EX-10.11



 





Exhibit 10.11




SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”) is dated as of February 28, 2007 among
PICO Holdings, Inc., a California corporation (the “Company”), and the purchasers identified on the
signature pages hereto (each, a “Purchaser” and collectively, the “Purchasers”).



     WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires
to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to
purchase from the Company, securities of the Company as more fully described in this Agreement.



     WHEREAS, the Company expects to enter into Securities Purchase Agreements which are
substantially identical to this Agreement (this Agreement, together with such Agreements, the
“Investment Agreements” and each an “Investment Agreement”) with other purchasers (the “Other
Purchasers” and together with the Purchaser, the “Participating Purchasers”) and pursuant to such
Investment Agreements the Company expects to sell an aggregate of 2,823,000 shares of its Common
Stock for an aggregate purchase price of $ 104,451,000.00.



     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and each Purchaser, severally and not jointly, agrees 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.




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




     “Benefit Plans” means (i) all “employee pension benefit plans,” as defined in Section
3(2) of ERISA, established, maintained, or contributed to by the Company or its Subsidiaries
for the benefit of any employees or agents of the Company or its Subsidiaries; (ii) all
“employee welfare benefit plans,” as defined in Section 3(1) of ERISA, established,
maintained, or contributed to by the Company or its Subsidiaries for the benefit of any
employees or agents of the Company or its Subsidiaries; and (iii) to the knowledge of the
Company, all other material incentive, employment, supplemental retirement, severance,
deferred compensation and other employee benefit plans, programs, agreements and
arrangements established, maintained, or contributed to by the Company or its Subsidiaries
for the benefit of any employees or agents of the Company or its Subsidiaries, without
regard to the coverage of any such plan, program, agreement or arrangement by ERISA or any
provision of the Code.




     “Board” means the board of directors of the Company.




     “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 Shares pursuant to
Section 2.1.



     “Closing Date” means the date of the Closing.



     “Code” means the Internal Revenue Code of 1986, as amended.



     “Commission” means the Securities and Exchange Commission.



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



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



     “Convertible Securities” means any stock or securities (other than Options) convertible
into or exercisable or exchangeable for Common Stock.



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



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



     “Eligible Market” means any of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital
Market.



     “Environmental Law” has the meaning set forth in Section 3.1(ee)



     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.



     “Event” has the meaning set forth in Section 6.1(d)(i)  through
(iii).



     “Event Payments” has the meaning set forth in Section 6.1(d).



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



     “Filing Date” means the date that is 30 days after the Closing Date, with respect to
the initial Registration Statement required to be filed hereunder, and, with respect to any
additional Registration Statements that may be required pursuant to Section 6.1, the
30th day following the date on which the Company first knows, or reasonably should have
known, that such additional Registration Statement is required under such Section.



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



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



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



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



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



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



     “Losses” means any and all losses, claims, damages, liabilities, settlement costs and
expenses, including, without limitation, costs of preparation 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).



     “NASD” has the meaning set forth in Section 3.1(i).



     “Options” means any rights, warrants or options to subscribe for or purchase Common
Stock or Convertible Securities.



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



     “Press Release” has the meaning set forth in section 4.6.



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



     “Prohibited Transaction” has the meaning set forth in 3.2(h)



     “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, or by any free writing prospectus as defined under Rule 405 of the Securities
Act 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.



     “Purchaser” or “Purchasers” has the meaning set forth in the preamble.



     “Purchaser Counsel” has the meaning set forth in Section 6.2(a).



     “Registrable Securities” means any Common Stock (including the 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.



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     “Regulatory Order” has the meaning set forth in Section 3.1(i).



     “Related Person” has the meaning set forth in Section 4.7.



     “Required Effectiveness Date” means 90 days from the Closing Date (120 days if the
registration statement is reviewed by the SEC), but in any event not later than five
business days after the date the SEC notifies the Company that it will not review a
Registration Statement, unless the parties hereto agree otherwise.



     “Rule 144,” “Rule 415,” and “Rule 424” means Rule 144, Rule 415 and Rule 424,
respectively, promulgated by the Commission 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
Commission having substantially the same effect as such Rule.



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



     “Securities” means the Shares.



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



     “Self-Regulatory Organization” has the meaning set forth in Section 3.1(i).



     “Shares” means an aggregate of 2,823,000 shares of Common Stock, which are being issued
and sold to the Purchasers at the Closing.



     “Subsidiary” means any person in which the Company directly or indirectly owns at least
20% of the capital stock or holds an equity or similar interest.



     “Taxes” means any federal, state, county, local, or foreign taxes, charges, fees,
levies, imposts, duties, or other assessments, including income, gross receipts, excise,
employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation,
windfall profits, environmental, federal highway use, commercial rent, customs duties,
capital stock, paid-up capital, profits, withholding, Social Security, single business and
unemployment, disability, real property, personal property, registration, ad valorem, value
added, alternative or add-on minimum, estimated, or other tax or governmental fee of any
kind whatsoever, imposes or required to be withheld by the United States or any state,
county, local or foreign government or subdivision or agency thereof, including any
interest, penalties, and additions imposed thereon or with respect thereto.



     “Tax Return” means any report, return, information return, or other information
required to be supplied to a governmental authority in connection with Taxes, including any
return of an affiliated or combined or unitary group that includes the Company and any
amendments thereof.



     “Trading Market” means the NASDAQ Global Market 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 and any other documents or agreements
executed in connection with the transactions contemplated hereunder.





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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 issue and sell to each Purchaser, and each Purchaser shall, severally and
not jointly, purchase from the Company, such number of Shares, each as indicated below such
Purchaser’s name on the signature page of this Agreement, for an aggregate purchase price for such
Purchaser as indicated below such Purchaser’s name on the signature page of this Agreement. The
Closing shall take place at such location and time as the parties may agree.



     2.2 Closing Deliverables.



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





     (i) stock certificates, free and clear of all Liens and restrictive legends and
other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing such number of Shares equal to the number of Shares indicated below such
Purchaser’s name on the signature page of this Agreement, registered in the name of
such Purchaser; for greater clarity, the Company hereby acknowledges that the stock
certificates described above shall be delivered prior to payment of the purchase
price by such Purchaser; provided, however, that for the period commencing upon such
delivery and ending upon the Company having received satisfactory evidence that the
purchase price has been paid, the Custodian shall hold the Share certificates in
escrow; and provided, further, that if Purchaser does not pay the purchase price
within one (1) Business Day after the Company has delivered such certificates, then
the Purchaser shall cause the Custodian to release same from escrow and return them
to the Company, duly endorsed in blank or accompanied by stock transfer powers,
immediately without demand therefore




     (ii) a legal opinion of DLA Piper US LLP, counsel to the Company, in the form
of Exhibit A, executed by such counsel; and




     (iii) the certificates contemplated by sections 5.1(g) and 5.1(h),



     2.3 At the Closing, each Purchaser shall deliver or cause to be delivered to the Company the
purchase price indicated below such Purchaser’s name on the signature page of this Agreement, in
United States dollars and in immediately available funds, by wire transfer to an account designated
in writing to such Purchaser by the Company for such purpose.



ARTICLE III

REPRESENTATIONS AND WARRANTIES




     3.1 Representations and Warranties of the Company. The Company hereby represents and
warrants to each of the Purchasers as follows:



          (a) Subsidiaries. Other than as set forth in the SEC Reports (as defined in
Section 3.1(g)) the Company has no material Subsidiaries.




          (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 power and authority to own
and use its properties and assets and to carry on its business as currently conducted. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its respective certificate
or articles of incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to do business and is in good standing as a foreign
corporation or other entity in each




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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, would not, individually or in the aggregate, (i) adversely affect the legality,
validity or enforceability of any Transaction Document, (ii) have or result in a material adverse
effect on the results of operations, assets, business or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole on a consolidated basis, or (iii) adversely impair
the Company’s ability to perform fully on a timely basis its obligations under any of the
Transaction Documents (any of (i), (ii) or (iii), a “Material Adverse Effect”).




          (c) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all necessary action on
the part of the Company, its officers, Board and stockholders and no further consent or action is
required by the Company, its officers, Board or its stockholders. Each of the Transaction
Documents 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 legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its terms, except (i)
as may be limited by (1) applicable bankruptcy, insolvency, reorganization or others laws of
general application relating to or affecting the enforcement of creditors’ rights generally and (2)
the effect of rules of law governing the availability of equitable remedies and (ii) as rights to
indemnity or contribution may be limited under federal or state securities laws or by principles of
public policy thereunder.




          (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents 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
material agreement, credit facility, debt or other instrument (whether evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any of its
Subsidiaries is a party or by which any property or asset of the Company or any of its Subsidiaries
is bound or affected 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 the principal market, system or exchange on which the Common Stock is
traded, quoted or listed), or by which any property or asset of the Company or a Subsidiary is
bound or affected.




          (e) Issuance of the Securities. The Securities 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 shall not be subject to preemptive rights
or similar rights of stockholders.




          (f) Capitalization. The number of shares and type of all authorized, issued and
outstanding 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 as
set forth in the SEC Reports (as defined in Section 3.1(g) below). 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, and none of such issuances were, and the
issuance of the Securities will not be, made in violation of any preemptive rights or other rights.
Except for issuances pursuant to plans or




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programs described in the SEC Reports, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or exchangeable for, or giving
any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any Subsidiary is or may become
bound to issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. 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 issue and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the Purchasers) and will not
result in a right of any holder of Company securities to adjust the exercise, conversion, exchange
or reset price under such securities. To the knowledge of the Company and except as specifically
disclosed in the SEC Reports or in any Schedule 13D or Schedule 13G filed with the Commission, 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. The Shares, when issued, will conform in all material respects to the description of the
Company’s Common Stock contained in the Company’s SEC Reports and other filings with the
Commission.




          (g) SEC Reports; Financial Statements. 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 two years preceding the date hereof (or such shorter period as the Company was required by law
to file such material) (the foregoing materials (together with any materials filed by the Company
under the Exchange Act, whether or not required, within the two years preceding the date hereof)
being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in all material
respects with the applicable requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes thereto, and fairly
present in all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments. 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, and which are required
to be filed by the rules and regulations of the Commission are included as part of or specifically
identified in the SEC Reports.




          (h) Material Changes. Since September 30, 2006, (i) there has been no event,
occurrence or development that, individually or in the aggregate, has had or that would result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of
business and (B) liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company
has not altered its




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method of accounting or the identity of its auditors, except as disclosed in
its SEC Reports or as required by changes in GAAP, (iv) the Company has not declared or made any dividend or distribution of
cash or other property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock (other than pursuant to written agreements with
employees to repurchase stock upon the termination of such employee’s employment) and (v) the
Company has not issued any equity securities to any officer, director or Affiliate, except pursuant
to existing Company stock-based plans or as disclosed in the SEC Reports.




          (i) Absence of Litigation. Except as set forth in the SEC Reports, (A) there are no
actions, suits, claims, proceedings, inquiries or investigations 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 or any of their
respective assets that could (i) adversely affect or challenge the legality, validity or
enforceability of any of the Transaction Documents, individually or in the aggregate, (ii) have a
Material Adverse Effect or (iii) if adversely decided, would have a Material Adverse Effect on, or
delay the issuance of, the Securities or the consummation of the transactions contemplated by the
Agreement, (B) no action, suit, proceeding, claim, investigation or inquiry by the Company or any
Subsidiary is currently pending nor does the Company intend to initiate any action, suit,
proceeding, claim, investigation or inquiry, in each case, that if resolved in a manner adverse to
the Company, would have a Material Adverse Effect, (C) neither the Company nor any Subsidiary (i)
is subject to any order, decree, agreement, memorandum of understanding or similar arrangement
with, or commitment letter or similar submission to, or (ii) has received any extraordinary
supervisory letter from, or adopted any board resolutions at the request of, any Self-Regulatory
Organization or governmental entity charged with the supervision or regulation of broker-dealers or
the supervision or regulation of its business (each such item referred to in clauses “(i)” and
“(ii)” of this Section 3.1(i), a “Regulatory Order”), including any such Regulatory Order
that restricts materially the conduct of the business of the Company or any Subsidiary, or in any
manner relates to the capital adequacy, credit policies or management of the Company or any
Subsidiary, and (D) neither the Company nor any Subsidiary has received written notice from any
governmental entity or Self-Regulatory Organization that such organization or authority is
contemplating issuing or requesting any such Regulatory Order. For purposes of this Agreement, the
term “Self-Regulatory Organization” shall mean the National Association of Securities Dealers, Inc.
(or any successor entity thereto) (“NASD”), the American Stock Exchange, the National Futures
Association, the Chicago Board of Trade, the New York Stock Exchange, any national securities
exchange (as defined in the Exchange Act), any other securities exchange, futures exchange,
contract market, commodities market, any other such exchange, clearinghouse or corporation or other
similar federal, state or foreign self-regulatory body or organization.




          (j) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in violation of any order of any
court, arbitrator or governmental body or (iii) to the Company’s knowledge, is in violation of any
statute, rule or regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental protection, occupational
health and safety, product quality and safety and employment and labor matters, except in each case
as would not, individually or in the aggregate, have or result in a Material Adverse Effect. None
of the Company or any Subsidiary is in default under, or in violation of any of the listing or
quotation requirements of the NASDAQ Global Market (or of any other Eligible Market on which the
Common Stock is currently traded, listed or quoted) as in effect on the date hereof, and the
Company is not aware of any facts which could reasonably lead to de-listing or suspension of




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trading in the Common Stock by the NASDAQ Global Market (or any other Eligible Market on which the
Common Stock is then traded, listed or quoted) in the foreseeable future.




          (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 good and marketable title in all personal property owned by them that is material to the
business of the Company, in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable
leases of which the Company and the Subsidiaries are in compliance.




          (l) Private Placement. Neither the Company nor any Person acting on the Company’s
behalf has sold or offered to sell or solicited any offer to buy the Securities by means of any
form of general solicitation or advertising. 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 Regulation D under the Securities Act in connection with the offer and sale 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 shareholder approval provisions, including, without limitation, under the rules and
regulations of any Trading Market. The Company is not a United States real property holding
corporation within the meaning of the Foreign Investment in Real Property Tax Act of 1980. Assuming
the accuracy of the representations and warranties of the Purchasers contained in this Agreement,
the sale and issuance of the Shares pursuant to this Agreement are exempt from the registration
requirements of the Securities Act, and neither the Company nor any authorized representative
acting on its behalf has taken or will take any action hereafter that would cause the loss of such
exemption.




          (m) Form S-3 Eligibility. The Company is eligible to register its Common Stock for
resale by the Purchasers using Form S-3 promulgated under the Securities Act.




          (n) Listing and Maintenance Requirements. The Company has not, in the two years
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, and has no
reason to believe that it will not in the foreseeable future continue to be, in compliance with all
such listing and maintenance requirements. The approval of the Company’s stockholders is not
required under the listing or maintenance requirements of the NASDAQ Global Market or any Trading
Market for the consummation of the transactions contemplated herein. The Shares will be issued in
compliance with all applicable rules of the NASDAQ Global Market. The Company has submitted to the
NASDAQ Global Market a Notification Form; Listing of Additional Shares with respect to the Shares.
The Company’s currently outstanding Common Stock is quoted on the NASDAQ Global Market.




          (o) Registration Rights. 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 Commission or any other governmental authority that have not been satisfied.
No Person, including current or former stockholders of the Company, underwriters, brokers or
agents, has any right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction Documents or to require
that the Company include any such securities in the registration of Securities as contemplated
herein.




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          (p) Application of Takeover Protections. 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 Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under the Transaction
Documents, including, without limitation, as a result of the Company’s issuance of the Securities
and the Purchasers’ ownership of the Securities.




          (q) Disclosure. The Company confirms that it has not provided to the Purchasers any
material non-public information other than information related to the transactions contemplated by
the Transaction Documents and as requested by a Purchaser. The Company understands and confirms
that each of the Purchasers will rely on the foregoing representations in effecting the
transactions in securities of the Company. All disclosure provided to the Purchasers regarding the
Company, its business and the transactions contemplated hereby, including the Schedules to this
Agreement, furnished by or on behalf of the Company are true and correct and do not contain any
untrue statement of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they were made, not
misleading. 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, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires public disclosure
or announcement by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Purchaser makes or has made (i) any representations or
warranties with respect to the transactions contemplated hereby other than those specifically set
forth in Section 3.2 or (ii) any statement, commitment or promise to the Company or, to its
knowledge, any of its representatives which is or was an inducement to the Company to enter into
this Agreement or otherwise.




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




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




          (t) Investment Company. The Company has been advised of the rules and requirements
under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The Company
is not, and immediately after receipt of payment for the Securities will not be, an “investment
company” within the meaning of the Investment Company Act.




          (u) Employee Benefits. Each of the Benefit Plans has been administered in accordance
with its terms and any federal, state or local statute, law, ordinance, regulation, order, writ,
injunction, directive, judgment or decree applicable to the Company, the Subsidiaries, or any of
their respective properties, or assets, as the case may be (including, where applicable, ERISA and
the Code),




10









 




except where the failure to so administer such Benefit Plan would not have a Material
Adverse Effect. Each of the Benefit Plans intended to be “qualified” within the meaning of section
401(a) of the Code has been determined by the United States Internal Revenue Service to be so qualified, except where
the failure to so qualify such Benefit Plan would not have a Material Adverse Effect.




          (v) Taxes. (i) The Company has filed (or joined in the filing of) when due all Tax
Returns required by applicable law to be filed with respect to the Company and all Taxes shown to
be due on such Tax Returns have been paid; (ii) all such Tax Returns were true, correct and
complete in all material respects as of the time of such filing; or (iii) any liability of the
Company for Taxes not yet due and payable, or which are being contested in good faith, in each case
as of December 31, 2005, has been accrued or reserved for on the financial statements of the
Company in accordance with GAAP, in each case except in the case that any such failure to file or
pay Taxes would not result in a Material Adverse Effect.




          (w) Customer Complaints. Neither the Company nor any of the Subsidiaries has received
any customer complaints concerning such entity’s services, other than immaterial, nonrecurring
problems.




          (x) No Manipulation of Stock. The Company has not taken, in violation of applicable
law, any action designed to or that might cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the transactions contemplated hereby or the sale or resale
of the shares of Common Stock.




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




          (z) 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 Commission
thereunder in effect as of the date of this Agreement.




          (aa) Registrations. All federal, self-regulatory and state registration requirements
have been complied with in all material respects, and such registrations as currently filed, and
all periodic and other reports, including notice filings, required to be filed with respect
thereto, are accurate and complete in all material respects. The information contained in such
registrations, forms and reports was true and complete in all material respects as of the date of
the filing thereof, and timely amendments were filed, as necessary, to correct or update any
information reflected in such registrations, forms or reports.




          (bb) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s
length purchaser with respect to the Company and to this Agreement and the transactions
contemplated hereby. The Company acknowledges that no Purchaser is acting or has acted as an
advisor, agent or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement or the other Transaction Documents and any advice given by any Purchaser or any of its
respective representatives in connection with this Agreement or the other Transaction Documents is
merely incidental to the Purchasers’ purchase of Shares. The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company and its
representatives.




11









 








          (cc) Approvals. Except as contemplated by this Agreement or as required by the
Commission in connection with the Company’s obligations under Article VI, no authorization,
consent, approval, waiver, license, qualification or written exemption from, nor any filing,
declaration, qualification or registration with, any governmental authority or any other Person is
required in connection with the execution, delivery or performance by the Company of any of the
Transaction Documents to which it is a party, except where the failure to receive such
authorization, consent, approval, waiver, license, qualification or written exemption or to make
such filing, declaration, qualification or registration would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.




          (dd) Certain Fees. No person or entity will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or upon the Company or a
Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company in connection with this Agreement, other
than ThinkEquity Partners LLC as placement agent with respect to the offer and sale of the Shares
(which placement agent fees are being paid by the Company).




          (ee) Environmental. To the Company’s knowledge, the Company and the Subsidiaries and
their properties, assets and operations are in compliance with, and hold all permits,
authorizations and approvals required under, Environmental Laws (as defined below), except to the
extent that failure to so comply or to hold such permits, authorizations or approvals would not,
individually or in the aggregate, have a Material Adverse Effect. To the Company’s knowledge,
except as set forth the SEC Reports, there are no past or present events, conditions,
circumstances, activities, practices, actions, omissions or plans that give rise to any material
costs or liabilities to the Company or the Subsidiaries under, or to interfere with or prevent
compliance by the Company or the Subsidiaries with, Environmental Laws. To the Company’s
knowledge, except as would not, individually or in the aggregate, have a Material Adverse Effect,
neither the Company nor any of the Subsidiaries (i) is the subject of any investigation, (ii) has
received any notice or claim, (iii) is a party to or affected by any pending or threatened action,
suit or proceeding, (iv) is bound by any judgment, decree or order or (v) has entered into any
agreement, in each case relating to any alleged violation of any Environmental Law or any actual or
alleged release or threatened release or cleanup at any location of any Hazardous Materials (as
defined below) (as used herein, “Environmental Law” means any federal, state, local or, statute,
ordinance, rule, regulation, order, decree, judgment, injunction, permit, license, authorization or
other binding requirement or common law relating to health, safety or the protection, cleanup or
restoration of the environment or natural resources, including those relating to the distribution,
processing, generation, treatment, storage, disposal, transportation, other handling or release or
threatened release of Hazardous Materials, and “Hazardous Materials” means any material (including,
without limitation, pollutants, contaminants, hazardous or toxic substances or wastes) that is
regulated by or may give rise to liability under any Environmental Law).




     3.2 Representations, Warranties and Certain Agreements of the Purchasers. Each
Purchaser hereby, as to itself only and for no other Purchaser, severally and not jointly
represents and warrants to the Company and agrees that:



          (a) Organization; Authority. Such Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership or other 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 Purchaser of the Shares hereunder has been duly
authorized by all necessary action on the part of such Purchaser. This Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid and binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except (i) as may be limited by (1)
applicable bankruptcy, insolvency,




12









 




reorganization or other laws of general application relating to or affecting the enforcement
of creditors’ rights generally and (2) the effect of rules of law governing the availability of
equitable remedies and (ii) as rights to indemnity or contribution may be limited under federal or
state securities laws or by principles of public policy thereunder.




          (b) Investment Intent. Such Purchaser is acquiring the Securities for their own
account only and not with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser’s right, subject to the provisions of this
Agreement, at all times to sell or otherwise dispose of all or any part of such Securities pursuant
to an effective registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities laws. Nothing
contained herein shall be deemed a representation, warranty or covenant by such Purchaser to hold
Securities for any period of time.




          (c) Purchaser Status. At the time such Purchaser was offered the Shares, it was, and
at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities
Act.




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




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




          (f) Information. Such Purchaser and its advisors, if any, have been furnished with
all materials relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been requested by such Purchaser. Such
Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the
Company. Such Purchaser understands that its investment in the Securities involves a high degree of
risk. Neither such inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its advisors shall modify, amend or affect such Purchaser’s right to rely on the
truth, accuracy and completeness of the disclosure made to such Persons in respect of the Company
or this transaction and the Company’s representations and warranties contained in this Agreement.
Each Purchaser acknowledges and agrees that the Company has not made (i) any representations or
warranties to such Purchaser with respect to the transactions contemplated hereby other than those
specifically set forth in the Transaction Documents or (ii) any oral statement, commitment or
promise that is or was an inducement to such Purchaser to enter into this Agreement or otherwise.




          (g) Purchaser Questionnaire. Such Purchaser has completed or caused to be completed
the Purchaser Questionnaire in substantially the form as set forth on Exhibit B, or in
another form acceptable to the Company and the information provided by each Purchaser in such
Purchaser’s Purchaser Questionnaire is true and correct as of the date of this Agreement and shall
be true as of the Effective Date.




          (h) Prohibited Transactions. During period from the date the relevant Purchaser
learned of the transaction contemplated hereunder to the date hereof, neither such Purchaser nor
any Affiliate of such Purchaser, foreign or domestic, acting on such Purchaser’s behalf or pursuant
to any




13









 




understanding with such Purchaser, has, directly or indirectly, effected or agreed to effect
any “short sale” (as defined in Rule 200 under Regulation SHO), whether or not against the box,
established any “put equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with
respect to the Common Stock, or granted any other right (including, without limitation, any put or
call option) with respect to the Common Stock or with respect to any security that includes,
relates to or derived any significant part of its value from the Common Stock (each, a “Prohibited
Transaction”). Notwithstanding the foregoing, in the case of Morgan Stanley & Co. Incorporated,
the representation set forth above shall only apply with respect to activity by the Principal
Strategies Group that made the investment decision to purchase the Shares covered by this Agreement
(and not to any other employees of Morgan Stanley & Co. Incorporated or any of its Affiliates);
provided, however, that all employees of Morgan Stanley & Co. Incorporated or its Affiliates who
are managing activities other than those relating to the purchase of Shares under this Agreement
have no direct knowledge of the investment decision made by the Principal Strategies Group to
purchase the Shares covered by this Agreement.




          (i) Acknowledgement Regarding Purchasers’ Purchase of Securities. Such Purchaser
acknowledges and agrees that it is acting solely in the capacity of an arm’s length purchaser with
respect to the Company and to this Agreement and the transactions contemplated hereby.




ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES




     4.1 Transfer Restrictions.



          (a) Securities may only be disposed of pursuant to an effective registration statement under
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 may require
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, any transfer of Securities by a Purchaser
to an Affiliate of such Purchaser, 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 make the
representations set forth in Section 3.2.




          (b) The Purchasers 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”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE
SKY LAWS. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
THE SECURITIES.



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Certificates evidencing Securities shall not be required to contain such legend (i) after a
Registration Statement is effective under the Securities Act covering the resale of such
Securities, (ii) following any sale of such Securities pursuant to Rule 144, or (iii) if such
Securities are eligible for sale under Rule 144(k) or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). Until a Registration Statement covering the
resale of the Securities is effective under the Securities Act, the Company will not effect or
publicly announce its intention to effect any exchange, recapitalization or other transaction that
effectively requires or rewards physical delivery of certificates evidencing the Common Stock.




     4.2 Prohibited Transactions and Confidentiality.



          (a) Prior to the earliest to occur of (i) the public announcement of the transactions
contemplated in the Transaction Documents or (ii) the termination of this Agreement, each Purchaser
severally and not jointly with the other Purchasers covenants that neither such Purchaser nor any
Affiliates acting on its behalf or pursuant to any understanding with it will execute any
Prohibited Transaction Each Purchaser understands and acknowledges, severally and not jointly
with any other Purchaser, that the Commission currently takes the position that coverage of short
sales of ordinary shares “against the box” prior to the Effective Date of the Registration
Statement with the Shares is a violation of Section 5 of the Securities Act, as set forth in Item
65, Section 5 under Section A, of the Manual of Publicly Available Telephone Interpretations, dated
July 1997, compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and
the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set forth in this
Section 4.2(a) shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Shares covered by this
Agreement. Notwithstanding the foregoing, in the case of Morgan Stanley & Co. Incorporated, the
representation set forth in this Section 4.2(a) shall only apply with respect to activity
by the Principal Strategies Group that made the investment decision to purchase the Shares covered
by this Agreement (and not to any other employees of Morgan Stanley & Co. Incorporated or any of
its Affiliates); provided, however, that all employees of Morgan Stanley & Co. Incorporated or its
Affiliates who are managing activities other than those relating to the purchase of Shares under
this Agreement have no direct knowledge of the investment decision made by the Principal Strategies
Group to purchase the Shares covered by this Agreement.




          (b) Each Purchaser, severally and not jointly with the other Purchasers, covenants that until
such time as the transactions contemplated by this Agreement are required to be publicly disclosed
by the Company as described in Section 4.6, such Purchaser (in the case of Morgan Stanley &
Co. Incorporated, the Principal Strategies Group of Morgan Stanley & Co. Incorporated) and any
Affiliates acting on its behalf or pursuant to any understanding with such Purchaser (in the case
of Morgan Stanley & Co. Incorporated, the Principal Strategies Group of Morgan Stanley & Co.
Incorporated) will maintain the confidentiality of all disclosures made to such Purchaser in
connection with this transaction (including the existence and terms of this transaction.




     4.3 Furnishing of Information. As long as any Purchaser owns Securities, the Company
covenants to timely file all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. Upon the request of any Purchaser, the Company shall deliver to such
Purchaser a written certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company is not required to
file reports pursuant to such laws, it will prepare and furnish to the Purchasers and make publicly
available in accordance with paragraph (c) of Rule 144 such information as is required for the
Purchasers to sell the



15









 




Securities under Rule 144. The Company further covenants that it will take such further action as
any holder of Securities may reasonably request to satisfy the provisions of Rule 144 applicable to
the issuer of securities relating to transactions for the sale of securities pursuant to Rule 144.




     4.4 Integration. The Company shall not, and shall use commercially reasonable efforts
to ensure that no Affiliate of the Company 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 Purchasers or that would
be integrated with the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market.



     4.5 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 in full 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 in full under the Transaction Documents, the Company shall promptly take
such actions as may be required to increase the number of authorized shares.



     4.6 Securities Laws Disclosure; Publicity. The Company shall, promptly after the
execution of this Agreement and in no event later than the Business Day prior to the Closing Date,
issue a press release (a copy of which will be provided to the Purchasers or their counsel for
review as early as practicable prior to its filing) disclosing the material terms of the
transactions contemplated hereby (the “Press Release”). Thereafter, the Company shall timely file
any filings and notices required by the Commission or applicable law with respect to the
transactions contemplated hereby and provide copies thereof to the Purchasers or Purchaser’s
counsel for review. The Company and the Purchasers shall consult with each other in issuing any
press releases or otherwise making public statements or filings and other communications with the
Commission or any regulatory agency or Trading Market with respect to the transactions contemplated
hereby. Notwithstanding the foregoing, the Company shall not publicly disclose the name of the
Purchasers, or include the name of the Purchasers in any filing with the Commission or any
regulatory agency or Trading Market, without the prior consent of the Purchasers, except to the
extent such disclosure (but not any disclosure as to the controlling Persons thereof) is required
by subpoena, applicable law or Trading Market regulations, in which case the Company shall provide
each of the Purchasers with prior notice of such disclosure.



     4.7 Reimbursement. If any Purchaser or any of its Affiliates or any officer,
director, partner, controlling Person, employee or agent of a Purchaser or any of its Affiliates (a
“Related Person”) becomes involved in any capacity in any Proceeding brought by or against any
Person in connection with or as a result of the transactions contemplated by the Transaction
Documents, the Company will indemnify and hold harmless such Purchaser or Related Person for its
reasonable legal and other expenses (including the costs of any investigation, preparation and
travel) and for any Losses incurred in connection therewith, as such expenses or Losses are
incurred, excluding only Losses that result directly from such Purchaser’s or Related Person’s
gross negligence or willful misconduct. In addition, the Company shall indemnify and hold harmless
each Purchaser and Related Person from and against any and all Losses, as incurred, arising out of
or relating to any breach by the Company of any of the representations, warranties or covenants
made by the Company in this Agreement or any other Transaction Document, or any allegation by a
third party that, if true, would constitute such a breach. The conduct of any Proceedings for
which indemnification is available under this paragraph shall be governed by Section 6.4(c)
below. The indemnification obligations of the Company under this paragraph shall be in addition to
any liability that the Company may otherwise have and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the Purchasers and any
such Related Persons. The Company also agrees that neither the Purchasers nor any Related Persons
shall have any liability to the Company or any Person asserting claims on behalf of or in right of
the



16









 




Company in connection with or as a result of the transactions contemplated by the Transaction
Documents, except to the extent that any Losses incurred by the Company result from (1) the gross
negligence or willful misconduct of the applicable Purchaser or Related Person in connection with
such transactions or, (2) as a result of any breach by the Purchaser of any of the representations,
warrants and covenants made by such Purchaser in this Agreement or in any of the Transaction
Documents. If the Company breaches its obligations under any Transaction Document, then, in
addition to any other liabilities the Company may have under any Transaction Document or applicable
law, the Company promptly shall pay or reimburse the Purchasers for all costs of collection and
enforcement, including the indemnification obligations under this paragraph and reasonable
attorneys’ fees and expenses.




     4.8 Delivery of Certificates. Within three Business Days following the Closing Date,
the Company shall deliver or cause to be delivered to each Purchaser one or more stock
certificates, free and clear of all restrictive and other legends (except as expressly provided in
Section 4.1(b) hereof), evidencing the number of Shares indicated below such Purchaser’s
name on the signature page of this Agreement, registered in the name of such Purchaser.



     4.9 Taking of Necessary Action. Each of the parties hereto shall use its commercially
reasonable efforts promptly to take or cause to be taken all action and promptly to do or cause to
be done all things necessary, proper or advisable under applicable law and regulations to
consummate and make effective the transactions contemplated by this Agreement. Without limiting
the foregoing, the Company and each Purchaser will, and the Company shall cause each of its
Subsidiaries to, use its commercially reasonable efforts to make all filings and obtain all
consents of governmental authorities that may be necessary or, in the reasonable opinion of the
Purchasers or the Company, as the case may be, advisable for the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents.



ARTICLE V

CONDITIONS




     5.1 Conditions Precedent to the Obligations of the Purchasers. The obligation of each
Purchaser to acquire Securities at the Closing is subject to the satisfaction or waiver by such
Purchaser, 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;




          (b) Performance. The Company and each other Purchaser 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) Securities Exemptions. The offer and sale of the Securities to the Purchasers
pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act
and the registration and/or qualification requirements of all applicable state securities laws;




          (d) No Statute or Rule Challenging Transaction. No statute, rule, regulation,
executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been
enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of
competent jurisdiction or any self-regulatory organization or the staff of any of the foregoing,
having authority over the matters contemplated hereby which questions the validity of, or
challenges or prohibits the consummation of, any of the transactions contemplated by this
Agreement;




17









 





          (e) No Suspensions of Trading in Common Stock. The trading in the Common Stock shall
not be restricted or suspended by the Commission or the Trading Market (except for any restriction
or suspension of trading of limited duration solely to permit dissemination of material information
regarding the Company);




          (f) Litigation. No Proceeding shall have been instituted or threatened against the
Company that would, individually or in the aggregate, have a Material Adverse Effect;




          (g) Compliance Certificate. The Company shall have delivered to the Purchasers a
certificate of the Company executed by the President of the Company, dated as of the Closing,
certifying to the fulfillment of the conditions specified in Sections 5.1(a) and
5.1(b) of this Agreement;




          (h) Secretary’s Certificate. The Company shall have delivered to the Purchasers a
certificate of the Company executed by an officer of the Company, dated as of the Closing,
certifying (i) resolutions adopted by the Board authorizing the execution of the Transaction
Documents, the issuance of the Securities, the filing of the Registration Statement, and the
transactions contemplated hereby; and (ii) the Certificate of Incorporation and Bylaws of the
Company, each as amended, and copies of any required third party consents, approvals and filings
required in connection with the consummation of the transactions contemplated by this Agreement;
and (iii) the good standing of the Company.




          (i) Other Documents. The Company shall have delivered to each Purchaser such other
documents relating to the transactions contemplated by this Agreement as the Purchasers or their
counsel may reasonably request; and




          (j) Listing Approvals. The Company shall have obtained any necessary approvals for
the listing of the Shares on the NASDAQ Global Market, which are required to be obtained prior to
closing and shall have undertaken to obtain any other necessary approvals for the listing of the
Shares on the NASDAQ Global Market.




     5.2 Conditions Precedent to the Obligations of the Company. The obligation of the
Company to sell Shares 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
Purchasers 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;




          (b) Performance. The Purchasers 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 Purchasers at or prior to the Closing;




          (c) Securities Exemptions. The offer and sale of the Securities to the Purchasers
pursuant to this Agreement shall be exempt from the registration requirements of the Securities Act
and the registration and/or qualification requirements of all applicable state securities laws;




          (d) Payment of Purchase Price. Each Purchaser shall have delivered to the Company by
wire transfer of immediately available funds, full payment of the purchase price for the Shares as
indicated below each Purchaser’s name on such Purchaser’s signature page;




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          (e) Receipt of Purchaser Questionnaires. Each Purchaser shall have delivered to the
Company a completed Purchaser Questionnaire in the form attached hereto as Exhibit B or
other form acceptable to the Company;




          (f) No Statute or Rule Challenging Transaction. No statute, rule, regulation,
executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been
enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of
competent jurisdiction or any self-regulatory organization or the staff of any of the foregoing,
having authority over the matters contemplated hereby which questions the validity of, or
challenges or prohibits the consummation of, any of the transactions contemplated by this
Agreement; and




          (g) Other Documents. The Purchasers shall have delivered to the Company such other
documents relating to the transactions contemplated by this Agreement as the Company or counsel may
reasonably request.




ARTICLE VI

REGISTRATION RIGHTS




     6.1 Registration.



          (a) As promptly as possible, the Company shall prepare and file with the Commission a
Registration Statement covering the resale of all Registrable Securities for an offering to be made
on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-3.




          (b) The Company shall use all commercially reasonable efforts to cause the Registration
Statement to be filed with the Commission by the Filing Date, and declared effective on or before
the Required Effectiveness Date. The Company shall use all commercially reasonable efforts to keep
the Registration Statement continuously effective under the Securities Act from the date such
Registration Statement becomes effective until the earlier of (i) the date when all Registrable
Securities have been resold under such Registration Statement, or (ii) the date on which all
Registrable Securities may be resold without restriction or limitation under the federal securities
laws or may be sold pursuant to paragraph (k) of Rule 144 (the “Effectiveness Period”).




          (c) The Company shall notify each Purchaser in writing promptly (and in any event within one
Business Day) after receiving notification from the Commission that the Registration Statement has
been declared effective.




          (d) As long as the occurrence of any Event (as defined below) was not materially a result of a
Purchaser’s actions or failure to act (including the failure to provide needed information to the
Company), on every monthly anniversary of any Event until the applicable Event is cured, as partial
relief for the damages suffered therefrom by the Purchasers (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 Purchaser an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of
the aggregate purchase price paid by such Purchaser hereunder for every month, prorated for any
partial month. The payments to which a Purchaser 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-rata basis for any portion of a month prior to the cure of an
Event.



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





     (i) the Registration Statement is not declared effective by the Required
Effectiveness Date, except if the Registration Statement has not been declared
effective



19









 






materially as a result of a Purchaser’s actions or failure to act (including
the failure to provide needed information to the Company);




     (ii) after the Effective Date, the Registration Statement ceases to be
effective and available to the Purchaser for any continuous period that exceeds 45
calendar days or for one or more periods that exceed 90 calendar days in any 12
month period; or




     (iii) after the Effective Date, any Registrable Securities covered by such
Registration Statement are not listed on an Eligible Market directly or indirectly
due to an action or inaction of the Company, except if such action or inaction is
materially a result of a Purchaser’s actions or failure to act (including the
failure to provide needed information to the Company).



          (e) The Company shall not, prior to the Effective Date of the Registration Statement, prepare
and file with the Commission a registration statement (other than a Registration Statement filed on
a Form S-4 or S-8) relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities.




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



          (a) Not less than three Business Days prior to the filing of a Registration Statement or any
related Prospectus or any amendment, or not less than one Business Day for any supplement thereto,
the Company shall furnish to each Purchaser and any counsel designated by any Purchaser (each, a
“Purchaser Counsel”) copies of all such documents proposed to be filed. The Company shall not file
a Registration Statement or any such Prospectus or any amendments or supplements thereto to which
Purchasers holding a majority of the Registrable Securities shall reasonably object in writing,
prior to the contemplated filing date.




          (b) (i) Prepare and file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in connection therewith as may
be necessary to keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with the Commission 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, and in any event within ten Business Days, to any
comments received from the Commission with respect to the Registration Statement or any amendment
thereto and, at the request of any Purchaser, as promptly as reasonably possible provide such
Purchaser who may so request true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; 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 Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.




          (c) Notify the Purchasers of Registrable Securities to be sold and each Purchaser Counsel as
promptly as reasonably possible, and (if requested by any such Person) confirm such notice in
writing no later than two Business Days thereafter, of any of the following events: (i) the filing
of the Registration Statement or any Prospectus and any amendment or supplement thereto with the
Commission; (ii) the Commission notifies the Company whether there will be a “review” of any
Registration Statement; or issues any written comments or request with respect thereto (iii) any




20









 




Registration Statement or any post-effective amendment is declared effective; (iv) the
Commission issues any stop order suspending the effectiveness of any Registration Statement or
initiates any Proceedings for that purpose; (v) 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 of any Proceeding; or (vi) the financial statements included in any
Registration Statement become ineligible for inclusion therein or any statement made in any
Registration Statement or Prospectus or any document incorporated or deemed to be incorporated
therein by reference is untrue in any material respect or any revision to a Registration Statement,
Prospectus or other document is required so that it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were made, not
misleading.




          (d) Use commercially reasonable 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) Promptly deliver to each Purchaser and Purchaser Counsel, without charge, 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. The Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the selling Purchasers in
connection with the offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.




          (f) (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; and (iii) maintain the listing of such
Registrable Securities on each such Trading Market.




          (g) Use commercially reasonable efforts to register or qualify or cooperate with the selling
Purchasers and respective Purchaser Counsel 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
Purchaser reasonably requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or
things 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
required to qualify to do business or consent to service of process in any jurisdiction in which it
is not now so qualified or has not so consented.




          (h) Cooperate with the Purchasers 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 law, of all
restrictive legends, and to enable such Registrable Securities to be in such denominations and
registered in such names as any such Purchasers may request.




          (i) Upon the occurrence of any event described in Section 6.2(c)(vi), 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




21









 




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.




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




          (k) Provide a “Plan of Distribution” section of the Registration Statement in substantially
the same form attached hereto as Exhibit C.




          (l) Comply with all applicable rules and regulations of the Commission.




     6.3 Registration Expenses. The Company shall pay (or reimburse the Purchasers for)
all fees and expenses incident to the performance of or compliance with 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 Commission, 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 and of printing
prospectuses requested by the Purchasers), (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 Purchaser, the officers, directors,
partners and members and each Person who controls any such Purchaser (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) to the fullest extent permitted by
applicable law, from and against any and all Losses, as incurred, arising out of or relating to any
untrue or alleged 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 in any
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
circumstances under which they were made) not misleading, except to the extent, but only to the
extent, that (i) such untrue statements, alleged untrue statements, omissions or alleged omissions
are based solely upon information regarding such Purchaser furnished in writing to the Company by
such Purchaser expressly for use therein, (except where the Purchaser has notified the Company in
writing that the information is outdated or defective) or to the extent that such information
relates to such Purchaser or such Purchaser’s proposed method of distribution of Registrable
Securities and was provided to such Purchaser in the draft Registration Statement or Prospectus or
(ii) in the case of an occurrence of an event of the type specified in Section
6.2(c)(v)-(vi), the use by such Purchaser of an outdated or defective Prospectus after the
Company has notified such Purchaser in writing that the Prospectus is outdated or defective and
prior to the receipt by such Purchaser of the Advice contemplated in Section 6.5. The
Company shall notify the Purchasers promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions contemplated by this
Agreement.




22









 





          (b) Indemnification by Purchasers. Notwithstanding any termination of this Agreement,
each Purchaser shall, severally and not jointly, indemnify and hold harmless the Company,
each of its directors, each of its officers who signed the Registration Statement and each
Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act) to the fullest extent permitted by applicable law, from and against all
losses, as incurred, arising out of or relating to any untrue or alleged 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 in any 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 circumstances under which they were made) not misleading,
but only to the extent, that (i) such untrue statements, alleged untrue statements, omissions or
alleged omissions are based solely upon information regarding such Purchaser furnished in writing
to the Company by such Purchaser expressly for use therein, (except where the Purchaser has
notified the Company in writing that the information is outdated or defective) or to the extent
that such information relates to such Purchaser or such Purchaser’s proposed method of distribution
of Registrable Securities and was provided to such Purchaser in the draft Registration Statement or
Prospectus, or (ii) in the case of an occurrence of an event of the type specified in Section
6.2(c)(iv)-(vi), the use by such Purchaser of an outdated or defective Prospectus after the
Company has notified such Purchaser in writing that the Prospectus is outdated or defective and
prior to the receipt by such Purchaser of the Advice contemplated in Section 6.5. In no
event shall the liability of any selling Purchaser hereunder be greater in amount than the dollar
amount of the net proceeds received by such Purchaser 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.




          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 in writing 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). 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 or delayed. 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.
Each




23









 




Indemnified Party shall furnish such information regarding itself or the claim that is the
subject matter of such Proceeding in
question as an Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the investigation and defense of such claim.




          All 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
thirty (30) Business 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 it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).




          (d) Contribution. If a claim for indemnification under Section 6.4(a) or
(b) 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 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
Purchaser shall be required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by such Purchaser from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation. The obligations of the Purchasers under this Section
6.4(d) shall be several and not joint.




          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 Purchaser 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 and, upon written request of the
Company, will represent to the Company that it has so complied. Each Purchaser 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), or (vi), such Purchaser will discontinue
disposition of such Registrable Securities under the Registration Statement until such Purchaser’s
receipt of the copies of the supplemented Prospectus and/or amended Registration



24









 




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 Purchasers in such capacity pursuant hereto) may 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 such right to any of its security
holders.



     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 Commission 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 Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any such Purchaser
shall so request in writing, the Company shall include in such Registration Statement all or any
part of such Registrable Securities such Purchaser requests to be registered. Notwithstanding the
foregoing, any Purchaser may deliver written notice to the Company requesting that such Purchaser
not receive any such notice; provided, that such Purchaser may later revoke any such written notice
to the Company.



ARTICLE VII

MISCELLANEOUS




     7.1 Termination. This Agreement may be terminated by the Company or any Purchaser, 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,
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 issuance
of the 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 Purchasers such further documents as may be reasonably requested in order to
give practical effect to the intention of the parties under the Transaction Documents.
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.



     7.4 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 prior to



25









 




5:00 p.m. on a Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile on a day that is not a Business Day or later than
5:00 p.m. on any Business Day, (c) the Business 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 by the Company and the holders of a majority of the Shares.
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.



     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
Purchasers. Any Purchaser may assign its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that apply to the
“Purchasers.”



     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 Related Person is
an intended third party beneficiary of Section 4.8 and 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. 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 CALIFORNIA. THE COMPANY AND
PURCHASERS HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL COURTS SITTING IN
THE STATE OF CALIFORNIA, PROVIDED THAT IF JURISDICTION CANNOT BE OBTAINED IN SUCH FEDERAL COURTS,
THEN SUIT MAY BE BROUGHT IN THE STATE COURTS OF THE CITY AND COUNTY OF SAN DIEGO FOR THE
ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY PURCHASER 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 PURCHASER, 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



26









 




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
PURCHASERS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.




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



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



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



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



     7.14 Payment Set Aside. To the extent that the Company makes a payment or payments to
any Purchaser hereunder or any Purchaser 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,
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.



     7.15 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.



27









 





     7.16 Independent Nature of Purchasers’ Obligations and Rights. The obligations of
each Purchaser under any Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under any Transaction Document. The decision of each Purchaser
to purchase Shares pursuant to this Agreement has been made by such Purchaser independently of any
other Purchaser 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 Purchaser or by any agent or employee of any other Purchaser, and no
Purchaser or any of its agents or employees shall have any liability to any other Purchaser (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 Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the Purchasers are in any
way acting in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Document. Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment hereunder and that no
other Purchaser will be acting as agent of such Purchaser in connection with monitoring its
investment hereunder. Each Purchaser shall be entitled to independently protect and enforce its
rights, including without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. Each Purchaser represents that it has been
represented by its own separate legal counsel in its review and negotiations of this Agreement and
the Transaction Documents.



     7.17 Limitation on Liability. A copy of the Agreement and Declaration of Trust of the
Purchaser is on file with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that this Agreement is executed on behalf of the Trustees of the Purchaser as Trustees and
not individually and that the obligations of this Agreement are not binding upon any of the
Trustees, officers or stockholders of the Purchaser individually but are binding only upon the
assets and property of the Purchaser. The Company is expressly put on notice that the rights and
obligations of each series of shares of the Purchaser under its Declaration of Trust are separate
and distinct from those of any and all other series.



     7.18 Interpretation. Article, Section and Exhibit references are to this Agreement,
unless otherwise specified. All references to instruments, documents, contracts and agreements are
references to such instruments, documents, contracts and agreements as the same may be amended,
supplemented and otherwise modified from time to time, unless otherwise specified. The word
“including” shall mean “including but not limited to”. Whenever the Company has an obligation
under the Transaction Documents, the expense of complying with such obligation shall be an expense
of the Company unless otherwise specified. Whenever any determination, consent or approval is to
be made or given by a Purchaser under this Agreement, such action shall be in such Purchaser’s sole
discretion unless otherwise specified.



[SIGNATURE PAGES FOLLOW]




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



	 	 	 	 	 	 	 
	 	 	PICO HOLDINGS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	John R. Hart	 	 
	 

	 	Title:
	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notice:	 	 
	 
	 	 	 	 	 	 
	 	 	875 Prospect St.

La Jolla, CA 92037

Phone — (858) 551—6835

Fax — (858) 456-6172	 	 
	 
	 	 	 	 	 	 
	With a copy to:	 	DLA Piper US LLP

4365 Executive Dr.

Suite 1100

San Diego, CA 92121

Facsimile No.: (858) 677-1401

Telephone No.: (858) 677-1400

Attn: Marty Lorenzo	 	 






[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK




SIGNATURE PAGES FOR PURCHASERS FOLLOW]




Signature
Page to Securities Purchase Agreement




 









 





	 	 	 	 	 	 	 
	PURCHASER NAME:
	 	 	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Purchase Price:

	 	$ 37.00	 	 	 
	 
	 	 	 	 	 	 
	Number of Shares to be acquired:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Tax ID #:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Full Address:
	 	 	 	 	 	 
	 

	 	 
	 	 
	 

	 	 
	 	 
	 

	 	 
	 	 
	 
	 	 	 	 	 	 
	Facsimile #:
	 	 	 	 	 	 
	Telephone #:
	 	 	 	 	 	 
	Attn:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	With a copy to          

(Purchaser Counsel):
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Full Address:
	 	 	 	 	 	 
	 

	 	 
	 	 
	 

	 	 
	 	 
	 

	 	 	 	 
	 
	 	 	 	 	 	 
	Facsimile #:
	 	 	 	 	 	 
	Telephone #:
	 	 	 	 	 	 
	Attn:
	 	 	 	 	 	 






Signature Page to Securities Purchase Agreement




 









 





Exhibits:





			
	A	 	Form of Legal Opinion






			
	B	 	Purchaser Questionnaire






			
	C	 	Plan of Distribution