Exhibit 10.1


 


SECURITIES
PURCHASE AGREEMENT


 


THIS SECURITIES PURCHASE AGREEMENT (the “Agreement”),
dated as of January 30, 2006, by and among InfoSonics Corporation, a
Maryland corporation with headquarters located at 5880 Pacific Center Blvd.,
San Diego, CA 92121 (the “Company”),
and the investors listed on the Schedule of Investors attached hereto as
Exhibit A (individually, an “Investor”
and collectively, the “Investors”).


 


BACKGROUND


 


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


 


B.                                     Each Investor, severally and not jointly,
wishes to purchase, and the Company wishes to sell, upon the terms and
conditions stated in this Agreement, (i) that aggregate number of shares
of the Common Stock, par value $.001 per share, of the Company (the “Common Stock”), set forth opposite such
Investor’s name in column two (2) on the Schedule of Investors in Exhibit A
(which aggregate amount for all Investors together shall be 1,100,000 shares of
Common Stock and shall collectively be referred to herein as the “Common Shares”) and (ii) warrants, in
substantially the form attached hereto as Exhibit F (the
“Warrants”) to acquire up to that number of additional shares of Common Stock
set forth opposite such Investor’s name in column three (3) on the
Schedule of Investors (the shares of Common Stock issuable upon exercise
of or otherwise pursuant to the Warrants, collectively, the “Warrant
Shares”).  The minimum aggregate dollar
amount of securities to be sold in this placement is $10,000,000.


 


C.                                     The Common Shares, the Warrants and the
Warrant Shares issued pursuant to this Agreement are collectively are referred
to herein as the “Securities”.


 


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 the Investors agree as follows:


 


ARTICLE I

DEFINITIONS


 


1.1                                 Definitions. 
In addition to the terms defined elsewhere in this Agreement, the
following terms have the meanings indicated:


 


“Advice”
has the meaning set forth in Section 6.5.


 

















 


“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.


 


“Agent”
has the meaning set forth in Section 3.1(l).


 


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


 


“Business Day”
means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.


 


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


 


“Closing Date” means the date and time of the Closing and
shall be 10:00 a.m., New York City Time, on the later of: a) [TWO DAYS
AFTER THE AGREEMENT DATE], 2006; or b) two business days following the date of
the approval of the listing of the Shares and Warrant Shares by the Trading Market
(or such other date and time as is mutually agreed to by the Company and each
Investor).


 


“Closing Price”
means, for any date, the closing price per share of the Common Stock for such
date (or the nearest preceding date) on the primary Eligible Market or exchange
or quotation system on which the Common Stock is then listed or quoted.


 


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


 


“Company Counsel”
means Patton Boggs LLP, counsel to the Company.


 


“Common Shares”
means an aggregate of 1,100,000 shares of Common Stock, which are being sold to
the Investors at the Closing.


 


“Common Stock”
means the common stock of the Company, par value $0.001 per share.


 


“Contingent
Obligation” has the meaning set forth in Section 3.1(aa).


 


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


 


“Effective Date”
means the date that the Registration Statement is first declared effective by
the SEC.


 


“Effectiveness
Period” has the meaning set forth in Section 6.1(b).


 


“8-K Filing”
has the meaning set forth in Section 4.5.


 


“Eligible Market”
means any of the New York Stock Exchange, the American Stock Exchange, The
Nasdaq National Market or The Nasdaq Capital Market.


 


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“Environmental
Laws” has the meaning set forth in Section 3.1(dd).


 


“Exchange Act”
means the Securities Exchange Act of 1934, as amended.


 


“Excluded
Investors” means SG Cowen & Co., LLC and its Affiliates.


 


“Filing Date”
means 30 days after the Closing Date.


 


“GAAP”
has the meaning set forth in Section 3.1(g).


 


“Hazardous
Materials” has the meaning set forth in Section 3.1(dd).


 


“Indebtedness”
has the meaning set forth in Section 3.1(aa).


 


“Indemnified Party”
has the meaning set forth in Section 6.4(c).


 


“Indemnifying
Party” has the meaning set forth in Section 6.4(c).


 


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


 


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


 


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


 


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


 


“Lock-up Agreements” has the meaning set forth in Section 4.7.


 


“Losses”
means any and all losses, claims, damages, liabilities, settlement costs and
expenses, including, without limitation and reasonable attorneys’ fees.


 


“Material Adverse
Effect” has the meaning set forth in Section 3.1(b).


 


“Material Permits”
has the meaning set forth in Section 3.1(v).


 


“Minimum Amount” means the aggregate dollar amount of
$10,000,000.


 


“Person” means any individual or corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, or joint stock company.


 


“Prior
Registration Statement” has the meaning set forth in
Section 6.6.


 


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


 


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“Prospectus”
means the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.


 


“Purchase Price”
has the meaning set forth in Section 2.3.


 


“Registrable
Securities” means the Common Shares and the Warrant Shares issued or
issuable pursuant to the Transaction Documents, together with any securities
issued or issuable upon any stock split, dividend or other distribution,
recapitalization or similar event with respect to the foregoing.


 


“Registration
Statement” means each registration statement required to be filed
under Article VI, including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.


 


“Regulation D”
has the meaning set forth in the Preamble.


 


“Related Person”
has the meaning set forth in Section 4.6.


 


“Repurchase Notice”
has the meaning set forth in Section 6.1.


 


“Repurchase Price”
has the meaning set forth in Section 6.1.


 


“Required Effectiveness Date” means 90 days after the Closing Date, or if
the SEC reviews the Registration Statement, 120 days after the Closing Date.


 


“Rule 144,”
“Rule 415,” and “Rule 424” mean Rule 144,
Rule 415 and Rule 424, respectively, promulgated by the SEC pursuant
to the Securities Act, as such Rules may be amended from time to time, or
any similar rule or regulation hereafter adopted by the SEC having
substantially the same effect as such Rule.


 


“SEC” means the Securities and Exchange
Commission.


 


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


 


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


 


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


 


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“Shares”
means shares of the Company’s Common Stock.


 


“Short Sales”
has the meaning set forth in Section 3.2(h).


 


“Subsidiary”
means any direct or indirect subsidiary of the Company.


 


“Trading Day”
means (a) any day on which the Common Stock is listed or quoted and traded
on its primary Trading Market, (b) if the Common Stock is not then listed
or quoted and traded on any Eligible Market, then a day on which trading occurs
on The Nasdaq National Market (or any successor thereto), or (c) if
trading ceases to occur on The Nasdaq National Market (or any successor
thereto), any Business Day.


 


“Trading Market”
means The American Stock Exchange or any other Eligible Market, or any national
securities exchange, market or trading or quotation facility on which the
Common Stock is then listed or quoted.


 


 “Transaction Documents” means this Agreement, the schedules and
exhibits attached hereto, the Warrants and the Transfer Agent Instructions.


 


“Transfer Agent”
means Computershare Trust Co., Inc. or any successor transfer agent for
the Company.


 


“Transfer Agent
Instructions” means, with respect to the Company, the Irrevocable
Transfer Agent Instructions, in the form of Exhibit E, executed by the
Company and delivered to and acknowledged in writing by the Transfer Agent.


 


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


 


“Warrant Shares”
has the meaning set forth in the Preamble.


 


ARTICLE II

PURCHASE AND SALE


 


2.1                                 Closing.  Subject to
the terms and conditions set forth in this Agreement, at the Closing, the
Company shall cause to be sold to each Investor, and each Investor shall,
severally and not jointly, purchase from the Company, such number of Common
Shares and Warrants set forth opposite such Investor’s name on Exhibit A.  The date and time of the Closing shall be
10:00 a.m., New York City Time, on the Closing Date.  The Closing shall take place at the offices
of the Company’s Counsel.


 


2.2                                 Closing Deliveries.


 


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


 


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(i)                                     one or more stock certificates,
registered in the name of such Investor, free and clear of all restrictive and
other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing such number of Common Shares set forth opposite such Investor’s name
on Exhibit A hereto.


 


(ii)                                  a Warrant, issued in the name of such
Investor, pursuant to which such Investor shall have the right to acquire such
number of Warrant Shares set forth opposite such Investor’s name on Exhibit A
hereto.


 


(iii)                               a legal opinion of Company Counsel, in
the form of Exhibit C, executed by such counsel and delivered to the
Investors;


 


(iv)                              duly executed Transfer Agent Instructions
acknowledged by the Company’s transfer agent; and


 


(v)                                 the Lock-up Agreements.


 


(b)                                 At the Closing, each Investor shall
deliver or cause to be delivered to the Company the purchase price for the
Common Shares and the Warrants being purchased hereunder by that Investor in
United States dollars and in immediately available funds, by wire transfer to
an account designated in writing to such Investor by the Company for such
purpose.


 


2.3                                 Purchase Price. 
The Purchase Price to be paid by the Investors for the Securities is
also set forth in Exhibit A attached hereto.


 


ARTICLE III

REPRESENTATIONS AND WARRANTIES


 


3.1                                 Representations and Warranties of the
Company.  The Company hereby represents and warrants to
the Investors as follows (which representations and warranties shall be deemed
to apply, where appropriate, to each Subsidiary of the Company):


 


(a)                                  Subsidiaries. 
The Company has no direct or indirect Subsidiaries other than those
listed in Schedule 3.1(a) hereto.  Except as disclosed in Schedule 3.1(a) hereto,
the Company owns, directly or indirectly, all of the capital stock or
comparable equity interests of each Subsidiary free and clear of any Lien and
all the issued and outstanding shares of capital stock or comparable equity
interest of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights.


 


(b)                                 Organization and Qualification. 
Each of the Company and the Subsidiaries is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite legal
authority to own and use its properties and assets and to carry on its business
as currently conducted.  Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. 
Each of the Company and the


 


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Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation or
other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, (i) have or result in a material adverse
effect on the results of operations, assets, business or financial condition of
the Company and the Subsidiaries, taken as a whole on a consolidated basis, or
(ii) materially and adversely impair the Company’s ability to perform its
obligations under any of the Transaction Documents (either of
(i) or (ii), a “Material Adverse
Effect”).


 


(c)                                  Authorization; Enforcement. 
The Company has the requisite corporate authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
to which it is a party and otherwise to carry out its obligations hereunder and
thereunder.  The execution and delivery
of each of the Transaction Documents to which it is a party by the Company and
the consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and no
further consent or action is required by the Company, its Board of Directors or
its stockholders.  Each of the
Transaction Documents to which it is a party has been (or upon delivery will
be) duly executed by the Company and is, or 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
may be limited by (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors rights generally, and (ii) the effect of rules of law
governing the availability of specific performance and other equitable
remedies.


 


(d)                                 No Conflicts. 
The execution, delivery and performance of the Transaction Documents to
which it is a party by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not, and will not,
(i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, (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) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the
Company or any Subsidiary is bound, or affected, except to the extent that such
conflict, default, termination, amendment, acceleration or cancellation right
would not reasonably be expected to have a Material Adverse Effect, 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 and the rules and regulations of any
self-regulatory organization to which the Company or its securities are
subject, including all applicable Trading Markets), or by which any property or
asset of the Company or a Subsidiary is bound or affected, except to the extent
that such violation would not reasonably be expected to have a Material Adverse
Effect.


 


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(e)                                  The Securities. 
The Securities (including the Warrant Shares) are 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 and will not be subject to preemptive or similar rights of
stockholders.  The Company has reserved
from its duly authorized capital stock the maximum number of shares of Common
Stock issuable upon exercise of the Warrants.


 


(f)                                    Capitalization. 
The aggregate number of shares and type of all authorized, issued and
outstanding classes of capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in Schedule 3.1(f) hereto.  All outstanding shares of capital stock are
duly authorized, validly issued, fully paid and nonassessable and have been
issued in compliance with all applicable securities laws.  Except as disclosed in Schedule 3.1(f) hereto,
the Company has not issued any other options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or entered into any agreement giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock.  Except as set forth on Schedule 3.1(f) hereto,
and except for customary adjustments as a result of stock dividends, stock
splits, combinations of shares, reorganizations, recapitalizations,
reclassifications or other similar events, there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in
any agreement providing rights to security holders) and the issuance and sale
of the Securities will not obligate the Company to issue shares of Common Stock
or other securities to any Person (other than the Investors) and will not
result in a right of any holder of securities to adjust the exercise,
conversion, exchange or reset price under such securities.  To the knowledge of the Company, except as
specifically disclosed in the SEC Reports or in Schedule 3.1(f) hereto,
no Person or group of related Persons beneficially owns (as determined pursuant
to Rule 13d-3 under the Exchange Act), or has the right to acquire, by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the outstanding Common Stock, ignoring for such purposes
any limitation on the number of shares of Common Stock that may be owned at any
single time.


 


(g)                                 SEC Reports; Financial Statements. 
Except as set forth on Schedule 3.1(g), the Company has
filed all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for
the entire period during which it has been required to file such reports (the
foregoing materials (together with any materials filed by the Company under the
Exchange Act, whether or not required) being collectively referred to herein as
the “SEC Reports” and, together
with this Agreement and the Schedules to this Agreement, the “Disclosure Materials”) on a timely basis or
has received a valid extension of such time of filing and has filed any such
SEC Reports prior to the expiration of any such extension.  The Company has made available to the
Investors or their respective representatives true, correct and complete copies
of the SEC Documents not available on the EDGAR system.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact


 


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required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.  The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect
thereto as in effect at the time of filing. 
Such financial statements have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the consolidated 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.  All material agreements to
which the Company or any Subsidiary is a party or to which the property or
assets of the Company or any Subsidiary are subject are included as part of or
specifically identified in the SEC Reports, to the extent such agreements are
required to be included or identified pursuant to the rules and
regulations of the SEC.


 


(h)                                 Absence of Other Occurrences. 
Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in the SEC Reports or
in Schedule 3.1(h) hereto, (i) there has been no event,
occurrence or development that, individually or in the aggregate, has had or
that could result in a Material Adverse Effect, (ii) the Company has not
incurred any material liabilities other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the SEC, (iii) the Company has not altered its method of
accounting or changed its auditors, except as disclosed in its SEC Reports,
(iv) the Company has not declared or made any dividend or distribution of
cash or other property to its stockholders, in their capacities as such, or
purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock (except for repurchases by the Company of shares of capital
stock held by employees, officers, directors, or consultants pursuant to an
option of the Company to repurchase such shares upon the termination of
employment or services), and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock-based plans.  The Company
has not taken any steps to seek protection pursuant to any bankruptcy law nor
does the Company have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings or any actual knowledge
of any fact which would reasonably lead a creditor to do so.  The Company is not as of the date hereof, and
after giving effect to the transactions contemplated hereby to occur at the
applicable Closing, will not be Insolvent (as defined below).  For purposes of this Section 3.1(h),
“Insolvent” means (i) the present fair saleable value of the Company’s
assets is less than the amount required to pay the Company’s total Indebtedness
(as defined in Section 3.1(aa)), (ii) the Company is unable to pay
its debts and liabilities, subordinated, contingent or otherwise, as such debts
and liabilities become absolute and matured, (iii) the Company intends to
incur or believes that it will incur debts that would be beyond its ability to
pay as such debts mature or (iv) the Company has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.


 


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(i)                                     Absence of Litigation. 
Except as disclosed in the SEC Reports, there is no action, suit, claim,
or proceeding, or, to the Company’s knowledge, inquiry or investigation, before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries that could, individually or in
the aggregate, have a Material Adverse Effect.


 


(j)                                     Compliance.  Except as
described in Schedule 3.1(j), neither the Company nor any
Subsidiary, except in each case as would not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect,
(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 written notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
rule or regulation of any governmental authority.


 


(k)                                  Title to Assets. 
The Company and the Subsidiaries have good and marketable title in fee
simple to all real property owned by them that is material to the business of
the Company and the Subsidiaries and good and marketable title in all personal
property owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens that
do not, individually or in the aggregate, have or result in a Material Adverse
Effect.  Any real property and facilities
held under lease by the Company and the Subsidiaries are held by them under
valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in material compliance.


 


(l)                                     No General Solicitation; Placement
Agent’s Fees.  Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Securities.  The Company shall be responsible for the
payment of any placement agent’s fees, financial advisory fees, or brokers’
commission (other than for persons engaged by any Investor or its investment
advisor) relating to or arising out of the issuance of the Securities pursuant
to this Agreement.  The Company shall
pay, and hold each Investor harmless against, any liability, loss or expense
(including, without limitation, reasonable attorneys’ fees and out-of-pocket
expenses) arising in connection with any such claim for fees arising out of the
issuance of the Securities pursuant to this Agreement.  The Company acknowledges that SG
Cowen & Co., LLC has been engaged as lead placement agent (the “Agent”) and that Montgomery & Co.,
LLC will serve as co-agent in connection with the sale of the Securities.  The Company has not engaged any other
placement agent or other agent in connection with the sale of the Securities.


 


(m)                               Private Placement. 
Neither the Company nor any of its Affiliates nor, any Person acting on
the Company’s behalf has, directly or indirectly, at any time within the past
six months, made any offer or sale of any security or solicitation of any offer
to buy any security under circumstances that would (i) eliminate the
availability of the exemption from registration under 


 


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Regulation D under
the Securities Act in connection with the offer and sale by the Company of the
Securities as contemplated hereby or (ii) cause the offering of the
Securities pursuant to the Transaction Documents to be integrated with prior
offerings by the Company for purposes of any applicable law, regulation or
stockholder approval provisions, including, without limitation, under the
rules and regulations of any Trading Market.  The Company is not required to be registered
as, and is not an Affiliate of, an “investment company” within the meaning of
the Investment Company Act of 1940, as amended. 
The Company is not required to be registered as, a United States real
property holding corporation within the meaning of the Foreign Investment in
Real Property Tax Act of 1980.


 


(n)                                 Form S-3 Eligibility. 
The Company is eligible to register the Common Shares and the Warrant
Shares for resale by the Investors using Form S-3 promulgated under the
Securities Act.


 


(o)                                 Listing and Maintenance Requirements. 
Except as described in Schedule 3.1(o), the Company has not,
in the twelve months preceding the date hereof, received notice (written or
oral) from any Trading Market on which the Common Stock is or has been listed
or quoted to the effect that the Company is not in compliance with the listing
or maintenance requirements of such Trading Market.  The Company is in compliance with all such
listing and maintenance requirements.


 


(p)                                 Registration Rights. 
Except as described in Section 6.6, the Company has not
granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
SEC or any other governmental authority that have not been satisfied or waived.


 


(q)                                 Application of Takeover Protections. 
Except as described in Schedule 3.1(q), there is no control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s charter documents or the laws of its state of incorporation
that is or could become applicable to any of 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, as a
result of the Company’s issuance of the Securities and the Investors’ ownership
of the Securities.


 


(r)                                    Disclosure.  The Company
confirms that neither it nor any officers, directors or Affiliates, has
provided any of the Investors (other than Excluded Investors and other than one
Investor that executed a non-disclosure and non-trading agreement that
continues until the Company has filed its Form 10-Q for the quarter ending
March 31, 2006) or their agents or counsel with any information that
constitutes or might constitute material, nonpublic information (other than the
existence and terms of the issuance of Securities, as contemplated by this
Agreement).  The Company understands and
confirms that each of the Investors will rely on the foregoing representations
in effecting transactions in securities of the Company (other than Excluded
Investors).  All disclosure provided by
the Company to the Investors regarding the Company, its business and the
transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on the behalf of the Company are true and correct in all
material respects and do not 


 


11

















 


contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. 
To the Company’s knowledge, no event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or
its or their business, properties, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.  The Company acknowledges and
agrees that no Investor (other than Excluded Investors) makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in the Transaction Documents.


 


(s)                                  Acknowledgment Regarding Investors’
Purchase of Securities.  Based upon the assumption that
the transactions contemplated by this Agreement are consummated in all material
respects in conformity with the Transaction Documents, the Company acknowledges
and agrees that each of the Investors (other than Excluded Investors) is acting
solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and
thereby.  The Company further
acknowledges that no Investor (other than Excluded Investors) is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and that any
advice given by any Investor (other than Excluded Investors) or any of their
respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Investors’ purchase of the Securities.  The Company further represents to each
Investor that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.


 


(t)                                    Patents and Trademarks. 
The Company and its Subsidiaries own, or possess adequate rights or
licenses to use, all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets and other
intellectual property rights (“Intellectual
Property Rights”) necessary to conduct their respective businesses
now conducted.  Except as set forth in Schedule 3.1(t),
none of the Company’s Intellectual Property Rights have expired or terminated,
or are expected to expire or terminate, within three years from the date of
this Agreement.  The Company does not
have any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. 
There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or its
Subsidiaries regarding its Intellectual Property Rights.


 


(u)                                 Insurance.  The Company
and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses and location in which the Company and the
Subsidiaries are engaged.


 


12

















 


(v)                                 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 does not, individually or in the aggregate, have or result in a
Material Adverse Effect (“Material Permits”),
and neither the Company nor any Subsidiary has received any written notice of
proceedings relating to the revocation or modification of any Material Permit.


 


(w)                               Transactions With Affiliates and
Employees.  Except as set forth or incorporated by
reference in the Company’s SEC Reports, none of the officers, directors or
employees of the Company is presently a party to any transaction that would be
required to be reported on Form 10-K with the Company or any of its
Subsidiaries (other than for ordinary course services as employees, officers or
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any such
officer, director or employee or, to the Company’s knowledge , any corporation,
partnership, trust or other entity in which any such officer, director, or
employee has a substantial interest or is an officer, director, trustee or
partner.


 


(x)                                   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 generally
accepted accounting principles 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.


 


(y)                                 Sarbanes-Oxley Act. The Company is in compliance with
applicable requirements of the Sarbanes-Oxley Act of 2002 and applicable
rules and regulations promulgated by the SEC thereunder, except where such
noncompliance would not have, individually or in the aggregate, a Material
Adverse Effect.


 


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


 


(aa)                            Indebtedness. 
Except as disclosed in Schedule 3.1(aa) or in the Company’s
financial statements and notes thereto, neither the Company nor any of its
Subsidiaries (i) has any outstanding Indebtedness (as defined below),
(ii) is in violation of any term of or in default under any contract,
agreement or instrument relating to any Indebtedness, except where such
violations and defaults would not result, individually or in the aggregate, in
a Material Adverse Effect, or (iii) is a


 


13

















 


party to any contract,
agreement or instrument relating to any Indebtedness, the performance of which,
in the judgment of the Company’s officers, has or is expected to have a
Material Adverse Effect.  Schedule 3.1(aa)
provides a detailed description of the material terms of any such outstanding
Indebtedness.  For purposes of this Agreement:  (x) “Indebtedness” of any Person means,
without duplication (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in the ordinary
course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments,
(D) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (E) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to any
property or assets acquired with the proceeds of such indebtedness (even though
the rights and remedies of the seller or bank under such agreement in the event
of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including accounts
and contract rights) owned by any Person, even though the Person which owns
such assets or property has not assumed or become liable for the payment of
such indebtedness, and (H) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses
(A) through (G) above; (y) “Contingent Obligation” means, as to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend or other obligation of
another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the
obligee of such liability that such liability will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the holders
of such liability will be protected (in whole or in part) against loss with
respect thereto; and (z) “Person” means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.


 


(bb)                          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 1933 Act) has notified the Company or
any such Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the Company or
any such Subsidiary.  To the knowledge of
the Company or any such Subsidiary, no executive officer of the Company or any
of its Subsidiaries is in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any such Subsidiary to any liability
with respect to any of the foregoing matters.


 


14

















 


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


 


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


 


(ee)                            Subsidiary Rights. 
Except as set forth in Schedule 3.1(ee), 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.


 


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


 


3.2                                 Representations and Warranties of the
Investors.  Each Investor hereby, as to itself only 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 the requisite
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 purchase by such Investor of the Securities
hereunder has been duly authorized by


 


15

















 


all necessary action on
the part of such Investor.  This
Agreement has been duly executed and delivered by such Investor and constitutes
the valid and binding obligation of such Investor, enforceable against it in
accordance with its terms, except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the enforcement of creditors rights generally, and
(ii) the effect of rules of law governing the availability of
specific performance and other equitable remedies.


 


(b)                                 No Public Sale or Distribution;
Investment Intent.  Such Investor is (i) acquiring the
Common Shares and the Warrants and (ii) upon exercise of the Warrants will
acquire the Warrant Shares issuable upon exercise thereof, in the ordinary
course of business for its own account and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, except
pursuant to sales registered under the Securities Act or under an exemption
from such registration and in compliance with applicable federal and state
securities laws, and such Investor does not have a present arrangement to
effect any distribution of the Securities to or through any person or entity; provided,
however, that by making the representations herein, such Investor does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the
Securities Act.


 


(c)                                  Investor Status. 
At the time such Investor was offered the Securities, it was, and at the
date hereof it is, an “accredited investor” as defined in
Rule 501(a) under the Securities 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 understands
that it must bear the economic risk of this investment in the Securities
indefinitely, and is able to bear such risk and is able to afford a complete
loss of such investment.


 


(e)                                  Access to Information. 
Such Investor acknowledges that it has reviewed the Disclosure Materials
and has been afforded: (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; (ii) access to
information (other than material non-public information) about the Company and
the Subsidiaries and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. 
Neither such inquiries nor any other investigation conducted by or on
behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor’s right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company’s representations and warranties
contained in the Transaction Documents.


 


16

















 


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


 


(g)                                 No Conflicts. 
The execution, delivery and performance by such Investor of this
Agreement and the consummation by such Investor of the transactions
contemplated hereby will not (i) result in a violation of the
organizational documents of such Investor or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or instrument
to which such Investor is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws) applicable to such Investor, except in the case of clauses
(ii) and (iii) above, for such that are not material and do not
otherwise affect the ability of such Investor to consummate the transactions
contemplated hereby.


 


(h)                                 Illegal Transactions. 
No Investor directly or indirectly, and no Person acting on behalf of or
pursuant to any understanding with such Investor, has engaged in any
transactions in the securities of the Company (including, without limitation,
any Short Sales involving any of the Company’s securities) since the time that
such Investor was first contacted by the Company, the Agent or any other Person
regarding an investment in the Company. 
Such Investor, individually, and on behalf of itself, covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding
with such Investor will engage, directly or indirectly, in any transactions in
the securities of the Company (including Short Sales) prior to thirty (30)
minutes after the first trade in the Company’s Common Stock on the AMEX after
the time that the transactions contemplated by this Agreement are publicly
disclosed.  Such Investor further
covenants that from and after the date of such disclosure, and for so long as
such Investor owns any Securities purchased hereunder, neither it nor any
Person acting on behalf of or pursuant to any understanding with such Investor
will engage in any Short Sales at a time when it has no equivalent offsetting
long position in shares of Common Stock. 
For purposes of determining whether or not such Investor has such an
equivalent offsetting long position, shares of Common Stock that such Investor
would otherwise be entitled to receive upon conversion or exercise of the
Company’s convertible securities (including the Warrant held by such Investor)
will be included as if held long by such Investor (regardless of any limitation
upon such conversion or exercise). For purposes hereof, “Short Sales” include, without limitation,
all “short sales” as defined in Rule 200 promulgated by the SEC under
Regulation SHO under the Exchange Act and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, short sales, swaps,
derivatives and similar arrangements (including on a total return basis) and
sales and other transactions through non-U.S. broker-dealers or foreign
regulated brokers.


 


(i)                                     No Legal, Tax or Investment Advice. 
Such Investor understands that nothing in this Agreement or any other
materials presented by or on behalf of the Company to the Investor in
connection with the purchase of the Securities constitutes legal, tax or investment
advice.  Such Investor has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed


 


17

















 


necessary or appropriate
in connection with its purchase of the Securities.  Such Investor understands that the Agent has
acted solely as the agent of the Company in this placement of the Securities,
and that the Agent makes no representation or warranty with regard to the
merits of this transaction or as to the accuracy of any information such
Investor may have received in connection therewith.  Such Investor acknowledges that he has not
relied on any information or advice furnished by or on behalf of the Agent.


 


(j)                                     Compensation of Placement Agent. 
Such Investor is aware that, with respect to the Common Shares being
sold by the Company, the Agent is receiving commissions equal to 6% cash and
warrants to acquire a number of shares equal to 2% of the Common Shares and the
Warrant Shares.


 


ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES


 


4.1                                 Transfer Restrictions.


 


(a)                                  The Investors covenant that the
Securities will only be disposed of pursuant to an effective registration
statement under, and in compliance with the requirements of, the Securities Act
or pursuant to an available exemption from the registration requirements of the
Securities Act, and in compliance with any applicable state securities
laws.  In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, or pursuant to Rule 144(k) except as otherwise set forth herein,
the Company requires the transferor to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act.  Notwithstanding the foregoing, the Company
hereby consents to and agrees to register on the books of the Company and with
its transfer agent, without any such legal opinion, except to the extent that
the transfer agent requests such legal opinion, any transfer of Securities by
an Investor to an Affiliate of such Investor, provided that the transferee
certifies to the Company that it is an “accredited investor” as defined in Rule 501(a) under
the Securities Act and provided that such Affiliate does not request any
removal of any existing legends on any certificate evidencing the Securities.


 


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


 


THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”),
OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED 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 COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS.


 


18

















 


Certificates
evidencing Securities shall contain such legend except: (i) after the
Registration Statement is effective; (ii) after the Securities have been
sold pursuant to a Registration Statement that is effective under the
Securities Act covering the resale of such Securities, (iii) following any
sale of such Securities pursuant to Rule 144 if the holder provides the
Company with a legal opinion providing reasonable assurances that the
Securities can be sold under Rule 144, (iv) if the holder provides
the Company with a legal opinion providing reasonable assurances that the
Securities are eligible for sale under Rule 144(k), or (v) if the
holder provides the Company with a legal opinion providing reasonable
assurances that the legend is not required under applicable requirements of the
Securities Act (including controlling judicial interpretations and
pronouncements issued by the Staff of the SEC). 
The Company shall cause its counsel to issue the legal opinion included
in the Transfer Agent Instructions to the Transfer Agent on the Effective
Date.  Following the Effective Date or at
such earlier time as a legend is no longer required for certain Securities, the
Company will not later than five Trading Days following the delivery by an
Investor to the Company or the Transfer Agent of a legended certificate
representing such Securities and an opinion of counsel to the extent required
by Section 4.1(a), deliver or cause to be delivered to such
Investor a certificate representing such Securities that is free from all
restrictive and other legends.  The
Company may not make any notation on its records or give instructions to the
Transfer Agent that enlarge the restrictions on transfer set forth in this
Section.


 


(c)                                  The Company will not object to and shall
permit (except as prohibited by law) an Investor to pledge or grant a security
interest in some or all of the Securities in connection with a bona fide margin
agreement or other loan or financing arrangement secured by the Securities, and
if required under the terms of such agreement, loan or arrangement, the Company
will not object to and shall permit (except as prohibited by law) such Investor
to transfer pledged or secured Securities to the pledgees or secured
parties.  Except as required by law, such
a pledge or transfer would not be subject to approval of the Company, no legal
opinion of the pledgee, secured party or pledgor shall be required in
connection therewith, and no notice shall be required of such pledge.  Each Investor acknowledges that the Company
shall not be responsible for any pledges relating to, or the grant of any
security interest in, any of the Securities or for any agreement, understanding
or arrangement between any Investor and its pledgee or secured party.  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 transfer of the Securities, including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities
Act or other applicable provision of the Securities Act to appropriately amend
the list of Selling Stockholders thereunder. Provided that the Company is in
compliance with the terms of this Section 4.1(c), the Company’s
indemnification obligations pursuant to Section 6.4 shall not extend to
any Proceeding or Losses arising out of or related to this Section 4.1(c).


 


19

















 


4.2                                 Furnishing of Information. 
As long as any Investor owns Securities, the Company covenants to use
its commercially reasonable efforts 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.  The Company further
covenants that it will take such further action as any holder of Securities may
reasonably request to satisfy the provisions of this Section 4.2.


 


4.3                                 Integration. 
The Company shall not, and shall use its commercially reasonably efforts
to ensure that no Affiliate thereof shall, 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.


 


4.4                                 Reservation of Securities. 
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 to issue such Shares under the
Transaction Documents.  In the event that
at any time the then authorized shares of Common Stock are insufficient for the
Company to satisfy its obligations to issue such Shares under the Transaction
Documents, the Company shall promptly take such actions as may be required to
increase the number of authorized shares.


 


4.5                                 Securities Laws Disclosure; Publicity. 
The Company shall, on or before 8:30 a.m., New York time, on the
first Trading Day following execution of this Agreement, issue a press release
disclosing all material terms of the transactions contemplated hereby.  No later than the Closing Date, the Company
shall file a Current Report on Form 8-K with the SEC (the “8-K Filing”) describing the terms of the
transactions contemplated by the Transaction Documents and including as
exhibits to such Current Report on Form 8-K this Agreement and the form of
Warrants, in the form required by the Exchange Act.  Thereafter, the Company shall timely file any
filings and notices required by the SEC or applicable law with respect to the
transactions contemplated hereby and provide copies thereof to the Investors
promptly after filing.  The Company shall
not publicly disclose the name of any Investor, or include the name of any
Investor in any press release without the prior written consent of such
Investor, unless otherwise required by law. 
The Company shall not, and shall cause each of its Subsidiaries and its
and each of their respective officers, directors, employees and agents not to,
provide any Investor with any material nonpublic information regarding the
Company or any of its Subsidiaries (i) from and after the issuance of the
above referenced press release; and (ii) during any suspension of trading
as described in Section 6.1(e) hereto, without the express
written consent of such Investor.


 


4.6                                 Use of Proceeds. 
The Company intends to use the net proceeds from the sale of the
Securities for general corporate purposes, including inventory purchases,
expansion of its distribution business to new products and new geographic
areas, and payments, from time-to-time, on its revolving bank line of
credit.  The Company also may use a
portion of the net proceeds, currently intended for general corporate purposes,
to acquire or invest in technologies, products or


 


20

















 


services that complement
its business, although the Company has no present plans or commitments and is
not currently engaged in any material negotiations with respect to these types
of transactions.  Pending these uses, the
Company intends to invest the net proceeds from this offering in short-term,
interest-bearing, investment-grade securities, or as otherwise pursuant to the
Company’s customary investment policies.


 


4.7                                 Management Lock-Up Agreements. 
The Company shall, on or before the Closing, enter into legally binding
and enforceable agreements (collectively, the “Lock-up
Agreements”) with its Chief Executive Officer, its Chief Financial
Officer, and its Executive Vice President, respectively, pursuant to which
these persons will agree not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate,
distribute or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of
any beneficial interest therein until the Effective Date without the prior
written consent of the Agent.


 


4.8.  Additional
Registrations.  The Company agrees
that it will not register the issuance or resale of any shares of Common Stock
or securities convertible into, exercisable or exchangeable for or evidencing
any right to purchase or subscribe for any shares of Common Stock, except for
the registration of the resale of the securities eligible to be covered by the
Prior Registration Statement (as more fully described in Section 6.6)
until 60 days following the Effective Date.


 


ARTICLE V

CONDITIONS


 


5.1                                 Conditions Precedent to the Obligations
of the Investors.  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:


 


(a)                                  Representations and Warranties. 
The representations and warranties of the Company contained herein shall
be true and correct in all material respects as of the date when made and as of
the Closing as though made on and as of such date; and


 


(b)                                 Performance. 
The Company and each other Investor shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing.


 


(c)                                  AMEX Approval. 
The Trading Market shall have approved the listing of the Securities.


 


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5.2                                 Conditions Precedent to the Obligations
of the Company.  The obligation of the Company to sell the
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:


 


(a)                                  Representations and Warranties. 
The representations and warranties of the Investors contained herein
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made on and as of such date; and


 


(b)                                 Performance. 
The Investors shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Investors at or prior to that respective Closing.


 


(c)                                  AMEX Approval. 
The Trading Market shall have approved the listing of the Securities.


 


(d)                                 Minimum Offering Amount.  The
Minimum Amount of the Securities has been sold.


 


ARTICLE VI

REGISTRATION RIGHTS


 


6.1                                 Registration Statement.


 


(a)                                  As promptly as possible, and in any event
on or prior to the Filing Date, the Company shall prepare and file with the SEC
a Registration Statement covering the resale of all Registrable Securities sold
at the Closing for an offering to be made on a continuous basis pursuant to
Rule 415.  The Registration
Statement shall be on Form S-3 (except if the Company is not then eligible
to register for resale the Registrable Securities on Form S-3, in which
case such registration shall be on another appropriate form in accordance with
the Securities Act and the Exchange Act) and shall contain (except if the
Investors state that such wording is inaccurate or if the SEC requests
otherwise) the “Plan of Distribution” attached hereto as Exhibit D.


 


(b)                                 The Company shall use its commercially
reasonable efforts to cause the Registration Statement to be declared effective
by the SEC as promptly as possible after the filing thereof, and shall use its
commercially reasonable efforts to keep the Registration Statement continuously
effective under the Securities Act until the earlier of the date that all
Registrable Securities covered by such Registration Statement have been sold or
can be sold publicly under Rule 144(k) (the “Effectiveness Period”).


 


(c)                                  The Company shall notify Investors
promptly (and in any event within two Trading Days) after receiving
notification from the SEC that the Registration Statement has been declared
effective.


 


22

















 


(d)                                 Should an Event (as defined below) occur,
then upon the occurrence of such Event, and on every monthly anniversary
thereof until the applicable Event is cured, as partial relief for the damages
suffered therefrom by the Investors (which remedy shall not be exclusive of any
other remedies available under this Agreement, at law or in equity), the
Company shall pay to each Investor an amount in cash, as liquidated damages and
not as a penalty, equal to one percent of (i) the number of Securities
held by such Investor as of the date of such Event, multiplied by (ii) the
purchase price paid by such Investor for such Securities then held.  The payments to which an Investor shall be
entitled pursuant to this Section 6.1(d) are referred to herein as
“Event Payments.”   Any Event Payments
payable pursuant to the terms hereof shall apply on a pro rated basis for any
portion of a month prior to the cure of an Event.  In the event the Company fails to make Event
Payments in a timely manner, such Event Payments shall bear interest at the
rate of 1.0% per month (prorated for partial months) until paid in full.  All pro rated calculations made pursuant to
this paragraph shall be based upon the actual number of days in such pro rated
month.


 


For such purposes, each of the following shall
constitute an “Event”:


 


(i)                                     the Registration Statement is not filed
on or prior to the Filing Date or is not declared effective on or prior to the
Required Effectiveness Date; provided, however, that for the purposes of the
Event Payment under this Section 6.1(d) only, the Company shall have
an additional 30 days to cure the failure to declare the Registration Statement
effective on or prior to the Required Effectiveness Date before such Event
Payment is due to the Investors under this Section 6.1(d);


 


(ii)                                  except (A) as provided for in Section 6.1(e),
(B) if the Company is involved in a “Rule 13e-3 transaction” as
defined in Rule 13e-3 under the Exchange Act, or (C) in the event of
a merger or consolidation of the Company or a sale of more than one-half of the
assets of the Company in one or a series of related transactions, unless
following such transaction or series of transactions, the holders of the
Company’s securities prior to the first such transaction continue to hold at
least 50% of the voting rights and equity interests of the surviving entity or
acquirer (clauses (B) and (C), collectively, the “Excluded Events”), after the Effective
Date, an Investor is not permitted to sell Registrable Securities under the
Registration Statement (or a subsequent Registration Statement filed in
replacement thereof) for any reason (other than the fault of such Investor) for
three or more consecutive Trading Days;


 


(iii)                               except as a result of the Excluded
Events, the Common Stock is not listed or quoted, or is suspended from trading,
on an Eligible Market for a period of three consecutive Trading Days during the
Effectiveness Period;


 


(iv)                              the Company fails for any reason to
deliver a certificate evidencing any Securities to an Investor within ten
Trading Days after delivery of such certificate is required pursuant to any
Transaction Document or the exercise rights of the Investors pursuant to the
Warrants are otherwise suspended for any reason;


 


23

















 


(v)                                 the Company fails to have available a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock available to issue Warrant Shares upon any exercise of the
Warrants within three Trading Days after becoming aware of such fact or, except
as a result of the Excluded Events, during the Effectiveness Period, any Shares
or Warrant Shares are not listed on an Eligible Market; or


 


(vi)                              the Company fails to submit to the SEC a
request for acceleration of the effectiveness of the Registration Statement
within three Trading Dates of the date that the SEC notifies the Company that,
in connection with the Registration Statement, the SEC will not undertake to
review, and/or provide comments on, the Registration Statement or any of the
Company’s periodic reports filed under the Securities Exchange Act of 1934 or
any other matters.


 


(e)                                  Notwithstanding anything in this
Agreement to the contrary, after 60 consecutive Trading Days of continuous
effectiveness of the initial Registration Statement filed and declared effective
pursuant to this Agreement, the Company may, by written notice to the
Investors, suspend sales under a Registration Statement after the Effective
Date thereof and/or require that the Investors immediately cease the sale of
shares of Common Stock pursuant thereto and/or defer the filing of any
subsequent Registration Statement if the Company is engaged in a material
merger, acquisition or sale and the Board of Directors determines in good
faith, by appropriate resolutions, that, as a result of such activity,
(A) it would be materially detrimental to the Company (other than as
relating solely to the price of the Common Stock) to maintain a Registration Statement at such time or
(B) it is in the best interests of the Company to suspend sales under such
registration at such time.  Upon receipt
of such notice, each Investor shall immediately discontinue any sales of
Registrable Securities pursuant to such registration until such Investor has
received copies of a supplemented or amended Prospectus or until such Investor
is advised in writing by the Company that the then-current Prospectus may be
used and has received copies of any additional or supplemental filings that are
incorporated or deemed incorporated by reference in such Prospectus.  In no event, however, shall this right be
exercised to suspend sales beyond the period during which (in the good faith
determination of the Company’s Board of Directors) the failure to require such
suspension would be materially detrimental to the Company.  The Company’s rights under this Section 6(e) may
be exercised for a period of no more than 20 days at a time and not more than
three times in any twelve-month period, without such suspension being
considered as part of an Event Payment determination.  Immediately after the end of any suspension
period under this Section 6(e), the Company shall take all
necessary actions (including filing any required supplemental prospectus) to
restore the effectiveness of the applicable Registration Statement and the
ability of the Investors to publicly resell their Registrable Securities
pursuant to such effective Registration Statement.


 


6.2                                 Registration Procedures. 
In connection with the Company’s registration obligations hereunder, the
Company shall:


 


(a)                                  Not less than three Trading Days prior to
the filing of a Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish to the
Investors copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Investors. 
The Company shall reflect in each such document when so filed with the
SEC such comments concerning the Investors as the Investors may reasonably and
promptly propose.


 


24

















 


(b)                                 (i) Subject to Section 6.1(d) prepare
and file with the SEC such amendments, including post-effective amendments, to
each Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep each Registration Statement continuously effective, as
to the applicable Registrable Securities for the Effectiveness Period and
prepare and file with the SEC such additional Registration Statements in order
to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly
as reasonably possible, to any comments received from the SEC with respect to
the Registration Statement or any amendment thereto; and (iv) comply in
all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Investors thereof
set forth in the Registration Statement as so amended or in such Prospectus as
so supplemented.


 


(c)                                  To the extent the notification does not
include material non-public information or would not otherwise result in a
violation of Regulation FD, notify each Investor as promptly as reasonably
possible, and (if requested by that Investor confirm such notice in writing no
later than two Trading Days thereafter, of any of the following events:
(i) the SEC notifies the Company whether there will be a “review” of any
Registration Statement; (ii) the SEC comments in writing on any
Registration Statement; (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the SEC or any other
Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information
related thereto; (v) the SEC issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for
such purpose; or (vii) the financial statements included in any
Registration Statement become ineligible for inclusion therein or any
Registration Statement or Prospectus or other document contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.


 


(d)                                 Use its reasonable best efforts to avoid
the issuance of or, if issued, obtain the withdrawal of (i) any order
suspending the effectiveness of any Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, as soon as possible.


 


(e)                                  If requested by an Investor, provide such
Investor at least one conformed copy of each Registration Statement and each
amendment thereto, including financial statements and schedules, and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the SEC, at the sole expense of the Investor.


 


25

















 


(f)                                    Promptly deliver to each Investor as many
copies of the Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may reasonably request
at the sole expense of the respective Investor. The Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Investors in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto to the extent permitted by federal and state securities laws
and regulations.


 


(g)                                 (i) In the time and manner required
by each Trading Market, prepare and file with such Trading Market an additional
shares listing application covering all of the Registrable Securities;
(ii) take all steps necessary to cause such Registrable Securities to be
approved for listing on each Trading Market as soon as possible thereafter;
(iii) provide to each Investor evidence of such listing; and
(iv) except as a result of the Excluded Events, during the Effectiveness Period,
maintain the listing of such Registrable Securities on each such Trading Market
or another Eligible Market.


 


(h)                                 Prior to any public offering of
Registrable Securities, use its reasonable best efforts to register or qualify
or cooperate with the selling Investors in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Investor requests in
writing, to keep each such registration or qualification (or exemption
therefrom) effective for so long as required, but not to exceed the duration of
the Effectiveness Period, and to do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be obligated to file any general consent to service
of process or to qualify as a foreign corporation or as a dealer in securities
in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject.


 


(i)                                     Cooperate with the Investors to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by this Agreement and under law, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered
in such names as any such Investors may reasonably request.


 


(j)                                     Upon the occurrence of any event
described in Section 6.2(c)(vii), as promptly as reasonably
possible, prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.


 


26

















 


(k)                                  Cooperate with any reasonable due
diligence investigation undertaken by the Investors in connection with the sale
of Registrable Securities, including, without limitation, by making available
documents and information; provided that the Company will not deliver or make
available to any Investor material, nonpublic information unless such Investor
specifically requests in advance to receive material, nonpublic information in
writing.


 


(l)                                     Comply with all rules and
regulations of the SEC applicable to the registration of the Securities.


 


6.3                                 Registration Expenses. 
The Company shall pay all fees and expenses incident to the performance
of or compliance with Article VI of this Agreement by the Company,
including without limitation (a) all registration and filing fees and
expenses, including without limitation those related to filings with the SEC,
of any Trading Market and in connection with applicable state securities or
Blue Sky laws, (b) printing expenses (including without limitation
expenses of printing certificates for Registrable Securities) except as limited
by Section 6.2(e), (c) messenger, telephone and delivery expenses,
(d) fees and disbursements of counsel for the Company, (e) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, and (f) all
listing fees to be paid by the Company to the Trading Market.


 


6.4                                 Indemnification


 


(a)                                  Indemnification by the Company. 
The Company shall, notwithstanding any termination of this Agreement,
indemnify and hold harmless each Investor, the officers, directors, partners,
members, agents and employees of each of them, each Person who controls any
such Investor (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all Losses, as
incurred, arising out of or relating to (i) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (ii) any breach of any covenant, agreement or obligation of
the Company contained in the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (iii) any cause of action,
suit or claim brought or made against such Indemnified Party (as defined in
Section 6.4(c) below) by a third party (including for these purposes
a derivative action brought on behalf of the Company), arising out of or
resulting from (x) execution, delivery, performance or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (y) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Securities, or (z) the status of Indemnified Party as holder of the
Securities or (iv) any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus or any form of
Company prospectus or in any amendment or supplement thereto or in any Company
preliminary prospectus, or arising out of or relating to any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in the light of the


 


27

















 


circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that (A) such untrue statements, alleged untrue statements, omissions or
alleged omissions are based upon information regarding such Investor furnished
in writing to the Company by such Investor for use therein, or to the extent
that such information relates to such Investor or such Investor’s proposed
method of distribution of Registrable Securities, or (B) in the case of an
occurrence of an event of the type specified in Section 6.2(c)(v)-(vii),
the use by such Investor of an outdated or defective Prospectus after the
Company has notified such Investor in writing that the Prospectus is outdated
or defective and prior to the receipt by such Investor of the Advice
contemplated in Section 6.5.


 


(b)                                 Indemnification by Investors. 
Each Investor shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses arising
out of any untrue statement of a material fact contained in the Registration
Statement, any Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising out of or relating to any omission of a material
fact required to be stated therein or necessary to make the statements therein
(in the case of any Prospectus or form of prospectus or supplement thereto, in
the light of the circumstances under which they were made) not misleading, but
only to the extent that such untrue statement or omission is contained in any
information so furnished by such Investor to the Company specifically for
inclusion in such Registration Statement or such Prospectus or to the extent
that (i) such untrue statements or omissions are based upon information
regarding such Investor furnished to the Company by such Investor expressly for
use therein, or to the extent that such information relates to such Investor or
such Investor’s proposed method of distribution of Registrable Securities and
was reviewed and expressly approved by such Investor expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an
event of the type specified in Section 6.2(c)(v)-(vii), the use by
such Investor of an outdated or defective Prospectus after the Company has
notified such Investor in writing that the Prospectus is outdated or defective
and prior to the receipt by such Investor of the Advice contemplated in Section 6.5.  In no event shall the liability of any selling
Investor hereunder be greater in amount than the dollar amount of the net
proceeds received by such Investor upon the sale of the Registrable Securities
giving rise to such indemnification obligation.


 


(c)                                  Conduct of Indemnification Proceedings. 
If any Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an “Indemnified
Party”), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.


 


28

















 


An Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: 
(i) the Indemnifying Party has agreed in writing to pay such fees
and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or
(iii) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and the Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  It being understood, however, that the
Indemnifying Party shall not, in connection with any one such Proceeding be
liable for the fees and expenses of more than one separate firm of attorneys at
any time for all Indemnified Parties, which firm shall be appointed by a
majority of the Indemnified Parties.  The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld.  No Indemnifying
Party shall, without the prior written consent of the Indemnified Party, effect
any settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.


 


All reasonable fees and expenses of the Indemnified
Party (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such Proceeding in a
manner not inconsistent with this Section) shall be paid to the Indemnified
Party, as incurred, within 20 Trading Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent that such Indemnified Party
is not entitled to indemnification hereunder).


 


(d)                                 Contribution. 
If a claim for indemnification under Section 6.4(a) or
(b), or is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such


 


29

















 


Indemnifying Party or
Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by
a party as a result of any Losses shall be deemed to include, subject to the
limitations set forth in Section 6.4(c), any reasonable attorneys’
or other reasonable fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms.


 


The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6.4(d) were
determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
immediately preceding paragraph. 
Notwithstanding the provisions of this Section 6.4(d), no
Investor shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Investor
from the sale of the Registrable Securities subject to the Proceeding exceeds
the amount of any damages that such Investor has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.


 


The indemnity and contribution agreements contained
in this Section are in addition to any liability that the Indemnifying
Parties may have to the Indemnified Parties.


 


6.5                                 Dispositions. 
Each Investor agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.  Each Investor further agrees that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Sections 6.2(c)(v), (vi) or (vii), such
Investor will discontinue disposition of such Registrable Securities under the
Registration Statement until such Investor’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by Section 6.2(j),
or until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus may be resumed, and,
in either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such Prospectus
or Registration Statement.  The Company
may provide appropriate stop orders to enforce the provisions of this
paragraph.


 


6.6                                 No Piggyback on Registrations. 
Neither the Company nor any of its security holders (other than the
Investors in such capacity pursuant hereto) may, without the prior consent of
the Lead Investor, include securities of the Company in the Registration
Statement other than the Registrable Securities, and the Company shall not
after the date hereof enter into any agreement providing any right inconsistent
with this paragraph to any of its security holders.  Notwithstanding the foregoing, on or before
February 3, 2006, the Company is obligated to file a registration
statement (the “Prior Registration Statement”) covering the resale of shares of
common stock underlying warrants issued to underwriters of its initial public
offering.  There are 100,000 shares
eligible for this registration statement, and it currently appears that between
45,000 and 70,000 of


 


30

















 


these shares will
participate.  Investors hereby consent to
the Prior Registration Statement and agree that the Company may, in its sole
discretion, include all or part of the Registrable Securities in the Prior Registration
Statement.  To the extent only part are
included, it will be done prorata among the Investors in proportion to the
number of Registrable Securities held by each Investor.


 


6.7                                 Piggy-Back Registrations. 
If at any time during the Effectiveness Period there is not an effective
Registration Statement covering all of the Registrable Securities and the
Company shall determine to prepare and file with the SEC a registration
statement relating to an offering for its own account or the account of others
under the Securities Act of any of its equity securities, other than on
Form S-4 or Form S-8 (each as promulgated under the Securities Act)
or their then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity securities
issuable in connection with stock option or other employee benefit plans, then
the Company shall send to each Investor written notice of such determination
and if, within ten days after receipt of such notice, any such Investor shall
so request in writing, the Company shall include in such registration statement
all or any part of such Registrable Securities such Investor requests to be
registered.  Notwithstanding the
foregoing, in the event that, in connection with any underwritten public
offering, the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)’ judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then
the Company shall be obligated to include in such Registration Statement only
such limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder as the underwriter shall permit; provided, however,
that (i) the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders of which
are not contractually entitled to inclusion of such securities in such
Registration Statement or are not contractually entitled to pro rata inclusion
with the Registrable Securities and (ii) after giving effect to the
immediately preceding proviso, any such exclusion of Registrable Securities shall
be made pro rata among the Investors seeking to include Registrable Securities
and the holders of other securities having the contractual right to inclusion
of their securities in such Registration Statement by reason of demand
registration rights, in proportion to the number of Registrable Securities or
other securities, as applicable, sought to be included by each such Investor or
other holder.


 


ARTICLE VII

MISCELLANEOUS


 


7.1                                 Termination. 
This Agreement may be terminated by the Company or any Investor, by
written notice to the other parties, if the Closing has not been consummated by
the third Business Day following the date of this Agreement; provided that no
such termination will affect the right of any party to sue for any breach by
the other party (or parties).


 


7.2                                 Fees and Expenses. 
Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation,


 


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preparation, execution,
delivery and performance of this Agreement. 
The Company shall pay all Transfer Agent fees, stamp taxes and other
taxes and duties levied in connection with the sale and issuance of their
applicable Securities.


 


7.3                                 Entire Agreement. 
The Transaction Documents, together with the Exhibits and Schedules
thereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.  At or after the Closing, and without further
consideration, the Company will execute and deliver to the Investors such
further documents as may be reasonably requested in order to give practical
effect to the intention of the parties under the Transaction Documents.


 


7.4                                 Notices.  Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section prior to 6:30 p.m. (New York City time) on a Trading
Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than
6:30 p.m. (New York City time) on any Trading Day, (c) the Trading
Day following the date of deposit with a nationally recognized overnight
courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given.  The
addresses and facsimile numbers for such notices and communications are those
set forth on the signature pages hereof, or such other address or
facsimile number as may be designated in writing hereafter, in the same manner,
by any such Person.


 


7.5                                 Amendments; Waivers. 
No provision of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and
Investors that acquired at least 70% of the total Common Shares acquired or, in
the case of a waiver, by the party against whom enforcement of any such waiver
is sought.  No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of either party to exercise any right hereunder
in any manner impair the exercise of any such right.  Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Investors under Article VI may
be given by Investors holding at least a majority of the Registrable Securities
to which such waiver or consent relates.


 


7.6                                 Construction. 
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.


 


7.7                                 Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.  The Company may not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Investors.


 


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Any Investor may assign
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.” 
Notwithstanding anything to the contrary herein, Securities may be
assigned to any Person in connection with a bona fide margin account or other
loan or financing arrangement secured by such Securities.


 


7.8                                 No Third-Party Beneficiaries. 
This Agreement is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person, except that
each Indemnified Party is an intended third party beneficiary of Section 6.4
and (in each case) may enforce the provisions of such Sections directly against
the parties with obligations thereunder.


 


7.9                                 Governing Law; Venue; Waiver of Jury
Trial.  THE CORPORATE LAWS OF THE STATE OF MARYLAND
SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS.  ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.  THE COMPANY AND
INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTIONS OF THE
STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, NEW YORK, AND THE
CITY OF SAN DIEGO, CALIFORNIA, RESPECTIVELY, FOR THE ADJUDICATION OF ANY
DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT
IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH
SUIT, ACTION OR PROCEEDING IS IMPROPER. 
EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF 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.  THE COMPANY AND INVESTORS HEREBY
WAIVE ALL RIGHTS TO A TRIAL BY JURY.


 


7.10                           Survival.  The
representations and warranties, agreements and covenants contained herein shall
survive the Closing.


 


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


 


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


 


7.13                           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 owed to such Investor by
the Company under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then,
prior to the performance by the Company of the Company’s related obligation,
such Investor may rescind or withdraw, in its sole discretion from time to time
upon written notice to such Seller, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights.


 


7.14                           Replacement of Securities. 
If any certificate or instrument evidencing any Securities is mutilated,
lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt
of evidence reasonably satisfactory to the Company of such loss, theft or
destruction and the execution by the holder thereof of a customary lost
certificate affidavit of that fact and an agreement to indemnify and hold
harmless the Company for any losses in connection therewith.  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.


 


7.15                           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 seek 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 (other than in
connection with any action for temporary restraining order) the defense that a
remedy at law would be adequate.


 


7.16                           Payment Set Aside. 
To the extent that the Company makes a payment or payments to any
Investor hereunder or any Investor enforces or exercises its rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, 


 


34

















 


disgorged by or are
required to be refunded, repaid or otherwise restored to the Company by 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.


 


7.17                           Adjustments in Share Numbers and Prices. 
In the event of any stock split, subdivision, dividend or distribution
payable in shares of Common Stock (or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly shares
of Common Stock), combination or other similar recapitalization or event
occurring after the date hereof, each reference in any Transaction Document to
a number of shares or a price per share shall be amended to appropriately
account for such event.


 


7.18                           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 this Agreement has been made
by such Investor independently of any other Investor and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or of the Subsidiary which
may have been made or given by any other Investor or by any agent or employee
of any other Investor, and no Investor or any of its agents or employees shall
have any liability to any other Investor (or any other person) relating to or
arising from any such information, materials, statements or opinions.  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 Document.  Each Investor acknowledges that no other
Investor has acted as agent for such Investor in connection with making its
investment hereunder and that no other Investor will be acting as agent of such
Investor in connection with monitoring its investment hereunder.  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 necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose.


 


[SIGNATURE PAGES TO FOLLOW]


 


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


 


 


	
   

  	
  INFOSONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: Joseph Ram

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
  5880 Pacific Center Blvd.

  
	
   

  	
  San Diego, CA 92121

  
	
   

  	
   

  
	
   

  	
  Facsimile No.: (858) 373-1503

  
	
   

  	
  Telephone No.: (858) 373-1600

  
	
   

  	
  Attn: Jeff Klausner, CFO

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Alan Talesnick, Esq.

  
	
   

  	
  Patton Boggs, LLP

  
	
   

  	
  1660 Lincoln Street, Suite 1900

  
	
   

  	
  Denver, CO 80264

  
	
   

  	
  Fax: (303) 894-9239

  



 

















 


Investor Signature Page


 


By its execution and delivery of this Investor
Signature Page, the undersigned Investor hereby joins in and agrees to be bound
by the terms and conditions of the Securities Purchase Agreement dated as of
January 30, 2006 (the “Purchase Agreement”) by and among InfoSonics
Corporation and the Investors (as defined therein), including the number of
shares of Common Stock and Warrants set forth below, and authorizes this
signature page to be attached to the Purchase Agreement or counterparts
thereof.


 


 


	
   

  	
  Name of Investor:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Telephone No.:

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile No.:

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of Shares:

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of Warrants:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Aggregate Purchase Price: $