Exhibit 10.2





Exhibit 10.2




STOCK PURCHASE AGREEMENT





This Stock Purchase Agreement (“Agreement”) is entered into and effective
as of April 28, 2010 (“Effective Date”), by and among PositiveID Corporation, a
Delaware corporation (“Company”), and Socius CG II, Ltd., a Bermuda exempted company
(including its designees, successors and assigns, “Investor”).



WHEREAS, the parties desire that, upon the terms and subject to the conditions contained
herein and pursuant to an effective registration statement under the Act, the Company shall issue
to Investor, and Investor shall purchase from the Company, from time to time as provided herein,
the Warrants, Warrant Shares and Investment Shares.



NOW, THEREFORE, in consideration of the premises, the mutual provisions of this Agreement, the
receipt and adequacy of which are hereby acknowledged, Company and Investor agree as follows:



ARTICLE 1

DEFINITIONS




In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are
not otherwise defined herein have the meanings given to such terms in the Certificate of
Designations, and (b) the following terms have the meanings indicated in this ARTICLE 1:




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



“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with a Person, as such terms
are used in and construed under Rule 144 under the Act. With respect to Investor, without
limitation, any Person owning, owned by, or under common ownership with Investor, and any
investment fund or managed account that is managed on a discretionary basis by the same investment
manager as Investor will be deemed to be an Affiliate.



“Agreement” means this Stock Purchase Agreement including the exhibits and schedules
hereto.




“Bloomberg” means Bloomberg Financial Markets



“Change in Control” has the meaning set forth within the definition of Fundamental
Transaction, below.




“Closing” means any one of (i) the Commitment Closing and (ii) each Tranche Closing.




“Commitment Closing” has the meaning set forth in Section 2.2(a).



“Common Shares” includes the Warrant Shares and the Investment Shares.


 


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“Common Stock” means the common stock, par value $0.01 per share, of the Company, and
any replacement or substitute thereof, or any share capital into which such Common Stock shall have
been changed or any share capital resulting from a reclassification of such Common Stock.




“Company Termination” has the meaning set forth in Section 3.2.



“Delisting Event” means any time during the term of this Agreement, that the Common
Stock is not listed for and actively trading on a Trading Market, or is suspended or delisted with
respect to the trading of the shares of Common Stock on a Trading Market.



“Disclosure Schedules” means the disclosure schedules of the Company delivered
concurrently herewith, attached hereto, and incorporated herein by reference.



“DTC” means The Depository Trust Company, or any successor performing substantially
the same function for Company.



“DWAC Shares” means all Common Shares issued or issuable to Investor or any Affiliate,
successor or assign of Investor pursuant to any of the Transaction Documents, including without
limitation all Warrant Shares and Investment Shares, all of which shall be (a) issued in electronic
form, (b) freely tradable and without restriction on resale, and (c) timely credited by Company to
the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC under its Fast Automated
Securities Transfer (FAST) Program or any similar program hereafter adopted by DTC performing
substantially the same function, in accordance with irrevocable instructions issued to and
countersigned by the Transfer Agent, in the form attached hereto as Exhibit B or in such
other form agreed upon by the parties.




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



“Fundamental Transaction” means and shall be deemed to have occurred at such time upon
any of the following events:



(i) A consolidation, merger or other business combination or event or transaction, following
which the holders of Common Stock immediately preceding such consolidation, merger, combination or
event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the
ability to elect a majority of the board of directors of the Company (a “Change in
Control”);



(ii) the sale or transfer of all or substantially all of the Company’s assets, other than in
the ordinary course of business; or



(iii) a purchase, tender or exchange offer made to the holders of the outstanding shares of
Common Stock.



“GAAP” means United States generally accepted accounting principles applied on a
consistent basis during the periods involved.


 


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“Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess
of $250,000 (other than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others,
whether or not the same are or should be reflected in the Company’s balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present value of any lease
payments in excess of $250,000 due under leases required to be capitalized in accordance with GAAP.



“Investment Price” means a price per share of Common Stock equal to an average of the
individual daily VWAP calculated over the ten (10) Trading Days preceding the applicable Tranche
Notice Date.



“Investment Shares” means that number of shares of Common Stock issued or issuable to
the Investor under Section 2.2(d) of this Agreement, as specified by the Company.



“Liens” means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.



“Lock-Up Agreements” means an agreement in the form attached as Exhibit C,
executed by Scott R. Silverman, William J. Caragol, R & R Consulting Partners, LLC, and Blue Moon
Energy Partners LLC, precluding each such Person from participating in any sale of the Common Stock
from the Tranche Notice Date through the Tranche Closing Date.



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



“Material Agreement” means any (i) any material loan agreement, financing agreement,
equity investment agreement or securities instrument to which Company is a party, (ii) agreement or
instrument to which Company and Investor or any Affiliate of Investor is a party, and (iii) other
material agreement listed, or required to be listed, on any of Company’s reports filed or required
to be filed with the SEC, including without limitation Forms 10-K, 10-Q or 8-K.



“Officer’s Closing Certificate” means a certificate in customary form reasonably
acceptable to Investor, executed by an authorized officer of the Company.



“Opinion” means an opinion from Company’s independent legal counsel, in the form
attached as Exhibit D or in such other form agreed upon by the parties, to be delivered in
connection with the Commitment Closing and each Tranche Closing.



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



“Preferred Shares” means shares of Series B Preferred Stock of the Company.


 


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“Preferred Tranche Amount” means the aggregate dollar amount of any individual
purchase of Preferred Shares, as specified by the Company.



“Preferred Tranche Notice” means any irrevocable written notice from the Company to
Investor stating the number of Preferred Shares which the Company will sell to Investor from time
to time.




“Prospectus” means the final prospectus filed for the Registration Statement.



“Prospectus Supplement” means the supplement to the Prospectus complying with Rule
424(b) of the Act that is filed with the SEC and delivered by the Company to Investor at the
Closing.



“Registration Statement” means the registration statement on Form S-3 filed by the
Company with the SEC on April 1, 2010 (File No. 333-165849) and declared effective on April 12,
2010, which registers the sale of the Common Shares to Investor and, except where the context
otherwise requires, means such Registration Statement, as amended or supplemented, including (i)
all documents filed as a part thereof or incorporated by reference therein, and (ii) any
information contained or incorporated by reference in any Prospectus filed with the SEC in
connection with such Registration Statement, to the extent such information is deemed under the Act
to be part of such Registration Statement.



“Required Approval” means any approval of the Trading Market or the Company’s
stockholders required to be obtained by Company prior to issuing the Securities pursuant to any
applicable rules of the Trading Market.




“Required Tranche Documents” has the meaning set forth in Section 2.3(e).



“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Act, as such
Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same purpose and effect as such Rule.




“SEC” means the United States Securities and Exchange Commission.



“SEC Reports” includes all reports required to be filed by the Company under the Act
and/or the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the Effective Date (or such shorter period as the Company was required by law to file
such material) and for the period in which this Agreement is in effect.



“Securities” includes the Investment Shares and Warrants issuable pursuant to this
Agreement.



“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO of the
Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable
shares of Common Stock).


 


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“Subsidiary” means any Person the Company owns or controls, or in which the Company,
directly or indirectly, owns a majority of the capital stock or similar interest that would be
disclosable pursuant to Regulation S-K, Item 601(b)(21).




“Termination” has the meaning set forth in Section 3.1.



“Termination Date” means the earlier of (i) the date that is the two-year anniversary
of the Effective Date, or (ii) the Tranche Closing Date on which the sum of the aggregate Preferred
Tranche Amounts for all Preferred Shares sold by the Company pursuant to Preferred Tranche Notices
equals $4,200,000.



“Trading Day” means any day on which the Common Stock is traded on the Trading Market;
provided that it shall not include any day on which the Common Stock is (a) scheduled to trade for
less than 5 hours, or (b) suspended from trading.



“Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market, the NASDAQ
Global Market, the NASDAQ Global Select Market, the NYSE Amex, or the New York Stock Exchange,
whichever is at the time the principal trading system, exchange or market for the Common Stock, but
does not include the Pink Sheets inter-dealer electronic quotation and trading system.




“Tranche” has the meaning set forth in Section 2.3(a).




“Tranche Closing” has the meaning set forth in Section 2.3(f)(iv).




“Tranche Closing Date” has the meaning set forth in Section 2.3(f)(i).




“Tranche Notice” has the meaning set forth in Section 2.3(b).




“Tranche Notice Date” has the meaning set forth in Section 2.3(b).



“Tranche Purchase Price” has the meaning set forth in Section 2.3(b), and
shall be specified in writing by the Company.



“Transaction Documents” means this Agreement, the other agreements and documents
referenced herein, and the exhibits and schedules hereto and thereto.



“Transfer Agent” means Registrar and Transfer Company or any successor transfer agent
for the Common Stock.



“VWAP” means, for any date, the volume-weighted average price as reported by the
Nasdaq Trading System VWAP.




“Warrant Exercise Notice” has the meaning set forth in Section 2.3(c)(i).



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


 


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“Warrant” means the warrants issuable under this Agreement, in the form attached
hereto as Exhibit A, to purchase shares of Common Stock equal in dollar amount to 35% of
the applicable Tranche Purchase Price, at the exercise price determined as set forth therein and
subject to adjustment as set forth therein.



ARTICLE 2

PURCHASE AND SALE




2.1 Agreement to Purchase. Subject to the terms and conditions herein and the
satisfaction of the conditions to closing set forth in this ARTICLE 2:



(a) Investor hereby agrees to
purchase such amounts of Investment Shares as the Company may, in its sole and absolute discretion,
from time to time elect to issue and sell to Investor according to one or more Tranches pursuant to
Section 2.3 below; and




(b) The Company agrees to issue the Investment Shares, the Warrants, and the Warrant Shares to
Investor as provided herein.




2.2 Investment Commitment



(a) Investment Commitment. The closing of this Agreement (the “Commitment
Closing”) shall be deemed to occur when this Agreement has been duly executed by both Investor
and the Company, and the other Conditions to the Commitment Closing set forth in Section 2.2(c) have been met.



(b) Commitment Fee. There shall be no commitment fee in connection with the
obligations of Investor under this Agreement.



(c) Conditions to Investment Commitment. As a condition precedent to the Commitment
Closing, all of the following (the “Conditions to Commitment Closing”) shall have been
satisfied prior to or concurrently with the Company’s execution and delivery of this Agreement:



(i) the following documents shall have been delivered to Investor: (A) this Agreement
(including the Disclosure Schedules), executed by the Company; (B) a Secretary’s Certificate as to
(x) the resolutions of the Company’s board of directors authorizing this Agreement and the
Transaction Documents, and the transactions contemplated hereby and thereby, and (y) a copy of the
Company’s current Certificate of Incorporation and Bylaws; (C) the Opinion; and (D) a copy of the
Company’s press release announcing the transactions contemplated by this Agreement and a copy of
the Company’s Current Report on Form 8-K, as filed with the SEC, describing the transaction
contemplated by this Agreement and attaching a complete copy of the Transaction Documents;



(ii) other than for losses incurred in the ordinary course of business, there has not been any
Material Adverse Effect on the Company since the date of the last SEC Report filed by the Company,
including but not limited to incurring material liabilities;



(iii) the representations and warranties of the Company in this Agreement shall be true and
correct in all material respects and the Company shall have delivered an Officer’s Closing
Certificate to such effect to Investor, signed by an officer of the Company;


 


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(iv) the Registration Statement is current, valid and effective;



(v) the Prospectus and Prospectus Supplement have been delivered to Investor in accordance
with Rule 172 under the Act; and




(vi) any Required Approval has been obtained.



(d) Investor’s Obligation to Purchase. Subject to the prior satisfaction of all
conditions set forth in this Agreement, following Investor’s receipt of a validly delivered Tranche
Notice, Investor shall be required to purchase from the Company a number of Investment Shares equal
in dollar amount to 100% of the Preferred Tranche Amount set forth in any Preferred Tranche Notice,
in the manner described below.




2.3 Tranches to Investor



(a) Procedure to Elect a Tranche. Subject to the other conditions and limitations set
forth in this Agreement, at any time beginning on the Effective Date, the Company may, in its sole
and absolute discretion, elect to exercise one or more individual sales of Investment Shares under
this Agreement (each a “Tranche”) according to the following procedure.



(b) Delivery of Tranche Notice. The Company shall deliver an irrevocable written
notice (the “Tranche Notice”), in the form attached hereto as Exhibit E, to
Investor stating that the Company shall exercise a Tranche and stating the number of Investment
Shares which the Company will sell to Investor at the Investment Price on the Tranche Notice Date,
and the aggregate purchase price for such Tranche (the “Tranche Purchase Price”). A
Tranche Notice delivered by the Company to Investor by 4:30 p.m. Eastern time on any Trading Day
shall be deemed delivered on the same day. A Tranche Notice delivered by the Company to Investor
after 4:30 p.m. Eastern time on any Trading Day, or at any time on a non-Trading Day, shall be
deemed delivered on the next Trading Day. The date that the Tranche Notice is deemed delivered is
the “Tranche Notice Date”. Each Tranche Notice shall be delivered via facsimile or
electronic mail, with confirming copy by overnight carrier, in each case to the address set forth
in Section 6.2. Except for the first Tranche Closing, the Company may not give a Tranche
Notice unless the Tranche Closing for the prior Tranche has occurred.



(c) Warrants. On each Tranche Notice Date, the Company shall deliver to Investor a
Warrant to purchase up to that number of shares of Common Stock equal in dollar amount to 35% of
the Tranche Purchase Price set forth in the applicable Tranche Notice, at a per-share exercise
price equal to the Investment Price on the Tranche Notice Date. Each such Warrant issued hereunder
can be exercised by Investor by delivery of an exercise notice (the “Warrant Exercise
Notice”) and other documentation in accordance with Section 1.1 of the Warrant.



(d) Conditions Precedent to Right to Deliver a Tranche Notice. The right of the
Company to deliver a Tranche Notice is subject to the satisfaction (or written waiver by Investor
in its sole discretion), on the date of delivery of such Tranche Notice, of each of the following
conditions:


 


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(i) the Common Stock shall be listed for and currently trading on the Trading Market and, to
the Company’s knowledge, there is no notice of any suspension or delisting with respect the trading
of the shares of Common Stock on such market or exchange;



(ii) the representations and warranties of the Company set forth in this Agreement are true
and correct in all material respects as if made on such date (provided, however, that any
information disclosed by the Company in any filing with the SEC after the Effective Date but prior
to the date of the Tranche Notice shall be deemed to update the Disclosure Schedules and modify
such representations and warranties), and no default shall have occurred under this Agreement, or
any other agreement with Investor, any Affiliate of Investor, or any other Material Agreement, and
the Company shall deliver an Officer’s Closing Certificate to such effect to Investor, signed by an
officer of the Company;



(iii) other than for losses incurred in the ordinary course of business or disclosed in the
Company’s SEC Reports, there have been no material adverse changes in the Company’s business
prospects or financial condition since the Commitment Closing, including but not limited to
incurring material liabilities;



(iv) the Company is not, and will not be as a result of the applicable Tranche, in default of
any Material Agreement;



(v) except for possible restrictions on resale under applicable securities laws, there is not
then in effect any law, rule or regulation prohibiting or restricting the transactions contemplated
by any of the Transaction Documents, or requiring any consent or approval which shall not have been
obtained, nor is there any pending or threatened proceeding or investigation which may have the
effect of prohibiting or adversely affecting any of the transactions contemplated by this
Agreement; no statute, rule, regulation, executive order, decree, ruling or injunction shall have
been enacted, entered, promulgated or adopted by any court or governmental authority of competent
jurisdiction that prohibits the transactions contemplated by this Agreement, and no actions, suits
or proceedings shall be in progress, pending or, to the Company’s knowledge threatened, by any
person (other than Investor or any Affiliate of Investor), that seek to enjoin or prohibit the
transactions contemplated by this Agreement;



(vi) all Common Shares shall have been timely delivered at the times provided for in this
Agreement, including without limitation (A) all Warrant Shares issuable pursuant to any Warrant
Exercise Notice delivered to Company prior to the Tranche Notice Date; (B) all Investment Shares
issuable prior to the Tranche Notice Date;



(vii) all previously-issued and issuable Warrant Shares and Investment Shares are DWAC Shares,
are DTC eligible, and can be immediately converted into electronic form without restriction on
resale;


 


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(viii) other than as disclosed in the Company’s SEC Reports, Company is in compliance with all
requirements in order to maintain listing on its then current Trading Market;



(ix) the Registration Statement permitting the lawful issuance of Common Shares is current,
valid and effective;



(x) the Company has a sufficient number of duly authorized shares of Common Stock reserved for
issuance in such amount as may be required to fulfill its obligations pursuant to the Transaction
Documents and any outstanding agreements with Investor and any Affiliate of Investor, including
without limitation all Warrant Shares issuable upon exercise of the Warrant issued in connection
with such Tranche and all Investment Shares issuable in connection with such Tranche;



(xi) the Company has provided notice of its delivery of the Tranche Notice to all signatories
of a Lock-Up Agreement as required under the Lock-Up Agreement;



(xii) the Company shall have delivered to Investor a Preferred Tranche Notice for the
Preferred Tranche Amount; and



(xiii) the aggregate number of Warrant Shares issuable upon exercise of the Warrant on the
Tranche Notice Date, when aggregated with all other shares of Common Stock deemed beneficially
owned by Investor and its Affiliates including without limitation Investment Shares (whether
acquired in connection with the transactions contemplated by the Transaction Documents or
otherwise), would not result in Investor owning more than 9.99% of all Common Stock outstanding on
the Tranche Notice Date, as determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder.



(e) Documents to be Delivered at Tranche Closing. The Closing of any Tranche and
Investor’s obligations hereunder shall additionally be conditioned upon the delivery to Investor of
each of the following (the “Required Tranche Documents”) on or before the applicable
Tranche Closing Date:




(i) the following executed documents: Opinion, Officer’s Certificate and Lock-Up Agreements;



(ii) a Use of Proceeds Certificate, signed by an officer of the Company, and setting forth how
the Tranche Purchase Price will be applied by the Company;



(iii) all Warrant Shares shall have been timely delivered in accordance with any Warrant
Exercise Notice delivered to Company prior to or on the Tranche Closing Date;



(iv) all Investment Shares shall have been timely delivered prior to the Tranche Closing Date;
and



(v) all documents, instruments and other writings required to be delivered by the Company to
Investor on or before the Tranche Closing Date pursuant to any
provision of this Agreement or in order to implement and effect the transactions contemplated
herein.


 


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(f) Mechanics of Tranche Closing.



(i) Each of the Company and Investor shall deliver all documents, instruments and writings
required to be delivered by either of them pursuant to Section 2.3(e) of this Agreement at
or prior to each Tranche Closing. Subject to such delivery and the satisfaction of the conditions
set forth in Section 2.3(d) as of the Tranche Closing Date, the closing of the purchase by
Investor of Investment Shares shall occur by 5:00 p.m. Eastern time on the date which is the third
Trading Day following (and not counting) the Tranche Notice Date (each a “Tranche Closing
Date”) at the offices of Investor.



(ii) If any portion of the Warrant is exercised by Investor on or after the Tranche Notice
Date and prior to or on the Tranche Closing Date (which exercise shall be effected by Investor
sending the Warrant Exercise Delivery Documents to the Company in accordance with Section
1.1 of the Warrant), the Company shall send Investor an electronic copy of its share issuance
instructions to the Transfer Agent and shall cause the requisite number of Warrant Shares to be
credited to Investor’s account with DTC as DWAC Shares by 12:00 p.m. Eastern time on the Trading
Day after the date the Company receives the Warrant Exercise Delivery Documents from Investor;
provided, however, that if DWAC shares are not timely credited pursuant to this
Section 2.3(f)(ii), then the Tranche Closing Date shall be extended by one Trading Day for
each Trading Day that such timely credit of DWAC Shares is not made.



(iii) On or before the third Trading Day following (and not counting) the Tranche Closing
Date, Investor shall pay for the Investment Shares by paying in cash, or through the issuance of a
secured promissory note in the form attached hereto as Exhibit A-2.



(iv) The closing (each a “Tranche Closing”) for each Tranche shall occur on the date
that both (i) the Company has delivered to Investor all Required Tranche Documents, and (ii)
Investor has delivered to the Company the Tranche Purchase Price.



2.4 Share Sufficiency. The Company shall have a sufficient number of duly authorized
shares of Common Stock for issuance in such amount as may be required to fulfill its obligations
pursuant to the Transaction Documents and any outstanding agreements with Investor and any
Affiliate of Investor.



ARTICLE 3

TERMINATION




3.1 Termination. The Investor may elect to terminate this Agreement and the Company’s
right to initiate subsequent Tranches to Investor under this Agreement (each, a
“Termination”) upon the occurrence of any of the following:



(a) if, at any time, either the Company or any director or executive officer of the Company
has engaged in a transaction or conduct related to the Company that has resulted in (i) a SEC
enforcement action, or (ii) a civil judgment or criminal conviction for fraud or misrepresentation,
or for any other offense that, if prosecuted criminally, would constitute a felony under applicable
law;


 


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(b) on any date after a Delisting Event that lasts for an aggregate of 20 Trading Days during
any calendar year;



(c) if at any time the Company has filed for and/or is subject to any bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors instituted by or against the Company or any Subsidiary of the
Company;



(d) the Company is in breach or default of any Material Agreement, which breach or default
could have a Material Adverse Effect;



(e) the Company is in breach or default of this Agreement, any Transaction Document, or any
agreement with Investor or any Affiliate of Investor following any applicable notice and
opportunity to cure; and




(f) on the Termination Date.



3.2 Company Termination. The Company may at any time in its sole discretion terminate (a
“Company Termination”) this Agreement and its right to initiate future Tranches by
providing thirty (30) days advance written notice to Investor.



3.3 Effect of Termination. Except as otherwise provided herein, the termination of this
Agreement will have no effect on any Warrants, Warrant Shares, Investment Shares, or DWAC Shares
previously issued, delivered or credited, or on any then-existing rights of any holder thereof.



ARTICLE 4

REPRESENTATIONS AND WARRANTIES




4.1 Representations and Warranties of the Company. Except as set forth (x) under the
corresponding section of the Disclosure Schedules (if any), and (y) in the Company’s SEC Reports,
which shall be deemed a part hereof, the Company hereby represents and warrants to, and as
applicable covenants with, Investor as of the Effective Date and each Closing:



(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set
forth in the Company’s SEC Reports. The Company owns, directly or indirectly, all of the capital
stock or other equity interests of each Subsidiary, and all of such directly or indirectly owned
capital stock or other equity interests are owned free and clear of any Liens. All the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized, validly issued, fully
paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase
securities.


 


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(b) Organization and Qualification. Each of the Company and each Subsidiary is an
entity duly incorporated or otherwise organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization, as applicable, with the requisite
power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in material violation or default of
any of the provisions of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each of the Company and each Subsidiary is duly qualified to
conduct business and is in good standing as a foreign corporation or other entity in each
jurisdiction in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good standing, as the
case may be, could not have or reasonably be expected to result in a Material Adverse Effect and no
proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking
to revoke, limit or curtail such power and authority or qualification.



(c) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations hereunder or thereunder. The execution and
delivery of each of the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby or thereby have been duly authorized by all necessary action on
the part of the Company and no further consent or action is required by the Company other than the
filing of the Certificate of Designations. Each of the Transaction Documents has been, or upon
delivery will be, duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies
generally and general principles of
equity. Neither the Company nor any Subsidiary is in violation of any of the provisions of
its respective certificate or articles of incorporation, by-laws or other organizational or charter
documents.



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


 


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(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than the filing of the Certificate of Designations and required
federal and state securities filings, including any self-regulatory organizations, each of which
has been, or (if not yet required to be filed) shall be, timely filed.



(f) Issuance of the Securities. The Securities are duly authorized and, when issued
and paid for in accordance with the applicable Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens.



(g) Capitalization. No Person has any right of first refusal, preemptive right, right
of participation, or any similar right to participate in the transactions contemplated by the
Transaction Documents. The authorized capital stock of the Company consists of: (i) 70,000,000
shares of Common Stock, and (ii) 5,000,000 shares of preferred stock, $0.001 value per share, 2,000
shares of which have been designated as Series A Preferred Stock, par value $0.001 per share (the
“Series A Preferred Stock”). As of April 26, 2010, (a) 23,637,908 shares of Common Stock
were issued and outstanding, (b) 462 shares of Series A Preferred Stock were issued and
outstanding, (c) 3,233,369 shares of Common Stock were reserved for issuance upon the exercise of
options issued or issuable under the Company’s 2009 Stock Incentive Plan, 2007 Stock
Incentive Plan, 2005 Flexible Stock Plan, and 2002 Flexible Stock Plan, and the SysComm
International Corporation 2001 Flexible Stock Plan, and 313,122 shares of Common Stock reserved for
issuance of stock options granted outside of the Company’s stock option plan, (d) 454,000 warrants
to purchase shares of Company Common Stock are outstanding, and (e) no shares of Common Stock were
held in treasury. Except as set forth in the Company’s SEC Reports, there are no script rights
script rights to subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or securities convertible into or exercisable for shares of
Common Stock. The issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than Investor) and will not result
in a right of any holder of Company securities to adjust the exercise, conversion, exchange, or
reset price under such securities. All of the outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable, have been issued in compliance with all federal
and state securities laws, and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors of the Company or others is required
for the issuance and sale of the shares of the Securities. Except as set forth in the Company’s
SEC Reports, there are no stockholders agreements, voting agreements or other similar agreements
with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.


 


13









 





(h) SEC Reports; Financial Statements. The Company has filed all required SEC Reports
for the two years preceding the Effective Date (or such shorter period as the Company was required
by law to file such SEC Reports) on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of
their respective dates, the SEC Reports complied in all material respects with the requirements of
the Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder, as
applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and regulations of the SEC
with respect thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with GAAP, except as may be otherwise specified in such financial statements
or the notes thereto and except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.



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



(j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”), which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the Securities, or (ii)
could, if there were an unfavorable decision, reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor to the knowledge of the Company any
director or officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of breach of fiduciary
duty. There has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the SEC involving the Company or any current or former director
or officer of the Company. The SEC has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Act.


 


14









 





(k) Labor Relations. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company, which could reasonably be
expected to result in a Material Adverse Effect.



(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or
any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other similar agreement or instrument to which
it is a party or by which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state and local laws
applicable to its business except in each case as could not have a Material Adverse Effect.



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



(n) Title to Assets. The Company and each Subsidiary have good and marketable title
in fee simple to all real property owned by them that is material to the business of the Company
and each Subsidiary and good and marketable title in all personal property owned by them that is
material to the business of the Company and each Subsidiary, in each case free and clear of all
Liens, except for Liens that do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such property by the Company and
each Subsidiary and Liens for the payment of federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties. Any real property and facilities held under lease by
the Company and each Subsidiary are held by them under valid, subsisting and enforceable leases of
which the Company and each Subsidiary are in compliance.



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


 


15









 





(p) Insurance. The Company and each Subsidiary are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and each Subsidiary are engaged, including but not
limited to directors and officers insurance coverage. To the best of Company’s knowledge, such
insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiary
has any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business without a significant increase in cost.



(q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or is an officer,
director, trustee or partner, in each case in excess of $120,000 other than (i) for payment of
salary or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company and (iii) for other employee benefits, including
stock option agreements under any equity incentive plan of the Company.



(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002, which are applicable to it as of
the date of the Commitment Closing. The Company and each Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance with management’s
general or specific authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with respect to any
differences. The Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls
and procedures to ensure that material information relating to the Company, including its
Subsidiaries, is made known to the certifying officers by others within those entities,
particularly during the period in which the Company’s most recently filed periodic report under the
Exchange Act, as the case may be, is being prepared. The Company’s certifying officers have
evaluated the effectiveness of the Company’s controls and procedures as of the date prior to the
filing date of the most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic report under
the Exchange Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company’s internal controls or, to
the Company’s knowledge, in other factors that could materially affect the Company’s internal
controls.


 


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(s) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable
by the Company to any broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by this Agreement.
Investor shall have no obligation with respect to any fees or with respect to any claims made by or
on behalf of other Persons for fees of a type contemplated in this Section 4.1(s) that may
be due in connection with the transactions contemplated by this Agreement or the other Transaction
Documents.



(t) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an
“investment company” within the meaning of the Investment Company Act of 1940, as amended. The
Company shall conduct its business in a manner so that it will not become subject to the Investment
Company Act.



(u) Registration Rights. Except as set forth in the SEC Reports, no Person has any
right to cause the Company to effect the registration under the Act of any securities of the
Company.



(v) Listing and Maintenance Requirements. The Common Stock is registered pursuant to
Section 12 of the Exchange Act, and the Company has taken no action designed to,
or which to its knowledge is likely to have the effect of, terminating the registration of the
Common Stock under the Exchange Act nor has the Company received any notification that the SEC is
contemplating terminating such registration. Except as disclosed in the SEC Reports, the Company
has not, in the 12 months preceding the Effective Date, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market. Except as
disclosed in the SEC Reports, the Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and maintenance
requirements.



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



(x) Disclosure; Non-Public Information. Except with respect to the information that
will be, and to the extent that it actually is timely publicly disclosed by the Company pursuant to
Section 2.2(c)(i), and notwithstanding any other provision in this Agreement or the other
Transaction Documents, neither the Company nor any other Person



 


17









 






acting on its behalf has provided
Investor or its agents or counsel with any information that constitutes or might constitute
material, non-public information, including without limitation this Agreement and the Exhibits,
Appendices and Schedules hereto, unless prior thereto Investor shall have executed a written
agreement regarding the confidentiality and use of such information. The Company understands and
confirms that neither Investor nor any Affiliate of Investor shall have any duty of trust or
confidence that is owed directly, indirectly, or derivatively to the Company or the stockholders of
the Company or to any other Person who is the source of material non-public information regarding
the Company. The Company understands and confirms that Investor will rely on the foregoing
representations and covenants in effecting transactions in securities of the Company. All
disclosure provided to Investor regarding the Company, its business and the transactions
contemplated hereby, including without limitation in the Transaction Documents, and the Disclosure
Schedules to this Agreement (if any) furnished by or on behalf of the Company with respect to the
representations and warranties made herein, are true and correct in all material respects and do
not contain any untrue statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under which they were
made, not misleading.



(y) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor to the
knowledge of the Company, any Person acting on its or their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any security, under
circumstances that would cause the offering of the Common Shares to be integrated with prior
offerings by the Company which could violate any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the Trading Market.



(z) Financial Condition. Based on the financial condition of the Company as of the
date of the Commitment Closing: (i) the fair saleable market value of the Company’s assets exceeds
the amount that will be required to be paid on or in respect of the Company’s existing debts and
other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s
assets do not constitute unreasonably small capital to carry on its business for the current fiscal
year as now conducted and as proposed to be conducted including its capital needs taking into
account the particular capital requirements of the business conducted by the Company, and projected
capital requirements and capital availability thereof; and (iii) the current cash flow of the
Company, together with the proceeds the Company would receive, were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all
amounts on or in respect of its debt when such amounts are required to be paid. The Company does
not intend to incur debts beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances, which lead it to believe that it will file for
reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the date of the Commitment Closing. The SEC Reports set forth, as of the
respective dates thereof, all outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. Neither the Company nor
any Subsidiary is in material default with respect to any Indebtedness.


 


18









 





(aa) Tax Status. The Company and each of its Subsidiaries has made or filed all
federal, state and foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all
unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the periods to which
such returns, reports or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know
of no basis for any such claim. The Company has not executed a waiver with respect to the statute
of limitations relating to the assessment or collection of any foreign, federal, statue or local
tax. None of the Company’s tax returns is presently being audited by any taxing authority.



(bb) Regulation M Compliance. The Company has not, and to its knowledge no one acting
on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in
the stabilization or manipulation of the price of any security of the Company to facilitate the
sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person
any compensation for soliciting another to purchase any other securities of the Company.



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



(dd) Acknowledgment Regarding Investor’s Purchase of Securities. The Company
acknowledges and agrees that Investor is acting solely in the capacity of arm’s length purchaser
with respect to this Agreement and the transactions contemplated hereby. The Company further
acknowledges that Investor is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to this Agreement and the transactions contemplated hereby and
any statement made by Investor or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely
incidental to Investor’s purchase of the Securities. The Company further represents to Investor
that the Company’s decision to enter into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.



(ee) Accountants. The Company’s accountants are set forth in the SEC Reports. To the
Company’s knowledge, such accountants are an independent registered public accounting firm as
required by the Act.



(ff) No Disagreements with Accountants and Lawyers. There are no disagreements of any
kind presently existing, or reasonably anticipated by the Company to arise, between the accountants
and lawyers formerly or presently employed by the Company, and the Company is current with respect
to any fees owed to its accountants and lawyers.


 


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(gg) Registration Statements and Prospectuses.



(i) The Company has prepared and filed the Registration Statement in conformity with the
requirements of the Act, which became effective on April 12, 2010 (the “Registration Effective
Date”), including the Prospectus, and such amendments and supplements thereto as may have been
required to the date of this Agreement. The Registration Statement is effective under the Act and
no stop order preventing or suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus has been issued by the SEC and no proceedings
for that purpose have been instituted or, to the knowledge of the Company, are threatened by the
SEC. The Company, if required by the rules and regulations of the Commission, proposes to file the
Prospectus with the Commission pursuant to Rule 424(b).



(ii) At the time the Registration Statement and any amendments thereto became effective, at
the date of this Agreement and at the Closing Date, the Registration Statement and any amendments
thereto conformed and will conform in all material respects to the requirements of the Act and did
not and will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not misleading and the
Prospectus and any amendments or supplements thereto, at time the Prospectus or any amendment or
supplement thereto was issued and at the Closing Date, conformed and will conform in all material
respects to the requirements of the Act and did not and will not contain an untrue statement of a
material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.



(iii) The Registration Statement met, and will continue to comply with, the requirements of
Rule 415 under the Act.



(iv) The Company has not and will not, directly or indirectly, used or referred to any “free
writing prospectus” (as defined in Rule 405 under the Act) except in compliance with Rules 164 and
433 under the Act.



(v) The Company is not and will not be an “ineligible issuer” (as defined in Rule 405 under
the Act) as of the eligibility determination date for purposes of Rules 164 and 433 under the Act
with respect to the offering of the Securities contemplated by any Registration Statement
(including, without limitation, the Prospectus), without taking into account any determination by
the SEC pursuant to Rule 405 under the Act that it is not necessary under the circumstances that
the Company be considered an “ineligible issuer.”



(hh) Form S-3 Compliance. The aggregate amount of the Common Shares, together with
all other shares sold by or on behalf of the Company pursuant to General Instruction I.B.6. to Form
S-3, shall not exceed one-third of the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Company in any 12 month period in order to ensure compliance
with Form S-3 under the Act.


 


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(ii) Disclosure. No information contained in the Disclosure Schedules (if any)
constitutes material non-public information. There is no adverse material information regarding
the Company that has not been publicly disclosed prior to the Effective Date. There has been no
event that has caused, or is likely to cause, a Material Adverse Effect.



(jj) Investor’s Trading Activity. The Company understands and acknowledges that: (i)
Investor has not been asked by the Company to agree, nor has Investor agreed, to desist from
purchasing or selling, long and/or short, securities of the Company or “derivative” securities
based on securities issued by the Company, or to hold the Securities for any specified term; (ii)
past or future open market or other transactions by Investor, specifically including, without
limitation, Short Sales or “derivative” transactions, before or after the Closing, may negatively
impact the market price of the Company’s publicly-traded securities; (iii) Investor and
counter-parties in “derivative” transactions to which Investor is a party, directly or indirectly,
presently may have a “short” position in the Common Stock; (iv) Investor shall not be deemed to
have any affiliation with or control over any arm’s length counter-party in any “derivative”
transaction; (v) Investor may engage in hedging activities at various times during the period that
the Securities are outstanding, including, without limitation, during the periods that the value of
the Warrant Shares or Investment Shares deliverable with respect to Securities are being
determined; (vi) such hedging activities (if any) could reduce the value of the existing
stockholders’ equity interests in the Company at and after the time that the hedging activities are
being conducted; and (vii) the aforementioned hedging activities do not and will not constitute a
breach of this Agreement or any of the other Transaction Documents.



4.2 Representations and Warranties of Investor. Investor hereby represents and
warrants as of the Effective Date as follows:



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



(b) Investor Status. At the time Investor was offered the Securities, it was, and at
the Effective Date it is an “accredited investor” as defined in Rule 501(a) under the Act.



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


 


21









 





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



The Company acknowledges and agrees that Investor does not make or has not made any
representations or warranties with respect to the transactions contemplated hereby other than those
specifically set forth in this Section 4.2.



ARTICLE 5

OTHER AGREEMENTS OF THE PARTIES




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



5.2 Furnishing of Information. As long as Investor owns Securities, the Company covenants
to use its commercially reasonable efforts to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by the Company after
the Effective Date pursuant to the Exchange Act. Upon the request of Investor, the Company shall
deliver to Investor a written certification of a duly authorized officer as to whether it has
complied with the preceding sentence.



5.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Act) that would be
integrated with the offer or sale of the Securities or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of any Trading Market such that it
would require stockholder approval prior to the closing of such other transaction unless
stockholder approval is obtained before the closing of such subsequent transaction.


 


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5.4 Securities Laws Disclosure; Publicity. The Company shall timely file a Current Report
on Form 8-K as required by this Agreement, and in the Company’s discretion shall file a press
release, in each case reasonably acceptable to Investor, disclosing the material terms of the
transactions contemplated hereby. The Company and Investor shall consult with each other in
issuing any press releases with respect to the transactions contemplated hereby, and neither the
Company nor Investor shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any such press release of Investor, or
without the prior consent of Investor, with respect to any such press release of the Company, which
consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law
or Trading Market regulations, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of Investor, or include the name of Investor in
any filing with the SEC or any regulatory agency or Trading Market, without the prior written
consent of Investor, except (i) as contained in the Current Report on Form 8-K and press release
described above, (ii) as required by federal securities law in connection with any registration
statement under which the Common Shares are registered, (iii) to the extent such disclosure is
required by law or Trading Market regulations, in
which case the Company shall provide Investor with prior notice of such disclosure, or (iv) to
the extent such disclosure is required in any SEC Report filed by the Company.



5.5 Shareholders Rights Plan. No claim will be made or enforced by the Company or, to the
knowledge of the Company, any other Person that Investor is an “Acquiring Person” under any
shareholders rights plan or similar plan or arrangement in effect or hereafter adopted by the
Company, or that Investor could be deemed to trigger the provisions of any such plan or
arrangement, by virtue of receiving Securities under the Transaction Documents or under any other
agreement between the Company and Investor. The Company shall conduct its business in a manner so
that it will not become subject to the Investment Company Act of 1940, as amended.



5.6 Non-Public Information. The Company covenants and agrees that neither it nor any
other Person acting on its behalf will provide Investor or its agents or counsel with any
information that the Company believes or reasonably should believe constitutes material non-public
information, unless prior thereto Investor shall have executed a written agreement regarding the
confidentiality and use of such information. On and after the Effective Date, neither Investor nor
any Affiliate Investor shall have any duty of trust or confidence that is owed directly,
indirectly, or derivatively, to the Company or the stockholders of the Company, or to any other
Person who is the source of material non-public information regarding the Company. The Company
understands and confirms that Investor shall be relying on the foregoing in effecting transactions
in securities of the Company.



5.7 Reimbursement. If Investor becomes involved in any capacity in any proceeding by or
against any Person who is a stockholder of the Company (except as a result of sales, pledges,
margin sales and similar transactions by Investor to or with any current stockholder), solely as a
result of Investor’s acquisition of the Securities under this Agreement, the Company will reimburse
Investor for its reasonable legal and other expenses (including the cost of any investigation
preparation and travel in connection therewith) incurred in connection therewith, as such expenses
are incurred, or will assume the defense of Investor in such matter. The reimbursement obligations
of the Company under this Section 5.7 shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of
Investor who are actually named in such action, proceeding or



 


23









 






investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may be, of Investor and
any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns,
heirs and personal representatives of the Company, Investor and any such Affiliate and any such
Person. The Company also agrees that neither Investor nor
any such Affiliates, partners, directors, agents, employees or controlling persons shall have
any liability to the Company or any Person asserting claims on behalf of or in right of the Company
solely as a result of acquiring the Securities under this Agreement.




5.8 Indemnification of Investor



(a) Company Indemnification Obligation. Subject to the provisions of this Section
5.8, the Company will indemnify and hold Investor and any Warrant holder, their Affiliates and
attorneys, and each of their directors, officers, shareholders, partners, employees, agents, and
any person who controls Investor within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act (collectively, the “Investor Parties” and each an “Investor Party”),
harmless from any and all losses, liabilities, obligations, claims, contingencies, damages,
reasonable costs and expenses, including all judgments, amounts paid in settlements, court costs
and reasonable attorneys’ fees and costs of investigation (collectively, “Losses”) that any
Investor Party may suffer or incur as a result of or relating to (i) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents, (ii) any action instituted against any Investor Party, or any of
them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of
an Investor Party, with respect to any of the transactions contemplated by the Transaction
Documents (unless such action is based upon a breach of Investor’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings Investor may have
with any such stockholder or any violations by Investor of state or federal securities laws or any
conduct by Investor which constitutes fraud, gross negligence, willful misconduct or malfeasance),
(iii) any untrue statement or alleged untrue statement of a material fact contained in a
Registration Statement (or in a Registration Statement as amended by any post-effective amendment
thereof by the Company) or arising out of or based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements therein not
misleading, and/or (iv) any untrue statement or alleged untrue statement of a material fact
included in any Prospectus (or any amendments or supplements to any Prospectus), in any free
writing prospectus, in any “issuer information” (as defined in Rule 433 under the Act) of the
Company, or in any Prospectus together with any combination of one or more of the free writing
prospectuses, if any, or arising out of or based upon any omission or alleged omission to state a
material fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that Company shall
not be obligated to indemnify any Investor Party for any Losses finally adjudicated to be caused
solely by a false statement of material fact contained within written information provided by such
Investor Party expressly for the purpose of including it in the applicable Registration Statement.



(b) Indemnification Procedures. If any action shall be brought against an Investor
Party in respect of which indemnity may be sought pursuant to this Agreement, such Investor Party
shall promptly notify the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing. The Investor Parties shall have the right to
employ separate counsel in any such action and participate in the defense



 


24









 






thereof, but the fees and expenses of such counsel shall be at the expense of the Investor
Parties except to the extent that (i) the employment thereof has been specifically authorized by
the Company in writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of
such separate counsel, a material conflict with respect to the dispute in question on any material
issue between the position of the Company and the position of the Investor Parties such that it
would be inappropriate for one counsel to represent the Company and the Investor Parties. The
Company will not be liable to the Investor Parties under this Agreement (i) for any settlement by
an Investor Party effected without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is either attributable to Investor’s breach of any of the representations,
warranties, covenants or agreements made by Investor in this Agreement or in the other Transaction
Documents.



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



5.10 Limited Standstill. The Company will deliver to Investor on or before each Tranche
Closing Date, and will honor and enforce, and will take reasonable actions to assist Investor in
enforcing, the provisions of, the Lock-Up Agreements.



5.11 Prospectus Availability and Changes. The Company will make available to Investor upon
request, and thereafter from time to time will furnish Investor, as many copies of any Prospectus
(or of the Prospectus as amended or supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the applicable Registration Statement) as Investor
may request for the purposes contemplated by the Act; and in case Investor is required to deliver
a prospectus after the nine-month period referred to in Section 10(a)(3) of the Act in connection
with the sale of the Common Shares, or after the time a post-effective amendment to the applicable
Registration Statement is required pursuant to Item 512(a) of Regulation S-K under the Act, the
Company will prepare, at its expense, promptly upon request such amendment or amendments to the
Registration Statement and the Prospectus as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act or Item 512(a) of Regulation S-K under the Act, as the
case may be. The Company will advise Investor promptly of the happening of any event within the
time during which a Prospectus is required to be delivered under the Act which could require the
making of any change in the Prospectus then being used so that the Prospectus would not include an
untrue statement of material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they are made, not misleading,
and to advise Investor
promptly if, during such period, it shall become necessary to amend or supplement any
Prospectus to cause such Prospectus to comply with the requirements of the Act, and in each case,
during such time, to prepare and furnish, at the Company’s expense, to Investor promptly such
amendments or supplements to such Prospectus as may be necessary to reflect any such change or to
effect such compliance. The Company shall have no obligation to separately advise Investor of, or
deliver copies to Investor of, the SEC Reports, all of which Investor shall be deemed to have
notice of.


 


25









 





5.12 Required Approval. No transactions contemplated under this Agreement or the
Transaction Documents shall be consummated for an amount that would require approval by any Trading
Market or the Company stockholders under any approval provisions, rules or regulations of any
Trading Market applicable to the Company, unless and until such approval is obtained. The Company
shall use commercially reasonable efforts to obtain any required approval as soon as possible.



5.13 Activity Restrictions. For so long as Investor or any of its Affiliates holds
any Securities, neither Investor nor any Affiliate will: (i) vote or permit any third party to vote
any shares of Common Stock owned or controlled by it, solicit any proxies, or seek to advise or
influence any Person with respect to any voting securities of the Company; (ii) engage or
participate in any actions, plans or proposals which relate to or would result in (a) acquiring
additional securities of the Company, alone or together with any other Person, which would result
in beneficially owning or controlling more than 9.99% of the total outstanding Common Stock or
other voting securities of the Company, (b) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving Company or any of its subsidiaries, (c) a sale or
transfer of a material amount of assets of the Company or any of its subsidiaries, (d) any change
in the present board of directors or management of the Company, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the board, (e) any
material change in the present capitalization or dividend policy of the Company, (f) any other
material change in the Company’s business or corporate structure, including but not limited to, if
the Company is a registered closed-end investment company, any plans or proposals to make any
changes in its investment policy for which a vote is required by Section 13 of the Investment
Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control of the Company by any Person,
(h) causing a class of securities of the Company to be delisted from a national securities exchange
or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered
national securities association, (i) a class of equity securities of the Company becoming eligible
for termination of registration pursuant to Section 12(g)(4) of the Act, (j) any action,
intention, plan or arrangement similar to any of those enumerated above, or (k) engage in any
transactions in securities of the Company including Short Sales except in compliance with
applicable securities laws; or (iii) request the Company or its directors, officers, employees,
agents or representatives to amend or waive any provision of this Section 5.13.



5.14 Non-Circumvention. The Company hereby covenants and agrees that it will not, by
amendment of its certificate of incorporation, bylaws or similar organizational documents, or
through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement,
dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Agreement, the Warrant, or the Investment
Shares and will at all times in good faith carry out all the provisions of this Agreement and take
all action as may be required to protect the rights of Investor.



5.15 Insufficient Authorized Shares. If at any time that any portion of the Warrant
remains outstanding the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock (an “Authorized Share Failure”) to satisfy its obligation to reserve
for issuance upon exercise of the Warrant at least a number of shares of Common Stock equal to 110%
of the number of shares of Common Stock as shall from time to time be necessary



 


26









 






to effect the
exercise in full of any outstanding portion of the Warrant (the “Required Reserve Amount”),
then the Company shall immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve
Amount for the portion of the Warrant then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than ninety (90) days after the occurrence of such Authorized Share
Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in
the number of authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board
of directors to recommend to the stockholders that they approve such proposal.



5.16 Investor Due Diligence. Investor shall have the right and opportunity to conduct
reasonable due diligence, at its own expense, with respect to any Registration Statement or
Prospectus in which the name of Investor or any Affiliate of Investor appears.



ARTICLE 6

MISCELLANEOUS




6.1 Fees and Expenses. Each party shall pay the fees and expenses of its own advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of the Transaction
Documents. The Company acknowledges and agrees that Luce Forward solely represents Investor, and
does not represent the Company or its interests in connection with the Transaction Documents or the
transactions contemplated thereby. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities, if any.



6.2 Notices. Unless a different time of day or method of delivery is set forth in the
Transaction Documents, any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of: (a) the date of transmission, if such notice or communication is delivered via
facsimile or electronic mail prior to 5:30 p.m. Eastern time on a Trading Day and an electronic
confirmation of delivery is received by the sender, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered later than 5:30 p.m. Eastern time or on
a day that is not a Trading Day, (c) the next Trading Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to
whom such notice is required to be given. The addresses for such notices and communications are
those set forth following the signature page hereof, or such other address as may be designated in
writing hereafter, in the same manner, by such Person.



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


 


27









 





6.4 Headings. The headings herein are for convenience only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions hereof.



6.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit
of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of Investor,
which consent will not be unreasonably withheld or delayed. Investor may assign any or all of its
rights under this Agreement to any Affiliate or to any Person to whom Investor assigns or transfers
any Securities; provided such transferee agrees in writing to be bound, with respect to the
transferred Securities, by the provisions hereof that apply to the Investor.



6.6 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 5.8.



6.7 Governing Law; Jurisdiction; Dispute Resolution. All questions concerning the
construction, validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the laws of the State of New York,
without regard to the principles of conflicts of law that would require or permit the application
of the laws of any other jurisdiction. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforcement of
any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any
such court, that such suit, action or proceeding is improper or inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of process and consents to
process being served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees
and other costs and expenses reasonably incurred in connection with the investigation, preparation
and prosecution of such action or proceeding.


 


28









 





6.8 Survival. The representations, warranties and covenants contained herein shall
survive the Closing until all the Preferred Shares owned by Investor or any Affiliate have been
redeemed.



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



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



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



6.12 Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of Investor and the Company will be entitled to
specific performance under the Transaction Documents. The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of obligations described
in the foregoing sentence and hereby agrees to waive in any action for specific performance of any
such obligation the defense that a remedy at law would be adequate. Neither the Company nor
Investor shall be liable for special, indirect, consequential or punitive damages suffered or
alleged to be suffered by the other party or any third party, whether arising from or related to
the Transaction Documents or otherwise.



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


 


29









 





6.14 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages
or other amounts owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other amounts have been
paid notwithstanding the fact that the instrument or security pursuant to which such partial
liquidated damages or other amounts are due and payable shall have been canceled.



6.15 Time of the Essence. Time is of the essence with respect to all provisions of this
Agreement that specify a time for performance.



6.16 Construction. The parties agree that each of them and/or their respective counsel has
reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule
of construction to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.
The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.



6.17 Entire Agreement. This Agreement, together with the Exhibits, Appendices and
Schedules hereto, contains the entire agreement and understanding of the parties, and supersedes
all prior and contemporaneous agreements, term sheets, letters, discussions, communications and
understandings, both oral and written, which the parties acknowledge have been merged into this
Agreement. No party, representative, attorney or agent has relied upon any collateral contract,
agreement, assurance, promise, understanding or representation not expressly set forth hereinabove.
The parties hereby expressly waive all rights and remedies, at law and in equity, directly or
indirectly arising out of or relating to, or which may arise as a result of, any Person’s reliance
on any such assurance.


 


30









 





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



	 	 	 	 	 
	POSITIVEID CORPORATION

 	 
	By:  	/s/
William J. Caragol	 
	 	Name:  	William J. Caragol	 
	 	Title:  	President and Chief Financial Officer	 
	 
	SOCIUS CG II, LTD.

 	 
	By:  	/s/
Terren Peizer	 
	 	Name:  	Terren Peizer	 
	 	Title:  	Managing Director	 



 


 









 





	 	 	 	 	 



Addresses for Notice




To Company:




PositiveID Corporation

1690 South Congress Avenue, Suite 200

Delray Beach, FL 33445

Attention: William J. Caragol, President and CFO

Fax No.: (561) 805-8001

Email: bcaragol@positiveidcorp.com




with a copy (which shall not constitute notice) to:




Holland & Knight LLP

One East Broward Boulevard, Suite 1300

Fort Lauderdale, FL 33301

Attention: Tammy L. Knight, Esq.

Fax No.: (954) 463-2030

Email: tammy.knight@hklaw.com






To Investor:




Socius CG II, Ltd.

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, California 90025

Fax No.: (310) 444-5300

Email: info@sociuscg.com




with a copy (which shall not constitute notice) to:




Luce Forward Hamilton & Scripps LLP

601 South Figueroa Street, Suite 3900

Los Angeles, California 90017

Attention: John C. Kirkland, Esq.

Fax No.: (213) 452-8035

Email: jkirkland@luce.com


 


 









 





Exhibit A




Form of Warrant





 


 











 




PositiveID Corporation




Warrant To Purchase Common Stock 




			
	 	 	 
	Warrant No.: 2010-1
	 	Issuance Date: [  ], 2010






Number of Warrant Shares: [                    ]




Exercise Price: $[          ] per share




PositiveID Corporation, a Delaware corporation (“Company”), hereby certifies that, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
Socius CG II, Ltd., a Bermuda exempted company, the holder hereof or its designees or assigns
(“Holder”), is entitled, subject to the terms set forth herein, to purchase from the
Company, at the Exercise Price, upon exercise of this Warrant to Purchase Common Stock (including
any warrant issued in exchange, transfer or replacement hereof, the “Warrant”), at any time
or times after issuance of the Warrant set forth above (the “Issuance Date”) and until
11:59 p.m. Eastern time on the second anniversary of the Issuance Date (subject to acceleration and
extension as set forth herein), that number of duly authorized, validly issued, fully paid and
non-assessable, registered shares of Common Stock set forth above (the “Warrant Shares”) on
the terms and conditions set forth herein.



This
Warrant is issued pursuant to the Stock Purchase Agreement dated April 28, 2010, by and
among the Company and Holder (the “Purchase Agreement”). Except as otherwise defined
herein, capitalized terms in this Warrant shall have the meanings set forth in ARTICLE 13 hereof.



ARTICLE 1

EXERCISE OF WARRANT.




1.1 Mechanics of Exercise.



1.1.1 Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder
on any day on or after the Issuance Date and until 11:59 p.m. Eastern time on the second
anniversary of the Issuance Date (subject to acceleration and extension as set forth herein), in
whole or in part, by (i) delivery of a written notice to the Company, in the form attached hereto
as Appendix 1 (the “Warrant Exercise Notice”), of the Holder’s election to exercise
this Warrant, and (ii) payment to the Company of an amount equal to the Exercise Price multiplied
by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate
Exercise Price”), with such payment made, at Investor’s option, (x) in cash or by wire transfer of immediately available funds, (y) by the issuance and
delivery of a secured promissory note substantially in the form attached hereto as Appendix
2, or (z) if applicable, by cashless exercise pursuant to Section 1.3.


 


1









 





1.1.2 The Holder shall not be required to deliver the original Warrant in order to effect an
exercise hereunder. Execution and delivery of the Warrant Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant
and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant
Shares.



1.1.3 On the Trading Day on which the Company has received each of the Warrant Exercise Notice
and the Aggregate Exercise Price (the “Warrant Exercise Delivery Documents”) from the
Holder by 6:30 p.m. Eastern time, or on the next Trading Day if the Warrant Exercise Delivery
Documents are received after 6:30 p.m. Eastern time or on a non-Trading Day (in each case, the
“Exercise Delivery Date”), the Company shall transmit (i) a facsimile acknowledgment of
confirmation of receipt of the Warrant Exercise Delivery Documents to the Holder, and (ii) an
electronic copy of its share issuance instructions to the Holder and to the Company’s transfer
agent (the “Transfer Agent”), with such transmissions to comply with the notice provisions
contained in Section 6.2 of the Purchase Agreement, and shall instruct and authorize the
Transfer Agent to credit such aggregate number of registered Warrant Shares to which the Holder is
entitled to receive upon such exercise to the Holder’s or its designee’s balance account with The
Depository Trust Company (DTC) through the Fast Automated Securities Transfer (FAST) Program
through its Deposit Withdrawal Agent Commission (DWAC) system, with such credit to occur no later
than 12:00 p.m. Eastern Time on the Trading Day following the Exercise Delivery Date, time being of
the essence; provided, however, that if the Warrant Shares are not credited as DWAC
Shares by 12:00 p.m. Eastern Time on the Trading Day following the Exercise Delivery Date, then the
Tranche Closing Date applicable to the Warrant Exercise Notice shall be extended by one Trading Day
for each Trading Day that timely credit of DWAC Shares is not made. When issued, the Warrant
Shares shall be issued free of restrictive legends unless the Registration Statement (as defined in
the Purchase Agreement) is not then effective.



1.1.4 Upon delivery of the Warrant Exercise Delivery Documents, the Holder shall be deemed for
all corporate purposes to have become the holder of record of the Warrant Shares with respect to
which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to
the Holder’s DTC account. If any portion of the Warrant is exercised in connection with a Tranche
Notice, such portion shall be deemed exercised (i) on the Tranche Notice Date, if exercised by 6:30
p.m. Eastern time on the Tranche Notice Date, or (ii) on the next Trading Day, if exercised by
Investor after 6:30 p.m. Eastern Time on the Tranche Notice Date or on any other date, in each case
with Holder deemed to be a holder of record as of such date.



1.1.5 If this Warrant is exercised and the number of Warrant Shares represented by this
Warrant is greater than the number of Warrant Shares being acquired upon such exercise, then the
Company shall, as soon as practicable and in no event later than three Trading Days after such
exercise, update Schedule 1 attached hereto (the “Tranche Exercise Schedule”) to
reflect the revised number of Warrant Shares for which this Warrant is then exercisable and deliver
a copy of the updated Tranche Exercise Schedule to the Holder. No


 


2









 




fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but
rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole
number. The Company shall pay any and all taxes which may be payable with respect to the issuance
and delivery of Warrant Shares upon exercise of this Warrant, other than income related taxes
payable by the Investor.




1.2 Adjustments to Exercise Price and Number of Shares. In addition to other
adjustments specified herein, the Exercise Price of this Warrant and the number of shares of Common
Stock issuable upon exercise shall be adjusted as follows:



1.2.1 Exercise Price. The “Exercise Price” per share of Common Stock underlying this
Warrant, subject to further adjustment as provided herein, shall be an amount per Warrant Share
equal to the Investment Price on the Tranche Notice Date.



1.2.2 Number of Shares. The number of Warrant Shares underlying this Warrant, subject
to further adjustment as provided herein, shall be as follows: a number of shares equal to 35% of
the Tranche Purchase Price set forth in the applicable Tranche Notice, with the resulting sum
divided by the Investment Price on the Tranche Notice Date. For example, if the Tranche Purchase
Price is $1,000,000 and the Investment Price is $0.50, then the number of Warrant Shares underlying
that Tranche shall be $1,000,000 x 35% = $350,000 divided by $0.50 = 700,000 shares of Common
Stock. All of the Warrant Shares underlying this Warrant shall vest and become exercisable on the
Issuance Date. If at any time the Holder reasonably believes that the number of Warrant Shares
included in the Registration Statement is not sufficient to cover all exercises under this Warrant,
then the Company shall amend or supplement such Registration Statement to include the additional
number of Warrant Shares that may be required to provide such coverage.



1.3 Cashless Exercise. Notwithstanding anything contained herein to the contrary, if
at any time there is not a current, valid and effective registration statement covering the Warrant
Shares that are the subject of the Warrant Exercise Notice (the “Unavailable Warrant
Shares”), the Holder may, in its sole discretion, exercise this Warrant in whole or in part
and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise
the “Net Number” of shares of Common Stock determined according to the following formula (a
“Cashless Exercise”):



Net Number = (B-C) x A




B


For purposes of the foregoing formula:




A = the total number of shares with respect to which this Warrant is then being exercised.


 


3









 






B = the average of the Investment Prices of the shares of Common Stock (as reported by
Bloomberg) for the ten (10) consecutive Trading Days ending on the date immediately
preceding the date of the Warrant Exercise Notice.




C = the Exercise Price then in effect for the applicable Warrant Shares at the time of such
exercise.



1.4 Company’s Failure to Timely Deliver Securities. If the Company shall fail for any
reason or for no reason to credit to the Holder’s balance account with DTC, by 12:00 p.m. Eastern
time on the second Trading Day following the Exercise Delivery Date, the number of shares of Common
Stock to which the Holder is entitled upon the Holder’s exercise of this Warrant, then, in addition
to all other remedies available to the Holder, the Company shall pay in cash to the Holder on each
day after such Trading Day that the issuance of such shares of Common Stock is not timely effected
an amount equal to 1.5% of the product of (A) the sum of the number of shares of Common Stock not
issued to the Holder on a timely basis and to which the Holder is entitled and (B) the Investment
Price of the shares of Common Stock on the Trading Day immediately preceding the last possible date
which the Company could have issued such shares of Common Stock to the Holder without violating
Section 1.1; provided, however, that if the Warrant Shares are not credited
as DWAC Shares by 12:00 p.m. Eastern Time on the Trading Day following the Exercise Delivery Date,
then the Tranche Closing Date applicable to the Warrant Exercise Notice shall be extended by one
Trading Day for each Trading Day that timely credit of DWAC Shares is not made. In addition to the
foregoing, if after the Company’s receipt of an Warrant Exercise Notice the Company shall fail to
timely (pursuant to Section 1.1.3 hereof) credit the Holder’s balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon the Holder’s exercise
hereunder, and the Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company, then the Company shall,
within one Trading Day after the Holder’s request and in the Holder’s discretion, either (i) pay
cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at
which point the Company’s obligation to credit such Holder’s balance account with DTC for the
number of Warrant Shares to which the Holder is entitled upon the Holder’s exercise hereunder and
to issue such Warrant Shares shall terminate, or (ii) promptly honor its obligation to credit such
Holder’s balance account with DTC for the number of Warrant Shares to which the Holder is entitled
upon the Holder’s exercise hereunder and pay cash to the Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock sold by
Holder in satisfaction of its obligations, times (B) the Investment Price on the date of exercise.




1.5 Exercise Limitation.



1.5.1 Notwithstanding any other provision, at no time may the Holder exercise
this Warrant such that the number of Warrant Shares to be received pursuant to such exercise,
aggregated with all other shares of Common Stock then owned, or deemed beneficially owned, by the
Holder and its affiliates, would result in the Holder and its affiliates owning more than 9.99% of
all of such Common Stock as would be outstanding on the date of exercise, as determined in
accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. In addition, as of any date, the aggregate number of shares of Common Stock into which
this Warrant is exercisable within 61 days, together with all other shares of Common Stock then
beneficially owned (as such term is defined in Rule 13(d) under the Exchange Act) by Holder and its
affiliates, shall not exceed 9.99% of the total outstanding shares of Common Stock as of such date.






 


4









 






1.5.2 Until Stockholder Approval (as defined below) is obtained, or the
Holder obtains an opinion of counsel reasonably satisfactory to the Company and its counsel that
such approval is not required, the Holder shall be prohibited from exercising this Warrant if, as a
result of such exercise, the aggregate number of Warrant Shares issued pursuant to all exercises of
this Warrant plus the aggregate number of Investment Shares issued under the Purchase Agreement
would exceed the Cap Amount (as defined below). If, at any time, the sum of (i) the number of
Warrant Shares theretofore issued under this Warrant plus (ii) the number of Warrant Shares then
issuable upon exercise of this Warrant (without giving effect to any limitation on such exercise
contained in this Warrant), plus (iii) the aggregate number of Investment Shares issued under the
Purchase Agreement, exceeds the Cap Amount, the Company shall, upon the written request of the
Holder, hold a meeting of its stockholders within sixty (60) days following such request, and use
its best efforts to obtain the approval of its stockholders for the transactions described herein
and the other Transaction Documents (“Stockholder Approval”). For purposes hereof, “Cap
Amount” means 19.99% of the Common Stock outstanding on the Issuance Date (subject to
adjustment upon a stock split, stock dividend or similar event). In the event that the Holder shall
sell or otherwise transfer all or any portion of this Warrant, the
transferee shall be deemed to have been allocated a pro rata share of the Cap Amount.





1.6 Activity Restrictions. For so long as Holder or any of its affiliates holds this
Warrant or any Warrant Shares, neither Holder nor any affiliate will: (i) vote or permit any third
party to vote any shares of Common Stock owned or controlled by it, solicit any proxies, or seek to
advise or influence any Person with respect to any voting securities of the Company; (ii) engage or
participate in any actions, plans or proposals which relate to or would result in (a) acquiring
additional securities of the Company, alone or together with any other Person, which would result
in beneficially owning or controlling more than 9.99% of the total outstanding Common Stock or
other voting securities of the Company, (b) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving Company or any of its subsidiaries, (c) a sale or
transfer of a material amount of assets of the Company or any of its subsidiaries, (d) any change
in the present board of directors or management of the Company, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the board, (e) any
material change in the present capitalization or dividend policy of the Company, (f) any other
material change in the Company’s business or corporate structure, including but not limited to, if
the Company is a registered closed-end investment company, any plans or proposals to make any
changes in its investment policy for which a vote is required by Section 13 of the Investment
Company Act of 1940, (g) changes in the Company’s charter, bylaws or instruments corresponding
thereto or other actions which may impede the acquisition of control of the Company by any Person,
(h) causing a class of securities of the Company to be delisted from a national securities exchange
or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered
national securities association, (i) a class of equity securities of the Company becoming eligible
for termination of registration pursuant to Section 12(g)(4) of the Act, or (j) any action,
intention, plan or arrangement similar to any of those enumerated above; or (iii) request the
Company or its directors, officers, employees, agents or representatives to amend or waive any
provision of this Section 1.6.



1.7 Disputes. In the case of a dispute as to the determination of the Exercise Price
or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder
the number of Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 12.



1.8 Insufficient Authorized Shares. If at any time while any portion of this Warrant
remains outstanding the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this
Warrant at least a number of shares of Common Stock equal to 110% of the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise


 


5









 




of the portion of the Warrant then outstanding (the “Required Reserve Amount”) (an
“Authorized Share Failure”), then the Company shall immediately take all action necessary
to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the portion of the Warrant then outstanding.
Without limiting the generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than 90 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common Stock. In connection
with such meeting, the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders’ approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to the stockholders that they approve
such proposal.




ARTICLE 2

ADJUSTMENT UPON SUBDIVISION OR COMBINATION OF COMMON STOCK




If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of Warrant Shares will be
proportionately increased. If the Company at any time on or after the Issuance Date combines (by
combination, reverse stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant Shares will be
proportionately decreased. Any adjustment under this ARTICLE 2 shall become effective at the close
of business on the date the subdivision or combination becomes effective.



ARTICLE 3

PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS




3.1 Purchase Rights. In addition to any adjustments pursuant to ARTICLE 2 above, if
at any time the Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record holders of any class
of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any limitations on the exercise of this
Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.


 


6









 





3.2 Subsequent Equity Sales. In addition to any adjustments made pursuant to ARTICLE 2
above, if the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is
outstanding, shall sell or grant any option to purchase, or sell or grant any right to
reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to
purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person
other than the Holder to acquire shares of Common Stock, at an effective price per share less than
the then Exercise Price (such lower price, the “Base Share Price” and such issuances,
collectively, a “Dilutive Issuance”), then the Exercise Price shall be reduced and only
reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be
increased such that the aggregate Exercise Price payable hereunder, after taking into account the
decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such
adjustment. Except as otherwise provided herein, such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. If the holder of the Common Stock or Common
Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such issuance, be
entitled to receive shares of Common Stock at an effective price per share which is less than the
Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on
such date of the Dilutive Issuance. Notwithstanding the foregoing, no adjustments shall be made,
paid or issued under this Section 3.2 in respect of an Exempt Issuance, subject to
adjustment for reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of the Purchase Agreement. The
Company shall notify the Holder in writing, no later than the Trading Day following the issuance of
any Common Stock or Common Stock Equivalents subject to this Section 3.2, indicating
therein the applicable issuance price, or applicable reset price, exchange price, conversion price
and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this
Section 3.2, upon the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share
Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of
Exercise.



3.3 Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless the Successor Entity assumes in writing all of the obligations of
the Company under this Warrant in accordance with the provisions of this Section 3.3
pursuant to written agreements in form and substance satisfactory to the Required Holders and
approved by the Required Holders prior to such Fundamental Transaction, including agreements to
deliver to each Holder of this Warrant in exchange for such Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and substance to this
Warrant, including, without limitation, an adjusted exercise price equal to the value for the
shares of Common Stock reflected by the terms of such Fundamental Transaction, and exercisable for
a corresponding number of shares of capital stock equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the
exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Required
Holders. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such Fundamental Transaction, the
provisions of this Warrant referring to the “Company” shall refer instead to the



 


7









 






Successor Entity), and may exercise every right and power of the Company and shall assume all
of the obligations of the Company under this Warrant with the same effect as if such Successor
Entity had been named as the Company herein. Upon consummation of the Fundamental Transaction, the
Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise
of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the
shares of the Common Stock (or other securities, cash, assets or other property) purchasable upon
the exercise of this Warrant prior to such Fundamental Transaction, such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon the happening of
such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental
Transaction, as adjusted in accordance with the provisions of this Warrant. In addition to and not
in substitution for any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities
or other assets with respect to or in exchange for shares of Common Stock (a “Corporate
Event”), the Company shall make appropriate provision to insure that the Holder will thereafter
have the right to receive upon an exercise of this Warrant at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of the Common Stock (or other securities, cash,
assets or other property) purchasable upon the exercise of this Warrant prior to such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder would have been
entitled to receive upon the happening of such Fundamental Transaction had this Warrant been
exercised immediately prior to such Fundamental Transaction; provided, however, that in the event
the Fundamental Transaction involves the issuance of cash or freely tradable securities by an
issuer listed on the New York Stock Exchange or the Nasdaq Stock Market, then the ability to
exercise this Warrant shall expire on the consummation of that Fundamental Transaction. Provision
made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to
the Required Holders. The provisions of this Section 3.3 shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall be applied without
regard to any limitations on the exercise of this Warrant.



3.4 Purchase of Warrant. Notwithstanding the foregoing Section 3.3, in the
event of a Fundamental Transaction other than one in which the Successor Entity is a Public
Successor Entity that assumes this Warrant such that this Warrant shall be exercisable for the
publicly traded common stock of such Public Successor Entity, at the request of the Holder
delivered before the 90th day after the effective date of such Fundamental Transaction, the Company
(or the Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder,
within five (5) Trading Days after such request (or, if later, on the effective date of the
Fundamental Transaction), cash in an amount equal to the value of the remaining unexercised portion
of this Warrant on the date of such consummation, which value shall be determined by use of the
Black Scholes Option Pricing Model using a volatility equal to the 100 day average historical price
volatility prior to the date of the public announcement of such Fundamental Transaction.


 


8









 





ARTICLE 4

NONCIRCUMVENTION




The Company hereby covenants and agrees that the Company will not, by amendment of its
certificate or articles of incorporation, articles of association, bylaws, or any other
organization documents, or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will
at all times in good faith carry out all the provisions of this Warrant and take all action as may
be required to protect the rights of the Holder. Without limiting the generality of the foregoing,
the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions
as may be necessary or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall,
so long as any portion of this Warrant remains outstanding, take all action necessary to reserve
and keep available out of its authorized and unissued shares of Common Stock, solely for the
purpose of effecting the exercise of this Warrant, 110% of the number of shares of Common Stock as
shall from time to time be necessary to effect the exercise of this Warrant then outstanding
(without regard to any limitations on exercise).



ARTICLE 5

WARRANT HOLDER NOT DEEMED A STOCKHOLDER




Except as otherwise specifically provided herein, the Holder, solely in such Person’s capacity
as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the
holder of share capital of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the Holder, solely in such Person’s capacity as the Holder of
this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or
withhold consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the
Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise)
or as a stockholder of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this ARTICLE 5, the Company shall provide the Holder
with copies of the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.


 


9









 





ARTICLE 6

REISSUANCE OF WARRANTS




6.1 Transfer of Warrant. If this Warrant is to be transferred in whole or in part,
the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with Section
6.4), registered as the Holder may request, representing the right to purchase the number of
Warrant Shares being transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance with Section
6.4) to the Holder representing the right to purchase the number of Warrant Shares not being
transferred.



6.2 Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 6.4) representing the right to purchase the Warrant Shares then
underlying this Warrant.



6.3 Exchangeable for Multiple Warrant. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new Warrant or
Warrants (in accordance with Section 6.4) representing in the aggregate the right to
purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will
represent the right to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrant for fractional shares of Common
Stock shall be given.



6.4 Issuance of New Warrant. Whenever the Company is required to issue a new Warrant
pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this
Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase
the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued
pursuant to Section 6.1 or Section 6.3, the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other new Warrant issued
in connection with such issuance, does not exceed the number of Warrant Shares then underlying this
Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is
the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.



ARTICLE 7

NOTICES




Whenever notice is required to be given under this Warrant, unless otherwise provided herein,
such notice shall be given in accordance with Section 6.2 of the Purchase Agreement. The
Company shall provide the Holder with prompt written notice of all actions taken pursuant to this
Warrant, including in reasonable detail a description of such action and the reason therefore.
Without limiting the generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least ten days prior to the
date on which the Company closes its books or takes a record (A) with respect to any



 


10









 






dividend or distribution upon the shares of Common Stock, (B) with respect to any grants,
issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to all holders of shares of Common Stock as such or (C) for
determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.



ARTICLE 8

AMENDMENT AND WAIVER




Except as otherwise provided herein, the provisions of this Warrant may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the Required Holders;
provided that except as set forth in this Warrant no such action may increase the exercise price of
any Warrant or decrease the number of shares or class of stock obtainable upon exercise of any
Warrant without the written consent of the Holder. No such amendment shall be effective to the
extent that it applies to less than all of the holders of this Warrant.



ARTICLE 9

GOVERNING LAW




This Warrant shall be governed by and construed and enforced in accordance with, and all
questions concerning the construction, validity, interpretation and performance of this Warrant
shall be governed by, the internal laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions other than the
State of New York.



ARTICLE 10

CONSTRUCTION; HEADINGS




This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not
be construed against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.



ARTICLE 11

DISPUTE RESOLUTION




In the case of a dispute as to the determination of the Exercise Price or the arithmetic
calculation of the Warrant Shares, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within 2 Trading Days of receipt of the Warrant Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Trading Days of such disputed determination or arithmetic



 


11









 






calculation being submitted to the Holder, then the Company shall, within 2 Trading Days
submit via facsimile (a) the disputed determination of the Exercise Price or arithmetic calculation
to an independent, reputable investment bank or independent registered public accounting firm
selected by Holder subject to Company’s approval, which may not be unreasonably withheld or
delayed, or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s
independent registered public accounting firm. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than 3 Trading Days from
the time it receives the disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding upon all parties
absent demonstrable error.



ARTICLE 12

REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF




The remedies provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the right of the Holder
right to pursue actual damages for any failure by the Company to comply with the terms of this
Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.
The Company therefore agrees that, in the event of any such breach or threatened breach, the holder
of this Warrant shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and without any bond or
other security being required.



ARTICLE 13

DEFINITIONS




For purposes of this Warrant, in addition to the terms defined elsewhere herein, the following
terms shall have the following meanings:



13.1 “Bloomberg” means Bloomberg Financial Markets.



13.2 “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.01
per share, and (ii) any share capital into which such Common Stock shall have been changed or any
share capital resulting from a reclassification of such Common Stock.



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


 


12









 





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



13.5 “DWAC Shares” means all Warrant Shares issued or issuable to Holder or any
Affiliate, successor or assign of Holder pursuant to this Warrant, all of which shall be (a) issued
in electronic form, (b) freely tradable and without restriction on resale, and (c) timely credited
by Company to the specified Deposit/Withdrawal at Custodian (DWAC) account with DTC under its Fast
Automated Securities Transfer (FAST) Program or any similar program hereafter adopted by DTC
performing substantially the same function, in accordance with instructions issued to and
countersigned by the Transfer Agent of the Company.



13.6 “Eligible Market” means the Trading Market, The New York Stock Exchange, Inc.,
The NASDAQ Global Select Market, The NASDAQ Global Market, The NASDAQ Capital Market, the NYSE Amex
or the OTC Bulletin Board, but does not include the Pink Sheets.



13.7 “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers, or directors of the Company pursuant to any stock or option plan duly adopted
for such purpose, by a majority of the non-employee members of the Board of Directors or a majority
of the members of a committee of non-employee directors established for such purpose, (b)
securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of Common Stock issued
and outstanding on the date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to decrease the
exercise price, exchange price or conversion price of such securities (except as a result of
anti-dilution provisions therein), (c) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the Company, (d) securities
for the purpose of raising additional capital, and (e) shares of Common Stock or other securities
of the Company in connection with bona fide transactions of the Company made in the ordinary course
of business.



13.8 “Fundamental Transaction” has the meaning set forth in the Purchase Agreement.



13.9 “Investment Price” has the meaning set forth in the Purchase Agreement.



13.10
“Investment Shares” has the meaning set forth in
the Purchase Agreement.



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



13.12 “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity security is quoted or
listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction.


 


13









 





13.13 “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other entity and a
government or any department or agency thereof.



13.14 “Public Successor Entity” means a Successor Entity that is a publicly traded
corporation whose stock is quoted or listed for trading on an Eligible Market.



13.15 “Required Holders” means the Holders of this Warrant representing at least a
majority of shares of Common Stock underlying this Warrant as then outstanding.



13.16 “Successor Entity” means the Person (or, if so elected by the Required Holders,
the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person
(or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental
Transaction shall have been entered into.



13.17 “Trading Day” means any day on which the Common Stock is traded on an Eligible
Market; provided that it shall not include any day on which the Common Stock (a) is suspended from
trading, or (b) is scheduled to trade on such exchange or market for less than 5 hours.



13.18 “Trading Market” means the OTC Bulletin Board, the NASDAQ Capital Market, the
NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE Amex, or the New York Stock
Exchange, whichever is at the time the principal trading exchange or market for the Common Stock,
but does not include the Pink Sheets inter-dealer electronic quotation and trading system.



13.19 “Tranche” has the meaning set forth in the Purchase Agreement.



13.20 “Tranche Closing Date” has the meaning set forth in the Purchase Agreement.



13.21 “Tranche Notice” has the meaning set forth in the Purchase Agreement.



13.22 “Tranche Notice Date” has the meaning set forth in the Purchase Agreement.



13.23 “Tranche Purchase Price” has the meaning set forth in the Purchase Agreement.


 


14









 





IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly
executed as of the Issuance Date set out above.



	 	 	 	 	 
	 	POSITIVEID CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



 












 





	 	 	 	 	 



Schedule 1




Warrant Exercise Schedule




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Number of	 	 	Exercise Price	 	 	Aggregate Exercise	 	 	Dollar Amount	 
	Exercise Date	 	Warrant Shares	 	 	Per Share	 	 	Price	 	 	Remaining	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 







 














 




APPENDIX 1




EXERCISE NOTICE




POSITIVEID CORPORATION




The undersigned hereby exercises the right to purchase                      shares of Common Stock
(“Warrant Shares”) of PositiveID Corporation, a Delaware corporation (“Company”),
evidenced by the attached Warrant to Purchase Common Stock (“Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
The Holder intends that payment of the Exercise Price shall be made as:



	 	 	 
	
 _____ 



	 	Cash Exercise with respect to                      Warrant Shares
	 
	 	 
	
 _____ 



	 	Cashless Exercise with respect to                      Warrant Shares
	 
	 	 
	
 _____ 



	 	Recourse Note Exercise with respect to                      Warrant Shares
	 
	 	 
	Please issue
	 
	 	 
	
 _____ 



	 	A certificate or certificates representing said shares of
Common Stock in the name specified below
	 
	 	 
	 

	 	Name/Address:
	 
	 	 
	
 _____ 



	 	Said shares in electronic form to the Deposit/Withdrawal at
Custodian (DWAC) account with Depository Trust Company (DTC)
specified below.
	 
	 	 
	 

	 	Account Information:






	 	 	 	 	 
	 	 	 
	 	 	 
	Holder Name 	 	 
	 	 	 
	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 


 









 





	 	 	 	 	 



ACKNOWLEDGMENT





The Company hereby acknowledges the foregoing Warrant Exercise Notice and hereby directs
[                    ] to issue the above indicated number of shares of Common Stock as specified above, in
accordance with the Transfer Agent Instructions dated April 28, 2010 from the Company, and
acknowledged and agreed to by the transfer agent.



	 	 	 	 	 
	 	POSITIVEID CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



 


 









 





	 	 	 	 	 



APPENDIX 2




FORM OF NOTE





 


 









 







SECURED PROMISSORY NOTE

FOR PURCHASE OF WARRANT SHARES UPON EXERCISE OF WARRANT




			
	 	 	 
	$[                    ]
	 	Date: [_____], 20[__]






FOR VALUE RECEIVED, [                    ] (“Borrower”) promises to pay to the order of
PositiveID Corporation (“Lender”), at [_____________], or at such other place as Lender may from
time to time designate in writing, the principal sum of $[___________], with interest, as follows:



1. Interest. The principal balance outstanding from time to time under this Secured
Promissory Note (this “Note”), shall bear interest from and after the date hereof at the
rate of 2.0% per year. Interest shall be calculated on a simple interest basis and the number of
days elapsed during the period for which interest is being calculated. Payments of interest will
be due on each annual anniversary of the date of this Note; provided that Borrower will not
be in default hereunder for failure to make any annual interest payment when due (other than on the
Maturity Date) and the amount of interest not paid when due shall be added to the principal balance
of this Note and such amount will thereafter accrue interest at the rate set forth above.



2. Payments. If not sooner paid, the entire unpaid principal balance, interest
thereon and any other charges due and payable under this Note shall be due and payable on the
fourth anniversary of the date of this Note (“Maturity Date”); provided,
however, that no payments on this Note will be due or payable so long as either (a) Lender
is in default under any stock purchase agreement for Series B Preferred Stock with Borrower or any
Warrant issued pursuant thereto, or (b) there are any shares of Series B Preferred Stock of Lender
issued or outstanding (each, a “Non-Payment Event”). Upon the termination or cure of any
Non-Payment Event, Borrower’s obligation to pay amounts outstanding on this Note will immediately
be reinstated. Borrower shall have the right to prepay all or any part of the principal balance of
this Note at any time without penalty or premium. Notwithstanding the foregoing, in the event that
Lender redeems all or a portion of any shares of Series B Preferred Stock then held by Borrower,
the proceeds of any such redemption will be applied by Borrower to pay down the accrued interest
and outstanding principal of this Note and Lender, in its sole discretion, will be permitted to
offset the full amount of such proceeds against amounts outstanding under this Note. All payments
on this Note shall be first applied to interest, then to reduce the outstanding principal balance
hereof.



3. Full Recourse Note. THIS IS A FULL RECOURSE PROMISSORY NOTE. Accordingly,
notwithstanding that Borrower’s obligations under this Note are secured by the Collateral, in the
event of a material default hereunder, Lender shall have full recourse to all the other assets of
Borrower. Moreover, Lender shall not be required to proceed against or exhaust any Collateral, or
to pursue any Collateral in any particular order, before Lender pursues any other remedies against
Borrower or against any of Borrower’s assets.




4. Security



a. Pledge. As security for the due and prompt payment and performance of all payment
obligations under this Note and any modifications, replacements and extensions hereof (collectively, “Secured Obligations”), Borrower hereby pledges and grants a
security interest to Lender in all of Borrower’s right, title, and interest in and to all of the
following, now owned or hereafter acquired or arising (together the “Collateral”):


 


1









 





i. All outstanding shares of Lender’s Series B Preferred Stock, publicly traded shares of
common stock, preferred stock, bonds, notes and/or debentures (collectively, “Pledged
Securities”) with a fair market value on the date hereof at least equal to the principal amount
of this Note, based upon the trading price of such securities on the OTC Bulletin Board, NASDAQ
Capital Market, NASDAQ Global Market, NASDAQ Global Select Market, NYSE Amex, or New York Stock
Exchange;



ii. all rights of Borrower with respect to or arising out of the Pledged Securities, including
voting rights, and all equity and debt securities and other property distributed or distributable
with respect thereto as a result of merger, consolidation, dissolution, reorganization,
recapitalization, stock split, stock dividend, reclassification, exchange, redemption, or other
change in capital structure; and



iii. all proceeds, replacements, substitutions, accessions and increases in any of the
Collateral.



b. Replacement Securities. So long as any Secured Obligations remain outstanding, in
the event that Borrower sells or disposes of any Pledged Securities, Borrower shall promptly
provide replacement securities of equal or greater value than such Pledged Securities.



c. Rights With Respect to Distributions. So long as no default shall have occurred
and be continuing under this Note, Borrower shall be entitled to receive any and all dividends and
distributions made with respect to the Pledged Securities and any other Collateral. However, upon
the occurrence and during the continuance of any default, Lender shall have the sole right (unless
otherwise agreed by Lender) to receive and retain dividends and distributions and apply them to the
outstanding balance of this Note or hold them as Collateral, at Lender’s election.



d. Voting Rights. So long as no default shall have occurred and be continuing under
this Note, Borrower shall be entitled to exercise all voting rights pertaining to the Pledged
Securities and any other Collateral. However, upon the occurrence and during the continuance of
any default, all rights of Borrower to exercise the voting rights that Borrower would otherwise be
entitled to exercise with respect to the Collateral shall cease and (unless otherwise agreed by
Lender) all such rights shall thereupon become vested in Lender, which shall thereupon have the
sole right to exercise such rights.



e. Financing Statement; Further Assurances. Borrower agrees, concurrently with
executing this Note, that Lender may file a UCC-1 financing statement relating to the Collateral in
favor of Lender, and any similar financing statements in any jurisdiction in which Lender
reasonably determines such filing to be necessary. Borrower further agrees that at any time and
from time to time Borrower shall promptly execute and deliver all further instruments and documents
that Lender may request in order to perfect and protect the security interest



 


2









 






granted hereby, or to enable Lender to exercise and enforce its rights and remedies with
respect to any Collateral following an event of default. In addition, following an event of
default, Borrower shall deliver the Collateral, including original certificates or other
instruments representing the Pledged Securities, to Lender to hold as secured party, and Borrower
shall, if requested by Lender, execute a securities account control agreement.



f. Powers of Lender. Borrower hereby appoints Lender as Borrower’s true and lawful
attorney-in-fact to perform any and all of the following acts, which power is coupled with an
interest, is irrevocable until the Secured Obligations are paid and performed in full, and may be
exercised from time to time by Lender in its discretion: To take any action and to execute any
instrument which Lender may deem reasonably necessary or desirable to accomplish the purposes of
this Section 4(f) and, more broadly, this Note including, without limitation: (i) to
exercise voting and consent rights with respect to Collateral in accordance with this Note, (ii)
during the continuance of any default hereunder, to receive, endorse and collect all instruments or
other forms of payment made payable to Borrower representing any dividend, interest payment or
other distribution in respect of the Collateral or any part thereof and to give full discharge for
the same, when and to the extent permitted by this Note, (iii) to perform or cause the performance
of any obligation of Borrower hereunder in Borrower’s name or otherwise, (iv) during the
continuance of any default hereunder, to liquidate any Collateral pledged to Lender hereunder and
to apply proceeds thereof to the payment of the Secured Obligations or to place such proceeds into
a cash collateral account or to transfer the Collateral into the name of Lender, all at Lender’s
sole discretion, (v) to enter into any extension, reorganization or other agreement relating to or
affecting the Collateral, and, in connection therewith, to deposit or surrender control of the
Collateral, (vi) to accept other property in exchange for the Collateral, (vii) to make any
compromise or settlement Lender deems desirable or proper, and (viii) to execute on Borrower’s
behalf and in Borrower’s name any documents required in order to give Lender a continuing first
lien upon the Collateral or any part thereof.



5. Additional Terms



a. No Waiver. The acceptance by Lender of payment of a portion of any installment
when due or an entire installment but after it is due shall neither cure nor excuse the default
caused by the failure of Borrower timely to pay the whole of such installment and shall not
constitute a waiver of Lender’s right to require full payment when due of any future or succeeding
installments.



b. Default. Any one or more of the following shall constitute a “default” under this
Note: (i) a default in the payment when due of any amount hereunder, (ii) Borrower’s refusal to
perform any material term, provision or covenant under this Note, (iii) the commencement of any
liquidation, receivership, bankruptcy, assignment for the benefit of creditors or other
debtor-relief proceeding by or against Borrower, (iv) the transfer by Borrower of any Pledged
Securities without being replaced by Pledged Securities in accordance with Section 4(b),
and (iv) the levying of any attachment, execution or other process against Borrower, the Collateral
or any material portion thereof.


 


3









 





c. Default Rights



i. Upon the occurrence of any payment default Lender may, at its election, declare the entire
balance of principal and interest under this Note immediately due and payable. A delay by Lender
in exercising any right of acceleration after a default shall not constitute a waiver of the
default or the right of acceleration or any other right or remedy for such default. The failure by
Lender to exercise any right of acceleration as a result of a default shall not constitute a waiver
of the right of acceleration or any other right or remedy with respect to any other default,
whenever occurring.



ii. Further, upon the occurrence of any material non-monetary default, following 30 days
notice from Lender to Borrower specifying the default and demanded manner of cure for such
non-monetary default, Lender shall thereupon and thereafter have any and all of the rights and
remedies to which a secured party is entitled after a default under the applicable Uniform
Commercial Code, as then in effect. In addition to Lender’s other rights and remedies, Borrower
agrees that, upon the occurrence of default, Lender may in its sole discretion do or cause to be
done any one or more of the following:



(a) Proceed to realize upon the Collateral or any portion thereof as provided by law, and
without liability for any diminution in price which may have occurred, sell the Collateral or any
part thereof, in such manner, whether at any public or private sale, and whether in one lot as an
entirety, or in separate portions, and for such price and other terms and conditions as is
commercially reasonable given the nature of the Collateral.



(b) If notice to Borrower is required, give written notice to Borrower at least ten days
before the date of sale of the Collateral or any portion thereof.



(c) Transfer all or any part of the Collateral into Lender’s name or in the name of its
nominee or nominees.



(d) Vote all or any part of the Collateral (whether or not transferred into the name of Lender) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act
with respect thereto, as though Lender were the outright owner thereof.



iii. Borrower acknowledges that all or part of foreclosure of the Collateral may be restricted
by state or federal securities laws, Lender may be unable to effect a public sale of all or part of
the Collateral, that a public sale is or may be impractical and inappropriate and that, in the
event of such restrictions, Lender thus may be compelled to resort to one or more private sales to
a restricted group of purchasers who will be obliged to agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to its distribution or resale.
Borrower agrees that if reasonably necessary Lender may resort to one or more sales to a single
purchaser or a restricted or limited group of purchasers. Lender shall not be obligated to make
any sale or other disposition, unless the terms thereof shall be satisfactory to it.


 


4









 





iv. If, in the opinion of Lender based upon written advice of counsel, any consent, approval
or authorization of any federal, state or other governmental agency or authority should be necessary to effectuate any sale or other disposition of any Collateral,
Borrower shall execute all such applications and other instruments as may reasonably be required in
connection with securing any such consent, approval or authorization, and will otherwise use its
commercially reasonable best efforts to secure the same.



v. The rights, privileges, powers and remedies of Lender shall be cumulative, and no single or
partial exercise of any of them shall preclude the further or other exercise of any of them. Any
waiver, permit, consent or approval of any kind by Lender of any default hereunder, or any such
waiver of any provisions or conditions hereof, must be in writing and shall be effective only to
the extent set forth in writing. Any proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Lender to the payment of expenses incurred by Lender in connection with
the foregoing, and the balance of such proceeds shall be applied by Lender toward the payment of
the Secured Obligations.



d. No Oral Waivers or Modifications. No provision of this Note may be waived or
modified orally, but only in a writing signed by Lender and Borrower.



e. Attorney Fees. The prevailing party in any action by Lender to collect any amounts
due under this Note shall be entitled to recover its reasonable attorneys fees and costs.



f. Governing Law. This Note has been executed and delivered in, and is to be
construed, enforced, and governed according to the internal laws of, the State of New York without
regard to its principles of conflict of laws that would require or permit the application of the
laws of any other jurisdiction.



g. Severability. Whenever possible, each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law. However, if any provision of
this Note shall be held to be prohibited by or invalid under applicable law, it shall be
ineffective only to the extent of such prohibition or invalidity without invalidating the remainder
of that provision or the other provisions of this Note.



h. Entire Agreement. This Note contains the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior agreements and understandings, oral
or written, with respect to such matters.



	 	 	 	 	 
	 	 	 
	 	 	 
	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 


5









 





	 	 	 	 	 



Exhibit A-2




Form of Secured Promissory Note for Investment Shares





 














 




SECURED PROMISSORY NOTE

FOR PURCHASE OF COMMON STOCK




			
	 	 	 
	$[                    ]
	 	Date: [                    ], 20[     ]






FOR VALUE RECEIVED, [                    ] (“Borrower”) promises to pay to the order of
PositiveID Corporation (“Lender”), at [                    ], or at such other place as Lender may from
time to time designate in writing, the principal sum of $[                    ], with interest, as follows.
This Secured Promissory Note is being issued in connection with the Stock Purchase Agreement dated
April 28, 2010, by and among the Lender and the investor referred to therein (the “Purchase
Agreement”). Capitalized terms used herein and not otherwise defined shall have the respective
meanings set forth in the Purchase Agreement.



1. Interest. The principal balance outstanding from time to time under this Secured
Promissory Note (this “Note”), shall bear interest from and after the date hereof at the
rate of 2.0% per year. Interest shall be calculated on a simple interest basis and the number of
days elapsed during the period for which interest is being calculated. Payments of interest will
be due on each annual anniversary of the date of this Note; provided that Borrower will not
be in default hereunder for failure to make any annual interest payment when due (other than on the
Maturity Date) and the amount of interest not paid when due shall be added to the principal balance
of this Note and such amount will thereafter accrue interest at the rate set forth above.



2. Payments. If not sooner paid, the entire unpaid principal balance, interest
thereon and any other charges due and payable under this Note shall be due and payable on the
fourth anniversary of the date of this Note (“Maturity Date”); provided,
however, that no payments on this Note will be due or payable so long as either (a) Lender
is in default under any stock purchase agreement for Series B Preferred Stock with Borrower or any
Warrant issued pursuant thereto, or (b) there are any shares of Series B Preferred Stock of Lender
issued or outstanding (each, a “Non-Payment Event”). Upon the termination or cure of any
Non-Payment Event, Borrower’s obligation to pay amounts outstanding on this Note will immediately
be reinstated. Borrower shall have the right to prepay all or any part of the principal balance of
this Note at any time without penalty or premium. Notwithstanding the foregoing, in the event that
Lender redeems all or a portion of any shares of Series B Preferred Stock then held by Borrower,
the proceeds of any such redemption will be applied by Borrower to pay down the accrued interest
and outstanding principal of this Note and Lender, in its sole discretion, will be permitted to
offset the full amount of such proceeds against amounts outstanding under this Note. All payments
on this Note shall be first applied to interest, then to reduce the outstanding principal balance
hereof.



3. Full Recourse Note. THIS IS A FULL RECOURSE PROMISSORY NOTE. Accordingly,
notwithstanding that Borrower’s obligations under this Note are secured by the Collateral, in the
event of a material default hereunder, Lender shall have full recourse to all the other assets of
Borrower. Moreover, Lender shall not be required to proceed against or exhaust
any Collateral, or to pursue any Collateral in any particular order, before Lender pursues any
other remedies against Borrower or against any of Borrower’s assets.


 


1









 





4. Security



a. Pledge. As security for the due and prompt payment and performance of all payment
obligations under this Note and any modifications, replacements and extensions hereof
(collectively, “Secured Obligations”), Borrower hereby pledges and grants a security
interest to Lender in all of Borrower’s right, title, and interest in and to all of the following,
now owned or hereafter acquired or arising (together the “Collateral”):



i. All outstanding shares of Lender’s Series B Preferred Stock, publicly-traded shares of
common stock, preferred stock, bonds, notes and/or debentures (collectively, “Pledged
Securities”) with a fair market value on the date hereof at least equal to the principal amount
of this Note, based upon the trading price of such securities on the OTC Bulletin Board, NASDAQ
Capital Market, NASDAQ Global Market, NASDAQ Global Select Market, NYSE Amex, or New York Stock
Exchange;



ii. all rights of Borrower with respect to or arising out of the Pledged Securities, including
voting rights, and all equity and debt securities and other property distributed or distributable
with respect thereto as a result of merger, consolidation, dissolution, reorganization,
recapitalization, stock split, stock dividend, reclassification, exchange, redemption, or other
change in capital structure; and



iii. all proceeds, replacements, substitutions, accessions and increases in any of the
Collateral.



b. Replacement Securities. So long as any Secured Obligations remain outstanding, in
the event that Borrower sells or disposes of any Pledged Securities, Borrower shall promptly
provide replacement securities of equal or greater value than such Pledged Securities.



c. Rights With Respect to Distributions. So long as no default shall have occurred
and be continuing under this Note, Borrower shall be entitled to receive any and all dividends and
distributions made with respect to the Pledged Securities and any other Collateral. However, upon
the occurrence and during the continuance of any default, Lender shall have the sole right (unless
otherwise agreed by Lender) to receive and retain dividends and distributions and apply them to the
outstanding balance of this Note or hold them as Collateral, at Lender’s election.



d. Voting Rights. So long as no default shall have occurred and be continuing under
this Note, Borrower shall be entitled to exercise all voting rights pertaining to the Pledged
Securities and any other Collateral. However, upon the occurrence and during the continuance of
any default, all rights of Borrower to exercise the voting rights that Borrower would otherwise be
entitled to exercise with respect to the Collateral shall cease and (unless otherwise agreed by
Lender) all such rights shall thereupon become vested in Lender, which shall thereupon have the
sole right to exercise such rights.


 


2









 





e. Financing Statement; Further Assurances. Borrower agrees, concurrently with
executing this Note, that Lender may file a UCC-1 financing statement relating to the Collateral in
favor of Lender, and any similar financing statements in any jurisdiction in which Lender
reasonably determines such filing to be necessary. Borrower further agrees that at any time and
from time to time Borrower shall promptly execute and deliver all further instruments and documents
that Lender may request in order to perfect and protect the security interest granted hereby, or to
enable Lender to exercise and enforce its rights and remedies with respect to any Collateral
following an event of default. In addition, following an event of default, Borrower shall deliver
the Collateral, including original certificates or other instruments representing the Pledged
Securities, to Lender to hold as secured party, and Borrower shall, if requested by Lender, execute
a securities account control agreement.



f. Powers of Lender. Borrower hereby appoints Lender as Borrower’s true and lawful
attorney-in-fact to perform any and all of the following acts, which power is coupled with an
interest, is irrevocable until the Secured Obligations are paid and performed in full, and may be
exercised from time to time by Lender in its discretion: To take any action and to execute any
instrument which Lender may deem reasonably necessary or desirable to accomplish the purposes of
this Section 4(f) and, more broadly, this Note including, without limitation:
(i) to exercise voting and consent rights with respect to Collateral in accordance with this
Note, (ii) during the continuance of any default hereunder, to receive, endorse and collect all
instruments or other forms of payment made payable to Borrower representing any dividend, interest
payment or other distribution in respect of the Collateral or any part thereof and to give full
discharge for the same, when and to the extent permitted by this Note, (iii) to perform or cause
the performance of any obligation of Borrower hereunder in Borrower’s name or otherwise, (iv)
during the continuance of any default hereunder, to liquidate any Collateral pledged to Lender
hereunder and to apply proceeds thereof to the payment of the Secured Obligations or to place such
proceeds into a cash collateral account or to transfer the Collateral into the name of Lender, all
at Lender’s sole discretion, (v) to enter into any extension, reorganization or other agreement
relating to or affecting the Collateral, and, in connection therewith, to deposit or surrender
control of the Collateral, (vi) to accept other property in exchange for the Collateral, (vii) to
make any compromise or settlement Lender deems desirable or proper, and (viii) to execute on
Borrower’s behalf and in Borrower’s name any documents required in order to give Lender a
continuing first lien upon the Collateral or any part thereof.



5. Additional Terms



a. No Waiver. The acceptance by Lender of payment of a portion of any installment
when due or an entire installment but after it is due shall neither cure nor excuse the default
caused by the failure of Borrower timely to pay the whole of such installment and shall not
constitute a waiver of Lender’s right to require full payment when due of any future or succeeding
installments.


 


3









 





b. Default. Any one or more of the following shall constitute a “default” under this
Note: (i) a default in the payment when due of any amount hereunder, (ii) Borrower’s refusal to
perform any material term, provision or covenant under this Note, (iii) the commencement of any
liquidation, receivership, bankruptcy, assignment for the benefit of creditors or other
debtor-relief proceeding by or against Borrower, (iv) the transfer by Borrower
of any Pledged Securities without being replaced by Pledged Securities in accordance with
Section 4(b), and (iv) the levying of any attachment, execution or other process against
Borrower, the Collateral or any material portion thereof.



c. Default Rights



i. Upon the occurrence of any payment default Lender may, at its election, declare the entire
balance of principal and interest under this Note immediately due and payable. A delay by Lender
in exercising any right of acceleration after a default shall not constitute a waiver of the
default or the right of acceleration or any other right or remedy for such default. The failure by
Lender to exercise any right of acceleration as a result of a default shall not constitute a waiver
of the right of acceleration or any other right or remedy with respect to any other default,
whenever occurring.



ii. Further, upon the occurrence of any material non-monetary default, following 30 days
notice from Lender to Borrower specifying the default and demanded manner of cure for such
non-monetary default, Lender shall thereupon and thereafter have any and all of the rights and
remedies to which a secured party is entitled after a default under the applicable Uniform
Commercial Code, as then in effect. In addition to Lender’s other rights and remedies, Borrower
agrees that, upon the occurrence of default, Lender may in its sole discretion do or cause to be
done any one or more of the following:



(a) Proceed to realize upon the Collateral or any portion thereof as provided by law, and
without liability for any diminution in price which may have occurred, sell the Collateral or any
part thereof, in such manner, whether at any public or private sale, and whether in one lot as an
entirety, or in separate portions, and for such price and other terms and conditions as is
commercially reasonable given the nature of the Collateral.



(b) If notice to Borrower is required, give written notice to Borrower at least ten days
before the date of sale of the Collateral or any portion thereof.



(c) Transfer all or any part of the Collateral into Lender’s name or in the name of its
nominee or nominees.



(d) Vote all or any part of the Collateral (whether or not transferred into the name of Lender)
and give all consents, waivers and ratifications in respect of the Collateral and otherwise act
with respect thereto, as though Lender were the outright owner thereof.


 


4









 





iii. Borrower acknowledges that all or part of foreclosure of the Collateral may be restricted
by state or federal securities laws, Lender may be unable to effect a public sale of all or part of
the Collateral, that a public sale is or may be impractical and inappropriate and that, in the
event of such restrictions, Lender thus may be compelled to resort to one or more private sales to
a restricted group of purchasers who will be obliged to agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to its distribution or resale.
Borrower agrees that if reasonably necessary Lender may resort to one or more sales to a single
purchaser or a restricted or limited group of purchasers. Lender
shall not be obligated to make any sale or other disposition, unless the terms thereof shall
be satisfactory to it.



iv. If, in the opinion of Lender based upon written advice of counsel, any consent, approval
or authorization of any federal, state or other governmental agency or authority should be
necessary to effectuate any sale or other disposition of any Collateral, Borrower shall execute all
such applications and other instruments as may reasonably be required in connection with securing
any such consent, approval or authorization, and will otherwise use its commercially reasonable
best efforts to secure the same.



v. The rights, privileges, powers and remedies of Lender shall be cumulative, and no single or
partial exercise of any of them shall preclude the further or other exercise of any of them. Any
waiver, permit, consent or approval of any kind by Lender of any default hereunder, or any such
waiver of any provisions or conditions hereof, must be in writing and shall be effective only to
the extent set forth in writing. Any proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Lender to the payment of expenses incurred by Lender in connection with
the foregoing, and the balance of such proceeds shall be applied by Lender toward the payment of
the Secured Obligations.



i. No Oral Waivers or Modifications. No provision of this Note may be waived or
modified orally, but only in a writing signed by Lender and Borrower.



j. Attorney Fees. The prevailing party in any action by Lender to collect any amounts
due under this Note shall be entitled to recover its reasonable attorneys fees and costs.



k. Governing Law. This Note has been executed and delivered in, and is to be
construed, enforced, and governed according to the internal laws of, the State of New York without
regard to its principles of conflict of laws that would require or permit the application of the
laws of any other jurisdiction.


 


5









 





l. Severability. Whenever possible, each provision of this Note shall be interpreted
in such manner as to be effective and valid under applicable law. However, if any provision of
this Note shall be held to be prohibited by or invalid under applicable law, it shall be
ineffective only to the extent of such prohibition or invalidity without invalidating the remainder
of that provision or the other provisions of this Note.



m. Entire Agreement. This Note contains the entire understanding of the parties with
respect to the subject matter hereof and supersedes all prior agreements and understandings, oral
or written, with respect to such matters.



	 	 	 	 	 
	 	 
	
By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 


6









 





	 	 	 	 	 



Exhibit B




Transfer Agent Instructions





 












 







April 28, 2010




Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016

Attention: Mr. Dan Flynn





Re: PositiveID Corporation



Ladies and Gentlemen:



In accordance with the Stock Purchase Agreement (“Purchase Agreement”), dated April
28, 2010, by and between PositiveID Corporation, a Delaware corporation (“Company”), and
Socius CG II, Ltd. (“Buyer”), pursuant to which Company may issue and deliver shares of
common stock of the Company, par value $0.01 per share (“Common Stock”) pursuant to the
terms of the Purchase Agreement (the “Investment Shares”), and warrants (each a
“Warrant”) to purchase additional shares of Common Stock (the “Warrant Shares”).
The Investment Shares and the Warrant Shares are referred to herein, collectively, as the
“Securities”. Capitalized terms used herein without definition shall have the respective
meanings ascribed to them in the Purchase Agreement.



This letter agreement (this “Agreement”) shall serve as our irrevocable authorization
and direction to you (provided that you are the transfer agent of the Company at such time) to
issue the Securities as instructed by the undersigned pursuant to the Purchase Agreement, and as
your acknowledgment of the same, including without limitation to issue (a) in the event the holder
of a Warrant elects or has elected to exercise all or any portion of the Warrant, from time to
time, upon surrender to you of a notice of exercise of the Warrant, the Warrant Shares, and (b) the
Investment Shares.




Specifically, this shall constitute an irrevocable instruction to you to do the following:



1. Upon your receipt of a copy of an executed notice of exercise of the Warrant, you shall use
your best efforts to, within one (1) Trading Day following the date of receipt of the notice of
exercise, (A) issue and surrender to a common carrier for overnight delivery to the address as
specified in the notice of exercise a certificate, registered in the name of the Buyer or its
designee, for the number of shares of Common Stock to which the Buyer is entitled upon exercise of
the Warrant as set forth in the notice of exercise, or (B) provided you are participating in The
Depository Trust Company (DTC) Fast Automated Securities Transfer (FAST) Program, upon the request
of the Buyer, credit such aggregate number of shares of Common Stock to which the Buyer is entitled
to the Buyer’s or its designee’s balance account with DTC through its Deposit Withdrawal At
Custodian (DWAC) system provided the Buyer causes its bank or broker to initiate the DWAC
transaction


 


1









 





2. Upon receipt of any instruction from the Company to issue Investment Shares you shall use
your best efforts to, within one (1) Trading Day following the date of receipt of the instructions,
(A) issue and surrender to a common carrier for overnight delivery to the address as
specified in the instructions a certificate, registered in the name of the Buyer or its
designee, for the number of shares of Common Stock to which the Buyer is entitled as set forth in
the instruction, or (B) provided you are participating in The Depository Trust Company (DTC) Fast
Automated Securities Transfer (FAST) Program, upon the request of the Buyer, credit such aggregate
number of shares of Common Stock to which the Buyer is entitled to the Buyer’s or its designee’s
balance account with DTC through its Deposit Withdrawal At Custodian (DWAC) system provided the
Buyer causes its bank or broker to initiate the DWAC transaction.



The Company hereby confirms that the Securities should not be subject to any stop-transfer
restrictions and shall otherwise be freely transferable on the books and records of the Company.
If the Securities are certificated, the certificates shall not bear any legend restricting transfer
of the shares represented thereby.



The Company hereby further confirms and you acknowledge that, in the event counsel to the
Company does not issue any opinion of counsel required to issue any Securities free of legend, the
Company authorizes you to accept an opinion of counsel from Luce Forward Hamilton & Scripps LLP.



Notwithstanding anything contained herein to the contrary, if at any time there is not a
current, valid and effective registration statement covering the Securities subject to this
Agreement, you shall not be obligated to issue the Securities being requested hereunder.



The Company hereby confirms that no instructions other than as contemplated herein will be
given to you by the Company with respect to the Securities. The Company hereby agrees that it shall
not replace you as the Company’s transfer agent, until such time as the Company provides written
notice to you and Buyer that a suitable replacement has agreed to serve as transfer agent and to be
bound by the terms and conditions of this Agreement.



The Company and you hereby acknowledge and confirm that complying with the terms of this
Agreement does not and shall not prohibit you from satisfying any and all fiduciary
responsibilities and duties you may owe to the Company.



The Company and you acknowledge that the Buyer is relying on the representations and covenants
made by the Company and you hereunder and that such representations and covenants are a material
inducement to the Buyer to enter into the Purchase Agreement. The Company and you further
acknowledge that without such representations and covenants made hereunder, the Buyer would not
enter into the Purchase Agreement and purchase Securities pursuant thereto.



Each party hereto specifically acknowledges and agrees that a breach or threatened breach of
any provision hereof will cause irreparable damage and that damages at law would be an inadequate
remedy if this Agreement were not specifically enforced. Therefore, in the event of a breach or
threatened breach by a party hereto, including, without limitation, the attempted termination of
the agency relationship created by this instrument, in addition to all other rights or remedies, an
injunction restraining such breach and granting specific performance of the provisions of this
Agreement should issue without any requirement to show any actual damage or to post any bond or
other security.


 


2









 





You may at any time resign as transfer agent hereunder by giving fifteen (15) days prior
written notice of resignation to the Company and the Buyer. Prior to the effective date of the
resignation as specified in such notice, the Company will issue to you instructions authorizing
delivery of Securities to a substitute transfer agent selected by, and in the sole discretion of,
the Company. If no successor transfer agent is named by the Company, you may apply to a court of
competent jurisdiction in the State of Delaware for appointment of a successor transfer agent and
for an order to deposit Securities with the clerk of any such court.



The Company must keep its bill current with you — if the Company is not current and is on
suspension, the Buyer will have the right to pay the Company’s outstanding bill, in order for you
to act upon this Agreement. If the outstanding bill is not paid by the Company or the Buyer, you
have no further obligation under this Agreement.


 


3









 





IN WITNESS WHEREOF, the parties have caused this Agreement regarding Irrevocable Transfer
Agent Instructions to be duly executed and delivered as of the date first written above.



	 	 	 	 	 
	 	POSITIVEID CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




THE FOREGOING INSTRUCTIONS ARE ACKNOWLEDGED AND AGREED TO:



	 	 	 	 	 
	Registrar and Transfer Company

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 


4









 





Exhibit C




Lock-Up Agreement






 












 







[Date]




Socius CG II, Ltd.

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, CA 90025





Ladies and Gentlemen:



This Lock-Up Agreement is being delivered to you in connection with the Stock Purchase
Agreement dated as of April 28, 2010 (“Purchase Agreement”) and entered into by and among
PositiveID Corporation, a Delaware corporation (“Company”) and Socius CG II, Ltd., a
Bermuda exempted company (“Investor”), with respect to the purchase of the Company’s
Securities. Capitalized terms used herein without definition shall have the respective meanings
ascribed to them in the Purchase Agreement.



In order to induce Investor to enter into the Purchase Agreement, the undersigned agrees that,
beginning on each date the Company delivers a Tranche Notice to Investor (the “Tranche Notice
Date”) and ending on the date which is thirty (30) calendar days following the Tranche Notice
Date (the “Lock-up Period”), the undersigned will not, without the prior written consent of
Investor, (a) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option
to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, in respect of,
or establish or increase a put equivalent position or liquidate or decrease a call equivalent
position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder (the “Exchange Act”) with
respect to, any Common Stock of the Company or any securities convertible into or exercisable or
exchangeable for Common Stock, or warrants or other rights to purchase Common Stock or any such
securities, or any securities substantially similar to the Common Stock, (b) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the economic consequences
of ownership of Common Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or any such securities, or warrants or other rights to purchase Common Stock, whether
any such transaction is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise, or (c) publicly announce an intention to effect any transaction specified in clause
(a) or (b).



The foregoing sentence shall not apply to (a) bona fide gifts, provided the recipient thereof
agrees in writing to be bound by the terms of this Lock-Up Agreement, (b) dispositions to any trust
for the direct or indirect benefit of the undersigned and/or the immediate family of the
undersigned, provided that such trust agrees in writing to be bound by the terms of this Lock-Up
Agreement, (c) sales made pursuant to any written sales plans established prior to the date of this
Lock-Up Agreement in conformity with the requirements of Rule 10b5-1(c) promulgated under the
Exchange Act or (d) exercise of options for Common Stock and the disposition (whether by sale, gift
or otherwise) of Common Stock underlying such options. Notwithstanding clause (a) above, the
undersigned may make a bona fide gift of up to 10,000 shares of Common Stock to a charity or other
non-profit entity and such charity or entity shall not be required to be bound by the terms of this
Lock-Up Agreement; provided, however, that in the event the undersigned exercises
options during the Lock-Up Period, the undersigned may not, during the Lock-Up Period, dispose of
the number of shares of Common Stock underlying such exercised



 


1









 






options equal to the number of shares of Common Stock gifted by the undersigned pursuant to
this sentence during the Lock-Up Period. For purposes of this paragraph, “immediate family” shall
mean the undersigned and the spouse, any lineal descendent, father, mother, brother or sister of
the undersigned.



The Company agrees to provide the undersigned with notice that the Company has delivered a
Tranche Notice to Investor prior to, or simultaneous with, its delivery of the Tranche Notice to
Investor. Such notice shall provide the undersigned with the Tranche Notice Date and clearly
indicate the beginning of the Lock-up Period.



Upon the termination of the Purchase Agreement, this Lock-Up Agreement shall be terminated and
the undersigned shall be released from its obligations hereunder.



	 	 	 	 	 
	 	Sincerely,

 	 
	 	 	 
	 	Stockholder 	 
	 	Print Name: 	 
	 



	 	 	 	 	 
	Acknowledged and Agreed:



PositiveID Corporation

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 



 


2









 





	 	 	 	 	 



Exhibit D




Opinion






 


 









 








1. The Company is a corporation validly existing and in good standing under the laws of the
State of Delaware.



2. The Company has the corporate power and authority to (a) execute, deliver and perform all
of its obligations under the Agreement and the Related Agreements, and (b) issue, sell and deliver
each of the Securities.



3. The execution, delivery and performance of the Agreement and the Related Agreements by the
Company have been duly authorized by all necessary corporate action on the part of Company and have
been duly executed and delivered by Company.



4. Upon execution and delivery of the Agreement and the Related Agreements, the Agreement and
the Related Agreements will constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.



5. The Company is authorized to issue 75,000,000 shares, consisting of (i) 70,000,000 shares
of its Common Stock, and (ii) 5,000,000 shares of preferred stock, $0.001 value per share, 2,000
shares of which have been designated as Series A Preferred Stock, par value $0.001 per share and
1,600 shares of which have been designated as Series B Preferred Stock, par value $0.001 per share.



6. The Securities are duly authorized, the Warrant is, and when issued in accordance with the
terms and conditions of the Agreement and the Related Agreements, the Warrant Shares and the
Investment Shares will be, validly issued, fully paid and non-assessable. The issuance of the
Securities will not be subject to any statutory or, to our knowledge, contractual preemptive rights
of any stockholder of the Company.



7. The Registration Statement filed with the SEC (File No. 333-165849) which registers the
sale of the Investment Shares and the Warrant Shares to Investor was effective as of April 12,
2010.



8. The execution and delivery of the Agreement and the Related Agreements by the Company does
not, and the Company’s performance of its obligations thereunder will not (a) violate the Second
Amended and Restated Certificate of Incorporation or the Amended and Restated By-laws of the
Company, as in effect on the date hereof, (b) violate in any material respect any federal or state
law, rule or regulation, or judgment, order or decree of any state or federal court or governmental
or administrative authority, in each case that, to our knowledge, is applicable to the Company or
its properties or assets and which could have a material adverse effect on the Company’s business,
properties, assets, financial condition or results of operations or prevent the performance by the
Company of any material obligation under the Agreement or the other Related
Agreements, or (c) require the authorization, consent, approval of or other action of, notice
to or filing or qualification with, any state or federal governmental authority, except as have
been, or will be, made or obtained, except (i) as have been duly obtained or made, or (ii) to the
extent failure to be so obtained or made would not have a material adverse effect on the Company or
its ability to consummate the transactions contemplated under the Agreement and the Related
Agreements.


 


 









 





9. To our knowledge, there is no claim, action, suit, proceeding, arbitration, investigation
or inquiry, pending or threatened, before any court or governmental or administrative body or
agency, or any private arbitration tribunal, against the Company that challenges the validity or
enforceability of, or seeks to enjoin the performance of, the Agreement or the Related Agreements.



10. The Company is not, and immediately after the consummation of the transactions
contemplated by the Agreement and the Related Agreements will not be, an investment company within
the meaning of Investment Company Act of 1940, as amended.


 


 









 





Exhibit E




Tranche Notice




 


 









 







Dated: [                    ], 20[     ]




Socius CG II, Ltd.

11150 Santa Monica Boulevard, Suite 1500

Los Angeles, CA 90025




Re:     Tranche Notice



Ladies & Gentlemen:



Pursuant to the April 28, 2010 Stock Purchase Agreement (“Agreement”) between
PositiveID Corporation, a Delaware corporation (“Company”), and Socius CG II, Ltd.
(“Investor”), Company hereby elects to exercise a Tranche. Capitalized terms not otherwise
defined herein shall have the meanings defined in the Agreement.



At the Tranche Closing, Company will sell to Investor [                    ] Investment Shares at the
Investment Price for a Tranche Purchase Price of $[                    ].



On behalf of Company, the undersigned hereby certifies to Investor as follows:



1. The undersigned is a duly authorized officer of Company; and



2. All of the conditions precedent to the right of the Company to deliver a Tranche Notice set
forth in Section 2.3(d) of the Agreement have been satisfied.



IN WITNESS WHEREOF, the Company has executed and delivered this Tranche Notice as of the date
first written above.



	 	 	 	 	 
	 	POSITIVEID CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title: