Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of
November 30, 2005, among Geokinetics Inc., a Delaware corporation (the
“Company”), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 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, securities of the Company as more fully
described in this Agreement.

 

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

 

ARTICLE I.
DEFINITIONS

 

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

 

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

 

“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 144 under the
Securities Act.  With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

 

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

 

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

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $.01 per share,
and any other class of securities into which such securities may hereafter have
been reclassified or changed into.

 

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common

 

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Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company Counsel” means Chamberlain, Hrdlicka, White, Williams & Martin.

 

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

 

“Effective Date” means the date that the initial Registration Statement filed by
the Company pursuant to the Registration Rights Agreement is first declared
effective by the Commission.

 

“Escrow Agent” means FW.

 

“Escrow Agreement” shall mean the Escrow Agreement, dated November     , 2005,
by and among the Company, each Purchaser and the Escrow Agent pursuant to which
the Purchasers will deposit their respective Subscription Amounts and
Transaction Document signature pages with the Escrow Agent to be applied to the
transactions contemplated hereunder.

 

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

 

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

 

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (b) securities issued
hereunder of the first or second closings and upon the exercise or exchange of
or conversion of any Securities issued hereunder and/or securities exercisable
or exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of any such
securities, and (c) securities issued pursuant to acquisitions or strategic
transactions, provided any such issuance shall only be to a Person (or an equity
owner of a Person) which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities.

 

“FW” means Feldman Weinstein LLP with offices located at 420 Lexington Avenue,
Suite 2620, New York, New York 10170-0002.

 

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

 

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

 

“Legend Removal Date” shall have the meaning ascribed to such term in
Section 4.1(c).

 

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

 

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

 

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

 

“Per Share Purchase Price” equals $1.25, subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement and
prior to the Closing.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Securities” means the Shares, the Warrants and the Warrant Shares.

 

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“Securities Act” means the Securities Act of 1933, as amended.

 

“Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.

 

“Short Sales” shall include all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act. 

 

 “Subscription Amount” means, as to each Purchaser, the aggregate amount to be
paid for Shares and Warrants purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement and next to the heading
“Subscription Amount”, in United States Dollars and in immediately available
funds.

 

“Subsidiary” means any subsidiary of the Company as set forth on
Schedule 3.1(a).

 

“Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

 

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq
Capital Market, the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the OTC Bulletin Board.

 

“Transaction Documents” means this Agreement, the Warrants, the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

 

“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b)  if the Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Purchasers and
reasonably acceptable to the Company.

 

“Warrants” means collectively the Common Stock purchase warrants, in the form of
Exhibit C delivered to the Purchasers at the Closing in accordance with
Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have
a term of exercise equal to five years.

 

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

 

ARTICLE II.
PURCHASE AND SALE

 

2.1                                 Closing.

 

(A)                                  FIRST CLOSING.  ON THE FIRST CLOSING DATE,
UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH HEREIN, CONCURRENT WITH
THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY THE PARTIES HERETO, THE COMPANY
AGREES TO SELL, AND EACH PURCHASER AGREES TO PURCHASE IN THE AGGREGATE,
SEVERALLY AND NOT JOINTLY, NOT LESS THAN $25,000,000 OF SHARES AND WARRANTS. 
EACH PURCHASER SHALL DELIVER TO THE ESCROW AGENT VIA WIRE TRANSFER OR A
CERTIFIED CHECK IMMEDIATELY AVAILABLE FUNDS EQUAL TO THEIR SUBSCRIPTION AMOUNT
AND THE COMPANY SHALL DELIVER TO THE ESCROW AGENT FOR DELIVERY TO EACH PURCHASER
THEIR RESPECTIVE SHARES AND WARRANTS AS DETERMINED PURSUANT TO
SECTION 2.2(A) AND THE OTHER ITEMS SET FORTH IN SECTION 2.2 ISSUABLE AT THE
FIRST CLOSING.  UPON SATISFACTION OF THE CONDITIONS SET FORTH IN SECTIONS 2.2
AND 2.3, THE FIRST CLOSING SHALL OCCUR AT THE OFFICES OF FW, OR SUCH OTHER
LOCATION AS THE PARTIES SHALL MUTUALLY AGREE.

 

(B)                                 SECOND CLOSING.  ON THE SECOND CLOSING DATE,
WHICH SHALL BE HELD ON A DATE AGREED BY THE PURCHASERS IN THE SECOND CLOSING AND
THE COMPANY BUT NOT LATER THAN DECEMBER 9, 2005, UPON THE TERMS AND SUBJECT TO
THE CONDITIONS SET FORTH HEREIN, CONCURRENT WITH THE EXECUTION AND DELIVERY OF
THIS AGREEMENT BY THE PARTIES HERETO WHO ARE PURCHASING SECURITIES IN THE SECOND
CLOSING, THE COMPANY AGREES TO SELL, AND EACH PURCHASER AGREES TO PURCHASE IN
THE AGGREGATE, SEVERALLY AND NOT JOINTLY, THAT NUMBER OF SHARES AND WARRANTS AS
ARE SET FORTH ON THE PURCHASERS’ SIGNATURE PAGES HERETO, BUT THE AGGREGATE
SUBSCRIPTION AMOUNTS AT THE SECOND CLOSING SHALL NOT EXCEED THE DIFFERENCE
BETWEEN $32,000,000 AND THE AGGREGATE SUBSCRIPTION AMOUNT WHICH IS SOLD BY THE
COMPANY AT THE FIRST CLOSING.  EACH PURCHASER IN THE SECOND CLOSING SHALL
DELIVER TO THE ESCROW AGENT VIA WIRE TRANSFER OR A CERTIFIED CHECK IMMEDIATELY
AVAILABLE FUNDS EQUAL TO THEIR SUBSCRIPTION AMOUNT AND THE COMPANY SHALL DELIVER
TO THE ESCROW AGENT FOR DELIVERY TO EACH PURCHASER THEIR RESPECTIVE SHARES AND
WARRANTS AS DETERMINED PURSUANT TO SECTION 2.2(A) AND THE OTHER ITEMS SET FORTH
IN SECTION 2.2 ISSUABLE AT THE SECOND CLOSING.  UPON SATISFACTION OF THE
CONDITIONS SET FORTH IN SECTIONS 2.2 AND 2.3, THE SECOND CLOSING SHALL OCCUR AT
THE OFFICES OF FW, OR SUCH OTHER LOCATION AS THE PARTIES SHALL MUTUALLY AGREE.

 

2.2                                 Deliveries.

 

(A)                                  ON EACH APPLICABLE CLOSING DATE, THE
COMPANY SHALL DELIVER OR CAUSE TO BE DELIVERED TO EACH APPLICABLE PURCHASER BY
THE ESCROW AGENT THE FOLLOWING:

 

(I)                                     THIS AGREEMENT DULY EXECUTED BY THE
COMPANY;

 

(II)                                  A LEGAL OPINION OF COMPANY COUNSEL, IN THE
FORM OF EXHIBIT B ATTACHED HERETO;

 

(III)                               A COPY OF THE IRREVOCABLE INSTRUCTIONS TO
THE COMPANY’S TRANSFER AGENT INSTRUCTING THE TRANSFER AGENT TO DELIVER, ON AN
EXPEDITED BASIS, A CERTIFICATE

 

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EVIDENCING A NUMBER OF SHARES EQUAL TO SUCH PURCHASER’S SUBSCRIPTION AMOUNT
DIVIDED BY THE PER SHARE PURCHASE PRICE, REGISTERED IN THE NAME OF SUCH
PURCHASER;

 

(IV)                              A WARRANT REGISTERED IN THE NAME OF SUCH
PURCHASER TO PURCHASE UP TO A NUMBER OF SHARES OF COMMON STOCK EQUAL TO 10% OF
SUCH PURCHASER’S SUBSCRIPTION AMOUNT DIVIDED BY 1.25, WITH AN EXERCISE PRICE
EQUAL TO $2.00, SUBJECT TO ADJUSTMENT AS PROVIDED THEREIN;

 

(V)                                 THE ESCROW AGREEMENT DULY EXECUTED BY THE
COMPANY; AND

 

(VI)                              THE REGISTRATION RIGHTS AGREEMENT DULY
EXECUTED BY THE COMPANY.

 

(B)                                 ON THE APPLICABLE CLOSING DATE, EACH
PURCHASER SHALL DELIVER OR CAUSE TO BE DELIVERED TO THE COMPANY BY THE ESCROW
AGENT THE FOLLOWING:

 

(I)                                     THIS AGREEMENT DULY EXECUTED BY SUCH
PURCHASER;

 

(II)                                  SUCH PURCHASER’S SUBSCRIPTION AMOUNT BY
WIRE TRANSFER TO THE ACCOUNT AS SPECIFIED IN THE ESCROW AGREEMENT;

 

(III)                               THE ESCROW AGREEMENT DULY EXECUTED BY THE
PURCHASER; AND

 

(IV)                              THE REGISTRATION RIGHTS AGREEMENT DULY
EXECUTED BY SUCH PURCHASER.

 

2.3                                 Closing Conditions.

 

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

 

(I)                                     THE ACCURACY IN ALL MATERIAL RESPECTS
WHEN MADE AND ON THE APPLICABLE CLOSING DATE OF THE REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS CONTAINED HEREIN;

 

(II)                                  ALL OBLIGATIONS, COVENANTS AND AGREEMENTS
OF THE PURCHASERS REQUIRED TO BE PERFORMED AT OR PRIOR TO THE APPLICABLE CLOSING
DATE SHALL HAVE BEEN PERFORMED; AND

 

(III)                               THE DELIVERY BY THE PURCHASERS OF THE ITEMS
SET FORTH IN SECTION 2.2(B) OF THIS AGREEMENT.

 

(B)                                 THE RESPECTIVE OBLIGATIONS OF THE PURCHASERS
HEREUNDER IN CONNECTION WITH THE APPLICABLE CLOSING ARE SUBJECT TO THE FOLLOWING
CONDITIONS BEING MET:

 

(I)                                     THE ACCURACY IN ALL MATERIAL RESPECTS ON
THE APPLICABLE CLOSING DATE OF THE REPRESENTATIONS AND WARRANTIES OF THE COMPANY
CONTAINED HEREIN;

 

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(II)                                  ALL OBLIGATIONS, COVENANTS AND AGREEMENTS
OF THE COMPANY REQUIRED TO BE PERFORMED AT OR PRIOR TO THE APPLICABLE CLOSING
DATE SHALL HAVE BEEN PERFORMED;

 

(III)                               THE DELIVERY BY THE COMPANY OF THE ITEMS SET
FORTH IN SECTION 2.2(A) OF THIS AGREEMENT;

 

(IV)                              THERE SHALL HAVE BEEN NO MATERIAL ADVERSE
EFFECT WITH RESPECT TO THE COMPANY SINCE THE DATE HEREOF;

 

(V)                                 THE TRACE ACQUISITION SHALL HAVE CLOSED BUT
FOR PAYMENT OF THE PURCHASE PRICE THEREOF FROM THE ESCROW ACCOUNT (AS DEFINED IN
THE ESCROW AGREEMENT)(AS TO THE FIRST CLOSING ONLY); AND

 

(VI)                              FROM THE DATE HEREOF TO THE APPLICABLE CLOSING
DATE, TRADING IN THE COMMON STOCK SHALL NOT HAVE BEEN SUSPENDED BY THE
COMMISSION (EXCEPT FOR ANY SUSPENSION OF TRADING OF LIMITED DURATION AGREED TO
BY THE COMPANY, WHICH SUSPENSION SHALL BE TERMINATED PRIOR TO THE APPLICABLE
CLOSING), AND, AT ANY TIME PRIOR TO THE APPLICABLE CLOSING DATE, TRADING IN
SECURITIES GENERALLY AS REPORTED BY BLOOMBERG FINANCIAL MARKETS SHALL NOT HAVE
BEEN SUSPENDED OR LIMITED, OR MINIMUM PRICES SHALL NOT HAVE BEEN ESTABLISHED ON
SECURITIES WHOSE TRADES ARE REPORTED BY SUCH SERVICE, OR ON ANY TRADING MARKET,
NOR SHALL A BANKING MORATORIUM HAVE BEEN DECLARED EITHER BY THE UNITED STATES OR
NEW YORK STATE AUTHORITIES NOR SHALL THERE HAVE OCCURRED ANY MATERIAL OUTBREAK
OR ESCALATION OF HOSTILITIES OR OTHER NATIONAL OR INTERNATIONAL CALAMITY OF SUCH
MAGNITUDE IN ITS EFFECT ON, OR ANY MATERIAL ADVERSE CHANGE IN, ANY FINANCIAL
MARKET WHICH, IN EACH CASE, IN THE REASONABLE JUDGMENT OF EACH PURCHASER, MAKES
IT IMPRACTICABLE OR INADVISABLE TO PURCHASE THE SHARES AND WARRANTS AT THE
APPLICABLE CLOSING.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1                                 Representations and Warranties of the
Company.  Except as set forth under the corresponding section of the Disclosure
Schedules which Disclosure Schedules shall be deemed a part hereof, the Company
hereby makes the representations and warranties set forth below to each
Purchaser:

 

(A)                                  SUBSIDIARIES.  ALL OF THE DIRECT AND
INDIRECT SUBSIDIARIES OF THE COMPANY ARE SET FORTH ON SCHEDULE 3.1(A).  THE
COMPANY OWNS, DIRECTLY OR INDIRECTLY, ALL OF THE CAPITAL STOCK OR OTHER EQUITY
INTERESTS OF EACH SUBSIDIARY FREE AND CLEAR OF ANY LIENS, AND ALL THE ISSUED AND
OUTSTANDING SHARES OF CAPITAL STOCK OF EACH SUBSIDIARY ARE VALIDLY ISSUED AND
ARE FULLY PAID, NON-ASSESSABLE AND FREE OF PREEMPTIVE AND SIMILAR RIGHTS TO
SUBSCRIBE FOR OR PURCHASE SECURITIES.  IF THE COMPANY HAS NO SUBSIDIARIES, THEN
REFERENCES IN THE TRANSACTION DOCUMENTS TO THE SUBSIDIARIES WILL BE DISREGARDED.

 

(B)                                 ORGANIZATION AND QUALIFICATION.  THE COMPANY
AND EACH OF THE SUBSIDIARIES IS AN ENTITY DULY INCORPORATED OR OTHERWISE
ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE
JURISDICTION OF ITS INCORPORATION OR ORGANIZATION (AS

 

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APPLICABLE), WITH THE REQUISITE POWER AND AUTHORITY TO OWN AND USE ITS
PROPERTIES AND ASSETS AND TO CARRY ON ITS BUSINESS AS CURRENTLY CONDUCTED. 
NEITHER THE COMPANY NOR ANY SUBSIDIARY IS IN VIOLATION OR DEFAULT OF ANY OF THE
PROVISIONS OF ITS RESPECTIVE CERTIFICATE OR ARTICLES OF INCORPORATION, BYLAWS OR
OTHER ORGANIZATIONAL OR CHARTER DOCUMENTS.  EACH OF THE COMPANY AND THE
SUBSIDIARIES IS DULY QUALIFIED TO CONDUCT BUSINESS AND IS IN GOOD STANDING AS A
FOREIGN CORPORATION OR OTHER ENTITY IN EACH JURISDICTION IN WHICH THE NATURE OF
THE BUSINESS CONDUCTED OR PROPERTY OWNED BY IT MAKES SUCH QUALIFICATION
NECESSARY, EXCEPT WHERE THE FAILURE TO BE SO QUALIFIED OR IN GOOD STANDING, AS
THE CASE MAY BE, COULD NOT HAVE OR REASONABLY BE EXPECTED TO RESULT IN (I) A
MATERIAL ADVERSE EFFECT ON THE LEGALITY, VALIDITY OR ENFORCEABILITY OF ANY
TRANSACTION DOCUMENT, (II) A MATERIAL ADVERSE EFFECT ON THE RESULTS OF
OPERATIONS, ASSETS, BUSINESS, PROSPECTS OR CONDITION (FINANCIAL OR OTHERWISE) OF
THE COMPANY AND THE SUBSIDIARIES, TAKEN AS A WHOLE, OR (III) A MATERIAL ADVERSE
EFFECT ON THE COMPANY’S ABILITY TO PERFORM IN ANY MATERIAL RESPECT ON A TIMELY
BASIS ITS OBLIGATIONS UNDER ANY TRANSACTION DOCUMENT (ANY OF (I), (II) OR (III),
A “MATERIAL ADVERSE EFFECT”) AND NO PROCEEDING HAS BEEN INSTITUTED IN ANY SUCH
JURISDICTION REVOKING, LIMITING OR CURTAILING OR SEEKING TO REVOKE, LIMIT OR
CURTAIL SUCH POWER AND AUTHORITY OR QUALIFICATION.

 

(C)                                  AUTHORIZATION; ENFORCEMENT.  THE COMPANY
HAS THE REQUISITE CORPORATE POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE
THE TRANSACTIONS CONTEMPLATED BY EACH OF THE TRANSACTION DOCUMENTS AND OTHERWISE
TO CARRY OUT ITS OBLIGATIONS HEREUNDER AND THEREUNDER.  THE EXECUTION AND
DELIVERY OF EACH OF THE TRANSACTION DOCUMENTS BY THE COMPANY AND THE
CONSUMMATION BY IT OF THE TRANSACTIONS CONTEMPLATED THEREBY HAVE BEEN DULY
AUTHORIZED BY ALL NECESSARY ACTION ON THE PART OF THE COMPANY AND NO FURTHER
ACTION IS REQUIRED BY THE COMPANY, ITS BOARD OF DIRECTORS OR ITS STOCKHOLDERS IN
CONNECTION THEREWITH OTHER THAN IN CONNECTION WITH THE REQUIRED APPROVALS.  EACH
TRANSACTION DOCUMENT HAS BEEN (OR UPON DELIVERY WILL HAVE BEEN) DULY EXECUTED BY
THE COMPANY AND, WHEN DELIVERED IN ACCORDANCE WITH THE TERMS HEREOF AND THEREOF,
WILL CONSTITUTE THE VALID AND BINDING OBLIGATION OF THE COMPANY ENFORCEABLE
AGAINST THE COMPANY IN ACCORDANCE WITH ITS TERMS EXCEPT (I) AS LIMITED BY
APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM AND OTHER LAWS OF
GENERAL APPLICATION AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS GENERALLY AND
(II) AS LIMITED BY LAWS RELATING TO THE AVAILABILITY OF SPECIFIC PERFORMANCE,
INJUNCTIVE RELIEF OR OTHER EQUITABLE REMEDIES.

 

(D)                                 NO CONFLICTS.  THE EXECUTION, DELIVERY AND
PERFORMANCE OF THE TRANSACTION DOCUMENTS BY THE COMPANY, THE ISSUANCE AND SALE
OF THE SHARES AND THE CONSUMMATION BY THE COMPANY OF THE OTHER TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY DO NOT AND WILL NOT (I) CONFLICT WITH OR VIOLATE
ANY PROVISION OF THE COMPANY’S OR ANY SUBSIDIARY’S CERTIFICATE OR ARTICLES OF
INCORPORATION, BYLAWS OR OTHER ORGANIZATIONAL OR CHARTER DOCUMENTS, OR
(II) CONFLICT WITH, OR CONSTITUTE A DEFAULT (OR AN EVENT THAT WITH NOTICE OR
LAPSE OF TIME OR BOTH WOULD BECOME A DEFAULT) UNDER, RESULT IN THE CREATION OF
ANY LIEN UPON ANY OF THE PROPERTIES OR ASSETS OF THE COMPANY OR ANY SUBSIDIARY,
OR GIVE TO OTHERS ANY RIGHTS OF TERMINATION, AMENDMENT, ACCELERATION OR
CANCELLATION (WITH OR WITHOUT NOTICE, LAPSE OF TIME OR BOTH) OF, ANY AGREEMENT,
CREDIT FACILITY, DEBT OR OTHER INSTRUMENT (EVIDENCING A COMPANY OR SUBSIDIARY
DEBT OR OTHERWISE) OR OTHER UNDERSTANDING TO WHICH THE COMPANY OR ANY SUBSIDIARY
IS A PARTY OR BY WHICH ANY PROPERTY OR ASSET OF THE COMPANY OR ANY SUBSIDIARY IS
BOUND OR AFFECTED, OR (III) SUBJECT TO THE REQUIRED

 

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APPROVALS, CONFLICT WITH OR RESULT IN A VIOLATION OF ANY LAW, RULE, REGULATION,
ORDER, JUDGMENT, INJUNCTION, DECREE OR OTHER RESTRICTION OF ANY COURT OR
GOVERNMENTAL AUTHORITY TO WHICH THE COMPANY OR A SUBSIDIARY IS SUBJECT
(INCLUDING FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS), OR BY WHICH ANY
PROPERTY OR ASSET OF THE COMPANY OR A SUBSIDIARY IS BOUND OR AFFECTED; EXCEPT IN
THE CASE OF EACH OF CLAUSES (II) AND (III), SUCH AS COULD NOT HAVE OR REASONABLY
BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.

 

(E)                                  FILINGS, CONSENTS AND APPROVALS.  THE
COMPANY IS NOT REQUIRED TO OBTAIN ANY CONSENT, WAIVER, AUTHORIZATION OR ORDER
OF, GIVE ANY NOTICE TO, OR MAKE ANY FILING OR REGISTRATION WITH, ANY COURT OR
OTHER FEDERAL, STATE, LOCAL OR OTHER GOVERNMENTAL AUTHORITY OR OTHER PERSON IN
CONNECTION WITH THE EXECUTION, DELIVERY AND PERFORMANCE BY THE COMPANY OF THE
TRANSACTION DOCUMENTS, OTHER THAN (I) FILINGS REQUIRED PURSUANT TO SECTION 4.4
OF THIS AGREEMENT, (II) THE FILING WITH THE COMMISSION OF THE REGISTRATION
STATEMENT, (III) APPLICATION(S) TO EACH APPLICABLE TRADING MARKET FOR THE
LISTING OF THE SHARES AND WARRANT SHARES FOR TRADING THEREON IN THE TIME AND
MANNER REQUIRED THEREBY, AND (IV) THE FILING OF FORM D WITH THE COMMISSION AND
SUCH FILINGS AS ARE REQUIRED TO BE MADE UNDER APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE “REQUIRED APPROVALS”).

 

(F)                                    ISSUANCE OF THE SECURITIES.  THE
SECURITIES ARE DULY AUTHORIZED AND, WHEN ISSUED AND PAID FOR IN ACCORDANCE WITH
THE APPLICABLE TRANSACTION DOCUMENTS, WILL BE DULY AND VALIDLY ISSUED, FULLY
PAID AND NONASSESSABLE, FREE AND CLEAR OF ALL LIENS IMPOSED BY THE COMPANY OTHER
THAN RESTRICTIONS ON TRANSFER PROVIDED FOR IN THE TRANSACTION DOCUMENTS.  THE
WARRANT SHARES, WHEN ISSUED IN ACCORDANCE WITH THE TERMS OF THE TRANSACTION
DOCUMENTS, WILL BE VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE, FREE AND CLEAR
OF ALL LIENS IMPOSED BY THE COMPANY.  THE COMPANY HAS RESERVED FROM ITS DULY
AUTHORIZED CAPITAL STOCK THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK ISSUABLE
PURSUANT TO THIS AGREEMENT AND THE WARRANTS.

 

(G)                                 CAPITALIZATION.  THE CAPITALIZATION OF THE
COMPANY IS AS SET FORTH ON SCHEDULE 3.1(G).  THE COMPANY HAS NOT ISSUED ANY
CAPITAL STOCK SINCE ITS MOST RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE
ACT, OTHER THAN PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS UNDER THE
COMPANY’S STOCK OPTION PLANS, THE ISSUANCE OF SHARES OF COMMON STOCK TO
EMPLOYEES PURSUANT TO THE COMPANY’S EMPLOYEE STOCK PURCHASE PLAN AND PURSUANT TO
THE CONVERSION OR EXERCISE OF OUTSTANDING COMMON STOCK EQUIVALENTS.  NO PERSON
HAS ANY RIGHT OF FIRST REFUSAL, PREEMPTIVE RIGHT, RIGHT OF PARTICIPATION, OR ANY
SIMILAR RIGHT TO PARTICIPATE IN THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION
DOCUMENTS.  EXCEPT AS A RESULT OF THE PURCHASE AND SALE OF THE SECURITIES, THERE
ARE NO OUTSTANDING OPTIONS, WARRANTS, SCRIPT RIGHTS TO SUBSCRIBE TO, CALLS OR
COMMITMENTS OF ANY CHARACTER WHATSOEVER RELATING TO, OR SECURITIES, RIGHTS OR
OBLIGATIONS CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR, OR GIVING ANY
PERSON ANY RIGHT TO SUBSCRIBE FOR OR ACQUIRE, ANY SHARES OF COMMON STOCK, OR
CONTRACTS, COMMITMENTS, UNDERSTANDINGS OR ARRANGEMENTS BY WHICH THE COMPANY OR
ANY SUBSIDIARY IS OR MAY BECOME BOUND TO ISSUE ADDITIONAL SHARES OF COMMON STOCK
OR COMMON STOCK EQUIVALENTS.  THE ISSUANCE AND SALE OF THE SECURITIES WILL NOT
OBLIGATE THE COMPANY TO ISSUE SHARES OF COMMON STOCK OR OTHER SECURITIES TO ANY
PERSON (OTHER THAN THE PURCHASERS) AND WILL NOT RESULT IN A RIGHT OF ANY HOLDER
OF COMPANY SECURITIES TO ADJUST THE EXERCISE, CONVERSION, EXCHANGE OR RESET
PRICE UNDER SUCH SECURITIES. ALL OF THE OUTSTANDING

 

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SHARES OF CAPITAL STOCK OF THE COMPANY ARE VALIDLY ISSUED, FULLY PAID AND
NONASSESSABLE, HAVE BEEN ISSUED IN COMPLIANCE WITH ALL FEDERAL AND STATE
SECURITIES LAWS, AND NONE OF SUCH OUTSTANDING SHARES WAS ISSUED IN VIOLATION OF
ANY PREEMPTIVE RIGHTS OR SIMILAR RIGHTS TO SUBSCRIBE FOR OR PURCHASE
SECURITIES.  NO FURTHER APPROVAL OR AUTHORIZATION OF ANY STOCKHOLDER, THE BOARD
OF DIRECTORS OF THE COMPANY OR OTHERS IS REQUIRED FOR THE ISSUANCE AND SALE OF
THE SECURITIES.  THERE ARE NO STOCKHOLDERS AGREEMENTS, VOTING AGREEMENTS OR
OTHER SIMILAR AGREEMENTS WITH RESPECT TO THE COMPANY’S CAPITAL STOCK TO WHICH
THE COMPANY IS A PARTY OR, TO THE KNOWLEDGE OF THE COMPANY, BETWEEN OR AMONG ANY
OF THE COMPANY’S STOCKHOLDERS.

 

(H)                                 SEC REPORTS; FINANCIAL STATEMENTS.  THE
COMPANY HAS FILED ALL REPORTS, SCHEDULES, FORMS, STATEMENTS AND OTHER DOCUMENTS
REQUIRED TO BE FILED BY IT UNDER THE SECURITIES ACT AND THE EXCHANGE ACT,
INCLUDING PURSUANT TO SECTION 13(A) OR 15(D) THEREOF, FOR THE TWO YEARS
PRECEDING THE DATE HEREOF (OR SUCH SHORTER PERIOD AS THE COMPANY WAS REQUIRED BY
LAW TO FILE SUCH MATERIAL) (THE FOREGOING MATERIALS, INCLUDING THE EXHIBITS
THERETO AND DOCUMENTS INCORPORATED BY REFERENCE THEREIN, BEING COLLECTIVELY
REFERRED TO HEREIN AS THE “SEC REPORTS”) ON A TIMELY BASIS OR HAS RECEIVED A
VALID EXTENSION OF SUCH TIME OF FILING AND HAS FILED ANY SUCH SEC REPORTS PRIOR
TO THE EXPIRATION OF ANY SUCH EXTENSION.  AS OF THEIR RESPECTIVE DATES, THE SEC
REPORTS COMPLIED IN ALL MATERIAL RESPECTS WITH THE REQUIREMENTS OF THE
SECURITIES ACT AND THE EXCHANGE ACT AND THE RULES AND REGULATIONS OF THE
COMMISSION PROMULGATED THEREUNDER, AND NONE OF THE SEC REPORTS, WHEN FILED,
CONTAINED ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL
FACT REQUIRED TO BE STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS
THEREIN, IN THE LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING.  THE FINANCIAL STATEMENTS OF THE COMPANY INCLUDED IN THE SEC REPORTS
COMPLY IN ALL MATERIAL RESPECTS WITH APPLICABLE ACCOUNTING REQUIREMENTS AND THE
RULES AND REGULATIONS OF THE COMMISSION WITH RESPECT THERETO AS IN EFFECT AT THE
TIME OF FILING.  SUCH FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES APPLIED ON A CONSISTENT
BASIS DURING THE PERIODS INVOLVED (“GAAP”), EXCEPT AS MAY BE OTHERWISE SPECIFIED
IN SUCH FINANCIAL STATEMENTS OR THE NOTES THERETO AND EXCEPT THAT UNAUDITED
FINANCIAL STATEMENTS MAY NOT CONTAIN ALL FOOTNOTES REQUIRED BY GAAP, AND FAIRLY
PRESENT IN ALL MATERIAL RESPECTS THE FINANCIAL POSITION OF THE COMPANY AND ITS
CONSOLIDATED SUBSIDIARIES AS OF AND FOR THE DATES THEREOF AND THE RESULTS OF
OPERATIONS AND CASH FLOWS FOR THE PERIODS THEN ENDED, SUBJECT, IN THE CASE OF
UNAUDITED STATEMENTS, TO NORMAL, IMMATERIAL, YEAR-END AUDIT ADJUSTMENTS.

 

(I)                                     MATERIAL CHANGES.  SINCE THE DATE OF THE
LATEST AUDITED FINANCIAL STATEMENTS INCLUDED WITHIN THE SEC REPORTS, EXCEPT AS
SPECIFICALLY DISCLOSED IN THE SEC REPORTS, (I) THERE HAS BEEN NO EVENT,
OCCURRENCE OR DEVELOPMENT THAT HAS HAD OR THAT COULD REASONABLY BE EXPECTED TO
RESULT IN A MATERIAL ADVERSE EFFECT, (II) THE COMPANY HAS NOT INCURRED ANY
LIABILITIES (CONTINGENT OR OTHERWISE) OTHER THAN (A) TRADE PAYABLES AND ACCRUED
EXPENSES INCURRED IN THE ORDINARY COURSE OF BUSINESS CONSISTENT WITH PAST
PRACTICE AND (B) LIABILITIES NOT REQUIRED TO BE REFLECTED IN THE COMPANY’S
FINANCIAL STATEMENTS PURSUANT TO GAAP OR REQUIRED TO BE DISCLOSED IN FILINGS
MADE WITH THE COMMISSION, (III) THE COMPANY HAS NOT ALTERED ITS METHOD OF
ACCOUNTING, (IV) THE COMPANY HAS NOT DECLARED OR MADE ANY DIVIDEND OR
DISTRIBUTION OF CASH OR OTHER PROPERTY TO ITS STOCKHOLDERS OR PURCHASED,
REDEEMED OR MADE ANY AGREEMENTS TO PURCHASE OR REDEEM ANY SHARES OF ITS CAPITAL
STOCK

 

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AND (V) THE COMPANY HAS NOT ISSUED ANY EQUITY SECURITIES TO ANY OFFICER,
DIRECTOR OR AFFILIATE, EXCEPT PURSUANT TO EXISTING COMPANY STOCK OPTION PLANS. 
THE COMPANY DOES NOT HAVE PENDING BEFORE THE COMMISSION ANY REQUEST FOR
CONFIDENTIAL TREATMENT OF INFORMATION.

 

(J)                                     LITIGATION.  THERE IS NO ACTION, SUIT,
INQUIRY, NOTICE OF VIOLATION, PROCEEDING OR INVESTIGATION PENDING OR, TO THE
KNOWLEDGE OF THE COMPANY, THREATENED AGAINST OR AFFECTING THE COMPANY, ANY
SUBSIDIARY OR ANY OF THEIR RESPECTIVE PROPERTIES BEFORE OR BY ANY COURT,
ARBITRATOR, GOVERNMENTAL OR ADMINISTRATIVE AGENCY OR REGULATORY AUTHORITY
(FEDERAL, STATE, COUNTY, LOCAL OR FOREIGN) (COLLECTIVELY, AN “ACTION”) WHICH
(I) ADVERSELY AFFECTS OR CHALLENGES THE LEGALITY, VALIDITY OR ENFORCEABILITY OF
ANY OF THE TRANSACTION DOCUMENTS OR THE SECURITIES OR (II) COULD, IF THERE WERE
AN UNFAVORABLE DECISION, HAVE OR REASONABLY BE EXPECTED TO RESULT IN A MATERIAL
ADVERSE EFFECT.  NEITHER THE COMPANY NOR ANY SUBSIDIARY, NOR TO THE KNOWLEDGE OF
THE COMPANY, ANY DIRECTOR OR OFFICER THEREOF, IS OR HAS BEEN THE SUBJECT OF ANY
ACTION INVOLVING A CLAIM OF VIOLATION OF OR LIABILITY UNDER FEDERAL OR STATE
SECURITIES LAWS OR A CLAIM OF BREACH OF FIDUCIARY DUTY.  THERE HAS NOT BEEN, AND
TO THE KNOWLEDGE OF THE COMPANY, THERE IS NOT PENDING OR CONTEMPLATED, ANY
INVESTIGATION BY THE COMMISSION INVOLVING THE COMPANY OR, TO THE KNOWLEDGE OF
THE COMPANY, ANY CURRENT OR FORMER DIRECTOR OR OFFICER OF THE COMPANY.  THE
COMMISSION HAS NOT ISSUED ANY STOP ORDER OR OTHER ORDER SUSPENDING THE
EFFECTIVENESS OF ANY REGISTRATION STATEMENT FILED BY THE COMPANY OR ANY
SUBSIDIARY UNDER THE EXCHANGE ACT OR THE SECURITIES ACT.

 

(K)                                  LABOR RELATIONS.  NO MATERIAL LABOR DISPUTE
EXISTS OR, TO THE KNOWLEDGE OF THE COMPANY, IS IMMINENT WITH RESPECT TO ANY OF
THE EMPLOYEES OF THE COMPANY WHICH COULD REASONABLY BE EXPECTED TO RESULT IN A
MATERIAL ADVERSE EFFECT.

 

(L)                                     COMPLIANCE.  NEITHER THE COMPANY NOR ANY
SUBSIDIARY (I) IS IN DEFAULT UNDER OR IN VIOLATION OF (AND NO EVENT HAS OCCURRED
THAT HAS NOT BEEN WAIVED THAT, WITH NOTICE OR LAPSE OF TIME OR BOTH, WOULD
RESULT IN A DEFAULT BY THE COMPANY OR ANY SUBSIDIARY UNDER), NOR HAS THE COMPANY
OR ANY SUBSIDIARY RECEIVED NOTICE OF A CLAIM THAT IT IS IN DEFAULT UNDER OR THAT
IT IS IN VIOLATION OF, ANY INDENTURE, LOAN OR CREDIT AGREEMENT OR ANY OTHER
AGREEMENT OR INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT OR ANY OF ITS
PROPERTIES IS BOUND (WHETHER OR NOT SUCH DEFAULT OR VIOLATION HAS BEEN WAIVED),
(II) IS IN VIOLATION OF ANY ORDER OF ANY COURT, ARBITRATOR OR GOVERNMENTAL BODY,
OR (III) IS OR HAS BEEN IN VIOLATION OF ANY STATUTE, RULE OR REGULATION OF ANY
GOVERNMENTAL AUTHORITY, INCLUDING WITHOUT LIMITATION ALL FOREIGN, FEDERAL, STATE
AND LOCAL LAWS APPLICABLE TO ITS BUSINESS EXCEPT IN EACH CASE AS COULD NOT HAVE
A MATERIAL ADVERSE EFFECT.

 

(M)                               REGULATORY PERMITS.  THE COMPANY AND THE
SUBSIDIARIES POSSESS ALL CERTIFICATES, AUTHORIZATIONS AND PERMITS ISSUED BY THE
APPROPRIATE FEDERAL, STATE, LOCAL OR FOREIGN REGULATORY AUTHORITIES NECESSARY TO
CONDUCT THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS, EXCEPT
WHERE THE FAILURE TO POSSESS SUCH PERMITS COULD NOT HAVE OR REASONABLY BE
EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT (“MATERIAL PERMITS”), AND
NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS RECEIVED ANY NOTICE OF PROCEEDINGS
RELATING TO THE REVOCATION OR MODIFICATION OF ANY MATERIAL PERMIT.

 

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

 

(O)                                 PATENTS AND TRADEMARKS.  THE COMPANY AND THE
SUBSIDIARIES HAVE, OR HAVE RIGHTS TO USE, ALL PATENTS, PATENT APPLICATIONS,
TRADEMARKS, TRADEMARK APPLICATIONS, SERVICE MARKS, TRADE NAMES, COPYRIGHTS,
LICENSES AND OTHER SIMILAR RIGHTS NECESSARY OR MATERIAL FOR USE IN CONNECTION
WITH THEIR RESPECTIVE BUSINESSES AS DESCRIBED IN THE SEC REPORTS AND WHICH THE
FAILURE TO SO HAVE COULD HAVE A MATERIAL ADVERSE EFFECT (COLLECTIVELY, THE
“INTELLECTUAL PROPERTY RIGHTS”).  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS
RECEIVED A WRITTEN NOTICE THAT THE INTELLECTUAL PROPERTY RIGHTS USED BY THE
COMPANY OR ANY SUBSIDIARY VIOLATES OR INFRINGES UPON THE RIGHTS OF ANY PERSON. 
TO THE KNOWLEDGE OF THE COMPANY, ALL SUCH INTELLECTUAL PROPERTY RIGHTS ARE
ENFORCEABLE AND THERE IS NO EXISTING INFRINGEMENT BY ANOTHER PERSON OF ANY OF
THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

 

(P)                                 INSURANCE.  THE COMPANY AND THE SUBSIDIARIES
ARE INSURED BY INSURERS OF RECOGNIZED FINANCIAL RESPONSIBILITY AGAINST SUCH
LOSSES AND RISKS AND IN SUCH AMOUNTS AS ARE PRUDENT AND CUSTOMARY IN THE
BUSINESSES IN WHICH THE COMPANY AND THE SUBSIDIARIES ARE ENGAGED, INCLUDING, BUT
NOT LIMITED TO, DIRECTORS AND OFFICERS INSURANCE COVERAGE EQUAL TO $2,000,000. 
TO THE BEST KNOWLEDGE OF THE COMPANY, SUCH INSURANCE CONTRACTS AND POLICIES ARE
ACCURATE AND COMPLETE.  NEITHER THE COMPANY NOR ANY SUBSIDIARY HAS ANY REASON TO
BELIEVE THAT IT WILL NOT BE ABLE TO RENEW ITS EXISTING INSURANCE COVERAGE AS AND
WHEN SUCH COVERAGE EXPIRES OR TO OBTAIN SIMILAR COVERAGE FROM SIMILAR INSURERS
AS MAY BE NECESSARY TO CONTINUE ITS BUSINESS WITHOUT A SIGNIFICANT INCREASE IN
COST.

 

(Q)                                 TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. 
EXCEPT AS SET FORTH IN THE SEC REPORTS, NONE OF THE OFFICERS OR DIRECTORS OF THE
COMPANY AND, TO THE KNOWLEDGE OF THE COMPANY, NONE OF THE EMPLOYEES OF THE
COMPANY IS PRESENTLY A PARTY TO ANY TRANSACTION WITH THE COMPANY OR ANY
SUBSIDIARY (OTHER THAN FOR SERVICES AS EMPLOYEES, OFFICERS AND DIRECTORS),
INCLUDING ANY CONTRACT, AGREEMENT OR OTHER ARRANGEMENT PROVIDING FOR THE
FURNISHING OF SERVICES TO OR BY, PROVIDING FOR RENTAL OF REAL OR PERSONAL
PROPERTY TO OR FROM, OR OTHERWISE REQUIRING PAYMENTS TO OR FROM ANY OFFICER,
DIRECTOR OR SUCH EMPLOYEE OR, TO THE KNOWLEDGE OF THE COMPANY, ANY ENTITY IN
WHICH ANY OFFICER, DIRECTOR, OR ANY SUCH EMPLOYEE HAS A SUBSTANTIAL INTEREST OR
IS AN OFFICER, DIRECTOR, TRUSTEE OR PARTNER, IN EACH CASE IN EXCESS OF $60,000
OTHER THAN (I) FOR PAYMENT OF SALARY OR CONSULTING FEES FOR SERVICES RENDERED,
(II) REIMBURSEMENT FOR EXPENSES INCURRED ON BEHALF OF THE COMPANY AND (III) FOR
OTHER EMPLOYEE BENEFITS, INCLUDING STOCK OPTION AGREEMENTS UNDER ANY STOCK
OPTION PLAN OF THE COMPANY.

 

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(R)                                    SARBANES-OXLEY; INTERNAL ACCOUNTING
CONTROLS.  THE COMPANY IS IN MATERIAL COMPLIANCE WITH ALL PROVISIONS OF THE
SARBANES-OXLEY ACT OF 2002 WHICH ARE APPLICABLE TO IT AS OF THE APPLICABLE
CLOSING DATE.  THE COMPANY AND THE SUBSIDIARIES MAINTAIN A SYSTEM OF INTERNAL
ACCOUNTING CONTROLS SUFFICIENT TO PROVIDE REASONABLE ASSURANCE THAT
(I) TRANSACTIONS ARE EXECUTED IN ACCORDANCE WITH MANAGEMENT’S GENERAL OR
SPECIFIC AUTHORIZATIONS, (II) TRANSACTIONS ARE RECORDED AS NECESSARY TO PERMIT
PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH GAAP AND TO MAINTAIN
ASSET ACCOUNTABILITY, (III) ACCESS TO ASSETS IS PERMITTED ONLY IN ACCORDANCE
WITH MANAGEMENT’S GENERAL OR SPECIFIC AUTHORIZATION, AND (IV) THE RECORDED
ACCOUNTABILITY FOR ASSETS IS COMPARED WITH THE EXISTING ASSETS AT REASONABLE
INTERVALS AND APPROPRIATE ACTION IS TAKEN WITH RESPECT TO ANY DIFFERENCES. THE
COMPANY’S CERTIFYING OFFICERS HAVE EVALUATED THE EFFECTIVENESS OF THE COMPANY’S
CONTROLS AND PROCEDURES AS OF THE DATE PRIOR TO THE FILING DATE OF THE MOST
RECENTLY FILED PERIODIC REPORT UNDER THE EXCHANGE ACT (SUCH DATE, THE
“EVALUATION DATE”).  THE COMPANY PRESENTED IN ITS MOST RECENTLY FILED PERIODIC
REPORT UNDER THE EXCHANGE ACT THE CONCLUSIONS OF THE CERTIFYING OFFICERS ABOUT
THE EFFECTIVENESS OF THE DISCLOSURE CONTROLS AND PROCEDURES BASED ON THEIR
EVALUATIONS AS OF THE EVALUATION DATE.  SINCE THE EVALUATION DATE, THERE HAVE
BEEN NO SIGNIFICANT CHANGES IN THE COMPANY’S INTERNAL CONTROLS (AS SUCH TERM IS
DEFINED IN ITEM 307(B) OF REGULATION S-K UNDER THE EXCHANGE ACT) OR, TO THE
KNOWLEDGE OF THE COMPANY, IN OTHER FACTORS THAT COULD SIGNIFICANTLY AFFECT THE
COMPANY’S INTERNAL CONTROLS.

 

(S)                                  CERTAIN FEES.  NO BROKERAGE OR FINDER’S
FEES OR COMMISSIONS ARE OR WILL BE PAYABLE BY THE COMPANY TO ANY BROKER,
FINANCIAL ADVISOR OR CONSULTANT, FINDER, PLACEMENT AGENT, INVESTMENT BANKER,
BANK OR OTHER PERSON WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THE
TRANSACTION DOCUMENTS.  THE PURCHASERS SHALL HAVE NO OBLIGATION WITH RESPECT TO
ANY FEES OR WITH RESPECT TO ANY CLAIMS MADE BY OR ON BEHALF OF OTHER PERSONS FOR
FEES OF A TYPE CONTEMPLATED IN THIS SECTION THAT MAY BE DUE IN CONNECTION WITH
THE TRANSACTIONS CONTEMPLATED BY THE TRANSACTION DOCUMENTS.

 

(T)                                    PRIVATE PLACEMENT. ASSUMING THE ACCURACY
OF THE PURCHASERS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 3.2, NO
REGISTRATION UNDER THE SECURITIES ACT IS REQUIRED FOR THE OFFER AND SALE OF THE
SECURITIES BY THE COMPANY TO THE PURCHASERS AS CONTEMPLATED HEREBY. THE ISSUANCE
AND SALE OF THE SECURITIES HEREUNDER DOES NOT CONTRAVENE THE RULES AND
REGULATIONS OF THE TRADING MARKET.

 

(U)                                 INVESTMENT COMPANY. THE COMPANY IS NOT, AND
IS NOT AN AFFILIATE OF, AND IMMEDIATELY AFTER RECEIPT OF PAYMENT FOR THE
SECURITIES, WILL NOT BE OR BE AN AFFILIATE OF, AN “INVESTMENT COMPANY” WITHIN
THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.  THE COMPANY
SHALL CONDUCT ITS BUSINESS IN A MANNER SO THAT IT WILL NOT BECOME SUBJECT TO THE
INVESTMENT COMPANY ACT.

 

(V)                                 REGISTRATION RIGHTS.  OTHER THAN EACH OF THE
PURCHASERS, NO PERSON HAS ANY RIGHT TO CAUSE THE COMPANY TO EFFECT THE
REGISTRATION UNDER THE SECURITIES ACT OF ANY SECURITIES OF THE COMPANY.

 

(W)                               LISTING AND MAINTENANCE REQUIREMENTS.  THE
COMPANY’S COMMON STOCK IS REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE
ACT, AND THE COMPANY HAS TAKEN

 

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NO ACTION DESIGNED TO, OR WHICH TO ITS KNOWLEDGE IS LIKELY TO HAVE THE EFFECT
OF, TERMINATING THE REGISTRATION OF THE COMMON STOCK UNDER THE EXCHANGE ACT NOR
HAS THE COMPANY RECEIVED ANY NOTIFICATION THAT THE COMMISSION IS CONTEMPLATING
TERMINATING SUCH REGISTRATION.  THE COMPANY HAS NOT, IN THE 12 MONTHS PRECEDING
THE DATE HEREOF, RECEIVED NOTICE FROM ANY TRADING MARKET ON WHICH THE COMMON
STOCK IS OR HAS BEEN LISTED OR QUOTED TO THE EFFECT THAT THE COMPANY IS NOT IN
COMPLIANCE WITH THE LISTING OR MAINTENANCE REQUIREMENTS OF SUCH TRADING MARKET.
THE COMPANY IS, AND HAS NO REASON TO BELIEVE THAT IT WILL NOT IN THE FORESEEABLE
FUTURE CONTINUE TO BE, IN COMPLIANCE WITH ALL SUCH LISTING AND MAINTENANCE
REQUIREMENTS.

 

(X)                                   APPLICATION OF TAKEOVER PROTECTIONS.  THE
COMPANY AND ITS BOARD OF DIRECTORS HAVE TAKEN ALL NECESSARY ACTION, IF ANY, IN
ORDER TO RENDER INAPPLICABLE ANY CONTROL SHARE ACQUISITION, BUSINESS
COMBINATION, POISON PILL (INCLUDING ANY DISTRIBUTION UNDER A RIGHTS AGREEMENT)
OR OTHER SIMILAR ANTI-TAKEOVER PROVISION UNDER THE COMPANY’S CERTIFICATE OF
INCORPORATION (OR SIMILAR CHARTER DOCUMENTS) OR THE LAWS OF ITS STATE OF
INCORPORATION THAT IS OR COULD BECOME APPLICABLE TO THE PURCHASERS AS A RESULT
OF THE PURCHASERS AND THE COMPANY FULFILLING THEIR OBLIGATIONS OR EXERCISING
THEIR RIGHTS UNDER THE TRANSACTION DOCUMENTS, INCLUDING WITHOUT LIMITATION AS A
RESULT OF THE COMPANY’S ISSUANCE OF THE SECURITIES AND THE PURCHASERS’ OWNERSHIP
OF THE SECURITIES.

 

(Y)                                 DISCLOSURE.  ALL DISCLOSURE PROVIDED TO THE
PURCHASERS REGARDING THE COMPANY, ITS BUSINESS AND THE TRANSACTIONS CONTEMPLATED
HEREBY, INCLUDING THE DISCLOSURE SCHEDULES TO THIS AGREEMENT, FURNISHED BY OR ON
BEHALF OF THE COMPANY WITH RESPECT TO THE REPRESENTATIONS AND WARRANTIES MADE
HEREIN ARE TRUE AND CORRECT WITH RESPECT TO SUCH REPRESENTATIONS AND WARRANTIES
AND DO NOT CONTAIN ANY UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE ANY
MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS MADE THEREIN, IN LIGHT
OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. THE COMPANY
ACKNOWLEDGES AND AGREES THAT NO PURCHASER MAKES OR HAS MADE ANY REPRESENTATIONS
OR WARRANTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY OTHER THAN
THOSE SPECIFICALLY SET FORTH IN SECTION 3.2 HEREOF.

 

(Z)                                   NO INTEGRATED OFFERING. ASSUMING THE
ACCURACY OF THE PURCHASERS’ REPRESENTATIONS AND WARRANTIES SET FORTH IN
SECTION 3.2, NEITHER THE COMPANY, NOR ANY OF ITS AFFILIATES, NOR ANY PERSON
ACTING ON ITS OR THEIR BEHALF HAS, DIRECTLY OR INDIRECTLY, MADE ANY OFFERS OR
SALES OF ANY SECURITY OR SOLICITED ANY OFFERS TO BUY ANY SECURITY, UNDER
CIRCUMSTANCES THAT WOULD CAUSE THIS OFFERING OF THE SECURITIES TO BE INTEGRATED
WITH PRIOR OFFERINGS BY THE COMPANY FOR PURPOSES OF THE SECURITIES ACT OR ANY
APPLICABLE SHAREHOLDER APPROVAL PROVISIONS, INCLUDING, WITHOUT LIMITATION, UNDER
THE RULES AND REGULATIONS OF ANY TRADING MARKET ON WHICH ANY OF THE SECURITIES
OF THE COMPANY ARE LISTED OR DESIGNATED.

 

(AA)                            SOLVENCY.  BASED ON THE FINANCIAL CONDITION OF
THE COMPANY AS OF THE APPLICABLE CLOSING DATE AFTER GIVING EFFECT TO THE RECEIPT
BY THE COMPANY OF THE PROCEEDS FROM THE SALE OF THE SECURITIES HEREUNDER,
(I) THE COMPANY’S FAIR SALEABLE VALUE OF ITS ASSETS EXCEEDS THE AMOUNT THAT WILL
BE REQUIRED TO BE PAID ON OR IN RESPECT OF THE COMPANY’S EXISTING DEBTS AND
OTHER LIABILITIES (INCLUDING KNOWN CONTINGENT LIABILITIES) AS THEY MATURE;
(II) THE COMPANY’S ASSETS DO NOT CONSTITUTE UNREASONABLY SMALL CAPITAL TO

 

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CARRY ON ITS BUSINESS FOR THE CURRENT FISCAL YEAR AS NOW CONDUCTED AND AS
PROPOSED TO BE CONDUCTED INCLUDING ITS CAPITAL NEEDS TAKING INTO ACCOUNT THE
PARTICULAR CAPITAL REQUIREMENTS OF THE BUSINESS CONDUCTED BY THE COMPANY, AND
PROJECTED CAPITAL REQUIREMENTS AND CAPITAL AVAILABILITY THEREOF; AND (III) THE
CURRENT CASH FLOW OF THE COMPANY, TOGETHER WITH THE PROCEEDS THE COMPANY WOULD
RECEIVE, WERE IT TO LIQUIDATE ALL OF ITS ASSETS, AFTER TAKING INTO ACCOUNT ALL
ANTICIPATED USES OF THE CASH, WOULD BE SUFFICIENT TO PAY ALL AMOUNTS ON OR IN
RESPECT OF ITS DEBT WHEN SUCH AMOUNTS ARE REQUIRED TO BE PAID.  THE COMPANY DOES
NOT INTEND TO INCUR DEBTS BEYOND ITS ABILITY TO PAY SUCH DEBTS AS THEY MATURE
(TAKING INTO ACCOUNT THE TIMING AND AMOUNTS OF CASH TO BE PAYABLE ON OR IN
RESPECT OF ITS DEBT).  THE COMPANY HAS NO KNOWLEDGE OF ANY FACTS OR
CIRCUMSTANCES WHICH LEAD IT TO BELIEVE THAT IT WILL FILE FOR REORGANIZATION OR
LIQUIDATION UNDER THE BANKRUPTCY OR REORGANIZATION LAWS OF ANY JURISDICTION
WITHIN ONE YEAR FROM THE FIRST CLOSING DATE.  THE SEC REPORTS SET FORTH AS OF
THE DATES THEREOF 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 $50,000
(OTHER THAN TRADE ACCOUNTS PAYABLE INCURRED IN THE ORDINARY COURSE OF BUSINESS),
(B) ALL GUARANTIES, ENDORSEMENTS AND OTHER CONTINGENT OBLIGATIONS IN RESPECT OF
INDEBTEDNESS OF OTHERS, 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 $50,000 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.

 

(BB)                          TAX STATUS.  EXCEPT FOR MATTERS THAT WOULD NOT,
INDIVIDUALLY OR IN THE AGGREGATE, HAVE OR REASONABLY BE EXPECTED TO RESULT IN A
MATERIAL ADVERSE EFFECT, THE COMPANY AND EACH SUBSIDIARY HAS FILED ALL NECESSARY
FEDERAL, STATE AND FOREIGN INCOME AND FRANCHISE TAX RETURNS AND HAS PAID OR
ACCRUED ALL TAXES SHOWN AS DUE THEREON, AND THE COMPANY HAS NO KNOWLEDGE OF A
TAX DEFICIENCY WHICH HAS BEEN ASSERTED OR THREATENED AGAINST THE COMPANY OR ANY
SUBSIDIARY.

 

(CC)                            NO GENERAL SOLICITATION.  NEITHER THE COMPANY
NOR ANY PERSON ACTING ON BEHALF OF THE COMPANY HAS OFFERED OR SOLD ANY OF THE
SECURITIES BY ANY FORM OF GENERAL SOLICITATION OR GENERAL ADVERTISING.  THE
COMPANY HAS OFFERED THE SECURITIES FOR SALE ONLY TO THE PURCHASERS AND CERTAIN
OTHER “ACCREDITED INVESTORS” WITHIN THE MEANING OF RULE 501 UNDER THE SECURITIES
ACT.

 

(DD)                          FOREIGN CORRUPT PRACTICES.  NEITHER THE COMPANY,
NOR TO THE KNOWLEDGE OF THE COMPANY, ANY AGENT OR OTHER PERSON ACTING ON BEHALF
OF THE COMPANY, HAS (I) DIRECTLY OR INDIRECTLY, USED ANY FUNDS FOR UNLAWFUL
CONTRIBUTIONS, GIFTS, ENTERTAINMENT OR OTHER UNLAWFUL EXPENSES RELATED TO
FOREIGN OR DOMESTIC POLITICAL ACTIVITY, (II) MADE ANY UNLAWFUL PAYMENT TO
FOREIGN OR DOMESTIC GOVERNMENT OFFICIALS OR EMPLOYEES OR TO ANY FOREIGN OR
DOMESTIC POLITICAL PARTIES OR CAMPAIGNS FROM CORPORATE FUNDS, (III) FAILED TO
DISCLOSE FULLY ANY CONTRIBUTION MADE BY THE COMPANY (OR MADE BY ANY PERSON
ACTING ON ITS BEHALF OF WHICH THE COMPANY IS AWARE) WHICH IS IN VIOLATION OF
LAW, OR (IV) VIOLATED IN ANY MATERIAL RESPECT ANY PROVISION OF THE FOREIGN
CORRUPT PRACTICES ACT OF 1977, AS AMENDED.

 

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(EE)                            ACCOUNTANTS.  THE COMPANY’S ACCOUNTANTS ARE SET
FORTH ON SCHEDULE 3.1(EE) OF THE DISCLOSURE SCHEDULE.  TO THE KNOWLEDGE OF THE
COMPANY, SUCH ACCOUNTANTS, WHO THE COMPANY EXPECTS WILL EXPRESS THEIR OPINION
WITH RESPECT TO THE FINANCIAL STATEMENTS TO BE INCLUDED IN THE COMPANY’S ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDING DECEMBER 31, 2005, ARE A REGISTERED
PUBLIC ACCOUNTING FIRM AS REQUIRED BY THE SECURITIES ACT.

 

(FF)                                ACKNOWLEDGMENT REGARDING PURCHASERS’
PURCHASE OF SECURITIES.  THE COMPANY ACKNOWLEDGES AND AGREES THAT EACH OF THE
PURCHASERS IS ACTING SOLELY IN THE CAPACITY OF AN ARM’S LENGTH PURCHASER WITH
RESPECT TO THE TRANSACTION DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY. 
THE COMPANY FURTHER ACKNOWLEDGES THAT NO PURCHASER IS ACTING AS A FINANCIAL
ADVISOR OR FIDUCIARY OF THE COMPANY (OR IN ANY SIMILAR CAPACITY) WITH RESPECT TO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND ANY ADVICE GIVEN BY
ANY PURCHASER OR ANY OF ITS REPRESENTATIVES OR AGENTS IN CONNECTION WITH THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY IS MERELY INCIDENTAL TO THE
PURCHASERS’ PURCHASE OF THE SECURITIES.  THE COMPANY FURTHER REPRESENTS TO EACH
PURCHASER THAT THE COMPANY’S DECISION TO ENTER INTO THIS AGREEMENT HAS BEEN
BASED SOLELY ON THE INDEPENDENT EVALUATION OF THE TRANSACTIONS CONTEMPLATED
HEREBY BY THE COMPANY AND ITS REPRESENTATIVES.

 

(GG)                          ACKNOWLEDGEMENT REGARDING PURCHASERS’ TRADING
ACTIVITY.  ANYTHING IN THIS AGREEMENT OR ELSEWHERE HEREIN TO THE CONTRARY
NOTWITHSTANDING (EXCEPT FOR SECTION 4.15 HEREOF), IT IS UNDERSTOOD AND AGREED BY
THE COMPANY (I) THAT NONE OF THE PURCHASERS HAS BEEN ASKED TO AGREE, NOR HAS ANY
PURCHASER AGREED, TO DESIST FROM PURCHASING OR SELLING, LONG AND/OR SHORT,
SECURITIES OF THE COMPANY, OR “DERIVATIVE” SECURITIES BASED ON SECURITIES ISSUED
BY THE COMPANY OR TO HOLD THE SECURITIES FOR ANY SPECIFIED TERM; (II) THAT PAST
OR FUTURE OPEN MARKET OR OTHER TRANSACTIONS BY ANY PURCHASER, INCLUDING SHORT
SALES, AND SPECIFICALLY INCLUDING, WITHOUT LIMITATION, SHORT SALES OR
“DERIVATIVE” TRANSACTIONS, BEFORE OR AFTER THE CLOSING OF THIS OR FUTURE PRIVATE
PLACEMENT TRANSACTIONS, MAY NEGATIVELY IMPACT THE MARKET PRICE OF THE COMPANY’S
PUBLICLY-TRADED SECURITIES; (III) THAT ANY PURCHASER, AND COUNTER PARTIES IN
“DERIVATIVE” TRANSACTIONS TO WHICH ANY SUCH PURCHASER IS A PARTY, DIRECTLY OR
INDIRECTLY, PRESENTLY MAY HAVE A “SHORT” POSITION IN THE COMMON STOCK, AND
(IV) THAT EACH PURCHASER SHALL NOT BE DEEMED TO HAVE ANY AFFILIATION WITH OR
CONTROL OVER ANY ARM’S LENGTH COUNTER-PARTY IN ANY “DERIVATIVE” TRANSACTION. 
THE COMPANY FURTHER UNDERSTANDS AND ACKNOWLEDGES THAT (A) ONE OR MORE PURCHASERS
MAY ENGAGE IN HEDGING ACTIVITIES AT VARIOUS TIMES DURING THE PERIOD THAT THE
SECURITIES ARE OUTSTANDING, INCLUDING, WITHOUT LIMITATION, DURING THE PERIODS
THAT THE VALUE OF THE WARRANT SHARES DELIVERABLE WITH RESPECT TO SECURITIES ARE
BEING DETERMINED AND (B) SUCH HEDGING ACTIVITIES (IF ANY) COULD REDUCE THE VALUE
OF THE EXISTING STOCKHOLDERS’ EQUITY INTERESTS IN THE COMPANY AT AND AFTER THE
TIME THAT THE HEDGING ACTIVITIES ARE BEING CONDUCTED.  THE COMPANY ACKNOWLEDGES
THAT SUCH AFOREMENTIONED HEDGING ACTIVITIES DO NOT CONSTITUTE A BREACH OF ANY OF
THE TRANSACTION DOCUMENTS.

 

(HH)                          MANIPULATION OF PRICE.  THE COMPANY HAS NOT, AND
TO ITS KNOWLEDGE NO ONE ACTING ON ITS BEHALF HAS, (I) TAKEN, DIRECTLY OR
INDIRECTLY, ANY ACTION DESIGNED TO CAUSE OR TO RESULT IN THE STABILIZATION OR
MANIPULATION OF THE PRICE OF ANY SECURITY OF THE COMPANY TO FACILITATE THE SALE
OR RESALE OF ANY OF THE SECURITIES, (II) SOLD, BID FOR,

 

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PURCHASED, OR, PAID ANY COMPENSATION FOR SOLICITING PURCHASES OF, ANY OF THE
SECURITIES (OTHER THAN FOR THE PLACEMENT AGENT’S PLACEMENT OF THE SECURITIES),
OR (III) PAID OR AGREED TO PAY TO ANY PERSON ANY COMPENSATION FOR SOLICITING
ANOTHER TO PURCHASE ANY OTHER SECURITIES OF THE COMPANY.

 

3.2                                 Representations and Warranties of the
Purchasers.  Each Purchaser hereby, for itself and for no other Purchaser,
represents and warrants as of the date hereof and as of the applicable Closing
Date to the Company as follows:

 

(A)                                  ORGANIZATION; AUTHORITY.  SUCH PURCHASER IS
AN ENTITY DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS
OF THE JURISDICTION OF ITS ORGANIZATION WITH FULL RIGHT, CORPORATE OR
PARTNERSHIP POWER AND AUTHORITY TO ENTER INTO AND TO CONSUMMATE THE TRANSACTIONS
CONTEMPLATED BY THE TRANSACTION DOCUMENTS AND OTHERWISE TO CARRY OUT ITS
OBLIGATIONS HEREUNDER AND THEREUNDER. THE EXECUTION, DELIVERY AND PERFORMANCE BY
SUCH PURCHASER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT HAVE BEEN DULY
AUTHORIZED BY ALL NECESSARY CORPORATE OR SIMILAR ACTION ON THE PART OF SUCH
PURCHASER.  EACH TRANSACTION DOCUMENT TO WHICH IT IS A PARTY HAS BEEN DULY
EXECUTED BY SUCH PURCHASER, AND WHEN DELIVERED BY SUCH PURCHASER IN ACCORDANCE
WITH THE TERMS HEREOF, WILL CONSTITUTE THE VALID AND LEGALLY BINDING OBLIGATION
OF SUCH PURCHASER, ENFORCEABLE AGAINST IT IN ACCORDANCE WITH ITS TERMS, EXCEPT
(I) AS LIMITED BY GENERAL EQUITABLE PRINCIPLES AND APPLICABLE BANKRUPTCY,
INSOLVENCY, REORGANIZATION, MORATORIUM AND OTHER LAWS OF GENERAL APPLICATION
AFFECTING ENFORCEMENT OF CREDITORS’ RIGHTS GENERALLY, (II) AS LIMITED BY LAWS
RELATING TO THE AVAILABILITY OF SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF OR OTHER
EQUITABLE REMEDIES AND (III) INSOFAR AS INDEMNIFICATION AND CONTRIBUTION
PROVISIONS MAY BE LIMITED BY APPLICABLE LAW.

 

(B)                                 OWN ACCOUNT.  SUCH PURCHASER UNDERSTANDS
THAT THE SECURITIES ARE “RESTRICTED SECURITIES” AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW AND IS ACQUIRING
THE SECURITIES AS PRINCIPAL FOR ITS OWN ACCOUNT AND NOT WITH A VIEW TO OR FOR
DISTRIBUTING OR RESELLING SUCH SECURITIES OR ANY PART THEREOF IN VIOLATION OF
THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW, HAS NO PRESENT
INTENTION OF DISTRIBUTING ANY OF SUCH SECURITIES IN VIOLATION OF THE SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAW AND HAS NO ARRANGEMENT OR
UNDERSTANDING WITH ANY OTHER PERSONS REGARDING THE DISTRIBUTION OF SUCH
SECURITIES (THIS REPRESENTATION AND WARRANTY SHALL NOT LIMIT SUCH PURCHASER’S
RIGHT TO SELL THE SECURITIES PURSUANT TO THE REGISTRATION STATEMENT OR OTHERWISE
IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS) IN VIOLATION OF
THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW.  SUCH PURCHASER IS
ACQUIRING THE SECURITIES HEREUNDER IN THE ORDINARY COURSE OF ITS BUSINESS. SUCH
PURCHASER DOES NOT HAVE ANY AGREEMENT OR UNDERSTANDING, DIRECTLY OR INDIRECTLY,
WITH ANY PERSON TO DISTRIBUTE ANY OF THE SECURITIES.

 

(C)                                  PURCHASER STATUS.  AT THE TIME SUCH
PURCHASER WAS OFFERED THE SECURITIES, IT WAS, AND AT THE DATE HEREOF IT IS, AND
ON EACH DATE ON WHICH IT EXERCISES ANY WARRANTS, IT WILL BE EITHER: (I) AN
“ACCREDITED INVESTOR” AS DEFINED IN RULE 501(A)(1), (A)(2), (A)(3), (A)(7) OR
(A)(8) UNDER THE SECURITIES ACT OR (II) A “QUALIFIED INSTITUTIONAL BUYER” AS
DEFINED IN RULE 144A(A) UNDER THE SECURITIES ACT.  SUCH PURCHASER IS NOT
REQUIRED TO BE REGISTERED AS A BROKER-DEALER UNDER SECTION 15 OF THE EXCHANGE
ACT.

 

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(D)                                 EXPERIENCE OF SUCH PURCHASER.  SUCH
PURCHASER, EITHER ALONE OR TOGETHER WITH ITS REPRESENTATIVES, HAS SUCH
KNOWLEDGE, SOPHISTICATION AND EXPERIENCE IN BUSINESS AND FINANCIAL MATTERS SO AS
TO BE CAPABLE OF EVALUATING THE MERITS AND RISKS OF THE PROSPECTIVE INVESTMENT
IN THE SECURITIES, AND HAS SO EVALUATED THE MERITS AND RISKS OF SUCH
INVESTMENT.  SUCH PURCHASER IS ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT
IN THE SECURITIES AND, AT THE PRESENT TIME, IS ABLE TO AFFORD A COMPLETE LOSS OF
SUCH INVESTMENT.

 

(E)                                  GENERAL SOLICITATION.  SUCH PURCHASER IS
NOT PURCHASING THE SECURITIES AS A RESULT OF ANY ADVERTISEMENT, ARTICLE, NOTICE
OR OTHER COMMUNICATION REGARDING THE SECURITIES PUBLISHED IN ANY NEWSPAPER,
MAGAZINE OR SIMILAR MEDIA OR BROADCAST OVER TELEVISION OR RADIO OR PRESENTED AT
ANY SEMINAR OR ANY OTHER GENERAL SOLICITATION OR GENERAL ADVERTISEMENT.

 

(F)                                    SHORT SALES AND CONFIDENTIALITY PRIOR TO
THE DATE HEREOF.  SUCH PURCHASER HAS NOT DIRECTLY OR INDIRECTLY, NOR HAS ANY
PERSON ACTING ON BEHALF OF OR PURSUANT TO ANY UNDERSTANDING WITH SUCH PURCHASER,
EXECUTED ANY SHORT SALES IN THE SECURITIES OF THE COMPANY (INCLUDING, WITHOUT
LIMITATIONS, ANY SHORT SALES INVOLVING THE COMPANY’S SECURITIES) SINCE NOON (NEW
YORK TIME) ON NOVEMBER 3, 2005 WHICH WAS THE TIME THAT SUCH PURCHASER WAS FIRST
CONTACTED REGARDING AN INVESTMENT IN THE COMPANY (“DISCUSSION TIME”) THROUGH THE
DATE HEREOF.  OTHER THAN TO OTHER PERSONS PARTY TO THIS AGREEMENT, SUCH
PURCHASER HAS MAINTAINED THE CONFIDENTIALITY OF ALL DISCLOSURES MADE TO IT IN
CONNECTION WITH THIS TRANSACTION (INCLUDING THE EXISTENCE AND TERMS OF THIS
TRANSACTION).

 

The Company acknowledges and agrees that each Purchaser does not make or has not
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 3.2.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1                                 Transfer Restrictions. 

 

(A)                                  THE SECURITIES MAY ONLY BE DISPOSED OF IN
COMPLIANCE WITH STATE AND FEDERAL SECURITIES LAWS.  IN CONNECTION WITH ANY
TRANSFER OF SECURITIES OTHER THAN PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR RULE 144, TO THE COMPANY OR TO AN AFFILIATE OF A PURCHASER OR IN
CONNECTION WITH A PLEDGE AS CONTEMPLATED IN SECTION 4.1(B), THE COMPANY MAY
REQUIRE THE TRANSFEROR THEREOF TO PROVIDE TO THE COMPANY AN OPINION OF COUNSEL
SELECTED BY THE TRANSFEROR AND REASONABLY ACCEPTABLE TO THE COMPANY, THE FORM
AND SUBSTANCE OF WHICH OPINION SHALL BE REASONABLY SATISFACTORY TO THE COMPANY,
TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION OF SUCH
TRANSFERRED SECURITIES UNDER THE SECURITIES ACT.  AS A CONDITION OF TRANSFER,
ANY SUCH TRANSFEREE SHALL AGREE IN WRITING TO BE BOUND BY THE TERMS OF THIS
AGREEMENT AND SHALL HAVE THE RIGHTS OF A PURCHASER UNDER THIS AGREEMENT AND THE
REGISTRATION RIGHTS AGREEMENT.

 

(B)                                 THE PURCHASERS AGREE TO THE IMPRINTING, SO
LONG AS IS REQUIRED BY THIS SECTION 4.1(B), OF A LEGEND ON ANY OF THE SECURITIES
IN THE FOLLOWING FORM:

 

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

 

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

 

(C)                                  CERTIFICATES EVIDENCING THE SHARES AND
WARRANT SHARES SHALL NOT CONTAIN ANY LEGEND (INCLUDING THE LEGEND SET FORTH IN
SECTION 4.1(B)), (I) WHILE A REGISTRATION STATEMENT (INCLUDING THE REGISTRATION
STATEMENT) COVERING THE RESALE OF SUCH SECURITY IS EFFECTIVE UNDER THE
SECURITIES ACT, OR (II) FOLLOWING ANY SALE OF SUCH SHARES OR WARRANT SHARES
PURSUANT TO RULE 144, OR (III) IF SUCH SHARES OR WARRANT SHARES ARE ELIGIBLE FOR
SALE UNDER RULE 144(K), OR (IV) IF SUCH LEGEND IS NOT REQUIRED UNDER APPLICABLE
REQUIREMENTS OF THE SECURITIES ACT (INCLUDING JUDICIAL INTERPRETATIONS AND
PRONOUNCEMENTS ISSUED BY THE STAFF OF THE COMMISSION).  THE COMPANY SHALL CAUSE
ITS COUNSEL TO ISSUE A LEGAL OPINION TO THE COMPANY’S TRANSFER AGENT PROMPTLY
AFTER THE EFFECTIVE DATE IF REQUIRED BY THE

 

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COMPANY’S TRANSFER AGENT TO EFFECT THE REMOVAL OF THE LEGEND HEREUNDER.  IF ALL
OR ANY PORTION OF A WARRANT IS EXERCISED AT A TIME WHEN THERE IS AN EFFECTIVE
REGISTRATION STATEMENT TO COVER THE RESALE OF THE WARRANT SHARES, SUCH WARRANT
SHARES SHALL BE ISSUED FREE OF ALL LEGENDS.  THE COMPANY AGREES THAT FOLLOWING
THE EFFECTIVE DATE OR AT SUCH TIME AS SUCH LEGEND IS NO LONGER REQUIRED UNDER
THIS SECTION 4.1(C), IT WILL, NO LATER THAN THREE TRADING DAYS FOLLOWING THE
DELIVERY BY A PURCHASER TO THE COMPANY OR THE COMPANY’S TRANSFER AGENT OF A
CERTIFICATE REPRESENTING SHARES OR WARRANT SHARES, AS THE CASE MAY BE, ISSUED
WITH A RESTRICTIVE LEGEND (SUCH THIRD TRADING DAY, THE “LEGEND REMOVAL DATE”),
DELIVER OR CAUSE TO BE DELIVERED TO SUCH PURCHASER A CERTIFICATE REPRESENTING
SUCH SHARES THAT IS FREE FROM ALL RESTRICTIVE AND OTHER LEGENDS.  THE COMPANY
MAY NOT MAKE ANY NOTATION ON ITS RECORDS OR GIVE INSTRUCTIONS TO ANY TRANSFER
AGENT OF THE COMPANY THAT ENLARGE THE RESTRICTIONS ON TRANSFER SET FORTH IN THIS
SECTION.  CERTIFICATES FOR SECURITIES SUBJECT TO LEGEND REMOVAL HEREUNDER SHALL
BE TRANSMITTED BY THE TRANSFER AGENT OF THE COMPANY TO THE PURCHASERS BY
CREDITING THE ACCOUNT OF THE PURCHASER’S PRIME BROKER WITH THE DEPOSITORY TRUST
COMPANY SYSTEM.

 

(D)                                 IN ADDITION TO SUCH PURCHASER’S OTHER
AVAILABLE REMEDIES, THE COMPANY SHALL PAY TO A PURCHASER, IN CASH, AS PARTIAL
LIQUIDATED DAMAGES AND NOT AS A PENALTY, FOR EACH $1,000 OF SHARES OR WARRANT
SHARES (BASED ON THE CLOSING PRICE OF THE COMMON STOCK ON THE DATE SUCH
SECURITIES ARE SUBMITTED TO THE COMPANY’S TRANSFER AGENT) DELIVERED FOR REMOVAL
OF THE RESTRICTIVE LEGEND AND SUBJECT TO SECTION 4.1(C), $10 PER TRADING DAY
(INCREASING TO $20 PER TRADING DAY FIVE (5) TRADING DAYS AFTER SUCH DAMAGES HAVE
BEGUN TO ACCRUE) FOR EACH TRADING DAY AFTER THE LEGEND REMOVAL DATE UNTIL SUCH
CERTIFICATE IS DELIVERED WITHOUT A LEGEND. NOTHING HEREIN SHALL LIMIT SUCH
PURCHASER’S RIGHT TO PURSUE ACTUAL DAMAGES FOR THE COMPANY’S FAILURE TO DELIVER
CERTIFICATES REPRESENTING ANY SECURITIES AS REQUIRED BY THE TRANSACTION
DOCUMENTS, AND SUCH PURCHASER SHALL HAVE THE RIGHT TO PURSUE ALL REMEDIES
AVAILABLE TO IT AT LAW OR IN EQUITY INCLUDING, WITHOUT LIMITATION, A DECREE OF
SPECIFIC PERFORMANCE AND/OR INJUNCTIVE RELIEF.

 

(E)                                  EACH PURCHASER, SEVERALLY AND NOT JOINTLY
WITH THE OTHER PURCHASERS, AGREES THAT THE REMOVAL OF THE RESTRICTIVE LEGEND
FROM CERTIFICATES REPRESENTING SECURITIES AS SET FORTH IN THIS SECTION 4.1 IS
PREDICATED UPON THE COMPANY’S RELIANCE THAT THE PURCHASER WILL SELL ANY
SECURITIES PURSUANT TO EITHER THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, INCLUDING ANY APPLICABLE PROSPECTUS DELIVERY REQUIREMENTS, OR AN EXEMPTION
THEREFROM.

 

4.2                                 Furnishing of Information.  As long as any
Purchaser owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.  As long as any Purchaser owns Securities, if the Company is
not required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the
Securities under Rule 144. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.

 

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

 

4.4                                 Securities Laws Disclosure; Publicity.  The
Company shall, by 8:30 a.m. Eastern time on the Trading Day following the first
Closing Date, issue a Current Report on Form 8-K, reasonably acceptable to each
Purchaser in the first Closing disclosing the material terms of the transactions
contemplated hereby, and shall attach the Transaction Documents thereto. The
Company shall also file a Form 8-K within four (4) Trading Days following the
closing of the Trace Energy Services Ltd. acquisition (the “Trace Acquisition”)
which shall contain all information required to be contained therein by
applicable Commission regulations, and expressly including all non-public
information contained in the private placement memorandum and investor
presentation distributed by the Company to Purchaser. The Company and each
Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor any
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of any Purchaser, or without the prior consent of each Purchaser, with
respect to any press release of the Company, which consent shall not
unreasonably be withheld, except if such disclosure is required by law, in which
case the disclosing party shall promptly provide the other party with prior
notice of such public statement or communication.  Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
the registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchasers with prior
notice of such disclosure permitted under subclause (i) or (ii).

 

4.5                                 Shareholder Rights Plan.  No claim will be
made or enforced by the Company or, to the knowledge of the Company, any other
Person that any Purchaser is an “Acquiring Person” under any shareholder rights
plan or similar plan or arrangement in effect or hereafter adopted by the
Company, or that any Purchaser could be deemed to trigger the provisions of any
such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchasers. The Company shall conduct its business in a manner so that it will
not become subject to the Investment Company Act.

 

4.6                                 Non-Public Information.  The Company
covenants and agrees that neither it nor any other Person acting on its behalf
will provide any Purchaser or its agents or counsel with any information that
the Company believes constitutes material non-public information other than that
to be contained in the company’s Form 8-K to be filed in connection with the
Trace Acquisition to, unless prior thereto such Purchaser shall have executed a
written agreement regarding the confidentiality and use of such information. 
The Company understands and

 

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confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

 

4.7                                 Use of Proceeds.  Except as set forth on
Schedule 4.7 attached hereto, the Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company’s debt (other than payment of trade
payables in the ordinary course of the Company’s business and prior practices),
to redeem any Common Stock or Common Stock Equivalents or to settle any
outstanding litigation.

 

4.8                                 Reimbursement.  If any Purchaser becomes
involved in any capacity in any Proceeding by or against any Person who is a
stockholder of the Company (except as a result of sales, pledges, margin sales
and similar transactions by such Purchaser to or with any current stockholder),
solely as a result of such Purchaser’s acquisition of the Securities under this
Agreement, the Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation preparation and
travel in connection therewith) incurred in connection therewith, as such
expenses are incurred.  The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person.  The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company solely as a result of acquiring the Securities under
this Agreement.

 

4.9                                 Indemnification of Purchasers.   Subject to
the provisions of this Section 4.9, the Company will indemnify and hold the
Purchasers and their directors, officers, shareholders, members, partners,
employees and agents (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of such Purchaser,
with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of such Purchaser’s
representations, warranties or covenants under the Transaction Documents or any
agreements or understandings such Purchaser may have with any such stockholder
or any violations by the Purchaser of state or federal securities laws or any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance).  If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing.  Any Purchaser Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the

 

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expense of such Purchaser Party except to the extent that (i) the employment
thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Purchaser Party.  The Company
will not be liable to any Purchaser Party under this Agreement (i) for any
settlement by a Purchaser Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to the
extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Purchaser Party’s breach of any of the representations,
warranties, covenants or agreements made by the Purchasers in this Agreement or
in the other Transaction Documents.

 

4.10                           Reservation of Common Stock. As of the date
hereof, the Company has reserved and the Company shall continue to reserve and
keep available at all times, free of preemptive rights, a sufficient number of
shares of Common Stock for the purpose of enabling the Company to issue Shares
pursuant to this Agreement and Warrant Shares pursuant to any exercise of the
Warrants.  

 

4.11         Listing of Common Stock.  The Company hereby agrees to use best
efforts to maintain the listing of the Common Stock on a Trading Market, and as
soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the first Closing
Date) to list all of the Shares and Warrant Shares on such Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application all of the
Shares and Warrant Shares, and will take such other action as is necessary to
cause all of the Shares and Warrant Shares to be listed on such other Trading
Market as promptly as possible.  The Company will take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all respects with the Company’s reporting, filing and
other obligations under the bylaws or rules of the Trading Market.

 

4.12                           Equal Treatment of Purchasers.  No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration is also offered to all of the parties to the Transaction
Documents.  For clarification purposes, this provision constitutes a separate
right granted to each Purchaser by the Company and negotiated separately by each
Purchaser, and is intended to treat for the Company the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert or as
a group with respect to the purchase, disposition or voting of Securities or
otherwise.

 

4.13                           [RESERVED].

 

4.14                           Subsequent Equity Sales.

 

(A)                                  FROM THE DATE HEREOF UNTIL 90 DAYS AFTER
THE EFFECTIVE DATE, NEITHER THE COMPANY NOR ANY SUBSIDIARY SHALL ISSUE SHARES OF
COMMON STOCK OR COMMON STOCK EQUIVALENTS; PROVIDED, HOWEVER, THE 90 DAY PERIOD
SET FORTH IN THIS SECTION 4.14 SHALL BE EXTENDED FOR THE NUMBER OF TRADING DAYS
DURING SUCH PERIOD IN WHICH (I) TRADING IN THE

 

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COMMON STOCK IS SUSPENDED BY ANY TRADING MARKET, OR (II) FOLLOWING THE EFFECTIVE
DATE, THE REGISTRATION STATEMENT IS NOT EFFECTIVE OR THE PROSPECTUS INCLUDED IN
THE REGISTRATION STATEMENT MAY NOT BE USED BY THE PURCHASERS FOR THE RESALE OF
THE SHARES AND WARRANT SHARES.

 

(B)                                 FROM THE DATE HEREOF UNTIL SUCH TIME AS NO
WARRANTS REMAIN UNEXERCISED AND UNEXPIRED, THE COMPANY SHALL BE PROHIBITED FROM
EFFECTING OR ENTERING INTO AN AGREEMENT TO EFFECT ANY SUBSEQUENT FINANCING
INVOLVING A “VARIABLE RATE TRANSACTION”.  THE TERM “VARIABLE RATE TRANSACTION”
SHALL MEAN A TRANSACTION IN WHICH THE COMPANY ISSUES OR SELLS (I) ANY DEBT OR
EQUITY SECURITIES THAT ARE CONVERTIBLE INTO, EXCHANGEABLE OR EXERCISABLE FOR, OR
INCLUDE THE RIGHT TO RECEIVE ADDITIONAL SHARES OF COMMON STOCK EITHER (A) AT A
CONVERSION, EXERCISE OR EXCHANGE RATE OR OTHER PRICE THAT IS BASED UPON AND/OR
VARIES WITH THE TRADING PRICES OF OR QUOTATIONS FOR THE SHARES OF COMMON STOCK
AT ANY TIME AFTER THE INITIAL ISSUANCE OF SUCH DEBT OR EQUITY SECURITIES, OR
(B) WITH A CONVERSION, EXERCISE OR EXCHANGE PRICE THAT IS SUBJECT TO BEING RESET
AT SOME FUTURE DATE AFTER THE INITIAL ISSUANCE OF SUCH DEBT OR EQUITY SECURITY
OR UPON THE OCCURRENCE OF SPECIFIED OR CONTINGENT EVENTS DIRECTLY OR INDIRECTLY
RELATED TO THE BUSINESS OF THE COMPANY OR THE MARKET FOR THE COMMON STOCK OR
(II) ENTERS INTO ANY AGREEMENT, INCLUDING, BUT NOT LIMITED TO, AN EQUITY LINE OF
CREDIT, WHEREBY THE COMPANY MAY SELL SECURITIES AT A FUTURE DETERMINED PRICE. 
ANY PURCHASER SHALL BE ENTITLED TO OBTAIN INJUNCTIVE RELIEF AGAINST THE COMPANY
TO PRECLUDE ANY SUCH ISSUANCE, WHICH REMEDY SHALL BE IN ADDITION TO ANY RIGHT TO
COLLECT DAMAGES.

 

(C)                                  NOTWITHSTANDING THE FOREGOING, THIS
SECTION 4.14 SHALL NOT APPLY IN RESPECT OF AN EXEMPT ISSUANCE, EXCEPT THAT NO
VARIABLE RATE TRANSACTION SHALL BE AN EXEMPT ISSUANCE.

 

4.15                           Short Sales and Confidentiality After The Date
Hereof.  Each Purchaser severally and not jointly with the other Purchasers
covenants that neither it nor any affiliates acting on its behalf or pursuant to
any understanding with it will execute any Short Sales during the period after
the beginning of the Discussion Time and ending at the time that the
transactions contemplated by this Agreement are first publicly announced as
described in Section 4.4.  Each Purchaser, severally and not jointly with the
other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in Section 4.4, such Purchaser will maintain, the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).  Each Purchaser understands and
acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares
of the Common Stock “against the box” prior to the Effective Date of the
Registration Statement with the Securities is a violation of Section 5 of the
Securities Act, as set forth in Item 65, Section 5 under Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance. 
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 4.4.  Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such

 

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Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.
Further, no Purchaser in the second Closing shall execute any Short Sales until
after the second Closing has occurred.

 

4.16                           Delivery of Securities After Closing.  The
Company shall deliver, or cause to be delivered, the respective Securities
purchased by each Purchaser to such Purchaser within 3 Trading Days of the
applicable Closing Date.

 

ARTICLE V.
MISCELLANEOUS

 

5.1                                 Termination.  This Agreement may be
terminated by any Purchaser, as to such Purchaser’s obligations hereunder only
and without any effect whatsoever on the obligations between the Company and the
other Purchasers, by written notice to the other parties, if the first Closing
has not been consummated on or before December 1, 2005; provided, however, that
no such termination will affect the right of any party to sue for any breach by
the other party (or parties).

 

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

 

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

 

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

 

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

 

5.6                                 Headings.  The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.  The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.

 

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

 

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

 

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

 

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permitted by law.  The parties hereby waive all rights to a trial by jury.  If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys’ fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

 

5.10                           Survival.  The representations and warranties
contained herein shall survive the Closing and the delivery of the Shares and
Warrant Shares.

 

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

 

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

 

5.13                           Rescission and Withdrawal Right.  Notwithstanding
anything to the contrary contained in (and without limiting any similar
provisions of) the Transaction Documents, whenever any Purchaser exercises a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion
from time to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its future actions
and rights.

 

5.14                           Replacement of Securities.  If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for
and upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested.  The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities.

 

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

 

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

 

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

 

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

 

5.19                           Construction. The parties agree that each of them
and/or their respective counsel has reviewed and had an opportunity to revise
the Transaction Documents and, therefore, the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of the Transaction Documents or any
amendments hereto.

 

(Signature Pages Follow)

 

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

 

 

GEOKINETICS INC.

 

Address for Notice:

 

 

 

 

 

 

By:

 

 

One Riverway, Suite 2100

 

Name:

 

Houston, TX 77056

 

Title:

 

Tel: (713) 850-7600

 

 

Fax:

 

 

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

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

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[PURCHASER SIGNATURE PAGES TO GOKN SECURITIES PURCHASE AGREEMENT]

 

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

 

Name of Purchaser:

 

 

Signature of Authorized Signatory of Purchaser:

 

 

Name of Authorized Signatory:

 

 

Title of Authorized Signatory:

 

 

Email Address of Purchaser:

 

 

 

Address for Notice of Purchaser:

 

 

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

 

 

Subscription Amount:

Shares:

Warrant Shares:

 

Do you want your Warrants to contain a 9.99% beneficial ownership blocker
provision?

 

o  Yes                                                                                                        
o  No

 

Do you want your Warrants to contain a 4.99% beneficial ownership blocker
provision?

 

o  Yes                                                                                                        
o  No

 

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

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