities for its own account and not
on behalf of any U.S. Person (as defined in Regulation S) and a sale of the
securities has not been pre-arranged with a purchaser in the United States.

 

45

 

 

BOLDFACE GROUP, INC.

Investor Profile

(Must be completed by Investor)

 

Section A - Personal Investor Information

 

 

Investor Name(s):    

Individual executing Profile or Trustee:    

Social Security Numbers / Federal I.D. Number:    

Date of Birth:       Marital Status:     Joint Party Date of Birth:      
Investment Experience (Years):    ___________________________ Annual Income:    
  Liquid Net Worth:    

Net Worth (excluding value of primary residence):  

Tax Bracket:     15% or below     25% - 27.5%     Over 27.5%

 

Home Street Address:  

Home City, State & Zip Code:  

Home Phone:   Home Fax:   Home Email:  

Employer:  

Employer Street Address:  

Employer City, State & Zip Code:  

Bus. Phone:   Bus. Fax:   Bus. Email:  

Type of Business:  

(PLACEMENT AGENT) Account Executive / Outside Broker/Dealer:   If you are a
United States citizen, please list the number and jurisdiction of issuance of
any other government-issued document evidencing residence and bearing a
photograph or similar safeguard (such as a driver’s license or passport), and
provide a photocopy of each of the documents you have listed.     If you are NOT
a United States citizen, for each jurisdiction of which you are a citizen or in
which you work or reside, please list (i) your passport number and country of
issuance or (ii) alien identification card number AND (iii) number and country
of issuance of any other government-issued document evidencing nationality or
residence and bearing a photograph or similar safeguard, and provide a photocopy
of each of these documents you have listed. These photocopies must be certified
by a lawyer as to authenticity.  

 

Section B – Certificate Delivery Instructions

 

    Please deliver certificate to the Employer Address listed in Section A.    
Please deliver certificate to the Home Address listed in Section A.     Please
deliver certificate to the following address:

 

Section C – Form of Payment – Check or Wire Transfer

 

    Check payable to CSC Trust Company of Delaware , as Escrow Agent for
BOLDFACE Group, Inc.     Wire funds from my outside account according to the
“How to subscribe for Units” Page.     The funds for this investment are rolled
over, tax deferred from __________ within the allowed 60 day window.

 

Please check if you are a FINRA member or affiliate of a FINRA member firm:
________

 

        Investor Signature   Date

 

46

 

 

Exhibit A

 

Guaranty

 

[See Exhibit 10.5]

 

47

 

 

Exhibit B

 

Form of Notes

 

[See Exhibit 4.1]

 

48

 

 

Exhibit C-1

 

Form of $0.50 Warrants

 

[See Exhibit 4.2]

 

49

 

 

Exhibit C-2

 

Form of $1.00 Warrants

 

[See Exhibit 4.3]

 

50

 

 

Exhibit D

 

Security Agreement

 

[See Exhibit 10.4]

 

51

 

 

Exhibit E

 

Registration Rights Agreement

 

[See Exhibit 10.3]

 

52

 

 

Exhibit F

 

Risk Factors

 

53