Exhibit 10.1


 


SECURITIES PURCHASE AGREEMENT


 


SECURITIES PURCHASE AGREEMENT
(the “Agreement”), dated as of
June 16, 2004, by and among Artemis International Solutions Corporation, a
Delaware corporation, with headquarters located at 4041 MacArthur Boulevard,
Suite 260, Newport Beach, California 
92660 (the “Company”), and
the investors listed on the Schedule of Buyers attached hereto (individually, a
“Buyer” and collectively, the “Buyers”).


 


WHEREAS:


 


A.            The Company has
authorized a new series of convertible preferred shares of the Company, the
terms of which are set forth in the certificate of designations for such series
of preferred shares (the “Certificate of
Designations”), in the form attached hereto as Exhibit A
(together with any convertible preferred shares issued in replacement thereof
in accordance with the terms thereof, the “Preferred
Shares”), which Preferred Shares shall be convertible into shares of
the Company’s Common Stock, par value $.001 per share (the “Common Stock”) (as converted, the “Conversion Shares”), in accordance with the
terms of the Certificate of Designations.


 


B.            Each Buyer wishes to
purchase, and the Company wishes to sell, upon the terms and conditions stated
in this Agreement, (i) that aggregate number of Preferred Shares set forth
opposite such Buyer’s name in column (3) on the Schedule of Buyers, (ii) a
warrant, in substantially the form attached hereto as Exhibit B-1
(collectively, the “Initial Warrants”),
to acquire that number of shares of Common Stock set forth opposite such
Buyer’s name in column (4) on the Schedule of Buyers (as exercised,
collectively, the “Initial Warrant Shares”)
and (iii) a warrant, in substantially the form attached hereto as Exhibit
B-2 (collectively, the “Additional
Warrants” and together with the Initial Warrants, collectively, the
“Warrants”), to acquire additional
shares of Common Stock in accordance with the terms and conditions set forth
therein (as exercised, collectively, the “Additional
Warrant Shares” and together with the Initial Warrant Shares,
collectively, the “Warrant Shares”).


 


C.            The Company and each
Buyer is executing and delivering this Agreement in reliance upon the exemption
from securities registration afforded by Section 4(2) of the Securities Act of
1933, as amended (the “1933 Act”),
and Rule 506 of Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act to the extent
necessary to issue the Preferred Shares, the Conversion Shares, the Warrants
and the Warrant Shares.


 


D.            Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, in substantially the
form attached hereto as Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company
will agree to provide certain registration rights with respect to the
Registrable Securities (as defined in the Registration Rights Agreement) under
the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.


 


E.             The Preferred
Shares, the Conversion Shares, the Warrants and the Warrant Shares collectively
are referred to herein as the “Securities”.


 

















 


NOW, THEREFORE, the
Company and each Buyer hereby agree as follows:


 


1.             PURCHASE AND
SALE OF PREFERRED SHARES AND WARRANTS.


 


(a)           Purchase of
Preferred Shares and Warrants.


 


(i)            Preferred
Shares and Warrants.  Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to each Buyer, and each Buyer severally, but not jointly,
agrees to purchase from the Company on the Closing Date (as defined below), the
number of Preferred Shares, as is set forth opposite such Buyer’s name in
column (3) on the Schedule of Buyers,  along
with the Warrants to acquire the Warrant Shares (the “Closing”).


 


(ii)           Closing.  The Closing shall occur on the Closing Date
at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New
York 10022.


 


(iii)          Purchase
Price.  The purchase price for each
Buyer (the “Purchase Price”) of
the Preferred Shares and related Warrants to be purchased by each such Buyer at
the Closing shall be equal to $2.20 for each Preferred Share and related
Warrants being purchased by such Buyer at the Closing.


 


(b)           Closing Date.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., New
York City Time, on the date of this Agreement, subject to notification of
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 below (or such later date as is mutually agreed to by the Company and
each Buyer).


 


(c)           Form of Payment.  (i) 
On the Closing Date, (A) subject to Section 1(c)(ii) below, each Buyer
shall pay its pro rata portion of $4.5 million to the Company for the Preferred
Shares and Warrants to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the Company’s
written wire instructions, and (B) the Company shall deliver to each Buyer the
Preferred Shares (in the denominations as such Buyer shall request) which such
Buyer is then purchasing hereunder along with the Warrants (in the amounts as
such Buyer shall request) such Buyer is purchasing, duly executed on behalf of
the Company and registered in the name of such Buyer or its designee.  $2,157,630 of the aggregate Purchase Price
shall be funded in accordance with Section 1(c) (ii) below.  The remaining $2,342,370 million of the
aggregate Purchase Price shall be deposited in an escrow account with Wachovia
Bank and the disbursement of such funds shall be governed in accordance with
the terms and conditions of an escrow agreement, in substantially the form
attached hereto as Exhibit D (the “Escrow
Agreement”).


 


(ii)           Notwithstanding
any contrary provision set forth herein, the Buyers shall be entitled to net
fund the aggregate Purchase Price less the amount of the Expense Reimbursement
(as defined in Section 4(g)) less the amount of any Advances (as defined in
Section 4(g)).  In addition, the Buyers
shall pay, on behalf of the Company, $2,157,630 of the aggregate Purchase Price
directly to Laurus Master Fund Ltd. (“Laurus”)
to settle in full the amount of the overadvance currently outstanding under


 


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the Company’s revolving credit facility with Laurus pursuant to the
wire instructions annexed hereto on Schedule 1(c) and as contemplated pursuant
to Section 4(d) below.  The amount
funded into escrow plus (A) the net amount received by the Company after deducting
expenses hereunder and (B) the payment to Laurus as contemplated in this
Section 1(c)(ii), shall satisfy in full the Buyers’ obligation to pay the
aggregate Purchase Price pursuant to Section 1(c)(i).


 


2.             BUYER’S
REPRESENTATIONS AND WARRANTIES.  Each
Buyer represents and warrants with respect to only itself that: 


 


(a)           No Public Sale or
Distribution.  Such Buyer is (i)
acquiring the Preferred Shares and Warrants and (ii) upon conversion of the
Preferred Shares and exercise of the Warrants will acquire the Conversion
Shares issuable upon conversion of the Preferred Shares and the Warrant Shares
issuable upon exercise of the Warrants, for its own account and not with a view
towards, or for resale in connection with, the public sale or distribution thereof,
except pursuant to sales registered or exempted under the 1933 Act; provided,
however, that by making the representations herein, such Buyer does not
agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933
Act.  Such Buyer is acquiring the
Securities hereunder in the ordinary course of its business.  Such Buyer presently does not have any
agreement or understanding, directly or indirectly, with any Person (as defined
in Section 3(r)) to distribute any of the Securities.  In addition, notwithstanding any contrary provision in any
Transaction Document, for a period of four (4) months after the Closing Date,
none of the Buyers or any affiliate directly controlled by a Buyer shall
directly or indirectly engage in “short sales” or other similar hedging
strategies of the Company’s Common Stock.


 


(b)           Accredited
Investor Status.  Such Buyer is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D.


 


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


 


(d)           Information.  Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by such Buyer.  Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. 
Neither such inquiries nor any other due diligence investigations
conducted by such Buyer or its advisors, if any, or its representatives shall
modify, amend or affect such Buyer’s right to rely on the Company’s
representations and warranties contained herein.


 


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


 


(f)            Transfer or
Resale.  Such Buyer understands
that, except as provided in the Registration Rights Agreement, the Securities
have not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (i) subsequently registered thereunder, (ii) such Buyer shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that such Securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (iii) such Buyer shall have satisfied the requirements of Rule 144(k)
promulgated under the 1933 Act, as amended (or a successor rule thereto).  The Securities may be pledged in connection
with a bona fide margin account or other loan or financing arrangement secured
by the Securities and such pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Buyer
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document, including, without
limitation, this Section 2(f); provided, that in order to make any sale,
transfer or assignment of Securities, such Buyer and its pledgee shall make
such disposition in accordance with or pursuant to a registration statement or
an exemption under the 1933 Act.


 


(g)           Legends.  Such Buyer understands that the certificates
or other instruments representing the Preferred Shares and the Warrants and,
until such time as the resale of the Registrable Securities has been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Registrable Securities, except as set forth
below, shall bear any legend as required by the “blue sky” laws of any state
and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):


 


[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]
[EXERCISABLE] HAVE BEEN] [THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS,
OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY,
THAT REGISTRATION


 


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IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.  NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.


 


The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection
with a sale, assignment or other transfer, such holder provides the Company
with an opinion of counsel, in a form reasonably acceptable to the Company, to
the effect that such sale, assignment or transfer of the Securities may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurance that the Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended (or
a successor rule thereto) (“Rule 144”).


 


(h)           Authorization;
Validity; Enforcement.  This
Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and constitute the
legal, valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors’
rights and remedies.


 


(i)            Residency.  Such Buyer is a resident of that country or
state specified below its address on the Schedule of Buyers.


 


(j)            Organization.  Such Buyer is validly existing and in good
standing under the laws of the jurisdiction of its organization, and has the
requisite power and authorization to execute and deliver this Agreement and to
consummate the transaction contemplated hereby.


 


(k)           Placement Agent.  No broker’s, finders’ or placement agent
fees or commission will be payable to any Person retained by, or on behalf of,
the Buyers with respect to the transactions contemplated herein.


 


3.             REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.  The
Company represents and warrants to each of the Buyers that all representations
and warranties of the Company set forth below are true and correct except as
specifically set forth in the disclosure schedule attached hereto (the
“Disclosure Schedule”).  The Disclosure
Schedule shall be arranged in paragraphs corresponding to the lettered
paragraphs contained in this Section 3. 
The disclosures in any paragraph of the Disclosure Schedule shall be
deemed to be disclosed and incorporated in any other paragraph of the Disclosure
Schedule when such disclosure would be appropriate and the relevance of such
disclosure is reasonably clear from the context and content of the disclosure.


 


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(a)           Organization and
Qualification.  The Company and its
“Subsidiaries” (which for purposes
of this Agreement means any entity in which the Company, directly or
indirectly, owns at least 20% of the capital stock or holds a comparable equity
or similar interest) are entities duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are organized, and
have the requisite corporate or other power and authorization to own their
properties and to carry on their business as now being conducted.  Each of the Company and its Subsidiaries is
duly qualified as a foreign entity to do business and is in good standing in
every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing could not
reasonably be expected to have a Material Adverse Effect.  As used in this Agreement, “Material Adverse Effect” means any material
adverse effect on the business, properties, assets, operations, results of
operations, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries, taken as a whole, or on the transactions contemplated hereby
and the other Transaction Documents (as defined below) or on the authority or
ability of the Company to perform its obligations under the Transaction
Documents.  The Company has no
Subsidiaries except as set forth on Schedule 3(a).


 


(b)           Authorization;
Enforcement; Validity.  The Company
has the requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Certificate of Designations, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined in Section 5(b)), the Escrow Agreement, the Warrants and each of the
other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction Documents”) and to issue the
Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation,
the issuance of the Preferred Shares and the Warrants and the reservation for
issuance and the issuance of the Conversion Shares  and the Warrant Shares issuable upon conversion or exercise
thereof, as the case may be, have been duly authorized by the Company’s Board
of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction Documents have been duly
executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.  As of the Closing, the
Certificate of Designations in the form attached as Exhibit A shall have
been filed on or prior to the Closing Date with the Secretary of State of the
State of Delaware and shall be in full force and effect, enforceable against
the Company in accordance with its terms and shall not have been amended.


 


(c)           Issuance of
Securities.  The Preferred Shares
and Warrants are duly authorized and, upon issuance in accordance with the
terms hereof, shall be validly issued, free from all taxes, liens and charges
with respect to the issue thereof, and the Preferred Shares shall be entitled
to the rights and preferences as set forth in the Certificate of
Designations.  As of the Closing, a
number of shares of Common Stock shall have been duly authorized and reserved
for issuance which equals 125% of the maximum number of shares of Common Stock
issuable upon conversion or exercise of the Preferred Shares and Warrants to be
issued at the 


 


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Closing. 
Upon conversion or exercise in accordance with the Preferred Shares or
the Warrants, as the case may be, the Conversion Shares and the Warrant Shares,
respectively, will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock.  Assuming the accuracy of each of the
representations and warranties of Buyer contained in Section 2, the issuance by
the Company of the Securities is exempt from registration under the 1933 Act.


 


(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Preferred Shares and Warrants and reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of the certificate of incorporation, any
certificate of designations, preferences and rights of any outstanding series
of preferred stock or bylaws of the Company or any Subsidiary, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the NASDAQ
Stock Market Over-the-Counter Bulletin Board (the “Principal Market”)) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected.


 


(e)           Consents.  All consents, authorizations, orders,
filings and registrations which the Company is required as of the Closing Date
to obtain to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with their terms, the
absence of which would have a Material Adverse Effect, have been obtained or
effected on or prior to the Closing Date. 
The Company and its Subsidiaries are unaware of any facts or
circumstances which might reasonably be expected to prevent the Company from
obtaining or effecting any of the foregoing. 
The Company is not in violation of the listing requirements of the
Principal Market and has no knowledge of any facts which could reasonably lead
to delisting or suspension of the Common Stock in the foreseeable future.


 


(f)            Acknowledgment
Regarding Buyer’s Purchase of Securities. 
The Company acknowledges and agrees that each Buyer is acting solely in
the capacity of arm’s length purchaser with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and that no
Buyer is an officer or director of the Company.  The Company further acknowledges that no Buyer is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated hereby
and thereby, and any advice given by a Buyer or any of its representatives or
agents in connection with the Transaction Documents and the transactions
contemplated hereby and thereby is merely incidental to such Buyer’s purchase
of the Securities.  The Company further
represents to each Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.


 


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(g)           No General
Solicitation; Placement Agent. 
Neither the Company, nor any of its affiliates, nor any Person acting on
its or their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer
or sale of the Securities.  No broker’s,
finder’s or placement agent fee or commission will be payable to any Person
retained by, or on behalf of, the Company with respect to the transactions
contemplated herein (including, without limitation, the sale of the Preferred
Shares and the Warrants).


 


(h)           No Integrated
Offering.  None of the Company, its
Subsidiaries, any of their affiliates, or any Person acting on 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
require registration of any of the Securities under the 1933 Act or cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of any exchange
or automated quotation system on which any of the securities of the Company are
listed or designated.  None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings.


 


(i)            Dilutive Effect.  The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances.  The
Company further acknowledges that, subject to the terms and conditions of the
Transaction Documents, its obligation to issue Conversion Shares upon conversion
of the Preferred Shares in accordance with this Agreement and the Preferred
Shares  and its obligation to issue
the Warrant Shares upon exercise of the Warrants in accordance with this
Agreement and the Warrants is, in each case, absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company.


 


(j)            Application of
Takeover Protections; Rights Agreement. 
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 Certificate of Incorporation
(as defined in Section 3(q)) or the laws of the state of its incorporation
which is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the
Securities.  The Company has not adopted
a stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.


 


(k)           SEC Documents;
Financial Statements.  Since April
4, 2000, the Company has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
“1934 Act”) (all of the foregoing
filed prior to the date of the Closing, and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC Documents”).  The


 


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Company has delivered to the Buyers or their
respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system. 
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared
in accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on
behalf of the Company to the Buyers which is not included in the SEC Documents
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made and, taken together with the
information set forth in the SEC Documents, not misleading.


 


(l)            Absence of
Certain Changes.  Since December 31,
2003, there has been no material adverse change and no material adverse
development in the business, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company or its
Subsidiaries.  Since December 31, 2003,
the Company has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, outside of the ordinary course of business
consistent with past practice, (iii) had capital expenditures outside of the
ordinary course of business consistent with past practice, (iv) engaged in any
transaction with any affiliate or (v) engaged in any other transaction outside
of the ordinary course of business consistent with past practice.  The Company has not taken any steps to seek
protection pursuant to any bankruptcy law nor does the Company have any
knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual knowledge of any fact which
would reasonably lead a creditor to do so. 
The Company is not as of the date hereof, and after giving effect to the
transactions contemplated hereby to occur at the Closing, will not be Insolvent
(as defined below).  For purposes of
this Section 3(l), “Insolvent”
means (i) the present fair saleable value of the Company’s assets is less than
the amount required to pay the Company’s total indebtedness, contingent or
otherwise, (ii) the Company is unable to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured, (iii) the Company intends to incur or believes that it
will incur debts that would be beyond its ability to pay as such debts mature or
(iv) the Company has unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted.


 


(m)          No Undisclosed
Events, Liabilities, Developments or Circumstances.  No event, liability, development,
circumstance or transaction has occurred or


 


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exists, or is contemplated to occur, with
respect to the Company or its Subsidiaries or their respective business,
properties, prospects, operations or financial condition, that would be
required to be disclosed by the Company under applicable securities laws
(including pursuant to the anti-fraud provisions thereof) on a registration
statement on Form S-1 filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly announced.


 


(n)           Conduct of
Business; Regulatory Permits. 
Neither the Company nor any of its Subsidiaries is in violation of any
term of or in default under its Certificate of Incorporation, any Certificate
of Designations, Preferences and Rights of any outstanding series of preferred
stock or Bylaws.  Neither the Company
nor any of its Subsidiaries is in violation of any judgment, decree or order or
any statute, ordinance, rule or regulation applicable to the Company or any of
its Subsidiaries, and none of the Company nor any of its Subsidiaries will
conduct its business in violation of any of the foregoing, except for possible
violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. 
Without limiting the generality of the foregoing, the Company is not in
violation of any of the rules, regulations or requirements of the Principal
Market and has no knowledge of any facts or circumstances which would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future.  Since
June 29, 2001, (i) the Common Stock has been designated for quotation or listed
on the Principal Market, (ii) trading in the Common Stock has not been
suspended by the SEC or the Principal Market and (iii) the Company has received
no communication, written or oral, from the SEC or the Principal Market
regarding the suspension or delisting of the Common Stock from the Principal
Market.  The Company and its
Subsidiaries possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such
certificates, authorizations or permits could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect, and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit.


 


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


 


(p)           Transactions With
Affiliates.  None of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for ordinary course
services as consultants, employees, officers or directors), including any
contract, agreement or other arrangement providing for the furnishing of services
to or by, providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any such officer, director or employee
or, to the knowledge of the


 


10

















 


Company, any corporation, partnership, trust
or other entity in which any such officer, director, or employee has an
interest or is an officer, director, trustee or partner.


 


(q)           Capitalization.  As of the date hereof, the authorized
capital stock of the Company consists of (x) 500,000,000 shares of Common
Stock, of which as of the date hereof, 9,965,018 are issued and outstanding
(none of which are treasury shares), 2,457,256 shares are reserved for issuance
pursuant to the Company’s stock option and purchase plans and 2,927,809 shares
are reserved for issuance pursuant to securities (other than the aforementioned
options, the Preferred Shares and the Warrants) exercisable or exchangeable
for, or convertible into, shares of Common Stock, and (y) 25,000,000 shares of
preferred stock, of which as of the date hereof, none are issued and none are
outstanding.  All of such outstanding
shares have been, or upon issuance will be, validly issued and fully paid and
nonassessable.  Except as set forth on Schedule
3(q):  (i) no shares of the
Company’s or any Subsidiary’s capital stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or permitted by
the Company or any Subsidiary; (ii) there are no outstanding options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its Subsidiaries; (iii) there are no outstanding debt securities, notes,
credit agreements, credit facilities or other agreements, documents or
instruments evidencing Indebtedness (as defined in Section 3(r)) of the Company
or any of its Subsidiaries or by which the Company or any of its Subsidiaries
is or may become bound; (iv) there are no financing statements securing
obligations in any material amounts, either singly or in the aggregate, filed
in connection with the Company or any Subsidiary; (v) there are no agreements
or arrangements under which the Company or any of its Subsidiaries is obligated
to register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement); (vi) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any redemption
or similar provisions, and there are no contracts, commitments, understandings
or arrangements by which the Company or any of its Subsidiaries is or may
become bound to redeem a security of the Company or any of its Subsidiaries;
(vii) there are no securities or instruments containing anti-dilution,
preemptive or similar provisions that will be triggered by the issuance of the
Securities or otherwise; (viii) the Company does not have any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (ix) the Company and its Subsidiaries have no liabilities or
obligations required to be disclosed in the SEC Documents (as defined herein)
but not so disclosed in the SEC Documents. 
The Company has furnished to the Buyer true, correct and complete copies
of the Company’s Amended and Restated Certificate of Incorporation, as amended
and as in effect on the date hereof (together with any certificate of
designations of any outstanding series of preferred stock of the Company, the “Certificate of Incorporation”), and the
Company’s Amended and Restated Bylaws, as amended and as in effect on the date
hereof (the “Bylaws”), and the
terms of all securities convertible into, or exercisable or exchangeable for,
Common Stock and the material rights of the holders thereof in respect thereto.


 


11

















 


(r)            Indebtedness and
Other Contracts.  Except as set
forth on Schedule 3(r), neither the Company nor any of its Subsidiaries
(i) has any outstanding Indebtedness (as defined below), (ii) is a party to any
contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument could
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of or in default under any contract, agreement or
instrument, except where such violations and defaults could not reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect, or (iv) is a party to any contract, agreement or instrument, the
performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. 
The Company has filed all material contracts in accordance with Item 601
of Regulation S-K as exhibits to all reports required to be filed by the
Company under the 1934 Act.  For
purposes of this Agreement:  (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money (including, without
limitation, additional borrowings under the Company’s existing credit
facilities), (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (other than trade payables entered into
in the ordinary course of business), (C) all reimbursement or payment
obligations with respect to letters of credit, surety bonds and other similar
instruments, (D) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to any property
or assets acquired with the proceeds of such indebtedness (even though the
rights and remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property or asset), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (G) all
indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance (each, a “Lien”)
upon or in any property or assets (including accounts and contract rights)
owned by any Person, even though the Person which owns such assets or property
has not assumed or become liable for the payment of such indebtedness, and (H)
all Contingent Obligations in respect of indebtedness or obligations of others
of the kinds referred to in clauses (A) through (G) above; (y) “Contingent Obligation” means, as to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to any indebtedness, lease, dividend or other obligation of
another Person if the primary purpose or intent of the Person incurring such
liability, or the primary effect thereof, is to provide assurance to the
obligee of such liability that such liability will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the holders
of such liability will be protected (in whole or in part) against loss with
respect thereto; and (z) “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, any other form
of legal entity and a government or any department, agency or subdivision
thereof.  As of the date hereof, the
amount of the overadvance outstanding under the revolving credit facility with
Laurus is $2,157,630.


 


(s)           Absence of
Litigation.  There is no action,
suit, proceeding, inquiry or investigation, whether criminal, civil or
otherwise, before or by the Principal Market, any court, arbitrational body,
public board, government agency, self-regulatory organization or body


 


12

















 


pending or, to the knowledge of the Company,
threatened against or affecting the Company, the Common Stock or any of the
Company’s Subsidiaries or any of the Company’s or the Company’s Subsidiaries’
officers or directors in their capacities as such, except as disclosed in Item
3 of the Company’s Annual Report on Form 10-K for the year ended December 31,
2003 other than in the ordinary course of business and that would not have a
Material Adverse Effect.  To the
knowledge of the Company, none of the directors or officers of the Company has
been a party to any securities related litigation during the past five years,
other than as disclosed in the SEC Documents.


 


(t)            Insurance.  The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged.  Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such 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 at a cost that could not
have a Material Adverse Effect.


 


(u)           Employee
Relations.  Neither the Company nor
any of its Subsidiaries is a party to any collective bargaining agreement or
employs any member of a union.  The
Company and its Subsidiaries believe that their relations with their employees
are good.  No executive officer of the
Company (as defined in Rule 501(f) under the 1933 Act) has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer’s employment with the Company. 
No executive officer of the Company, to the knowledge of the Company,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant, and, to the knowledge of the Company, the continued
employment of each such executive officer does not subject the Company or any
of its Subsidiaries to any material liability with respect to any of the
foregoing matters.  The Company and its
Subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours, except where failure to be in
compliance could not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.


 


(v)           Title.  The Company and its Subsidiaries have good
and marketable title to all personal property owned by them which is material
to the business of the Company and its Subsidiaries, in each case free and
clear of all liens, encumbrances and defects except (i) immaterial liens for
taxes not yet delinquent, (ii) immaterial mechanics’ and materialmen’s liens
(and other similar liens), and immaterial liens under operating and similar
agreements, to the extent the same relate to expenses incurred in the ordinary
course of business consistent with past practice and that are not yet due,
(iii) that are routine Governmental Approvals, or (iv) such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and any of its
Subsidiaries.  Neither the Company nor
any of its Subsidiaries owns any real property.  Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by


 


13

















 


them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its Subsidiaries.


 


(w)          Intellectual
Property Rights. The Company and its Subsidiaries own or possess adequate
rights or licenses to use all trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
other intellectual property rights (“Intellectual
Property Rights”) necessary or material to conduct their respective
businesses as now conducted.  None of
the Company’s Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate within two years from the date of this
Agreement.  The Company does not have
any knowledge of any infringement by the Company or its Subsidiaries of
Intellectual Property Rights of others. 
There is no claim, action or proceeding being made or brought, or to the
knowledge of the Company, being threatened, against the Company or its
Subsidiaries regarding its Intellectual Property Rights.  The executive officers of the Company do not
have any knowledge of any facts or circumstances which might give rise to any
of the foregoing infringements or claims, actions or proceedings.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.


 


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


 


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


 


(z)            Tax Status.  The Company and each of its Subsidiaries (i)
has made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and for which it has set aside on its


 


14

















 


books a provision in the amount of such taxes
being contested in good faith and (iii) 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 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.


 


(aa)         Internal
Accounting Controls.  The Company
and each of its Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset and liability accountability, (iii) access to assets or
incurrence of liabilities is permitted only in accordance with management’s
general or specific authorization and (iv) the recorded accountability for
assets and liabilities is compared with the existing assets and liabilities at
reasonable intervals and appropriate action is taken with respect to any
difference.  The Company maintains
disclosure controls and procedures (as such term is defined in Rule 13a-14
under the 1934 Act) that are effective in ensuring that information required to
be disclosed by the Company in the reports that it files or submits under the
1934 Act is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and its principal
financial officer or officers, as appropriate, to allow timely decisions
regarding required disclosure.


 


(bb)         Sarbanes-Oxley Act.  The Company is in compliance with any and
all applicable requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) that are effective as of
the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.


 


(cc)         Investment Company
Status.  The company is not, and
upon consummation of the sale of the Securities will not be, an “investment
company,” a company controlled by an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as
amended.


 


4.             COVENANTS.


 


(a)           Best Efforts.  Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.


 


(b)           Form D and Blue
Sky.  The Company agrees to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing.  The Company shall, on or before the Closing
Date, take such action as the Company shall reasonably determine is necessary
in order to obtain an exemption for or to qualify the Securities for sale to
the Buyers at the Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an


 


15

















 


exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyers on or prior to the
Closing Date.  The Company shall make
all filings and reports relating to the offer and sale of the Securities
required under applicable securities or “Blue Sky” laws of the states of the
United States following the Closing Date.


 


(c)           Reporting Status.  Until the date on which the Investors (as
defined in the Registration Rights Agreement) shall have sold all the
Conversion Shares and Warrant Shares  and
none of the Preferred Shares  or
Warrants are outstanding (the “Reporting
Period”), the Company shall file timely reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would otherwise permit such
termination.


 


(d)           Use of Proceeds.  The Company will use $2,157,630 of the
proceeds from the sale of the Securities to repay certain indebtedness to
Laurus at closing as contemplated pursuant to Section 1(c)(ii) above.  The balance of the proceeds from the sale of
the Securities shall be for working capital and general corporate purposes and
not for the redemption or repurchase of any of its equity securities except in
connection with a Permitted Proha Transaction (as such term is defined in the
Certificate of Designations).


 


(e)           Financial
Information.  The Company agrees to
send the following to each Buyer during the Reporting Period (i) unless the
following are filed with the SEC through EDGAR and are available to the public
through the EDGAR system, within one (1) Business Day after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any registration statements
or amendments filed pursuant to the 1933 Act, (ii) on the same day as the
release thereof, facsimile copies of all press releases issued by the Company
or any of its Subsidiaries, and (iii) copies of any notices and other
information made available or given to the securityholders of the Company
generally, contemporaneously with the making available or giving thereof to the
securityholders.  As used herein, “Business Day” means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed.


 


(f)            Listing.  The Company shall promptly secure the
listing of all of the Registrable Securities (as defined in the Registration
Rights Agreement) upon each national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all
Registrable Securities from time to time issued or issuable under the terms of
the Transaction Documents.  The Company
shall use its commercially reasonable efforts to promptly secure the listing of
all of its Common Stock including the Registrable Securities on the NASDAQ
National Market at such time as it qualifies for re-listing.  The Company shall maintain the Common
Stock’s authorization for quotation on the then principal market.  Neither the Company nor any of its
Subsidiaries shall take any action which could be reasonably expected to result
in the delisting or suspension of the Common Stock on the principal
market.  The Company shall pay all fees
and expenses in connection with satisfying its obligations under this Section
4(f).


 


16

















 


(g)           Fees.  The Company shall pay the reasonable fees
and expenses of Emancipation Capital LP (“Emancipation”)
or any affiliate thereof incurred in connection with the preparation and
negotiation of the Transaction Documents and in connection with the
transactions contemplated by the Transaction Documents in an amount not to
exceed $100,000 (the “Expense Reimbursement”).  Emancipation acknowledges that prior to the
date hereof it has received $40,000 toward the Expense Reimbursement and may
receive additional amounts toward the Expense Reimbursement prior to Closing
(collectively, the “Advances”).  In lieu of the foregoing payment,
Emancipation may withhold the Expense Reimbursement less any Advances from its
Purchase Price at the Closing. 
Emancipation shall promptly refund after the Closing the amount of any
Advances in excess of the Expense Reimbursement.  Except as otherwise set forth in this Agreement or in the
Registration Rights Agreement, each party to this Agreement shall bear its own
expenses in connection with the sale of the Securities to the Buyers.


 


(h)           Pledge of
Securities.  The Company
acknowledges and agrees that the Securities may be pledged by an Investor (as
defined in the Registration Rights Agreement) in connection with a bona fide
margin agreement or other loan or financing arrangement that is secured by such
Securities.  The pledge of the Securities
shall not be deemed to be a transfer, sale or assignment of the Securities
hereunder, and no Investor effecting a pledge of Securities shall be required
to provide the Company with any notice thereof or otherwise make any delivery
to the Company pursuant to this Agreement or any other Transaction Document,
including, without limitation, Section 2(f) of this Agreement; provided
that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. 
The Company hereby agrees to execute and deliver such documentation as a
pledgee of Securities may reasonably request in connection with a pledge of
such Securities to such pledgee by an Investor.


 


(i)            Disclosure of
Transactions and Other Material Information.  On or before 8:30 a.m., New York City Time, on  the first Business Day following execution
of this Agreement, the Company shall file a Current Report on Form 8-K
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the 1934 Act, and attaching the material
Transaction Documents (including, without limitation, this Agreement (and all
schedules to this Agreement), the form of the Certificate of Designations, the
form of Warrant and the form of the Registration Rights Agreement) as exhibits
to such filing (including all attachments, the “8-K Filing”).  The
Company shall provide the Buyers with a reasonable opportunity to review the
Form 8-K prior to the 8-K Filing.  From
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company,
any of its Subsidiaries or any of its respective officers, directors, employees
or agents, that is not disclosed in the 8-K Filing.  The Company shall not, and shall cause each of its Subsidiaries
and its and each of their respective officers, directors, employees and agents,
not to, provide any Buyer with any material nonpublic information regarding the
Company or any of its Subsidiaries from and after the filing of the 8-K Filing
with the SEC without the express written consent of such Buyer.  No Buyer shall have any liability to the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such disclosure.  Subject to the foregoing, neither the
Company nor any Buyer shall issue any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled,


 


17

















 


without the prior approval of any Buyer, to
make any press release or other public disclosure with respect to such
transactions (i) in substantial conformity with the 8-K Filing and
contemporaneously therewith and (ii) as is required by applicable law and
regulations, including the applicable rules and regulations of the Principal
Market (provided that in the case of clause (i) each Buyer shall be consulted
by the Company in connection with any such press release or other public
disclosure prior to its release).


 


(j)            Restriction on
Redemption and Cash Dividends.  So
long as 30% of the Preferred Shares are outstanding, the Company shall not,
directly or indirectly, redeem, or declare or pay any cash dividend or
distribution on, the Common Stock without the prior express written consent of
the holders of at least a majority of the Preferred Shares.


 


(k)           Additional
Securities; Additional Indebtedness; Additional Registration Statements.  For so long as 30% of the Preferred Shares
are outstanding, the Company will not issue any Preferred Shares other than to
the Buyers as contemplated hereby and the Company shall not issue any other
securities or incur or suffer to exist any Indebtedness, except in accordance
with the Equity Exclusion and the Debt Exclusion (as each term is defined in
the Certificate of Designations) without the prior express written consent of
the holders of not less than a majority of the then outstanding Preferred
Shares.  Until such time as the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective by the SEC, the Company will not file a registration
statement under the 1933 Act relating to securities that are not the
Securities.  Notwithstanding the
foregoing, this Section 4(k) shall not apply to Excluded Securities (as defined
in the Certificate of Designations).


 


(l)            Variable
Securities.  So long as any
Preferred Shares are outstanding, the Company shall not, in any manner, issue
or sell any rights, warrants or options to subscribe for or purchase Common
Stock or directly or indirectly convertible into or exchangeable or exercisable
for Common Stock at a price which varies or may vary with the market price of
the Common Stock, including by way of one or more reset(s) to any fixed
price.  Notwithstanding the foregoing,
this Section 4(l) shall not apply to Excluded Securities (as defined in the Certificate
of Designations).


 


(m)          Corporate
Existence.  So long as 5% of the
Preferred Shares are outstanding, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company’s assets,
except in the event of a merger or consolidation or sale of all or
substantially all of the Company’s assets, where the surviving or successor
entity in such transaction (i) assumes the Company’s obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose common stock is quoted on or listed
for trading on the Principal Market, the New York Stock Exchange, the American
Stock Exchange or the Nasdaq Stock Market.


 


(n)           Reservation of
Shares.  The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than 125% of the sum of (1) the number of shares of Common
Stock issuable upon conversion of the Preferred Shares issued at the Closing
and (2) the number of shares of Common Stock issuable upon exercise of the
Warrants issued at the Closing.


 


18

















 


(o)           Conduct of
Business.  The business of the
Company and its Subsidiaries shall not be conducted in violation of any law,
ordinance or regulation of any governmental entity, except where such
violations could not result, either individually or in the aggregate, in a
Material Adverse Effect.


 


(p)           [Reserved.]


 


(q)           Additional
Issuances of Securities.


 


(i)            [Reserved.]


 


(ii)           From
the date hereof, the Company will not, directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition of) any of its or
the Subsidiaries’ equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is,
at any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”) unless the Company
shall have first complied with this Section 4(q)(ii).  “Common Stock Equivalents”
means, collectively, Options and Convertible Securities, each as defined in the
Certificate of Designations.


 


(1)           The Company shall
deliver to each Buyer a written notice (the “Offer”)
of any proposed or intended offer, issuance or sale of the securities being
offered (the “Offered Securities”)
in a Subsequent Placement, which Offer shall (x) identify and describe the
Offered Securities, (y) describe the price and other terms upon which they are
to be offered, issued or sold, and the number or amount of the Offered
Securities to be issued or sold, and (z) identify the persons or entities (if
known) to which or with which the Offered Securities are to be offered, issued
or sold.


 


(2)           By written
notification (the “Notice of Acceptance”) received by the Company, within 10
Business Days after delivery of the Offer in accordance with the notice
provisions set forth in Section 9(f) (the “Offer
Period”), each Buyer may elect to purchase or obtain, at the price
and on the terms specified in the Offer, up to that portion of such Offered
Securities which equals the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion or exchange of the Preferred
Shares and the Warrant Shares, by such Investor bears to the total number of
shares of Common Stock then outstanding (assuming full conversion and exercise
of all convertible or exercisable securities). 
A Buyer may offer in the Notice of Acceptance to purchase in excess of
its pro rata percentage of the Offered Securities in which case any Offered
Securities not subscribed for by other Buyers in accordance with this Section
4(q)(ii)(2) shall be allocated among Buyers who so offer.  Each such electing Buyer shall be permitted
to purchase up to that portion of such excess Offered Securities equal to the
ratio that its pro rata percentage bears to the pro rata percentages of all
such electing Buyers.


 


(3)           The Company shall
have 15 Business Days from the expiration of the offer period above to issue
and/or sell all or any part of such Offered Securities


 


19

















 


as to which a Notice of
Acceptance has not been given by the Buyers (the “Refused Securities”), but only to the offerees described in
the Offer and only upon terms and conditions (including, without limitation,
unit prices and interest rates) that are not more favorable to the acquiring
person or persons or less favorable to the Company than those set forth in the
Offer.


 


(4)           In the event the
Company shall propose to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in Section 4(q)(ii)(3)
above), then each Buyer may, at its sole option and in its sole discretion,
reduce the number or amount of the Offered Securities specified in its Notice
of Acceptance to an amount that shall be not less than the number or amount of
the Offered Securities that the Buyer elected to purchase pursuant to Section
4(q)(ii)(2) above multiplied by a fraction, (i) the numerator of which shall be
the number or amount of Offered Securities the Company actually proposes to
issue or sell (including Offered Securities to be issued or sold to Buyers
pursuant to Section 4(q)(ii)(3) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered Securities.  In the event that any Buyer so elects to
reduce the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not offer, issue or sell more than the reduced
number or amount of the Offered Securities unless and until such securities
have again been offered to the Buyers in accordance with Section 4(q)(ii)(1)
above.


 


(5)           Upon the closing of
the issuance and/or sale of all or less than all of the Refused Securities, the
Buyers shall acquire from the Company, and the Company shall issue to the
Buyers, the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 4(q)(ii)(3) above if the Buyers have
so elected, upon the terms and conditions specified in the Offer.  The purchase by the Buyers of any Offered
Securities is subject in all cases to the preparation, execution and delivery
by the Company and the Buyers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Buyers and their
respective counsel.


 


(6)           Any Offered
Securities not acquired by the Buyers or other persons in accordance with
Section 4(q)(ii)(3) above may not be issued, sold or exchanged until they are
again offered to the Buyers under the procedures specified in this Agreement.


 


(iii)          The
restrictions contained in subsection (ii) of this Section 4(q) shall not apply
to Excluded Securities (as defined in the Certificate of Designations).


 


(r)            [Reserved.]


 


(s)           Director Designee.  At Closing, a director designated by the
holders of a majority of the Preferred Shares (the “Preferred Director
Designee”) shall be appointed to the Company’s board of directors, as a Class
III director and shall be nominated as a director at the Company next annual
meeting to serve a three (3) year term, in accordance with the terms and
provisions of the Certificate of Designations. 
The initial Preferred Director Designee shall be Joseph Liemandt.  Any subsequent replacement of the initial
Preferred Director Designee shall be designated by the holders of a majority of
then outstanding Preferred Shares, subject to the approval of the Nominating
Committee (as defined below) not to be


 


20

















 


unreasonably withheld.  In addition, Bengt-Ake Algevik shall be
appointed to the Company’s board of directors.


 


(t)            Corporate
Governance Matters.  The Company
shall, within the earlier of (i) ninety (90) days or (ii) the next election of
members of the Company’s board of directors, take all necessary and requisite
action so as to comply with the rules and regulations pertaining to board and
board committee composition and independence promulgated by the Nasdaq Stock
Market in connection with Sarbanes-Oxley, in each case to the same extent as if
the Company were subject to all such rules and regulations.  For avoidance of doubt, the Company agrees
that it shall not elect to take a “controlled company” exemption for the
purpose of complying with this Section 4(t) and that the majority of its board
of directors shall otherwise meet the independence standards (the “Independence
Standards”) set forth in the applicable final rules releases issued by the SEC
in connection with Sarbanes-Oxley and the related rules and regulations
promulgated by the Nasdaq Stock Market. 
Without limiting the foregoing, any candidate nominated to serve as an
independent director on the Company’s board of directors, including with
respect to the next election of the Company’s board of directors, shall be
nominated by a nominating committee comprised solely of three directors who
shall initially be Joe Liemandt, Olle Odman and a third individual mutually
acceptable to Messrs. Liemandt and Odman (the “Nominating Committee”).  Proha shall be entitled to nominate a
replacement for Mr. Odman and his subsequent successors and the holders of a
majority of Preferred Shares shall be entitled to nominate a replacement for
Mr. Liemandt and his subsequent successors, provided that any such replacements
to the Nominating Committee shall be independent directors, each of whom
satisfy the Independence Standards. 
Candidates nominated by the Nominating Committee shall be reasonably
acceptable to the holders of a majority of the Preferred Shares.


 


5.             REGISTER;
TRANSFER AGENT INSTRUCTIONS.


 


(a)           Register.  The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to each holder of Preferred Shares or Warrants), a register
for the Preferred Shares and the Warrants, in which the Company shall record
the name and address of the Person in whose name the Preferred Shares  and the Warrants have been issued
(including the name and address of each transferee), the face amount of
Preferred Shares held by such Person and the number of Warrant Shares issuable
upon exercise of the Warrants held by such Person.  The Company shall keep the register open and available at all
times during business hours for inspection of any Buyer or its legal
representatives.


 


(b)           Transfer Agent
Instructions.  The Company shall
issue irrevocable instructions to its transfer agent, and any subsequent
transfer agent, to issue certificates or credit shares to the applicable
balance accounts at DTC, registered in the name of each Buyer or its respective
nominee(s), for the Conversion Shares and the Warrant Shares  in such amounts as specified from time to
time by each Buyer to the Company upon conversion of the Preferred Shares or
exercise of the Warrants in the form of Exhibit E attached hereto (the “Irrevocable Transfer Agent Instructions”).  The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Sections 2(f)
and 2(g) hereof, will be given by the Company to its transfer agent, with
respect to the Conversion Shares and the Warrant Shares, and that the


 


21

















 


Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the other Transaction Documents.  If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect
such sale, transfer or assignment.  In
the event that such sale, assignment or transfer involves Conversion Shares or
Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or in compliance with Rule 144, the transfer agent shall
issue such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend.  The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to a Buyer. 
Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5(b) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5(b), that a Buyer shall be entitled, in addition to
all other available remedies, to an order and/or injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.


 


6.             CONDITIONS TO
THE COMPANY’S OBLIGATION TO SELL.  
The obligation of the Company hereunder to issue and sell the Preferred
Shares and Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:


 


(a)           Such Buyer and each
other Buyer shall have executed each of the Transaction Documents to which it
is a party and delivered the same to the Company.


 


(b)           Such Buyer and each
other Buyer shall have delivered to the Company the Purchase Price (less, in
the case of Emancipation, the amounts withheld pursuant to Section 4(g)) for
the Preferred Shares and the related Warrants being purchased by such Buyer and
each other Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.


 


(c)           The representations
and warranties of such Buyer shall be true and correct as of the date when made
and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material respects
(except for covenants, agreements and conditions that are qualified by
materiality, which shall be complied with in all respects) with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.


 


7.             CONDITIONS TO
EACH BUYER’S OBLIGATION TO PURCHASE. 
The obligation of each Buyer hereunder to purchase the Preferred
Shares  and the related Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for each
Buyer’s sole benefit and may be


 


22

















 


waived by such Buyer at any time in its sole
discretion by providing the Company with prior written notice thereof:


 


(a)           The Company shall
have executed and delivered to such Buyer (i) each of the Transaction Documents
and (ii) certificates for the Preferred Shares (in such denominations as such
Buyer shall request) and the related Warrants (in such amounts as such Buyer
shall request) being purchased by such Buyer at the Closing pursuant to this
Agreement.


 


(b)           Such Buyer shall
have received the opinion of Thelen Reid & Priest LLP, the Company’s
counsel, dated as of the Closing Date, in substantially the form of Exhibit
F attached hereto.


 


(c)           The Company shall
have delivered to such Buyer a copy of the Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, which
instructions shall have been delivered to and acknowledged in writing by the
Company’s transfer agent.


 


(d)           The Company shall
have delivered to such Buyer a certificate evidencing the incorporation of the
Company in such corporation’s state of incorporation issued by the Secretary of
State of such state of incorporation as of a date within five (5) days of the
Closing Date.


 


(e)           The Company shall
have delivered to such Buyer a certificate evidencing the Company’s
qualification as a foreign corporation and good standing issued by the
Secretary of State of the jurisdictions set forth in Schedule 7(e), in each
case as of a date within two (2) days of the Closing Date.


 


(f)            The Company shall
have delivered to such Buyer a certified copy of the Certificate of
Incorporation as certified by the Secretary of State of the State of Delaware
within five (5) days of the Closing Date.


 


(g)           The Company shall
have delivered to such Buyer a certificate in the form attached hereto as Exhibit
G, executed by an executive officer of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(b) as adopted
by the Company’s Board of Directors in a form reasonably acceptable to such
Buyer (the “Resolutions”), (ii)
the Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing.


 


(h)           The representations
and warranties of the Company shall be true and correct as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
(except for covenants, agreements and conditions that are qualified by
materiality, which shall be complied with in all respects) with the covenants,
agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date.  Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as
of the Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by such Buyer in the form attached hereto as Exhibit
H.


 


23

















 


(i)            The Company shall
have delivered to such Buyer a letter from the Company’s transfer agent
certifying the number of shares of Common Stock outstanding as of a date within
five (5) days of the Closing Date.


 


(j)            [Reserved.]


 


(k)           [Reserved.]


 


(l)            The Company shall
have obtained all governmental, regulatory or third party consents and
approvals, if any, necessary for the sale of the Securities.


 


(m)          Such Buyer shall have
completed its legal and business due diligence review of the assets, properties
and businesses of the Company and its Subsidiaries, and has satisfied itself of
the results thereof.


 


(n)           The Company shall
have delivered to such Buyer such other documents relating to the transactions
contemplated by this Agreement as such Buyer or its counsel may reasonably
request.


 


(o)           The Company shall
provide the Buyers with evidence reasonably satisfactory to the Buyers that it
is in good standing in Delaware.


 


(p)           The Company shall
provide the Buyers with a letter from Proha in the form of Exhibit I attached
hereto.


 


8.             [Reserved.]


 


9.             MISCELLANEOUS.


 


(a)           Governing Law;
Jurisdiction; Jury Trial.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement 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.  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, 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 brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.  EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR


 


24

















 


ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.


 


(b)           Counterparts.  This Agreement may be executed in two or
more identical counterparts, all of which 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original,
not a facsimile signature.


 


(c)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.


 


(d)           Severability.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.


 


(e)           Entire Agreement;
Amendments.  This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and Persons acting on their behalf with respect to
the matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
holders of at least a majority of the Preferred Shares or, if prior to the
Closing Date, the Company and the Buyers listed on the Schedule of Buyers as
being obligated to purchase at least a majority of the Preferred Shares.  No provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.  No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Preferred Shares then outstanding.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents, holders of Preferred Shares or holders of the Warrants,
as the case may be.  The Company has
not, directly or indirectly, made any agreements with any Buyers relating to
the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.


 


(f)            Notices.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one Business Day after deposit with an overnight
courier service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile
numbers for such communications shall be:


 


25

















 


If to the Company:


 


Artemis International Solutions Corporation


4041 MacArthur Boulevard


Suite 260

Newport Beach, CA  92660


Telephone:            (949)
660-7100

Facsimile:               (949) 833-7277


Attention:              General
Counsel


 


with a copy to:


 


Thelen Reid & Priest LLP

875 Third Avenue

New York, New York 10022-6225


 


Telephone:            (212)
603-2000  

Facsimile:               (212)
829-2262

Attention:              Robert S.
Matlin, Esq.


 


If to the Transfer Agent:


 


American Stock Transfer & Trust Co.

59 Maiden Lane

New York, NY  10038


 


Telephone:            (718)
921-8275

Facsimile:               (718) 921-8331

Attention:              Paula Caroppoli


 


If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer’s representatives as set forth on
the Schedule of Buyers,


 


with a copy (for informational purposes) to:


 


Schulte Roth & Zabel LLP


919 Third Avenue


New York, New York  10022


Telephone:            (212)
756-2000


Facsimile:               (212)
593-5955


Attention:              Michael R.
Littenberg, Esq.


 


or to such other address and/or facsimile number and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) days prior to the effectiveness of
such change.  Written confirmation of
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender’s
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by an overnight
courier


 


26

















 


service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from an overnight courier service in accordance with
clause (i), (ii) or (iii) above, respectively.


 


(g)           Successors and
Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares or the
Warrants.  The Company shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the holders of at least a majority of the Preferred Shares then
outstanding, including by merger or consolidation, except pursuant to a Change
of Control (as defined in the Certificate of Designations) with respect to
which the Company is in compliance with the Certificate of Designations and
Section 4(b) of the Warrants.  A Buyer
may assign some or all of its rights hereunder without the consent of the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights.


 


(h)           No Third Party
Beneficiaries.  Except as
contemplated in Section 9(k), this Agreement is intended for the benefit of the
parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person.


 


(i)            Survival.  The representations and warranties of the
Company and the Buyers contained in Sections 2 and 3, the agreements and
covenants set forth in Sections 4, 5 and 9 shall survive the Closing.  Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.


 


(j)            Further Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.


 


(k)           Indemnification.  In consideration of each Buyer’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Buyer and each other holder of the Securities and all of their
stockholders, partners, members, officers, directors, employees and direct or
indirect investors and any of the foregoing Persons’ agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and
disbursements (the “Indemnified Liabilities”),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents,
or (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party (including for these purposes a derivative action
brought on behalf of the Company) and arising out of or


 


27

















 


resulting from (i) the execution, delivery,
performance or enforcement of the Transaction Documents, (ii) any transaction
financed or to be financed in whole or in part, directly or indirectly, with
the proceeds of the issuance of the Securities, (iii) any disclosure made by
such Buyer pursuant to Section 4(i), or (iv) the status of such Buyer or holder
of the Securities as an investor in the Company (other than in connection with
any action such Buyer may have taken). 
To the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.  Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.


 


(l)            No Strict
Construction.  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.


 


(m)          Remedies.  Each Buyer and each holder of the Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such holders have been granted at any time under
any other agreement or contract and all of the rights which such holders have
under any law.  Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. 
Furthermore, the Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to the
Buyers.  The Company therefore agrees that
the Buyers shall be entitled to seek temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages and without
posting a bond or other security.


 


(n)           Payment Set Aside.  To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to any of the other
Transaction Documents or the Buyers enforce or exercise their rights hereunder
or thereunder, and such payment or payments or the proceeds of such enforcement
or exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, 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.


 


(o)           Independent
Nature of Buyers’ Obligations and Rights. 
The obligations of each Buyer under any Transaction Document are several
and not joint with the obligations of any other Buyer, and no Buyer shall be
responsible in any way for the performance of the obligations of any other
Buyer under any Transaction Document. 
Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as a partnership, an


 


 


28

















 


association, a joint venture or any other
kind of entity, or create a presumption that the Buyers are in any way acting
in concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. 
Each Buyer confirms that it has independently participated in the
negotiation of the transaction contemplated hereby with the advice of its own counsel
and advisors.  Each Buyer shall be
entitled to independently protect and enforce its rights, including, without
limitations, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.


 


[Signature Page Follows]


 


29

















 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  ARTEMIS
  INTERNATIONAL SOLUTIONS CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Patrick Ternier

  
	
   

  	
   

  	
  Title: Chief Executive Officer

  



 


[Signature Page to Securities Purchase
Agreement]


 

















 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.


 


	
   

  	
  BUYERS: 

  
	
   

  	
   

  
	
   

  	
  EMANCIPATION CAPITAL LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  EMANCIPATION CAPITAL, LLC,

  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Charles Frumberg

  
	
   

  	
   

  	
  Title:

  	
  Managing Member

  
					



 

















 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.


 


 


	
   

  	
  BUYERS: 

  
	
   

  	
   

  
	
   

  	
  SAMUELSON INVESTMENT, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Joseph A. Liemandt

  
	
   

  	
   

  	
  Title: President and Chief Executive Officer

  



 

















 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.


 


	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  POTOMAC CAPITAL PARTNERS, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  POTOMAC CAPITAL INTERNATIONAL LTD

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  PLEIADES INVESTMENT PARTNERS R, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 

















 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.


 


	
   

  	
  BUYERS: 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Philip Hempleman

  



 

















 


IN WITNESS WHEREOF,
each Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.


 


	
   

  	
  BUYERS: 

  
	
   

  	
   

  
	
   

  	
  PORRIDGE, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 

















 


SCHEDULE OF BUYERS


 


	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  
	
  Buyer

  	
   

  	
  Address
  and Facsimile Number

  	
   

  	
  Aggregate
  Number of

  Preferred Shares

  	
   

  	
  Aggregate
  Number of

  Initial Warrants

  	
   

  	
  Legal
  Representative’s

  Address and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Emancipation
  Capital LP

  	
   

  	
  c/o
  Emancipation Capital LLC

  153 East 53rd Street

  26th Floor

  New York, New York  10022

  Attention:              Jonathan
  Rothenberg
                  Charlie Frumberg

  Facsimile:  (212) 521-5036

  Telephone: (212) 521-5033

  	
   

  	
  1,363,636

  	
   

  	
  136,364

  	
   

  	
  Schulte
  Roth & Zabel LLP

  919 Third Avenue

  New York, New York  10022

  Attention:  Michael R. Littenberg,
  Esq.

  Facsimile:  (212) 593-5955

  Telephone:  (212) 756-2000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Samuelson
  Investment, Inc.

  	
   

  	
  Samuelson
  Investment, Inc.

  c/o Trilogy Software, Inc.

  5001 Plaza on the Lake..

  Austin, TX 78746

  Attention:  Sean P. Fallon, VP

  Finance

  Facsimile:(512) 874-8900

  Telephone:  (512) 874-3100

  	
   

  	
  1,136,364

  	
   

  	
  113,636

  	
   

  	
  Haynes
  and Boone, LLP

  901 Main Street, Suite 3100 

  Dallas, TX 75202 

  Attention:  Dennis Cassell 

  Facsimile:(214) 200-0788 Telephone: 
  (214) 651-5319

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Philip
  Hempleman

  	
   

  	
  Ardsley
  Partners

  262 Harbor Dr., 4th Floor

  Stamford, CT  06902

  Attention:  Philip Hempleman

  Facsimile:  (203) 564-4250

  Telephone: (203) 355-0700

  	
   

  	
  454,545

  	
   

  	
  45,455

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Porridge,
  LLC

  	
   

  	
  500
  Nyala Farm Road

  Westport, CT  06880

  Attention:  Arthur Samberg

  

  Facsimile:  (203)

  Telephone: (203) 429-2322

  	
   

  	
  454,545

  	
   

  	
  45,455

  	
   

  	
   

  



 

















 


	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  
	
  Buyer

  	
   

  	
  Address
  and Facsimile Number

  	
   

  	
  Aggregate
  Number of

  Preferred Shares

  	
   

  	
  Aggregate
  Number of

  Initial Warrants

  	
   

  	
  Legal
  Representative’s

  Address and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Potomac
  Capital Partners, LP;

  Potomac Capital International Ltd.;

  Pleaides Investment Partners R, LP

  	
   

  	
  C/o
  Potomac Capital Partners, LP

  153 East 53rd Street, 26th Floor

  New York, NY 10022

  Attention: Paul J. Solit

  

  Facsimile: (212-521-5116) 

  

  Telephone: (212-521-5115)

  	
   

  	
  347,727

  

  115,909

  

  218,182

  	
   

  	
  34,773

  

  11,591

  

  21,818

  	
   

  	
   

  



 

















 


EXHIBITS


 


 


Exhibit A                Form of
Certificate of Designations


Exhibit B                Form of
Warrants


Exhibit C                Form of
Registration Rights Agreement


Exhibit D                Form of
Escrow Agreement


Exhibit E Form of Irrevocable
Transfer Agent Instructions


Exhibit F Form of Opinion


Exhibit G                Form of
Secretary’s Certificate


Exhibit H                Form of
Officers Certificate


Exhibit I  Proha Letter Regarding
Director Nominations


 


SCHEDULES


 


Schedule 3(a)        Subsidiaries


Schedule 3(k)        SEC
Documents, Financial Statements


Schedule 3(l)         Absence of
Certain Changes


Schedule 3(n)        Conduct of
Business; Regulatory Permits


Schedule 3(p)        Transactions
with Affiliates


Schedule 3(q)        Capitalization


Schedule 3(r)         Indebtedness
and Other Contracts


Schedule 3(u)        Employee
Relations


Schedule 3(v)        Title


Schedule 3(w)       Intellectual
Property Rights