exv10w6






Exhibit
10.6




EXECUTION COPY




SERIES D PREFERRED STOCK PURCHASE AGREEMENT




Dated as of August 27, 2009




by and among




XStream Systems, Inc.




and




the Investors named herein




 









 





TABLE OF CONTENTS




	 	 	 	 	 
	ARTICLE I DEFINITIONS AND INTERPRETATION
	 	 	2	 
	 
	 	 	 	 
	1.1. Definitions
	 	 	2	 
	1.2. Interpretation
	 	 	9	 
	1.3. Accounting Principles
	 	 	10	 
	 
	 	 	 	 
	ARTICLE II AUTHORIZATION AND SALE OF SERIES D PREFERRED SHARES; CLOSING
	 	 	10	 
	 
	 	 	 	 
	2.1. Authorization of the Series D Preferred Shares
	 	 	10	 
	2.2. Purchase and Sale of Series D Units
	 	 	10	 
	2.3. Closings
	 	 	11	 
	2.4. Delivery of Series D Units; Payment of Purchase Price
	 	 	11	 
	2.5. Waiver of Preemptive Rights
	 	 	11	 
	 
	 	 	 	 
	ARTICLE III CONDITIONS OF THE INVESTORS’ OBLIGATIONS
	 	 	11	 
	 
	 	 	 	 
	3.1. Closing
	 	 	11	 
	3.2. Waiver
	 	 	13	 
	 
	 	 	 	 
	ARTICLE IV CONDITIONS OF THE COMPANY’S OBLIGATIONS
	 	 	13	 
	 
	 	 	 	 
	4.1. Closing
	 	 	13	 
	4.2. Waiver
	 	 	14	 
	 
	 	 	 	 
	ARTICLE V COVENANTS
	 	 	14	 
	 
	 	 	 	 
	5.1. Financial Statements and Other Information
	 	 	14	 
	5.2. Inspection Rights
	 	 	16	 
	5.3. Fiscal Year
	 	 	16	 
	5.4. Insurance
	 	 	16	 
	5.5. Tax Matters
	 	 	16	 
	5.6. Payment of Indebtedness
	 	 	17	 
	5.7. Compliance With Laws; Obligations
	 	 	17	 
	5.8. Preservation of Corporate Existence and Property
	 	 	17	 
	5.9. Board
	 	 	17	 
	5.10. Board of Subsidiaries
	 	 	17	 
	5.11. Use of Proceeds
	 	 	17	 
	5.12. Regulatory Compliance Cooperation
	 	 	18	 
	5.13. Reservation of Common Stock
	 	 	18	 
	5.14. Certain Insurance Coverage
	 	 	19	 
	5.15. Second A&R Securityholders’ Agreement
	 	 	19	 
	 
	 	 	 	 
	ARTICLE VI TRANSFER OF RESTRICTED SECURITIES
	 	 	19	 
	 
	 	 	 	 
	6.1. General Provisions
	 	 	19	 
	6.2. Rule 144A
	 	 	19	 
	6.3. Legend
	 	 	19	 
	6.4. Legend Removal
	 	 	19	 






-ii-









 






	 	 	 	 	 
	ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	19	 
	 
	 	 	 	 
	7.1. Organization, Qualifications and Corporate Power
	 	 	19	 
	7.2. Authorization; No Conflicts
	 	 	20	 
	7.3. Subsidiaries and Investments
	 	 	21	 
	7.4. Authorized Capital Stock
	 	 	21	 
	7.5. Financial Statements
	 	 	23	 
	7.6. Absence of Undisclosed Liabilities
	 	 	23	 
	7.7. No Material Adverse Effect
	 	 	23	 
	7.8. Title to Properties; Leasehold Interests
	 	 	23	 
	7.9. Tax Matters
	 	 	24	 
	7.10. Contracts and Commitments
	 	 	24	 
	7.11. Intellectual Property Rights
	 	 	26	 
	7.12. Compliance with Laws; Litigation
	 	 	26	 
	7.13. Brokers
	 	 	27	 
	7.14. Governmental Approvals; No Registration
	 	 	27	 
	7.15. Insurance
	 	 	28	 
	7.16. Employees
	 	 	28	 
	7.17. Officers
	 	 	28	 
	7.18. ERISA
	 	 	28	 
	7.19. Environmental Matters
	 	 	29	 
	7.20. Related Party Transactions
	 	 	30	 
	7.21. Accounts Receivable
	 	 	30	 
	7.22. Investment Company
	 	 	30	 
	7.23. Real Property Holding Corporation
	 	 	30	 
	7.24. Disclosure
	 	 	31	 
	 
	 	 	 	 
	ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR
	 	 	31	 
	 
	 	 	 	 
	8.1. Organization
	 	 	31	 
	8.2. Authorization
	 	 	31	 
	8.3. Brokers
	 	 	31	 
	8.4. Investment Representations
	 	 	31	 
	8.5. Residence
	 	 	32	 
	8.6. No Knowledge of Breach
	 	 	32	 
	 
	 	 	 	 
	ARTICLE IX MISCELLANEOUS
	 	 	33	 
	 
	 	 	 	 
	9.1. Survival of Representations and Warranties
	 	 	33	 
	9.2. Amendments and Waivers
	 	 	33	 
	9.3. Successors and Assigns
	 	 	33	 
	9.4. Remedies
	 	 	33	 
	9.5. Indemnification
	 	 	33	 
	9.6. Severability
	 	 	34	 
	9.7. Notices
	 	 	34	 
	9.8. Governing Law
	 	 	35	 
	9.9. Submission to Jurisdiction; Waiver of Jury Trial
	 	 	35	 
	9.10. Attorneys’ Fees
	 	 	35	 
	9.11. Execution in Counterparts
	 	 	35	 
	9.12. Transaction Expenses
	 	 	35	 
	9.13. Greenberg Traurig Represents the Company
	 	 	36	 
	9.14. Entire Agreement
	 	 	36	 






-iii-









 




APPENDICES




	 	 	 
	Appendix I

	 	Names of Investors and Amounts of Series D Units
Purchased
	Appendix II

	 	Notice Information for each Investor
	 
	 	 




EXHIBITS




	 	 	 
	Exhibit A-1

	 	Series D Certificate of Designation
	Exhibit A-2

	 	Second Amended Series A Designation
	Exhibit A-3

	 	Amended Series B Designation
	Exhibit A-4

	 	Amended Series C Designation
	Exhibit B

	 	Form of A&R Registration Rights Agreement
	Exhibit C

	 	Form of Second A&R Securityholders’ Agreement
	Exhibit D

	 	Form of Series D Warrant Agreement
	Exhibit E

	 	Form of A&R Series B Warrant Agreement
	Exhibit F

	 	Form of A&R Series C Warrant Agreement
	Exhibit G

	 	A&R By-laws





DISCLOSURE SCHEDULES




	 	 	 
	Schedule 7.1(a)

	 	Organization, Qualifications and Corporate Power
	Schedule 7.2

	 	Authorization; No Conflicts
	Schedule 7.4

	 	Capitalization
	Schedule 7.5

	 	Financial Statements
	Schedule 7.6

	 	Absence of Undisclosed Liabilities
	Schedule 7.7

	 	No Material Adverse Effect
	Schedule 7.8

	 	Title to Properties; Leasehold Interests
	Schedule 7.10(a)

	 	Contracts and Commitments
	Schedule 7.11

	 	Intellectual Property Rights
	Schedule 7.12

	 	Compliance with Laws; Litigation
	Schedule 7.17

	 	Officers
	Schedule 7.18

	 	ERISA
	Schedule 7.19

	 	Environmental Matters
	Schedule 7.20

	 	Related-Party Transactions







-iv-









 








SERIES D PREFERRED STOCK PURCHASE AGREEMENT




     SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”), dated as of August 27, 2009,
by and among XStream Systems, Inc., a Delaware corporation (the “Company”), and each of the
Investors listed on Appendix I hereto (collectively, the “Investors”).



RECITALS




     WHEREAS, the Company desires to issue and sell to the Investors, and the Investors desire to
purchase from the Company, an aggregate of up to Seven Hundred Thousand (700,000) shares of
authorized and unissued shares of Series D Redeemable Convertible Preferred Stock, $.0001 par value
per share, of the Company (the “Series D Preferred Stock”), which shares of Series D Preferred
Stock are convertible into shares of common stock, $.0001 par value per share, of the Company (the
“Common Stock”), along with warrants to purchase shares of Common Stock;



     WHEREAS, the shares of Series D Preferred Stock and the shares of Common Stock into which they
are convertible shall have the respective rights, preferences and privileges specified in the
Series D Certificate of Designation, the form of which is attached as Exhibit A hereto (the
“Series D Certificate of Designation”), all on the terms and subject to the conditions set forth
herein;



     WHEREAS, the Company and the Other Preferred Stockholders are party to that certain
Registration Rights Agreement, dated as of the First Closing Date, as amended by that certain First
Amendment, dated as of the Second Closing Date (the “Registration Rights Agreement”);



     WHEREAS, the Company, the Other Preferred Stockholders and certain other holders of the Common
Stock are also party to that certain Amended and Restated Securityholders’ Agreement, dated as of
the Second Closing Date, as amended by that certain Amendment, dated as of the Third Closing Date,
and as further amended by that certain Second Amendment, dated as of June 1, 2009 (the “A&R
Securityholders’ Agreement”);



     WHEREAS, as a condition to entering into this Agreement, the Company, the Investors and the
holders of at least a majority of the Registrable Securities (as defined in the Registration Rights
Agreement) are required to enter into an Amended and Restated Registration Rights Agreement,
substantially in the form of Exhibit B attached hereto (the “A&R Registration Rights
Agreement”), concurrently with the execution and delivery of this Agreement;



     WHEREAS, as another condition to entering into this Agreement, the Company, the Investors and
the holders of at least a majority of the outstanding shares of Common Stock on a fully-diluted
basis (including a majority of the Other Preferred Stock voting as a separate class and on a
fully-diluted and as converted basis) are required to enter into a Second Amended and Restated
Securityholders’ Agreement, substantially in the form of Exhibit C attached hereto (the
“Second A&R Securityholders’ Agreement”), concurrently with the execution and delivery of this
Agreement;













 





     WHEREAS, as additional conditions to entering into this Agreement, the Company and at least a
majority of the holders of the Series B Warrants are required to enter into an Amended and Restated
Series B Warrant Agreement, substantially in the form of Exhibit E attached hereto (the
“A&R Series B Warrant Agreement”) and the Company and at least a majority of the holders of the
Series C Warrants are required to enter into an Amended and Restated Series C Warrant Agreement,
substantially in the form of Exhibit F attached hereto (the “A&R Series B Warrant
Agreement”);



     NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties,
covenants and agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:



ARTICLE I

DEFINITIONS AND INTERPRETATION




     1.1. Definitions. For the purposes of this Agreement, the following terms have the meanings specified or
referred to in this Section 1.1:



          “A&R By-laws” means the Amended and Restated By-laws of the Company as in effect on the date
of this Agreement, a copy of which is attached hereto as Exhibit G.




          “A&R Registration Rights Agreement” has the meaning set forth in the Recitals.




          “A&R Securityholders’ Agreement” has the meaning set forth in the Recitals.




          “A&R Series B Warrant Agreement” has the meaning set forth in the Recitals.




          “A&R Series C Warrant Agreement” has the meaning set forth in the Recitals.




          “Affiliate” means, with respect to any particular Person, any other Person that directly or
indirectly controls, is controlled by or is under common control with such particular Person. For
the purpose of this definition, “control” means the possession, directly or indirectly, of the
power to direct the management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.




          “Agreement” has the meaning set forth in the first paragraph of this Agreement.




          “Amended Series B Designation” means the Amended Certificate of Designation relating to the
Series B Preferred Stock substantially, in the form attached as Exhibit A-2, as may be
amended from time to time.




          “Amended Series C Designation” means the Amended Certificate of Designation relating to the
Series C Preferred Stock, substantially in the form attached as Exhibit A-3, as may be
amended from time to time.




          “Board” means the Board of the Directors of the Company.




-2-









 








          “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. §§ 9601 et seq.




          “Certificate of Incorporation” means the Certificate of Incorporation of the Company, as
amended to date (after giving effect to the filing of the Second Amended Series A Designation, the
Amended Series B Designation, the Amended Series C Designation and the Series D Certificate of
Designation with the Delaware Secretary of State), and as may be further amended or restated from
time to time.




          “Closing” has the meaning set forth in Section 2.3.




          “Closing Date” has the meaning set forth in Section 2.3.




          “Code” means the Internal Revenue Code of 1986, as amended, and any reference to any
particular Code section shall be interpreted to include any revision of or successor to that
section regardless of how numbered or classified.




          “Common Stock” has the meaning set forth in the Recitals.




          “Company” has the meaning set forth in the first paragraph of this Agreement.




          “Contract” means all contracts, agreements, commitments, understandings and arrangements,
whether written or oral.




          “Conversion Common Shares” means (i) the Common Stock issued or issuable upon conversion or
redemption of the Series D Preferred Shares, (ii) the Common Stock issued or issuable upon the
exercise of the Warrants and (iii) any Common Stock issued or issuable with respect to the
securities referred to in clauses (i) or (ii) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation or other
reincorporation. For purposes of this Agreement, any Person who holds Series D Preferred Shares or
Warrants shall be deemed to be the holder of the Conversion Common Shares obtainable upon
conversion of the Series D Preferred Shares or exercise of the Warrants, regardless of any
restriction or limitation on the conversion of the Series D Preferred Shares or exercise of the
Warrants; such Conversion Common Shares shall be deemed to be in existence, and such Person shall
be entitled to exercise the rights of a holder of Conversion Common Shares hereunder. As to any
particular Conversion Common Shares, such shares shall cease to be Conversion Common Shares when
they have been (x) effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (y) distributed to the public through a broker,
dealer or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then
in force) or (z) repurchased by the Company




          “Court Order” means any judgment, order, award or decree of any foreign, federal, state, local
or other court or tribunal and any award in any arbitration proceeding.




          “Environmental Laws” means all Requirements of Laws derived from or relating to all federal,
state and local laws or regulations relating to or addressing the
environment, health or safety, including CERCLA, OSHA and RCRA and any state equivalent
thereof.




-3-









 








          “ERISA” has the meaning set forth in Section 7.16.




          “Event of Noncompliance” has the meaning set forth in the Series D Certificate of Designation.




          “First Closing Date” means March 14, 2007.




          “GAAP” means United States generally accepted accounting principles, consistently applied
(except for any change required by GAAP).




          “Governmental Authority” means any foreign, federal, state, local or other government,
governmental, statutory or administrative authority or regulatory body or any court, tribunal or
judicial or arbitral body.




          “GT” means Greenberg Traurig, P.A.




          “Indebtedness” means, with respect to any Person at any date, without duplication: (i) all
obligations of such Person for borrowed money or in respect of loans or advances; (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(iii) all obligations in respect of letters of credit, whether or not drawn, and bankers’
acceptances issued for the account of such Person; (iv) all interest rate or currency caps,
collars, swaps or other similar protection agreements of such Person (valued on a market quotation
basis); (v) any indebtedness for the deferred purchase price of property or services with respect
to which a Person is liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current liabilities incurred in the ordinary course of business consistent with
past practice which are not more than one hundred twenty (120) days past due, unless the same are
being contested in good faith by actions approved by the Board and with respect to which the
Company has set aside adequate reserves therefor in accordance with GAAP); (vi) any commitment by
which a Person assures a creditor against loss (including contingent reimbursement obligations with
respect to letters of credit); (vii) any obligations under leases that are required to be
capitalized in accordance with GAAP; (viii) any indebtedness secured by a Lien on a Person’s
assets; or (ix) any guarantee or other contingent obligation (including obligations to repurchase,
reimburse or keep well) in respect of the items set forth in the foregoing clauses (i) through
(viii).




          “Indemnified Liabilities” has the meaning set forth in Section 9.5.




          “Indemnitees” has the meaning set forth in Section 9.5.




          “Intellectual Property Rights” means all (i) patents, patent applications, patent disclosures
and inventions, (ii) trademarks, service marks, trade dress, trade names, URL’s, logos and
corporate names and registrations and applications for registration thereof, together with all of
the goodwill associated therewith, (iii) copyrights (registered or unregistered) and copyrightable
works and registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software, data, data bases
and documentation thereof, (vi) trade secrets and other confidential information (including
ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and techniques,



-4-









 






research and
development information, drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier lists and
information), (vii) other intellectual property rights and (viii) copies and tangible embodiments
thereof (in whatever form or medium).




          “Investment,” as applied to any Person, means (i) any direct or indirect purchase or other
acquisition by such Person of any notes, obligations, instruments, stock, securities or ownership
interest (including partnership interests, membership interests and joint venture interests) of any
other Person, and (ii) any capital contribution by such Person to any other Person.




          “Investors” has the meaning set forth in the first paragraph of this Agreement.




          “IRS” means the United States Internal Revenue Service.




          “Knowledge” or “aware” means (i) the actual knowledge or awareness of Brian Mayo and (ii) the
knowledge that such person should have after reasonable investigation in the performance of such
person’s duties.




          “Latest Balance Sheet” has the meaning set forth in Section 7.5.




          “Liens” means any mortgage, pledge, security interest, encumbrance, lien, claim or charge of
any kind (including any conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse against the Company or any Affiliate, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar
statute other than to reflect ownership by a third party of property leased to the Company under a
lease which is not in the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (other than any subordination arising in the
ordinary course of business).




          “Material Adverse Effect” means an adverse effect of One Hundred Thousand Dollars and 00/100
($100,000.00) or more on the condition (financial or otherwise), operating results, business,
prospects, assets, operations, employee relations or customer or supplier relations of the Company
and its Subsidiaries, taken as a whole; provided, however, that no change,
circumstance, effect, event or fact shall be deemed to be a Material Adverse Effect to the extent
that it is caused by the execution or public announcement of this Agreement or the transactions
contemplated hereby.




          “Material Contracts” has the meaning set forth in Section 7.10(b).




          “OSHA” means the Occupational Safety and Health Act, 29 U.S.C. §§ 651 et seq.




          “Other Preferred Stock” means the Series A Preferred Stock, the Series B Preferred Stock and
the Series C Preferred Stock.




          “Other Preferred Stockholders” means the holders of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock.




-5-









 








          “Party” means any of the Company and the Investors.




          “Permitted Liens” means (i) liens with respect to Taxes not yet due and payable or which are
being contested in good faith by appropriate proceedings and for which appropriate reserves have
been established in accordance with GAAP, (ii) mechanics’, materialmen’s or contractors’ liens or
encumbrances or any similar lien or restriction and (iii) easements, rights-of-way, restrictions
and other similar charges and encumbrances not interfering with the ordinary conduct of the
business of the Company.




          “Person” means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, a
governmental entity or any department, agency or political subdivision thereof or any other entity.




          “Purchase Price” has the meaning set forth in Section 2.4(b).




          “Qualified IPO” has the meaning set forth in the Series D Certificate of Designation.




          “RCRA” means the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et
seq., and the rules and regulations promulgated thereunder.




          “Registration Rights Agreement” has the meaning set forth in the Recitals.




          “Regulatory Problem” has the meaning set forth in Section 5.12(a)(ii).




          “Requesting Investor” has the meaning set forth in Section 5.12(a)(i).




          “Requirements of Laws” means any foreign, federal, state and local laws, statutes,
regulations, rules, codes, ordinances, orders or requirements enacted, adopted, issued or
promulgated by any Governmental Authority (including those pertaining to electrical, building,
zoning, subdivision, land use, environmental and occupational safety and health requirements) or
common law.




          “Restricted Securities” means (i) the Series D Preferred Stock issued hereunder, (ii) the
Common Stock issued upon conversion or redemption of the Series D Preferred Stock, (iii) the
Warrants issued hereunder, (iv) the Common Stock issued upon exercise of the Warrants and (v) any
securities issued with respect to the securities referred to in clauses (i), (ii), (iii) or (iv)
above by way of a stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reincorporation. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they have been (a)
effectively registered under the Securities Act and disposed of in accordance with the registration
statement covering them, (b) distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or become
eligible for sale pursuant to Rule 144(k) (or any similar provision then in force)
under the Securities Act or (c) otherwise transferred and new certificates for them not
bearing the Securities Act legend prescribed by Section 6.3 have been delivered by the
Company in accordance with Section 6.4. Whenever any particular securities cease to be
Restricted


-6-









 







Securities, the holder thereof shall be entitled to receive from the Company, without
being charged therefor by the Company, new securities of like tenor not bearing a Securities Act
legend of the character prescribed by Section 6.3.




          “Schedule” means any schedule attached to this Agreement.




          “SEC” means the United States Securities and Exchange Commission, including any governmental
authority or agency succeeding to the functions thereof.




          “Second A&R Securityholders’ Agreement” has the meaning set forth in the Recitals.




          “Second Amended Series A Designation” means the Second Amended Certificate of Designation
relating to the Series A Preferred Stock, substantially in the form attached as Exhibit
A-1, as may be amended from time to time.




          “Second Closing Date” means December 19, 2007.




          “Securities Act” means the Securities Act of 1933.




          “Securities Exchange Act” means the Securities Exchange Act of 1934.




          “Series A Preferred Stock” means the Series A Redeemable Convertible Preferred Stock, $.0001
par value per share of the Company.




          “Series B Preferred Stock” means the Series B Redeemable Convertible Preferred Stock, $.0001
par value per share of the Company.




          “Series B Warrant” means a warrant to purchase one share of Common Stock in the form attached
as Exhibit A to the Series B Warrant Agreement.




          “Series B Warrant Agreement” means the Series B Warrant Agreement, dated as of the Second
Closing Date, by and among the Company and the holders of the Series B Warrants, as amended by that
certain Amendment, dated as of the Third Closing Date, pursuant to which the Series B Warrants are
issued.




          “Series C Preferred Stock” means the Series C Redeemable Convertible Preferred Stock, $.0001
par value per share of the Company.




          “Series C Warrant” means a warrant to purchase one share of Common Stock in the form attached
as Exhibit A to the Series C Warrant Agreement.




          “Series C Warrant Agreement” means the Series C Warrant Agreement, dated as of the Second
Closing Date, by and among the Company and the holders of the Series C
Warrants, as amended by that certain Amendment, dated as of the Third Closing Date, pursuant
to which the Series C Warrants are issued.




          “Series D Certificate of Designation” has the meaning set forth in the Recitals.




-7-









 








          “Series D Preferred Shares” has the meaning set forth in Section 2.1.




          “Series D Preferred Stock” has the meaning set forth in the Recitals.




          “Series D Unit” means one Series D Preferred Share and five (5) Series D Warrants.




          “Series D Warrant” means a warrant to purchase one share of Common Stock in the form attached
as Exhibit A to the Series D Warrant Agreement.




          “Series D Warrant Agreement” means the Warrant Agreement dated as of the Closing Date in
substantially the form attached hereto as Exhibit D under which the Series D Warrants will
be issued.




          “Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, association or other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more of the other Subsidiaries of that Person or a combination thereof. For
purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if such Person or
Persons shall be allocated a majority of the gains or losses of such limited liability company,
partnership, association or other business entity or shall be or control (or have the power to
control) a managing director, manager or general partner of such limited liability company,
partnership, association or other business entity.




          “Tax” (and, with correlative meaning, “Taxes” and “Taxable”) means:





     (i) any federal, state, local or foreign net income, gross income, gross receipts,
windfall profit, severance, property, production, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or add-on minimum, ad valorem, value-added,
transfer, stamp, or environmental tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to tax or additional amount imposed by any Governmental Authority; and




     (ii) any liability of the Company for the payment of amounts with respect to payments
of a type described in clause (i) as a result of any obligation of the Company under any Tax
sharing or indemnity arrangement.



          “Tax Return” means any return, report or similar statement required to be filed with respect
to any Tax (including any attached schedules), including any information return, claim for refund,
amended return or declaration of estimated Tax.




-8-









 








          “Third Closing Date” means May 30, 2008.




          “Transaction Documents” means the A&R Registration Rights Agreement, Second A&R
Securityholders’ Agreement, the A&R Series B Warrant Agreement, the A&R Series C Warrant Agreement,
the Second Amended Series A Designation, the Amended Series B Designation, the Amended Series C
Designation, the Series D Warrant Agreement and each of the other agreements, documents and
instruments expressly contemplated hereby and thereby.




          “Warrant” means any of, and “Warrants” means all of, the Series D Warrants.




     1.2.
Interpretation.



          (a) As used in this Agreement and each Transaction Document, unless the context clearly
indicates otherwise:





          (i) words used in the singular include the plural and words in the plural include the
singular;




          (ii) reference to any Person includes such Person’s successors and assigns, but only if
such successors and assigns are permitted by this Agreement or such other Transaction
Document, and reference to a Person in a particular capacity excludes such Person in any
other capacity;




          (iii) reference to any gender includes the other gender;




          (iv) whenever the words “include,” “includes” or “including” are used in this Agreement
or any Transaction Document, they shall be deemed to be followed by the words “without
limitation” or “but not limited to” or words of similar import;




          (v) reference to any Article, Section, Exhibit or Schedule means such Article or
Section of, or such Exhibit or Schedule to, this Agreement, as the case may be, and
references in any Section or definition to any clause means such clause of such Section or
definition;




          (vi) the words “herein,” “hereunder,” “hereof,” “hereto” and words of similar import
shall be deemed references to this Agreement as a whole and not to any particular Section or
other provision hereof;




          (vii) reference to any agreement, instrument or other document means such agreement,
instrument or other document as amended, supplemented and modified from time to time to the
extent permitted by the provisions thereof and by this Agreement;




          (viii) reference to any law (including statutes and ordinances) means such law
(including all rules and regulations promulgated thereunder) as amended, modified, codified
or reenacted, in whole or in part, and in effect at the time of determining compliance or
applicability, and reference to any particular provision of any



-9-









 







law shall be interpreted to
include any revision of or successor to that provision regardless of how numbered or
classified;




          (ix) relative to the determination of any period of time, “from” means “from and
including,” “to” means “to but excluding” and “through” means “through and including”;




          (x) in the event of any conflict between the provisions of the body of this Agreement
and the Exhibits or Schedules hereto, the provisions of the body of this Agreement shall
control; and




          (xi) the titles to Articles and headings of Sections contained in this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a part of or
to affect the meaning or interpretation of this Agreement.



          (b) This Agreement and each of the Transaction Documents were negotiated by the Parties with
the benefit of legal representation, and no rule of construction or interpretation otherwise
requiring this Agreement or any of the Transaction Documents to be construed or interpreted against
any Party shall apply to any construction or interpretation hereof. Subject to Section
9.6, this Agreement shall be interpreted and construed to the maximum extent possible so as to
uphold the enforceability of each of the terms and provisions hereof, it being understood and
acknowledged that this Agreement was entered into by the Parties after substantial negotiations and
with full awareness by the Parties of the terms and provisions hereof and the consequences thereof.




     1.3. Accounting Principles. The classification, character and amount of all assets, liabilities, capital accounts and
reserves and of all items of income and expense to be determined, and any consolidation or other
accounting computation to be made, and the interpretation of any definition containing any
financial term, pursuant to this Agreement shall be determined and made in accordance with GAAP.



ARTICLE II

AUTHORIZATION AND SALE OF SERIES D PREFERRED SHARES; CLOSING




     2.1. Authorization of the Series D Preferred Shares. Prior to the Closing, the Company shall authorize (i) the issuance and sale to the Investors
of an aggregate of up to Seven Hundred Thousand (700,000) shares of Series D Preferred Stock (the
“Series D Preferred Shares”) having the rights and preferences set forth in Series D Certificate of
Designation, (ii) the reservation for issuance of Seven Hundred Thousand (700,000) shares of Common
Stock upon conversion or redemption of the Series D Preferred
Shares and (iii) the reservation for issuance of an additional Two Million One Hundred
Thousand (2,100,000) shares of Common Stock upon exercise of the Warrants.



     2.2. Purchase and Sale of Series D Units. Subject to the terms and the conditions set forth herein, and in reliance upon the
representations and warranties of the Company and each Investor set forth herein or in any
certificate or other document delivered pursuant hereto, the Company shall issue, sell and deliver
to such Investor, free and clear of all Liens (except as set forth in the A&R Registration Rights
Agreement and the Second A&R Securityholders’



-10-









 







Agreement), and such Investor shall purchase at the
Closing the number of Series D Units set forth opposite such Investor’s name in the column labeled
“Series D Units Purchased at Closing” on Appendix I from the Company at a purchase price of
$3.00 per Series D Unit. The Series D Preferred Shares shall accrue dividends from the date of
issuance.



     2.3. Closings. The closing of the purchase and sale of the Series D Units shall take place at the offices of
GT, 5100 Town Center Circle, Suite 400, Boca Raton, Florida at 10:00 a.m., local time, on the date
of this Agreement, or at such other place or time or on such other date as shall be agreed to by
the Company and the Investors (the “Closing”). The time and date on which the Closing is actually
held is sometimes referred to herein as the “Closing Date”.



     2.4. Delivery of Series D Units; Payment of Purchase Price.



          (a) Subject to satisfaction or waiver of the conditions set forth in Article IV, at
the Closing, the Company shall issue and deliver to each Investor purchasing Series D Units, free
and clear of all Liens (except as set forth in the A&R Registration Rights Agreement and the Second
A&R Securityholders’ Agreement), (i) a stock certificate, duly executed by the Company and
registered in the Company’s stock ledger in the name of such Investor or such Investor’s nominee,
evidencing all of the Series D Preferred Shares being purchased by such Investor at the Closing and
(ii) a warrant certificate, duly executed by the Company and registered in the Company’s ledger in
the name of such Investor or such Investor’s nominee, evidencing all of the Series D Warrants being
purchased by such Investor at the Closing



          (b) Subject to satisfaction or waiver of the conditions set forth in Article III, as
payment in full for the Series D Units being purchased by an Investor at the Closing under this
Agreement, and against delivery of the stock and warrant certificates therefor as described in
subparagraph (a) above, such Investor shall deliver at the Closing the amount set opposite such
Investor’s name in the column labeled “Purchase Price” on Appendix I hereto to the account
of the Company by wire transfer of immediately payable funds or check (the “Purchase Price”).



     2.5. Waiver of Preemptive Rights. Upon delivery of its executed counterpart to the Second A&R Securityholders’ Agreement in
accordance with Section 4.1(b)(iv), each of the holders of the Series A Preferred
Shares consents to the issuance by the Company of, and waives its preemptive rights in respect
of, the Series D Preferred Stock.



ARTICLE III

CONDITIONS OF THE INVESTORS’ OBLIGATIONS




     3.1. Closing. The obligation of an Investor to purchase Series D Units at the Closing is subject to the
fulfillment to the satisfaction of such Investor at or prior to the Closing of each of the
following conditions:



          (a) Each of the representations and warranties of the Company contained in Article VII
shall be true, correct and complete on and as of the Closing Date as though then made, except for
such representations and warranties which expressly speak as of a certain date, which
representations and warranties shall be true, correct and complete in all material respects as of
the date specified;




-11-









 








          (b) All covenants, agreements and conditions contained in this Agreement to be performed or
complied with by the Company on or prior to the Closing Date shall have been performed or complied
with;




          (c) On or prior to the Closing Date, any authorizations, consents, approvals or permits of any
Governmental Authority that are required by law in connection with the lawful sale and issuance of
the Series D Units, and the consummation of the transactions contemplated by this Agreement and
each of the Transaction Documents, shall have been duly obtained by the Company and shall be
effective on and as of the Closing Date, except for any notice filings pursuant to Regulation D
under the Securities Act and pursuant to applicable state securities laws not required to be made
on or prior to the Closing Date;




          (d) No Event of Noncompliance (as defined in Series D Certificate of Designation), or event
which with notice or lapse of time or both would constitute such an event, shall have occurred; and




          (e) The Company shall have delivered to the Investors each of the following:





          (i) Stamped filed copy of the Certificate of Incorporation, as amended to date
including evidence of the filing of the Second Amended Series A Designation, the Amended
Series B Designation, the Amended Series C and the Series D Certificate of Designation
relating to the Series D Preferred Stock;




          (ii) Certificate of Good Standing and Certificate of Status of the Company, as
applicable, issued as of a recent date by the Secretary of State of the States of Delaware
and Florida;




          (iii) Certificate of the Chief Executive Officer or the President of the Company, dated
the Closing Date, to the effect that the conditions specified in Sections 3.1(a)
through 3.1(d) have been satisfied fully;




          (iv) Certificate of the Secretary or an Assistant Secretary of the Company, dated the
Closing Date, in form and substance reasonably satisfactory to the Investors, as to: (A) no
amendments to the Certificate of Incorporation since the date of certification referenced in
Section 3.1(e)(i) above; (B) the A&R By-laws; (C) the resolutions duly adopted by
the Board authorizing and approving, as appropriate, the execution, delivery and performance
of this Agreement and each of the Transaction Documents to which the Company is a party and
the transactions contemplated hereby and thereby, including the issuance, sale and delivery
of the Series D Units and the reservation for issuance of the Conversion Common Shares; (D)
resolutions duly adopted by a majority of the stockholders of the Company approving the
Second Amended Series A Designation, the Amended Series B Designation, the Amended Series C
Designation and the Series D Designation; and (D) the incumbency and signatures of the
officers of the Company authorized to execute and deliver this Agreement and any of the
Transaction Documents to which the Company is a party;



-12-









 






          (v) stock certificates representing the Series D Preferred Shares, duly executed by the
Company and registered in the names of the Investors (or their nominees);




          (vi) its executed counterpart to this Agreement;




          (vii) the Series D Warrant Agreement, duly executed by the Company, together with
Warrant Certificates (as defined in the Series D Warrant Agreement), duly executed by the
Company and registered in the names of the Investors (or their nominees);




          (viii) the Second A&R Securityholders’ Agreement, duly executed by the Company, the
Investors, and the holders of at least a majority of the outstanding shares of Common Stock
on a fully-diluted basis (including a majority of the Other Preferred Stock voting as a
separate class and on a fully-diluted and as converted basis);




          (ix) the A&R Registration Rights Agreement, duly executed by the Company, the holders
of a majority of the Registrable Securities (as defined in the Registration Rights
Agreement) and the Investors;




          (x) the A&R Series B Warrant Agreement, duly executed by the Company and at least a
majority of the holders of the Series B Warrants;




          (xi) the A&R Series C Warrant Agreement, duly executed by the Company and at least a
majority of the holders of the Series C Warrants; and




          (xii) such other documents, instruments, approvals or opinions relating to the
transactions contemplated by this Agreement as the Investors may reasonably request.



     3.2. Waiver.



          (a) Any condition specified in this Article III may be waived if consented to in
writing by an Investor.




          (b) In the event that either or both of the conditions specified in Section 3.1(a) or
3.1(b) is waived in writing by an Investor in connection with the Closing, such waiver
shall serve as a waiver of such Investor’s (but not any other Investor’s) rights or remedies
against the Company for any claims or losses based solely on such waived condition not being
satisfied at the applicable Closing, but shall not constitute a waiver by such Investor of any
rights or remedies accruing to such Investor thereafter.




ARTICLE IV

CONDITIONS OF THE COMPANY’S OBLIGATIONS




     4.1. Closing. The obligation of the Company to issue, sell and deliver the Series D Units at the Closing is
subject to the fulfillment to the reasonable satisfaction of the Company at or prior to the Closing
of each of the following conditions:



-13-









 





          (a) Each of the representations and warranties of the Investors contained in Article
VIII shall be true, correct and complete on and as of the Closing Date as though then made,
except for such representations and warranties which expressly speak as of a certain date, which
representations and warranties shall be true, correct and complete in all material respects as of
the date specified; and




          (b) The Investors shall have delivered to the Company each of the following:





          (i) the Purchase Price in accordance with Section 2.4(b);




          (ii) its executed counterpart signature page to this Agreement;




          (iii) its executed counterpart signature page to the A&R Registration Rights Agreement;
and




          (iv) its executed counterpart signature page to the Second A&R Securityholders’
Agreement, duly executed by each Investor.



          (c) The Company shall have received each of the following:





          (i) executed counterparts to the Second A&R Securityholders’ Agreement from the holders
of at least a majority of the outstanding shares of Common Stock on a fully-diluted basis
(including a majority of the Other Preferred Stock voting as a separate class and on a
fully-diluted and as converted basis);




          (ii) executed counterparts to the A&R Registration Rights Agreement from the holders of
a majority of the Registrable Securities (as defined in the Registration Rights Agreement);




          (iii) executed counterparts to the A&R Series B Warrant Agreement from at least a
majority of the holders of the Series B Warrants;




          (iv) executed counterparts to the A&R Series C Warrant Agreement from at least a
majority of the holders of the Series C Warrants; and




          (v) approval of the Second Amended Series A Designation, the Amended Series B
Designation, the Amended Series C Designation and the Series D Designation from a majority
of the stockholders of the Company.



     4.2. Waiver. Any condition specified in this Article IV may be waived if consented to in writing by
the Company.



-14-









 





ARTICLE V

COVENANTS




     5.1. Financial Statements and Other Information.



          (a) The Company shall deliver to the Investors or holders of any Conversion Common Shares:





          (i) as soon as available but in any event within thirty (30) days after the end of each
monthly accounting period in each fiscal year (other than the third monthly accounting
period in each fiscal quarter), unaudited statements of income and cash flows of the Company
for such monthly period and for the period from the beginning of the fiscal year to the end
of such month, and an unaudited balance sheet of the Company as of the end of such monthly
period, setting forth in each case comparisons to the Company’s annual budget and to the
corresponding period in the preceding fiscal year, and all such statements shall be prepared
in accordance with GAAP, subject to the absence of footnote disclosures and to normal
year-end adjustments, and shall be certified by the Company’s Chief Financial Officer;




          (ii) as soon as available but in any event within forty-five (45) days after the end of
each fiscal quarter in each fiscal year (other than the fourth fiscal quarter of each year),
unaudited statements of income and cash flows of the Company for such fiscal quarter and for
the period from the beginning of the fiscal year to the end of such fiscal quarter, and an
unaudited balance sheet of the Company as of the end of such fiscal quarter, setting forth
in each case comparisons to the Company’s annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in accordance with
GAAP, subject to the absence of footnote disclosures and to normal year-end adjustments, and
shall be certified by the Company’s Chief Financial Officer;




          (iii) as soon as available but in any event within ninety (90) days after the end of
each fiscal year, audited statements of income and cash flows of the Company for such fiscal
year, and an audited balance sheet of the Company as of the end of such fiscal year prepared
in accordance with GAAP, and accompanied by, with respect to the consolidated portions of
such statements, an opinion of an independent accounting firm of recognized regional
standing selected by the Board and reasonably acceptable to a majority of the Investors,
together with comparisons to the Company’s annual budget and to the preceding fiscal year;




          (iv) accompanying the financial statements referred to in subparagraphs (ii) and (iii),
an officer’s certificate stating that there is no event in existence that, with notice or
the passage of time or both, might become an Event of Noncompliance or, if any such event
exists, specifying the nature and period of existence thereof and what actions the Company
has taken or has proposed to take with respect thereto;




          (v) promptly upon receipt thereof, any additional reports, management letters or other
detailed information concerning significant aspects of the Company’s operations or financial
affairs given to the Company by its independent accountants (and not otherwise contained in
other materials provided hereunder); and




-15-











 






          (vi) within ten (10) days after transmission thereof, copies of all financial
statements, proxy statements, reports and any other general written communications that the
Company sends to its stockholders and copies of all press releases and other statements made
available generally by the Company to the public concerning material developments in the
Company’s business and not otherwise posted on the Company’s external website;


provided that any Investor or holder of Series D Preferred Shares or Conversion Common
Shares shall be entitled to provide notice to the Company that it elects not to receive copies of
the financial statements and other documentation referred to in this Section 5.1(a); and
provided further that the Company shall be entitled to satisfy its obligations under this
Section 5.1(a) through electronic delivery of the financial statements and other
documentation referred to in this Section 5.1(a) or by making such information available
through a password-protected website.




          (b) Each of the financial statements referred to in subparagraphs (i-iii) shall fairly present
in all material respects the financial condition of the Company as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to changes resulting from
normal year-end adjustments (none of which would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect).




     5.2. Inspection Rights. The Company shall permit each holder of Series D Preferred Shares or Conversion Common
Shares or its representative, upon reasonable notice and during normal business hours and at such
other times as such holder may reasonably request, to (i) visit and inspect any of the properties
of the Company and its Subsidiaries, (ii) examine the corporate and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom (subject to the
obligations set forth in Section 7.5 (Confidentiality) of the Second A&R Securityholders’
Agreement) and (iii) discuss the affairs, finances and accounts of the Company and its Subsidiaries
with the directors, officers and auditors of the Company (it being agreed that this provision shall
constitute permission by the Company granted to such auditors to discuss the affairs, finances and
accounts of the Company and its Subsidiaries with such holder in accordance with the terms hereof).



     5.3. Fiscal Year. The Company shall maintain, and shall cause each of its Subsidiaries to maintain, a fiscal
year ending on December 31.



     5.4. Insurance. The Company shall, and shall cause each of its Subsidiaries to, maintain or cause to be
maintained with nationally recognized insurers, insurance with respect to its properties and
businesses and the properties and businesses of its Subsidiaries against loss or damage as may be
required by law or as is customary for companies similarly situated and which reflects the
Company’s reasonable and good-faith business judgment as to the types and amounts of insurance that
should be carried in light of conditions in the insurance industry, and upon request provide a
holder of Series D Preferred Shares or Conversion Common Shares with evidence of the same. The
insurance coverage of the Company and its Subsidiaries shall be evaluated annually by the Board.



     5.5. Tax Matters. The Company will, and will cause each of its Subsidiaries to, pay or cause to be paid all
Taxes levied upon any of its properties or assets or those of its



-16-









 







Subsidiaries or in respect of its or their respective franchises, businesses, income or
profits before the same become delinquent, except (i) that (unless and until foreclosure, sale or
other similar proceedings shall have been commenced) no such charge need be paid if being contested
in good faith and by appropriate proceedings promptly initiated and diligently conducted if (x)
such reserve or other appropriate provision, if any, as shall be required by sound accounting
practice shall have been made therefor, and (y) no property or assets are in imminent danger of
forfeiture and (ii) for such failures to pay or cause to pay which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect. The Company will
withhold all amounts for Taxes required to be withheld by it under Requirements of Law. The
Company will treat the Series D Preferred Shares and the Conversion Common Shares as stock of the
Company for federal, state and local income tax purposes (except to the extent different treatment
were to be required by law).



     5.6. Payment of Indebtedness. The Company shall, and cause each of its Subsidiaries to, pay all Indebtedness of the
Company and each of its Subsidiaries aggregating at least One Hundred Thousand Dollars and 00/100
($100,000.00) as and when the same shall become due and payable (subject to any applicable grace
periods).



     5.7. Compliance With Laws; Obligations. The Company shall, and shall cause each of its Subsidiaries to, comply with all applicable
Requirements of Laws and with all contracts and agreements to which it is a party or shall become a
party the violation of which Requirements of Laws, contracts or agreements, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect, and the Company shall
perform, and shall cause each of its Subsidiaries to perform, all obligations which it has or shall
incur, the violation or lack of performance of which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.



     5.8. Preservation of Corporate Existence and Property. The Company shall, and shall cause each of its Subsidiaries to, preserve and maintain (i)
its corporate existence, (ii) its rights, franchises and privileges and (iii) all its assets and
properties in adequate working order and condition, with the exception of (x) ordinary wear and
tear, (y) casualty losses covered by insurance or where the failure to be so fully covered did not
constitute a breach of Section 5.4 and (z) as otherwise approved by the Board.



     5.9. Board. The Company shall hold meetings of its Board not less often than once each fiscal quarter,
such meetings to be held in person or via telephone conference call, or any combination thereof as
permitted by the A&R By-laws.



     5.10. Board of Subsidiaries. The Company shall cause the board of directors of each Subsidiary of the Company to be the
same as the Board, in accordance with the terms of the Second A&R Securityholders’ Agreement.



     5.11. Use of Proceeds. The Company shall use the proceeds of the sale of the Series D Preferred Shares to provide
for general corporate purposes and to make payments required pursuant to the terms of a settlement
agreement with Kimball International, Inc. and Kimball Electronics, Inc. currently being negotiated
at the time of this Agreement and disclosed on Schedule 7.6 (Absence of Undisclosed Liabilities)
and Schedule 7.12 (Compliance with Laws;



-17-









 







Litigation). The Company agrees that it shall not, and it shall not permit any of its
Subsidiaries to, use, directly or indirectly, any of the proceeds from the sale of the Series D
Preferred Shares for the purpose, whether immediate, incidental or ultimate, of “purchasing or
carrying margin stock” within the meaning of Regulations G, U and X of the Board of Governors of
the Federal Reserve System, as amended from time to time.



     5.12. Regulatory Compliance Cooperation.



          (a) If any Investor determines that it has a Regulatory Problem, the Company shall take all
such actions as are reasonably requested by such Investor (a “Requesting Investor”) in order to (i)
effectuate and facilitate any transfer by such Investor of any securities of the Company then held
by such Investor, (ii) permit such Investor (or any Affiliate of such Investor) to exchange all or
any portion of the voting equity then held by such Investor on a share-for-share basis for shares
of a class of nonvoting equity of the Company, which nonvoting equity shall be identical in all
respects to such voting equity, except that such nonvoting equity shall be convertible into voting
equity on such terms as are requested by such Investor in light of regulatory considerations then
prevailing, and (iii) amend this Agreement, the Certificate of Incorporation and other related
agreements to effectuate and reflect the foregoing. Such actions may include:





          (i) entering into such additional agreements as are requested by such Investor to
permit any Person(s) designated by such Investor to exercise any voting power that is
relinquished by such Investor upon any exchange of Common Stock for nonvoting common stock
of the Company; and




          (ii) entering into such additional agreements, adopting such amendments to the
Certificate of Incorporation and A&R By-laws and taking such additional actions as are
reasonably requested by such Investor in order to effectuate the intent of the foregoing.



          (b) For purposes of this Agreement, a “Regulatory Problem” means any set of facts or
circumstances where it has been asserted by any governmental regulatory agency (or any Investor
believes that there is a substantial risk of such assertion) that such Investor and its Affiliates
are not entitled to hold, or exercise any significant right with respect to, the Series D Preferred
Shares or the Conversion Common Shares. The Requesting Investor shall pay all expenses and costs,
including the Company’s reasonable expenses and costs, incurred in connection with a Regulatory
Problem.




     5.13. Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of issuance upon the conversion or
redemption of the Series D Preferred Shares, such number of shares of Common Stock issuable upon
the conversion or redemption of all outstanding Series D Preferred Shares. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all Taxes and Liens other than those created by the holder of such
shares of Common Stock.



-18-









 





     5.14. Certain Insurance Coverage. The Company shall at all times maintain in full force and effect directors and officers
insurance and indemnification policy providing coverage in amounts deemed appropriate by a majority
of the independent directors of the Board.



     5.15. Second A&R Securityholders’ Agreement. The Company agrees to cause each Person who acquires shares of capital stock of the Company
after the date hereof to execute a joinder to the Second A&R Securityholders’ Agreement in which
such Person agrees to be bound by all of the terms and conditions of the Second A&R
Securityholders’ Agreement.



ARTICLE VI




TRANSFER OF RESTRICTED SECURITIES



     6.1. General Provisions. Restricted Securities are transferable only pursuant to (a) public offerings registered
under the Securities Act, (b) Rule 144 or Rule 144A of the SEC (or any similar rule or rules then
in force) if such rule is available and (c) any other legally available means of transfer
(including, if applicable, in accordance with the terms of the Second A&R Securityholders’
Agreement), which may include an opinion of counsel reasonably satisfactory to the Company of the
legality of such transfer. Notwithstanding the foregoing, the Restricted Securities are subject to
certain restrictions on transfer as set forth in the Second A&R Securityholders’ Agreement.



     6.2. Rule 144A. Upon the request of any Investor, the Company shall promptly supply to such Investor or its
prospective transferees all information regarding the Company required to be delivered in
connection with a transfer pursuant to Rule 144 or Rule 144A under the Securities Act.



     6.3. Legend. Each certificate or instrument representing Restricted Securities shall be imprinted with a
legend, among other legends, in substantially the form required by Section 7.4 (Legend) of the
Second A&R Securityholders’ Agreement.



     6.4. Legend Removal. If any Restricted Securities become eligible for sale pursuant to Rule 144(k) under the
Securities Act, the Company shall, upon the request of the holder of such Restricted Securities,
remove the legend set forth in Section 7.4 (Legend) of the Second A&R Securityholders’ Agreement
from the certificates for such Restricted Securities.



ARTICLE VII

REPRESENTATIONS AND WARRANTIES OF THE COMPANY




          As an inducement to the Investors to enter into this Agreement and to purchase the Series D
Units, and except as set forth on the Disclosure Schedule attached hereto specifically identifying
the Section of this Article VII to which such exception relates (which in each case shall
constitute the sole representation and warranty as to which such exception shall apply), the
Company hereby represents and warrants to the Investors and agrees as follows:



     7.1. Organization, Qualifications and Corporate Power.



          (a) The Company and each of its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the State of its organization. The



-19-









 







Company and each of its Subsidiaries has full legal and corporate power and authority to own
or lease and to operate and use its properties and assets and to carry on its business as now
conducted and as proposed to be conducted by it. The Company and each of its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of its properties,
makes such qualification necessary, other than in such jurisdictions where the failure to be so
qualified, individually or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. Schedule 7.1(a) sets forth for the Company and each of its Subsidiaries
their respective states of incorporation and the other jurisdictions in which they are qualified to
do business as a foreign corporation. No other jurisdiction has demanded, requested or otherwise
indicated that the Company or any of its Subsidiaries is required to so qualify.



          (b) The Company has full legal and corporate power and authority (i) to execute, deliver and
perform this Agreement and each of the Transaction Documents, (ii) to issue, sell and deliver the
Series D Preferred Shares and the Conversion Common Shares and (iii) to carry out fully and perform
its obligations under the terms hereof and thereof.



          (c) The Company and each of its Subsidiaries are in compliance in all material respects with
all of the terms and provisions of their respective organizational documents. The Company has made
available to the Investors true, complete and accurate copies of (i) the Certificate of
Incorporation, (ii) the A&R By-laws, (iii) the minute books of the Company and each of its
Subsidiaries and (iv) the stock ledger of the Company and each of its Subsidiaries.



     7.2. Authorization; No Conflicts.



          (a) Except as set forth in Schedule 7.2, the execution, delivery and performance of
this Agreement and each of the Transaction Documents, and the issuance, sale and delivery of the
Series D Preferred Shares and the Conversion Common Shares, have been duly authorized and approved
by all requisite corporate action of the Company. This Agreement has been duly authorized,
executed and delivered by the Company and (assuming the due execution and delivery hereof by each
of the Investors) is the valid and binding obligation of the Company enforceable in accordance with
its terms, and each of the Transaction Documents to which the Company is a party has been duly
authorized by the Company and, upon execution and delivery by the Company and (assuming the due
execution and delivery thereof by each of the other parties thereto), will be a valid and binding
obligation of the Company enforceable in accordance with its respective terms, in each case subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the
enforcement thereof or by general equitable principles, (ii) laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) to the extent any
indemnification provisions may be limited by applicable federal or state securities laws.




          (b) Except as set forth in Schedule 7.2, neither the execution and delivery of this
Agreement or any of the Transaction Documents or the consummation of any of the transactions
contemplated hereby or thereby nor compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof will:




-20-









 









          (i) conflict with, result in a breach of the terms, conditions or provisions of, or
constitute a default, an event of default or an event creating rights of acceleration,
termination or cancellation or a loss of rights under, or result in the creation or
imposition of any Lien upon any of the assets or properties of the Company or any of its
Subsidiaries, under (A) their respective organizational documents, (B) any note, instrument,
contract, agreement, mortgage, lease, license, franchise, permit or other authorization,
right, restriction or obligation to which the Company or any of its Subsidiaries is a party
or any of their respective assets or properties is subject or by which the Company or any of
its Subsidiaries is bound, (C) any Court Order to which the Company or any of its
Subsidiaries is a party or any of their respective assets or properties is subject or by
which the Company or any of its Subsidiaries is bound, or (D) any Requirements of Laws
affecting the Company, any of its Subsidiaries or any of their respective assets or
properties, except for, in the case of this clause (D), any matters that, individually or in
the aggregate, could not reasonably be expected to have a Material Adverse Effect; or




          (ii) require the approval, consent, authorization or act of, or the making by the
Company or any of its Subsidiaries of any declaration, filing or registration with, any
Person, except for any notice filings required to be made pursuant to Regulation D under the
Securities Act and pursuant to applicable state securities laws.



     7.3. Subsidiaries and Investments. The Company does not have and never has had any Subsidiaries. The Company does not,
directly or indirectly, (i) own of record or beneficially or hold the right to acquire any
outstanding voting securities or other equity interests in any Person or (ii) control or direct the
operations of any Person.



     7.4. Authorized Capital Stock.



          (a) As of August 10, 2009, the authorized capital stock of the Company shall consist solely of
(i) Thirty Million (30,000,000) shares of Common Stock, of which One Million Seven Hundred Sixty
Seven Thousand One Hundred Fifty Six (1,767,156) shares are issued and outstanding; and (ii) Six
Million (6,000,000) shares of preferred stock, $.0001 par value per share, of which (A) Nine
Hundred Sixty Two Thousand One Hundred One (962,101) shares have been designated Series A Preferred
Stock and all of which are issued and outstanding, (B) One Million Eight Hundred Thousand
(1,800,000) shares have been designated Series B Preferred Stock, of which One Million Six Hundred
Nineteen Thousand One Hundred Twenty Seven (1,619,127) shares are issued and outstanding and (C)
One Million Three Hundred Fifty (1,350,000) shares have been designated as Series C Preferred
Stock, of which Three Hundred Sixty Five Thousand Nine Hundred Ninety Six (365,996) shares are
issued and outstanding. The Company has reserved for issuance (i) sufficient shares of Common
Stock for issuance upon conversion or redemption of all outstanding or authorized shares of the
Other Preferred Stock, (ii) Two Million Six Hundred Thousand (2,600,000) shares of Common Stock
upon exercise of options pursuant to its Amended and Restated 2004 Stock Option Incentive Plan, as
amended by that certain First Amendment, dated as of July 23, 2009, (iii) Nine Million (9,000,000)
shares of Common Stock upon exercise of the Series B Warrants and (iv) Six Million Seven Hundred
Fifty Thousand (6,750,000) shares of Common Stock upon exercise of the Series C Warrants.




-21-









 








          (b) Immediately after the Closing and assuming the issuance and sale of all of the Series B
Units, the capitalization of the Company shall be as set forth on Schedule 7.4, which
reflects the capitalization of the Company both on an actual shares outstanding basis and on a
fully diluted basis assuming conversion of all convertible securities and the exercise of all
outstanding options and warrants and all options reserved for future grant under any stock option
plans and sets forth any other right to purchase shares of capital stock of the Company or any of
its Subsidiaries.



          (c) Except as set forth in Schedule 7.4, no Person is entitled to any preemptive right
or right of first refusal with respect to the issuance of any Series D Preferred Shares, except as
contemplated by the Second A&R Securityholders’ Agreement or the Second Amended Series A
Designation. There are no outstanding preemptive rights, options, warrants, conversion rights,
agreements or other rights to purchase any of the authorized but unissued capital stock of the
Company or any of its Subsidiaries or any securities convertible or exchangeable into any capital
stock of the Company or any of its Subsidiaries, other than (i) those issued, reserved or committed
to be issued pursuant to this Agreement, (ii) those contemplated by the Second A&R Securityholders’
Agreement and (iii) those set forth on the Schedule 7.4.



          (d) Neither the Company nor any of its Subsidiaries is a party to any agreement with the
holder of any of its securities that requires the Company or any of its Subsidiaries to purchase
any of such securities from their holder under any circumstances, except for the redemption rights
of the Series D Preferred Shares contemplated by the Certificate of Incorporation.



          (e) Except as set forth in the Second A&R Securityholders’ Agreement or the Certificate of
Incorporation, neither the Company nor any of its Subsidiaries is a party or subject to any
agreement or understanding, and neither the Company nor any of its Subsidiaries has received any
written notice of any agreement or understanding between any Persons, that affects or relates to
the voting or giving of written consents with respect to any of the capital stock of the Company or
any of its Subsidiaries.



          (f) All outstanding securities of the Company and each of its Subsidiaries were issued in
compliance with all federal and state securities laws.



          (g) Neither the Company nor any of its Subsidiaries has registered any securities under the
Securities Act or the Securities Exchange Act. Except as provided in the A&R Registration Rights
Agreement, neither the Company nor any of its Subsidiaries is presently under any obligation or has
granted any rights to register any of its securities under the Securities Act.



          (h) The Series D Preferred Shares, when issued, sold and delivered in accordance with the
terms of this Agreement, will be duly and validly issued, fully paid, non-assessable and free and
clear of all Liens except any created by or through the holder thereof, and will be free of
restrictions on transfer other than restrictions on transfer under this Agreement and the Second
A&R Securityholders’ Agreement and under applicable state and federal securities laws, and will be
issued in compliance with all state and federal securities laws.



-22-









 





          (i) The Conversion Common Shares issuable upon conversion or redemption of the Series D
Preferred Shares have been duly and validly reserved for issuance and, upon issuance in accordance
with the conversion or redemption provisions of the Series D Preferred Shares, will be duly and
validly issued, fully paid, non-assessable and free and clear of all Liens except any created by or
through the holder thereof, and will be free of restrictions on transfer other than restrictions on
transfer under this Agreement and the Second A&R Securityholders’ Agreement and under applicable
state and federal securities laws, and will be issued in compliance with all state and federal
securities laws then in effect.



     7.5. Financial Statements. Schedule 7.5 contains the unaudited balance sheet of the Company as of June 30,
2009 (the “Latest Balance Sheet”) and the related statements of income and cash flow (or the
equivalent) for the six (6) month period then ended. Each of the foregoing financial statements
has been prepared in accordance with GAAP. The foregoing financial statements present fairly the
consolidated financial position, results of operations and cash flows of the Company and its
Subsidiaries as of June 30, 2009.



     7.6. Absence of Undisclosed Liabilities. Except as set forth in Schedule 7.6, neither the Company nor any of its
Subsidiaries is subject to any liability (including unasserted claims), whether known or unknown,
whether absolute, contingent, accrued or otherwise, that is not shown or which is in excess of
amounts shown or reserved for in the Latest Balance Sheet, other than liabilities reasonably
incurred after the date of the Latest Balance Sheet in the ordinary course of business consistent
with past practice.



     7.7. No Material Adverse Effect. Except as set forth in Schedule 7.7, since the date of the Latest Balance Sheet,
there has not been any effect, change or development that, individually or in the aggregate with
such other effects, changes or developments, has had, or could reasonably be expected to have, a
Material Adverse Effect.



     7.8. Title to Properties; Leasehold Interests. Except as set forth in Schedule 7.8:



          (a) The Company or its Subsidiaries has good and marketable title to the assets and properties
reflected on the Latest Balance Sheet or acquired since the date of the Latest Balance Sheet (other
than properties and assets disposed of in the ordinary course of business consistent with past
practice since the date of the Latest Balance Sheet), and all such properties and assets of the
Company or its Subsidiaries are free and clear of all Liens (other than Permitted Liens).



          (b) Each lease under which the Company or any of its Subsidiaries is a lessee of any property,
real or personal, is a valid and subsisting agreement with respect to the Company or its
Subsidiaries, as the case may be, and, to the Knowledge of the Company, with respect to the other
parties thereto, without any material default of the Company or any of its Subsidiaries thereunder
and, to the Knowledge of the Company, without any material default thereunder of any other party
thereto.



          (c) The Company or its Subsidiaries owns, or has a valid leasehold interest in, all the assets
or properties used in, or necessary for, the conduct of its respective business as presently
conducted.



-23-









 





     7.9. Tax Matters.



          (a) (i) The Company and each of its Subsidiaries has timely filed all Tax Returns required to
be filed by it; (ii) all such Tax Returns are complete and accurate in all material respects,
disclose all Taxes required to be paid by the Company or any of its Subsidiaries for the periods
covered thereby and have been prepared in compliance with all applicable laws and regulations;
(iii) the Company or its Subsidiaries has timely paid all Taxes (whether or not shown on such Tax
Returns) due and owing by it and has withheld and paid over to the appropriate taxing authority all
Taxes which it is required by law to withhold or to collect for payment from amounts paid or owing
to any employee, stockholder, creditor or other third party; (iv) neither the Company nor any of
its Subsidiaries has waived or been requested to waive any statute of limitations in respect of
Taxes which waiver is currently in effect; (v) neither the Company nor any of its Subsidiaries is
currently the beneficiary of any extension of time within which to file any Tax Return; (vi) there
is no action, suit, investigation, audit, claim or assessment pending or, to the Knowledge of the
Company, proposed or threatened with respect to Taxes of the Company or any of its Subsidiaries,
and no information related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; (vii) there are no Liens for Taxes upon the assets or properties of the
Company or any of its Subsidiaries except Liens relating to current Taxes not yet due; (viii) there
are no material unresolved questions or claims concerning the Company’s or any of its Subsidiaries’
Tax liability; and (ix) the Company is not and has not been an S corporation.



          (b) Neither the Company nor any of its Subsidiaries is liable for the Taxes of another Person
in a material amount (i) under Treasury Regulation § 1.1502-6 (or comparable provisions of state,
local or foreign law), (ii) as a transferee or successor, (iii) by contract or indemnity or (iv)
otherwise. Neither the Company nor any of its Subsidiaries is a party to any Tax sharing or
indemnity agreements. Neither the Company nor any of its Subsidiaries has been a member of any
affiliated group as defined in Section 1504 of the Code that has filed a consolidated return for
federal income tax purposes (or any similar group under state, local or foreign law). Neither the
Company nor any of its Subsidiaries has made any payments, is obligated to make payments or is a
party to an agreement that could obligate it to make any payments that would not be deductible
under Section 280G of the Code.



     7.10. Contracts and Commitments.



          (a) Except as expressly contemplated by this Agreement or as set forth in Schedule
7.10(a), neither the Company nor any of its Subsidiaries is a party to or bound by any:




          (i) Contract for the employment of any officer, individual employee or other Person or
Contract relating to loans to officers, directors or Affiliates;




          (ii) Contract under which the Company or any of its Subsidiaries has advanced, loaned
or extended credit to any other Person amounts that in the aggregate exceed Ten Thousand
Dollars and 00/100 ($10,000.00);




          (iii) Contract that provides for, or relates to, the incurrence by the Company or any
of its Subsidiaries of debt for borrowed money, other Indebtedness or



-24-









 







the mortgaging, pledging or otherwise placing a Lien on any material asset or material
group of assets of the Company or any of its Subsidiaries;




          (iv) Contract that provides for a guarantee of any obligation of any Person or provides
that the Company or any of its Subsidiaries must assume or become liable for any
Indebtedness of any Person;




          (v) Contract under which the Company or any of its Subsidiaries is lessee of or holds
or operates any property, real or personal, owned by any other Person;




          (vi) Contract under which the Company or any of its Subsidiaries is lessor of or
permits any third party to hold or operate any property, real or personal, owned or
controlled by the Company or any of its Subsidiaries;




          (vii) assignment, license, indemnification or agreement with respect to any intangible
property (including any Intellectual Property Rights);




          (viii) sales, distribution or franchise Contract;




          (ix) Contract that is not terminable by the Company or any of its Subsidiaries upon
less than thirty (30) days notice without penalty and that involves consideration in excess
of Twenty Five Thousand Dollars and 00/100 ($25,000.00) in any twelve (12) month period;




          (x) Contract that prohibits the Company or any of its Subsidiaries from freely engaging
in any business or competing anywhere in the world; or




          (xi) any other Contract that is material to the Company’s or any of its Subsidiaries’
operations or business prospects as currently contemplated.



          (b) Each of the Contracts listed in Schedule 7.10(a) (collectively, the “Material
Contracts”) constitutes a valid and binding obligation of the Company or, if applicable, one of its
Subsidiaries and, to the Knowledge of the Company, of each other party thereto and is in full force
and effect and (except for those Material Contracts that by their terms will expire prior to the
applicable Closing Date or are otherwise terminated prior to the applicable Closing Date in
accordance with the provisions hereof) will continue in full force and effect after the Closings,
in each case without breaching the terms thereof or resulting in the forfeiture or impairment of
any rights thereunder and without the consent, approval or act of, or the making of any filing
with, any other party. The Company and, if applicable, its Subsidiaries, have fulfilled and
performed their material obligations under each Material Contract, and neither the Company nor any
of its Subsidiaries is in, or alleged to be in, default under or breach of, nor is there or is
there alleged to be any basis for termination of, any Material Contract, and to the Knowledge of
the Company no other party to any of the Material Contracts has breached or defaulted thereunder,
and no event has occurred and no condition or state of facts exists that, with the passage of time
or the giving of notice or both, would constitute such a default or breach by the Company, any of
its Subsidiaries or, to the Knowledge of the Company, by any such other party. Neither the Company
nor any of its Subsidiaries has any present expectation or intention



-25-









 







of not fully performing all its obligations under each Material Contract, and the Company does
not have Knowledge of any anticipated breach by any other party to any Material Contract.



     7.11. Intellectual Property Rights.



          (a) Schedule 7.11 contains a complete and accurate list of all material (i) patented
or registered Intellectual Property Rights owned or used by the Company or any of its Subsidiaries,
(ii) pending patent applications and applications for registrations of other Intellectual Property
Rights filed by the Company or any of its Subsidiaries, (iii) unregistered trade names and
corporate names owned or used by the Company or any of its Subsidiaries and (iv) unregistered
trademarks, service marks, copyrights, mask works and computer software owned or used by the
Company or any of its Subsidiaries, other than “off the shelf” computer software. Schedule
7.11 also contains a complete and accurate list of all exclusive licenses granted by the
Company or any of its Subsidiaries to any third party with respect to any Intellectual Property
Rights and all licenses and other rights granted by any third party to the Company or any of its
Subsidiaries with respect to any Intellectual Property Rights, in each case identifying the subject
Intellectual Property Rights. Except as set forth on Schedule 7.11, the Company or its
Subsidiaries owns all right, title and interest to, or has the right to use pursuant to a valid
license, all Intellectual Property Rights necessary for the operation of the business of the
Company and its Subsidiaries as presently conducted and as presently proposed to be conducted, free
and clear of all Liens. Except as set forth on Schedule 7.11, the loss or expiration of
any Intellectual Property Right or related group of Intellectual Property Rights owned or used by
the Company or any of its Subsidiaries has not had, and is not reasonably expected to have, a
Material Adverse Effect, and no such loss or expiration is threatened, pending or reasonably
foreseeable.




          (b) Except as set forth in Schedule 7.11, (i) there have been no claims made against
the Company or any of its Subsidiaries asserting the invalidity, misuse or unenforceability of any
of the Intellectual Property Rights listed in Schedule 7.11, and, to the Knowledge of the
Company, there are no grounds for the same; (ii) neither the Company nor any of its Subsidiaries
has received any written notices of, and, to the Knowledge of the Company, there is not a
reasonable likelihood of, any infringement or misappropriation by, or conflict with, any third
party with respect to such Intellectual Property Rights (including any demand or request that the
Company or any of its Subsidiaries license any rights from a third party); (iii) the conduct of the
Company’s and its Subsidiaries’ business has not infringed, misappropriated or conflicted with and
does not infringe, misappropriate or conflict with any Intellectual Property Rights of other
Persons; and (iv) to the Knowledge of the Company, the Intellectual Property Rights owned by or
licensed to the Company or any of its Subsidiaries have not been infringed, misappropriated or
conflicted by other Persons. The transactions contemplated by this Agreement will not have, and
are not reasonably expected to have, a Material Adverse Effect on the Company’s or its
Subsidiaries’ right, title and interest in and to the Intellectual Property Rights listed in
Schedule 7.11.




     7.12. Compliance with Laws; Litigation. Except (i) for the matters covered by the representations set forth in Sections
7.11 (Intellectual Property), 7.14 (Government Approvals; No Registration),
7.18 (ERISA), 7.19 (Environmental Matters) and 7.22 (Investment Company),



-26-









 







as to which the representations in Sections 7.12(a) and 7.12(b) shall not
apply, and (ii) as set forth in Schedule 7.12:



          (a) The assets of the Company and its Subsidiaries and their uses comply with all applicable
Requirements of Laws and Court Orders, except where the failure to do so could not be reasonably
expected to have a Material Adverse Effect.



          (b) The Company and its Subsidiaries have complied with all Requirements of Laws and Court
Orders that are applicable to their respective assets or businesses, except where the failure to do
so could not be reasonably expected to have a Material Adverse Effect.



          (c) The Company and its Subsidiaries own, hold or possess all necessary permits, licenses,
franchises and other authorizations from a Governmental Authority required to conduct their
respective businesses substantially as conducted presently, except where the failure to do so could
not be reasonably expected to have a Material Adverse Effect; and neither the Company nor any of
its Subsidiaries is in default in any material respect under any such permit, license, franchise or
other authorization.



          (d) There are no civil, criminal, administrative or regulatory lawsuits, claims, suits,
proceedings, arbitrations or investigations pending or, to the Knowledge of the Company, threatened
against the Company or any of its Subsidiaries or affecting in any material respect its or their
properties or assets nor, to the Knowledge of the Company, is there any basis for any of the same,
and there are no lawsuits, claims or proceedings pending or threatened in which the Company or any
of its Subsidiaries is the plaintiff or claimant.



          (e) There are no civil, criminal, administrative or regulatory lawsuits, claims, suits,
proceedings, arbitrations or investigations pending or, to the Knowledge of the Company, threatened
against the executive officers of the Company or any of its Subsidiaries by reason of the past
employment relationship of any such officer.



          (f) To the Knowledge of the Company, no legislative or regulatory proposal or other proposal
for any change in any Requirement of Law, in each case which is specifically focused on the
industries in which the Company or any of its Subsidiaries operates, is pending which, if adopted,
could adversely affect the Company’s or its Subsidiaries ability to conduct their respective
businesses as currently conducted or planned to be conducted.



     7.13. Brokers. Neither the Company nor any of its Subsidiaries has any Contract with any broker, finder or
similar agent with respect to the transactions contemplated by this Agreement for which the Company
or any of its Subsidiaries shall have any liability or responsibility to such broker, finder or
similar agent.



     7.14. Governmental Approvals; No Registration.



          (a) Subject to the accuracy of the representations and warranties of the Investors set forth
in Article VIII, no permit, consent, approval or authorization of, or registration or
filing with, any Governmental Authority is or will be required in connection with the execution,
delivery and performance by the Company of this Agreement or any of the Transaction Documents, or
the issuance, sale and delivery of the Series D Preferred Shares or the



-27-









 







reservation for issuance of the Conversion Common Shares, or the consummation by the Company
of any other transactions contemplated hereby or thereby, other than with respect to the A&R
Registration Rights Agreement, the registration of the shares covered thereby with the SEC and
filings pursuant to Regulation D under the Securities Act and state securities laws.



          (b) Without limiting the generality of the foregoing, none of the Company, any director,
officer or employee of the Company prior to the date of either Closing or, to the Knowledge of the
Company, any other Person acting on its behalf has taken or will take any other action (including,
without limitation, any offer, issuance or sale of any security of the Company) under circumstances
which might require the integration of such security with the Series D Preferred Shares under the
Securities Act, in any such case so as to subject the offering, issuance or sale of any of the
Series D Preferred Shares to the registration provisions of the Securities Act.



     7.15. Insurance. The Company and its Subsidiaries have in full force and effect fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow
each of them to replace any of its properties that might be damaged or destroyed. Neither the
Company nor any of its Subsidiaries has any self-insurance or co-insurance programs.



     7.16. Employees. To the Knowledge of the Company, no executive officer or key employee of the Company or any
of its Subsidiaries or any group of employees of the Company or any of its Subsidiaries has any
plans to terminate employment with the Company or any of its Subsidiaries. The Company and each of
its Subsidiaries has complied in all material respects with all laws relating to the employment of
labor (including provisions relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other Taxes, and the Employee Retirement Income Security Act of
1974, as amended (“ERISA”)), and, to the Knowledge of the Company, neither the Company nor any of
its Subsidiaries has any labor relations problems (including any union organizational activities,
threatened or actual strikes or work stoppages or grievances). Neither the Company nor any of its
Subsidiaries is a party to or bound by any collective bargaining agreement or any other Contract
with any labor union. None of the Company, any of its Subsidiaries or, to the Knowledge of the
Company, any of its or their employees is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements, affecting or in conflict with the
present business activities of the Company or any of its Subsidiaries.



     7.17. Officers. Set forth in Schedule 7.17 is a list of the names of the officers of the Company,
together with the title or job classification of each such person and the total compensation paid
or anticipated to be paid to each such person by the Company and its Subsidiaries for services
rendered in 2009. Except as set forth in Schedule 7.17, none of such persons has an
employment agreement or understanding, whether oral or written, with the Company or any of its
Subsidiaries.



     7.18. ERISA. Except as set forth in Schedule 7.18:



          (a) Multiemployer Plans. The Company does not have any obligation, and has never been
required, to contribute to (or any other liability, including current or potential



-28-









 







withdrawal liability, with respect to) any “multiemployer plan” (as defined in Section 3(37)
of ERISA).



          (b) Retiree Welfare Plans. The Company does not maintain or have any obligation to
contribute to (or any other liability with respect to) any plan or arrangement, whether or not
terminated, which provides medical, health, life insurance or other welfare-type benefits for
current or future retired or terminated employees (except for limited continued medical benefit
coverage required to be provided under Section 4980B of the Code or as required under applicable
state law).



          (c) Defined Benefit Plans. The Company does not maintain, contribute to or have any
liability under (or with respect to) any employee plan that is a tax-qualified “defined benefit
plan” (as defined in Section 3(35) of ERISA), whether or not terminated.



          (d) Defined Contribution Plans. The Company does not maintain, contribute to or have
any liability under (or with respect to) any employee plan that is a tax-qualified “defined
contribution plan” (as defined in Section 3(34) of ERISA), whether or not terminated.



          (e) Other Plans. The Company does not maintain, contribute to or have any liability
under (or with respect to) any plan or arrangement providing benefits to current or former
employees, including any bonus plan, profit sharing, stock option, employee stock purchase or other
plan or arrangement providing for deferred or other compensation, employee health or other welfare
benefit plan or other arrangement, or severance agreements, programs, policies or arrangements,
whether or not terminated and whether or not subject to ERISA.



          (f) Unfunded Liability. No employee benefit plan maintained by the Company or to
which the Company has an obligation to contribute, or with respect to which the Company has any
other liability, has any material unfunded liability.



          (g) Plan Qualification and Compliance. None of the employee benefit plans set forth
in Schedule 7.18 is intended to be qualified under Section 401(a) of the Code. Each
employee benefit plan set forth in Schedule 7.18 and all related trusts, insurance
contracts and funds have been maintained, funded and administered in material compliance with their
respective terms and with all applicable laws.



          (h) The Company. For purposes of this Section 7.18, the term “Company”
includes all entities under common control with the Company pursuant to Section 414(b) or (c) of
the Code.



     7.19. Environmental Matters. Except as set forth in Schedule 7.19:



          (a) the operations of the Company and each of its Subsidiaries comply with all applicable
Environmental Laws, except where the failure to do so could not be reasonably expected to have a
Material Adverse Effect;



          (b) neither the Company nor any of its Subsidiaries is or has been subject to any judicial or
administrative proceeding, Court Order or settlement alleging or addressing a violation of or
liability under any Environmental Law;



-29-









 





          (c) no material quantity of hazardous wastes, substances or materials or oil or petroleum
products have been generated, transported, used, disposed, stored or treated by the Company or any
of its Subsidiaries; and



          (d) no material quantity of hazardous wastes, substances or materials or oil or petroleum
products has been released, discharged, disposed, transported, placed or otherwise caused by the
Company or any of its Subsidiaries to enter the soil or water in, under or upon any real property
owned, leased or operated by the Company or any of its Subsidiaries.



     7.20. Related-Party Transactions. Except (i) for the Transaction Agreements and (ii) as set forth in Schedule 7.20,
no employee, officer, stockholder or director of the Company or any of its Subsidiaries, or member
of his or her immediate family, or any corporation, partnership, trust or other entity in which any
such person owns any beneficial interest or is an officer, director, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof, is indebted to the Company or any of its
Subsidiaries, nor is the Company or any of its Subsidiaries indebted (or committed to make loans or
extend or guarantee credit) to any of such persons, other than, with respect to officers or other
employees of the Company or its Subsidiaries, for (a) payment of salary for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company or its Subsidiaries and (c)
other standard employee benefits made generally available to all employees. To the Knowledge of
the Company, none of such persons has any direct or indirect ownership interest in any Person with
which the Company or any of its Subsidiaries is affiliated or with which the Company or any of its
Subsidiaries has a business relationship, or any Person that competes with the Company or any of
its Subsidiaries, except employees, officers, stockholders or directors of the Company or its
Subsidiaries and members of their immediate families who own 5% or less of the outstanding capital
stock of any publicly traded company. To the Knowledge of the Company, no officer, stockholder or
director of the Company or any of its Subsidiaries, or any member of his or her immediate family,
is, directly or indirectly, a party to any Material Contract with the Company or any of its
Subsidiaries (other than such Contracts as relate to any such person’s employment or ownership of
capital stock of the Company).



     7.21. Accounts Receivable. All accounts receivable of the Company and its Subsidiaries are valid, genuine and
subsisting and have arisen from bona fide transactions in the ordinary course of business or other
arm’s-length transactions. The Company’s allowance for doubtful accounts as reflected in the
financial statements set forth in Schedule 7.5 is reasonable in accordance with GAAP as in
effect for the periods to which such financial statements relate.



     7.22. Investment Company. The Company is not an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for, an “investment company,” as such terms are defined in the Investment
Company Act of 1940, as amended, nor is the Company, directly or indirectly, controlled by or
acting on behalf of any Person that is an “investment company” within the meaning of such act.



     7.23. Real Property Holding Corporation. The Company is not a “United States real property holding corporation” within the meaning
of Section 897(c)(2) of the Code and any regulations promulgated thereunder.



-30-









 





     7.24. Disclosure. To the Knowledge of the Company, none of the representations or warranties of the Company
contained herein, none of the information contained in the Schedules referred to in this
Article VII, and none of the other written information or documents furnished to any
Investor or any of its representatives by the Company or its representatives in connection with the
transactions contemplated by this Agreement, when taken as a whole, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not misleading in any material
respect. There is no fact that the Company has not disclosed to the Investors in writing and of
which, to the Knowledge of the Company, has had, or could reasonably be expected to have, a
Material Adverse Effect.



ARTICLE VIII

REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR




          As an inducement to the Company to enter into this Agreement and to issue and sell the Series
D Preferred Shares, each Investor, severally and not jointly, hereby represents and warrants to the
Company as to himself, herself or itself only and agrees as follows:



     8.1. Organization. If such Investor is not an individual, such Investor is duly organized, validly existing
and in good standing under the laws of the jurisdiction of such Investor’s organization, with all
requisite power and authority to own, lease and operate its properties and to carry on its
respective businesses as now owned, leased and operated.



     8.2. Authorization. The execution, delivery and performance of this Agreement and each of the Transaction
Documents to which such Investor is a party have been duly authorized and approved by such
Investor. This Agreement has been duly executed and delivered by such Investor and (assuming the
due execution and delivery hereof by each of the other parties hereto) is the valid and binding
obligation of such Investor enforceable against such Investor in accordance with its terms, and
each of the Transaction Documents to which such Investor is a party has been duly authorized by
such Investor and, upon execution and delivery by such Investor (assuming the due execution and
delivery thereof by each of the other parties thereto), will be a legal, valid and binding
obligation of such Investor enforceable against such Investor in accordance with its respective
terms, in each case subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement thereof or by general equitable principles, (ii) laws
relating to the availability of specific performance, injunctive relief or other equitable remedies
and (iii) to the extent any indemnification provisions may be limited by applicable federal or
state securities laws.



     8.3. Brokers. Such Investor has no Contract with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement for which such Investor shall have any liability or
responsibility.



     8.4. Investment Representations.



          (a) Such Investor acknowledges that it has been furnished with such documents, materials and
information as such Investor deems necessary or appropriate for evaluating an investment in the
Company. Such Investor further acknowledges that it: (i) has



-31-









 







had the opportunity to ask questions of, and receive answers from, the directors and officers
of the Company, and Persons acting on the Company’s behalf, concerning the terms and conditions of
the offering of the Series D Preferred Shares; (ii) has knowledge and experience in financial and
business matters so as to be capable of evaluating and understanding the merits and risks of an
investment in the Company; and (iii) is able to bear the economic risk of its investment in the
Company and the Series D Preferred Shares and Conversion Common Shares in that such Investor can
afford to hold the Series D Preferred Shares and Conversion Common Shares for an indefinite period
and can afford a complete loss of its investment in the Company. Notwithstanding the foregoing, it
is agreed and understood by the Parties that the acknowledgements made in this Section
8.4(a) shall not be construed to limit or modify in any way the representations and warranties
of the Company contained in Article VII or the right of any Investor to rely on such
representations and warranties.



          (b) Such Investor represents that it is acquiring the Restricted Securities purchased
hereunder for its own account, not as a nominee or agent, with the present intention of holding
such securities for purposes of investment, and that it has no present intention of selling such
securities in a public distribution in violation of the federal securities laws or any applicable
state securities laws; provided, that nothing contained herein shall prevent such Investor
and subsequent holders of Restricted Securities from transferring such securities in compliance
with the provisions of Article IV.



          (c) Such Investor is an “accredited investor” as such term is defined in Rule 501(a) of
Regulation D under the Securities Act.



          (d) Such Investor understands that the Restricted Securities being sold hereby have not been
registered under the Securities Act, or applicable state securities laws, and are being issued in
reliance on exemptions for private offerings contained in Section 4(2) of the Securities Act and
the provisions of Regulation D promulgated thereunder and in reliance on exemptions from the
registration requirements of certain state securities laws, on the basis that the Restricted
Securities will be sold to a limited number of accredited investors. Because the Restricted
Securities have not been registered under the Securities Act or applicable state securities laws,
the Restricted Securities may not be re-offered or resold except through a valid and effective
registration statement or pursuant to a valid exemption from the registration requirements under
the Securities Act and applicable state securities laws, and with the delivery of an opinion of
counsel to such effect reasonably satisfactory to the Company.



     8.5. Residence. If such Investor is an individual, such Investor resides in the state or province
identified in the address of such Investor set forth on Appendix II; if such Investor is a
partnership, corporation, limited liability company or other entity, then the office or offices of
such Investor’s principal place of business is located at the addresses or addresses of such
Investor set forth on Appendix II.



     8.6. No Knowledge of Breach. Such Investor does not have any actual knowledge, as of the Closing, of any
misrepresentation or breach of warranty made by the Company in this Agreement.



-32-









 





ARTICLE IX

MISCELLANEOUS




     9.1. Survival of Representations and Warranties. All representations and warranties contained herein or made in writing by any Party in
connection herewith will survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby; provided, however, that: (i) the representations and
warranties contained in Sections 7.5 (Financial Statements), 7.6 (Absence of
Undisclosed Liabilities), 7.7 (No Material Adverse Effect), 7.10 (Contracts and
Commitments), 7.12 (Compliance with Laws; Litigation), 7.14 (Government Approvals;
No Registration), 7.15 (Insurance), 7.16 (Employees), 7.17 (Officers),
7.20 (Related-Party Transactions), 7.21 (Accounts Receivable), 7.22
(Investment Company), 7.23 (Real Property Holding Corporation), 7.24 (Disclosure)
shall expire on March 31, 2010; and (ii) the representations and warranties contained in
Sections 7.10 (Tax), 7.18 (ERISA) and 7.19 (Environmental Matters) shall
expire upon the expiration of the applicable statute of limitations for claims related to the
matters discussed in those Sections.



     9.2. Amendments and Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement may be
amended, modified or waived only if the Company shall have obtained the written consent of the
holders of at least a majority of the outstanding Series D Preferred Shares and Conversion Common
Shares voting as a single class on a common share equivalent basis. No course of dealing between
the Company and any holder of any Series D Preferred Shares or Conversion Common Shares or any
delay in exercising any rights hereunder or under the Certificate of Incorporation will operate as
a waiver of any rights of any such holders. For purposes of this Agreement, Series D Preferred
Shares held by the Company will not be deemed to be outstanding.



     9.3. Successors and Assigns. Except as otherwise expressly provided herein, all covenants and agreements contained in
this Agreement by or on behalf of any of the Parties will bind and inure to the benefit of the
respective successors and permitted assigns of the Parties, whether so expressed or not. In
addition, the provisions of this Agreement which are for the benefit of the Investors or holders of
Series D Preferred Shares or Conversion Common Shares are also for the benefit of, and enforceable
by, any subsequent holders of any portion of such Series D Preferred Shares or Conversion Common
Shares.



     9.4. Remedies. Each holder of any Series D Preferred Share or Conversion Common Share shall have all
rights and remedies set forth in this Agreement, the Certificate of Incorporation and any other
agreement or contract that grants rights and remedies to such holders, and all rights that such
holders have under any law. Any Person having any rights under any provision of this Agreement
shall be entitled to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law.



     9.5. Indemnification. In consideration of each Investor’s execution and delivery of this Agreement and
acquisition of the Series D Preferred Shares and in addition to all of the Company’s other
obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless
each Investor and each other holder of Series D Preferred Shares and Conversion Common Shares and
all of their partners, officers, directors, employees and



-33-









 







agents (including those retained in connection with the transactions contemplated by this
Agreement) (collectively, the “Indemnitees”) from and against any and all losses, costs, penalties,
fees, liabilities, damages, expenses, reasonable attorneys’ fees and disbursements, and interest
(the “Indemnified Liabilities”), incurred by the Indemnitees as a result of, or arising out of, or
relating to any third party actions, causes of action, suits, claims, investigations or proceedings
relating to such Person being a stockholder of the Company (or a partner, officer, director,
employee or agent of such stockholder); provided, however, that (a) the Company shall not be
required to indemnify and hold harmless an Indemnitee under this Section to the extent that such
Indemnified Liabilities arise from a violation of any Requirements of Laws by such Indemnitee and
(b) the rights afforded to an Indemnitee under this Section are not cumulative with any other
indemnification rights expressly conferred on such Indemnitee under any other Transaction Document
or any other agreement between the Company and such Indemnitee. To the extent that the foregoing
undertakings by the Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.



     9.6. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law and in such a way as to, as closely as possible,
achieve the intended economic effect of such provision and this Agreement as a whole, but if any
provision contained herein is, for any reason, held to be invalid, illegal or unenforceable in any
respect, such provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of such provision or
any other provisions hereof, unless such a construction would be unreasonable.



     9.7. Notices.



     All notices or other communications required or permitted hereunder shall be in writing and
shall be deemed given or delivered (a) when delivered personally, (b) if transmitted by facsimile
when confirmation of transmission is received, (c) if sent by registered or certified mail, postage
prepaid, return receipt requested, three business days after mailing or (d) if sent by reputable
overnight courier service, one business day after delivery to such service; and shall be addressed
as follows:



          If to the Company, to:



XStream Systems, Inc.

10305 102nd Terrace

Suite 101

Sebastian, Florida 32958

Attention: Chief Executive Officer

Facsimile: (772) 589-4622





-34-









 








          with a copy to:



Greenberg Traurig, P.A.

5100 Town Center Circle

Suite 400

Boca Raton, FL 33486

Attention: Bruce C. Rosetto

Facsimile: (561) 367-6225





     If to any Investor, to such Investor’s address as set forth on Appendix II
hereto.



     9.8. Governing Law. This Agreement and the appendices, exhibits and schedules hereto shall be governed by, and
construed in accordance with, the laws of the State of Florida, without giving effect to any choice
of law or conflict of law rules or provisions (whether of the State of Florida or any other
jurisdiction) that would cause the application of the laws of any jurisdiction other than the State
of Florida. In furtherance of the foregoing, the internal law of the State of Florida shall
control the interpretation and construction of this Agreement (and all schedules and exhibits
hereto), even though under that jurisdiction’s choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.



     9.9. Submission to Jurisdiction; Waiver of Jury Trial.



          (a) Each of the Parties hereby irrevocably submits in any suit, action or proceeding arising
out of or related to this Agreement or any of the Transaction Documents, or any of the transactions
contemplated hereby or thereby, to the exclusive jurisdiction of the United States District Court
for the Southern District of Florida and the jurisdiction of any court of the State of Florida
located in Indian River County, Florida, and, to the extent permissible by law, waives any and all
claims and objections that any such court is an inconvenient forum.



          (b) Each of the Parties hereby expressly waives any right to trial by jury in any dispute,
whether sounding in contract, tort or otherwise, between or among any of the Parties arising out of
or related to the transactions contemplated by this Agreement or any of the Transaction Documents,
or any other instrument or document executed or delivered in connection herewith or therewith. Any
Party may file an original counterpart or a copy of this Agreement with any court as written
evidence of the consent of the Parties to the waiver of their right to trial by jury.



     9.10. Attorneys’ Fees. If any action or suit based upon or arising out of any actual or alleged breach by any
Party of any representation, warranty or agreement in this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys’ fees and expenses of such action or suit from the
losing party, in addition to any other relief ordered by the court.



     9.11. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which will be
considered an original instrument, but all of which together will be considered one and the same
agreement, and will become binding when one or more counterparts have been signed by and delivered
to each of the Parties.



     9.12. Transaction Expenses. Irrespective of whether the Closing is consummated, the Company shall pay all costs and
expenses that it incurs in connection with the negotiation, execution, delivery and performance of
this Agreement and the transactions contemplated hereby.



-35-









 





     9.13. Greenberg Traurig Represents the Company. Each of the Investors hereby agrees and acknowledges that GT hereby renders advice and
counsel solely to the Company. Each of the Investors hereby agrees and acknowledges that GT has
not represented any of the Investors in connection with this Agreement and the Transaction
Documents or any other agreement contemplated by the Transaction Documents or the transactions
contemplated by or in connection to this Agreement or the Transaction Documents thereunder, and
that EACH OF THE INVESTORS HAS BEEN AND IS HEREBY ADVISED TO RETAIN INDEPENDENT COUNSEL to advise
each one of them regarding this Agreement and the Transaction Documents and any other agreement
contemplated by this Agreement and the Transaction Documents. Each of the Investors hereby waives,
releases and relinquishes any claim against GT or any of its shareholders, employees or agents from
any conflict of interest arising from this Agreement, the Transaction Documents or the transactions
contemplated in this Agreement or the Transaction Documents or any other agreement contemplated by
this Agreement or the Transaction Documents.



     9.14. Entire Agreement. This Agreement and the appendices, exhibits and schedules referred to herein, the
Transaction Documents and the other documents delivered pursuant hereto contain the entire
understanding of the Parties with regard to the subject matter contained herein or therein, and
supersede all prior agreements, understandings or letters of intent between or among any of the
Parties, including any summary of terms discussed or distributed between the Company and any
Investor.



[Remainder of page intentionally left blank; signature pages follow.]




-36-









 






          IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed the day and year
first above written.




	 	 	 	 	 
	 	COMPANY:



XSTREAM SYSTEMS, INC.

 	 
	 	By:  	/s/ Anthony Chidoni	 
	 	 	Name:  	Anthony Chidoni	 
	 	 	Title:  	Secretary	 
	 



[Investor Signature Pages Follow]




Signature Page to the

Series D Preferred Stock Purchase Agreement




 









 





INVESTOR:




                                                            




Signature Page to the

Series D Preferred Stock Purchase Agreement