Exhibit 10.14

 

 

 

SECURITIES PURCHASE AGREEMENT

 

 

Dated as of March 10, 2006

 

 

by and among

 

 

EMPIRE FINANCIAL HOLDING COMPANY

 

 

and

 

 

THE PURCHASERS LISTED ON EXHIBIT A

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TABLE OF CONTENTS

Page

ARTICLE I

Purchase and Sale of Units

1

 

Section 1.1

Purchase and Sale of Units.

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

13

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

17

 

Section 3.8

Use of Proceeds

17

 

Section 3.9

Reporting Status

17

 

Section 3.10

Disclosure of Transaction

17

 

Section 3.11

Disclosure of Material Information

17

 

Section 3.12

Form D

17

 

Section 3.13

No Integrated Offerings

17

 

Section 3.14

Pledge of Securities

18

 

Section 3.15

Application for Listing of Conversion Shares and Warrant Shares

18

 

Section 3.16

Delivery of Shares and Warrants

18

ARTICLE IV

Registration Rights

18

 

Section 4.1

Piggyback Registration

18

 

Section 4.2

Registration Procedures

18

 

Section 4.3

Furnish Information

20

 

Section 4.4

Registration Expenses

21

 

Section 4.5

Underwriting Requirements

21

 

Section 4.6

Delay of Registration

21

 

Section 4.7

Indemnification

21

 

Section 4.8

Permitted Transferees

22

 

Section 4.9

Termination of Registration Rights

23

 

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TABLE OF CONTENTS

Page

ARTICLE V

Conditions

23

 

Section 5.1

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

23

 

Section 5.2

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

24

ARTICLE VI

Certificate Legend

25

 

Section 6.1

Legend

25

ARTICLE VII

Indemnification

26

 

Section 7.1

General Indemnity.

26

 

Section 7.2

Indemnification Procedure

27

 

Section 7.3

Indemnification Unavailable

28

ARTICLE VIII

Miscellaneous

28

 

Section 8.1

Fees and Expenses

28

 

Section 8.2

Specific Performance; Consent to Jurisdiction; Venue.

28

 

Section 8.3

Entire Agreement; Amendment

29

 

Section 8.4

Notices

29

 

Section 8.5

Waivers

30

 

Section 8.6

Headings

30

 

Section 8.7

Successors and Assigns

30

 

Section 8.8

No Third Party Beneficiaries

30

 

Section 8.9

Governing Law

30

 

Section 8.10

Survival

30

 

Section 8.11

Counterparts

31

 

Section 8.12

Publicity

31

 

Section 8.13

Severability

31

 

Section 8.14

Further Assurances

31

 

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SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), is dated as of March 10,
2006 by and among Empire Financial Holding Company, a Florida corporation (the
“Company”), and the purchasers listed on Exhibit A hereto (each a “Purchaser”
and collectively, the “Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Rule 506 of Regulation D (“Regulation D”) promulgated
thereunder, the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
Units (the “Units”) of the Company with each Unit consisting of (a) two (2)
shares of Series F Cumulative Convertible Preferred Stock, par value $0.01 per
share (the “Preferred Stock”), in the form attached hereto as Exhibit B (the
“Shares”), and (b) one (1) Warrant to purchase shares of Common Stock, in
substantially the form attached hereto as Exhibit C (each a “Warrant” and
collectively, the “Warrants”), on the Closing Date as more fully described in
this Agreement.

 

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

 

ARTICLE I

 

PURCHASE AND SALE OF UNITS

 

Section 1.1       Purchase and Sale of Units. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase from the Company, up to 431,538 Units at a price per
Unit of $6.50 for an aggregate purchase price of up to $2,805,000 (the “Purchase
Price”). Each Purchaser shall invest a minimum of $50,000 provided that the
Company may accept investments of less than $50,000 in its sole discretion. Any
shares of the Company’s common stock, par value $0.01 per share (“Common Stock”)
issuable upon conversion of the Preferred Stock (and such shares when issued)
are herein referred to as the “Conversion Shares”. 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 Conversion Shares, the
Warrants and the Warrant Shares are sometimes collectively referred to herein as
the “Securities”.

 

Section 1.2       Purchase Price and Closing. In consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, 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 Units set forth
opposite their respective names on Exhibit A. The closing of the purchase and
sale of the Units to be acquired by the Purchasers from the Company under this
Agreement shall take place at the offices of Sichenzia Ross Friedman Ference
LLP, 1065 Avenue of the Americas, New York,

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New York 10018 (the “Closing”) at 10:00 a.m. on March 10, 2006 or at such time
and on such date as the Purchasers and the Company may agree upon (the “Closing
Date”“), provided, that all of the conditions set forth in Article V hereof and
applicable to the Closing shall have been fulfilled or waived in accordance
herewith. At the Closing, the Company shall deliver or cause to be delivered to
each Purchaser (a) a certificate registered in the name of the Purchaser
representing the number of Shares as is set forth opposite the name of such
Purchaser on Exhibit A, (b) a Warrant registered in the name of the Purchaser to
purchase such number of Warrant Shares as is set forth opposite the name of such
Purchaser on Exhibit A and (c) any other deliveries as required by Article V.
Each Purchaser understands that none of the Conversion Shares or the Warrant
Shares will be issued until they have been approved for listing by the American
Stock Exchange. At the Closing, each Purchaser shall deliver its portion of the
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 Florida 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 duly 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, results
of operations, prospects, assets or condition (financial or otherwise) of the
Company that is material and adverse to the Company and its subsidiaries and/or
any condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company from entering into and
performing any of its obligations under the Transaction Documents (as defined
below) in any material respect.

 

(b)          Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Preferred
Stock, the Warrants and the Escrow Agreement by and among the Company, the
Purchasers and the escrow agent, dated as of the date hereof, substantially in
the form of Exhibit D hereto (the “Escrow Agreement” and, together with the
Preferred Stock, the Warrants and this Agreement, the “Transaction Documents”)
and to issue and sell the Units in accordance with the terms hereof and to
complete the transactions contemplated by the Transaction Documents. The
execution,

2

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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 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 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, creditors’ rights and remedies or
by other equitable principles of general application.

(c)          Capitalization. The authorized capital stock of the Company as of
March 10, 2006 is set forth on Schedule 2.1(c) hereto. All of the outstanding
shares of Common Stock and any other outstanding securities of the Company have
been duly and validly authorized and validly issued, fully paid and
nonassessable and were issued in accordance with the registration or
qualification provisions of the Securities Act, or pursuant to valid exemptions
therefrom. 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, registration rights, rights of first refusal
or similar 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 for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. 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 Shares and Warrants. The Shares and 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, the
Shares and the Warrants will be validly issued, fully paid and nonassessable and
free and clear of all liens, encumbrances and rights of refusal of any kind.
When the Conversion Shares and Warrant Shares are issued and paid for in
accordance with the respective terms of the Conversion Shares and the Warrants,
such shares will be duly authorized by all necessary corporate action and
validly issued and outstanding, fully paid and nonassessable and free and clear
of all liens, encumbrances and rights of refusal of any kind 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 Articles of Incorporation (the “Articles”) 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

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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 is 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 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 Units
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).

(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, 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, including pursuant to Sections 13, 14 or 15(d)
thereof (all of the foregoing and all exhibits included therein and financial
statement and schedules thereto, including filings incorporated by reference
therein being referred to herein as the “Commission Documents”). At the times of
their respective filings, the Form 10-Q for the fiscal quarters ended March 31,
2005, June 30, 2005 and September 30, 2005 (collectively, the “Form 10-Q”) and
the Form 10-K for the fiscal year ended December 31, 2004 (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 the Form
10-Q and Form 10-K at the time of their respective filings 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 were complete and correct in all material respects and
complied 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
accounting principles generally accepted in the United States (“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).

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(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 50% 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 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 December 31, 2004, 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 December 31, 2004, 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 or which, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect. Since
December 31, 2004, except as disclosed in Commission Documents, none of the
Company or any of its Subsidiaries has participated in any transaction material
to the condition of the Company which is outside of the ordinary course of its
business.

 

(j)           No Undisclosed Events or Circumstances. Since December 31, 2004,
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, 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.

5

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(k)          Indebtedness. 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 $100,000 (other than trade accounts
payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of liabilities for
borrowed money 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 valid 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, 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 any 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.

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(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 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 has 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.

 

(q)          Disclosure. 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 contains any untrue statement of a material fact
or omits 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 the 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 which are necessary for the conduct of
its business as now conducted without any conflict or infringement with 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

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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.

 

(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 its
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 to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, (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 and (v) accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis. Except as set forth
on Schedule 2.1(t) hereto, there are no significant deficiencies or material
weaknesses in the design or operation of internal controls over financial
reporting that would reasonably be expected to adversely affect the Company’s
ability to record, process, summarize and report financial information, and
there is no fraud, whether or not material, that involves management or, to the
knowledge of the Company, other employees who have a significant role in the
Company’s internal controls and the Company has provided to the Purchaser copies
of any written materials relating to the foregoing.

 

(u)          Material Agreements. Except for the Transaction Documents (with
respect to clause (i) only) 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.

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(v)          Transactions with Affiliates. Except as set forth on Schedule
2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty
agreements, management contracts or arrangements or other continuing
transactions between (i) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (ii) 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. Based in material part upon the representations and
warranties of the Purchasers contained in Section 2.2 hereof, 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 Units 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 Units 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 Units under the
registration provisions of the Securities Act and applicable state securities
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) in connection with the
offer or sale of any of the Units.

 

(x)          Governmental Approvals. 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; Labor Relations. 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 December 31, 2004, 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. Except as could not reasonably be expected to
have a Material Adverse Effect, (i) neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice, (ii) there is no strike,
labor dispute, slowdown or stoppage pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries, and (iii) neither the
Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or contract.

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(z)          Absence of Certain Developments. Except as provided on Schedule
2.1(z) hereto, since December 31, 2004, 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 $100,000 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
$100,000 or paid any obligation or liability (absolute or contingent) in excess
of $100,000, 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;

 

(v)          sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, in each case in excess of $100,000, 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 $100,000, 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 $100,000;

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

 

 

(xi)

made charitable contributions or pledges in excess of $10,000;

(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 this Agreement and the issuance and sale of the Units
will not involve any transaction which is subject to the prohibitions of Section
406 of the Employee Retirement Income Security Act of 1974, as amended (“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(bb), 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)        Anti-takeover Device. Neither the Company nor any of its
Subsidiaries has any outstanding shareholder rights plan or “poison pill” or any
similar arrangement. There are no provisions of any anti-takeover or business
combination statute applicable to the Company, the Articles and the Bylaws which
would preclude the issuance and sale of the Shares and the consummation of the
other transactions contemplated by this Agreement or any of the other
Transaction Documents.

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(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 and the Company shall not be excused
from performance of its obligations to any Purchaser under the Transaction
Documents as a result of nonperformance or breach by any other Purchaser. The
Company acknowledges that the decision of each Purchaser to purchase Units
pursuant to this Agreement has been made by such Purchaser independently of any
other purchaser 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. The Company acknowledges that
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. The Company acknowledges that 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. The Company acknowledges that 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. The Company
acknowledges that it has elected to provide all Purchasers with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by the Purchasers. The Company acknowledges
that such procedure with respect to the Transaction Documents in no way creates
a presumption that the Purchasers are in any way acting in concert or as a group
with respect to the Transaction Documents or the transactions contemplated
hereby or thereby.

 

(ee)        No Integrated Offering. 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 Units
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 Units 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 Units to be integrated with other
offerings if such other offering, if integrated, would cause the offer and sale
of the Units not to be exempt from registration pursuant to Regulation D and
Rule 506 thereof under the Securities Act. The Company does not have any
registration statement pending before the Commission or currently under the
Commission’s review and, except as disclosed in Schedule 2.1(z), since August
31, 2005, the Company has not offered or sold any of its equity securities or
debt securities convertible into shares of Common Stock.

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(ff)         Sarbanes-Oxley Act. The Company is in 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
and for which compliance by the Company is required as of the date hereof and
intends to comply with other applicable provisions of the Sarbanes-Oxley Act,
and the rules and regulations promulgated thereunder, upon the effectiveness of
such provisions or the date by which compliance therewith by the Company is
required.

 

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. Such Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Units being sold to it hereunder. The execution, delivery and performance of
the Transaction Documents by such Purchaser and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate, partnership or other action, and no further consent or authorization
of such Purchaser or its Board of Directors, stockholders, partners or members,
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 such 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 such Purchaser and the consummation by such Purchaser
of the transactions contemplated thereby and hereby do not and will not (i)
violate any provision of such 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 such Purchaser is a party or by
which such 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 such Purchaser or by which any property or
asset of such 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, for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, materially and adversely affect such Purchaser’s ability to perform
its obligations under the Transaction Documents.

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(d)          Acquisition for Investment. Such Purchaser is purchasing the
Securities solely for its own account and not with a view to or for sale in
connection with distribution. Such Purchaser does not have a present intention
to sell any of the Securities nor a present arrangement (whether or not legally
binding) or intention to effect any distribution of any of the Securities, to or
through any person or entity; provided, however, that by making the
representations herein, such Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with federal and state securities laws
applicable to such disposition. Such 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. Such Purchaser understands that the Securities must be
held indefinitely unless such Securities are registered under the Securities Act
or an exemption from registration is available. Such 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. Such 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. Such 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. Such 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. Such 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. Such Purchaser, in making the decision to purchase the
Securities, has relied upon independent investigation made by it and the
representations, warranties and agreements set forth in the Transaction
Documents and has not relied on any information or representations made by third
parties.

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(h)          Accredited Investor. Such 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. Such Purchaser acknowledges that an investment
in the Securities is speculative and involves a high degree of risk. Such
Purchaser has completed or caused to be completed the Investor Questionnaire
Certification attached hereto as Exhibit E certifying as to its status as an
“accredited investor” and understands that the Company is relying upon the truth
and accuracy of such information 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.

 

(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.

 

(k)          Short Sales. Each Purchaser covenants that neither it nor any
affiliates acting on its behalf or pursuant to any understanding with it will
execute any Short Sales (as defined below) during the period after the date that
such Purchaser first received a term sheet from the Company or any other person
or entity setting forth the material terms of the transactions contemplated
hereunder until the date that the transactions contemplated by this Agreement
are first publicly announced as described in Section 3.10. For purposes hereof,
“Short Sales” shall include all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act.

 

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 Shares to the
Purchasers, or their respective subsequent holders.

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Section 3.2       Registration and Listing. The Company shall 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. The Company will take all action
necessary to continue the listing or trading of its Common Stock on the American
Stock Exchange (“AMEX”) or any successor market. Subject to the terms of the
Transaction Documents, the Company further covenants that it will take such
further action as the Purchasers may reasonably request, all to the extent
required from time to time to enable the Purchasers to sell the Conversion
Shares and Warrant Shares without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act. Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to
whether it has complied with such requirements.

 

Section 3.3       Inspection Rights. 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 Units or shall beneficially own any
Conversion Shares or Warrant Shares, for purposes reasonably related to such
Purchaser’s interests as a stockholder to examine and make reasonable copies of
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 shall
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 and shall cause each Subsidiary to 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.

 

Section 3.6        Reporting Requirements. If the Company ceases to file its
periodic reports with the Commission, or if the Commission ceases making these
periodic reports available via the Internet without charge, then the Company
shall, promptly after filing with the Commission, furnish the following to each
Purchaser so long as such Purchaser shall be obligated hereunder to purchase the
Units or shall beneficially own Conversion Shares or Warrant Shares:

 

 

(a)

Quarterly Reports filed with the Commission on Form 10-Q;

 

 

(b)

Annual Reports filed with the Commission on Form 10-K; 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.

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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 of the Company or any Subsidiary to perform its obligations
under any Transaction Document.

 

Section 3.8        Use of Proceeds. The net proceeds from the sale of the Units
will be used by the Company only for working capital and general corporate
purposes.

 

Section 3.9        Reporting Status. 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 Exchange Act or the rules and regulations thereunder
would permit such termination.

 

Section 3.10      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 but in no event
later than twenty-four hours after the Closing; provided, however, that if the
Closing occurs after 4:00 P.M. Eastern Time on any Trading Day, 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 Certificate of Designation of the Preferred Stock as
attached hereto as Exhibit B, the Form of Warrant as attached hereto as Exhibit
C and the Escrow Agreement) as soon as practicable following such Closing Date
but in no event more than two (2) Trading Days following such Closing Date,
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 AMEX (or other
principal exchange on which the Common Stock is traded) shall be open for
trading.

 

Section 3.11     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 3.12      Form D. The Company agrees to file a Form D with respect to
the Units as required by Rule 506 under Regulation D and to provide a copy
thereof to the Purchasers promptly after such filing.

 

Section 3.13      No Integrated Offerings. The Company shall not make any offers
or sales of any security (other than the Units being offered or sold hereunder)
under circumstances that would require registration of the Units being offered
or sold hereunder under the Securities Act.

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Section 3.14      Pledge of Securities. The Company acknowledges and agrees that
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
Securities. The pledge of the Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Purchaser effecting a
pledge of the Securities shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this
Agreement or any other Transaction Document; provided that a Purchaser and its
pledgee shall be required to comply with the provisions of Article VI hereof in
order to effect a sale, transfer or assignment of the Securities to such
pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and
deliver such documentation as a pledgee of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by a Purchaser.

 

Section 3.15       Additional Listing of Conversion Shares and Warrant Shares.
Promptly after Closing the Company shall file an additional listing application
for the Conversion Shares and the Warrant Shares to be listed on AMEX and
provide a copy thereof to the Purchasers promptly after such filing. Upon AMEX
providing the Company notice approving the Conversion Shares and the Warrant
Shares for listing on AMEX the Company shall promptly provide a copy of such
notice to the Purchasers.

 

Section 3.16     Delivery of Shares and Warrants. Within five (5) business days
after the Closing Date, the Company shall deliver to the Purchasers certificates
representing the Shares and Warrants being acquired by the Purchasers at the
Closing.

 

ARTICLE IV

 

REGISTRATION RIGHTS

 

Section 4.1        Piggyback Registration. The Company agrees that if, at any
time, and from time to time, after the Closing, the Board of Directors of the
Company shall authorize the filing of a registration statement (the
“Registration Statement”) under the Securities Act (other than on Form S-4 or
Form S-8 or their then equivalent forms relating to equity securities to be
issued solely in connection with an acquisition of any entity or business or
equity securities issuable in connection with employee benefit plans) in
connection with the proposed offer of any of its securities by it or any of its
stockholders, the Company shall: (i) promptly notify the Purchaser that the
Registration Statement will be filed and that the Conversion Shares and the
Warrant Shares (the “Registrable Securities”) then held by the Purchaser will be
included in the Registration Statement; and (ii) cause the Registration
statement to cover the resale of all of the Registrable Securities.

 

Section 4.2        Registration Procedures. Whenever required under this Article
IV to include Registrable Securities in a Registration Statement, the Company
shall, as expeditiously as reasonably possible:

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(a)          Use its best efforts to (i) cause the Registration Statement to
become effective, and (ii) cause the Registration Statement to remain effective
until the earliest to occur of (A) such date as the sellers of Registrable
Securities (the “Selling Shareholders”) have completed the distribution
described in the Registration Statement and (B) such time that all of the
Registrable Securities are no longer, by reason of Rule 144(k) under the
Securities Act, required to be registered for the sale thereof by such Selling
Shareholders. The Company will also use its best efforts to, during the period
that the Registration Statement is required to be maintained hereunder, file
such post-effective amendments and supplements thereto as may be required by the
Securities Act and the rules and regulations thereunder or otherwise to ensure
that the Registration Statement does not contain any untrue statement of
material fact or omit to state a fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they are made, not misleading; provided, however, that if applicable rules
under the Securities Act governing the obligation to file a post-effective
amendment permits, in lieu of filing a post-effective amendment that (i)
includes any prospectus required by Section 10(a)(3) of the Securities Act or
(ii) reflects facts or events representing a material or fundamental change in
the information set forth in the Registration Statement, the Company may
incorporate by reference information required to be included in (i) and (ii)
above to the extent such information is contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the Registration
Statement.

 

(b)          Prepare and file with the Commission such amendments and
supplements to the Registration Statement, and the prospectus used in connection
with the Registration Statement, as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement.

 

(c)          Furnish to the Selling Shareholders such numbers of copies of a
prospectus, including a preliminary prospectus as amended or supplemented from
time to time, in conformity with the requirements of the Securities Act, and
such other documents as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.

 

(d)          Use best efforts to register and qualify the securities covered by
the Registration Statement under such other federal or state securities laws of
such jurisdictions as shall be reasonably requested by the Selling Shareholders.

 

(e)          In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Selling Shareholder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

 

(f)           Notify each Selling Shareholder at any time (i) when the
Registration Statement or any post-effective amendment and supplement thereto
has become effective; (ii) of the issuance by the Commission of any stop order
or the initiation of proceedings for that purpose (in which event the Company
shall make every effort to obtain the withdrawal of any order suspending
effectiveness of the Registration Statement at the earliest possible time or
prevent the entry thereof); (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the

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initiation of any proceeding for such purpose; and (iv) of the happening of any
event as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.

 

(g)          Cooperate with the Selling Shareholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing the Registrable Securities to be sold, which
certificates will not bear any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters, if any, shall request at least two business days prior to
any sale of the Registrable Securities to the underwriters.

 

(h)          In connection with an underwritten offering, cause the officers of
the Company to provide reasonable assistance in the preparation of any “road
show” presentation to potential investors as the managing underwriter may
determine.

 

(i)           Comply with all applicable rules and regulations of the Commission
and make generally available to its security holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 50 calendar days after the end of any 3-month period (or 105 calendar days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts underwritten offering,
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company, after the effective date
of a Registration Statement, which statements shall cover said period.

 

(j)           If the offering is underwritten and at the request of any Selling
Shareholder, use its best efforts to furnish on the date that Registrable
Securities are delivered to the underwriters for sale pursuant to such
registration: (i) opinions dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and the
transfer agent for the Registrable Securities so delivered, respectively, to the
effect that such Registration Statement has become effective under the
Securities Act and such Registrable Securities are freely tradable, and covering
such other matters as are customarily covered in opinions of issuer’s counsel
delivered to underwriters and transfer agents in underwritten public offerings
and (ii) a letter dated such date from the independent public accountants who
have certified the financial statements of the Company included in the
Registration Statement or the prospectus, covering such matters as are
customarily covered in accountants’ letters delivered to underwriters in
underwritten public offerings.

 

Section 4.3       Furnish Information. It shall be a condition precedent to the
obligation of the Company to take any action pursuant to this Article IV with
respect to the Registrable Securities of any Selling Shareholder that such
Selling Shareholder shall furnish to the Company such information regarding the
Selling Shareholder, the Registrable Securities held by the Selling Shareholder,
and the intended method of disposition of such securities as shall be reasonably
required by the Company to effect the registration of such Selling Shareholder’s
Registrable Securities.

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Section 4.4      Registration Expenses. The Company shall bear and pay all
Registration Expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to registrations pursuant
to Section 4.1 for each Purchaser, but excluding underwriting discounts and
commissions relating to Registrable Securities and excluding any professional
fees or costs of accounting, financial or legal advisors to any of the
Purchasers.

 

Section 4.5      Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company’s capital stock, the Company
shall not be required under Section 4.1 to include any of the Purchaser’s
Registrable Securities in such underwriting unless the Purchaser accepts the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders). For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder who is a
holder of Registrable Securities and is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single “selling
shareholder,” and any pro-rata reduction with respect to such “selling
shareholder” shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
“selling shareholder,” as defined in this sentence.

 

Section 4.6        Delay of Registration. No Purchaser shall have any right to
obtain or seek an injunction restraining or otherwise delaying any Registration
Statement as the result of any controversy that might arise with respect to the
interpretation or implementation of this Article.

 

Section 4.7        Indemnification. In the event that any Registrable Securities
are included in a Registration Statement under this Article IV:

 

(a)          To the extent permitted by law, the Company will indemnify and hold
harmless each Purchaser, any underwriter (as defined in the Securities Act) for
such Purchaser and each person, if any, who controls such Purchaser or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or

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several) to which they may become subject under the Securities Act, or the
Exchange Act, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a “Violation”): (i) any untrue
statement of a material fact contained in such Registration Statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission to state therein a material
fact required to be stated therein, or necessary to make the statements therein
not misleading, or (iii) any violation by the Company of the Securities Act, the
Exchange Act, or any rule or regulation promulgated under the Securities Act, or
the Exchange Act, and the Company will pay to each such Purchaser, underwriter
or controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 4.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Purchaser, underwriter or controlling person.

 

(b)          To the extent permitted by law, each Purchaser will indemnify and
hold harmless the Company, each of its directors, each of its officers, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter, any other Purchaser selling securities in such
Registration Statement and any controlling person of any such underwriter or
other Purchaser, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, or the Exchange Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Purchaser expressly for use in connection with such
registration; and each such Purchaser will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this Section 4.7(b), in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 4.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Purchaser, which consent shall
not be unreasonably withheld; provided, further, that, in no event shall any
indemnity under this Section 4.7(b) exceed the greater of the cash value of the
(i) gross proceeds from the sale of Securities received by such Purchaser or
(ii) the portion of the Purchase Price of such Purchaser pursuant to this
Agreement as set forth in Exhibit A hereto.

 

(c)          Notwithstanding the foregoing and the indemnification procedures
pursuant to Article VII, to the extent that the provisions on indemnification
and contribution contained in an underwriting agreement entered into in
connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in such underwriting agreement shall
control.

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Section 4.8        Permitted Transferees. The rights to cause the Company to
register Registrable Securities granted to the Purchasers by the Company under
this Article IV may be assigned in full by a Purchaser in connection with a
transfer by such Purchaser of its Registrable Securities if: (a) such Purchaser
gives prior written notice to the Company; (b) such transferee agrees to comply
with the terms and provisions of this Agreement; (c) such transfer is otherwise
in compliance with this Agreement; and (d) such transfer is otherwise effected
in accordance with applicable securities laws. Except as specifically permitted
by this Section 4.8, the rights of a Purchaser with respect to Registrable
Securities as set out herein shall not be transferable to any other Person, and
any attempted transfer shall cause all rights of such Purchaser therein to be
forfeited.

 

Section 4.9        Termination of Registration Rights. The right of any
Purchaser to request inclusion in any registration pursuant to Section 4.1 shall
terminate if all shares of Registrable Securities held by such Purchaser may
immediately be sold under Rule 144(k).

 

ARTICLE V

 

CONDITIONS

 

Section 5.1        Conditions Precedent to the Obligation of the Company to
Close and to Sell the Units. The obligation hereunder of the Company to close
and issue and sell the Units to the Purchasers on 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 such Purchaser at or prior to the Closing Date.

 

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

 

(d)          Delivery of Purchase Price. The Purchasers shall have delivered to
the Company the Purchase Price for the Units to be purchased by each Purchaser.

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

 

(f)           Escrow Agreement. The Escrow Agreement shall have been executed
and delivered by the Purchasers and the escrow agent to the Company.

 

Section 5.2        Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Units. The obligation hereunder of each Purchaser to
purchase the Units and consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, on or before the Closing
Date, of each of the conditions set forth below. These conditions are for the
Purchaser’s sole benefit and may be waived by the Purchaser at any time in its
sole discretion.

 

(a)          Accuracy of the Company’s Representations and Warranties. The
representations and warranties of the Company 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 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.

 

(c)          No Suspension, Etc. Trading in the Common Stock shall not have been
suspended by the Commission or AMEX (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, 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.

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(f)           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 Articles, (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.

 

(g)          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 such Closing Date, confirming the accuracy of
the Company’s representations, warranties and its compliance with covenants as
of the Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in paragraphs (b)-(e) and (h) of this Section 5.2
as of the Closing Date (provided that, with respect to the matters in paragraphs
(d) and (e) of this Section 5.2 and such confirmation shall be based on the
knowledge of the executive officer after due inquiry).

 

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

 

(i)           Deliver of Agreements. As of the Closing Date, the Company shall
have executed and delivered this Agreement to the Purchasers and the Company and
the escrow agent shall have executed and delivered the Escrow Agreement to the
Purchasers.

 

ARTICLE VI

 

CERTIFICATE LEGEND

 

Section 6.1  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 EMPIRE FINANCIAL HOLDING COMPANY SHALL HAVE RECEIVED AN
OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT
AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

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The Company agrees to reissue certificates representing any of the Conversion
Shares or Warrant Shares, without the legend set forth above if at such time,
prior to making any transfer of any such Conversion 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
Conversion 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 and remains 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 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 6.1, 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, or (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. The restrictions on transfer contained in this Section 6.1 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 Conversion Shares or Warrant Shares is required to be issued to
a Purchaser without a legend, in lieu of delivering physical certificates
representing the Conversion 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 reasonable best
efforts to cause its transfer agent to electronically transmit the Conversion
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 system (to the extent not inconsistent with any provisions of this
Agreement).

 

ARTICLE VII

 

INDEMNIFICATION

 

Section 7.1        General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their 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) incurred by
the Purchasers and their directors, officers, affiliates, agents, successors and
assigns as a result of any inaccuracy in or breach of the representations,
warranties or covenants made by the Company herein. Each Purchaser severally but
not jointly agrees to indemnify and hold harmless the Company and its 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)
incurred by the Company and its directors, officers, affiliates, agents,
successors and assigns as a direct result of any inaccuracy in or breach of the
representations, warranties or covenants made by such Purchaser herein. The
maximum aggregate liability of each Purchaser pursuant to its indemnification
obligations under this Article VII shall not exceed the portion of the Purchase
Price paid by such Purchaser hereunder.

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Section 7.2        Indemnification Procedure. Any party entitled to
indemnification pursuant to Section 4.7 and/or this Article VII (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
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under Section 4.7 or this Article VII
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 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 which
consent shall not be unreasonably withheld. Notwithstanding anything in Section
4.7 or this Article VII 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 Section 4.7 and this Article VII 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.

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Section 7.3        Indemnification Unavailable. If the indemnification provided
for in Section 4.7 and/or this Article VII is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss,
liability, claim, damage, or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties’ relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1        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 that the Company
shall pay all actual attorneys’ fees and expenses (including disbursements and
out-of-pocket expenses) up to a maximum of $15,000 for one counsel to the
Purchasers incurred by the Purchasers in connection with (a) the preparation,
negotiation, execution and delivery of this Agreement and the other Transaction
Documents and the transactions contemplated thereunder, which payment shall be
made at Closing, and (b) any amendments, modifications or waivers of this
Agreement or any of the other Transaction Documents. In addition, the Company
shall pay all reasonable fees and expenses incurred by the Purchasers in
connection with the enforcement of this Agreement or any of the other
Transaction Documents, including, without limitation, all reasonable attorneys’
fees and expenses.

 

 

Section 8.2

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 are not performed in accordance
with their specific terms or are 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.

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(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 8.2 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 8.3     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.
Following the Closing, 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 8.3 shall be
binding upon each Purchaser (and their permitted assigns) and the Company.

 

Section 8.4     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 such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:

 

If to the Company:

Donald A. Wojnowski Jr.

c/o Empire Financial Holding Company

2170 West State Road 434, Suite 100

Longwood, Florida 32779

 

Tel. No.: (407) 774-1300

Fax No.: (___) ___-____

 

with copies to:

______________________________

______________________________

______________________________

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Tel. No.: (___) ___-____

Fax No.: (___) ___-____

 

If to any Purchaser:

At the address of such Purchaser set forth on Exhibit A to this Agreement.

 

with copies to (which shall not constitute notice):

 

Sichenzia Ross Friedman Ference LLP

1065 Avenue of the Americas

New York, NY 10018

Attention: Marc J. Ross

Tel No.: (212) 930-9700

Fax No.: (212) 930-9725

 

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

 

Section 8.5        Waivers. No waiver by any 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 8.6       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 8.7        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
Sections 4.8 and 6.1 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.

 

Section 8.8        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 8.9      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 any of the conflicts of law principles which would result in
the application of the substantive law of another jurisdiction. This Agreement
shall not be interpreted or construed with any presumption against the party
causing this Agreement to be drafted.

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Section 8.10      Survival. The representations and warranties of the Company
and the Purchasers shall survive the execution and delivery hereof and the
Closing until the third anniversary of the Closing Date except the agreements
and covenants set forth in Articles I, III, VI, VII and VIII of this Agreement
shall survive the execution and delivery hereof and the Closing.

 

Section 8.11      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 8.12     Publicity. Except as discussed in the Registration Statement,
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 8.13      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 8.14     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.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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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.

 

EMPIRE FINANCIAL HOLDING COMPANY

 

By: _____________________________________

 

Name:

 

Title:

 

 

 

PURCHASER:

 

By: _____________________________________

 

Name:

 

Title:

 

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EXHIBIT A

LIST OF PURCHASERS

 

Names and Addresses

Number of Shares and

of Purchasers

Warrants Purchased

 

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EXHIBIT B

CERTIFICATE OF DESIGNATION OF

SERIES F 4% CUMULATIVE CONVERTIBLE PREFERRED STOCK

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EXHIBIT C

FORM OF WARRANT

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EXHIBIT D

ESCROW AGREEMENT

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EXHIBIT E

INVESTOR QUESTIONNAIRE CERTIFICATION

 

EMPIRE FINANCIAL HOLDING COMPANY

INVESTOR QUESTIONNAIRE

(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)

 

To:

Empire Financial Holding Company

 

This Investor Questionnaire (“Questionnaire”) must be completed by each
potential investor in connection with the offer and sale of the shares of
restricted common stock and warrants to purchase shares of common stock of
Empire Financial Holding Company (the “Securities”). The Securities are being
offered and sold by Empire Financial Holding Company (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: ________________________________________________________________________

 

Address of Principal Residence (or Principal Place of Business if investor is an
entity):

 

____________________________________________________________________________

(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._________________________________________

 

B.

STATUS AS ACCREDITED INVESTOR

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The undersigned is an “accredited investor” as such term is defined in
Regulation D under the Act, and at the time of the offer and sale of the
Securities the undersigned falls and will fall 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 __________, 2006, and declares under oath that it is truthful and
correct.

 

__________________________________________

Print Name

By: ______________________________________

Signature

Title: _____________________________________

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

 

_______________

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.

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