EX-4.1 Securities Purchase Agreement









Exhibit 4.1




EXECUTION COPY




SECURITIES PURCHASE AGREEMENT




     SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of May 22, 2008, by and among
Liberator Medical Holdings, Inc., a Nevada corporation, with headquarters located at 2979 South
East Gran Park Way, Stuart, Florida 34997 (the “Company”), as issuer, Liberator Medical Supply,
Inc., a Florida corporation and a wholly-owned subsidiary of the Company, as guarantor (the
“Guarantor” and, together with the Company, the “Issuer Parties”), and the investors listed on the
Schedule of Buyers attached hereto (individually, a “Buyer” and collectively, the “Buyers”).



     WHEREAS:



     A. The Company and each Buyer is executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as
amended (the “1933 Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the
United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.



     B. The Company has authorized a new series of unsecured senior convertible notes of the
Company, in the form attached hereto as Exhibit A (the “Notes”), which Notes shall be
convertible into the Company’s common stock, par value $0.001 per share (the “Common Stock”) (as
converted, the “Conversion Shares”), in accordance with the terms of the Notes.



     C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate principal amount of the Notes set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers attached hereto (which aggregate
amount for all Buyers shall be $3,500,000) and (ii) warrants, in substantially the form attached
hereto as Exhibit B (the “Warrants”), to acquire up to that number of additional shares of
Common Stock set forth opposite such Buyer’s name in column (4) of the Schedule of Buyers (as
exercised, collectively, the “Warrant Shares”) (which aggregate amount of Warrant Shares underlying
the Warrants issued to all Buyers shall be 4,375,000).



     D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, substantially in the form attached hereto
as Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company will
agree to provide certain registration rights with respect to the Registrable Securities (as defined
in the Registration Rights Agreement) under the 1933 Act and the rules and regulations of the SEC
promulgated thereunder, and applicable state securities laws.



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



     F. The obligations of the Company under the Notes shall be unconditionally guaranteed
(substantially in the form attached hereto as Exhibit F, the “Guaranty”) by the Guarantor.



 









 





     G. The obligations under the $1,664,000 in aggregate principal amount of promissory notes
(collectively, the “Subordinated Notes”) issued by the Guarantor to Mark Libratore and assumed by
the Company, will be subordinated to the obligations of the Company and the Guarantor to the
holders of the Notes pursuant to a Subordination Agreement to be executed and delivered by Mark
Libratore, for the benefit of the holders of the Notes, and acknowledged and agreed to by the
Company and the Guarantor, substantially in the formed attached hereto as Exhibit G (the
“Subordination Agreement”).



     NOW, THEREFORE, the Company, the Guarantor and each Buyer hereby agree as follows:



     1. PURCHASE AND SALE OF NOTES AND WARRANTS.



          (a) Purchase of Notes and Warrants.




               (i) Notes and Warrants. Subject to the satisfaction (or waiver) of the conditions set
forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer, and each Buyer
severally, but not jointly, shall purchase from the Company on the Closing Date (as defined below),
(x) a principal amount of Notes as is set forth opposite such Buyer’s name in column (3) on the
Schedule of Buyers and (y) Warrants to acquire up to that number of Warrant Shares as is set forth
opposite such Buyer’s name in column (4) on the Schedule of Buyers, (the “Closing”).



               (ii) Closing. The date and time of the Closing (the “Closing Date”) shall be 10:00
a.m., New York City time, on the date hereof (or such later date as is mutually agreed to by the
Company and each Buyer) after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below at the offices of Lowenstein Sandler PC, 1251 Avenue of
the Americas, 18th Floor, New York, New York 10020.



               (iii) Purchase Price. The aggregate purchase price for the Notes and the Warrants to
be purchased by each such Buyer at the Closing (the “Purchase Price”) shall be the amount set forth
opposite each Buyer’s name in column (3) of the Schedule of Buyers. Each Buyer shall pay $1,000
for each $1,000 of principal amount of Notes and related Warrants to be purchased by such Buyer at
the Closing.



          (b) Form of Payment. On the Closing Date, (i) each Buyer shall pay its Purchase Price
to the Company for the Notes and the Warrants to be issued and sold to such Buyer at the Closing,
by wire transfer of immediately available funds in accordance with the Company’s written wire
instructions and (ii) the Company shall deliver to each Buyer the Notes (allocated in the principal
amounts as such Buyer shall request) which such Buyer is then purchasing hereunder along with the
Warrants (allocated in the amounts as such Buyer shall request) which such Buyer is purchasing, in
each case duly executed on behalf of the Company and registered in the name of such Buyer or its
designee.




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     2. BUYER’S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not jointly,
represents and warrants with respect to only itself that:



          (a) No Sale or Distribution. Such Buyer is acquiring the Notes, and the Warrants, and
upon conversion of the Notes and exercise of the Warrants (other than pursuant to a Cashless
Exercise (as defined in the Warrants)) will acquire the Conversion Shares issuable upon conversion
of the Notes and the Warrant Shares issuable upon exercise of the Warrants, for its own account and
not with a view towards, or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under the 1933 Act and
pursuant to the applicable terms of the Transaction Documents (as defined in Section 3(b)). Such
Buyer is acquiring the Securities hereunder in the ordinary course of its business. Such Buyer
does not presently have any agreement or understanding, directly or indirectly, with any Person (as
defined in Section 3(s) below) to distribute any of the Securities.




          (b) Accredited Investor Status. Such Buyer is an “accredited investor” as that term
is defined in Rule 501(a) of Regulation D.




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




          (d) Information. Such Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if
any, or its representatives shall modify, amend or affect such Buyer’s right to rely on the
Company’s representations and warranties contained herein. Such Buyer understands that its
investment in the Securities involves a high degree of risk and is able to afford a complete loss
of such investment. Such Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its acquisition of the
Securities.




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




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          (f) Transfer or Resale. Such Buyer understands that except as provided in the
Registration Rights Agreement: (i) the Securities have not been and are not being registered under
the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a form reasonably acceptable to the Company, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144
or Rule 144A promulgated under the 1933 Act, as amended (or a successor rule thereto)
(collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any
resale of the Securities under circumstances in which the seller (or the Person through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to comply with the terms
and conditions of any exemption thereunder. The Securities may be pledged in connection with a
bona fide margin account or other loan or financing arrangement secured by the Securities and such
pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Buyer effecting a pledge of Securities shall be required to provide the Company
with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or
any other Transaction Document (as defined in Section 3(b)), including, without limitation, this
Section 2(f).




          (g) Legends. Such Buyer understands that the certificates or other instruments
representing the Notes and the Warrants and, until such time as the resale of the Conversion Shares
and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear any legend as required by the “blue sky” laws of any state
and a restrictive legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):





[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE



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SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


The legend set forth above shall be removed and the Company shall issue a certificate without such
legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by
state securities laws, (i) such Securities are registered for resale under the 1933 Act, (ii) in
connection with a sale, assignment or other transfer, such holder provides the Company with an
opinion of a law firm reasonably acceptable to the Company, in a form reasonably acceptable to the
Company, to the effect that such sale, assignment or transfer of the Securities may be made without
registration under the applicable requirements of the 1933 Act, or (iii) such holder provides the
Company with reasonable assurance that the Securities can be sold, assigned or transferred pursuant
to Rule 144 or Rule 144A.




          (h) Validity; Enforcement. This Agreement and the Registration Rights Agreement have
been duly and validly authorized, executed and delivered on behalf of such Buyer and shall
constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in
accordance with their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies.




          (i) No Conflicts. The execution, delivery and performance by such Buyer of this
Agreement and the Registration Rights Agreement and the consummation by such Buyer of the
transactions contemplated hereby and thereby will not (i) result in a violation of the
organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.




          (j) Residency. Such Buyer is a resident of that jurisdiction specified below its
address on the Schedule of Buyers.




          (k) Certain Trading Activities. Other than with respect to the transactions
contemplated herein, since the time that such Buyer was first contacted by the Company, the Agent
(as defined below) or any other Person regarding this investment in the Company neither the Buyer
nor any “affiliate” of such Buyer (as defined in Rule 144 of the 1933 Act) which (x) had knowledge
of the transactions contemplated hereby, (y) has or shares discretion relating to such Buyer’s
investments or trading or information concerning such Buyer’s investments and (z) is subject to
such Buyer’s review or input concerning such affiliate’s investments or trading (collectively,
“Trading Affiliates”) has directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Buyer or Trading Affiliate, effected or agreed to effect
any transactions in the securities of the Company. Such Buyer hereby covenants




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and agrees not to, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in any transactions in the securities of the Company or involving the Company’s
securities during the period from the date hereof until such time as (i) the transactions
contemplated by this Agreement are first publicly announced as described in Section 4(h) hereof or
(ii) this Agreement is terminated in full pursuant to Section 8 hereof. Notwithstanding the
foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or
warranty, or preclude any actions, with respect to the identification of the availability of, or
securing of, available shares to borrow in order to effect short sales or similar transactions in
the future.




          (l) Legal Investment. Such Buyer acknowledges that the Company has not provided any
advice as to whether the Securities are a suitable investment or whether the Securities constitute
a legal investment for such Buyer.




          (m) Compliance with SEC Telephone Interpretation. Such Buyer acknowledges the SEC’s
position 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, and such Buyer will adhere to such position.




          (n) General Solicitation. Such Buyer 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.




          (o) Organization. Such Buyer is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization with the requisite corporate
or partnership power and authority to enter into and to consummate the transactions contemplated by
the applicable Transaction Documents (as defined below) and otherwise to carry out its obligations
thereunder.




     3. REPRESENTATIONS AND WARRANTIES OF THE ISSUER PARTIES. Each of the Issuer Parties,
jointly and severally, represents and warrants to each of the Buyers that, as of the date hereof
and as of the Closing Date, except as set forth in any disclosure schedules hereto or as otherwise
described in the SEC Documents (as defined in Section 3(k) below) prior to the date hereof:



          (a) Organization and Qualification. The Company and its “Subsidiaries” (which for
purposes of this Agreement means “Significant Subsidiary” as such term is defined in Rule 1-02 of
Regulation S-X of the 1933 Act), including, without limitation, the Guarantor, are entities duly
organized and validly existing and, to the extent legally applicable, in good standing under the
laws of the jurisdiction in which they are formed, and have the requisite power and authorization
to own their properties and to carry on their business as now being conducted. Each of the Company
and its Subsidiaries is duly qualified as a foreign entity to do business and to the extent legally
applicable, is in good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not reasonably be expected to have
a Material Adverse Effect. As used in this Agreement, “Material Adverse Effect” means any material
adverse effect on the business, properties, assets,




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operations, results of operations, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby and the
other Transaction Documents or by the agreements and instruments to be entered into in connection
herewith or therewith, or on the authority or ability of the Company to perform its obligations
under the Transaction Documents (as defined below). The Company has no Subsidiaries other than the
Guarantor except as set forth on Schedule 3(a). Notwithstanding the foregoing, the entities
in which the Company, directly or indirectly, owns any of the capital stock or holds an equity or
similar interest which are not Subsidiaries, taken as whole, do not have income, revenues or assets
which are material to the Company and its Subsidiaries, individually, or taken as a whole. Except
as set forth on Schedule 3(a), the Company does not, directly or indirectly, own any joint
venture or similar entity or capital stock or hold an equity or similar interests.




          (b) Authorization; Enforcement; Validity. Each of the Issuer Parties has the
requisite corporate power and authority to enter into and perform its obligations under this
Agreement, and to the extent it is a party thereto, the Notes, the Registration Rights Agreement,
the Guaranty, the Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Warrants and each of the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction Documents”) to which
such Issuer Party is a party, and with respect to the Company, to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the Transaction
Documents by the Issuer Party party thereto and the consummation by such Issuer Party of the
transactions contemplated hereby and thereby, including, without limitation, the issuance of the
Notes and the Warrants, the execution and delivery of the Guaranty, the reservation for issuance
and the issuance of the Conversion Shares issuable upon conversion of the Notes, and the
reservation for issuance and issuance of Warrant Shares issuable upon exercise of the Warrants,
have been duly authorized by the applicable Issuer Party’s board of directors, no further filing,
consent, or authorization is required by any Issuer Party, its board of directors or its
stockholders. This Agreement and the other Transaction Documents of even date herewith have been
duly executed and delivered by each Issuer Party party thereto, and constitute the legal, valid and
binding obligations of such Issuer Party, enforceable against such Issuer Party in accordance with
their respective terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and
remedies and the rules and regulations of Medicare and Medicaid.




          (c) Issuance of Securities. The issuance of the Notes and the Warrants are duly
authorized by the Company and upon issuance in accordance with the terms of this Agreement shall be
free from all taxes, liens and charges with respect to the issue thereof. As of the Closing, a
number of shares of Common Stock shall have been duly authorized and reserved for issuance which
equals or exceeds 110% of the aggregate of the maximum number of shares of Common Stock issuable
(i) upon conversion of the Notes and (ii) upon exercise of the Warrants. Upon conversion or
exercise in accordance with the Notes or the Warrants, as the case may be, the Conversion Shares
and the Warrant Shares, respectively, will be validly issued, fully paid and nonassessable and free
from all preemptive or similar rights, taxes, liens and charges with respect to the issue thereof,
with the holders being entitled to all rights accorded to a holder of Common Stock. Assuming the
accuracy of each of the representations and warranties set




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forth in Section 2 of this Agreement, the offer and issuance by the Company of the Securities
is exempt from registration under the 1933 Act.




          (d) No Conflicts. The execution, delivery and performance of this Agreement and the
other Transaction Documents by the Issuer Party party thereto and the consummation by such Issuer
Party of the transactions contemplated hereby and thereby (including, without limitation, with
respect to the Company, the issuance of the Notes and Warrants and reservation for issuance and
issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of any
certificate of incorporation, certificate of formation, any certificate of designations or other
constituent documents of the Company or any of its Subsidiaries, any capital stock of the Company
or any of its Subsidiaries or bylaws of the Company or any of its Subsidiaries or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or both would become
a default) in any respect under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any
of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including foreign, federal and state securities laws and regulations and the
rules and regulations of the Pink OTC Markets Inc. (the “Principal Market”)) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, except in the case of clauses (ii) and (iii) above, to the
extent that such violation conflict, default or right would not reasonably be expected to have a
Material Adverse Effect.




          (e) Consents. Neither the Company nor any of its Subsidiaries is required to obtain
any consent, authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other Person in order for
any Issuer Party to execute, deliver or perform any of its obligations under or contemplated by the
Transaction Documents to which such Issuer Party is a party, in each case in accordance with the
terms hereof or thereof, except for any consent that may be required in connection with any
restriction on transfer under any laws, rules or regulations relating to Medicare. The Company and
its Subsidiaries are unaware of any facts or circumstances that might prevent the Company from
obtaining or effecting any of the registration, application or filings pursuant to the preceding
sentence. The Company is not in violation of the listing requirements of the Principal Market and
has no knowledge of any facts that would reasonably lead to delisting or suspension of the Common
Stock in the foreseeable future.




          (f) Acknowledgment Regarding Buyer’s Purchase of Securities. Each Issuer Party
acknowledges and agrees that each Buyer is acting solely in the capacity of an arm’s length
purchaser with respect to the Transaction Documents and the transactions contemplated hereby and
thereby and that no Buyer is (i) an officer or director of any Issuer Party, (ii) to the knowledge
of any Issuer Party, an “affiliate” of the Company or any of its Subsidiaries (as defined in Rule
144 of the 1933 Act) or (iii) to the knowledge of any Issuer Party, a “beneficial owner” of more
than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended (the “1934 Act”)).




          (g) No General Solicitation; Placement Agent’s Fees. Neither the Company, nor any of
its Subsidiaries or affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of Regulation D) in




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connection with the offer or sale of the Securities. The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’ commissions (other than
for persons engaged by any Buyer or its investment advisor) relating to or arising out of the
transactions contemplated hereby. The Company acknowledges that it has engaged Ladenburg Thalmann
& Co. Inc. as placement agent (collectively, the “Agent”) in connection with the sale of the
Securities. Other than the Agent, neither the Company nor any of its Subsidiaries has engaged any
placement agent or other agent in connection with the sale of the Securities.




          (h) No Integrated Offering. None of the Company, its Subsidiaries, any of their
affiliates, and any Person acting on 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
require registration of the issuance of any of the Securities under the 1933 Act, whether through
integration with prior offerings or otherwise, or cause this offering of the Securities to require
approval of stockholders of the Company for purposes of any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of any exchange or
automated quotation system on which any of the securities of the Company are listed or designated.
None of the Company, its Subsidiaries, their affiliates and any Person acting on their behalf will
take any action or steps referred to in the preceding sentence that would require registration of
the issuance of any of the Securities under the 1933 Act or cause the offering of the Securities to
be integrated with other offerings for purposes of any such applicable stockholder approval
provisions.




          (i) Dilutive Effect. The Company understands and acknowledges that the number of
Conversion Shares issuable upon conversion of the Notes and the Warrant Shares issuable upon
exercise of the Warrants will increase in certain circumstances. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Notes in accordance with this
Agreement and the Notes and its obligation to issue the Warrant Shares upon exercise of the
Warrants in accordance with this Agreement and the Warrants is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.




          (j) Application of Takeover Protections; Rights Agreement. 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 Certificate of Incorporation (as
defined in Section 3(r)) or the laws of the state of its incorporation which is or could become
applicable to any Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company’s issuance of the Securities and any Buyer’s ownership of the
Securities. The Company and its board of directors have taken all necessary action, if any, in
order to render inapplicable any stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of the Company.




          (k) SEC Documents; Financial Statements. Except as disclosed in the Company’s Current
Report on Form 8-K filed with the SEC on February 26, 2008, during the twelve (12) months prior to
the date hereof, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting




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requirements of the 1934 Act (all of the foregoing filed during the twelve (12) months prior
to the date hereof and all exhibits included therein and financial statements, notes and schedules
thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC
Documents”), and during the twelve months prior thereto, the Company, to its knowledge, has filed
all reports, schedules, forms, statements, and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the 1934 Act. The Company has delivered to the
Buyers or their respective representatives true, correct and complete copies of the SEC Documents
not available on the EDGAR system. As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the 1934 Act and the rules and regulations of the
SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the
time they were filed with the SEC, 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. As of their
respective filing dates, the financial statements of the Company included in the SEC Documents
complied as to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). No other information provided by or on behalf of the
Company to the Buyers which is not included in the SEC Documents, including, without limitation,
information referred to in Section 2(d) of this Agreement or in any disclosure schedules, contains
any untrue statement of a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstance under which they are or were made not
misleading.




          (l) Absence of Certain Changes. Since December 31, 2007, there has been no material
adverse change and no material adverse development in the business, properties, operations,
condition (financial or otherwise), results of operations or prospects of the Company or its
Subsidiaries. Since December 31, 2007, the Company has not (i) declared or paid any dividends,
(ii) sold any assets, individually or in the aggregate, in excess of $100,000 outside of the
ordinary course of business or (iii) had capital expenditures, individually or in the aggregate, in
excess of $500,000.




          (m) No Undisclosed Events, Liabilities, Developments or Circumstances. No event,
liability, development or circumstance has occurred or exists, or is contemplated to occur with
respect to the Company, its Subsidiaries or their respective business, properties, prospects,
operations or financial condition, that is required to be, or should have been, disclosed by the
Company under applicable securities laws in the SEC Documents.




          (n) Conduct of Business; Regulatory Permits. Neither the Company nor any of its
Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation,
any certificate of designations of any outstanding series of preferred stock of the Company or the
Bylaws or their organizational charter or bylaws, respectively. Neither the




-10-









 







Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its Subsidiaries, and neither
the Company nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except for possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Since February 14, 2008, (i) the Common
Stock has been designated for quotation on the Principal Market, (ii) trading in the Common Stock
has not been suspended by the SEC or the Principal Market and (iii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding the suspension or
delisting of the Common Stock from the Principal Market. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate regulatory authorities
necessary to conduct their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the aggregate, a
Material Adverse Effect, and neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate, authorization or
permit.




          (o) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries nor
any director, officer, agent, employee or other Person acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.




          (p) Sarbanes-Oxley Act. The Company is in material compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof,
and any and all applicable rules and regulations promulgated by the SEC thereunder that are
effective as of the date hereof.




          (q) Transactions With Affiliates. None of the officers, directors or employees of the
Company or any of its Subsidiaries is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for ordinary course services as employees, officers or 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 such officer, director or employee or, to the knowledge of the Company or
any of its Subsidiaries, any corporation, partnership, trust or other entity in which any such
officer, director, or employee has a substantial interest or is an officer, director, trustee or
partner.




          (r) Equity Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 200,000,000 shares of Common Stock, of which as of the date hereof, 32,050,366
shares are issued and outstanding, 1,000,000 shares are reserved for issuance pursuant to the
Company’s stock option and purchase plans and 10,295,018 shares are reserved for issuance pursuant
to securities (other than the aforementioned options, the Notes and the




-11-









 







Warrants) exercisable or exchangeable for, or convertible into, shares of Common Stock. All
outstanding shares of the Company’s capital stock have been, or upon issuance will be, validly
issued and are, or upon issuance will be, fully paid and nonassessable. With respect to any debt
or equity instruments of the Company and its Subsidiaries, (i) none of the Company’s capital stock
is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered
or permitted by the Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of
its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional capital stock of the Company or
any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are
no outstanding debt securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by
which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing
statements securing obligations in any material amounts, either singly or in the aggregate, filed
in connection with the Company or any of its Subsidiaries; (v) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act (except pursuant to the Registration Rights
Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or
may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no
securities or instruments containing anti-dilution or similar provisions that will be triggered by
the issuance of the Securities; (viii) the Company does not have any stock appreciation rights or
“phantom stock” plans or agreements or any similar plan or agreement; and (ix) the Company and its
Subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents but
not so disclosed in the SEC Documents, other than those incurred in the ordinary course of the
Company’s or its Subsidiaries’ respective businesses and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect. The Issuer Parties have furnished to the
Buyers true, correct and complete copies of the Company’s certificate of incorporation, as amended
and as in effect on the date hereof (the “Certificate of Incorporation”), the Company’s bylaws, as
amended and as in effect on the date hereof (the “Bylaws”), the Guarantor’s certificate of
incorporation, as amended and as in effect on the date hereof (the “Guarantor Charter”), and the
Guarantor’s bylaws, as amended and as in effect on the date hereof (the “Guarantor Bylaws”), and
the terms of all securities convertible into, or exercisable or exchangeable for, shares of Common
Stock and the material rights of the holders thereof in respect thereto.




          (s) Indebtedness and Other Contracts. Neither the Company nor any of its Subsidiaries
(i) has any outstanding Indebtedness (as defined below), (ii) is a party to any contract, agreement
or instrument, the violation of which, or default under which, by the other party(ies) to such
contract, agreement or instrument could reasonably be expected to result in a Material Adverse
Effect, (iii) is in violation of any term of or in default under any contract, agreement or
instrument relating to any Indebtedness, except where such violations and defaults would not
result, individually or in the aggregate, in a Material Adverse Effect, or (iv) is a party




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to any contract, agreement or instrument relating to any Indebtedness, the performance of
which, in the judgment of the Company’s officers, has or is expected to have a Material Adverse
Effect. Schedule 3(s) provides a detailed description of the material terms of any such
outstanding Indebtedness. For purposes of this Agreement: (x) “Indebtedness” of any Person means,
without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services, including (without limitation)
“capital leases” in accordance with generally accepted accounting principles (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets acquired with the
proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in connection with generally
accepted accounting principles, consistently applied for the periods covered thereby, is classified
as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by
(or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in
any property or assets (including accounts and contract rights) owned by any Person, even though
the Person which owns such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person
with respect to any indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is
to provide assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or that the holders of
such liability will be protected (in whole or in part) against loss with respect thereto; and (z)
"Person” means an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any department or agency
thereof.




          (t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the
Company’s Subsidiaries or any of the Company’s or its Subsidiaries’ officers or directors.




          (u) Insurance. The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such 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 at a cost that would not have a Material Adverse
Effect.




-13-









 









          (v) Employee Relations.




               (i) Neither the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or employs any member of a union. The Company and its Subsidiaries believe that their
relations with their employees are good. No executive officer of the Company or any of its
Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise
terminate such officer’s employment with the Company or any such Subsidiary. No executive officer
of the Company or any of its Subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not subject the Company
or any of its Subsidiaries to any liability with respect to any of the foregoing matters.



               (ii) The Company and its Subsidiaries, to their knowledge, are in compliance with all federal,
state, local and foreign laws and regulations respecting labor, employment and employment practices
and benefits, terms and conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect.



          (w) Title. The Company and its Subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all personal property owned by them
which is material to the business of the Company and its Subsidiaries, in each case free and clear
of all liens, encumbrances and defects (in each case, other than Permitted Liens (as defined in the
Notes)) or such as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and any of its Subsidiaries.
Any real property and facilities held under lease by the Company and any of its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.




          (x) Intellectual Property Rights. The Company and its Subsidiaries own or possess
adequate rights or licenses to use all trademarks, service marks and all applications and
registrations therefor, trade names, patents, patent rights, copyrights, original works of
authorship, inventions, trade secrets and other intellectual property rights (“Intellectual
Property Rights”) necessary to conduct their respective businesses as conducted on the date of this
Agreement. None of the Company’s registered, or applied for, Intellectual Property Rights have
expired or terminated or have been abandoned, or are expected to expire or terminate or expected to
be abandoned, within three years from the date of this Agreement. To the knowledge of the Company,
no product or service of the Company or its Subsidiaries infringes the Intellectual Property Rights
of others. There is no claim, action or proceeding being made or brought, or to the knowledge of
the Company or its Subsidiaries, being threatened, against the Company or its Subsidiaries
regarding (i) its Intellectual Property Rights, or (ii) that the products




-14-









 







or services of the Company or its Subsidiaries infringe the Intellectual Property Rights of
others. Neither the Company nor any of its Subsidiaries is aware of any facts or circumstances
which might give rise to any of the foregoing infringements or claims, actions or proceedings. The
Company and its Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.




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




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




          (aa) Tax Status. The Company and each of its Subsidiaries (i) has made or filed all
foreign, federal and state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.




          (bb) Internal Accounting and Disclosure Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to maintain asset and
liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in
accordance with management’s general or specific authorization and (iv) the recorded accountability
for assets and liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any difference. Except as




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described in Item 8A of the Company’s Annual Report on Form 10-KSB filed with the SEC on
January 18, 2008 and in Part I, Item 3 of the Company’s Quarterly Report on Form 10-QSB filed with
the SEC on February 14, 2008 (collectively, the “Controls Disclosures”), the Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14 under the 1934 Act) that
are effective in ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within
the time periods specified in the rules and forms of the SEC, including, without limitation,
controls and procedures designed in to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is accumulated and communicated
to the Company’s management, including its principal executive officer or officers and its
principal financial officer or officers, as appropriate, to allow timely decisions regarding
required disclosure. Except as described in the Controls Disclosures, during the twelve months
prior to the date hereof neither the Company nor any of its Subsidiaries have received any notice
or correspondence from any accountant relating to any material weakness in any part of the system
of internal accounting controls of the Company or any of its Subsidiaries.




          (cc) Ranking of Notes and Guaranty. No Indebtedness of the Company or the Guarantor
is senior to the Notes or the Guaranty in right of payment, whether with respect of payment of
redemptions, interest, damages or upon liquidation or dissolution or otherwise.




          (dd) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that
otherwise would be reasonably likely to have a Material Adverse Effect.




          (ee) Investment Company Status. Neither Issuer Party is, and upon consummation of
the sale of the Securities neither Issuer Party will be, an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal
underwriter” for, an “investment company” as such terms are defined in the Investment Company Act
of 1940, as amended.




          (ff) Transfer Taxes. On the Closing Date, all stock transfer, documentary stamp taxes
or other taxes (other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will
have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or
will have been complied with.




          (gg) 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) other than the Agent, sold, bid for, purchased, or
paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the
Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.




-16-









 








          (hh) Disclosure. All disclosure provided to the Buyers regarding the Company or any
of its Subsidiaries, their business and the transactions contemplated hereby, including the
Schedules to this Agreement, furnished by or on behalf of any Issuer Party is true and correct and
does 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 the light of the circumstances under
which they were made, not misleading. Each press release issued by the Company or any of its
Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time
of release contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.




     4. COVENANTS.



          (a) Best Efforts. Each party shall use its best efforts timely to satisfy each of the
conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement.




          (b) Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify
the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from
such qualification), and shall provide evidence of any such action so taken to the Buyers on or
prior to the Closing Date. The Company shall make all filings and reports relating to the offer
and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of
the United States following the Closing Date.




          (c) Reporting Status. Until the date on which the Investors (as defined in the
Registration Rights Agreement) shall have sold all the Conversion Shares and Warrant Shares and
none of the Notes or Warrants is outstanding, (the “Reporting Period”), the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act
or the rules and regulations thereunder would permit such termination.




          (d) Use of Proceeds. The Company will use the proceeds from the sale of the
Securities for general corporate purposes, and not for the redemption or repurchase of any of its
or its Subsidiaries’ equity securities.




          (e) Financial Information. The Company agrees to send the following to each Investor
(as defined in the Registration Rights Agreement) during the Reporting Period (i) unless the
following are filed with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports or any
consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow
statements for any period other than annual, any Current Reports on Form 8-K and any registration
statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same
day as the release thereof, facsimile or e-mailed copies of all press releases issued by the
Company or any of its Subsidiaries, and (iii) copies of any notices and




-17-









 







other information made available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the stockholders. As used herein,
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in
The City of New York are authorized or required by law to remain closed.




          (f) Listing. The Company shall promptly secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national securities exchange
and automated quotation system, if any, upon which the Common Stock is then listed (subject to
official notice of issuance) and shall maintain, in accordance with the Notes and Warrants, such
listing of all Registrable Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock’s authorization for quotation on the
Principal Market. Neither the Company nor any of its Subsidiaries shall take any action which
would be reasonably expected to result in the delisting or suspension of the Common Stock on the
Principal Market. The Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(f).




          (g) Fees. Each party to this Agreement and the other Transaction Documents shall be
responsible for paying its own fees and expenses, except to the extent specifically provided for
otherwise under any Transaction Document. The Company shall be responsible for the payment of any
placement agent’s fees, financial advisory fees, or broker’s commissions (other than for Persons
engaged by any Buyer) relating to or arising out of the transactions contemplated hereby,
including, without limitation, any fees payable to the Agent. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without limitation, reasonable
attorney’s fees and out-of-pocket expenses) arising in connection with any claim relating to any
such payment.




          (h) Disclosure of Transactions and Other Material Information. Each of the Issuer
Parties agrees that neither it nor any other Person acting on its behalf will provide any of the
Buyers or their agents or counsel with any information that constitutes or could reasonably be
expected to constitute material, nonpublic information. Each of the Issuer Parties understands and
confirms that each of the Buyers will rely on the foregoing covenant in effecting transactions in
securities of the Company. On or before the second (2nd) Business Day following the
date of this Agreement, the Company shall issue a press release and file a Current Report on Form
8-K describing the terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents (including, without
limitation, this Agreement, the form of the Notes, the form of Warrant and the form of the
Registration Rights Agreement) as exhibits to such filing (such filing, including all such
attachments, the “8-K Filing”). From and after the filing of the 8-K Filing with the SEC, no Buyer
shall be in possession of any material, nonpublic information received from the Company or any of
its Subsidiaries or any of their respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. Each Issuer Party shall not, and shall cause each of its Subsidiaries
and its and each of their respective officers, directors, employees and agents, not to, provide any
Buyer with any material, nonpublic information regarding the Company or any of its Subsidiaries
from and after the filing of the 8-K Filing with the SEC without the express written consent of
such Buyer, including, without limitation, in connection with offers made to any Buyer pursuant to
Section 4(j) below.




-18-









 








          (i) Reservation of Shares. The Company shall take all action necessary to at all
times have authorized, and reserved for the purpose of issuance, no less than 110% of the sum of
the number of shares of Common Stock issuable (i) upon conversion of the Notes issued at the
Closing and (ii) upon exercise of the Warrants issued at the Closing (without taking into account
any limitations on the Conversion of the Notes or exercise of the Warrants set forth in the Notes
and Warrants, respectively).




          (j) Additional Issuances of Securities. From the date hereof until the two year
anniversary of the Closing, each Buyer who purchases at least $1,000,000 in aggregate principal
amount of Notes, so long as such Buyer and its affiliates collectively hold at least $1,000,000 in
aggregate principal amount of Notes (each such Buyer, a “Major Investor”), shall have the right in
the event the Company, directly or indirectly, offers, sells, grants any option to purchase, or
otherwise disposes of (or announce any offer, sale, grant or any option to purchase or other
disposition of) any of its or its Subsidiaries’ debt or equity securities, other than in connection
with Excluded Securities (as defined in the Notes) (any such offer, sale, grant, disposition or
announcement being referred to as a “Subsequent Placement”), to purchase their pro rata share of
such securities as follows:




               (i) The Company shall deliver to each Major Investor an irrevocable written notice (the “Offer
Notice”) of any proposed or intended issuance or sale or exchange (the “Offer”) of the securities
being offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and other terms upon which
they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be
issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which
the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell
to or exchange with such Buyers their pro rata share of the Offered Securities, allocated among
such Buyers (a) based on such Buyer’s pro rata share of the Offered Securities (the “Basic
Amount”), and (b) with respect to each Buyer that elects to purchase its Basic Amount, any
additional portion of the Offered Securities attributable to the Basic Amounts of other Major
Investors as such Major Investor shall indicate it will purchase or acquire should the other Major
Investors subscribe for less than their Basic Amounts (the “Undersubscription Amount”), which
process shall be repeated until the Buyers shall have an opportunity to subscribe for any remaining
Undersubscription Amount. For the purposes of this Section 4(o)(ii), a Major Investor’s “pro rata
share” shall be equal to the ratio of (a) the number of shares of Common Stock (including all
shares of Common Stock issuable or issued upon the conversion, exercise and exchange of all
Convertible Securities (as hereinafter defined) for the maximum number of shares of Common Stock
underlying such securities) held by such Major Investor immediately prior to the issuance of such
securities to (b) the total number of shares of Common Stock outstanding (including all shares of
Common Stock issuable or issued upon the conversion, exercise and exchange of all Convertible
Securities for the maximum number of shares of Common Stock underlying such securities)
immediately prior to the issuance of such securities. For the purposes of this Section 4(o)(ii),
“Convertible Securities” shall mean securities convertible into or exercisable or exchangeable for
shares of Common Stock, including, without limitation, convertible notes, convertible or
exchangeable preferred stock, options, stock purchase rights and warrants.



-19-









 





               (ii) To accept an Offer, in whole or in part, such Major Investor must deliver a written
notice to the Company prior to the end of the fifth (5th) Business Day after such
Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of such Buyer’s
Basic Amount that such Major Investor elects to purchase and, if such Major Investor shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that such Major Investor
elects to purchase (in either case, the “Notice of Acceptance”); provided, however,
that such Major Investors may not accept an Offer by electing to purchase less than 5% of the
Offered Securities on an aggregate basis. If the Basic Amounts subscribed for by all Major
Investors are less than the total of all of the Basic Amounts, then each Major Investor who has set
forth an Undersubscription Amount in its Notice of Acceptance shall be entitled to purchase, in
addition to the Basic Amounts subscribed for, the Undersubscription Amount it has subscribed for;
provided, however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts subscribed for (the
“Available Undersubscription Amount”), each Major Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the Available
Undersubscription Amount as the Basic Amount of such Major Investor bears to the total Basic
Amounts of all Major Investors that have subscribed for Undersubscription Amounts, subject to
rounding by the Company to the extent its deems reasonably necessary. Notwithstanding anything to
the contrary contained herein, if the Company desires to modify or amend the terms and conditions
of the Offer prior to the expiration of the Offer Period, the Company may deliver to the Major
Investors a new Offer Notice and the Offer Period shall expire on the tenth (10th) Business Day
after such Major Investor’s receipt of such new Offer Notice.



               (iii) The Company shall have fifteen (15) Business Days from the expiration of the Offer
Period above to offer, issue, sell or exchange all or any part of such Offered Securities as to
which a Notice of Acceptance has not been given by the Major Investors (the “Refused Securities”),
but only to the offerees described in the Offer Notice (if so described therein) and only upon
terms and conditions (including, without limitation, unit prices and interest rates) that are not
more favorable to the acquiring person or persons or less favorable to the Company than those set
forth in the Offer Notice and (ii) to publicly announce (a) the execution of such Subsequent
Placement Agreement, and (b) either (x) the consummation of the transactions contemplated by such
Subsequent Placement Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the SEC on a Current Report on Form 8-K with such Subsequent Placement
Agreement and any documents contemplated therein filed as exhibits thereto.



               (iv) In the event the Company shall propose to sell less than all the Refused Securities (any
such sale to be in the manner and on the terms specified in Section 4(o)(iii) above), then each
Major Investor may, at its sole option and in its sole discretion, reduce the number or amount of
the Offered Securities specified in its Notice of Acceptance to an amount that shall be not less
than the number or amount of the Offered Securities that such Major Investor elected to purchase
pursuant to Section 4(o)(ii) above multiplied by a fraction, (i) the numerator of which shall be
the number or amount of Offered Securities the Company actually proposes to issue, sell or exchange
(including Offered Securities to be issued or sold to Major Investors pursuant to Section 4(o)(iii)
above prior to such reduction) and (ii) the denominator of which shall be the original amount of
the Offered Securities. In the event that any Major Investor so elects to reduce the number or
amount of



-20-









 




Offered Securities specified in its Notice of Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have again been offered
to the Major Investors in accordance with Section 4(o)(i) above.




               (v) Upon the closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Major Investors shall acquire from the Company, and the Company shall issue to the
Major Investors, the number or amount of Offered Securities specified in the Notices of Acceptance,
as reduced pursuant to Section 4(o)(iv) above if the Major Investors have so elected, upon the
terms and conditions specified in the Offer. Notwithstanding anything to the contrary contained in
this Agreement, if the Company does not consummate the closing of the issuance, sale or exchange of
all or less than all of the Refused Securities within fifteen (15) Business Days of the expiration
of the Offer Period, the Company shall issue to the Major Investors the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to Section 4(o)(iv) above if
the Major Investors have so elected, upon the terms and conditions specified in the Offer. The
purchase by the Major Investors of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Major Investors of a purchase agreement
relating to such Offered Securities reasonably satisfactory in form and substance to the Major
Investors and their respective counsel.



               (vi) Any Offered Securities not acquired by the Major Investors or other persons in accordance
with Section 4(o)(iii) above may not be issued, sold or exchanged until they are again offered to
the Major Investors under the procedures specified in this Agreement.



               (vii) The Company and the Major Investors agree that if any Major Investor elects to
participate in the Offer, (x) neither the agreement regarding the Subsequent Placement (the
“Subsequent Placement Agreement”) with respect to such Offer nor any other transaction documents
related thereto (collectively, the “Subsequent Placement Documents”) shall include any term or
provisions whereby any Major Investor shall be required to agree to any restrictions in trading as
to any securities of the Company owned by such Major Investor prior to such Subsequent Placement,
and (y) any registration rights set forth in such Subsequent Placement Documents shall be similar
in all material respects to the registration rights contained in the Registration Rights Agreement.



               (viii) Notwithstanding anything to the contrary in this Section 4(o) and unless otherwise
agreed to by the Major Investors, the Company shall either confirm in writing to the Major
Investors that the transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case in such a manner
such that the Major Investors will not be in possession of material non-public information, by the
fifteen (15th) Business Day following delivery of the Offer Notice. If by the fifteen
(15th) following delivery of the Offer Notice no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by the Major Investors, such transaction shall be
deemed to have been abandoned and the Major Investors shall not be deemed to be in possession of
any material, non-public information with respect to the Company. Should the Company decide to



-21-









 




pursue such transaction with respect to the Offered Securities, the Company shall provide each
Major Investor with another Offer Notice and each Major Investor will again have the right of
participation set forth in this Section 4(o). The Company shall not be permitted to deliver more
than one such Offer Notice to the Major Investors in any 60 day period.




               (ix) The provisions of this Section 4(o) shall not apply in connection with the issuance of
any Excluded Securities (as defined in the Notes) or with any issuance described on Schedule
4(o).



     5. REGISTER; TRANSFER AGENT INSTRUCTIONS.



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




          (b) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of
each Buyer or its respective nominee(s), for the Conversion Shares and the Warrant Shares issued at
the Closing or upon conversion of the Notes or exercise of the Warrants in such amounts as
specified from time to time by each Buyer to the Company upon conversion of the Notes or exercise
of the Warrants in the form of Exhibit D attached hereto (the “Irrevocable Transfer Agent
Instructions”). The Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to give effect to
Section 2(g) hereof, will be given by the Company to its transfer agent, and that the Securities
shall otherwise be freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents. If a Buyer effects a sale,
assignment or transfer of the Securities in accordance with Section 2(f), the Company shall permit
the transfer and shall promptly instruct its transfer agent to issue one or more certificates or
credit shares to the applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale,
assignment or transfer involves Conversion Shares or Warrant Shares sold, assigned or transferred
pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall
issue such Securities to the Buyer, assignee or transferee, as the case may be, without any
restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to a Buyer. Accordingly, the Company acknowledges that the remedy at law
for a breach of its obligations under this Section 5(b) will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring




-22-









 







immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.




     6. CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.



          The obligation of the Company hereunder to issue and sell the Notes and the related Warrants
to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the Company’s sole benefit and
may be waived by the Company at any time in its sole discretion by providing each Buyer with prior
written notice thereof:




               (i) Such Buyer shall have executed each of the Transaction Documents to which it is a party
and delivered the same to the Company.



               (ii) Such Buyer and each other Buyer shall have delivered to the Company the Purchase Price
for the Notes and the related Warrants being purchased by such Buyer at the Closing by wire
transfer of immediately available funds pursuant to the wire instructions provided by the Company.



               (iii) The representations and warranties of such Buyer shall be true and correct in all
material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date), and such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.



     7. CONDITIONS TO EACH BUYER’S OBLIGATION TO PURCHASE.



          The obligation of each Buyer hereunder to purchase the Notes and the related Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer’s sole benefit and may be waived by
such Buyer at any time in its sole discretion by providing the Company with prior written notice
thereof:




               (i) (a) The Company have duly executed and delivered to such Buyer (x) each Note (allocated in
such principal amounts as such Buyer shall request) being purchased by such Buyer at the Closing
pursuant to this Agreement, and (y) the related Warrants (allocated in such amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this Agreement, (b) the
Guarantor shall have duly executed and delivered to such Buyer the Guaranty, and (c) each Issuer
Party shall have duly executed and delivered to such Buyer each of the other Transaction Documents
to which such Issuer Party is a party and such other certificates or instruments required to be
delivered by it pursuant to the Transaction Documents.



-23-









 





               (ii) Such Buyer shall have received the opinion of Siegel, Lipman, Dunay, Shepard & Miskel,
LLP, counsel to the Issuer Parties, dated as of the Closing Date, in substantially the form of
Exhibit E attached hereto.



               (iii) The Company shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, which instructions shall have been
delivered to and acknowledged in writing by the Company’s transfer agent.



               (iv) The Company shall have delivered to such Buyer a certificate (or a fax or pdf copy of
such certificate) evidencing the formation and good standing of the Company and each of its
Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or
comparable office) of such jurisdiction, as of a date within 10 days of the Closing Date.



               (v) The Issuer Parties shall have delivered to such Buyer a certified copy of the Certificate
of Incorporation as certified by the Secretary of State of the State of Nevada and a copy of the
Guarantor Charter as certified by the Secretary of State of the State of Florida (or, in each
case, a fax or pdf copy of such certificate).



               (vi) The Issuers shall have delivered to such Buyer a certificate, executed by the Secretary
of each of the Issuer Parties and dated as of the Closing Date, as to (i) the resolutions
consistent with Section 3(b) as adopted by each of the Issuer Parties’ board of directors in a form
reasonably acceptable to such Buyer, (ii) the Certificate of Incorporation, (iii) the Bylaws, (iv)
the Guarantor Charter and (v) the Guarantor Bylaws, each as in effect at the Closing, in form and
substance reasonably acceptable to the Buyers.



               (vii) The representations and warranties of the Issuer Parties shall be true and correct in
all material respects (except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the
date when made and as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct as of such
specified date) and the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Issuer Parties at or prior to the Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer, President or Vice
President of each of the Issuer Parties, dated as of the Closing Date, to the foregoing effect, in
form and substance reasonably acceptable to the Buyers.



               (viii) The Common Stock (I) shall be designated for quotation or listed on the Principal
Market and (II) shall not have been suspended, as of the Closing Date, by the SEC or the Principal
Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal
Market or (B) by falling below the minimum listing maintenance requirements of the Principal
Market.



-24-









 





               (ix) The Issuer Parties shall have delivered to such Buyer the Subordination Agreement
executed and delivered by Mark Libratore, as subordinated lender, and acknowledged and agreed to by
the Issuer Parties.



               (x) The Company shall have obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the sale of the Securities.



               (xi) The Issuer Parties shall have delivered to such Buyer such other documents relating to
the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably
request.



     8. (INTENTIONALLY OMITTED).



     9. MISCELLANEOUS.



          (a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State 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, 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 brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. 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
to such party at the address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process in any manner
permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.




          (b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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;
provided that a facsimile signature shall be considered due execution and shall be binding upon the
signatory thereto with the same force and effect as if the signature were an original, not a
facsimile signature.




          (c) Headings. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.





-25-









 








          (d) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other jurisdiction.




          (e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents
supersede all other prior oral or written agreements between the Buyers,
the Issuer Parties, their affiliates and Persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents and the instruments
referenced herein and therein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein or therein, neither
any Issuer Party nor any Buyer makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be amended other than by an instrument
in writing signed by the Issuer Parties and the holders of at least two-thirds of the aggregate
number of Registrable Securities issued and issuable hereunder and under the Notes, and any
amendment to this Agreement made in conformity with the provisions of this Section 9(e) shall be
binding on all Buyers and holders of Securities as applicable. No provision hereof may be waived
other than by an instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all of the holders of
the applicable Securities then outstanding. 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 also is offered to all of the parties to the Transaction
Documents, holders of Notes or holders of the Warrants, as the case may be. The Issuer Parties
have not, directly or indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except as set forth in the
Transaction Documents. Without limiting the foregoing, each of the Issuer Parties confirms that,
except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or any of its Subsidiaries or otherwise.




          (f) Notices. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and will be deemed to
have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:




-26-









 








               If to the Issuer Parties:



	 	 	 
	 

	 	Liberator Medical Holdings, Inc.

2979 South East Gran Park Way

Stuart, Florida 34997

Telephone:     (772) 287-2414

Facsimile:     (772) 781-3867

Attention:     Mark A. Libratore, President






               with a copy to:



	 	 	 
	 

	 	Jonathan L. Shepard, Esquire

Siegel, Lipman, Dunay, Shepard & Miskel, LLP

5355 Town Center Road, Suite 801

Boca Raton, Florida 33486

Telephone:     (561) 368-7700

Facsimile:     (561) 368-9274






               If to the Transfer Agent:



	 	 	 
	 

	 	Standard Registrar & Transfer, Inc.

12528 South 1840 East

Draper, Utah 84020

Telephone:     (801) 571-8844

Facsimile:     (801) 571-2551

Attention:     Ron Harrington





If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers, with copies
to such Buyer’s representatives as set forth on the Schedule of Buyers,




               with a copy (for informational purposes only) to:



	 	 	 
	 

	 	Millennium Partners, L.P.

c/o Millennium Management LLC

666 Fifth Avenue, 8th Floor

New York, New York 10103

Telephone:     (212) 841-4100

Facsimile:     (212) 841-4141

Attention:     Terry Feeney





or to such other address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party five (5) days prior
to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or electronically generated
by the sender’s facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight courier service shall
be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight
courier service in accordance with clause (i), (ii) or (iii) above, respectively.




-27-









 








          (g) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including any purchasers of the
Notes or the Warrants. Neither of the Issuer Parties shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at least two-thirds of
the aggregate number of Registrable Securities issued and issuable hereunder, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the Warrants). A Buyer may assign
some or all of its rights hereunder without the consent of the Issuer Parties, in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights




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




          (i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Issuer Parties and the Buyers contained in Sections 2 and 3,
and the agreements and covenants set forth in Sections 4, 5 and 9 shall survive the Closing. Each
Buyer shall be responsible only for its own representations, warranties, agreements and covenants
hereunder.




          (j) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as any other party may reasonably request in
order to carry out the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.




          (k) Indemnification. In consideration of each Buyer’s execution and delivery of the
Transaction Documents and acquiring the Securities thereunder and in addition to all of the
Company’s other obligations under the Transaction Documents, the Issuer Parties shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of
their stockholders, partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or
relating to (a) any misrepresentation or breach of any representation or warranty made by any
Issuer Party in the Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby or (b) any breach of any covenant, agreement or obligation of any
Issuer Party contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Investor Parties shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law. Except as otherwise set forth herein, the




-28-









 







mechanics and procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights Agreement.




          (l) No Strict Construction. 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.




          (m) Remedies. Each Buyer and each holder of the Securities shall have all rights and
remedies set forth in the Transaction Documents and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the rights which such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. Furthermore, each of the Issuer Parties recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations under the Transaction
Documents, any remedy at law may prove to be inadequate relief to the Buyers. Each of the Issuer
Parties therefore agrees that the Buyers shall be entitled to seek temporary and permanent
injunctive relief in any such case without the necessity of proving actual damages and without
posting a bond or other security.




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




          (o) Payment Set Aside. To the extent that the Company or the Guarantor makes a
payment or payments to the Buyers hereunder or pursuant to any of the other Transaction Documents
or the Buyers enforce or exercise their rights hereunder or 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, the Guarantor, a trustee,
receiver or any other Person under any law (including, without limitation, any bankruptcy law,
foreign, 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.




          (p) Independent Nature of Buyers’ Obligations and Rights. The obligations of each
Buyer under any Transaction Document are several and not joint with the obligations of any other
Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any
other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and each of the Issuer Parties acknowledges that the Buyers do not so
constitute, a partnership, an association, a joint venture or any other kind of entity, or




-29-









 







create a presumption that the Buyers are in any way acting in concert or as a group, and
neither of the Issuer Parties will assert any such claim with respect to such obligations or the
transactions contemplated by the Transaction Documents and each of the Issuer Parties acknowledges
that the Buyers are not acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each of the Issuer Parties acknowledges
and each Buyer confirms that it has independently participated in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall
be entitled to independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any proceeding for such
purpose.




[Signature Pages Follow.]





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     IN WITNESS WHEREOF, each Buyer, the Company and the Guarantor have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of the date first
written above.



	 	 	 	 	 
	 	COMPANY:



LIBERATOR MEDICAL HOLDINGS, INC.

 	 
	 	By:  	/s/  Mark A. Libratore
 	 
	 	 	Name:  	Mark A. Libratore 	 
	 	 	Title:  	President 	 
	 
	 	GUARANTOR:





LIBERATOR MEDICAL SUPPLY, INC.

 	 
	 	By:  	/s/  Mark A. Libratore
 	 
	 	 	Name:  	Mark A. Libratore 	 
	 	 	Title:  	President 	 
	 



Signature Page to Securities Purchase Agreement




 









 









     IN WITNESS WHEREOF, each Buyer, the Company and the Guarantor have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of the date first
written above.



	 	 	 	 	 	 	 	 	 
	 	 	BUYER:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	MILLENNIUM PARTNERS, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Millennium Management LLC, its Managing Partner	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Robert Williams
 

Name: Robert Williams

Title: CFO
	 	 






Signature Page to Securities Purchase Agreement