Exhibit 10.1


 


SECURITIES
PURCHASE AGREEMENT


 


THIS
SECURITIES PURCHASE AGREEMENT (this “Agreement”) is dated as of October 26,
2007, among CRDENTIA CORP., a Delaware
corporation (the “Company”),
and the investors identified on the signature pages hereto (each,
including its successors and assigns, an “Investor”
and collectively, the “Investors”).


 


WHEREAS,
subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506
promulgated thereunder, the Company desires to issue and sell to each Investor,
and each Investor, severally and not jointly, desires to purchase from the
Company certain securities of the Company, as more fully described in this
Agreement.


 


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


 


ARTICLE I.

DEFINITIONS


 


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


 


“Action” means any action, suit,
inquiry, notice of violation, proceeding (including any partial proceeding such
as a deposition) or investigation pending or threatened in writing against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency,
regulatory authority (federal, state, county, local or foreign), stock market,
stock exchange or trading facility.


 


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


 


“Business Day” means any day except
Saturday, Sunday and any day which is a federal legal holiday in the United
States or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.


 


“Closing” means the closing of the
purchase and sale of the Securities pursuant to Article II.


 


“Closing Date” means the Business
Day on which all of the Transaction Documents have been executed and delivered
by the applicable parties thereto, and all conditions precedent to (i) the
Investors’ obligations to pay the Investment Amount and (ii) the Company’s


 

















 


obligations to
deliver the Shares and Warrants have been satisfied or waived.


 


“Commission” means the Securities
and Exchange Commission.


 


“Common Stock” means the common
stock of the Company, par value $0.001 per share, and any securities into which
such common stock may hereafter be reclassified.


 


“Common Stock Equivalents” means any
securities of the Company or any Subsidiary which entitle the holder thereof to
acquire Common Stock at any time, including without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any
time exercisable or convertible into or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock or other securities that entitle
the holder to receive, directly or indirectly, Common Stock.


 


“Company Counsel” means Morrison &
Foerster LLP.


 


“Disclosure Materials” has the
meaning set forth in Section 3.1(h).


 


“Disclosure Schedules” has the
meaning set forth in Article III.


 


“Discussion Time” has the meaning
set forth in Section 3.2(f).


 


“Effective Date” means the date that
the Registration Statement required by Section 2(a) of the
Registration Rights Agreement is first declared effective by the Commission.


 


“Evaluation Date” has the meaning
set forth in Section 3.1(q).


 


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


 


“GAAP” means U.S. generally accepted
accounting principles.


 


“Intellectual Property Rights” has
the meaning set forth in Section 3.1(n).


 


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


 


“Investor” has the meaning set forth
in the Preamble.


 


“Investor Party” has the meaning set
forth in Section 4.11.


 


“Legend Removal Date” has the
meaning set forth in Section 4.1(c).


 


“Lien” means any lien, charge,
encumbrance, security interest, right of first refusal or other restrictions of
any kind.


 


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“Material Adverse Effect” means any
of (i) a material and adverse effect on the legality, validity or
enforceability of any Transaction Document, (ii) a material and adverse
effect on the results of operations, assets, business or condition (financial
or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) an
adverse impairment to the Company’s ability to perform on a timely basis
its obligations under any Transaction Document.


 


“New York Courts” means the state
and federal courts sitting in the City of New York, Borough of Manhattan.


 


“Per Share Purchase Price” equals
$0.30.


 


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


 


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


 


“Registration Rights Agreement”
means the Registration Rights Agreement, dated as of the date of this Agreement,
among the Company and the Investors, in the form of Exhibit A
hereto.


 


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


 


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


 


“SEC Reports” has the meaning set
forth in Section 3.1(h).


 


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


 


“Securities Act” has the meaning set
forth in the Preamble.


 


“Shares” means up to a maximum of $7,500,000
worth of the shares of Common Stock issued or issuable to the Investors
pursuant to this Agreement.


 


“Short Sales” include, without
limitation, all “short sales” as defined in Rule 200 promulgated under
Regulation SHO under the Exchange Act and all types of direct and indirect
stock pledges, forward sale contracts, options, puts, calls, swaps and similar
arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.


 


“Subsidiary” means any “significant
subsidiary” as defined in Rule 1-02(w) of


 


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the Regulation
S-X promulgated by the Commission under the Exchange Act.


 


“Trading Day” means (i) a day
on which the Common Stock is traded on a Trading Market (other than the OTC
Bulletin Board), or (ii) if the Common Stock is not listed on a Trading
Market (other than the OTC Bulletin Board), a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board,
or (iii) if the Common Stock is not quoted on any Trading Market, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or agency
succeeding to its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i), (ii) and
(iii) hereof, then Trading Day shall mean a Business Day.


 


“Trading Market” means whichever of
the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global
Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common
Stock is listed or quoted for trading on the date in question.


 


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


 


“Warrants”
means collectively the Common Stock purchase warrants, in the form of Exhibit B
hereto, delivered to the Investors at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable immediately and have a term of exercise
equal to five (5) years.


 


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


 


ARTICLE II

PURCHASE AND SALE


 


Section 2.1                                      Closing. Subject
to the terms and conditions set forth in this Agreement, at each Closing (as
defined below), the Company shall issue and sell to each Investor participating
in such Closing, and each such Investor shall, severally and not jointly,
purchase from the Company, the Shares and Warrants representing such Investor’s
Investment Amount as set forth on Schedule A hereto, for aggregate
gross proceeds to the Company of up to a maximum of $7.5 million, as follows:


 


(a)                                  Initial
Closing. Each Investor shall deliver to the Company via wire transfer or a
certified check immediately available funds equal to their Investment Amount
and the Company shall deliver to each Investor their respective Shares and
Warrants as determined pursuant to Section 2.2(a) and the other items
set forth in Section 2.2 issuable at the Closing. Upon satisfaction of the
conditions set forth in Sections 2.3 and 2.4, the Closing shall occur at the
offices of Morrison & Foerster LLP, 12531 High Bluff Drive, San Diego,
California, or such other location as the parties shall mutually agree (which
time and place are designated as the “Initial Closing”).


 


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(b)                                 Subsequent
Closing. The Company may sell up to the balance of the authorized
number of Securities not sold at the Initial Closing to such Investors as it
shall select provided that any such sale shall be consummated no later than ten
(10) Business Days following the Initial Closing. All additional Invesment
Amounts invested hereunder shall be reflected on Schedule A, which
shall be automatically amended without any further action by any party hereto. The
subsequent purchases and sales of the Shares and Warrants shall take place at
the offices of Morrison & Foerster LLP, 12531 High Bluff Drive, Suite 100,
San Diego, California 92130, at such time or at such other place as the Company
and the Investors acquiring the Shares and Warrants mutually agree upon orally
or in writing (which such time and place, together with the Initial Closing,
are each designated as a “Closing”).


 


Section 2.2                                      Closing
Deliveries.   (a)  At the Closing, the Company shall
deliver or cause to be delivered to each Investor the following:


 


(i)                                     this
Agreement duly executed by the Company;


 


(ii)                                  a
certificate evidencing a number of Shares equal to such Investor’s Investment
Amount divided by the Per Share Purchase Price, registered in the name of such
Investor;


 


(iii)                               a
Warrant registered in the name of such Investor to purchase up to a number of
shares of Common Stock equal to 50% of such Investor’s Investment Amount
divided by $0.30, with an exercise price equal to $0.35, subject to adjustment
therein; and


 


(iv)                              the
Registration Rights Agreement, duly executed by the Company.


 


(b)                                 At
the Closing, each Investor shall deliver or cause to be delivered to the
Company the following:


 


(i)                                     this
Agreement duly executed by such Investor;


 


(ii)                                  such
Investor’s Investment Amount, in United States dollars and in immediately
available funds, by check or by wire transfer to an account specified in
writing by the Company for such purpose; and


 


(iii)                               the
Registration Rights Agreement, duly executed by such Investor.


 


Section 2.3                                      Closing
Conditions.


 


(a)                                  The
obligation of each Investor to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Investor, at or before the Closing, of each
of the following conditions:


 


(i)                                     with
respect to the Initial Closing, the Company shall have received commitments
from Investors to purchase an amount of Securities with an aggregate


 


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purchase price of at least $4 million;


 


(ii)                                  the
accuracy in all material respects on the Closing Date of the representations
and warranties of the Company contained herein;


 


(iii)                               all
obligations, covenants and agreements of the Company required to be performed
at or prior to the Closing Date shall have been performed;


 


(iv)                              the
delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement; and


 


(v)                                 there
shall have been no Material Adverse Effect with respect to the Company since
the date hereof.


 


(b)                                 The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:


 


(i)                                     the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Investors contained herein;


 


(ii)                                  all
obligations, covenants and agreements of the Investors required to be performed
at or prior to the Closing shall have been performed; and


 


(iii)                               the
delivery by the Investors of the items set forth in Section 2.2(b) of
this Agreement.


 


ARTICLE III

REPRESENTATIONS AND WARRANTIES


 


Section 3.1                                      Representations
and Warranties of the Company. Except as set forth under the corresponding section of
the disclosure schedules delivered to the Investors concurrently herewith (the “Disclosure Schedules”), which
Disclosure Schedules shall be deemed a part hereof, the Company hereby
makes the following representations and warranties to each Investor:


 


(a)                                  Subsidiaries.
The Company has no direct or indirect Subsidiaries other than as specified in
the SEC Reports. The Company owns, directly or indirectly, all of the capital
stock of each Subsidiary free and clear of any and all Liens, and all the
issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar rights.
Neither the Company nor any Subsidiary is party to any material joint venture,
nor has any ownership interest in any entity that is material to the Company or
as disclosed in the SEC Reports.


 


(b)                                 Organization
and Qualification. The Company and each Subsidiary are duly incorporated or
otherwise organized and validly existing under the laws of the jurisdiction of
its incorporation or organization (as applicable), with the requisite power and
authority to own


 


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and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in violation of
any of the material provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. The Company
and each Subsidiary are duly qualified to conduct its respective businesses and
are in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
qualified or in good standing, as the case may be, could not, individually
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect.


 


(c)                                  Authorization;
Enforcement. The Company has the requisite corporate power and authority to
enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution and delivery of each of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company and no
further action is required by the Company in connection therewith. Each
Transaction Document has been (or upon delivery will have been) duly executed
by the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors’ rights and remedies or by other equitable principles of general
application.


 


(d)                                 No
Conflicts. Except as otherwise disclosed on Schedule 3.1(d), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby do
not and will not (i) conflict with or violate any provision of the Company’s
or any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both)
of, any agreement, credit facility, debt or other instrument (evidencing a
Company or Subsidiary debt or otherwise) to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary
is bound, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as could not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect.


 


(e)                                  Filings,
Consents and Approvals. The Company is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than (i) the filing with the Commission of one or more


 


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Registration Statements in accordance with the requirements of the
Registration Rights Agreement, (ii) filings required by state securities
laws, (iii) the filing of a Notice of Sale of Securities on Form D
with the Commission under Regulation D of the Securities Act, (iv) the
filings required in accordance with Sections 4.6 and 4.15, (v) such
consents or waivers as may be required under registration rights
agreements entered into in connection with business acquisitions effected prior
to the date of this Agreement, and (vi) the filing of any requisite
notices with the Trading Market and (vii) those that have been made or
obtained prior to the date of this Agreement.


 


(f)                                    Issuance
of the Securities. The Securities have been duly authorized and, when issued
and paid for in accordance with the Transaction Documents, will be duly and
validly issued, fully paid and nonassessable, free and clear of all Liens. The
Company has reserved from its duly authorized capital stock the Shares issuable
pursuant to this Agreement.


 


(g)                                 Capitalization.
The number of shares and type of all authorized, issued and outstanding capital
stock of the Company, and all shares of Common Stock reserved for issuance
under the Company’s various option and incentive plans as of June 30, 2007,
is accurately set forth in the SEC Reports. Except as specified in the SEC
Reports, no securities of the Company are entitled to preemptive or similar
rights. No Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as specified in the SEC
Reports, and other than stock options granted pursuant to the Company’s stock
option plans following June 30, 2007, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments, understandings
or arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. The issue and sale of
the Securities will not, immediately or with the passage of time, obligate the
Company to issue shares of Common Stock or other securities to any Person
(other than the Investors) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under such securities.


 


(h)                                 SEC
Reports; Financial Statements. The Company has filed all reports, forms and
schedules required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for
the twelve months preceding the date hereof (or such shorter period as the
Company was required by law to file such reports) (the foregoing materials
being collectively referred to herein as the “SEC
Reports” and, together with the Schedules to this Agreement (if
any), the “Disclosure Materials”) on a
timely basis or has timely filed a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension. The
SEC Reports, as amended, when filed, complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, as amended, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial


 


8

















 


statements of the Company included in the SEC Reports, as amended,
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect
at the time of filing. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the
notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, year-end audit
adjustments.


 


(i)                                     Material
Changes. Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock (other than in connection with repurchases of unvested stock issued to
employees of the Company), and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans.


 


(j)                                     Litigation.
There is no Action which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Securities or (ii) except as specifically disclosed in the SEC Reports,
could, if there were an unfavorable decision, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof (in his or
her capacity as such), is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty, except as specifically disclosed in the SEC
Reports. There has not been, and to the knowledge of the Company, there is not
pending any investigation by the Commission involving the Company or any
current or former director or officer of the Company (in his or her capacity as
such). The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.


 


(k)                                  Compliance.
Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or
any Subsidiary under), nor has the Company or any Subsidiary received notice of
a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation
of, or in receipt of notice that it is in violation of,


 


9

















 


any order of any court, arbitrator or governmental body, or (iii) is
or has been in violation of, or in receipt of notice that it is in violation
of, any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws
relating to taxes, environmental protection, occupational health and safety,
product quality and safety, employment and labor matters and, to its knowledge,
privacy, except in each case as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect. The
Company is in compliance with all effective requirements of the Sarbanes-Oxley
Act of 2002, as amended, and the rules and regulations thereunder, that
are applicable to it, except where such noncompliance could not have or
reasonably be expected to result in a Material Adverse Effect.


 


(l)                                     Regulatory
Permits. The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, and neither the Company nor
any Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such permits.


 


(m)                               Title
to Assets. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property owned by them that is material to their
respective businesses and good and marketable title in all personal property
owned by them that is material to their respective businesses, in each case
free and clear of all Liens, except for Liens as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under leases valid, subsisting and enforceable
against the Company and the Subsidiaries, and the Company and the Subsidiaries
are in compliance with such leases, except as could not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect.


 


(n)                                 Patents
and Trademarks. The Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and other similar rights that
are necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect (collectively, the “Intellectual
Property Rights”). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person
and the Company has no knowledge of any such violation or infringement. Except
as set forth in the SEC Reports, to the knowledge of the Company, all such
Intellectual Property Rights are enforceable.


 


(o)                                 Insurance.
The Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary for enterprises of similar size and stage of development in the
businesses


 


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in which the Company and the Subsidiaries are engaged. The Company has
no reason to believe that it will not be able to renew its and the Subsidiaries’
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 on terms consistent with market for the Company’s and such
Subsidiaries’ respective lines of business.


 


(p)                                 Transactions
With Affiliates and Employees. Except as set forth in the SEC Reports, none
of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary required to be disclosed in the
SEC Reports (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.


 


(q)                                 Internal
Accounting Controls. The Company and the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its Subsidiaries, is
made known to the certifying officers by others within those entities. The
Company’s certifying officers have evaluated the effectiveness of the Company’s
controls and procedures in accordance with Item 307 of Regulation S-K under the
Exchange Act for the Company’s fiscal quarter ended June 30, 2007 (such
date, the “Evaluation Date”). The
Company presented in its most recently filed Form 10-Q the conclusions of
the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company’s
internal controls (as such term is defined in Item 308 of Regulation S-K under
the Exchange Act) or, to the Company’s knowledge, in other factors that could
significantly affect the Company’s internal controls which was required to be
disclosed in the SEC Reports and was not so disclosed.


 


(r)                                    Certain
Fees. Other than fees that may be payable to Global Hunter Securities,
LLC, no agent or broker will receive brokerage or finder fees or commissions
payable by the Company with respect to the transactions contemplated by this
Agreement. The Investors shall have no obligation with respect to any fees or
with respect to any claims (other than such fees or commissions owed by an
Investor pursuant to written agreements executed by such Investor which fees or
commissions shall be the sole responsibility of such Investor) made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by this
Agreement.


 


11

















 


(s)                                  Certain
Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2, no registration
under the Securities Act is required for the offer and sale of the Shares and
Warrants by the Company to the Investors under the Transaction Documents.


 


(t)                                    Listing
and Maintenance Requirements. Except as specified in the SEC Reports, the
Company has not, in the two years preceding the date hereof, received notice
from any Trading Market to the effect that the Company is not in compliance
with the listing or maintenance requirements thereof. The Company is, and has
no reason to believe that it will not in the foreseeable future continue to be,
in compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market on which the Common Stock is
currently listed or quoted. The issuance and sale of the Securities under the
Transaction Documents does not contravene the rules and regulations of the
Trading Market on which the Common Stock is currently listed or quoted, and no
approval of the shareholders of the Company thereunder is required for the
Company to issue and deliver to the Investors the Securities contemplated by Transaction
Documents.


 


(u)                                 Investment
Company. The Company is not, and is not an Affiliate of, and immediately
following the Closing will not have become, an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.


 


(v)                                 Application
of Takeover Protections. The Company has taken all necessary action, if
any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Investors as a result
of the Investors and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and the Investors’ ownership of the
Securities.


 


(w)                               No
Additional Agreements. The Company does not have any agreement or
understanding with any Investor with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.


 


(x)                                   Disclosure.
The Company confirms that neither it nor any Person acting on its behalf has
provided any Investor or its respective agents or counsel with any information
that the Company believes constitutes material, non-public information except
insofar as the existence and terms of the proposed transactions hereunder may constitute
such information. The Company understands and confirms that the Investors will
rely on the foregoing representations and covenants in effecting transactions
in securities of the Company. All disclosure provided to the Investors
regarding the Company, its business and the transactions contemplated hereby,
furnished by or on behalf of the Company (including the Company’s
representations and warranties set forth in this Agreement) are true and
correct and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.


 


12

















 


(y)                                 Insolvency.
The Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing will not, be Insolvent.
For purposes of this Agreement, “Insolvent” shall mean, with respect to any
Person, that (i) such Person is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured or (ii) such Person intends to incur or believes that
it will incur debts that would be beyond its ability to pay as such debts
mature.


 


(z)                                   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 Securities to be sold to each Investor 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 by the Company,
except where such noncompliance could not have or reasonably be expected to
result in a Material Adverse Effect.


 


(aa)                            Tax
Status. The Company and each of its Subsidiaries (i) has made or filed
all foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (iii) has set
aside on its books provision reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply, except where the failure to do so could not have or
reasonably be expected to result in a Material Adverse Effect. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.


 


(bb)                          Undisclosed
Liabilities. No event, liability, development or circumstance has occurred
or exists with respect to the Company or its respective business, properties,
prospects, operations or financial condition, that would be required to be
disclosed by the Company under the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder relating to an issuance
and sale by the Company of its securities and which has not been reported in
accordance with such rules and regulations of the Commission.


 


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


 


13

















 


regulations respecting labor, employment and employment practices and
benefits, terms and conditions of employment and wages and hours, except where
failure to be in compliance would not, either individually or in the aggregate,
reasonably be expected to result in a Material Adverse Effect. There are no
complaints or charges against the Company or its Subsidiaries pending or, to
the knowledge of the Company and its Subsidiaries, threatened to be filed with
any governmental authority or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment by the Company or its Subsidiaries of any individual, that would be
reasonably likely to result in a Material Adverse Effect.


 


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


 


(ee)                            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 SEC Reports
and is not so disclosed or that otherwise would be reasonably likely to have a
Material Adverse Effect.


 


Section 3.2                               Representations and
Warranties of the Investors. Each Investor hereby, for itself and for no
other Investor, represents and warrants to the Company as follows:


 


(a)                                  Organization;
Authority. Such Investor is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution,
delivery and performance by such Investor of the transactions contemplated by
this Agreement have been duly authorized by all necessary corporate or similar
action on the part of such Investor. Each Transaction Document to which it
is a party has been duly executed by such Investor, and when delivered by such
Investor in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Investor, enforceable against it in
accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar
as indemnification and contribution provisions may be limited by
applicable law.


 


(b)                                 Own
Account. Such Investor understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling
such Securities or any part thereof in violation of the Securities Act or
any applicable state securities law, has no present intention of distributing
any of such Securities in violation of the Securities Act or any applicable
state securities law and has no arrangement or understanding with any other
persons regarding the distribution of such


 


14

















 


Securities (this representation and warranty not limiting such Investor’s
right to sell the Securities pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws) in
violation of the Securities Act or any applicable state securities law. Such
Investor is acquiring the Securities hereunder in the ordinary course of its
business. Such Investor does not have any agreement or understanding, directly
or indirectly, with any Person to distribute any of the Securities.


 


(c)                                  Investor
Status. At the time such Investor was offered the Securities, it was, and
at the date hereof it is, and on each date on which it exercises any Warrants
it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1),
(a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a
“qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act. Such Investor is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.


 


(d)                                 Experience
of Such Investor. Such Investor, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. Such Investor is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford
a complete loss of such investment.


 


(e)                                  General
Solicitation. Such Investor is not purchasing the Securities as a result of
any advertisement, article, notice or other communication regarding the
Securities published in any newspaper, magazine or similar media or broadcast
over television or radio or presented at any seminar or any other general
solicitation or general advertisement.


 


(f)                                    Short
Sales and Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, such Investor has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Investor, executed any disposition, including Short
Sales, in the securities of the Company during the period commencing from
the time that such Investor first received a term sheet from the Company or any
other Person setting forth the material terms of the transactions contemplated
hereunder until the date hereof (“Discussion Time”).
Notwithstanding the foregoing, in the case of a Investor that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Investor’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Investor’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this Agreement,
such Investor has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).


 


The Company acknowledges and
agrees that no Investor has made or makes any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in this Section 3.2.


 


15
















 


ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES


 


Section 4.1                                      Transfer
Restrictions.


 


(a)                                  The
Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than
pursuant to an effective registration statement or Rule 144, to the
Company or to an affiliate of a Investor or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, the form and
substance of which opinion shall be reasonably satisfactory to the Company, to
the effect that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement
and shall have the rights of a Investor under this Agreement and the
Registration Rights Agreement.


 


(b)                                 The
Investors agree to the imprinting, so long as is required by this Section 4.1(b),
of a legend on any of the Securities in the following form:


 


[NEITHER]
THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE]
OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.


 


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


 


16

















 


transfer of the Securities, including, if the Securities are subject to
registration pursuant to the Registration Rights Agreement, the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under
the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.


 


(c)                                  Certificates
evidencing the Warrant Shares shall not contain any legend (including the
legend set forth in Section 4.1(b) hereof): (i) while a
registration statement (including the Registration Statement) covering the
resale of such security is effective under the Securities Act, or (ii) following
any sale of such Warrant Shares pursuant to Rule 144, or (iii) if
such Warrant Shares are eligible for sale under Rule 144(k), or (iv) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). The Company shall cause its counsel to issue a legal opinion
to the Company’s transfer agent promptly after the Effective Date if required
by the Company’s transfer agent to effect the removal of the legend hereunder. If
all or any portion of a Warrant is exercised at a time when there is an
effective registration statement to cover the resale of the Warrant Shares, or
if such Warrant Shares may be sold under Rule 144(k) or if such
legend is not otherwise required under applicable requirements of the
Securities Act (including judicial interpretations thereof) then such Warrant
Shares shall be issued free of all legends. The Company agrees that following
the Effective Date or at such time as such legend is no longer required under
this Section 4.1(c), it will, no later than ten Trading Days following the
delivery by a Investor to the Company or the Company’s transfer agent of a
certificate representing Warrant Shares, as applicable, issued with a
restrictive legend (such tenth Trading Day, the “Legend
Removal Date”), deliver or cause to be delivered to such
Investor a certificate representing such shares that is free from all
restrictive and other legends. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company that
enlarge the restrictions on transfer set forth in this Section. Certificates
for Securities subject to legend removal hereunder shall be transmitted by the
transfer agent of the Company to the Investors by crediting the account of the
Investor’s prime broker with the Depository Trust Company System.


 


(d)                                 Each
Investor, severally and not jointly with the other Investors, agrees that the
removal of the restrictive legend from certificates representing Securities as
set forth in this Section 4.1 is predicated upon the Company’s reliance
that the Investor will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom.


 


(e)                                  Until
the one year anniversary of the Effective Date, the Company shall not undertake
a reverse or forward stock split or reclassification of the Common Stock
without the prior written consent of the Investors holding a majority of the
Shares, unless the Board of Directors determines that a particular reverse
split is necessary in order to secure the inclusion or listing of the Common
Stock on the Nasdaq Stock Market or a national securities exchange.


 


Section 4.2                                      Acknowledgment
of Dilution. The Company acknowledges that the issuance of the Securities may result
in dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligations under the Transaction Documents, including without
limitation


 


17

















 


its obligation to issue the Warrant Shares pursuant to the Transaction
Documents, are unconditional and absolute and not subject to any right of set
off, counterclaim, delay or reduction, regardless of the effect of any such
dilution or any claim the Company may have against any Investor and
regardless of the dilutive effect that such issuance may have on the
ownership of the other stockholders of the Company.


 


Section 4.3                                      Furnishing of
Information. As long as any Investor owns Securities, the Company covenants
to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. As long as any Investor owns
Securities, if the Company is not required to file reports pursuant to the
Exchange Act, it will prepare and furnish to the Investors and make publicly
available in accordance with Rule 144(c) such information as is
required for the Investors to sell the Securities under Rule 144. The
Company further covenants that it will take such further action as any holder
of Securities may reasonably request, all to the extent required from time
to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by Rule 144.


 


Section 4.4                                      Integration.
The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Investors or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market.


 


Section 4.5                                      Exercise
Procedures. The form of Notice of Exercise included in the Warrants  sets forth the totality of the procedures
required of the Investors in order to exercise the Warrants. No additional
legal opinion or other information or instructions shall be required of the
Investors to exercise their Warrants. The Company shall honor exercises of the
Warrants and shall deliver Warrant Shares in accordance with the terms,
conditions and time periods set forth in the Transaction Documents.


 


Section 4.6                                      Securities
Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. Eastern
time on the Trading Day following the date hereof, issue a Current Report on Form 8-K,
reasonably acceptable to each Investor disclosing the material terms of the
transactions contemplated hereby, and shall attach the Transaction Documents
thereto. The Company and each Investor shall consult with each other in issuing
any other press releases with respect to the transactions contemplated hereby,
and neither the Company nor any Investor shall issue any such press release or
otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of any Investor, or without the
prior consent of each Investor, with respect to any press release of the
Company, which consent shall not unreasonably be withheld, except if such
disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Investor, or include the name of any Investor in any
filing with the Commission or any regulatory agency or Trading Market, without
the prior written consent of such Investor, except (i) as required by
federal securities law in connection with the registration statement


 


18

















 


contemplated by the Registration Rights Agreement and (ii) to the
extent such disclosure is required by law or Trading Market regulations, in
which case the Company shall provide the Investors with prior notice of such
disclosure permitted under subclause (i) or (ii).


 


Section 4.7                                      Shareholder
Rights Plan. No claim will be made or enforced by the Company or, to the
knowledge of the Company, any other Person that any Investor is an “Acquiring
Person” under any shareholder rights plan or similar plan or arrangement in
effect or hereafter adopted by the Company, or that any Investor could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Investors. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.


 


Section 4.8                                      Non-Public
Information. The Company covenants and agrees that neither it nor any other
Person acting on its behalf will provide any Investor or its agents or counsel
with any information that the Company believes constitutes material non-public
information, unless prior thereto such Investor shall have executed a written
agreement regarding the confidentiality and use of such information. The
Company understands and confirms that each Investor shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.


 


Section 4.9                                      Use of
Proceeds. The Company shall use the net proceeds from the sale of the
Securities hereunder for acquisitions and for general working capital purposes.


 


Section 4.10                                Reimbursement. If
any Investor becomes involved in any capacity in any Proceeding by or against
any Person who is a stockholder of the Company (except as a result of sales,
pledges, margin sales and similar transactions by such Investor to or with any
current stockholder), solely as a result of such Investor’s acquisition of the
Securities under this Agreement, the Company will reimburse such Investor for
its reasonable legal and other expenses (including the cost of any
investigation preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same
terms and conditions to any Affiliates of the Investors who are actually named
in such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of the
Investors and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Investors and any such Affiliate and any such Person. The Company
also agrees that neither the Investors nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in right of the
Company solely as a result of acquiring the Securities under this Agreement.


 


Section 4.11                                Indemnification of
Investors.  Subject to the provisions
of this Section 4.11, the Company will indemnify and hold each Investor
and its directors, officers, shareholders, members, partners, employees and
agents (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title),
each Person who controls such Investor (within the meaning of Section 15
of the


 


19

















 


Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents, members, partners or employees (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
person (each, a “Investor Party”) harmless
from any and all losses, liabilities, obligations, claims, contingencies, damages,
costs and expenses, including all judgments, amounts paid in settlements, court
costs and reasonable attorneys’ fees and costs of investigation that any such
Investor Party may suffer or incur as a result of or relating to (a) any
breach of any of the representations, warranties, covenants or agreements made
by the Company in this Agreement or in the other Transaction Documents or (b) any
action instituted against a Investor, or any of them or their respective
Affiliates, by any stockholder of the Company who is not an Affiliate of such
Investor, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of such
Investor’s representations, warranties or covenants under the Transaction Documents
or any agreements or understandings such Investor may have with any such
stockholder or any violations by the Investor of state or federal securities
laws or any conduct by such Investor which constitutes fraud, gross negligence,
willful misconduct or malfeasance). If any action shall be brought against any
Investor Party in respect of which indemnity may be sought pursuant to
this Agreement, such Investor Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof
with counsel of its own choosing. Any Investor Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of such
Investor Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company
has failed after a reasonable period of time to assume such defense and to
employ counsel or (iii) in such action there is, in the reasonable opinion
of such separate counsel, a material conflict on any material issue between the
position of the Company and the position of such Investor Party. The Company
will not be liable to any Investor Party under this Agreement (i) for any
settlement by a Investor Party effected without the Company’s prior written
consent, which shall not be unreasonably withheld or delayed; or (ii) to
the extent, but only to the extent that a loss, claim, damage or liability is
attributable to any Investor Party’s breach of any of the representations,
warranties, covenants or agreements made by the Investors in this Agreement or
in the other Transaction Documents.


 


Section 4.12                                Reservation and
Listing of Securities.


 


(a)                                  The
Company shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction Documents.


 


(b)                                 If,
on any date, the number of authorized but unissued (and otherwise unreserved)
shares of Common Stock is less than the Required Minimum on such date, then the
Board of Directors of the Company shall use commercially reasonable efforts to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later
than the 90th day after such date.


 


(c)                                  The
Company shall, if applicable: (i) in the time and manner required by


 


20

















 


the Trading Market, prepare and file with such Trading Market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application, (ii) take
all steps necessary to cause such shares of Common Stock to be approved for
listing on the Trading Market as soon as possible thereafter, (iii) provide
to the Investors evidence of such listing, and (iv) maintain the listing
of such Common Stock on any date at least equal to the Required Minimum on such
date on such Trading Market or another Trading Market. 


 


Section 4.13                                Equal Treatment of
Investors. No consideration shall be offered or paid to any person to amend
or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration is also offered to all of
the parties to the Transaction Documents. 


 


Section 4.14                                Short Sales and
Confidentiality After The Date Hereof. Each Investor severally and not
jointly with the other Investors covenants that neither it nor any affiliates
acting on its behalf or pursuant to any understanding with it will execute any
Short Sales during the period after the Discussion Time and ending at the time
that the transactions contemplated by this Agreement are first publicly
announced as described in Section 4.6. Further, each Investor severally
and not jointly with the other Investors covenants that until such Investor
does not hold any of the Warrants, such Investor shall not create any “net
short” position in the Company’s Common Stock, whereby the Investor shall have
engaged in a Short Sale which would make such Investor’s short position greater
than the number of shares of Common Stock which such Investor could obtain by
exercising its Warrants held at the time of such determination. Each Investor,
severally and not jointly with the other Investors, covenants that until such
time as the transactions contemplated by this Agreement are publicly disclosed
by the Company as described in Section 4.6, such Investor will maintain,
the confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction). Each
Investor understands and acknowledges, severally and not jointly with any other
Investor, that the Commission currently takes the position that coverage of
short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section 5
under Section A, of the Manual of Publicly Available Telephone
Interpretations, dated July 1997, compiled by the Office of Chief Counsel,
Division of Corporation Finance. Notwithstanding the foregoing, no Investor
makes any representation, warranty or covenant hereby that it will not engage
in Short Sales  in the securities
of the Company after the time that the transactions contemplated by this
Agreement are first publicly announced as described in Section 4.6. Notwithstanding
the foregoing, in the case of a Investor that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Investor’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such Investor’s assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.


 


Section 4.15                                Form D; Blue
Sky Filings. The Company agrees to timely file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof,


 


21

















 


promptly upon request of any Investor. The Company shall, on or before
or after the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for, or to qualify the
Securities for, sale to the Investors at the Closing under applicable
securities or “Blue Sky” laws of the states of the United States, and shall
provide evidence of such actions promptly upon request of any Investor.


 


ARTICLE V

MISCELLANEOUS


 


Section 5.1                                      Fees and
Expenses. Each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of the Transaction Documents. The Company shall pay all stamp and
other taxes and duties levied in connection with the sale of the Shares.


 


Section 5.2                                      Entire
Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect to
such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.


 


Section 5.3                                      Notices. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice
or communication is delivered via facsimile (provided the sender receives a
machine-generated confirmation of successful transmission and reasonably promptly
following such transmission sends such notice or communication via U.S. mail or
overnight courier) at the facsimile number specified in this Section prior
to 5:00 p.m. (New York City time) on a Business Day, (b) the next
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section on
a day that is not a Business Day or later than 5:00 p.m. (New York City
time) on any Business Day, (c) the Business Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as follows:


 


	
  If to the Company:

  	
   

  	
  Crdentia Corp.

  
	
   

  	
   

  	
  5001 LBJ Freeway, Suite 850

  
	
   

  	
   

  	
  Dallas, Texas 75244

  
	
   

  	
   

  	
  Facsimile No.:  (972) 850-0780

  
	
   

  	
   

  	
  Telephone No.: (972)
  392-2722

  
	
   

  	
   

  	
  Attention: Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Morrison &
  Foerster LLP

  
	
   

  	
   

  	
  12531 High Bluff
  Drive, Suite 100

  
	
   

  	
   

  	
  San Diego, CA 92130

  
	
   

  	
   

  	
  Facsimile No.: 
  (858) 720-5125

  
	
   

  	
   

  	
  Attention: 
  Steven G. Rowles, Esq.

  



 


22

















 


	
  If to an Investor:

  	
   

  	
  To the address set
  forth under such Investor’s

  name on the signature pages hereof

  



 


or such other address as may be
designated in writing hereafter, in the same manner, by such Person.


 


Section 5.4                       Amendments;
Waivers; No Additional Consideration. No provision of this Agreement may be
waived, modified, supplemented or amended except in a written instrument
signed, in the case of an amendment, by the Company and the Investors holding a
majority of the Shares or, in the case of a waiver, by the party against whom
enforcement of such waiver is sought. No waiver of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. 


 


Section 5.5                       Headings.
The headings herein are for convenience only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party. 


 


Section 5.6                       Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns. Other than in
connection with a merger, consolidation, sale of all or substantially all of
the Company’s assets or other similar change in control transaction, the
Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Investors. Any Investor may assign
any or all of its rights under this Agreement to any Person to whom such
Investor assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the Investors.


 


Section 5.7                       No
Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any
other Person, except as otherwise set forth in Section 4.11.


 


Section 5.8                       Governing
Law. All questions concerning the construction, validity, enforcement and
interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof. Each party agrees
that all Proceedings concerning the interpretations, enforcement and defense of
the transactions contemplated by this Agreement and any other Transaction
Documents (whether brought against a party hereto or its respective Affiliates,
employees or agents) shall be commenced exclusively in the New York Courts. Each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
New York Courts for the adjudication of any dispute hereunder or in connection
herewith or with any


 


23

















 


transaction contemplated hereby or discussed herein (including with
respect to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any such New York Court, or
that such Proceeding has been commenced in an improper or inconvenient forum. Each
party hereto hereby irrevocably waives personal service of process and consents
to process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions
of a Transaction Document, then the prevailing party in such Proceeding shall
be reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such Proceeding.


 


Section 5.9                                      Survival. The
agreements, covenants, representation and warranties contained herein shall
survive the Closing and the delivery or exercise of the Securities, as
applicable, until the third anniversary of the Closing.


 


Section 5.10                                Execution. This
Agreement may be executed in two or more counterparts, all of which when
taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.


 


Section 5.11                                Severability. If
any provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the
parties will attempt to agree upon a valid and enforceable provision that is a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.


 


Section 5.12                                Rescission and
Withdrawal Right. Notwithstanding anything to the contrary contained in
(and without limiting any similar provisions of) the Transaction Documents,
whenever any Investor exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Investor may rescind
or withdraw, in its sole discretion from time to time upon written notice to
the Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights; provided, however, in the case of a
rescission of an exercise of a Warrant, the Investor shall be required to
return any shares of Common Stock subject to any such rescinded exercise
notice.


 


Section 5.13                                Replacement of
Securities. If any certificate or instrument evidencing any


 


24

















 


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


 


Section 5.14                                Remedies. In
addition to being entitled to exercise all rights provided herein or granted by
law, including recovery of damages, each of the Investors and the Company will
be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for
any loss incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.


 


Section 5.15                                Payment Set Aside.
To the extent that the Company makes a payment or payments to any Investor
pursuant to any Transaction Document or an Investor enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such enforcement or
setoff had not occurred.


 


Section 5.16                                Independent Nature
of Investors’ Obligations and Rights. The obligations of each Investor
under any Transaction Document are several and not joint with the obligations
of any other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under any Transaction
Document. The decision of each Investor to purchase Securities pursuant to the
Transaction Documents has been made by such Investor independently of any other
Investor. Each Investor’s obligations hereunder are expressly not conditioned
on the purchase by any or all of the other Investors of the Shares. Nothing
contained herein or in any Transaction Document, and no action taken by any
Investor pursuant thereto, shall be deemed to constitute the Investors as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Investors are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Documents. Each Investor acknowledges that no other Investor
has acted as agent for such Investor in connection with making its investment
hereunder and that no Investor will be acting as agent of such Investor in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Investor shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be


 


25

















 


necessary for any other Investor to be joined as an additional party in
any proceeding for such purpose. Each Investor has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. 


 


Section 5.17                                Construction. The
parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.


 


[Remainder of
Page Intentionally Left Blank]


 


26

















 


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


 


	
   

  	
  CRDENTIA CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: John Kaiser

  	
   

  
	
   

  	
   

  	
  Title: Chief Executive
  Officer

  	
   

  



 


[Signature Pages for
Investors Follows]


 


27

















 


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


 


	
   

  	
  NAME OF INVESTOR

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Investment Amount: $

  	
   

  
	
   

  	
   

  
	
   

  	
  Tax ID No.:

  	
   

  
	
   

  	
   

  
	
   

  	
  ADDRESS FOR NOTICE

  
	
   

  	
   

  
	
   

  	
  c/o:

  	
   

  
	
   

  	
   

  
	
   

  	
  Street:

  	
   

  
	
   

  	
   

  
	
   

  	
  City/State/Zip:

  	
   

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
   

  
	
   

  	
   

  
	
   

  	
  Tel:

  	
   

  
	
   

  	
   

  
	
   

  	
  Fax:

  	
   

  
	
   

  	
   

  
	
   

  	
  DELIVERY INSTRUCTIONS

  
	
   

  	
  (if different from above)

  
	
   

  	
   

  
	
   

  	
  c/o:

  	
   

  
	
   

  	
   

  
	
   

  	
  Street:

  	
   

  
	
   

  	
   

  
	
   

  	
  City/State/Zip:

  	
   

  
	
   

  	
   

  
	
   

  	
  Attention:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Tel:

  	
   

  	
   

  
																



 


28

















 


SCHEDULE A


 


SCHEDULE OF INVESTORS


 


Closing Dated: October 26, 2007


 


	
  Name/Address

  	
   

  	
  Investment Amount

  	
   

  
	
  FatBoy Capital, LP

  	
   

  	
   

  	
   

  
	
  9611 North U.S. Highway 1, Box 390

  	
   

  	
   

  	
   

  
	
  Sebastian, FL 32958

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (973) 426-0300

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (973) 426-0313

  	
   

  	
  $

  	
  1,640,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  MedCap Partners L.P.

  	
   

  	
   

  	
   

  
	
  c/o MedCap Management and Research LLC

  	
   

  	
   

  	
   

  
	
  500 Third Street, Suite 535

  	
   

  	
   

  	
   

  
	
  San Francisco, CA 94107

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (415) 495-1010

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (415) 495-1012

  	
   

  	
  $

  	
  715,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  MedCap Master Fund L.P.

  	
   

  	
   

  	
   

  
	
  c/o MedCap Management and Research LLC

  	
   

  	
   

  	
   

  
	
  500 Third Street, Suite 535

  	
   

  	
   

  	
   

  
	
  San Francisco, CA 94107

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (415) 495-1010

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (415) 495-1012

  	
   

  	
  $

  	
  635,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  C. Fred Toney

  	
   

  	
   

  	
   

  
	
  c/o MedCap Management and Research LLC

  	
   

  	
   

  	
   

  
	
  500 Third Street, Suite 535

  	
   

  	
   

  	
   

  
	
  San Francisco, CA 94107

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (415) 495-1010

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (415) 495-1012

  	
   

  	
  $

  	
  500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Catalysis Partners, LLC

  	
   

  	
   

  	
   

  
	
  429 Santa Monica Blvd., Suite 320

  	
   

  	
   

  	
   

  
	
  Santa Monica, CA 90401

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (310) 260-9708

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (310) 260-9718

  	
   

  	
  $

  	
  54,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Catalysis Offshore, Ltd.

  	
   

  	
   

  	
   

  
	
  429 Santa Monica Blvd., Suite 320

  	
   

  	
   

  	
   

  
	
  Santa Monica, CA 90401

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (310) 260-9708

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (310) 260-9718

  	
   

  	
  $

  	
  46,000

  	
   

  



 


29

















 


	
  Patrick F. Latteral Living Trust

  	
   

  	
   

  	
   

  
	
  c/o Patrick Latteral

  	
   

  	
   

  	
   

  
	
  1 Blockfield Drive, #161

  	
   

  	
   

  	
   

  
	
  Tiburon, CA 94920

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (415) 248-2785

  	
   

  	
  $

  	
  100,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The Sandra L. Jones Revocable Trust Dated
  1/12/06

  	
   

  	
   

  	
   

  
	
  930 Tahoe Boulevard, Suite 802-193

  	
   

  	
   

  	
   

  
	
  Incline Village, NV 89451

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (775) 830-8192

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (775) 832-6884

  	
   

  	
  $

  	
  100,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Norman C. Roberts Trust

  	
   

  	
   

  	
   

  
	
  c/o Norman Roberts

  	
   

  	
   

  	
   

  
	
  2810 Hidden Valley Road

  	
   

  	
   

  	
   

  
	
  La Jolla, CA 92037-7925

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (858) 459-2481)

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (858) 456-7925)

  	
   

  	
  $

  	
  100,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  William Kuni

  	
   

  	
  $

  	
  60,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Black Forest International, LLC

  	
   

  	
   

  	
   

  
	
  c/o BCGU, LLC

  	
   

  	
   

  	
   

  
	
  2038 Corte del Nogal, Suite 110

  	
   

  	
   

  	
   

  
	
  Carlsbad, CA 92011

  	
   

  	
   

  	
   

  
	
  Phone:

  	
  (760 804-8844)

  	
   

  	
   

  	
   

  
	
  Fax:

  	
  (760 804-8845)

  	
   

  	
  $

  	
  250,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Valens Offshore SPV I, Ltd.

  	
   

  	
   

  	
   

  
	
  c/o Valens Capital Management, LLC

  	
   

  	
   

  	
   

  
	
  335 Madison Avenue, 10th Floor

  	
   

  	
   

  	
   

  
	
  New York, NY 10017

  	
   

  	
  $

  	
  500,000

  	
   

  
								



 


30

















 


Closing Dated:               ,
2007


 


	
  Name/Address

  	
   

  	
  Investment Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  TOTAL

  	
   

  	
   

  	
   

  
					



 


31
















 


EXHIBIT A


 


REGISTRATION RIGHTS AGREEMENT


 

















 


EXHIBIT B


 


FORM OF WARRANT