deepdown_8k-purchaseagr.htm


    Exhibit
10.1

    DEEP
DOWN, INC.

     

    PURCHASE
AGREEMENT

     

    THIS
PURCHASE AGREEMENT (this “Agreement”) is made as of the
2nd day of June, 2008, by and between Deep Down, Inc. (the “Company”), a corporation
organized under the laws of the State of Nevada, with its principal offices at
15472 East Freeway, Channelview, Texas 77530, and each purchaser whose name and
address is set forth on the signature pages hereof (individually, a “Purchaser” and collectively,
the “Purchasers”).

     

    RECITALS

     

    A.    The
Company desires to issue and sell shares of the Company’s Common Stock (as
defined in Section 2) in a private placement (the “Offering”).

     

    B.    Prior to
the Offering, the Company has entered into the Acquisition Agreement (as defined
in Section 1) with Flotation (as defined in Section 1).

     

    C.    In
furtherance of the Offering, the Company has prepared and delivered to each
Purchaser (i) a confidential private placement memorandum, dated as of May 16,
2008 (such confidential private placement memorandum, as supplemented as of June
2, 2008, and as amended or supplemented, including all documents incorporated by
reference therein, including any SEC Filings (as defined in Section 4.15) and
any other documents incorporated by reference pursuant to Section 4.15 herein
collectively, the “Private
Placement Memorandum”) and (ii) a Company Disclosure Letter (as defined
in Section 1).

     

    D.    Each
Purchaser desires, upon the terms and conditions set forth in this Agreement,
including without limitation the consummation of the Acquisition (as defined in
Section 1), to purchase shares of the Company’s Common Stock in the
Offering.

     

    E.    The
Company and each Purchaser is executing and delivering this Agreement in
reliance upon the exemption from securities regulation afforded by Section 4(2)
of the Securities Act (as defined in Section 3.2) or Rule 506 under Regulation
D.

     

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

     

    SECTION
1.  Certain
Defined Terms.  As used in this Agreement, the following capitalized
terms shall have the following meanings ascribed to them:

     

    “Acquisition” shall mean the
acquisition by the Company of Flotation substantially in accordance with the
terms set forth in the Acquisition Agreement.

     

    “Acquisition Agreement” shall
mean the Stock Purchase Agreement by and among the Company and Flotation and
certain Selling Stockholders identified therein, dated as of April 17, 2008, as
filed by the Company with the SEC on a Current Report on Form 8-K on April 22,
2008.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    “Company Disclosure Letter”
means the disclosure letter, substantially in the form annexed hereto as Exhibit 1, delivered
to each Purchaser prior to the execution of this Agreement, which letter is
incorporated in this Agreement by reference.  The disclosure schedule
delivered by Flotation to the Company pursuant to the Acquisition Agreement
shall be attached to, and is hereby incorporated by reference into, the Company
Disclosure Letter.

     

    “Flotation” means Flotation
Technologies, Inc. a Maine corporation.

     

    “Flotation Financial
Statements” has the meaning set forth in Section 4.15.

     

    “Knowledge” whenever the term
“to their knowledge,” “to our knowledge,” or any similar phrase implying a
limitation on the basis of knowledge, the qualification is intended to mean the
actual present knowledge or belief of the officers and directors of the Company
who have given substantive attention to the transactions described in this
Agreement, and does not include any matter not within their present
recollection, any knowledge of any other employee, officer, director or
affiliate now or previously within the Company or any constructive or imputed
notice of any matter or any item of information.

     

    “Placement Agent” shall mean
Dahlman Rose & Co., LLC.

     

    “Required Purchasers” shall
mean Purchasers who purchased not less than an aggregate of 50.1% of the
Shares.

     

    “Subsidiary” shall mean,
immediately prior to the Closing, any entity by which at least fifty (50%)
percent of the outstanding equity is owned, directly or indirectly, by the
Company (or which are otherwise directly or indirectly controlled by the
Company).   Notwithstanding anything to the contrary, for the
avoidance of doubt, for all purposes set forth in this Agreement except as
specifically excluded, the definition of Subsidiary shall include
Flotation.

     

    SECTION
2. Sale and
Purchase of Shares.

     

    (a)           Authorization of Sale of the
Shares.  Subject to the terms and conditions of this Agreement,
the Company has authorized the sale of up to 57,142,857 shares (the “Shares”) of common stock, par
value $0.001 per share (the “Common Stock”), of the Company
at a purchase price of $0.70  per Share.  The Company
reserves the right to increase or decrease the aggregate number of Shares of
Common Stock sold in this private placement prior to the Closing Date (as
defined in Section 3.1).

     

    (b)           Agreement to Sell and
Purchase the Shares.  At the Closing (as defined in Section
3.1), the Company shall sell to each Purchaser and each Purchaser shall buy from
the Company, upon the terms and conditions hereinafter set forth, the number of
Shares set forth on such Purchaser’s signature page hereto.  Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of its Agreement and it
shall not be necessary for any other Purchaser to be joined as an additional
party in any proceeding for such purpose.

     

    
      
        
        

      

      
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    SECTION
3.  Delivery of the Shares at
the Closing.

     

    3.1    Location of the
Closing.  The completion of the purchase and sale of the Shares
(the “Closing”) shall
occur at the offices of Hahn & Hessen LLP, 488 Madison Avenue, New York, New
York 10022 on June 3, 2008 or as soon as practicable and as agreed by the
Company and the Placement Agent, but not prior to the date that the conditions
for Closing set forth below have been satisfied or waived by the appropriate
party (the “Closing
Date”).  The Company shall notify each Purchaser of the time of
the Closing by facsimile transmission or otherwise.

     

    3.2    Actions to be Taken Prior
to, and at, the Closing.  Upon execution of this Agreement, the
Company shall authorize its transfer agent (the “Transfer Agent”) to arrange
delivery to each Purchaser of one or more stock certificates registered in the
name of each Purchaser, or in such nominee name(s) as designated by a Purchaser
in writing in the Questionnaire (defined below), representing the number of
Shares set forth on such Purchaser’s signature page hereto and bearing an
appropriate legend referring to the fact that the Shares were sold in reliance
upon the exemption from registration under the Securities Act of 1933, as
amended (the “Securities
Act”) provided by Section 4(2) thereof or Rule 506
thereunder.  At the Closing, the Transfer Agent shall deliver to the
Placement Agent a certificate of the Transfer Agent, in form and substance
reasonably acceptable to the Placement Agent, certifying that it is duly
authorized to issue the Shares.  The name(s) in which the stock
certificates are to be registered are set forth in the Stock Certificate
Questionnaire attached hereto as part of Appendix I (the “Questionnaire”).

     

    3.3    Conditions Precedent to
Closing. (a)  The Company’s obligation to complete the purchase
and sale of the Shares and deliver such stock certificate(s) to a Purchaser at
the Closing shall be subject to the following conditions, any one or more of
which may be waived in writing by the Company:  (i) receipt by the
Company of same-day funds in the full amount of the purchase price for the
Shares being purchased hereunder by such Purchaser; (ii) that the
representations and warranties made by such Purchaser herein are accurate as of
the Closing Date; (iii) that such Purchaser has fulfilled undertakings and
covenants set forth herein required to be fulfilled prior to the Closing; (iv)
such Purchaser shall have executed and delivered to the Company the
Questionnaire and the Registration Statement Questionnaire attached hereto as
part of Appendix I (the “Registration Statement
Questionnaire”), pursuant to which such Purchaser shall provide
information necessary to confirm such Purchaser’s status as an “accredited
investor” as defined in Rule 501 promulgated under the Securities Act; (v) no
proceeding challenging this Agreement or the transactions contemplated hereby or
thereby or seeking to prohibit, alter, prevent or materially delay the Closing
shall have been instituted or shall be pending before any court, arbitrator or
governmental body, agency or official; (vi) the sale of Shares to such Purchaser
shall not be prohibited by any law or governmental order or regulation; (vii)
such Purchaser has received a copy of the Private Placement Memorandum and the
Company Disclosure Letter; and (viii) the Acquisition and all of the
transactions contemplated by the Acquisition Agreement shall have been
consummated pursuant to the terms thereof.

     

    (b)    Each
Purchaser’s obligation to accept delivery of such stock certificate(s) and to
pay for the Shares evidenced thereby shall be subject to the
conditions:  (i) that the representations and warranties made by the
Company herein are accurate as of the Closing Date; (ii) that the Company has
fulfilled all undertakings and covenants set forth herein required to be
fulfilled prior to the Closing; (iii) that the Acquisition shall have been
completed;  (iv) that the Common Stock shall be quoted by at least
three market-makers on the OTC Bulletin Board within five (5) days of the
Closing Date; (v) the absence of any Material Adverse Change (as defined in
Section 4.22) affecting the Company since December 31, 

     

    
      
        
        

      

      
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    2007;
(vi) no proceeding challenging this Agreement or the transactions contemplated
hereby or thereby or seeking to prohibit, alter, prevent or materially delay the
Closing shall have been instituted or shall be pending before any court,
arbitrator or governmental body, agency or official; (vii) the sale of Shares to
such Purchaser shall not be prohibited by any law or governmental order or
regulation; (viii) that the Placement Agent shall have received the opinion of
Sonfield & Sonfield, the Company’s outside counsel, dated as of the Closing
Date, substantially covering the matters set forth in Exhibit 2 attached
hereto; (ix) that the Company shall have delivered to the Placement Agent a
certificate evidencing the formation and good standing of the Company and of
Flotation in their respective jurisdictions of formation issued by the Secretary
of State (or comparable office) of such jurisdiction, as of a date within ten
(10) days of the Closing Date; (x) that the Company shall have delivered to the
Placement Agent a certificate evidencing the Company’s and Flotation’s
qualification as a foreign corporation and good standing issued by the Secretary
of State (or comparable office) of each jurisdiction in which the Company and
Flotation conducts business, as of a date within ten (10) days of the Closing
Date; (xi) that the Company shall have delivered to the Placement Agent a
certified copy of the Articles of Incorporation as certified by the Secretary of
State of the State of Delaware within ten (10) days of the Closing Date; (xii)
that the Company shall have delivered to the Placement Agent a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(x) the resolutions consistent with Section 4.4 as adopted by the Company’s
Board of Directors in a form reasonably acceptable to the Placement Agent, (y)
the Certificate of Incorporation, as amended and (z) the Bylaws, each as in
effect at the Closing.  The Company shall provide copies of any of the
documents referred to in this Section 3.3 to any Purchaser upon such Purchaser’s
request.

     

    SECTION
4.    Representations, Warranties
and Covenants of the Company.  The Company hereby represents
and warrants to, and covenants with, each Purchaser as follows:

     

    4.1    Organization and
Qualification.  The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Nevada and
the Company is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not reasonably be expected to have a Material Adverse Effect (as
defined in Section 4.22).  Set forth on Schedule 4.1 to the Company
Disclosure Letter is a complete and correct list of all Subsidiaries of
the Company other than Flotation.  Each Subsidiary other than
Flotation and, to the Company’s knowledge, Flotation is duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not have a Material Adverse Effect, either individually or in the
aggregate.

     

    4.2    Authorized Capital
Stock.  As of May 16, 2008, (i) the authorized capital stock of
the Company consisted of 490,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock, par value $.001 per share, of which 115,846,019
shares of Common Stock and no shares of Preferred Stock were issued and
outstanding; (ii) there were outstanding options granted pursuant to the
Company’s stock option plans to purchase a total of 8,125,000 shares of Common
Stock;  and (iii) there were available for issuance under the
Company’s stock option and purchase plans a total of 9,252,000 shares of Common
Stock.  The issued and outstanding shares of the Company’s Common
Stock have been 

     

    
      
        
        

      

      
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    duly
authorized and validly issued, are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws and were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform in all material respects to
the description thereof contained in the Private Placement
Memorandum.  Except (I) for stock options and other awards granted
under the option, award and purchase plans of the Company described in the
Summary of the Offering section of the Private Placement Memorandum, and (II) as
otherwise disclosed in or contemplated by the Risk Factors section of the
Private Placement Memorandum and the Company Disclosure Letter, the Company does
not have outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, in each case whether contingent or not,
vested or unvested, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or any
such options, rights, convertible securities or obligations.  The
description of the Company’s stock, stock bonus and other stock plans or
arrangements and the options or other rights granted and exercised thereunder,
set forth or incorporated by reference in the Private Placement Memorandum
accurately and fairly presents in all material respects all information
pertaining to such plans, arrangements, options and rights.  With
respect to each Subsidiary other than Flotation and, to the Company’s knowledge,
with respect to Flotation, (i) all the issued and outstanding shares of the
Subsidiary’s capital stock have been duly authorized and validly issued, are
fully paid and nonassessable, have been issued in compliance with applicable
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and (ii) there are no outstanding options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
the Subsidiary’s capital stock or any such options, rights, convertible
securities or obligations.  Except as disclosed on Schedule 4.2 to the
Company Disclosure Letter, the Company owns one hundred (100%) percent of the
outstanding equity of each Subsidiary other than Flotation.

     

    4.3    Issuance, Sale and Delivery
of the Shares.  The Shares have been duly authorized and, when
issued, delivered and paid for in the manner set forth in this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.  No
preemptive rights or other rights to subscribe for or purchase exist with
respect to the issuance and sale of the Shares by the Company pursuant to this
Agreement.  The issue and sale of the Shares will not obligate the
Company or any Subsidiary to issue shares of Common Stock or other securities to
any person (other than a Purchaser who is not, and has not been, a beneficial
owner, directly or indirectly of the Company’s Common Stock or other securities
at any time in the past six months prior to the date hereof ) and will not
result in a right of any holder of securities of the Company to adjust the
exercise, conversion or exchange or reset price under such
securities.  Except as set forth in the Private Placement Memorandum
or in any document incorporated by reference therein, no stockholder of the
Company has any right (which has not been waived or expired by reason of lapse
of time following notification of the Company’s intent to file the registration
statement to be filed by it pursuant to Section 7.1 (the “Registration Statement”)) to
require the Company to register under the Securities Act the sale of any shares
owned by such stockholder in the Registration Statement .  No further
approval or authority of the stockholders or the Board of Directors of the
Company will be required for the issuance and sale of the Shares to be sold by
the Company as contemplated herein. The Company represents that the issuance of
the Shares is exempt from registration under the Securities Act.

     

    
      
        
        

      

      
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    4.4    Due Execution, Delivery and
Performance of this Agreement.  The Company has all requisite
corporate power and authority to enter into this Agreement and perform the
transactions contemplated hereby.  This Agreement has been duly
authorized, executed and delivered by the Company.  The execution,
delivery and performance of this Agreement by the Company and, as applicable,
the Subsidiaries other than Flotation and, to the Company’s knowledge,
Flotation, and the consummation of the transactions herein contemplated (i) will
not violate any provision of the organizational documents of the Company and, as
applicable, the Subsidiaries other than Flotation and, to the Company’s
knowledge, Flotation,  (ii) (A) will not result in the creation of any
lien, charge, security interest or encumbrance upon any assets of the Company,
of any of its Subsidiaries  other than Flotation and, to the Company’s
knowledge, Flotation, pursuant to the terms or provisions of, and (B) will not
conflict with, result in the breach or violation of, or constitute, either by
itself or upon notice or the passage of time or both, a default under, any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries or any of their respective
properties may be bound or affected or, to the Company’s knowledge, any statute
or any authorization, judgment, decree, order, rule or regulation of any court
or any regulatory body, administrative agency or other governmental body
applicable to the Company or any of its Subsidiaries or any of their respective
properties, where such conflict, creation, breach, violation or default in any
of the foregoing clauses (i), (ii)(A) or (ii)(B) is reasonably likely to result
in a Material Adverse Effect.  No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this Agreement
or the consummation of the transactions contemplated by this Agreement, except
for compliance with the Blue Sky laws and federal securities laws applicable to
the offering of the Shares.  Upon the execution and delivery of this
Agreement by the Company, and assuming the valid execution hereof by each
Purchaser, this Agreement will constitute a valid and binding obligation of the
Company, enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Company in
Section 7.3 hereof may be legally unenforceable.

     

    4.5    Accountants.  The
firm of Malone & Bailey, PC, which has expressed its opinion with respect to
the consolidated financial statements included in the Company’s 2007 10-KSB (as
defined in Section 4.15(a), portions of which are incorporated by reference in
the Private Placement Memorandum), has represented that it is an independent
accountant as required by the Securities Act and the rules and regulations
promulgated thereunder (the “Rules and
Regulations”).

     

    4.6    Contracts.  All
material agreements to which the Company or any Subsidiary other than Flotation
is a party and which are required to have been filed by the Company pursuant to
the Securities Act have been filed by the Company with the Securities and
Exchange Commission (the “Commission”) pursuant to the
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”), as applicable.  All material agreements to which
Flotation is a party are listed on Schedule 4.6 of the Company Disclosure
Letter. The contracts that are material to the Company and its Subsidiaries
(including without limitation Flotation) are valid and legally binding and in
full force and effect on the date hereof; and neither the Company, any of its
Subsidiaries nor, to the Company’s knowledge, Flotation or any other party
thereto, is in breach of or default under any of such contracts, which breach or
default would have a Material Adverse Effect.  The Company has not
assigned, mortgaged, pledged, encumbered or otherwise hypothecated any of its
right, title or interest in such contracts.   The Company has not
received any written notice regarding the termination of any such
agreements.

     

    
      
        
        

      

      
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    4.7    No
Actions.  Except as disclosed in the Private Placement
Memorandum, (1) there are no legal or governmental actions, suits, proceedings,
pending and (2) to the Company’s knowledge, there are no legal or governmental
actions, suits, or proceedings threatened, to which the Company or any of its
Subsidiaries is or may be a party or subject or of which property of the Company
or any of its Subsidiaries is or may be the subject, or related to applicable
environmental or discrimination matters, or instituted or overseen by the
Commission, the Financial Institutions Regulatory Authority, any state
securities commission or other governmental or regulatory entity, which actions,
suits or proceedings, individually or in the aggregate, would prevent or might
reasonably be expected to prevent or materially and adversely affect the
transactions contemplated by this Agreement or result in a Material Adverse
Effect; and, to the Company’s knowledge, no labor disturbance by the employees
of the Company or of any of its Subsidiaries exists or is imminent, which is
reasonably expected to have a Material Adverse Effect.  Except as
disclosed in the Private Placement Memorandum, neither the Company, any of its
Subsidiaries other than Flotation, nor to the Company’s knowledge Flotation, is
party to or subject to the provisions of any material injunction, judgment,
decree or order of any court, regulatory body administrative agency or other
governmental body.

     

    4.8    Properties.  Each
of the Company, its Subsidiaries other than Flotation and to the Company’s
knowledge Flotation, has good and marketable title to all the properties and
assets reflected as owned by it in the consolidated financial statements
incorporated by reference in the Private Placement Memorandum, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such consolidated financial statements, or (ii) those which
are not material in amount and do not materially adversely affect the use made
of such property by the Company or any of its Subsidiaries.  Each of
the Company, its Subsidiaries other than Flotation and to the Company’s
knowledge Flotation, holds its leased properties under valid and binding leases,
subject to such exceptions as are not materially significant in relation to its
business.  Neither the Company, any of its Subsidiaries other than
Flotation, nor to the Company’s knowledge Flotation, has entered into any
covenant not to compete or contract limiting such entity’s ability to exploit
fully any of such entity’s material proprietary assets or to transact business
in any material market or geographical area or with any Person (as defined in
Section 4.34).

     

    4.9    No Material
Change.   Except as specifically contemplated by this
Agreement or the Acquisition Agreement and related agreements and the
transactions contemplated thereby or as described in or specifically
contemplated by the Private Placement Memorandum, since December 31, 2007,
neither the Company, any of its Subsidiaries other than Flotation nor to the
Company’s knowledge Flotation (i) has incurred any material liabilities or
obligations, indirect, or contingent, or entered into any material oral or
written agreement or other transaction not in the ordinary course of business or
which could reasonably be expected to have a Material Adverse Effect; (ii) has
sustained any material loss or damage to its physical properties or assets from
fire, flood, windstorm, accident or other calamity not covered by insurance;
(iii) has paid or declared any dividends or other distributions with respect to
its capital stock, and neither the Company, any of its Subsidiaries other than
Flotation nor to the Company’s knowledge Flotation, has defaulted in the payment
of principal or interest on any outstanding debt obligations.  Except
as specifically contemplated by this Agreement or the Acquisition Agreement and
related agreements and the transactions contemplated thereby or as described in
or specifically contemplated by the Private Placement Memorandum, since December
31, 2007, there has not been (i) any change in the capital stock of the Company
of any of its Subsidiaries other than Flotation or to the Company’s knowledge
Flotation, other than the sale of the shares or options issued pursuant to
employee equity incentive plans or purchase plans approved by the Company’s
Board of Directors and repurchases of shares or options pursuant to repurchase
plans already approved by the Company’s Board of Directors, or (ii) any increase
in indebtedness material to the Company, any of its Subsidiaries other than
Flotation or to the Company’s knowledge Flotation.

     

    
      
        
        

      

      
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    4.10   Intellectual
Property.  Except as disclosed in the Private Placement
Memorandum:  (i) the Company, directly or through a Subsidiary, owns
or has obtained valid and enforceable licenses for the inventions, patent
applications, patents, trademarks (both registered and unregistered), trade
names, trademark applications, copyrights, copyright applications, maskworks,
maskwork applications, trade secrets, fictitious business names, service marks,
service mark applications, know how, customer lists, franchise systems, computer
software, computer program, designs, blueprints, engineering drawings,
proprietary products, source code, technology, proprietary rights or other
intellectual property rights or intangible assets and all licenses and other
rights required to use or exploit any of the foregoing, currently used in the
conduct of the Company’s business (collectively, the “Intellectual Property”); and
(ii) (a) there are no third parties who have any ownership rights to any
Intellectual Property that is owned by, or has been licensed to, the Company for
the products described in the Private Placement Memorandum that would preclude
or otherwise materially adversely prevent the Company from conducting its
business as currently conducted and have a Material Adverse Effect, except for
the ownership rights of the owners of the Intellectual Property licensed or
optioned by the Company; (b) to the Company’s actual knowledge, there are
currently no sales of any products that would constitute an infringement by
third parties of any Intellectual Property owned, licensed or optioned by the
Company, which infringement would have a Material Adverse Effect; (c) there is
no pending or, to the Company’s knowledge, threatened action, suit, proceeding
or claim by others challenging the rights of the Company in or to any
Intellectual Property owned, licensed or optioned by the Company, other than
claims which would not reasonably be expected to have a Material Adverse Effect;
(d) there is no pending or, to the Company’s actual knowledge, threatened
action, suit, proceeding or claim by others challenging the validity or scope of
any Intellectual Property owned, licensed or optioned by the Company, other than
any such actions, suits, proceedings and claims that would not reasonably be
expected to have a Material Adverse Effect; and (e) there is no pending or, to
the Company’s actual knowledge, threatened action, suit, proceeding or claim by
others that the Company infringes or otherwise violates any patent, trademark,
copyright, trade secret or other proprietary right of others, other than
non-material actions, suits, proceedings and claims.

     

    4.11        
Permits; Regulatory
Compliance.

     

    (a)    Each of
Company, its Subsidiaries other than Flotation and to the Company’s knowledge
Flotation, possesses all certificates, authorizations and permits issued by the
appropriate federal, state, local or foreign regulatory authorities necessary to
conduct their respective businesses as such businesses are described in the SEC
Filings (as defined in Section 4.15)  and the Private Placement
Memorandum, except where the failure to possess such permits would not
reasonably be expected to result in a Material Adverse Effect, and neither the
Company, any Subsidiary other than Flotation, nor to the Company’s knowledge
Flotation, has received any notice of proceedings relating to the revocation or
modification of any material permit.

     

    (b)    The
Company and its Subsidiaries, the operation of their respective businesses and
any real property that the Company or any of its Subsidiaries owns, leases or
otherwise occupies or uses (the “Premises”) are to the
Company’s knowledge with respect to the Company and each Subsidiary in material
compliance with all applicable laws, rules and regulations of the jurisdictions
in which it is conducting its business and orders or directives of any
governmental authorities having jurisdiction.  Neither the Company,
any of its Subsidiaries other than Flotation nor to the Company’s knowledge
Flotation, has been advised, or has reason to believe, that it is not conducting
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting its business; in each case, except where
failure to be in compliance would not have a Material Adverse
Effect.

     

    
      
        
        

      

      
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    4.12    Taxes.  Except
as set forth in the Private Placement Memorandum, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and neither the Company, any of
its Subsidiaries nor to the Company’s knowledge Flotation, has actual knowledge
of a tax deficiency which has been or might be asserted or threatened against it
which is reasonably likely to have a Material Adverse Effect.

     

    4.13    Investment
Company.  The Company is not an “investment company” or an
“affiliated person” of, or “promoter” or “principal underwriter” for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.

     

    4.14    Offering
Materials.  Except for the SEC Filings (as defined in Section
4.15), the Company has not distributed and will not distribute prior to the
Closing Date to any Purchaser any offering material or material non-public
information in connection with the offering and sale of the Shares other than
the Private Placement Memorandum or any amendment or supplement
thereto.  Neither the Company nor any Person acting on its behalf has
in the past or will hereafter take any action to sell, offer for sale or solicit
offers to buy any securities of the Company which would subject the offer,
issuance or sale of the Shares contemplated by this Agreement to the
registration requirements of Section 5 of the Securities Act.

     

    4.15    Additional
Information.  (a)  To the extent incorporated by
reference in the Private Placement Memorandum, the information contained in the
following documents, did not, and will not, as of the date of the applicable
document, include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, as of their respective filing dates or, if amended, as so amended
(the following documents, collectively, the “SEC Filings”):

     

    
      	
              1.             

            	
              The
      Company’s Annual Report on Form 10-KSB for the year ended December 31,
      2007, as filed with the Commission on April 1, 2008 and as amended by our
      filing with the Commission on May 1, 2008 (the “2007
      10-KSB”);

            


    

     

    
      	
              2.             

            	
              The
      Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
      2008 filed with the Commission on May 16,
2008;

            


    

     

    
      	
              3.          
        

            	
              The
      Company’s Current Reports on Form 8-K, filed with the Commission on April
      21, 2008 and May 1, 2008; and

            


    

     

    
      	
              4.             

            	
              Any
      future filings the Company makes with the Commission under Sections 13(a),
      13(c), 14, or 15(d) of the Exchange Act, until the
  Closing.

            


    

     

    In
addition, as of the date of this Agreement, the Private Placement Memorandum and
the Company Disclosure Letter, which in each case to the Company’s knowledge the
Placement Agent has furnished to each Purchaser, when read together with the
information, qualifications and exceptions contained in this Agreement, does not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    In
furtherance and not in limitation of the provisions of Section 4.15(a), the
consolidated financial statements of the Company and the related notes contained
in or incorporated by reference into the SEC Filings (such audited and unaudited
statements, including the related notes and schedules thereto, are referred to
herein as the “Company
Financial Statements”), are complete and correct and present fairly in
all material respects, in accordance with generally accepted accounting
principles, the consolidated financial position of the Company and its
Subsidiaries (other than Flotation) as of the dates indicated, and the results
of their operations, cash flows, and the changes in stockholders’ equity for the
periods therein specified, subject, in the case of unaudited financial
statements for interim periods, to normal year-end audit adjustments and the
absence of full footnote disclosure as required by generally accepted accounting
principles.  The Company Financial Statements have been prepared in
all material respects in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods therein
specified without modification of the accounting principles used in the
preparation thereof throughout the periods presented, subject, in the case of
unaudited financial statements for interim periods, to normal year-end
adjustments, and except as otherwise described therein and except that unaudited
financial statements may not contain all footnotes required by generally
accepted accounting principles.  The unaudited portion of the Company
Financial Statements has been prepared by the management of the Company and is
consistent with the Company’s books and records. There has been no Material
Adverse Change affecting the Company or its Subsidiaries since December 31,
2007, other than as set forth in the Company Financial Statements.

     

    (b)    The
Unaudited Company Pro Forma Financial Results in the form attached to the
Private Placement Memorandum accurately reflect the accounting effects of the
Acquisition as of the dates presented.

     

    (c)    (i) With
respect to Flotation, to the Company’s knowledge (i) the reviewed balance sheet
of Flotation as at December 31, 2006 and the related reviewed statements of
income, stockholders’ equity and cash flows of Flotation for the year then
ended, (ii) the audited balance sheet of Flotation as at December 31, 2007 and
the related audited statements of income, stockholders’ equity and of cash flows
of Flotation for the year then ended, and (iii) the unaudited balance sheet of
Flotation as at February 29, 2008 and the related statement of income of
Flotation for the two month period then ended (such audited and unaudited
statements, including the related notes and schedules thereto, are referred to
herein as the “Flotation
Financial Statements”) is complete and correct and present fairly in all
material respects, in accordance with generally accepted accounting principles,
the consolidated financial position of Flotation as of the dates indicated, and
the results of its operations, cash flows, and the changes in stockholders’
equity for the periods therein specified, subject, in the case of unaudited
financial statements for interim periods, to normal year-end audit adjustments
and the absence of full footnote disclosure as required by generally accepted
accounting principles.  The Flotation Financial Statements have been
prepared in all material respects in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
therein specified without modification of the accounting principles used in the
preparation thereof throughout the periods presented, subject, in the case of
unaudited financial statements for interim periods, to normal year-end
adjustments, and except as otherwise described therein and except that unaudited
financial statements may not contain all footnotes required by generally
accepted accounting principles.  To the Company’s knowledge, the
unaudited portion of the Flotation Financial Statements has been prepared by the
management of Flotation and is consistent with Flotation’s books and
records.

     

    (ii)      The
Company agrees to complete an audit of the Flotation Financial Statements in
form and substance meeting the requirements of the Commission for use of Form
S-3 as provided in Section 7 within forty-five (45) calendar days following the
Closing Date.

     

    4.16    Form D.  No
later than fifteen (15) days after the Closing, the Company shall file a Form D
with respect to the Shares as required under Regulation D and shall provide a
copy thereof to the Placement Agent and any Purchaser who requests a copy after
filing.

     

    4.17    Legal
Opinion.  Prior to the Closing, Sonfield & Sonfield,
counsel to the Company, will deliver its legal opinion to the Placement Agent
substantially in the form attached as Exhibit 2 to this
Agreement.  Such opinion shall also state that each Purchaser may rely
thereon as though it were addressed directly to such Purchaser.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    4.18    Certificate.  At
the Closing, the Company will deliver to each Purchaser a certificate executed
by the chief executive officer, or the chief financial or accounting officer of
the Company, dated the Closing Date, in form and substance reasonably
satisfactory to each Purchaser, to the effect that the representations and
warranties of the Company set forth in this Section 4 are true and correct as of
the Closing Date, and the Company has complied in all material respects with all
the agreements and satisfied all the conditions herein on its part to be
performed or satisfied on or prior to such Closing Date.

     

    4.19    Reporting Company; Form
S-3.  The Company is subject to the reporting requirements of
the Exchange Act and has filed all reports required thereby since December 14,
2006.  The Company satisfies the registrant requirements for the use
of a registration statement on Form S-3 to register the Shares for resale by
each Purchaser under the Securities Act as provided in Section 7.  To
the Company’s knowledge, there exist no facts or circumstances (including
without limitation any required approvals or waivers or any circumstances that
may delay or prevent the obtaining of accountant’s consents) that reasonably
could be expected to prohibit or delay the preparation and filing of the
registration statement on Form S-3 for the resale of the Shares by each
Purchaser contemplated by Section 7 of this Agreement.

     

    4.20    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, (iii) are in compliance with all terms and conditions of
any such permit, license or approval, (iv) do not own or operate any real
property contaminated with any substance that is in violation of Environmental
Laws, and (v) are not liable for any off-site disposal or contamination pursuant
to any Environmental Laws, where, in each of the foregoing clauses (i), (ii),
(iii), (iv) and (v) the failure to so comply could be reasonably expected to
have, individually or in the aggregate, a Material Adverse
Effect.  There is no civil, criminal or administrative action, suit,
investigation, inquiry or proceeding pending or, to the knowledge of the
Company, threatened by or before any court or governmental authority against the
Company, any of its Subsidiaries other than Flotation, or to the Company’s
knowledge Flotation, relating to or arising from the Company’s or any
Subsidiary’s non-compliance with any Environmental Laws, and the Company has not
received written notice of any alleged violations of Environmental
Laws.  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.

     

    4.21    Use of Purchaser
Name.  Except as may be required by applicable law, the Company
shall not use, directly or indirectly, any Purchaser’s name or the name of any
of its affiliates in any advertisement, announcement, press release or other
similar communication unless it has received the prior written consent of such
Purchaser for the specific use contemplated or as otherwise required by
applicable law or regulation.

     

    4.22    Material Adverse Effect;
Material Adverse Change.  As used in this Section 4, the term
“Material Adverse
Effect” shall mean a material adverse effect on the business, condition
(financial or otherwise), results of operation, properties,
operations  or prospects of the Company and its Subsidiaries taken as
a whole; and “Material Adverse
Change” shall mean a material adverse change in the business, condition
(financial or otherwise), results of operation, properties, operations or
prospects of the Company and its Subsidiaries taken as a whole; provided,
however, that “Material Adverse
Change” and “Material
Adverse Effect” shall not include any such changes that result from the
announcement or pendency of this Agreement, the Acquisition Agreement, the
Acquisition or the other transactions contemplated by the Acquisition
Agreement.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

       

    

    4.23    No
Defaults.  Except as disclosed in the Private Placement
Memorandum, neither the Company, any of its Subsidiaries other than Flotation
nor to the Company’s knowledge Flotation, is in violation or default of any
provision of its certificate of incorporation or bylaws (or equivalent documents
under relevant jurisdictions of organization), or in breach of or default with
respect to any provision of any agreement, judgment, decree, order, mortgage,
deed of trust, lease, franchise, license, indenture, permit or other instrument
to which it is a party or by which it or any of its properties are bound and
where such breach or default is reasonably likely to result in a Material
Adverse Effect.

     

    4.24    Transfer
Taxes.  On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Shares to be sold to each Purchaser 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.

     

    4.25    Use of
Proceeds.  The Company will use the proceeds from the sale of
the Shares as described under “Use of Proceeds” in the Private Placement
Memorandum.

     

    4.26    Price of Common
Stock.  The Company has not and to its knowledge, no one acting
on its behalf has, directly or indirectly, (i) taken any action intended to
stabilize or manipulate the price of the Company’s shares of the Common Stock to
facilitate the sale or resale of the Shares, (ii) sold, bid for, purchased, or
paid any compensation for soliciting purchases of any of the Common Stock or the
Shares, other than the Placement Agent’s placement of the Shares, or (iii) paid
or agreed to pay any Person any compensation for soliciting another to purchase
any other securities of the Company.  The Company has not repurchased
any of its shares of Common Stock since December 31, 2007.

     

    4.27    Disclosure.  Except
as included in the Private Placement Memorandum, neither the Company nor, to the
Company’s knowledge, any Person acting on behalf of the Company, has provided
any Purchaser with any information that the Company believes constitutes
material, non-public information.  On or before 9:00 a.m., New York
City Time, on the first business day after the date hereof, the Company shall
(i) issue a press release in form reasonably acceptable to counsel for the
Placement Agent describing the transactions contemplated by this Agreement and
(ii) file a Current Report on Form 8-K describing the material terms of the
transactions contemplated by this Agreement, and disclosing such portions of the
Private Placement Memorandum as contain material nonpublic information with
respect to the Company that has not previously been publicly disclosed by the
Company, and attaching as an exhibit to such Form 8-K a form of this Agreement
(including such exhibit, the “8-K
Filing”).  Except for information that may be provided to each
Purchaser pursuant to Section 5(i) of this Agreement, the Company shall not, and
shall use commercially reasonable efforts to cause each of its officers,
directors, employees and agents not to, provide any Purchasers with any material
nonpublic information regarding the Company from and after the filing of the 8-K
Filing without the express written consent of such Purchaser.  The
Company understands and confirms that each Purchaser will rely on the
representations and covenants set forth in this Section 4.27 in effecting
transactions in securities of the Company.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

       

    

    4.28    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 Exchange Act
filings and is not so disclosed or that otherwise would be reasonably likely to
have a Material Adverse Effect.

     

    4.29    Insurance.  The
Company, its Subsidiaries other than Flotation and to the Company’s knowledge
Flotation, are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the business in which the Company and the Subsidiaries are engaged, excluding
directors and officers’ insurance.  Neither the Company, any
Subsidiary other than Flotation, nor to the Company’s knowledge Flotation, has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

     

    4.30    Transactions with Affiliates
and Employees.  Except as set forth in the SEC Filings and the
Private Placement Memorandum, none of the officers or directors of the Company,
or any of their respective affiliates, and, to the knowledge of the Company,
none of the employees of the Company or stockholders of the Company holding more
than 10% of the outstanding shares of any class of the Company’s equity
securities, or any of their respective affiliates (collectively with the
officers, directors and any of their respective Affiliates, the “Company Affiliates”), is
presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any Company Affiliate, or to the knowledge of the
Company, any entity in which any officer, director, any such employee or any of
their respective affiliates, has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $60,000 other than (i)
for payment of salary or consulting fees for services rendered on an arms-length
basis, (ii) reimbursement for expenses incurred on behalf of the Company and
(iii) for other employee benefits, including stock option agreements under any
stock option plan of the Company.   None of the Company
Affiliates has any direct or indirect ownership interest in any entity with
which the Company is affiliated or with which the Company has a business
relationship, or any entity that competes with the Company, except that Company
Affiliates and members of their immediate families may own stock (but not in
excess of 5% of the outstanding shares of any class of equity security) in
publicly traded companies that may compete with the Company.  To the
Company’s knowledge, no Company Affiliate or member of his or her immediate
family is, directly or indirectly, interested in any contract to which the
Company is a party.

     

    4.31    Sarbanes-Oxley; Internal
Accounting Controls.  The Company is in material compliance
with all provisions of the Sarbanes-Oxley Act of 2002 that are applicable to it
as of the Closing Date, other than as disclosed in its 2007
10-KSB.  The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures and internal
controls and procedures as of the date prior to the filing date of the most
recently filed periodic report under the Exchange Act (such date, the “Evaluation
Date”).  The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying
officers about the effectiveness of the disclosure controls and procedures and
internal controls and procedures based on their evaluations as of the Evaluation
Date.  Since the Evaluation Date, there have been no significant
changes in the Company’s internal controls (as such term is defined in Item
307(b) of Regulation S-K promulgated under the Exchange Act) or, to the
Company’s knowledge, in other factors that could significantly affect the
Company’s internal controls.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

       

    

    4.32    No Integrated
Offering.  Assuming the accuracy and completeness of each
Purchaser’s representations and warranties set forth in Section 5 below, neither
the Company, nor to the Company’s knowledge, any of its affiliates, nor any
Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Shares to be
integrated with prior offerings by the Company for purposes of the Securities
Act or any applicable shareholder approval provisions, including without
limitation, under the rules and regulations of any national securities exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.  Except for privately negotiated sales set forth
on Schedule 4.32 to
the Company Disclosure Letter,  the Company has not, directly
or indirectly, made any offers or sales of the Shares or securities of the same
or a similar class as the Shares during the six month period ending on the date
hereof, and has no intention of making an offer or sale of the Shares or
securities of the same or a similar class as the Shares after completion of the
transactions contemplated by this Agreement, except for the offering of the
Shares through the Placement Agent and for offers and sales, the result of which
would not cause the offer and sale of the Shares contemplated hereunder to fail
to be entitled to the exemption from registration afforded by Section 4(2) of
the Securities Act.

     

    4.33    Solvency.  Neither
the Company, any of its Subsidiaries other than Flotation nor to the Company’s
knowledge Flotation, has taken any steps to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact that would reasonably lead a creditor to do
so.  Neither the Company, any of its Subsidiaries other than Flotation
nor to the Company’s knowledge Flotation, has knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date.  The Company, its Subsidiaries
other than Flotation and to the Company’s knowledge Flotation, individually and
on a consolidated basis, are not as of the date hereof, and after giving effect
to the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below).  For purposes of this Section 4.33,
“Insolvent” means, with
respect to any Person (as defined in Section 4.34), (i) the present fair
saleable value of such Person’s assets is less than the amount required to pay
such Person’s total Indebtedness (as defined in Section 4.34), (ii) such Person
is unable to pay its debts and liabilities, subordinated, contingent or
otherwise, as such debts and liabilities become absolute and matured, (iii) such
Person intends to incur or believes that it will incur debts that would be
beyond its ability to pay as such debts mature or (iv) such Person has
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be
conducted.

     

    4.34    Indebtedness.  Neither
the Company, any of its Subsidiaries other than Flotation nor to the Company’s
knowledge Flotation (i) has any outstanding Indebtedness (as defined below),
except as disclosed on the Company’s 2007 10-KSB, (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 

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

       

    

    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 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.  The Private Placement Memorandum 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.

     

    4.35    No General
Solicitation.  Neither the Company nor any Person acting on
behalf of the Company has offered or sold any of the Shares by any form of
general solicitation or general advertising.  The Company has offered
the Shares for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act and
“qualified institutional buyers” as defined in Rule 144A(a) under the Securities
Act.

     

    4.36    Foreign Corrupt
Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other Person acting on behalf of the Company, has (i)
directly or indirectly, used any funds  for unlawful contributions,
gifts, entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contributions made by the Company (or made by any Person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

       

    

    4.37    Acknowledgment Regarding
Purchasers’ Purchase of Shares.  The Company acknowledges and
agrees that each Purchaser is acting solely in the capacity of an arm’s length
purchaser with respect to this Agreement and the transactions contemplated
hereby.  The Company further acknowledges that no Purchaser is acting
as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transaction contemplated hereby and any
advice given by any Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to such Purchaser’s purchase of the Shares.  The
Company further represents to each Purchaser that the Company’s decision to
enter this Agreement has been based solely on the independent evaluation of the
transaction contemplated hereby the Company and its
representatives.

     

    4.38    Removal of Restrictive
Legend.  (a)  Stock certificates evidencing Shares
shall not contain any legend (including the legend set forth in Section 5(f)
below) (i) while a Registration Statement covering the resale of such Shares is
effective under the Securities Act, (ii) following any sale of such Securities
pursuant to Rule 144, (iii) if such Shares are eligible for sale under Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold and the adequate current public information
requirement of Rule 144(c)(1) no longer applies to the sale of Shares, or (iv)
if such legend is not required under applicable requirements of the Securities
Act (including judicial interpretations and pronouncements issued by the
Commission’s staff) and such lack of requirement is confirmed by a legal opinion
reasonably satisfactory to the Company.

     

    (b)    The
Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly after the date any Registration Statement relating to
the resale of the Shares has been declared effective by the Commission if
required by the Company’s transfer agent to effect the removal of the legend
hereunder.  The Company agrees that following the relevant effective
date or at such time as such legend is no longer required under this Section
4.38, it will, no later than 3 Trading Days following the delivery by a
Purchaser to the Company’s transfer agent of a certificate representing the
Shares issued with a restrictive legend (such date, the “Legend Removal Date”), deliver
or cause to be delivered to such Purchaser a certificate representing such
Shares that is free from all restrictive or other legends.  The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section 4.38 or Section 5(f) below.  Certificates for
Shares subject to legend removal under this Section 4.38 shall be transmitted by
the transfer agent of the Company to each Purchaser by crediting the account of
such Purchaser’s prime broker with the Depositary Trust Company
System.  For purposes of this Section 4.38, “Trading Day” shall mean a day
on which the New York Stock Exchange or NASDAQ is open for trading of equity
securities of any issuer listed on such national securities
exchange.

     

    (c)    In
addition to such Purchaser’s other available remedies, the Company shall pay to
a Purchaser, in cash, as partial damages and not as penalty, for each $1,000 of
Shares (based on the closing price of the Common Stock on the date such Shares
are submitted to the Company’s transfer agent) subject to Section 4.38(b), $10
per Trading Day (increasing to $20 per Trading Day, five Trading Days after such
damages have begun to accrue) for each Trading Day after the 10th Trading Day
after the Legend Removal Date until such certificate is
delivered.  Nothing herein shall limit a Purchaser’s right to pursue
actual damages for the Company’s failure to deliver certificates representing
any Shares as required by this Agreement, and such Purchaser shall have the
right to pursue all remedies available to it at law or in equity, including
without limitation a decree of specific performance and/or injunctive
relief.

     

    
      
        
        

      

      
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    4.39    Lock-ups.   For
a period of ninety (90) days from the Closing, , the Company will not, directly
or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be expected
to, result in the disposition by the Company at any time in the future of) any
shares of Common Stock, or securities convertible into or exchangeable for
Common Stock, or sell or grant options, rights or warrants with respect to any
shares of Common Stock or securities convertible into or exchangeable for Common
Stock (other than option grants to employees pursuant to existing plans in the
ordinary course of business), or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the economic
benefits or risks of ownership of such shares of Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise, in each case without the
prior written consent of the Placement Agent or of the Required Purchasers; and
to cause each officer and director of the Company and each beneficial owner of
more than 5% of the Company’s Common Stock (each, a “Lock-Up Party”) to furnish to
the Placement Agent, prior to the Closing, a letter or letters, in form and
substance satisfactory to counsel for the Placement Agent, pursuant to which
each such person shall agree not to, directly or indirectly, (1) offer for sale,
sell, pledge or otherwise dispose of (or enter into any transaction or device
which is designed to, or could be expected to, result in the disposition by such
person at any time in the future of) any shares of Common Stock or securities
convertible into or exchangeable for Common Stock or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or in part,
any of the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or other securities, in cash or
otherwise, in each case for a period of ninety (90) days from the date of the
Closing, without the prior written consent of the Placement Agent; provided that
if the Registration Statement is not declared effective within ninety (90) days
of the Closing, then the Company and each Lock-Up Party will be subject to the
restrictions set forth above for an additional period of thirty (30) days from
the date the Registration Statement is declared effective; and provided further
each of the following Lock-Up Parties, Messrs. Chamberlain, Smith and Butler,
may pledge up to 2,325,000, 1,075,000 and 350,000 shares, respectively, to
secure personal indebtedness.  Nothing contained in this Section 4.39
shall prevent the Company from issuing (i) securities required to be issued
pursuant to contractual obligations of the Company in effect as of the date of
this Agreement and disclosed in this Agreement or the Private Placement
Memorandum prior to the Closing; (ii) securities issued on a pro rata basis to
all holders of a class of outstanding equity securities of the Company; and
(iii) equity securities issued pursuant to employee benefit or purchase plans in
effect as of the date of this Agreement, provided in each case, that such
issuances are registered under the Securities Act or made pursuant to an
exemption under the Securities Act  and will not cause the offer and
sale of the Shares contemplated by this Agreement to fail to be entitled to the
exemptions from registration afforded by Section 4(2) of the Act.

     

    4.40    Issuance of Certain
Securities.  For a period expiring on the third anniversary of
the Closing Date, without the prior written consent of Purchasers owning a
majority of the Shares, the Company shall not issue for cash (a) any convertible
securities or similar securities that contain a provision that provides for any
change or determination of the applicable conversion price, conversion rate, or
exercise price (or a similar provision which might have a similar effect) based
on any determination of the market price or other value of the Company’s
securities or any other market based or contingent standard, such as so-called
“toxic” or “death spiral” convertible securities; provided, however, that this
prohibition shall not include convertible securities or similar securities the
conversion or exercise price or conversion rate of which is (i) fixed on the
date of issuance, (ii) subject to adjustment as a result of or in connection
with a bona fide business combination or similar transaction or (iii) subject to
adjustment based upon the issuance by the Company of additional securities,
including without limitation, standard anti-dilution adjustment provisions which
are not based on calculations of market price or other variable valuations; and
provided, further, that in no event shall this provision be deemed to prohibit
the transactions contemplated in this Agreement, or (b) any preferred stock,
debt instruments or similar securities or investment instruments providing for
(i) preferences or other payments substantially in excess of the original
investment by purchasers thereof or (ii) dividends, interest or similar payments
other  than dividends, interest or similar payments computed on an
annual basis and not in excess, directly or indirectly, of the lesser of a rate
equal to (A) twice the interest rate on 10 year US Treasury Notes and (B)
20%.

     

    
      
        
        

      

      
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    4.41    Shell Company
Status.  The Company is not, and has not been since December
31, 2006, an issuer identified in Rule 144(i)(1) of the Commission.

     

    4.42    U.S. Real Property Holding
Corporation.  The Company is not, has never been, and for a
period expiring on the third anniversary of the Closing Date, shall not become,
a U.S. real property holding corporation within the meaning of Section 897 of
the Internal Revenue Code of 1986, as amended, and the Company shall so certify
upon the request of any Purchaser.

     

    4.43    Bank Holding Company
Act.  Neither the Company nor any of its Subsidiaries is
subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to
regulation by the Board of Governors of the Federal Reserve System (the “Federal
Reserve”).  Neither the Company nor any of its Subsidiaries or
affiliates owns or controls, directly or indirectly, five percent (5%) or more
of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any equity that is
subject to the BHCA and to regulation by the Federal Reserve.  Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

     

    4.44    Foreign Assets Control
Regulations.  The use the proceeds from the sale of the Shares
will not violate the Trading with the Enemy Act (50 U.S.C. Section 1 et seq., as
amended) (the “Trading with the Enemy Act”) or any of the foreign asset control
regulations of the United States Treasury Department (31CFR, Subtitle B, Chapter
V, as amended) (the “Foreign Assets Control Regulations”) or any enabling
legislation or executive order relating thereto (which for the avoidance of
doubt shall include, but shall not be limited to (a) Executive Order 13224 of
September 21, 2001 Blocking Property and Prohibiting Transactions With Persons
Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079(2001))
(the “Executive Order”) and (b) the Uniting and Strengthening America by
providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (Public Law 107-56)). Furthermore, neither the Company nor any of its
Subsidiaries or other affiliates (a) is or will become a “blocked person” as
described in the Executive Order, the Trading with the Enemy Act or the Foreign
Assets Control Regulations, or (b) engages or will engage in any dealings or
transactions, or otherwise associated, with any such “blocked
person”.

     

    4.45    Disclosure.  Without
limitation on other representations of the Company, including those set forth in
Section 4.15, all disclosure provided to the Purchasers regarding the Company,
its business and the transactions contemplated hereby, taken as a whole,
furnished by or on behalf of the Company, including, without limitation, the
Private Placement Memorandum of the Company dated May 16, 2008, is true and
correct in all material respects 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 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.  No event or circumstance has occurred or
information exists (other than the consummation of the transactions contemplated
hereby) with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.

     

    
      
        
        

      

      
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    SECTION
5.  Representations, Warranties
and Covenants of each Purchaser.  (a) Each Purchaser represents
and warrants to, and covenants with, the Company that:  (i) such
Purchaser is knowledgeable, sophisticated and experienced in making, and is
qualified to make, decisions with respect to investments in shares representing
an investment decision like that involved in the purchase of the Shares,
including investments in securities issued by the Company and comparable
entities, and has requested, received, reviewed and considered all information
it deems relevant in making an informed decision to purchase the Shares,
including the Private Placement Memorandum and the Company Disclosure Letter;
(ii) such Purchaser is acquiring the number of Shares set forth on such
Purchaser’s signature page hereto in the ordinary course of its business and for
its own account for investment only and with no present intention or view toward
the public sale or distribution thereof, and no arrangement or understanding
exists with any other Persons regarding the public sale or distribution of such
Shares (this representation and warranty not limiting such Purchaser’s right to
sell such Shares pursuant to the Registration Statement or in compliance with an
exemption from registration under the Securities Act or, other than with respect
to any claims arising out of a breach of this representation and warranty, such
Purchaser’s right to indemnification under Section 7.3); (iii) such Purchaser
has not directly or indirectly, nor has any Person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any short sales in
the securities of the Company (including without limitation any short sales
involving the Company’s securities) since May 1, 2008, which according to
information provided by the Company, the earliest time that any Purchaser was
first contacted regarding an investment in the Shares; (iv) such Purchaser has
completed or caused to be completed the Registration Statement Questionnaire,
for use in the preparation of the Registration Statement and for ascertaining
whether Purchaser is an accredited investor, and the answers thereto are true
and correct in all material respects as of the date hereof and will be true and
correct in all material respects as of the effective date of the Registration
Statement; (v) such Purchaser has completed or caused to be completed the
Questionnaire and the answers thereto are true and correct in all material
respects as of the date hereof and will be true and correct in all material
respects as of the Closing; (vi) such Purchaser has been furnished with and has
had access to such information as is in the Private Placement Memorandum and
Company Disclosure Letter together with the opportunity to obtain such
additional information as it may request to verify the accuracy of the
information supplied; (vii) such Purchaser has, in connection with its decision
to purchase the number of Shares set forth on such Purchaser’s signature page
hereto, relied solely upon the Private Placement Memorandum, the Company
Disclosure Letter, and in each case, the documents included therein or
incorporated by reference and the representations and warranties of the Company
contained herein; (viii) such Purchaser is an “accredited investor” within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act; and
(ix) such Purchaser agrees to notify the Company as promptly as possible of any
change in any of the foregoing information until such time as such Purchaser has
sold all of its Shares or the Company is no longer required to keep the
Registration Statement effective.  Anything in this Agreement or
elsewhere herein to the contrary notwithstanding, but subject to compliance by
the Purchasers with applicable law, it is understood and acknowledged by the
Company (i) that none of the Purchasers have been asked by the Company or its
Subsidiaries to agree, nor has any Purchaser agreed with the Company or its
Subsidiaries, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Shares for any specified term; (ii) that past or
future open market or other transactions by any Purchaser, including, without
limitation, short sales or “derivative” transactions, before or after the
closing of this or future private placement transactions, may negatively impact
the market price of the Company’s publicly-traded securities; (iii) that any
Purchaser, and counter parties in “derivative” transactions to which any such
Purchaser is a party, directly or indirectly, presently may have a “short”
position in the Common Stock, and (iv) that each Purchaser shall not be deemed
to have any affiliation with or control over any arm’s length counter-party in
any “derivative” transaction.  The Company further understands and
acknowledges that (a) one or more Purchasers may engage in hedging and/or
trading activities at various times, and (b) such hedging and/or trading
activities (if any) could reduce the value of the existing stockholders’ equity
interests in the Company at and after the time that the hedging and/or trading
activities are being conducted.

     

    
      
        
        

      

      
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    (b)    Each
Purchaser understands that the Shares are being offered and sold to it in
reliance upon specific exemptions from the registration requirements of
Securities Act, the Rules and Regulations and state securities laws, and that
the Company is relying upon the truth and accuracy of, and such Purchaser’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of such Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of such Purchaser to acquire
the Shares.  The Company has made no agreement whatsoever to
repurchase the Shares or, except as expressly provided in this Agreement, to
register the resale of any portion of such Shares under the Securities Act or
under any state securities law.

     

    (c)    Each
Purchaser agrees to use the information contained in the Private Placement
Memorandum for the sole purpose of evaluating a possible investment in the
Shares and such Purchaser hereby acknowledges that it is prohibited from
reproducing or distributing the Private Placement Memorandum, this Purchase
Agreement, or any other offering materials or other information provided by the
Company in connection with such Purchaser’s consideration of its investment in
the Company, in whole or in part, or divulging or discussing any of their
contents except to its advisors and representatives for the purpose of
evaluating such investment.  Each Purchaser shall maintain in
confidence the receipt and content of any notice of a Suspension (as defined in
Section 5(i) below).  The foregoing agreements shall not apply to any
information that is or becomes publicly available through no fault of such
Purchaser, or that such Purchaser is legally required to disclose; provided,
however, that if such Purchaser is requested or ordered to disclose any such
information pursuant to any court or other government order or any other
applicable legal procedure, it shall provide the Company with prompt notice of
any such request or order in time sufficient to enable the Company to seek an
appropriate protective order.

     

    (d)    Each
Purchaser understands that its investment in the Shares involves a significant
degree of risk and that the market price of the Common Stock has been and
continues to be volatile and that no representation is being made as to the
future value of the Common Stock.  Other than as set forth by the
Company in the SEC Filings and the Private Placement Memorandum, neither the
Company nor the Placement Agent has made any representations about the value or
performance of the Company or the Shares.  Each Purchaser has read and
understands the risk factors set forth in the Private Placement
Memorandum.  Each Purchaser has the knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Shares and has the ability to bear the economic
risks of an investment in the Shares.  Each Purchaser has been
afforded the opportunity to ask questions of the Company regarding such matters
and acknowledges that neither such inquiries nor any other due diligence
investigation conducted by such Purchaser or any of its advisors or
representatives modifies, amends or affects such Purchaser’s right to rely on
the Company’s representations and warranties contained in Section 4
above.

     

    (e)    Each
Purchaser understands that no United States federal or state agency or any other
government or governmental agency has passed upon or made any recommendation or
endorsement of the Shares.

     

    
      
        
        

      

      
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    (f)    Each
Purchaser understands that, until such time as the Registration Statement has
been declared effective or the Shares may be sold by non-affiliates of the
Company pursuant to Rule 144 promulgated under the Securities Act without any
restriction as to the number of securities as of a particular date that can then
be immediately sold and the adequate current public information requirement of
Rule 144(c)(1) promulgated under the Securities Act no longer applies to the
sale of such shares without registration, and subject to Section 4.38(a)(iv),
the Shares may bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the certificates
for the Shares):

     

    “THE
ISSUANCE AND THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION.  THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS
SOLD PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.”

     

    (g)    Each
Purchaser agrees that the removal of the restrictive legend from certificates
representing the Shares as set forth in Section 4.38 is predicated upon the
Company’s reliance that such Purchaser will sell any Shares pursuant to either
the registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom.

     

    (h)    Each
Purchaser’s principal executive offices are in the jurisdiction set forth
immediately below such Purchaser’s name on the signature pages
hereto.

     

    (i)     Each
Purchaser hereby covenants with the Company not to make any sale of the Shares
under the Registration Statement without effectively causing the prospectus
delivery requirement under the Securities Act to be satisfied.  Each
Purchaser acknowledges that there may occasionally be times when the Company
must suspend the use of the prospectus forming a part of the Registration
Statement (a “Suspension”) until such time
as an amendment to the Registration Statement has been filed by the Company and
declared effective by the Commission, or such time as such prospectus has been
supplemented, or until such time as the Company has filed an appropriate report
with the Commission pursuant to the Exchange Act.  Each Purchaser
hereby covenants that it will not sell any Shares pursuant to said prospectus
during the period commencing at the time at which it receives written notice of
the Suspension of the use of said prospectus (without providing any other
material information other than at the written request of such Purchaser) and
ending at the time the Company gives such Purchaser written notice that such
Purchaser may thereafter effect sales pursuant to said
prospectus.  Each Purchaser shall not be prohibited from selling
Shares under the Registration Statement as a result of Suspensions on more than
two (2) occasions of not more than thirty (30) days each in any 12-month period,
unless, in the good faith judgment of the Company’s Board of Directors following
the written advice of counsel, the sale of Shares under the Registration
Statement in reliance on this paragraph would be reasonably likely to cause a
violation of the Securities Act or the Exchange Act; provided that the Company
shall remain liable for liquidated damages pursuant to Section 7.7 hereof with
respect to any Suspensions exceeding the aforementioned two permitted 30-day
Suspensions in any 12-month period.

     

    
      
        
        

      

      
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    (j)    Each
Purchaser further represents and warrants to, and covenants with, the Company
that (i) such Purchaser has full right, power, authority and capacity to enter
into this Agreement and to consummate the transactions contemplated hereby and
has taken all necessary action to authorize the execution, delivery and
performance of this Agreement; (ii) upon the execution and delivery of this
Agreement, this Agreement shall constitute a legal, valid and binding obligation
of such Purchaser, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except as the indemnification agreements
of such Purchaser in Section 7.3 hereof may be legally unenforceable; (iii) the
execution, delivery and performance of this Agreement by such Purchaser and the
consummation by such Purchaser of the transactions contemplated hereby will not
(A) conflict with or result in a violation of any provision of such Purchaser’s
certificate of incorporation or other organizational documents, or (B) violate
or conflict with, or result in a breach of any provision of, or constitute a
default under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or other instrument to
which such Purchaser is a party, or (C) result in a violation of any law, rule,
regulation, order, judgment or decree applicable to such Purchaser, except in
each case for any such violation that would not have a material adverse effect
on the ability of such Purchaser to consummate the transactions contemplated by
the Agreement; (iv) such Purchaser is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under this Agreement in
accordance with the terms hereof, except for such consents, authorizations,
orders, filings or registrations that have already been obtained; (v) such
Purchaser has no present intent to consummate a “change of control” of the
Company, as such term is understood in Rule 13d of the Exchange Act; (vi) such
Purchaser is not a party to any litigation against the Company; (vii) such
Purchaser understands that nothing in this Agreement or any other materials
presented to such Purchaser in connection with the purchase and sale of the
Shares constitutes legal, tax or investment advice, and (viii) such Purchaser is
not relying on the Company, the Placement Agent or their respective counsel for
an evaluation of the business, tax, legal or other consequences of an investment
in the Company or the Shares.  Each Purchaser has consulted its own
legal, tax and investment advisors, as it, in its sole discretion, has deemed
necessary or appropriate in connection with the purchase of the
Shares.  In the case of a Purchaser that is, individually or
collectively with the Purchaser/Affiliates (as defined below), a multi-managed
investment vehicle whereby separate portfolio managers manage separate portions
of such Purchaser’s or Purchaser/Affiliates’ assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such assets, the representations set forth
above shall only apply with respect to the portion of assets managed by the
portfolio managers that have knowledge of the transactions contemplated in this
Agreement.

     

    SECTION
6.  Survival of Representations
and Warranties. Notwithstanding any investigation made by any party to
this Agreement or by the Placement Agent, all representations and warranties
made by the Company and each Purchaser herein shall survive the execution of
this Agreement.

     

    SECTION
7.  Registration of the Shares;
Compliance with the Securities Act.

     

    7.1    Registration Procedures and
Expenses.  The Company shall:

     

    
      
        
        

      

      
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    (a)    subject
to receipt of necessary information in writing from the Purchasers, as soon as
reasonably practicable, but in no event later than forty-five (45) calendar days
following the Closing Date (the “Filing Date”), prepare and
file with the Commission a Registration Statement on Form S-3 relating to the
sale of the Shares by each Purchaser from time to time on the OTC Bulletin Board
or the facilities of any national securities exchange on which the Common Stock
is then traded or in privately negotiated transactions (each a “Registration Statement”, with
the initial Registration Statement referred to as the “First Registration Statement”)
and will use its best efforts to maintain the quotation of such Shares on the
OTC Bulletin Board or the facilities of any national securities exchange on
which the Common Stock is then traded.  The Registration Statement
shall not include securities owned by persons other than Purchasers and their
respective assigns, subject to Section 20 below.  The First
Registration Statement shall contain (except if otherwise directed by the
Required Purchasers) the “Plan of Distribution” section in substantially the
form attached hereto as Exhibit 3 (the
“Plan of
Distribution”).  The amount of Shares required to be included
in the Registration Statement as described in Section 7.1(a) (“Initial Registrable Shares”)
shall be limited to not less than 100% of the maximum amount (“Rule 415 Amount”) of Common
Stock which may be included in a single Registration Statement without exceeding
registration limitations imposed by the Commission pursuant to Rule 415 of the
Securities Act.  If Form S-3 is not available at that time, the
Company will file with the Commission a registration statement on such form
(including without limitation Forms SB-1, SB-2 and S-1) as is then available to
effect a registration of the Shares, subject to the consent of a majority of the
Purchasers, which consent shall not be unreasonably withheld;

     

    (b)    in the
event that less than all of the Initial Registrable Shares are included in the
First Registration Statement as a result of the limitation described in this
Section 7.1(a)(i), file additional Registration Statements each registering the
Rule 415 Amount (each such Registration Statement a “Subsequent Registration
Statement”), seriatim, until all of the Initial Registrable Shares have
been registered.  The Filing Date and Effective Date of each such
additional Registration Statement shall be, respectively, fourteen (14) and
forty-five (45) days after the first day such Subsequent Registration Statement
may be filed without objection by the Commission based on Rule 415 of the 1933
Act.  Initial Registrable Shares and Share to be included in
additional Registration Statements shall be allocated and registered pro rata among the Purchasers
based upon their initial investments in the Offering;

     

    (c)    use its
commercially reasonable efforts, subject to receipt of necessary information
from the Purchasers, to cause the Commission to declare the First Registration
Statement effective within ninety (90) calendar days after the Closing Date (the
“Required Effective
Date”).  However, so long as the Company filed the First
Registration Statement by the Filing Date, if the First Registration Statement
receives Commission review, then the Required Effective Date will be the
ninetieth (90th) calendar day after the Closing Date.  The Company’s
commercially reasonable efforts will include, but not be limited to, promptly
responding to all comments received from the staff of the
Commission.  If at any time the Company receives notification from the
Commission that the First Registration Statement will receive no action or
review from the Commission, then the Company will, subject to its rights under
this Agreement, use its commercially reasonable efforts to cause the First
Registration Statement to become effective within two (2) business days after
such Commission notification.  The Company shall not file any
registration statements with the Commission relating to securities that are not
Shares until ninety (90) days after the Required Effective Date; provided
nothing herein shall prohibit the filing of amendments or supplements to already
filed registration statements;

     

    
      
        
        

      

      
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    (d)    use its
commercially reasonable efforts to promptly prepare and file with the Commission
such amendments and supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep the Registration
Statement effective until the earliest of (i) two years after the Closing Date,
(ii) the date on which the Purchasers may sell all of the Shares then held by
the Purchasers, without registration, pursuant to Rule 144 promulgated under the
Securities Act without any restriction as to the number of securities as of a
particular date that can then be immediately sold and the adequate current
public information requirement of Rule 144(c)(1) no longer applies to the sale
of Shares, or (iii) such time as all Shares purchased by all Purchasers in the
Offering have been sold pursuant to a Registration Statement or Rule 144
promulgated under the Securities Act.  Thereafter, the Company shall
be entitled to withdraw the Registration Statement and the Purchasers shall have
no further right to offer or sell any of the Shares pursuant to the Registration
Statement;

     

    (e)    use
commercially reasonably efforts to furnish (i) to each Purchaser with respect to
the Shares registered under the Registration Statement by fax or email (in each
case with answerback confirmed) or other prompt means one copy of the prospectus
promptly after effectiveness of the Registration Statement and in any case
before the next opening of the principal market for the Shares and (ii) to each
Purchaser with respect to the Shares registered under the Registration Statement
(and to each underwriter, if any, of such Shares) such number of copies of
prospectuses and such other documents as such Purchaser may reasonably request
within a reasonable time, in order to facilitate the public sale or other
disposition of all or any of the Shares by such Purchaser;

     

    (f)    file
documents required of the Company for normal Blue Sky clearance in states
specified in writing by each Purchaser and reasonably acceptable to the Company;
provided, however, that the Company shall not be required to (i) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 7.1; (ii) file a general consent to service of process in
any such jurisdiction; (iii) subject itself to taxation in any such
jurisdiction; (iv) provide any undertakings that cause material expense or
burden to the Company; or (v) make any change to its organizational documents,
which in each case the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders;

     

    (g)    bear all
expenses in connection with the procedures in paragraphs (a) through (e) of this
Section 7.1 and the registration of the Shares pursuant to the Registration
Statement, other than fees and expenses, if any, of counsel or other advisers to
each Purchaser or underwriting discounts, brokerage fees and commissions
incurred by such Purchaser, if any; and

     

    (h)    promptly
notify each Purchaser of the effectiveness of a Registration Statement, and any
post-effective amendments thereto, as well as of the receipt by the Company of
any stop orders of the Commission with respect to a Registration Statement and
the lifting of any such order or of any pending proceeding under Section 8A of
the Securities Act in connection with the offering of the Shares.

     

    
      
        
        

      

      
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    Notwithstanding
the foregoing, it shall be a condition precedent to the obligations of the
Company to take any action pursuant to paragraphs (a) through (f) of this
Section 7.1, that such Purchaser shall furnish to the Company such information
regarding itself, the Shares to be sold by such Purchaser, and the intended
method of disposition of such Shares as shall be required to effect the
registration of the Shares, all of which information shall be furnished to the
Company in writing specifically for use in the Registration
Statement.

     

    The
Company understands that each Purchaser disclaims being an underwriter, but such
Purchaser being deemed an underwriter shall not relieve the Company of any
obligations it has hereunder, provided, however, that if the Company receives
notification from the Commission that such Purchaser is deemed an underwriter,
then the period in which the Company is obligated to submit an acceleration
request to the Commission shall be extended to the earlier of (i) the sixtieth
(60th) day after such Commission notification, or (ii) ninety (90) days after
the initial filing of the Registration Statement with the
Commission.  Notwithstanding the foregoing, the parties understand and
agree that (i) the Placement Agent has not been retained as an underwriter for
purposes of offering and selling the Shares; and (ii) Company shall not be
obligated to retain an underwriter with respect to the offer and sale of Shares
pursuant to the Registration Statement.  Neither the Company nor any
Subsidiary or affiliate thereof shall identify any Purchaser as an underwriter
in any public disclosure or filing with the Commission and any Purchaser being
deemed an underwriter by the Commission shall not relieve the Company of any
obligations it has under this Agreement; provided, however, that the
foregoing shall not prohibit the Company from including the disclosure found in
the Plan of Distribution.

     

    7.2    Transfer of Shares After
Registration.  While the Registration Statement is effective
and available for resale, each Purchaser agrees that it will not effect any
disposition of the Shares or its right to purchase the Shares that would
constitute a sale within the meaning of the Securities Act, except as
contemplated in the Registration Statement referred to in Section 7.1 hereof in
the section titled “Plan of
Distribution” or pursuant to an applicable exemption from registration,
the availability of which is confirmed in writing by counsel to such Purchaser
(the form, substance and scope of which opinion shall be reasonably acceptable
to the Company) and delivered to the Company, and that it will promptly notify
the Company of any changes in the information set forth in the Registration
Statement regarding such Purchaser or its plan of distribution.

     

    7.3    Indemnification.

     

    
      	
              (i)            

            	
              For
      purpose of this Agreement, the term “Purchaser/Affiliate”
      shall mean any affiliate of a Purchaser (as defined in Rule 405 under the
      Securities Act and including without limitation all stockholders,
      partners, members, officers, directors, employees and direct or indirect
      investors of such Purchaser and any of the foregoing Person’s agents or
      other representatives) and any Person who controls such Purchaser or any
      affiliate of such Purchaser within the meaning of Section 15 of the
      Securities Act or Section 20 of the Exchange Act;
  and

            


    

     

    
      	
              (ii)         
       

            	
              For
      purpose of this Section 7.3, the term “Registration Statement”
      shall include any final prospectus, exhibit, supplement or amendment
      included in or relating to, and any document incorporated by reference in,
      the Registration Statement referred to in Section 7.1
    hereof.

            


    

     

    
      
        
        

      

      
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    (a)    The Company
agrees to indemnify and hold harmless each Purchaser and each
Purchaser/Affiliate against any losses, claims, damages, liabilities or
expenses, joint or several, to which such Purchaser or Purchaser/Affiliate may
become subject, under the Securities Act, the Exchange Act, or any other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, including the prospectus,
financial statements and schedules, and all other documents filed as a part
thereof, as amended at the time of effectiveness of the Registration Statement,
including any information deemed to be a part thereof as of the time of
effectiveness pursuant to paragraph (b) of Rule 430A, or pursuant to Rule 434,
of the Rules and Regulations, or the prospectus, in the form first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, or filed as
part of the Registration Statement at the time of effectiveness if no Rule
424(b) filing is required (the “Prospectus”), or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in the Registration Statement or any
amendment or supplement thereto not misleading or in the Prospectus or any
amendment or supplement thereto not misleading in the light of the circumstances
under which they were made, or arise out of or are based in whole or in part on
any material breach of the representations and warranties of the Company
contained in this Agreement (except that where representations and warranties
are qualified by materiality, any breach), or any material breach by the Company
of its obligations hereunder, and will reimburse such Purchaser or
Purchaser/Affiliate for any legal and other expenses as such expenses are
reasonably incurred by such Purchaser or Purchaser/Affiliate in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage, liability or expense arises out of or is based upon
(i) an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Purchaser expressly for
use  therein, or (ii) the failure of such Purchaser to comply with the
covenants and agreements contained in Section 5(i) or Section 7.2 hereof
respecting the sale of the Shares, or (iii) the inaccuracy of any
representations made by such Purchaser herein or (iv) any statement or omission
in any Prospectus that is corrected in any subsequent Prospectus that was
delivered to such Purchaser prior to the pertinent sale or sales by such
Purchaser.

     

    (b)    Each
Purchaser will severally, but not jointly, indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, against
any losses, claims, damages, liabilities or expenses to which the Company, each
of its directors, each of its officers who signed the Registration Statement or
controlling Person may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Purchaser) insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon (i) any failure to comply
with the covenants and agreements contained in Sections 5(h) or 7.2 hereof
respecting the sale of the Shares or (ii) any material breach of any
representation made by such Purchaser herein or (iii) any untrue or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements in the
Registration Statement or any amendment or supplement thereto not misleading or
in the Prospectus or any amendment or supplement thereto not misleading in the
light of the circumstances under which they were made, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the Company by such
Purchaser expressly for use therein, and such Purchaser will reimburse the
Company, each of its directors, each of its officers who signed the Registration
Statement or controlling Person for any legal and other expense reasonably
incurred by the Company, each of its directors, each of its officers who signed
the Registration Statement or controlling Person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the obligations of
such Purchaser under this Section 7.3 shall not exceed the net proceeds to such
Purchaser from the sale of Shares pursuant to such Registration
Statement.

     

    
      
        
        

      

      
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    (c)    Promptly
after receipt by an indemnified party under this Section 7.3 of notice of the
threat or commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
7.3, promptly notify the indemnifying party in writing thereof; but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise under the
indemnity agreement contained in this Section 7.3 (except to the extent that
such omission materially and adversely affects the indemnifying Person’s ability
to defend such action).  Subject to provisions hereinafter stated, in
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying party,
the indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with all other indemnifying parties similarly
notified, to assume  the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the defendants in
any such action include both the indemnified party and the indemnifying party,
and the indemnifying party and the indemnified party, based upon the advice of
such indemnified party’s counsel, shall have reasonably concluded that there may
be a conflict of interest between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties.  Upon receipt
of notice from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7.3 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the preceding
sentence (it being understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel, approved by such
indemnifying party in the case of paragraph (a), representing the indemnified
parties who are parties to such action (including indemnified parties under
Agreements with other Purchasers, plus local counsel, if appropriate) or (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of action, in each of which cases the
reasonable fees and expenses of counsel shall be at the expense of the
indemnifying party.  In no event shall any indemnifying Person be
liable in respect of any amounts paid in settlement of any action unless the
indemnifying Person shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld.  No indemnifying
Person shall, without the prior written consent of the indemnified Person,
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified Person is or could have been a party and indemnification
could have been sought hereunder by such indemnified Person, unless such
settlement includes an unconditional release of such indemnified Person from all
liability on claims that are the subject matter of such proceeding.

     

    (d)    If the
indemnification provided for in this Section 7.3 is required by its terms but is
for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party under paragraphs (a), (b) or (c) of this Section
7.3 in respect to any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and such Purchaser from the placement of the Common Stock contemplated
by this Agreement 

     

    
      
        
        

      

      
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    or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but the relative fault of the Company
and such Purchaser in connection with the statements or omissions or
inaccuracies in the representations and warranties in this Agreement that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations.  The relative benefits
received by the Company on the one hand and each Purchaser on the other shall be
deemed to be in the same proportion as the amount paid by such Purchaser to the
Company pursuant to this Agreement for the Shares purchased by such Purchaser
that were sold pursuant to the Registration Statement bears to the difference
(the “Difference”)
between the amount such Purchaser paid (directly or indirectly) for the Shares
that were sold pursuant to the Registration Statement and the amount received by
such Purchaser from such sale.  The relative fault of the Company on
the one hand and each Purchaser on the other shall be determined by reference
to, among other things, whether  the untrue or alleged statement of a
material fact or the omission or alleged omission to state a material fact or
the inaccurate or the alleged inaccurate representation and/or warranty relates
to information supplied by the Company or by such Purchaser and the parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.  The amount paid or payable
by a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in paragraph (c) of this Section 7.3, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.  The provisions set forth in paragraph (c) of
this Section 7.3 with respect to the notice of the threat or commencement of any
threat or action shall apply if a claim for contribution is to be made under
this paragraph (d); provided, however, that no additional notice shall be
required with respect to any threat or action for which notice has been given
under paragraph (c) for purposes of indemnification.  The Company and
each Purchaser agree that it would not be just and equitable if contribution
pursuant to this Section 7.3 were determined solely by pro rata allocation (even
if such Purchaser were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph.  Notwithstanding the provisions of this
Section 7.3, no Purchaser shall be required to contribute any amount in excess
of the amount by which the Difference exceeds the amount of any damages which
such Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.  No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.  Each Purchaser’s
obligation to contribute pursuant to this Section 7.3 is several and not
joint.

     

    (e)    Each
Purchaser hereby acknowledges that it is a sophisticated business Person who was
represented by counsel during the negotiations regarding the provisions hereof
including, without limitation, the provisions of this Section 7.3, and is fully
informed regarding said provisions.  Each of the Company and each
Purchaser is advised that federal or state public policy as interpreted by the
courts in certain jurisdictions may be contrary to certain of the provisions of
this Section 7.3, and each of the Company and such Purchaser hereby expressly
waives and relinquishes any right or ability to assert such public policy as a
defense to a claim under this Section 7.3 and further agrees not to attempt to
assert any such defense.

     

    7.4    Termination of Conditions
and Obligations.  The conditions precedent imposed by Section 5
or this Section 7 upon the transferability of the Shares shall cease and
terminate as to any particular number of the Shares upon the earliest to occur
of (i) the sale of the Shares pursuant to the Registration Statement, (ii) the
sale of the Shares pursuant to Rule 144 promulgated under the Securities Act
without any restriction as to the number of securities as of a particular date
that can then be immediately sold and the adequate current public information
requirement of Rule 144(c)(1) no longer applies to the sale of Shares, or (iii)
the passage of one  year from the effective date of the Registration
Statement covering such Shares, provided that the holder of such Shares is not
at such time, and was not for ninety (90) days immediately prior thereto, an
affiliate of the Company (as such term is defined in Rule 144), or at such time
as an opinion of counsel satisfactory in form and substance to the Company shall
have been rendered to the effect that such conditions are not necessary in order
to comply with the Securities Act.

     

    
      
        
        

      

      
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    7.5    Information
Available.  As long as any Purchaser owns the Shares and the
Company is subject to the filing requirements of the Exchange Act, the Company
covenants to timely file (or obtain extensions in respect thereof pursuant to
Rule 12b-25 promulgated under the Exchange Act and file within the applicable
grace period) all reports required to be filed by the Company after the date
hereof pursuant to the Exchange Act and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations promulgated thereunder would otherwise
permit such termination.  So long as the Registration Statement is
effective covering the resale of Shares owned by such Purchaser, the Company
will furnish to such Purchaser upon such Purchaser’s request:

     

    (a)    as soon
as practicable after available (but in the case of the Company’s Annual Report
to Stockholders, concurrently with delivery to its shareholders generally) one
copy of (i) its Annual Report to Stockholders (which Annual Report shall contain
financial statements audited in accordance with U.S. generally accepted
accounting principles by a nationally recognized firm of certified public
accountants), (ii) if not included in substance in the Annual Report to
Stockholders, upon the request of such Purchaser, its Annual Report on Form
10-KSB, (iii) upon the request of a Purchaser, its Quarterly Reports on Form
10-QSB, (iv) upon the request of a Purchaser, its Current Reports on Form 8-K,
and (v) a full copy of the particular Registration Statement covering the Shares
(the foregoing, in each case, excluding exhibits);

     

    (b)    all
exhibits excluded by the parenthetical to subparagraph (a)(v) of this Section
7.5; and

     

    (c)    upon the
reasonable request of a Purchaser, a reasonable number of copies of the
prospectuses and supplements thereto to supply to any other party requiring such
prospectuses and supplements.

     

    7.6    Assignment of Registration
Rights.  The rights of each Purchaser hereunder, including the
right to have the Company register the Shares pursuant to this Agreement, will
be automatically assigned by such Purchaser to transferees or assignees of the
Shares, but only if (a) such Purchaser agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of the name and address of such transferee or assignee and the
Shares with respect to which such registration rights are being transferred or
assigned, (c) after such transfer or assignment, the further disposition of such
Shares by the transferee or assignee is restricted under the Securities Act and
applicable state securities laws, (d) at or before the time the Company received
the written notice contemplated by clause (b) of this sentence, the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein, (e) the transferee is an “accredited investor” as
that term is defined in Rule 501 of Regulation D, and (f) the transfer of Shares
is made in accordance with the provisions of Section 5 and Section 7.2
hereof.

     

    7.7    Delay in Filing or
Effectiveness of Registration Statement.  If the Registration
Statement is not filed by the Company with the Commission on or prior to the
Filing Date, then for each day following the Filing Date, until but excluding
the date the Registration Statement is filed, or if a prospectus included in the
Registration Statement which has been declared effective by the Commission, is
not delivered to the Purchasers (as set forth in Section 7.1(e)) by the Required
Effective Date, then for each day following the Required Effective Date, until
but excluding the date the Commission declares the Registration Statement
effective, the Company shall, for each such day, pay such Purchaser with respect
to any such failure, as liquidated damages and not as a penalty, an amount equal
to 0.0333% of the purchase price paid by such Purchaser for its Shares pursuant
to this Agreement; and for any such day, such payment shall be made no later
than the first business day of the calendar month next succeeding the month in
which such day occurs.  If a Purchaser shall be prohibited from
selling Shares under the Registration Statement as a result of a Suspension of
more than thirty (30) days or Suspensions on more than two (2) occasions of not
more than thirty (30) days each in any 12-month period, then for each day on
which a Suspension is in effect that exceeds the maximum allowed period for a
Suspension or Suspensions, but not including any day on which a Suspension is
lifted, the Company shall pay such Purchaser, as liquidated damages and not as a
penalty, an amount equal to 0.0333% of the purchase price paid by such Purchaser
for its Shares pursuant to this Agreement for each such day, and such payment
shall be made no later than the first business day of the calendar month next
succeeding the month in which such day occurs.  For purposes of this
Section 7.7, a Suspension shall be deemed lifted on the date that notice that
the Suspension has been lifted is delivered to each Purchaser pursuant to
Section 9 of this Agreement.  Any payments made pursuant to this
Section 7.7 shall not constitute a Purchaser’s exclusive remedy for such
events.  Notwithstanding the foregoing provisions, in no event shall
the Company be obligated to pay such liquidated damages to more than one
Purchaser in respect of the same Shares for the same period of
time.  The liquidated damage payments imposed hereunder shall be made
to each Purchaser in cash.

     

    
      
        
        

      

      
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    7.8    Placement Agent Fee;
Broker’s Fees.  Each Purchaser acknowledges that the Company
intends to pay fees to the Placement Agent in respect of the sale of the Shares
to the Purchasers.  The Company has further agreed to reimburse the
Placement Agent’s expenses in connection with this offering and sale of the
Shares and to indemnify the Placement Agent in connection with the transactions
contemplated hereby.  Other than such fees payable to the Placement
Agent, no brokerage or finder’s fees or commission are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement.  Each Purchaser shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated by this Section 7.8 that
may be due in connection with the transactions contemplated by this
Agreement.

     

    7.9    Integration with Subsequent
Transactions.  The Company shall not directly or indirectly,
sell, offer for sale or solicit offers to buy or otherwise negotiate with
respect of any security (as defined in Section 2 of the Securities Act) of the
same or similar class as the Shares that would (i) be integrated with the offer
or sale of the Shares in a manner that would require the registration under the
Securities Act of the sale of the Shares to the Purchasers; (ii) cause the offer
and sale of the Shares to fail to be entitled to the exemption from registration
afforded by Section 4(2) of the Securities Act; or (iii) be integrated with the
offer or sale of the Shares for purposes of the rules or regulations of any
national securities exchange on which the Company’s Common Stock are listed or
designated such that it would require shareholder approval prior to the closing
of such other transaction unless shareholder approval is obtained prior to the
closing of such subsequent transactions.   As used in this
Agreement, the terms “offer” and “sale” shall have the meanings
specified in Section 2(3) of the Securities Act.

     

    7.10   Form D and Blue
Sky.  The Company agrees to file a Form D with respect to the
Shares as required under Regulation D promulgated under the Securities Act and
to promptly provide a copy thereof to the Placement Agent or any Purchaser who
requests a copy after such filing.  The Company, on or before the
Closing Date, shall take such action as the Company shall reasonably determine
is necessary in order to obtain an exemption for or to qualify the Shares for
sale to the Purchasers at Closing pursuant to this Agreement under the
applicable securities or “blue sky” laws of the states of the United States (or
to obtain an exemption from such qualification), and if requested by a Purchaser
or the Placement Agent, shall provide evidence of any such action so
taken.  The Company shall make such filings and reports relating to
the offer and sale of the Shares as required under applicable securities or
“blue sky” laws of the states of the United States following or on the Closing
Date.  Neither the Placement Agent nor any Purchaser shall incur any
costs or expenses relating to Form D or such filings under applicable securities
or “blue sky” laws.

     

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

     

    SECTION
9.  Notices.  All
notices, requests, consents and other communications hereunder shall be in
writing, shall be sent by confirmed facsimile or nationally recognized overnight
express courier postage prepaid, and shall be deemed given (i) when so faxed or
(ii) the day after so mailed by such overnight express courier (except that
notices of Suspensions or stop orders must be made both by facsimile and by
overnight express courier) as follows:

     

    
      
        
        

      

      
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    (a)    if to the
Company, to:

     

    Deep
Down, Inc.

    15473
East Freeway

    Channelview,
TX 77530

    Attention:  General
Counsel

    Facsimile:  (281)
862-2522

    with a
copy to:

    Sonfield
& Sonfield

    770 South
Post Oak Lane, Suite 435

    Houston,
Texas 77056

    Attention:
Robert L. Sonfield, Jr., Esq.

    Facsimile:  (713)
877-1547

    


    or to
such other Person at such other place as the Company shall designate to each
Purchaser in writing; and

    


    (b)    if to a
Purchaser, at its address as set forth at the end of this Agreement, or at such
other address or addresses as may have been furnished to the Company in
writing.

     

    SECTION
10.  Waiver or
Amendment.  No provision of this Agreement may be waived,
modified or amended except pursuant to an instrument in writing signed by the
Company and the Required Purchasers.

     

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

     

    SECTION
12.  Independent Nature of
Purchasers’ Obligations and Rights.  (a) The obligations of
each Purchaser under this Agreement are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under this
Agreement.  The decision of each Purchaser to purchase Shares pursuant
to this Agreement, the Private Placement Memorandum and the SEC Filings, has
been made independently of any other Purchaser.

     

    (b)    Nothing
contained herein, and no action taken by any Purchaser thereto, shall be deemed
to constitute the Purchasers as a partnership, an association, a joint venture
or any other kind of group or entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or transactions contemplated by this Agreement.

     

    (c)    Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, its rights arising out of this Agreement, and it
shall not be necessary for any other Purchaser to be joined as an additional
party in any proceeding for such purpose.  No Purchaser shall incur
any liability to any other Purchaser with respect to exercising or refraining
from exercising any right or rights that such Purchaser may have by reason of
this Agreement.

     

    (d)    Each
Purchaser has been represented or had the opportunity to be represented by its
own separate legal counsel in their review and negotiation of this
Agreement.   The Company has elected to provide all Purchasers
with the same terms and the Private Placement Memorandum for the convenience of
the Company and not because it was required or requested to do so by any of the
Purchasers.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

       

    

    (e)    Each
Purchaser agrees that no Purchaser or the respective affiliates of any Purchaser
shall be liable to any other Purchaser for any action heretofore or hereafter
taken or omitted to be taken by any of them in connection with the
Shares.

     

    SECTION
13.  Headings.  The
headings of the various sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.

     

    SECTION
14.  Severability.  In
case any provision contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.

     

    SECTION
15.  Governing Law;
Jurisdiction.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law.  Any legal suit, action
or proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby (“Related
Proceedings”) may be instituted in the federal courts of the United
States of America or the state courts of New York State located in New York, New
York (collectively, the “Specified Courts”), and each
party irrevocably submits to the non-exclusive jurisdiction of such Specified
Courts in any such suit, action or proceeding.  Service of any
process, summons, notice or document by mail to such party’s address set forth
above shall be effective service of process for any suit, action or other
proceeding brought in any such court.  The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit, action
or other proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum.  With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts or any other court
of competent jurisdiction.

     

    SECTION
16.  Counterparts.  This
Agreement may be executed in two (2) or more counterparts, each of which shall
constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts
have been signed by each party hereto and delivered to the other
parties.  Facsimile signatures shall be deemed original
signatures.

     

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

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

       

    

    SECTION
18.  Entire
Agreement.  This Agreement and the instruments referenced
herein 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 the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters.  This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.

     

    SECTION
19.  Third Party
Beneficiaries.  This Agreement is intended for the benefit of
the parties hereto and their respective successors and assigns, and is not for
the benefit of, nor may any provision hereof be enforced by, any other
Person.  Notwithstanding anything to the contrary, the Company and
each Purchaser agree that each Purchaser is an intended third party beneficiary
of the representations and warranties and covenants made by Flotation pursuant
to the Acquisition Agreement.

     

    SECTION
20.  Successors and
Assigns.  This Agreement is binding upon and inures to the
benefit of the parties and their successors and assigns.  At any time
prior to the effectiveness of the Registration Statement, any Purchaser may
assign its rights and obligations under Section 7 hereunder to any of its
Purchaser/Affiliates without the consent of the Company so long as (i) such
Purchaser/Affiliate is an “accredited investor” (within the meaning of
Regulation D under the Securities Act), (ii) such Purchaser/Affiliate agrees in
writing to be bound by this Agreement, (iii) such Purchaser/Affiliate completes
and delivers to the Company the Questionnaire attached as Appendix I prior to
the effectiveness of the Registration Statement, and (iv) any transfer of Shares
to such Purchaser/Affiliate complies with Section 5 and Section 7.2 hereof;
provided, however, that if such assignment is made to 10 or more separate
Persons, then each Purchaser originally party  to this Agreement, and
not any subsequent assignee, shall have the right to enforce the terms of, and
receive notices under, Section 7.3 hereof.

     

    SECTION
21.  Further
Assurances.  Each party will do and perform, or cause to be
done and performed, all such further acts and things, and will execute and
deliver all other agreements, certificates, instruments and documents, as
another 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.

     

    SECTION
22.  No Strict
Construction.  The language used in this Agreement is 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.  Accordingly, the parties have agreed that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments thereto.  Whenever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronounces stated in either the masculine, the
feminine, or the neuter gender shall include the masculine, feminine and
neuter.

     

    SECTION
23.  Publicity.  The
Placement Agent shall have the right to approve before issuance any press
release or any other public statements with respect to the transactions
contemplated by this Agreement.

     

    [Remainder
of page intentionally blank]

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    


    Deep
Down, Inc. Purchase Agreement, dated June 2, 2008

     

     Signature
Page

     

    IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their duly authorized representatives as of the day and year first above
written.

    
    

     

    
      	 	
              DEEP
      DOWN, INC.

              


              


              By:____________________________

              Name:

              Title: 

            


    

     

     

    Number of
Shares to be purchased by

    Purchaser:____________________________

    


     

    Price Per
Share:  $0.70

    Aggregate
Purchase price for Shares to be

    purchased
by Purchaser:$____________

     

    
    

     

    
      	
              Print
      or Type:

               

               

               

               

               

               

              Signature
      by:

              


               

            	
              Name
      of Purchaser:

              ______________________________

              


              Name
      of Individual representing

              Purchaser:______________________________

              Title
      of Individual representing

              Purchaser:______________________________ 

               

               

              Signature
      of Individual representing

              Purchaser
      (if an Institution):

              _______________________________


              Address:
      _______________________

               

              Telephone:______________________

               

              Fax:
      ___________________________

               

              Email:__________________________ 

            


    

     

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

       

    

    SUMMARY
INSTRUCTION SHEET FOR PURCHASER

     

    (to be
read in conjunction with the entire

    Purchase
Agreement)

     

    A.    Complete the
following items on the Purchase Agreement:

     

    
      	
              1.         
        

            	
              Signature
      page:

            


    

     

    
      	
              (i)         
        

            	
              Name
      of Purchaser

            


    

     

    
      	
              (ii)        
        

            	
              Name
      of Individual representing
Purchaser

            


    

     

    
      	
              (iii)       
        

            	
              Title
      of Individual representing
Purchaser

            


    

     

    
      	
              (iv)         

            	
              Signature
      of Individual representing
Purchaser

            


    

     

    
      	
              (v)          

            	
              Number
      of Shares purchased and aggregate purchase
price

            


    

     

    
      	
              2. 
                

            	
              Appendix
      I - the Stock Certificate Questionnaire and Registration Statement
      Questionnaire:

            


    

     

    Provide
the information requested by such Questionnaires.

     

    
      	
              3. 
                

            	
              Return
      the properly completed and signed Purchase Agreement including the
      properly completed Appendix I to (initially by facsimile or PDF with hard
      copy by overnight delivery):

            


    

     

    Dahlman
Rose & Company, LLC

    142 West
57th Street

    18th
Floor

    New York,
NY 10019

    Attention:  Robert
Brinberg

    Facsimile:
212-920-2955

    


    B.    Instructions
regarding the transfer of funds for the purchase of Shares will be sent by
facsimile or PDF to each Purchaser by the Placement Agent at a later
date.

     

    C.    Upon the
resale of the Shares by each Purchaser after the Registration Statement covering
the Shares is effective, as described in the Purchase Agreement, each
Purchaser:

     

    
      	
              (i)        
        

            	
              must
      deliver a current prospectus of the Company to the buyer (prospectuses
      must be obtained from the Company at each Purchaser’s request);
      and

            


    

     

    
      	
              (ii)          

            	
              must
      send a letter in the form of Appendix II to the Company so that the Shares
      may be properly transferred.

            


    

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    APPENDIX
I

     

    DEEP
DOWN, INC.

    STOCK
CERTIFICATE QUESTIONNAIRE

    


    Pursuant
to Section 3.2 of the Agreement, please provide us with the following
information:

     

    
      	
              1          
       

            	
              The
      exact name that your Shares are to be registered in (this is the name that
      will appear on your stock certificate(s)).  You may use a
      nominee name if appropriate:

            	
               

               

                           
      ____________________________________________________________

            


    

     

     

    
      	
              2         
        

            	
              The
      relationship between each Purchaser of the Shares and the Registered
      Holder listed in response to item 1 above:

            	
               

               

                          
      ___________________________________________________________

            


    

     

    
      	
              3            
      

            	
              The
      mailing address of the Registered Holder listed in response to item 1
      above:

            	
              
                 

                ____________________________________________________

                 

                _____________________________________________________

                 

                _____________________________________________________

              

            


    

     

    
      	
              4         
        

            	
              The
      Social Security Number or Tax Identification Number of the Registered
      Holder listed in response to item 1 above:

            	
               

               

               ___________________________________________________________

            


    

     

     

     

    
      
        
        

      

      
        Appendix
I - 1

        
          

        

      

      
        
        

      

    

    


    DEEP
DOWN, INC.

    REGISTRATION
STATEMENT QUESTIONNAIRE

    


    In
connection with the preparation of the Registration Statement, Deep Down, Inc.
(the “Company”), a Nevada corporation, will use the responses to this
questionnaire to qualify prospective Purchaser for purposes of United States
federal and state securities laws.  This is not an offer to sell or
the solicitation of an offer to buy securities.  Such an offer can be
made only by appropriate offering documentation.  Any such offer may
be conditioned upon your qualification as an accredited purchaser under federal
and state securities laws.

     

    Please
complete, sign, date and return one copy of this Questionnaire in accordance
with the instructions on the Summary Instruction Sheet for each Purchaser on the
page immediately preceding this Appendix I.

     

    All
investors (including partnerships, trusts, corporations, etc.) must complete
Parts I, II and III of this Questionnaire.

     

    If the
answer to any question below is “none” or “not applicable”, please so
indicate.

     

    Your
answers will be kept confidential at all times.  However, by signing
this Questionnaire, you agree that the Company may present this Questionnaire to
such parties as it deems appropriate to establish the availability of exemptions
from registration under state and federal securities laws.

     

     

     

    
      
        
        

      

      
        Appendix I - 2

        
          

        

      

      
        
        

      

    

    
PART
I  –  GENERAL

     

    1.    Please
state your or your organization’s name exactly as it should appear in the
Registration Statement:

     

    
      
        

      

    

     

    2.    Please
provide the number of shares that you or your organization will beneficially own
immediately after Closing, including those Shares purchased by you or your
organization pursuant to this Purchase Agreement and those shares purchased by
you or your organization through other transactions:

     

      
        

      

    

     

    3.    Have you
or your organization had any position, office or other material relationship
within the past three years with the Company or its affiliates?

     

    [  ]
Yes                                           [  ]
No

     

    If yes,
please indicate the nature of any such relationships below:

     

     

      
        

      

      
         

        
          

        

        
           

          
            

          

        

      

    

     

    4.    Are you
(i) an NASD Member (see definition on next page), (ii) a Controlling (see
definition) shareholder of an NASD Member, (iii) a Person Associated with a
Member of the NASD (see definition), or (iv) an Underwriter or a Related Person
(see definition) with respect to the proposed offering; or (b) do you own any
shares or other securities of any NASD Member not purchased in the open market;
or (c) have you made any outstanding subordinated loans to any NASD
Member?

     

    [  ]
Yes                                           [  ]
No

     

    If “yes,”
please describe below

     

    
      
        

      

    

     

    
      
        

      

    

     

    
      
        

      

       

    

    NASD
Member.  The term “NASD member” means either any broker or
dealer admitted to membership in the National Association of Securities Dealers,
Inc. (“NASD”).  (NASD
Manual, By-laws Article I, Definitions)

     

    Control.  The
term “control”
(including the terms “controlling,” “controlled by” and “under common control with”)
means the possession, direct or indirect, of the power, either individually or
with others, to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract, or
otherwise.  (Rule 405 under the Securities Act of 1933, as
amended)

     

    
      
        
        

      

      
        Appendix I - 3

        
          

        

      

      
        
        

      

       

    

    Person Associated with a
member of the NASD.  The term “person associated with a member of
the NASD” means every sole proprietor, partner, officer, director, branch
manager or executive representative of any NASD Member, or any natural person
occupying a similar status or performing similar functions, or any natural
person engaged in the investment banking or securities business who is directly
or indirectly controlling or controlled by a NASD Member, whether or not such
person is registered or exempt from registration with the NASD pursuant to its
bylaws.  (NASD Manual, By-laws Article I, Definitions)

     

    Underwriter or a Related
Person.  The term “underwriter or a related
person” means, with respect to a proposed offering, underwriters,
underwriters’ counsel, financial consultants and advisors, finders, members of
the selling or distribution group, and any and all other persons associated with
or related to any of such persons.  (NASD Interpretation)

     

    


     

    
      
        
        

      

      
        Appendix I - 4

        
          

        

      

      
        
        

      

    


    PART II – INVESTOR
INFORMATION

     

    1.    Identification

     

    Name:
(exact name as it will appear on stock
certificate):______________________________________________________________________________________

     

      ________________________________________________________________________________________________________________________________

    

     

    Address
of principal place of
business:___________________________________________________________________________________________________

     

    
      ________________________________________________________________________________________________________________________________

       

    

    State (or
Country) of formation or incorporation:
____________________________________________________________________________________________

     

    Contact
Person:
_____________________________________________________________________________________________________________________

     

    Telephone
Number:
__________________________________________________________________________________________________________________

     

    Facsimile
Number:
___________________________________________________________________________________________________________________

     

    Type of
Entity (corporation, partnership, trust,
etc.):__________________________________________________________________________________________

     

    Name(s)
of individual(s) to have voting and investment Control over the Shares to be
acquired:__________________________________________________________

    


    Taxpayer
or Employer Identification Number:
________________________________________________________________________________________________

     

    Was the
entity formed for the purpose of this investment?

     

     [  ]
Yes                                                          [  ]
No

     

    If the
answer is yes, all shareholders, partners or other equity owners must complete
an Individual Questionnaire.  Please contact Deep Down, Inc. as soon
as possible to obtain such questionnaire.  If the above answer is no,
please continue completing this form.

     

    2.    Proposed
Investment

     

    Please
indicate the amount of your proposed investment: $_______________.

     

    3.    Description of
Investor

     

    Please
check the appropriate box to indicate which of the following accurately describe
the nature of the business conducted by the investing entity:

     

    
      	
              [  ]

            	
              A
      corporation or partnership with total assets in excess of $5,000,000, not
      organized for the purpose of this particular
  investment;

            


    

     

     

    
      
        
        

      

      
        Appendix I - 5

        
          

        

      

      
        
        

      

    

     

    
      	
              [  ]

            	
              A
      private business development company as defined in Section 202(a)(22) of
      the Investment Advisors Act of 1940 (a U.S. venture capital fund which
      invests primarily through private placements in non-publicly traded
      securities and makes available (either directly or through co-investors)
      to the portfolio companies significant guidance concerning management,
      operations or business objectives);

            


    

     

    
      	
              [  ]

            	
              A
      Small Business Investment Company licensed by the U.S. Small Business
      Administration under Section 301 (c) or (d) of the Small Business
      Investment Act of 1958;

            


    

     

    
      	
              [  ]

            	
              An
      investment company registered under the Investment Company Act of 1940 or
      a business development company as defined in Section 2(a)(48) of that
      Act;

            


    

     

    
      	
              [  ]

            	
              A
      bank as defined in Section 3(a)(2) or a savings and loan association or
      other institution defined in Section 3(a)(5)(A) of the Securities Act of
      1933, acting in either an individual or fiduciary
  capacity;

            


    

     

    
      	
              [  ]

            	
              An
      insurance company as defined in Section 2(13) of the Securities Act of
      1933;

            


    

     

    
      	
              [  ]

            	
              An
      employee benefit plan within the meaning of Title I of the Employee
      Retirement Income Security Act of 1974 (i) whose investment decision is
      made by a fiduciary which is either a bank, savings and loan association,
      insurance company, or registered investment advisor, or (ii) whose total
      assets exceeding $5,000,000, or (iii), if a self-directed plan, a plan
      whose investment decisions are made solely by persons who are accredited
      investors;

            


    

     

    
      	
              [  ]

            	
              A
      charitable, religious, educational or other organization described in
      Section 501(c)(3) of the Internal Revenue Code, not formed for the purpose
      of this Investment, with total assets in excess of
    $5,000,000;

            


    

     

    
      	
              [  ]

            	
              A
      trust with total assets in excess of $5,000,000, not formed for the
      specific purpose of acquiring the securities offered, whose purchase is
      directed by a sophisticated person as described in Rule 506(b)(2)(ii) of
      the Securities Act of 1933 and who completed item 4 below of this
      Questionnaire;

            


    

     

    
      	
              [  ]

            	
              An
      entity not located in the U.S., none of whose equity owners are U.S.
      citizens or U.S. residents;

            


    

     

    
      	
              [  ]

            	
              A
      broker or dealer registered under Section 15 of the Securities Exchange
      Act of 1934;

            


    

     

    
      	
              [  ]

            	
              A
      plan having assets exceeding $5,000,000 established and maintained by a
      government agency for its employees;
or

            


    

     

    
      	
              [  ]

            	
              Other
      (Describe:)

            


    

     

    
      
        
        

      

      
        Appendix I - 6

        
          

        

      

      
        
        

      

    

     

    4.    Investment
Experience

     

    Please
provide information detailing the business, financial and investment experience
of the entity and investment manager of such entity.

     

    _____________________________________________________________________________________________

     

    
      _____________________________________________________________________________________________

    

    
       

      _____________________________________________________________________________________________

    

    
       

      _____________________________________________________________________________________________

    

    


     

    PART III –
SIGNATURE

     

    The above
information is true and correct and the undersigned recognizes that the Company
and its counsel are relying on the truth and accuracy of such information in
relying on an exemption from the registration requirements of the Securities Act
of 1933, as amended, and in determining applicable state securities laws and
relying on exemptions contained therein.  The undersigned agrees to
notify the Company promptly of any changes in the foregoing information which
may occur prior to the investment.

     

    Executed
at ________________________, on June __, 2008.

     

     

    
      	 	
              __________________________________

              (Signature) 

            


    

     

    
    

    ___________________________

    (Title if
for Entity)

    


     

    
      
        
        

      

      
        Appendix I - 7

        
          

        

      

      
        
        

      

    


    Exhibit 1 to Purchase
Agreement

    


    COMPANY
DISCLOSURE LETTER

    


    This
Disclosure Letter is delivered under the terms of that certain Purchase
Agreement by and between Deep Down, Inc. and each purchase whose name and
address is set forth on the signature pages thereof, dated as of May 16, 2008
(the “Purchase
Agreement”) and speaks as of the Closing Date under such Agreement. All
capitalized terms used herein, but not defined herein, shall have the meanings
ascribed to such terms under the Purchase Agreement.

    


    The contents of this Disclosure Letter
correspond to the Purchase Agreement based on the numbering set forth
below.

    


     

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    Schedule
4.1 to the Company Disclosure Letter

     

    Schedule
of Wholly-Owned Subsidiaries

     

    The
following are all the direct or indirect Subsidiaries, and all are
wholly-owned:

     

    Electrowave
USA, Inc.

     

    Mako
Technologies, LLC

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Schedule
4.32 to the Company Disclosure Letter

     

    Schedule
of Privately Negotiated Sales

     

    In March
2007, the Company finalized the terms of an agreement with Daniel L. Ritz, Jr.
(shareholder and director), who agreed to surrender 25,000,000 shares of common
stock for $250,000 in cash (par value). Additionally, he surrendered 1,500
shares of Series F convertible preferred stock and 500 shares of Series G
Redeemable Exchangeable Preferred Stock (“Series G Preferred
Stock”) to
the Company for cancellation. For these actions, Mr. Ritz received 1,250 shares
of Series E Redeemable Exchangeable Preferred Stock (“Series E Preferred Stock”). In
addition, Mr. Ritz kept 500 shares of Series E exchangeable preferred stock he
previously owned and agreed to tender his resignation from the
Board.

     

    In March
2007, the Company issued 2,000 shares of Series E exchangeable preferred stock
to John C. Siedhoff (shareholder, Chief Financial Officer, and director) for the
surrender of his ownership of 1,500 shares of Series F convertible preferred
stock and 500 shares of Series G Preferred Stock, which were returned to the
transfer agent for cancellation.

     

    On
September 13, 2007, the Company redeemed 2,250 shares of Series E Preferred
Stock owned by the Chief Executive Officer and director, and his wife, a
Vice-President of the Company.  These shares of Series E Preferred
Stock were redeemed for 2,250,000 shares of common stock at the closing price of
$0.66.

     

    On
October 2, 2007, the Company exchanged 1,250 shares ($1,250,000 aggregate face
value) of Series E Preferred Stock for 1,213,592 shares of common stock at the
closing price of $1.03 per share.

     

    On
October 12, 2007, the Company closed an agreement with Ironman Energy Capital,
L.P. for a private placement of 3,125,000 shares of common stock of the Company
at $0.96 per share, or $3,000,000 in the aggregate, pursuant to an agreement
reached on October 2, 2007 when the closing price was $1.03 per
share.

     

    During
October 2007, 16,500 shares of Series C Convertible Preferred Stock were
converted into 3,300,000 shares of common stock.

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
Exhibit 2 to Purchase
Agreement

     

    FORM
OF LEGAL OPINION

     

    The
opinions will be subject to standard assumptions, limitations and other
qualifications and the standard form of Sonfield & Sonfield.

     

    1.           The
Company is validly existing under the laws of the State of Nevada.

    


    2.           The
authorized capital stock of the Company consists of 490,000,000 shares of Common
Stock and 10,000,000 shares of Preferred Stock.

     

    3.           The
Company has the corporate power under the laws of the State of Nevada and the
Articles of Incorporation and the By-Laws of the Company to execute, deliver and
perform the Purchase Agreement (including, but not limited to, offering and
selling the Shares).

    


    4.           The
Shares have been duly authorized by all necessary corporate action on the part
of the Company and, upon payment for and delivery of the Shares in accordance
with the Purchase Agreement and the countersigning of the certificate or
certificates representing the Shares by a duly authorized signatory of the
registrar for the Company’s Common Stock, the Shares will be validly issued,
fully paid and non assessable.

    


    5.           The
execution, delivery and performance of the Purchase Agreement by the Company
(including, but not limited to, the offer and sale of the Shares) have been duly
authorized by all corporate action of the Company necessary under the laws of
the State of Nevada and the Articles of Incorporation and the By-Laws of the
Company.

    


    6.           The
Purchase Agreement has been duly executed and delivered by the Company and
constitutes legal, valid and binding obligations of the Company, enforceable
against Company in accordance with its terms.

     

    7.           Upon
payment for and delivery of the Shares in accordance with the Purchase Agreement
and the countersigning of the Shares by a duly authorized officer of the
Company, the Shares will be duly issued by the Company under the laws of the
State of Nevada and in accordance with the Articles of Incorporation and the
By-laws of the Company.

     

    8.           The
execution, delivery and performance of the Purchase Agreement by the Company
(including, but not limited to, the offer and sale of the Shares) do not (a)
violate the Articles of Incorporation or the By-Laws of the Company, (b) violate
the laws of the State of Nevada, any statute, rule or regulation of the States
of New York or Texas or any United States federal statute, rule or regulation or
(c) require under the laws of the State of Nevada, any statute, rule or
regulation of the States of New York or Texas or any United States federal
statute, rule or regulation as a condition of such execution, delivery and
performance any consent, approval or authorization of any court or other
governmental authority of the State of Nevada or the States of New York or Texas
or any United States federal court or other United States federal governmental
authority.

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    9.           No
order, consent, permit or approval of any New York, Texas or federal
governmental authority that we have, in the exercise of customary professional
diligence, recognized as applicable to the Company or to transactions of the
type contemplated by the Purchase Agreement, is required on the part of the
Company for the execution and delivery of, and performance of its obligations
under, the Purchase Agreement, except that we express no opinion (other than the
opinion in Paragraph 10 below) regarding any federal securities laws or Blue Sky
or state securities laws or the indemnification section of the Purchase
Agreement.

    


    10.         The
Company is not an investment company (as such term is defined in the Investment
Company Act of 1940, as amended).

    


    11.         Assuming
the accuracy of the representations and warranties of the Purchasers in Section
5 of the Purchase Agreement, it is not necessary in connection with the sale of
the Shares under the circumstances contemplated by the Purchase Agreement to
register the Shares under the Securities Act of 1933, as amended.

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit 3 to Purchase
Agreement

    


    PLAN
OF DISTRIBUTION

     

    We are
registering shares of common stock to permit the resale of such common stock by
the holders from time to time after the date of this prospectus.  We
will not receive any of the proceeds from the sale by the selling
securityholders of the shares of common stock.  We will bear all fees
and expenses incident to our obligation to register the shares of common
stock.

     

    The
selling securityholders may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents.  If the
shares of common stock are sold through underwriters or broker-dealers, the
selling securityholders will be responsible for underwriting discounts or
commissions or agent’s commissions.  The shares of common stock may be
sold in one or more transactions at fixed prices, at prevailing market prices at
the time of the sale, at varying prices determined at the time of sale, or at
negotiated prices.  These sales may be effected in transactions, which
may involve crosses or block transactions,

     

    
      
        	
                · 

              	
                 on
      any national securities exchange or quotation service on which the
      securities may be listed or quoted at the time of
  sale;

              


      

    

     

    
      
        	
                · 

              	
                 in
      the over-the-counter market;

              


      

    

     

    
      
        	
                · 

              	
                 in
      transactions otherwise than on these exchanges or systems or in the
      over-the-counter market;

              


      

    

     

    
      
        	
                · 

              	
                 through
      the writing of options, whether such options are listed on an options
      exchange or otherwise;

              


      

    

     

    
      
        	
                · 

              	
                 ordinary
      brokerage transactions and transactions in which the broker-dealer
      solicits purchasers;

              


      

    

     

    
      
        	
                · 

              	
                 block
      trades in which the broker-dealer will attempt to sell the shares as agent
      but may position and resell a portion of the block as principal to
      facilitate the transaction;

              


      

    

     

    
      
        	
                · 

              	
                 purchases
      by a broker-dealer as principal and resale by the broker-dealer for its
      account;

              


      

    

     

    
      
        	
                · 

              	
                 an
      exchange distribution in accordance with the rules of the applicable
      exchange;

              


      

    

     

    
      
        	
                · 

              	
                 privately
      negotiated transactions;

              


      

    

     

    
      
        	
                · 

              	
                 short
      sales;

              


      

    

     

    
      
        	
                · 

              	
                 pursuant
      to Rule 144 under the Securities
Act;

              


      

    

     

    
      
        	
                · 

              	
                 broker-dealers
      may agree with the selling securityholders to sell a specified number of
      such securities at a stipulated price per
  security;

              


      

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      
        	
                · 

              	
                 a
      combination of any such methods of sale;
and

              


      

    

     

    
      
        	
                · 

              	
                 any
      other method permitted pursuant to applicable
  law.

              


      

    

     

    If the
selling securityholders effect such transactions by selling shares of common
stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling securityholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with
sales of the shares of common stock or otherwise, the selling securityholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in
positions they assume.  The selling securityholders may also sell
shares of common stock short and deliver shares of common stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales.  The selling securityholders may
also loan or pledge shares of common stock to broker-dealers that in turn may
sell such shares.

     

    The
selling securityholders may pledge or grant a security interest in some or all
of the shares of common stock issuable upon conversion of the convertible notes
owned by them and, if they default in the performance of their secured
obligations, the pledgees or secured parties may offer and sell shares of common
stock from time to time pursuant to this prospectus or any amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933, as amended, amending, if necessary, the list of selling
securityholders to include the pledgee, transferee or other successors in
interest as selling securityholders under this prospectus.  The
selling securityholders also may transfer and donate the shares of common stock
in other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.

     

    The
selling securityholders and any broker-dealer participating in the distribution
of the shares of common stock may be deemed to be “underwriters” within the
meaning of the 1933 Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the 1933 Act.  At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling securityholders and
any discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.

     

    Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers.  In
addition, in some states the shares of common stock may not be sold unless such
shares of common stock have been registered or qualified for sale in such state
or an exemption from registration or qualification is available and is complied
with.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    The
selling securityholders may choose not to sell any or may choose to sell less
than all of the shares of common stock registered pursuant to the registration
statement, of which this prospectus forms a part.

     

    The
selling securityholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the 1934 Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
securityholders and any other participating person.  Regulation M may
also restrict the ability of any person engaged in the distribution of the
shares of common stock to engage in market-making activities with respect to the
shares of common stock.  All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock.

     

    We will
pay all expenses of the registration of the shares of common stock pursuant to
the registration rights agreement, including, without limitation, Securities and
Exchange Commission filing fees and expenses of compliance with state securities
or “blue sky” laws; provided, however, that a selling securityholder will pay
all underwriting discounts and selling commissions, if any.  We will
indemnify the selling securityholders against liabilities, including some
liabilities under the 1933 Act, in accordance with the registration rights
agreements, or the selling securityholders will be entitled to
contribution.  We may be indemnified by the selling securityholders
against civil liabilities, including liabilities under the 1933 Act, that may
arise from any written information furnished to us by the selling securityholder
specifically for use in this prospectus, in accordance with the related
registration rights agreement, or we may be entitled to
contribution.

     

    Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.