Exhibit 10.1

 

COMMON STOCK PURCHASE

 

AGREEMENT

 

Dated as of February 26, 2004

 

by and among

 

SAFLINK CORPORATION

 

and

 

THE PURCHASERS LISTED ON EXHIBIT A

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TABLE OF CONTENTS

 

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COMMON STOCK PURCHASE AGREEMENT

   1

ARTICLE I

    

Purchase and Sale of Common Stock and Warrants

   1

Section 1.1

  

Purchase and Sale of Common Stock and Warrants.

   1

Section 1.2

  

Purchase Price and Closing

   1

ARTICLE II

    

Representations and Warranties

   2

Section 2.1

  

Representations and Warranties of the Company

   2

Section 2.2

  

Representations and Warranties of the Purchasers

   12

ARTICLE III

    

Covenants

   15

Section 3.1

  

Securities Compliance

   15

Section 3.2

  

Registration and Listing

   15

Section 3.3

  

Inspection Rights

   16

Section 3.4

  

Compliance with Laws

   16

Section 3.5

  

Keeping of Records and Books of Account

   16

Section 3.6

  

Reporting Requirements

   16

Section 3.7

  

Other Agreements

   16

Section 3.8

  

Subsequent Financings; Right of First Refusal

   16

Section 3.9

  

Use of Proceeds

   17

Section 3.10

  

Reporting Status; Eligibility to Use Form S-3

   17

Section 3.11

  

Disclosure of Transaction

   18

Section 3.12

  

Disclosure of Material Information

   18

Section 3.13

  

Pledge of Securities

   18

ARTICLE IV

    

Conditions

   19

Section 4.1

  

Conditions Precedent to the Obligation of the Company to Close and to Sell the
Securities

   19

Section 4.2

  

Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities

   19

ARTICLE V

    

Certificate Legend

   21

Section 5.1

  

Legend

   21

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TABLE OF CONTENTS

(continued)

 

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ARTICLE VI

    

Indemnification

        22

Section 6.1

  

General Indemnity

   22

Section 6.2

  

Indemnification Procedure

   22

ARTICLE VII

    

Miscellaneous

   23

Section 7.1

  

Fees and Expenses

   23

Section 7.2

  

Specific Performance; Consent to Jurisdiction; Venue.

   24

Section 7.3

  

Entire Agreement; Amendment

   24

Section 7.4

  

Notices

   24

Section 7.5

  

Waivers

   25

Section 7.6

  

Headings

   25

Section 7.7

  

Successors and Assigns

   25

Section 7.8

  

No Third Party Beneficiaries

   26

Section 7.9

  

Governing Law

   26

Section 7.10

  

Survival

   26

Section 7.11

  

Counterparts

   26

Section 7.12

  

Publicity

   26

Section 7.13

  

Severability

   26

Section 7.14

  

Further Assurances

   26

ACCREDITED INVESTOR CERTIFICATION

   iv

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COMMON STOCK PURCHASE AGREEMENT

 

This COMMON STOCK PURCHASE AGREEMENT this (“Agreement”), dated as of February
26, 2004 by and between Saflink Corporation, a Delaware corporation (the
“Company”), and the purchasers listed on Exhibit A hereto (each a “Purchaser”
and collectively, the “Purchasers”), for the purchase and sale of shares of the
Company’s common stock, par value $.01 per share (the “Common Stock”) by the
Purchasers.

 

The parties hereto agree as follows:

 

ARTICLE I

 

Purchase and Sale of Common Stock and Warrants

 

Section 1.1 Purchase and Sale of Common Stock and Warrants.

 

(a) Upon the following terms and conditions, the Company shall issue and sell to
the Purchasers, and the Purchasers shall purchase from the Company, an aggregate
of up to 3,080,000 shares of Common Stock (the “Shares”) at a price per share of
$3.00 (the “Per Share Purchase Price”) for an aggregate purchase price of up to
$9,240,000 (the “Purchase Price”). The Company and the Purchasers are executing
and delivering this Agreement in accordance with and in reliance upon the
exemption from securities registration afforded by Section 4(2) of the U.S.
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the “Securities Act”), including Regulation D (“Regulation D”),
and/or upon such other exemption from the registration requirements of the
Securities Act as may be available with respect to any or all of the investments
to be made hereunder.

 

(b) Upon the following terms and conditions, the Purchasers shall be issued
Warrants, in substantially the form attached hereto as Exhibit B (the
“Warrants”), to purchase the number of shares of Common Stock set forth opposite
such Purchaser’s name on Exhibit A hereto. The Warrants shall have an exercise
price equal to $3.97 per share and shall be exercisable immediately upon
issuance. Any shares of Common Stock issuable upon exercise of the Warrants (and
such shares when issued) are herein referred to as the “Warrant Shares”. The
Shares, the Warrants and the Warrant Shares are sometimes collectively referred
to herein as the “Securities”.

 

Section 1.2 Purchase Price and Closing. Subject to the terms and conditions
hereof, the Company agrees to issue and sell to the Purchasers and, in
consideration of and in express reliance upon the representations, warranties,
covenants, terms and conditions of this Agreement, the Purchasers, severally but
not jointly, agree to purchase the number of Shares and Warrants, in each case,
set forth opposite their respective names on Exhibit A. The closing of the
purchase and sale of the Shares and Warrants to be acquired by the Purchasers
from the Company under this Agreement shall take place at the offices of Jenkens
& Gilchrist Parker Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New
York, New York 10174 (the “Closing”) at 10:00 a.m., New York time (i) on or
before February 27, 2004, provided, that all of

 

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the conditions set forth in Article IV hereof and applicable to the Closing
shall have been fulfilled or waived in accordance herewith, or (ii) at such
other time and place or on such date as the Purchasers and the Company may agree
upon (the “Closing Date”). Subject to the terms and conditions of this
Agreement, at the Closing the Company shall deliver or cause to be delivered to
each Purchaser (i) a certificate registered in the name of such Purchaser
representing the number of Shares that such Purchaser is purchasing pursuant to
the terms hereof and (ii) a Warrant to purchase such number of shares of Common
Stock as is set forth opposite the name of such Purchaser on Exhibit A. At the
Closing, each Purchaser shall deliver its Purchase Price by wire transfer to an
account designated by the Company.

 

ARTICLE II

 

Representations and Warranties

 

Section 2.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers as follows, as of the date hereof and
the Closing Date, except as set forth on the Schedule of Exceptions attached
hereto with each numbered Schedule corresponding to the section number herein:

 

(a) Organization, Good Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power to own, lease and operate its
properties and assets and to conduct its business as it is now being conducted.
The Company does not have any Subsidiaries (as defined in Section 2.1(g)) or own
securities of any kind in any other entity except as set forth on Schedule
2.1(g) hereto. The Company and each such Subsidiary (as defined in Section
2.1(g)) is qualified to do business as a foreign corporation and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary except for any
jurisdiction(s) (alone or in the aggregate) in which the failure to be so
qualified will not have a Material Adverse Effect. For the purposes of this
Agreement, “Material Adverse Effect” means any effect on the business,
operations, properties, prospects or financial condition of the Company that is
material and adverse to the Company and its Subsidiaries, taken as a whole, and
any condition, circumstance or situation that would prohibit the Company from
entering into and performing any of its obligations hereunder and under the
other Transaction Documents (as defined below).

 

(b) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and perform this Agreement, the Warrants and that
certain Registration Rights Agreement by and among the Company and the
Purchasers, dated as of the date hereof, substantially in the form of Exhibit C
attached hereto (the “Registration Rights Agreement” and, together with this
Agreement and the Warrants, the “Transaction Documents”) and to issue and sell
the Securities in accordance with the terms hereof. The execution, delivery and
performance of the Transaction Documents by the Company and the consummation by
it of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action, and, except as set forth on
Schedule 2.1(b), no further consent or authorization of the Company, its Board
of Directors or stockholders is required. When executed and delivered by the
Company, each of the Transaction Documents shall constitute a valid and

 

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binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium, liquidation, conservatorship,
receivership or similar laws relating to, or affecting generally the enforcement
of, creditor’s rights and remedies or by other equitable principles of general
application.

 

(c) Capitalization. The authorized capital stock of the Company as of the date
of this Agreement consists of 100,000,000 shares of Common Stock, of which
28,186,151 were issued and outstanding as of January 22, 2004, and 1,000,000
shares of preferred stock, of which 23,937 were issued and outstanding as of
January 22, 2004. All of the outstanding shares of Common Stock and any other
outstanding security of the Company have been duly and validly authorized.
Except as set forth in this Agreement and as set forth on Schedule 2.1(c)
hereto, no shares of Common Stock or any other security of the Company are
entitled to preemptive rights or registration rights and there are no
outstanding options, warrants, scrip, rights to subscribe to, call or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company. Furthermore,
except as set forth in this Agreement and as set forth on Schedule 2.1(c)
hereto, there are no contracts, commitments, understandings, or arrangements by
which the Company is or may become bound to issue additional shares of the
capital stock of the Company or options, securities or rights convertible into
shares of capital stock of the Company. Except as set forth on Schedule 2.1(c),
the Company is not a party to, and it has no knowledge of, any agreement or
understanding restricting the voting or transfer of any shares of the capital
stock of the Company.

 

(d) Issuance of Securities. The Shares and the Warrants to be issued at the
Closing have been duly authorized by all necessary corporate action and, when
paid for and issued in accordance with the terms hereof and the Warrants,
respectively, the Shares and the Warrant Shares will be validly issued, fully
paid and nonassessable and free and clear of all liens, encumbrances and rights
of refusal of any kind (other than restrictions on transfer under applicable
securities laws or other such restrictions imposed under the Transaction
Documents) and the holders shall be entitled to all rights accorded to a holder
of Common Stock.

 

(e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (i) violate any provision of
the Company’s Certificate of Incorporation (the “Certificate”) or Bylaws (the
“Bylaws”), each as amended to date, or any Subsidiary’s comparable charter
documents, (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries’
respective properties or assets are bound, or (iii) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or any of its Subsidiaries or by which any property or asset of
the Company or any of its Subsidiaries are bound or affected, except, in all
cases, other than violations pursuant to clauses (i) or (iii) (with respect to
federal and state securities laws) above, except, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would
not, individually or in the aggregate, have a

 

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Material Adverse Effect. The business of the Company and its Subsidiaries is not
being conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations, which singularly or in the
aggregate do not and will not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is required under federal, state, foreign or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Securities in accordance with the
terms hereof (other than any filings, consents and approvals which may be
required to be made by the Company under applicable state and federal securities
laws, rules or regulations, the Nasdaq SmallCap Market prior to or subsequent to
the Closing, or any registration provisions provided in the Registration Rights
Agreement).

 

(f) Commission Documents, Financial Statements. The Common Stock of the Company
is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), and, except as disclosed on Schedule
2.1(f) hereto, during the two year period preceding the Closing Date, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Securities and Exchange Commission
(the “Commission”) pursuant to the reporting requirements of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the “Commission Documents”). At the times of their
respective filing, the Form 10-Q for the fiscal quarter ended September 30, 2003
(the “Form 10-Q”) and the Form 10-K for the fiscal year ended December 31, 2002
(the “Form 10-K”) complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and the Form 10-Q and Form 10-K did 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, not
misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles (“GAAP”) applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the Notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements), and fairly present in all material respects
the financial position of the Company and its Subsidiaries as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).

 

(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and
showing the percentage of each person’s ownership of the outstanding stock or
other interests of such Subsidiary. For the purposes of this Agreement,
“Subsidiary” shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or

 

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any of its other Subsidiaries. All of the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued, and are fully paid
and nonassessable. There are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.

 

(h) No Material Adverse Change. Since September 30, 2003, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed on
Schedule 2.1(h) hereto.

 

(i) No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i) hereto,
since September 30, 2003, neither the Company nor any of its Subsidiaries has
incurred any liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
other than those incurred in the ordinary course of the Company’s or its
Subsidiaries respective businesses and which, individually or in the aggregate,
are not reasonably likely to have a Material Adverse Effect.

 

(j) No Undisclosed Events or Circumstances. Since September 30, 2003, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

 

(k) Indebtedness. The Commission Documents or Schedule 2.1(k) hereto sets forth
as of the date hereof all outstanding secured and unsecured Indebtedness of the
Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $300,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others in excess of $100,000, whether or not the same are or
should be reflected in the Company’s balance sheet (or the notes thereto),
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and (c)
the present value of any lease payments in excess of $25,000 due under leases
required to be capitalized in accordance with GAAP. Neither the Company nor any
Subsidiary is in default with respect to any Indebtedness.

 

(l) Title to Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property reflected in the
Commission Documents, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances,

 

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except for those indicated on Schedule 2.1(l) hereto or such that, individually
or in the aggregate, do not cause a Material Adverse Effect. All said leases of
the Company and each of its Subsidiaries are valid and subsisting and in full
force and effect.

 

(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth on Schedule 2.1(m) hereto, there is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened, against or involving the
Company, any Subsidiary or any of their respective properties or assets, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such, which
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

 

(n) Compliance with Law. The business of the Company and the Subsidiaries has
been and is presently being conducted in accordance with all applicable federal,
state and local governmental laws, rules, regulations and ordinances, except as
set forth in the Commission Documents or on Schedule 2.1(n) hereto or such that,
individually or in the aggregate, the noncompliance therewith could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its Subsidiaries have all franchises, permits, licenses, consents and other
governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

 

(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company and each
of the Subsidiaries has accurately prepared and filed all federal, state and
other tax returns required by law to be filed by it, has paid or made provisions
for the payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements of
the Company and the Subsidiaries for all current taxes and other charges to
which the Company or any Subsidiary is subject and which are not currently due
and payable. Except as disclosed on Schedule 2.1(o) hereto, none of the federal
income tax returns of the Company or any Subsidiary have been audited by the
Internal Revenue Service. The Company has no knowledge of any additional
assessments, adjustments or contingent tax liability (whether federal or state)
of any nature whatsoever, whether pending or threatened against the Company or
any Subsidiary for any period, nor of any basis for any such assessment,
adjustment or contingency.

 

(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the Company has
not employed any broker or finder or incurred any liability for any brokerage or
investment banking fees, commissions, finders’ structuring fees, financial
advisory fees or other similar fees in connection with the Transaction
Documents.

 

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(q) Disclosure. To the best of the Company’s knowledge, neither this Agreement
or the Schedules hereto nor any other documents, certificates or instruments
furnished to the Purchasers by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by this Agreement contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made herein or therein, in the light of the
circumstances under which they were made herein or therein, not misleading.

 

(r) Operation of Business. Except as set forth on Schedule 2.1(r) hereto, the
Company and each of the Subsidiaries owns or possesses sufficient legal rights
to use all patents, trademarks, domain names (whether or not registered) and any
patentable improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations currently used in the Company’s
operation of its business, without any known infringement of the rights of
others.

 

(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s) hereto, the
Company and each of its Subsidiaries have obtained all material approvals,
authorization, certificates, consents, licenses, orders and permits or other
similar authorizations of all governmental authorities, or from any other
person, that are required under any Environmental Laws. “Environmental Laws”
shall mean all applicable laws relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of hazardous substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries, except for such instances as would not
individually or in the aggregate have a Material Adverse Effect. The Company and
each of its Subsidiaries are also in compliance with all other limitations,
restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws. Except for such instances as
would not individually or in the aggregate have a Material Adverse Effect, there
are no past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or would be reasonably likely to violate any Environmental Law
after the Closing or that would be reasonably likely to give rise to any
environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including, without limitation,
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
“Environmental Liabilities” means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.

 

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(t) Books and Records; Internal Accounting Controls. The records and documents
of the Company and its Subsidiaries accurately reflect in all material respects
the information relating to the business of the Company and the Subsidiaries,
the location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary. The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient, in the judgment of the Company’s board
of directors, to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate actions are taken with respect to any
differences.

 

(u) Material Agreements. Except for the Transaction Documents (with respect to
clause (i) only), as disclosed in the Commission Documents or as set forth on
Schedule 2.1(u) hereto, or as would not be reasonably likely to have a Material
Adverse Effect, (i) the Company and each of its Subsidiaries have performed all
obligations required to be performed by them to date under any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement,
filed or required to be filed with the Commission (the “Material Agreements”),
(ii) neither the Company nor any of its Subsidiaries has received any notice of
default under any Material Agreement and, (iii) to the best of the Company’s
knowledge, neither the Company nor any of its Subsidiaries is in default under
any Material Agreement now in effect.

 

(v) Transactions with Affiliates. Except as set forth on Schedule 2.1(v) hereto
or in the Commission Documents (or the definitive proxy statement described
below), there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company, any Subsidiary or any of their respective customers or
suppliers on the one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its Subsidiaries, or any person
owning any capital stock of the Company or any Subsidiary or any member of the
immediate family of such officer, employee, consultant, director or stockholder
or any corporation or other entity controlled by such officer, employee,
consultant, director or stockholder, or a member of the immediate family of such
officer, employee, consultant, director or stockholder which, in each case, is
required to be disclosed in the Commission Documents or in the Company’s most
recently filed definitive proxy statement on Schedule 14A, that is not so
disclosed in the Commission Documents or in such proxy statement.

 

(w) Securities Act of 1933. Based in material part upon the representations
herein of the Purchasers, the Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer,
issuance and sale of the Securities hereunder. Neither the Company nor anyone
acting on its behalf, directly or indirectly, has or will sell, offer to sell or
solicit offers to buy any of the Securities or similar securities to, or solicit
offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring
the issuance and sale of any of the Securities under the registration provisions
of the Securities Act and applicable state securities

 

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laws, and neither the Company nor any of its affiliates, nor any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of any of the Securities.

 

(x) Governmental Approvals. Except as set forth on Schedule 2.1(x) hereto, and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which if
required, shall be filed on a timely basis), no authorization, consent,
approval, license, exemption of, filing or registration with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, is or will be necessary for, or in connection with, the
execution or delivery of the Securities, or for the performance by the Company
of its obligations under the Transaction Documents.

 

(y) Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees, except as
set forth on Schedule 2.1(y) hereto. Except as set forth on Schedule 2.1(y)
hereto, neither the Company nor any Subsidiary has any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company or such Subsidiary
required to be disclosed in the Commission Documents that is not so disclosed.
Since September 30, 2003, no officer, consultant or key employee of the Company
or any Subsidiary whose termination, either individually or in the aggregate,
would be reasonably likely to have a Material Adverse Effect, has terminated or,
to the knowledge of the Company, has any present intention of terminating his or
her employment or engagement with the Company or any Subsidiary.

 

(z) Absence of Certain Developments. Except as provided on Schedule 2.1(z)
hereto or as contemplated under this Agreement, since September 30, 2003,
neither the Company nor any Subsidiary has:

 

(i) issued any stock, bonds or other corporate securities or any right, options
or warrants with respect thereto;

 

(ii) borrowed any amount in excess of $300,000 or incurred or become subject to
any other liabilities in excess of $100,000 (absolute or contingent) except
current liabilities incurred in the ordinary course of business which are
comparable in nature and amount to the current liabilities incurred in the
ordinary course of business during the comparable portion of its prior fiscal
year, as adjusted to reflect the current nature and volume of the business of
the Company and its Subsidiaries;

 

(iii) discharged or satisfied any lien or encumbrance in excess of $250,000 or
paid any obligation or liability (absolute or contingent) in excess of $250,000,
other than current liabilities paid in the ordinary course of business;

 

(iv) declared or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock, in each
case in excess of $50,000 individually or $100,000 in the aggregate;

 

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(v) sold, assigned or transferred any other tangible assets, or canceled any
debts or claims, in each case in excess of $250,000, except in the ordinary
course of business;

 

(vi) sold, assigned or transferred any patent rights, trademarks, trade names,
copyrights, trade secrets or other intangible assets or intellectual property
rights in excess of $250,000, or disclosed any proprietary confidential
information to any person except to customers in the ordinary course of business
or to the Purchasers or their representatives;

 

(vii) suffered any material losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;

 

(viii) made any changes in employee compensation except in the ordinary course
of business and consistent with past practices;

 

(ix) made capital expenditures or commitments therefor that aggregate in excess
of $500,000;

 

(x) entered into any material transaction, whether or not in the ordinary course
of business;

 

(xi) made charitable contributions or pledges in excess of $25,000;

 

(xii) suffered any material damage, destruction or casualty loss, whether or not
covered by insurance;

 

(xiii) experienced any material problems with labor or management in connection
with the terms and conditions of their employment; or

 

(xiv) entered into an agreement, written or otherwise, to take any of the
foregoing actions.

 

(aa) Public Utility Holding Company Act and Investment Company Act Status. The
Company is not a “holding company” or a “public utility company” as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended. The
Company is not, and as a result of and immediately upon the Closing will not be,
an “investment company” or a company “controlled” by an “investment company,”
within the meaning of the Investment Company Act of 1940, as amended.

 

(bb) ERISA. No liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan by the Company or any of its Subsidiaries
which is or would be materially adverse to the Company and its Subsidiaries. The
execution and delivery of

 

10

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this Agreement and the issuance and sale of the Shares and the Warrants will not
involve any transaction which is subject to the prohibitions of Section 406 of
ERISA or in connection with which a tax could be imposed pursuant to Section
4975 of the Internal Revenue Code of 1986, as amended, provided that, if any of
the Purchasers, or any person or entity that owns a beneficial interest in any
of the Purchasers, is an “employee pension benefit plan” (within the meaning of
Section 3(2) of ERISA) with respect to which the Company is a “party in
interest” (within the meaning of Section 3(14) of ERISA), the requirements of
Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(cc), the term “Plan” shall mean an “employee pension benefit plan”
(as defined in Section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any Subsidiary or by any trade or business, whether or not incorporated, which,
together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.

 

(cc) Delisting Notification. The Company has not received notice (written or
oral) from the Nasdaq SmallCap Market to the effect that the Company is not in
compliance with the listing or maintenance requirements of such market.

 

(dd) Independent Nature of Purchasers. The Company acknowledges that the
obligations of each Purchaser under the Transaction Documents are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under the Transaction Documents. The Company acknowledges that for
reasons of administrative convenience only, the Transaction Documents have been
prepared by counsel for one of the Purchasers. The Company acknowledges that all
Purchasers have been provided with the same terms and Transaction Documents for
the purpose of closing the transaction with multiple Purchasers and not because
it was required or requested to do so by the Purchasers.

 

(ee) No Integrated Offering. To the knowledge of the Company, 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
the offering of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the Securities Act which would
prevent the Company from selling the Securities pursuant to Regulation D and
Rule 506 thereof under the Securities Act, or any applicable exchange-related
stockholder approval provisions, nor will the Company or any of its affiliates
or subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings. The Company does not have any
registration statement pending before the Commission or currently under the
Commission’s review.

 

(ff) Sarbanes-Oxley Act. The Company is in substantial compliance with the
applicable provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act”), and the rules and regulations promulgated thereunder, that are effective.

 

(gg) Eligibility to Use Form S-3. The Company meets the “registrant eligibility”
requirements set forth in the general instructions to Form S-3 applicable to
“resale” registration on Form S-3.

 

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Section 2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers hereby represents and warrants to the Company with respect solely to
itself and not with respect to any other Purchaser as follows as of the date
hereof and as of the Closing Date:

 

(a) Organization and Standing of the Purchasers. If the Purchaser is an entity,
such Purchaser is a corporation, limited liability company or partnership duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.

 

(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Securities being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by each Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. When executed and delivered by the
Purchasers, the other Transaction Documents shall constitute valid and binding
obligations of each Purchaser enforceable against such Purchaser in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.

 

(c) No Conflict. The execution, delivery and performance of the Transaction
Documents by the Purchaser and the consummation by the Purchaser of the
transactions contemplated thereby and hereby do not and will not (i) violate any
provision of the Purchaser’s charter or organizational documents, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Purchaser is a party or by which the Purchaser’s respective
properties or assets are bound, or (iii) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Purchaser or by which any property or asset of the Purchaser are bound or
affected, except, in all cases, other than violations pursuant to clauses (i) or
(iii) (with respect to federal and state securities laws) above, except, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, materially and
adversely affect the Purchaser’s ability to perform its obligations under the
Transaction Documents.

 

(d) Acquisition for Investment. Each Purchaser is purchasing the Shares and
Warrants solely for its own account for the purpose of investment and not with a
view to or for sale in connection with distribution. Each Purchaser does not
have a present intention to sell any of the Shares or Warrants, nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of any of the Shares or Warrants to or through any person or
entity; provided, however, that by making the representations herein, such
Purchaser does not agree to hold the Shares or the Warrants for any minimum or
other specific term and reserves the right to dispose of the Shares or the
Warrants at any time in accordance with Federal and state

 

12

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securities laws applicable to such disposition. Each Purchaser acknowledges that
it (i) has such knowledge and experience in financial and business matters such
that Purchaser is capable of evaluating the merits and risks of Purchaser’s
investment in the Company, (ii) is able to bear the financial risks associated
with an investment in the Securities and (iii) has been given full access to
such records of the Company and the Subsidiaries and to the officers of the
Company and the Subsidiaries as it has deemed necessary or appropriate to
conduct its due diligence investigation.

 

(e) Rule 144. Each Purchaser understands that the Securities must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. Each Purchaser acknowledges that such
person is familiar with Rule 144 of the rules and regulations of the Commission,
as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that
such Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. Each Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Securities without
either registration under the Securities Act or the existence of another
exemption from such registration requirement.

 

(f) General. Each Purchaser understands that the Securities are being offered
and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.

 

(g) No General Solicitation. Each Purchaser acknowledges that the Securities
were not offered to such Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which such
Purchaser was invited by any of the foregoing means of communications.

 

(h) Accredited Investor. Each Purchaser is an “accredited investor” (as defined
in Rule 501 of Regulation D), and such Purchaser has such experience in business
and financial matters that it is capable of evaluating the merits and risks of
an investment in the Securities. Such Purchaser is not required to be registered
as a broker-dealer under Section 15 of the Exchange Act and such Purchaser is
not a broker-dealer. Each Purchaser acknowledges that an investment in the
Securities is speculative and involves a high degree of risk. Each Purchaser has
completed or caused to be completed the Investor Questionnaire Certification
attached hereto as Exhibit D certifying as to its status as an “accredited
investor” and understands that the Company is relying upon the truth and
accuracy of the Purchaser set forth therein to determine the suitability of such
Purchaser to acquire the Securities.

 

(i) Certain Fees. The Purchasers have not employed any broker or finder or
incurred any liability for any brokerage or investment banking fees,
commissions, finders’ structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.

 

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(j) Independent Investment. No Purchaser has agreed to act with any other
Purchaser for the purpose of acquiring, holding, voting or disposing of the
Securities purchased hereunder for purposes of Section 13(d) under the Exchange
Act, and each Purchaser is acting independently with respect to its investment
in the Securities. The decision of each Purchaser to purchase Securities
pursuant to this Agreement has been made by such Purchaser independently of any
other purchase and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company or of its Subsidiaries which may have made or given by
any other Purchaser or by any agent or employee of any other Purchaser, and no
Purchaser or any of its agents or employees shall have any liability to any
Purchaser (or any other person) relating to or arising from any such
information, materials, statements or opinions. 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. Nothing contained
herein, or in any Transaction Document, and no action taken by any Purchaser
pursuant hereto 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. For reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby.

 

(k) Patriot Act. If the Purchaser is an individual, the Purchaser certifies that
he or she is not nor to his or her knowledge has been designated, a “suspected
terrorist” as defined in Executive Order 13224. If the Purchaser is a
corporation, trust, partnership, limited liability company or other
organization, the Purchaser certifies that, to the best of Purchaser’s
knowledge, the Purchaser has not been designated, and is not owned or
controlled, by a “suspected terrorist” as defined in Executive Order 13224. The
Purchaser hereby acknowledges that the Company seeks to comply with all
applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Purchaser hereby represents, warrants and
agrees that to its knowledge: (i) none of the cash or property that the
Purchaser will pay or will contribute to the Company has been or shall be
derived from, or related to, any activity that is deemed criminal under United
States law; and (ii) no contribution or payment by the Purchaser to the Company,
to the extent that they are within the Purchaser’s control shall cause the
Company to be in violation of the United States Bank Secrecy Act, the United
States International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Purchaser shall promptly notify the Company if any of these
representations ceases to be true and accurate regarding the Purchaser. The
Purchaser agrees to provide the Company any additional information regarding the
Purchaser that the Company deems necessary or convenient to ensure compliance
with all applicable laws concerning money laundering and similar activities. The
Purchaser understands and agrees that if at any time it is discovered that any
of the foregoing representations are

 

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incorrect, or if otherwise required by applicable law or regulation related to
money laundering similar activities, the Company may undertake appropriate
actions to ensure compliance with applicable law or regulation, including but
not limited to segregation and/or redemption of the Purchaser’s investment in
the Company. In the event that the Company is requested or required (by
deposition, interrogatory, request for documents, subpoena, civil investigative
demand or similar legal, judiciary or regulatory process or as otherwise
required by applicable law or regulation) to disclose any confidential
information about a Purchaser, the Company shall (A) provide the Purchaser with
prompt prior written notice of such request or requirement and (B) cooperate
with the Purchaser so that the Purchaser may seek a protective order or other
appropriate remedy. In the event that such protective order or other remedy is
not obtained, the Company and their respective representatives shall disclose
only that portion of the confidential information that such person is advised by
legal counsel in writing is legally required to be disclosed, and provided that
the Company uses reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded any confidential information so
disclosed.

 

ARTICLE III

 

Covenants

 

The Company covenants with each Purchaser as follows, which covenants are for
the benefit of each Purchaser and their respective permitted assignees.

 

Section 3.1 Securities Compliance. The Company shall notify the Commission in
accordance with its rules and regulations, of the transactions contemplated by
any of the Transaction Documents and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Purchasers, or their respective subsequent holders.

 

Section 3.2 Registration and Listing. The Company shall use its reasonable best
efforts to cause its Common Stock to continue to be registered under Sections
12(b) or 12(g) of the Exchange Act, to comply in all respects with its reporting
and filing obligations under the Exchange Act, to comply with all requirements
related to any registration statement filed pursuant to this Agreement, and to
not take any action or file any document (whether or not permitted by the
Securities Act or the rules promulgated thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under the Exchange Act or Securities Act, except as permitted herein or as
contemplated under the Registration Rights Agreement. The Company shall use its
reasonable best efforts to continue the listing or trading of its Common Stock
on the Nasdaq SmallCap Market or any successor market. If required, the Company
will promptly file the “Listing Application” for, or in connection with, the
issuance and delivery of the Shares and the Warrant Shares.

 

Section 3.3 Inspection Rights. Subject to such Purchaser having executed a
Non-Disclosure Agreement in form and substance satisfactory to the Company, the
Company shall permit, during normal business hours and upon reasonable request
and reasonable notice, each Purchaser or any employees, agents or
representatives thereof, so long as such Purchaser shall be obligated hereunder
to purchase the Shares or shall beneficially own any Shares or

 

15

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Warrant Shares, for purposes reasonably related to such Purchaser’s interests as
a stockholder to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect the properties, assets,
operations and business of the Company and any Subsidiary, and to discuss the
affairs, finances and accounts of the Company and any Subsidiary with any of its
officers, consultants, directors, and key employees.

 

Section 3.4 Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which would be reasonably likely to have a Material Adverse
Effect.

 

Section 3.5 Keeping of Records and Books of Account. The Company shall keep
adequate records and books of account, in which complete entries will be made in
accordance with GAAP consistently applied, reflecting all financial transactions
of the Company and its Subsidiaries on a consolidated basis, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.

 

Section 3.6 Reporting Requirements. If the Commission shall cease making the
Company’s periodic reports available via the Internet without charge, then the
Company shall furnish the following to each Purchaser so long as such Purchaser
shall be obligated hereunder to purchase the Securities or shall beneficially
own Shares or Warrant Shares:

 

(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available, and in any event within forty-five (45) days after the end of each of
the first three fiscal quarters of the Company;

 

(b) Annual Reports filed with the Commission on Form 10-K as soon as available,
and in any event within ninety (90) days after the end of each fiscal year of
the Company; and

 

(c) Copies of all notices, information and proxy statements in connection with
any meetings, that are, in each case, provided to holders of shares of Common
Stock, contemporaneously with the delivery of such notices or information to
such holders of Common Stock.

 

Section 3.7 Other Agreements. The Company shall not enter into any agreement in
which the terms of such agreement would restrict or impair the right or ability
to perform of the Company or any Subsidiary under any Transaction Document.

 

Section 3.8 Subsequent Financings; Right of First Refusal. (a) For a period of
one (1) year following the Closing Date, the Company covenants and agrees to
promptly notify (in no event later than five (5) days after making or receiving
an applicable offer) in writing (a “Rights Notice”) the Purchasers of the terms
and conditions of any proposed offer or sale to, or exchange with (or other type
of distribution to) any third party (a “Subsequent Financing”), of Common Stock
or any securities convertible, exercisable or exchangeable into Common Stock,
including convertible debt securities (collectively, the “Financing
Securities”). The Rights Notice shall describe, in reasonable detail, the
proposed Subsequent Financing, the proposed closing date of the Subsequent
Financing, which shall not be within twenty (20) calendar days

 

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from the date the Rights Notice is given nor later than forty five (45) calendar
days from the date the Rights Notice is given, including, without limitation,
all of the material terms and conditions thereof and proposed definitive
documentation to be entered into in connection therewith. The Rights Notice
shall provide each Purchaser an option (the “Rights Option”) during the five (5)
trading days following delivery of the Rights Notice (the “Option Period”) to
purchase up to the amount of the securities being offered in such Subsequent
Financing necessary for such Purchaser to maintain its Percentage Ownership in
the Company on a fully-diluted basis, on the same, absolute terms and conditions
as contemplated by such Subsequent Financing (the “First Refusal Rights”). For
purposes of this Section 3.8, “Percentage Ownership” means an amount equal to
(x) the number of Shares purchased by a Purchaser as of the Closing Date,
divided by (y) the number of shares of Common Stock of the Company issued and
outstanding as of the date of the Rights Notice on a fully-diluted basis.
Delivery of any Rights Notice constitutes a representation and warranty by the
Company that there are no other material terms and conditions, arrangements,
agreements or otherwise except for those disclosed in the Rights Notice, to
provide additional compensation to any party participating in any proposed
Subsequent Financing, including, but not limited to, additional compensation
based on changes in the Purchase Price or any type of reset or adjustment of a
purchase or conversion price or to issue additional securities at any time after
the closing date of a Subsequent Financing. If the Company does not receive
notice of exercise of the Rights Option from any of the Purchasers within the
Option Period, the Company shall have the right to close the Subsequent
Financing on the scheduled closing date with a third party (and, if applicable,
with such Purchasers as shall have exercised their Rights Option); provided that
all of the material terms and conditions of the closing are the same as those
provided to the Purchasers in the Rights Notice. If the closing of the proposed
Subsequent Financing does not occur within 60 days from the date the Rights
Notice is given, any closing of the contemplated Subsequent Financing or any
other Subsequent Financing shall be subject to all of the provisions of this
Section, including, without limitation, the delivery of a new Rights Notice.

 

(b) For purposes of this Agreement, a Permitted Financing (as defined
hereinafter) shall not be considered a Subsequent Financing. A “Permitted
Financing” shall mean (1) shares of Common Stock to be issued to strategic
partners and/or in connection with a strategic merger or acquisition and/or
issuances of securities in connection with strategic licensing transactions, the
primary purpose of which is not to raise equity capital; (2) shares of Common
Stock or the issuance of options to purchase shares of Common Stock to
employees, officers, directors, consultants and vendors in accordance with the
Company’s equity incentive policies; (3) the issuance of securities pursuant to
a bona fide firm underwritten public offering of the Company’s securities; (4)
the conversion or exercise of convertible or exercisable securities issued or
outstanding prior to the date hereof; and (5) the issuance of any securities to
the placement agent in connection with the transactions contemplated under this
Agreement.

 

Section 3.9 Use of Proceeds. The proceeds from the sale of the Shares will be
used by the Company for working capital and general corporate purposes.

 

Section 3.10 Reporting Status; Eligibility to Use Form S-3. So long as a
Purchaser beneficially owns any of the Securities, the Company shall timely file
all reports required to be filed with the Commission pursuant to the Exchange
Act, and the Company shall not terminate its status as an issuer required to
file reports under the Exchange Act even if the

 

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Exchange Act or the rules and regulations thereunder would permit such
termination. The Company will take commercially reasonable action to continue to
meet the “registrant eligibility” requirements set forth in the general
instructions to Form S-3 applicable to “resale” registrations on Form S-3 during
the Effectiveness Period (as defined in the Registration Rights Agreement).

 

Section 3.11 Disclosure of Transaction. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the
“Press Release”) as soon as practicable after the Closing; provided, however,
that if Closing occurs after 4:00 P.M. Eastern Time on any Trading Day but in no
event later than one hour after the Closing, the Company shall issue the Press
Release no later than 9:00 A.M. Eastern Time on the first Trading Day following
the Closing Date. The Company shall also file with the Commission a Current
Report on Form 8-K (the “Form 8-K”) describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this
Agreement, the Registration Rights Agreement and the form of Warrant) as soon as
practicable following the date of execution of this Agreement but in no event
more than two (2) Trading Days following the date of execution of this
Agreement, which Press Release and Form 8-K shall be subject to prior review and
comment by the Purchasers. “Trading Day” means any day during which the Nasdaq
SmallCap Market (or other principal exchange on which the Common Stock is
traded) shall be open for trading.

 

Section 3.12 Disclosure of Material Information. The Company covenants and
agrees that neither it nor any other person acting on its behalf has provided or
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 executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

 

Section 3.13 Pledge of Securities. To the Company’s knowledge, the Securities
may be pledged by a Purchaser in connection with a bona fide margin agreement or
other loan or financing arrangement that is secured by the Common Stock. To the
Company’s knowledge, the pledge of Common Stock shall not be deemed to be a
transfer, sale or assignment of the Common Stock hereunder, and no Purchaser
effecting a pledge of Common Stock shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document; provided that a Purchaser and
its pledgee shall be required to comply with the provisions of Article V hereof
in order to effect a sale, transfer or assignment of Common Stock to such
pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and
deliver such documentation as a pledgee of the Common Stock may reasonably
request in connection with a pledge of the Common Stock to such pledgee by a
Purchaser, subject to applicable federal securities laws.

 

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ARTICLE IV

 

Conditions

 

Section 4.1 Conditions Precedent to the Obligation of the Company to Close and
to Sell the Securities. The obligation hereunder of the Company to close and
issue and sell the Securities to the Purchasers at the Closing Date is subject
to the satisfaction or waiver, at or before the Closing of the conditions set
forth below. These conditions are for the Company’s sole benefit and may be
waived by the Company at any time in its sole discretion.

 

(a) Accuracy of the Purchasers’ Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.

 

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

 

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

 

(d) Delivery of Purchase Price. The Purchase Price for the Shares shall have
been delivered to the Company on the Closing Date.

 

(e) Delivery of Transaction Documents. The Transaction Documents shall have been
duly executed and delivered by the Purchasers to the Company.

 

Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Close
and to Purchase the Securities. The obligation hereunder of the Purchasers to
purchase the Securities and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, at or before the Closing
Date, of each of the conditions set forth below. These conditions are for the
Purchasers’ sole benefit and may be waived by the Purchasers at any time in
their sole discretion.

 

(a) Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the
Registration Rights Agreement shall be true and correct in all material respects
as of the Closing Date, except for representations and warranties that speak as
of a particular date, which shall be true and correct in all material respects
as of such date.

 

(b) Performance by the Company. The Company shall have performed, satisfied and
complied in all material respects with all 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.

 

19

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(c) No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission or the Nasdaq SmallCap Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets (“Bloomberg”) shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose trades are
reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking
moratorium have been declared either by the United States or New York State
authorities.

 

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

 

(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, by any
third party other than a Purchaser, against the Company or any Subsidiary, or
any of the officers, directors or affiliates of the Company or any Subsidiary
seeking to restrain, prevent or change the transactions contemplated by this
Agreement, or seeking damages in connection with such transactions.

 

(f) Opinion of Counsel. The Purchasers shall have received an opinion of counsel
to the Company, dated the date of such Closing, substantially in the form of
Exhibit E hereto, with such exceptions and limitations as shall be reasonably
acceptable to counsel to the Purchasers.

 

(g) Shares and Warrants. At or prior to the Closing, the Company shall have
delivered to the Purchasers certificates representing the Shares (in such
denominations as each Purchaser may request) and certificates representing the
Warrants, in each case, being acquired by the Purchasers at the Closing.

 

(h) Secretary’s Certificate. The Company shall have delivered to the Purchasers
a secretary’s certificate, dated as of the Closing Date, as to (i) the
resolutions adopted by the Board of Directors approving the transactions
contemplated hereby, (ii) the Certificate, (iii) the Bylaws, each as in effect
at the Closing, and (iv) the authority and incumbency of the officers of the
Company executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.

 

(i) Officer’s Certificate. On the Closing Date, the Company shall have delivered
to the Purchasers a certificate signed by an executive officer on behalf of the
Company, dated as of the Closing Date, confirming the accuracy of the Company’s
representations, warranties and covenants as of the Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in
paragraphs (a)-(e) of this Section 4.2 as of the Closing Date (provided that,
with respect to the matters in paragraphs (d) and (e) of this Section 4.2, such
confirmation shall be based on the knowledge of the executive officer after due
inquiry).

 

20

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(j) Registration Rights Agreement. As of the Closing Date, the Company shall
have duly executed and delivered the Registration Rights Agreement in the form
of Exhibit C attached hereto.

 

(k) Material Adverse Effect. No Material Adverse Effect shall have occurred at
or before the Closing Date.

 

(l) Minimum Purchase. The Purchasers shall have purchased at least $7,000,000 of
the aggregate Purchase Price.

 

ARTICLE V

 

Certificate Legend

 

Section 5.1 Legend. Each certificate representing the Securities shall be
stamped or otherwise imprinted with a legend substantially in the following form
(in addition to any legend required by applicable state securities or “blue sky”
laws):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS OR SAFLINK CORPORATION SHALL HAVE RECEIVED AN OPINION OF
ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

 

The Company agrees to reissue certificates representing any of the Shares and
the Warrant Shares, without the legend set forth above if at such time, prior to
making any transfer of any such Shares or Warrant Shares, such holder thereof
shall give written notice to the Company describing the manner and terms of such
transfer and removal as the Company may reasonably request. Such proposed
transfer and removal will not be effected until: (a) either (i) the Company has
received an opinion of counsel reasonably satisfactory to the Company, to the
effect that the registration of the Shares or Warrant Shares under the
Securities Act is not required in connection with such proposed transfer, (ii) a
registration statement under the Securities Act covering such proposed
disposition has been filed by the Company with the Commission and has become
effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required, or (iv) the holder provides the Company with reasonable assurances
that such security can be sold pursuant to Rule 144 under the Securities Act;
and (b) either (i) the Company has received an opinion of counsel reasonably

 

21

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satisfactory to the Company, to the effect that registration or qualification
under the securities or “blue sky” laws of any state is not required in
connection with such proposed disposition, or (ii) compliance with applicable
state securities or “blue sky” laws has been effected or a valid exemption
exists with respect thereto. The Company will respond to any such notice from a
holder within five (5) Business Days. In the case of any proposed transfer under
this Section 5.1, the Company will use reasonable efforts to comply with any
such applicable state securities or “blue sky” laws, but shall in no event be
required, (x) to qualify to do business in any state where it is not then
qualified, (y) to take any action that would subject it to tax or to the general
service of process in any state where it is not then subject, or (z) to comply
with state securities or “blue sky” laws of any state for which registration by
coordination is unavailable to the Company. The restrictions on transfer
contained in this Section 5.1 shall be in addition to, and not by way of
limitation of, any other restrictions on transfer contained in any other section
of this Agreement. Whenever a certificate representing the Shares or Warrant
Shares is required to be issued to a Purchaser without a legend, in lieu of
delivering physical certificates representing the Shares or Warrant Shares,
provided the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer program, the Company shall
use its best efforts to cause its transfer agent to electronically transmit the
Shares or Warrant Shares to a Purchaser by crediting the account of such
Purchaser’s Prime Broker with DTC through its Deposit Withdrawal Agent
Commission (“DWAC”) system (to the extent not inconsistent with any provisions
of this Agreement).

 

ARTICLE VI

 

Indemnification

 

Section 6.1 General Indemnity. The Company agrees to indemnify and hold harmless
each Purchaser (and its respective directors, officers, affiliates, agents,
successors and assigns) from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys’ fees, charges and disbursements) (“Losses”) incurred by
each Purchaser as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers severally but not jointly agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all Losses incurred by the Company as result of any
inaccuracy in or breach of the representations, warranties or covenants made by
the Purchasers herein. The maximum aggregate liability of each Purchaser
pursuant to its indemnification obligations under this Article VI shall not
exceed the portion of the Purchase Price paid by such Purchaser hereunder.

 

Section 6.2 Indemnification Procedure. Any party entitled to indemnification
under this Article VI (an “indemnified party”) will give written notice to the
indemnifying party of any matters giving rise to a claim for indemnification;
provided, that the failure of any party entitled to indemnification hereunder to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under this Article VI except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the

 

22

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reasonable judgment of the indemnifying party a conflict of interest between it
and the indemnified party exists with respect to such action, proceeding or
claim (in which case the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. In the event that the indemnifying party advises an
indemnified party that it will not contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party’s
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VI shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.

 

ARTICLE VII

 

Miscellaneous

 

Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses of its
advisors, 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, provided, however, that
the Company shall pay (i) at Closing, such fees and expenses set forth on
Schedule 2.1(p) hereto, including all reasonable attorneys’ fees and expenses up
to an aggregate of $30,000 (exclusive of disbursements and out-of-pocket
expenses)

 

23

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incurred by the Purchasers in connection with the preparation, negotiation,
execution and delivery of this Agreement and the other Transaction Documents and
the transactions contemplated thereunder and (ii) the costs of any amendments,
modifications or waivers of this Agreement or any of the other Transaction
Documents.

 

Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.

 

(a) The Company and the Purchasers acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement or the
other Transaction Documents were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent or cure breaches of
the provisions of this Agreement or the other Transaction Documents and to
enforce specifically the terms and provisions hereof or thereof, this being in
addition to any other remedy to which any of them may be entitled by law or
equity.

 

(b) The parties agree that venue for any dispute arising under this Agreement
will lie exclusively in the state or federal courts located in New York County,
New York, and the parties irrevocably waive any right to raise forum non
conveniens or any other argument that New York is not the proper venue. The
parties irrevocably consent to personal jurisdiction in the state and federal
courts of the state of New York. The Company and each Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof 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 in this Section 7.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Securities, this
Agreement or the Registration Rights Agreement, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.

 

Section 7.3 Entire Agreement; Amendment. This Agreement and the Transaction
Documents contain the entire understanding and agreement of the parties with
respect to the matters covered hereby and, except as specifically set forth
herein or in the other Transaction Documents, neither the Company nor any
Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the Purchasers holding at least a majority
of all Shares then held by the Purchasers. Any amendment or waiver effected in
accordance with this Section 7.3 shall be binding upon each Purchaser (and their
permitted assigns) and the Company.

 

Section 7.4 Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery by telecopy or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to

 

24

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such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for such communications shall be:

 

If to the Company:

 

Saflink Corporation

    777 108th Avenue NE, Suite 2100     Bellevue, WA 98004     Attention:
President     Tel. No.: (425) 278-1100     Fax No.: (425)       -        
with copies (which copies     shall not constitute notice     to the Company)
to:   Gray Cary Ware & Freidenrich LLP     701 Fifth Avenue, Suite 7000    
Seattle, Washington 98104     Attention: W. Michael Hutchings     Fax No.: (206)
839-4801 If to any Purchaser:   At the address of such Purchaser set forth on
Exhibit A to this Agreement. with copies to:   Jenkens & Gilchrist Parker Chapin
LLP     The Chrysler Building     405 Lexington Ave.     New York, New York
10174     Attention: Christopher S. Auguste     Tel No.: (212) 704-6000     Fax
No.: (212) 704-6288

 

Any party hereto may from time to time change its address for notices by giving
written notice of such changed address to the other party hereto.

 

Section 7.5 Waivers. No waiver by either party 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 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 accruing
to it thereafter.

 

Section 7.6 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.

 

Section 7.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. After the
Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement. Subject to
Section 5.1 hereof, the Purchasers may assign the Securities and its rights
under this Agreement and the other Transaction Documents and any other rights
hereto and thereto without the consent of the Company.

 

25

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Section 7.8 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

 

Section 7.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to the choice of law provisions. This Agreement shall not interpreted or
construed with any presumption against the party causing this Agreement to be
drafted.

 

Section 7.10 Survival. The representations and warranties of the Company and the
Purchasers shall survive the execution and delivery hereof and the Closing until
the second anniversary of the Closing Date, except the agreements and covenants
set forth in Articles I, III, V, VI and VII of this Agreement shall survive the
execution and delivery hereof and the Closing hereunder.

 

Section 7.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.

 

Section 7.12 Publicity. The Company agrees that it will not disclose, and will
not include in any public announcement, the names of the Purchasers without the
consent of the Purchasers, which consent shall not be unreasonably withheld or
delayed, or unless and until such disclosure is required by law, rule or
applicable regulation, and then only to the extent of such requirement.

 

Section 7.13 Severability. The provisions of this Agreement are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.

 

Section 7.14 Further Assurances. From and after the date of this Agreement, upon
the request of the Purchasers or the Company, the Company and each Purchaser
shall execute and deliver such instruments, documents and other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement, the Warrants and the
Registration Rights Agreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

26

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

 

SAFLINK CORPORATION

By:

 

 

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

Name:

   

Title:

    PURCHASER:

By:

 

 

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

Name:

   

Title:

    PURCHASER:

By:

 

 

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

Name:

   

Title:

    PURCHASER:

By:

 

 

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

Name:

   

Title:

   

 

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

EXHIBIT A

LIST OF PURCHASERS

 

Names and Addresses

of Purchasers                

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

  

Number of Shares

& Warrants Purchased    

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

 

i

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

EXHIBIT B

FORM OF WARRANT

 

ii

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

EXHIBIT C

FORM OF REGISTRATION RIGHTS AGREEMENT

 

iii

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

EXHIBIT D

INVESTOR QUESTIONNAIRE CERTIFICATION

 

SAFLINK CORPORATION

INVESTOR QUESTIONNAIRE

 

(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)

 

To: Saflink Corporation

 

This Investor Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of the shares of common
stock and warrants of Saflink Corporation (the “Securities”). The Securities are
being offered and sold by Saflink Corporation (the “Company”) without
registration under the Securities Act of 1933, as amended (the “Act”), and the
securities laws of certain states, in reliance on the exemptions contained in
Section 4(2) of the Act and on Regulation D promulgated thereunder and in
reliance on similar exemptions under applicable state laws. The Company must
determine that a potential investor meets certain suitability requirements
before offering or selling Securities to such investor. The purpose of this
Questionnaire is to assure the Company that each investor will meet the
applicable suitability requirements. The information supplied by you will be
used in determining whether you meet such criteria, and reliance upon the
private offering exemptions from registration is based in part on the
information herein supplied.

 

This Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire, you will be authorizing the Company to
provide a completed copy of this Questionnaire to such parties as the Company
deems appropriate in order to ensure that the offer and sale of the Securities
will not result in a violation of the Act or the securities laws of any state
and that you otherwise satisfy the suitability standards applicable to
purchasers of the Securities. All potential investors must answer all applicable
questions and complete, date and sign this Questionnaire. Please print or type
your responses and attach additional sheets of paper if necessary to complete
your answers to any item.

 

A. BACKGROUND INFORMATION

 

Name:

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

Business Address:

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

     (Number and Street)

 

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

(City)    (State)                                      
                                                                               
(Zip Code) Telephone Number:                                         
                     If an individual:      Age:                        
Citizenship:                              If a corporation, partnership, limited
liability company, trust or other entity:

Type of entity:

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

State of formation:                                          Date of formation:
                                                 

Social Security or Taxpayer Identification No.

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

 

iv

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B. STATUS AS ACCREDITED INVESTOR

 

The undersigned is an “accredited investor” as such term is defined in
Regulation D under the Act, as at the time of the sale of the Securities the
undersigned falls within one or more of the following categories (Please initial
one or more, as applicable): 1

 

         (1) a bank as defined in Section 3(a)(2) of the Act, or a savings and
loan association or other institution as defined in Section 3(a)(5)(A) of the
Act whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in Section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for the benefit of its
employees, if such plan has total assets in excess of $5,000,000; an employee
benefit plan within the meaning of the Employee Retirement Income Security Act
of 1974, if the investment decision is made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
the investment decisions made solely by persons that are accredited investors;

 

         (2) a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;

 

         (3) an organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
Securities offered, with total assets in excess of $5,000,000;

 

         (4) a natural person whose individual net worth, or joint net worth
with that person’s spouse, at the time of such person’s purchase of the
Securities exceeds $1,000,000;

 

         (5) a natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person’s spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;

 

         (6) a trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
Regulation D; and

 

         (7) an entity in which all of the equity owners are accredited
investors (as defined above).

 

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this     
day of                     , 2004, and declares under oath that it is truthful
and correct.

 

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1 As used in this Questionnaire, the term “net worth” means the excess of total
assets over total liabilities. In computing net worth for the purpose of
subsection (4), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income, the investor should add to the investor’s adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, contributions to an IRA or KEOGH retirement
plan, alimony payments, and any amount by which income from long-term capital
gains has been reduced in arriving at adjusted gross income.

 

v

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

Print Name

By:

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

Signature

   

Title:

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

 

(required for any purchaser that is a corporation, partnership, trust or other
entity)

 

vi

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

EXHIBIT E

FORM OF OPINION

 

1. The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the failure to so qualify would have a Material Adverse Effect.

 

2. The Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the Shares
and the Warrants. The execution, delivery and performance of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly and validly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors is required. Each of the Transaction Documents
have been duly executed and delivered and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Shares are not
subject to any preemptive rights under the Certificate of Incorporation or the
Bylaws.

 

3. The Shares and the Warrants have been duly authorized and, the Shares when
delivered against payment in full as provided in the Purchase Agreement, will be
validly issued, fully paid and nonassessable. The shares of Common Stock
issuable upon exercise of the Warrants have been duly authorized and reserved
for issuance, and when delivered against payment in full as provided in the
Warrants, will be validly issued, fully paid and nonassessable.

 

4. The execution, delivery and performance of and compliance with the terms of
the Transaction Documents and the issuance of the Shares and the Warrants do not
(a) violate any provision of the Certificate of Incorporation or Bylaws, (b)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
mortgage, deed of trust, indenture, note, bond, license, lease agreement,
instrument or obligation to which the Company is a party and which is known to
us, (c) create or impose a lien, charge or encumbrance on any property of the
Company under any agreement or any commitment known to us to which the Company
is a party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (d) result in a violation of any Federal,
state, local or foreign statute, rule, regulation, order, judgment, injunction
or decree (including Federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected, except, in all cases other than violations pursuant to
clauses (a) and (d) above, for such conflicts, default, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect.

 

5. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the

 

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Transaction Documents, or the offer, sale or issuance of the Shares and the
Warrants other than filings as may be required by applicable Federal and state
securities laws and regulations and the Nasdaq rules and regulations.

 

6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto. There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.

 

7. The offer, issuance and sale of the Shares and the Warrants are exempt from
the registration requirements of the Securities Act of 1933, as amended.

 

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