Exhibit 10.1





Exhibit 10.1




SECURITIES PURCHASE AGREEMENT




THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of January 26, 2011, by and
among Cereplast, Inc., a Nevada corporation with headquarters located at 300 N. Continental
Boulevard, Suite 100, El Segundo, California 90245 (the “Company”), and each investor identified on
the signature pages hereto (individually, an “Investor” and collectively, the “Investors”).



BACKGROUND




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



B. Each Investor, severally and not jointly, wishes to purchase, and the Company wishes to
sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number of shares
of the common stock, par value $0.001 per share, of the Company (the “Common Stock”), set forth on
such Investor’s signature page to this Agreement (which aggregate amount for all Investors together
shall be [INSERT FINAL SHARE NUMBER] shares of Common Stock and shall collectively be referred to
herein as the “Common Shares”) and (ii) warrants, in substantially the form attached hereto as
Exhibit A (the “Warrants”) to acquire up to that number of additional shares of Common
Stock set forth opposite such Investor’s name in column three (3) on the Schedule of Investors (the
shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants issued to
the Investors, collectively, the “Warrant Shares”).



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



NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Investors agree as follows:



ARTICLE I

DEFINITIONS




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



“Affiliate” means any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such terms are used in
and construed under Rule 144 under the Securities Act.



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


 


 









 






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



“Best Efforts” means the efforts that a prudent person desirous of achieving a result would
use in similar circumstances to ensure that such result is achieved as expeditiously as practical;
provided, however, that an obligation to use Best Efforts under this Agreement does not require the
Company to dispose of or make any change to its business, expend any material funds or incur any
other material burden.



“Business Day” means any day other than Saturday, Sunday, any day which shall be a federal
legal holiday in the United States or any day on which banking institutions in The State of New
York are authorized or required by law or other governmental action to close.



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



“Closing Date” means the date and time of the Closing and shall be by the third Trading Day
following the date of this Agreement or such other date and time as is mutually agreed to by the
Company and each Investor.



“Closing Price” means, for any date, the closing price per share of the Common Stock for such
date (or, if not a Trading Day, the nearest preceding date that is a Trading Day) on the primary
Eligible Market or exchange or quotation system on which the Common Stock is then listed or quoted.




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




“Company Counsel” means Sichenzia Ross Friedman Ference LLP, counsel to the Company.




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




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




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



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




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



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




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



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


 


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




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



“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option plan duly adopted
for such purpose, by a majority of the non-employee members of the Board of Directors or a majority
of the members of a committee of non-employee directors established for such purpose, (b) shares of
Common Stock issued to employees, officers or directors of the Company in lieu of cash compensation
for services rendered to the Company, (c) securities upon the exercise or exchange of or conversion
of any Securities issued hereunder and/or other securities exercisable or exchangeable for or
convertible into shares of Common Stock issued and outstanding on the date of this Agreement,
provided that such securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise price, exchange price or conversion price
of such securities, and (d) securities issued pursuant to acquisitions or strategic transactions
approved by a majority of the disinterested directors of the Company, provided that any such
issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or
through its subsidiaries, an operating company or an owner of an asset in a business synergistic
with the business of the Company and shall provide to the Company additional benefits in addition
to the investment of funds, but shall not include a transaction in which the Company is issuing
securities primarily for the purpose of raising capital or to an entity whose primary business is
investing in securities.




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




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




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




“Excluded Events” has the meaning set forth in Section 6.1(d)(ii).



“Excluded Investors” means Lazard Capital Markets LLC, Ardour Capital Investments and Merriman
Capital, Inc., and each of its and their Affiliates.




“Filing Date” means the date that is twenty (20) days after the Closing Date or, if such
date is not a Business Day, the next date that is a Business Day.




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




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




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



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


 


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




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




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




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



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



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



“Material Adverse Effect” means (i) a material adverse effect on the results of operations,
assets, business, prospects or financial condition of the Company and the Subsidiaries taken as a
whole on a consolidated basis or (ii) material and adverse impairment of the Company’s ability to
perform its obligations under any of the Transaction Documents, provided, that none of the
following alone shall be deemed, in and of itself, to constitute a Material Adverse Effect: (i) a
change in the market price or trading volume of the Common Stock or (ii) changes in general
economic conditions or changes affecting the industry in which the Company operates generally (as
opposed to Company-specific changes) so long as such changes do not have a disproportionate effect
on the Company and its Subsidiaries taken as a whole.




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



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




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




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



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



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



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


 


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




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



“Required Effectiveness Date” means (i) if the Registration Statement does not become subject
to review by the SEC, the date which is the earliest of (a) ninety (90) days after the Closing Date
or (b) three (3) Trading Days after the Company receives notification from the SEC that the
Registration Statement will not become subject to review, or (ii) if the Registration Statement
becomes subject to review by the SEC, the date which is the earliest of (a) one hundred and twenty
(120) days after the Closing Date or (b) three (3) Trading Days after the Company receives
notification from the SEC that the SEC has no further comment to the Registration Statement.



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




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




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




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




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




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




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




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



“Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market (other
than the OTC Bulletin Board), or (ii) if the Common Stock is not listed or quoted on a Trading
Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not
listed or quoted on any Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the Pink Sheets LLC (or any similar organization or agency
succeeding to its functions of reporting prices); provided, that in the event that the Common Stock
is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a
Business Day.


 


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“Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange,
the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.




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



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




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



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




“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.5(b).




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




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



ARTICLE II

PURCHASE AND SALE




2.1 Closing. Subject to the terms and conditions set forth in this Agreement, at the
Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and
not jointly, purchase from the Company, such number of Common Shares and Warrants for the price set
forth on such Investor’s signature page to this Agreement. The date and time of the Closing and
shall be 11:00 a.m., New York City Time, on the Closing Date. The Closing shall take place at the
offices of the Company’s Counsel.




2.2 Closing Deliveries.




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



(i) a copy of the Company’s irrevocable instructions to the Transfer Agent instructing the
Transfer Agent to deliver, on an expedited basis, one or more stock certificates, free and clear of
all restrictive and other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing such number of Common Shares set forth on such Investor’s signature page to this
Agreement, registered in the name of such Investor;


 


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(ii) a Warrant, issued in the name of such Investor, pursuant to which such Investor shall
have the right to acquire such number of Warrant Shares set forth on such Investor’s signature page
to this Agreement;



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



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



(v) a certificate of the Secretary of the Company, dated as of the Closing Date, (a)
certifying the resolutions adopted by the Board of Directors of the Company approving the
transactions contemplated by this Agreement and the other Transaction Documents and the issuance of
the Securities, (b) certifying the current versions of the certificate of incorporation, as amended
and by-laws of the Company and (c) certifying as to the signatures and authority of persons signing
the Transaction Documents and related documents on behalf of the Company; and



(vi) a certificate of the Chief Executive Officer or Chief Financial Officer of the Company,
dated as of the Closing Date, certifying to the fulfillment of the conditions specified in
Section 5.1(a) and (b).




(b) At the Closing, each Investor shall deliver or cause to be delivered to the Company the
purchase price set forth on such Investor’s signature page to this Agreement in United States
dollars and in immediately available funds, by wire transfer to an account designated in writing
to such Investor by the Company for such purpose.



ARTICLE III

REPRESENTATIONS AND WARRANTIES




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




(a) Subsidiaries. The Company owns or controls, directly or indirectly, all of the
capital stock or comparable equity interests of each Subsidiary free and clear of any Lien, and
all issued and outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and
similar rights; and the Company owns or controls, directly or indirectly, only the following
corporations, partnerships, limited liability partnerships, limited liability companies,
associations or other entities: Cereplast International, S.A., a Luxembourg company and
Cereplast Europe, a French Company and wholly owned subsidiary of Cereplast International, S.A.,
(each, a “Subsidiary”).




(b) Organization and Qualification. The Company and each Subsidiary is an entity
duly organized, validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with the requisite legal authority to own and use its properties and assets and
to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate or articles of incorporation,
bylaws
or other organizational or charter documents. The Company and each Subsidiary is duly
qualified to do business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property owned by it makes
such qualification necessary, except where the failure to be so qualified or in good standing,
as the case may be, would not, individually or in the aggregate, have or reasonably be expected
to result in a Material Adverse Effect.


 


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(c) Authorization; Enforcement. The Company has the requisite corporate authority
to enter into and to consummate the transactions contemplated by each of the Transaction
Documents to which it is a party and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the Transaction Documents to which it is a
party by the Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part of the Company
and no further consent or action is required by the Company, its Board of Directors or its
stockholders. Each of the Transaction Documents to which it is a party has been (or upon
delivery will be) duly executed by the Company and is, or when delivered in accordance with the
terms hereof, will constitute, the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as limited by general equitable
principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors’ rights generally, (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be limited by
applicable law.




(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents to which it is a party by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not, and will not, (i) conflict with or violate
any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default
(or an event that with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the
Company or any Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound, or affected, except to the extent that such conflict, default, termination,
amendment, acceleration or cancellation right would not reasonably be expected to have a
Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company or any Subsidiary is subject (including, assuming the accuracy of the
representations and warranties of the Investors set forth in Section 3.2 hereof, federal
and state securities laws and regulations and the rules and regulations of any self-regulatory
organization to which the Company or its securities are subject, including all applicable
Trading Markets), or by which any property or asset of the Company or any Subsidiary are bound
or affected, except to the extent that such violation would not reasonably be expected to have a
Material Adverse Effect.




(e) The Securities. The Securities (including the Warrant Shares) are duly
authorized and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of
all Liens and will not be subject to preemptive or similar rights of stockholders (other than
those imposed by the Investors). The Company has reserved from its duly authorized capital
stock the maximum number of shares of Common Stock issuable upon exercise of the Warrants.


 


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(f) Capitalization. The aggregate number of shares and type of all authorized,
issued and outstanding classes of capital stock, options and other securities of the Company
(whether or not presently convertible into or exercisable or exchangeable for shares of capital
stock of the Company) is set forth in Schedule 3.1(f) hereto. All outstanding shares of
capital stock are duly authorized, validly issued, fully paid and nonassessable and have been
issued in compliance in all material respects with all applicable securities laws. Except as
disclosed in Schedule 3.1(f) hereto, the Company did not have outstanding at December
31, 2010 any other Options, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or exercisable or
exchangeable for, or entered into any agreement giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or securities or rights convertible or exchangeable into
 shares of Common Stock. Except as set forth on Schedule 3.1(f) hereto, and except for
customary adjustments as a result of stock dividends, stock splits, combinations of shares,
reorganizations, recapitalizations, reclassifications or other similar events, there are no
anti-dilution or price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) and the issuance and sale of the
Securities will not obligate the Company to issue shares of Common Stock or other securities to
any Person (other than the Investors) and will not result in a right of any holder of securities
to adjust the exercise, conversion, exchange or reset price under such securities. To the
knowledge of the Company, except as disclosed in the SEC Reports and any Schedules 13D or 13G
filed with the SEC pursuant to Rule 13d-1 of the Exchange Act by reporting persons or in
Schedule 3.1(f) hereto, no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to acquire, by
agreement with or by obligation binding upon the Company, beneficial ownership of in excess of
5% of the outstanding Common Stock.




(g) SEC Reports; Financial Statements. Except as set forth on Schedule
3.1(g), the Company has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the 12 months
preceding the date hereof on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such extension and has
filed all reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof. Such reports
required to be filed by the Company under the Exchange Act, including pursuant to Section 13(a)
or 15(d) thereof, together with any materials filed or furnished by the Company under the
Exchange Act, whether or not any such reports were required being collectively referred to
herein as the “SEC Reports” and, together with this Agreement and the Schedules to this
Agreement, the “Disclosure Materials”. As of their respective dates (or, if amended or
superseded by a filing prior to the Closing Date, then on the date of such filing), the SEC
Reports filed by the Company complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the SEC promulgated
thereunder, and none of the SEC Reports, when filed (or, if amended or superseded by a filing
prior to the Closing Date, then on the date of such filing) by the Company,


 


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contained any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The financial statements of
the Company included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the SEC with respect thereto as in
effect at the time of filing (or, if amended or superseded by a filing prior to the Closing
Date, then on the date of such filing). Such financial statements have been prepared in
accordance with United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified in such
financial statements, the notes thereto and except that unaudited financial statements may not
contain all footnotes required by GAAP or may be condensed or summary statements, and fairly
present in all material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments. All material agreements to which the Company or any Subsidiary is a
party or to which the property or assets of the Company or any Subsidiary are subject are
included as part of or identified in the SEC Reports, to the extent such agreements are required
to be included or identified pursuant to the rules and regulations of the SEC.




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


 


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




(j) Compliance. Except as would not, individually or in the aggregate, reasonably
be expected to have or result in a Material Adverse Effect, (i) neither the Company nor any
Subsidiary is in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by the Company or
any Subsidiary under), nor has the Company or any Subsidiary received written notice of a claim
that it is in default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been waived), (ii) neither
the Company nor any Subsidiary is in violation of any order of any court, arbitrator or
governmental body, or (iii) neither the Company nor any Subsidiary is or has been in violation
of any statute, rule or regulation of any governmental authority.




(k) Title to Assets. Neither the Company nor any Subsidiary owns real property.
The Company and each Subsidiary has good and marketable title in all personal property owned by
them that is material to the business of the Company and each Subsidiary, in each case free and
clear of all Liens, except for Liens that do not, individually or in the aggregate, have or
result in a Material Adverse Effect. Any real property and facilities held under lease by the
Company or any Subsidiary is held by it under valid, subsisting and enforceable leases of which
the Company and each Subsidiary is in material compliance.




(l) No General Solicitation; Placement Agents’ Fees. Neither the Company, nor any
of its Affiliates, nor any Person acting on its or their behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D) in connection
with the offer or sale of the Securities. The Company shall be responsible for the payment of
any placement agents’ fees, financial advisory fees, or brokers’ commission (other than for
persons engaged by any Investor or its investment advisor) relating to or arising out of the
issuance of the Securities pursuant to this Agreement. The Company shall pay, and hold each
Investor harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection with any such claim
for fees arising out of the issuance of the Securities pursuant to this Agreement. The Company
acknowledges that is has engaged Lazard Capital Markets LLC, Ardour Capital Investments and
Merriman Capital, Inc. as its exclusive placement agents (collectively, the “Placement Agents”)
in connection with the sale of the Securities. Other than the Agents, the Company has not
engaged any placement agent or other agent in connection with the sale of the Securities.


 


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(m) Private Placement; Investment Company; U.S. Real Property Holding Corporation.
Neither the Company nor any of its Affiliates nor, any Person acting on the Company’s behalf
has, directly or indirectly, at any time within the past six months, made any offer or sale of
any security or solicitation of any offer to buy any security under circumstances that would (i)
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale by the Company of the
Securities as contemplated hereby or (ii) cause the offering of the Securities pursuant to the
Transaction Documents to be integrated with prior offerings by the Company for purposes of any
applicable law, regulation or stockholder approval provisions, including, without limitation,
under the rules and regulations of any Trading Market. Assuming the accuracy of the
representations and warranties of the Investors set forth in Section 3.2, no
registration under the Securities Act is required for the offer and sale of the Securities by
the Company to the Investors as contemplated hereby. The sale and issuance of the Securities
hereunder does not contravene the rules and regulations of any Trading Market on which the
Common Stock is listed or quoted. The Company is not required to be registered as, and is not
an Affiliate of, an “investment company” within the meaning of the Investment Company Act of
1940, as amended. The Company is not required to be registered as a United States real property
holding corporation within the meaning of the Foreign Investment in Real Property Tax Act of
1980.




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




(o) Listing and Maintenance Requirements. The Company has not, in the twelve
months preceding the date hereof, received notice (written or oral) from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market. The Company is,
and has no reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.




(p) Registration Rights. Except as described in Schedule 3.1(p), the
Company has not granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the SEC or any other
governmental authority that have not expired or been satisfied or waived.




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


 


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(r) Disclosure. The Company confirms that neither it nor any officers, directors
or Affiliates, has provided any of the Investors (other than Excluded Investors [or those
certain investors who signed a confidentiality agreement with the Company]) or their agents or
counsel with any information that constitutes or might constitute material, nonpublic
information (other than the existence and terms of the issuance of Securities, as contemplated
by this Agreement). The Company understands and confirms that each of the Investors (other than
Excluded Investors [or those certain investors who signed a confidentiality agreement with the
Company])
will rely on the foregoing representations in effecting transactions in securities of the
Company. All disclosure provided by the Company to the Investors regarding the Company, its
business and the transactions contemplated hereby, including the Schedules to this Agreement
furnished by or on behalf of the Company, are true and correct in all material respects and do
not contain any untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances under which they
were made, not misleading. To the Company’s knowledge, except for the transactions contemplated
by this Agreement, no event or circumstance has occurred or information exists with respect to
the Company or any Subsidiary or their businesses, properties, operations or financial
condition, which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or disclosed. The
Company acknowledges and agrees that no Investor (other than Excluded Investors) makes or has
made any representations or warranties with respect to the transactions contemplated hereby
other than those set forth in the Transaction Documents.




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




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




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


 


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




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




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




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




(z) Foreign Corrupt Practices. Neither the Company nor any Subsidiary nor, to the
knowledge of the Company, any director, officer, agent, employee or other Person acting on
behalf of the Company or any Subsidiary 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 or to any foreign or
domestic political parties or campaigns from corporate funds; (iii) violated or is in violation
in any material respect 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.


 


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




(bb) Employee Relations. Neither the Company nor any Subsidiary is a party to any
collective bargaining agreement or employs any member of a union. The Company believes that its
relations with its employees are as disclosed in the SEC Reports. Except as disclosed in the
SEC Reports, during the period covered by the SEC Reports, no executive officer of the Company
or any Subsidiary has notified the Company or any Subsidiary that such officer intends to leave
the Company or a Subsidiary, as applicable, or otherwise terminate such officer’s employment
with the Company or a Subsidiary, as applicable. To the knowledge of the Company or any
Subsidiary, no executive officer of the Company or any Subsidiary is in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any Subsidiary to any liability with respect to any of
the foregoing matters.


 


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




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




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




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


 


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3.2 Representations and Warranties of the Investors. Each Investor hereby, as to
itself only and for no other Investor, represents and warrants to the Company as follows:




(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with the
requisite corporate, partnership or other power and authority to enter into and to consummate
the transactions contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The purchase by such Investor of the Securities hereunder
has been duly authorized by all necessary corporate, partnership or other action on the part of
such Investor. This Agreement has been duly executed and delivered by such Investor and
constitutes the valid and binding obligation of such Investor, enforceable against it in
accordance with its terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by applicable law.




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




(c) Investor Status. At the time such Investor was offered the Securities, it was,
at the date hereof it is, and on the date which it exercises any Warrants it will be an
“accredited investor” as defined in Rule 501(a) under the Securities Act (as amended by the
Dodd—Frank Wall Street Reform and Consumer Protection Act) or a “qualified institutional buyer”
as defined in Rule 144A(a) under the Securities Act. Such Investor is not a registered broker
dealer registered under Section 15(a) of the Exchange Act, or a member of FINRA, Inc. or an
entity engaged in the business of being a broker dealer. Except as otherwise disclosed in
writing to the Company on Exhibit B-2 (attached hereto) on or prior to the date of this
Agreement, such Investor is not affiliated with any broker dealer registered under Section 15(a)
of the Exchange Act, or a member of FINRA Inc. or an entity engaged in the business of being a
broker dealer.




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




(e) Experience of Such Investor. Such Investor, either alone or together with its
representatives has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the prospective investment in
the Securities, and has so evaluated the merits and risks of such investment. Such Investor
understands that it must bear the economic risk of this investment in the Securities
indefinitely, and is able to bear such risk and is able to afford a complete loss of such
investment.


 


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(f) Access to Information. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded: (i) the opportunity to ask such questions as it has
deemed necessary of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks of investing in
the Securities; (ii) access to information (other than material non-public information [for
those certain investors who did not enter into a confidentiality agreement with the Company])
about the Company and each Subsidiary and their respective financial condition, results of
operations, business, properties, management and prospects sufficient to enable it to evaluate
its investment; and (iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. Neither such inquiries nor any
other investigation conducted by or on behalf of such Investor or its representatives or counsel
shall modify, amend or affect such Investor’s right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company’s representations and warranties
contained in the Transaction Documents. Such Investor acknowledges receipt of copies of the SEC
Reports.




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




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




(i) Prohibited Transactions; Confidentiality. No Investor, directly or indirectly,
and no Person acting on behalf of or pursuant to any understanding with any Investor, has
engaged in any purchases or sales in the securities, including derivatives, of the Company
(including, without limitation, any Short Sales (a “Transaction”) involving any of the Company’s
securities) since the time that such Investor was first contacted by the Company, any Placement
Agent or any other Person regarding an investment in the Company. Such Investor covenants that
neither it nor any Person acting on its behalf or pursuant to any understanding with such
Investor will engage, directly or indirectly, in any Transactions in the securities of the
Company (including Short Sales) prior to the time the transactions contemplated by this
Agreement are publicly disclosed. “Short Sales” include, without limitation, all “short
sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all
types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps, derivatives and similar arrangements (including on a total return basis), and
sales and other transactions through non-U.S. broker-dealers or foreign regulated brokers.


 


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(j) Restricted Securities. The Investors understand that the Securities are
characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public offering and that
under such laws and applicable regulations such securities may be resold without registration
under the Securities Act only in certain limited circumstances.




(k) Legends. It is understood that, except as provided in Section 4.1(b) of
this Agreement, certificates evidencing such Securities may bear the legend set forth in
Section 4.1(b).




(l) No Legal, Tax or Investment Advice. Such Investor understands that nothing in
this Agreement or any other materials presented by or on behalf of the Company to the Investor
in connection with the purchase of the Securities constitutes legal, tax or investment advice.
Such Investor has consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase of the
Securities. Such Investor understands that the Placement Agents have acted solely as the agents
of the Company in this placement of the Securities, and that no Placement Agent makes any
representation or warranty with regard to the merits of this transaction or as to the accuracy
of any information such Investor may have received in connection therewith. Such Investor
acknowledges that he has not relied on any information or advice furnished by or on behalf of
any Placement Agent.



ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES





4.1 Transfer Restrictions.




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


 


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(b) The Investors agree to the imprinting, until no longer required by this Section
4.1(b), of the following legend on any certificate evidencing any of the Securities:




THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED
IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.



Certificates evidencing the Common Shares and the Warrant Shares shall not be required to
contain such legend or any other legend (i) while a registration statement (including the
Registration Statement) covering the resale of the Common Shares and the Warrant Shares is
effective under the Securities Act, (ii) following any sale of such Securities pursuant to Rule
144 provided that the Company shall cause its counsel to deliver a legal opinion to its
transfer agent upon receipt by the Company and its counsel of such documents, reasonably
acceptable to the Company, upon which its counsel shall base its opinion to the effect that the
Securities can be sold under Rule 144, (iii) if the Securities are eligible for sale under Rule
144, or (iv) if the holder provides the Company with such documents, reasonably acceptable to
the Company on which its counsel may rely to issue a legal opinion to the effect that the
legend is not required under applicable requirements of the Securities Act. The Company shall
cause its counsel to issue the legal opinion included in the Transfer Agent Instructions to the
Transfer Agent on the Effective Date. Following the Effective Date and provided the
registration statement referred to in clause (i) above is then in effect, or at such earlier
time as a legend is no longer required for certain Securities, the Company will no later than
three Trading Days following the delivery by an Investor to the Company or the Transfer Agent
(if delivery is made to the Transfer Agent a copy shall be contemporaneously delivered to the
Company) of (i) a legended certificate representing such Securities (and, in the case of a
requested transfer, endorsed or with stock powers attached, signatures guaranteed, and
otherwise in form necessary to affect transfer), and (ii) an opinion of counsel to the extent
required by Section 4.1(a), deliver or cause to be delivered to such Investor a
certificate representing such Securities that is free from all restrictive and other legends or
by crediting the account of the Investor’s prime broker with the Depository Trust Company
through its Deposit Withdrawal Agent Commission system. The Company may
not make any notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this Section.


 


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If within three Trading Days after receipt by the Company or its Transfer Agent of a
legended certificate and the other documents as specified in Clauses (i) and (ii) of the
paragraph immediately above, the Company shall fail to cause to be issued and delivered to such
Investor a certificate representing such Securities that is free from all restrictive and other
legends, and if on or after such Trading Day the Investor purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Investor of shares of Common Stock that the Investor anticipated receiving from the Company
without any restrictive legend (the “Covering Shares”), then the Company shall, within three
Trading Days after the Investor’s request and in the Investor’s discretion, either (i) pay cash
to the Investor in an amount equal to the Investor’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at which
point the Company’s obligation to deliver such shares shall terminate, or (ii) promptly honor
its obligation to deliver to the Investor such shares and pay cash to the Investor in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of the required delivery.



(c) The Company will not object to and shall permit (except as prohibited by law) an Investor
to pledge or grant a security interest in some or all of the Securities in connection with a bona
fide margin agreement with a registered broker-dealer or grant a security interest in some or all
of the Securities to a financial institution that is an “accredited investor” as defined in Rule
501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement, and
if required under the terms of such arrangement, the Company will not object to and shall permit
(except as prohibited by law) such Investor to transfer pledged or secured Securities to the
pledgees or secured parties. Except as required by law, such a pledge or transfer would not be
subject to approval of the Company, no legal opinion of the pledgee, secured party or pledgor shall
be required in connection therewith (but such legal opinion shall be required in connection with a
subsequent transfer or foreclosure following default by the Purchaser transferee of the pledge),
and no notice shall be required of such pledge. Each Investor acknowledges that the Company shall
not be responsible for any pledges relating to, or the grant of any security interest in, any of
the Securities or for any agreement, understanding or arrangement between any Investor and its
pledgee or secured party. At the appropriate Investor’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably
request in connection with a pledge or transfer of the Securities, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders
thereunder. Provided that the Company is in compliance with the terms of this Section
4.1(c), the Company’s indemnification obligations pursuant to Section 6.4 shall not
extend to any Proceeding or Losses arising out of or related to this Section 4.1(c).



4.2 Furnishing of Information. Until the date that any Investor owning Common Shares
or Warrant Shares may sell all of them under Rule 144 of the Securities Act (or any successor
provision), the Company covenants to use its commercially reasonable efforts to timely file (or
obtain extensions in respect thereof and file within the applicable grace period) all reports
required to be
filed by the Company after the date hereof pursuant to the Exchange Act. The Company further
covenants that it will take such further action as any holder of Securities may reasonably request
to satisfy the provisions of this Section 4.2.


 


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4.3 Integration. The Company shall not, and shall use its commercially reasonable
efforts to ensure that no Affiliate thereof shall, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the Investors or that would
be integrated with the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market.



4.4 Reservation of Securities. The Company shall maintain a reserve from its duly
authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations to issue such Shares under the Transaction Documents.
In the event that at any time the then authorized shares of Common Stock are insufficient for the
Company to satisfy its obligations to issue such Shares under the Transaction Documents, the
Company shall promptly take such actions as may be required to increase the number of authorized
shares.



4.5 Securities Laws Disclosure; Publicity. The Company shall, at or before 9:00 a.m.,
New York time, on the first Trading Day following execution of this Agreement, issue a press
release disclosing all material terms of the transactions contemplated hereby. On the Closing
Date, the Company shall file a Current Report on Form 8-K with the SEC (the “8-K Filing”)
describing the terms of the transactions contemplated by the Transaction Documents and including as
exhibits to such Current Report on Form 8-K the Transaction Documents (including the schedules and
the names, and addresses of the Investors and the amount(s) of Securities respectively purchased)
and the form of Warrants, in the form required by the Exchange Act. Thereafter, the Company shall
timely file any filings and notices required by the SEC or applicable law with respect to the
transactions contemplated hereby and provide copies thereof to the Investors promptly after filing.
Except as herein provided, neither the Company nor any Subsidiary shall publicly disclose the name
of any Investor, or include the name of any Investor in any press release without the prior written
consent of such Investor (which consent shall not be unreasonably withheld or delayed), unless
otherwise required by law, regulatory authority or Trading Market. From and after the issuance of
the Press Release, the Company shall have disclosed all material, non-public information (if any)
delivered to any of the Investors by the Company or any of its Subsidiaries, or any of their
respective officers, directors, employees or agents in connection with the transactions
contemplated by the Transaction Documents. The Company shall not, and the Company shall cause each
of its Subsidiaries and each of its and their respective officers, directors, employees and agents
not to, provide any Investor with any material, non-public information regarding the Company or any
of its Subsidiaries from and after the issuance of the Press Release without the express prior
written consent of such Investor.



4.6 Use of Proceeds. The Company intends to use the net proceeds from the sale of the
Securities for working capital and general corporate purposes. The Company also may use a portion
of the net proceeds, currently intended for general corporate purposes, to acquire or invest in
technologies, products or services that complement its business, although the Company has no
present plans or commitments and is not currently engaged in any material negotiations with respect
to these types of transactions. Pending these uses, the Company intends to invest the net proceeds
from this offering in short-term, interest-bearing, investment-grade securities, or as
otherwise pursuant to the Company’s customary investment policies.


 


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4.7 Subsequent Equity Sales



(a) From the date hereof until the later of (i) 90 days after the Closing Date or (ii) 30 days
after the Registration Statement (or in the event the Company is required to file more than one
registration statements pursuant to Section 6.1(a), the initial Registration Statement that is
filed) is declared effective, neither the Company nor any Subsidiary shall issue, enter into any
agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or
Common Stock Equivalents.



(b) From the date hereof until such time as no Investor holds any of the Warrants, the Company
shall be prohibited from effecting or entering into an agreement to effect any issuance by the
Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash
consideration (or a combination of units hereof) involving a Variable Rate Transaction.
“Variable Rate Transaction” means a transaction in which the Company (i) issues or sells
any debt or equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a conversion price,
exercise price or exchange rate or other price that is based upon and/or varies with the trading
prices of or quotations for the shares of Common Stock at any time after the initial issuance of
such debt or equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such debt or equity
security or upon the occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock or (ii) enters into any agreement,
including, but not limited to, an equity line of credit, whereby the Company may sell securities at
a future determined price. Any Investor shall be entitled to obtain injunctive relief against the
Company to preclude any such issuance, which remedy shall be in addition to any right to collect
damages.



(c) Notwithstanding the foregoing, this Section 4.5 shall not apply in respect of an Exempt
Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.



ARTICLE V

CONDITIONS




5.1 Conditions Precedent to the Obligations of the Investors. The obligation of each
Investor to acquire Securities at the Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:




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




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


 


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(c) No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock
shall not have been suspended by the SEC or any Trading Market (except for any suspensions of
trading of not more than one Trading Day solely to permit dissemination of material information
regarding the Company) at any time since the date of execution of this Agreement, and the Common
Stock shall have been at all times since such date listed for trading on a Trading Market.




(d) Absence of Litigation. No action, suit or proceeding by or before any court or
any governmental body or authority, against the Company or any Subsidiary or pertaining to the
transactions contemplated by this Agreement or their consummation, shall have been instituted on
or before the Closing Date, which action, suit or proceeding would, if determined adversely,
have a Material Adverse Effect.



5.2 Conditions Precedent to the Obligations of the Company. The obligation of the
Company to sell the Securities at the Closing is subject to the satisfaction or waiver by the
Company, at or before the Closing, of each of the following conditions:




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




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



ARTICLE VI

REGISTRATION RIGHTS





6.1 Registration Statement.




(a) As promptly as possible, and in any event on or prior to the Filing Date, the Company
shall prepare and file with the SEC a Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415;
provided, however, that if at any time the SEC takes the position that the offering of some or
all of the Registrable Shares in a Registration Statement is not eligible to be made on a
delayed or continuous basis under the provisions of Rule 415 as a result of a characterization
by the SEC of the transaction described by the Registration Statement as a primary offering by
the Company, the Company shall use its Best Efforts to persuade the SEC that the offering
contemplated by the Registration Statement is a valid secondary offering and not an offering “by
or on behalf of the issuer” as defined in Rule 415. In the event that, despite the Company’s
Best Efforts and compliance with the terms of this Section 6.1(a) the SEC refuses to
alter its position, the Company shall, upon obtaining consent of the Investors, (i) remove from
the Registration


 


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Statement such portion of the Registrable Shares (the “Cut Back Shares”) and/or (ii) agree
to such restrictions and limitations on the registration and resale of the Registrable Shares as
the SEC may require to assure the Company’s compliance with the
requirements of Rule 415. Unless
otherwise directed by the Investors, the Registrable Securities shall first be reduced by
Registrable Securities represented by the Common Stock and second by Registrable Securities
represented by Warrants. Any Registrable Shares not able to be included in the Registration
Statement shall reduce the number of Registrable Shares of each Investor covered by such
Registration Statement on a pro-rata basis based on the number of Registrable Shares purchased
by each Investor and the Company shall have no liability to any Investor pursuant to Section
6.1(d) or otherwise as a result of the Registration Statement covering less than all of the
Registrable Shares under the circumstances described in this proviso. Within nine (9) months,
or such earlier time as permitted by the SEC, of the initial registration filed hereunder being
declared effective, the Company shall file an additional registration statement containing the
Cut Back Shares. With regard to the new Registration Statement, all of the provisions of this
Section 6.1 shall again be applicable to the Cut Back Shares. The Registration
Statement shall be on Form S-3 (except if the Company is not then eligible to register for
resale the Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance with the Securities Act and the Exchange Act) and shall
contain (except if otherwise directed by the Investors or requested by the SEC) the “Plan of
Distribution” in substantially the form attached hereto as Exhibit D.




(b) The Company shall use its commercially reasonable efforts to cause the Registration
Statement to be declared effective by the SEC as promptly as possible after the filing thereof,
but in any event prior to the Required Effectiveness Date, and shall use its commercially
reasonable efforts to keep the Registration Statement continuously effective under the
Securities Act until the earlier of the date that all Common Shares and Warrant Shares covered
by such Registration Statement have been sold or can be sold publicly under Rule 144 (the
“Effectiveness Period”); provided that, upon notification by the SEC that a Registration
Statement will not be reviewed or is no longer subject to further review and comments, the
Company shall request acceleration of such Registration Statement within three (3) Trading Days
after receipt of such notice and request that it become effective on 4:00 p.m. New York City
time on the Effective Date and file a prospectus supplement for any Registration Statement,
whether or not required under Rule 424 (or otherwise), by 9:00 a.m. New York City time the day
after the Effective Date.




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


 


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(d) Subject to Section 6.1(a) above, should an Event (as defined below) occur, then
upon the occurrence of such Event, and on every monthly anniversary thereof until the applicable
Event is cured, the Company shall pay to each Investor an amount in cash, as liquidated damages
and not as a penalty, equal to one percent (1.0%) of (i) the number of Common Shares held by
such Investor as of the date of such Event, multiplied by (ii) the purchase price paid by such
Investor for such Common Shares then held; provided, however, that the total amount of payments
pursuant to this Section 6.1(d) shall not exceed, when aggregated
with all such payments paid to all Investors, ten percent (10%) of the aggregate purchase
price of the Securities purchased pursuant to this Agreement. The payments to which an Investor
shall be entitled pursuant to this Section 6.1(d) are referred to herein as “Event
Payments.” Any Event Payments payable pursuant to the terms hereof shall apply on a pro rated
basis for any portion of a month prior to the cure of an Event. In the event the Company fails
to make Event Payments in a timely manner, such Event Payments shall bear interest at the rate
of one percent (1.5%) per month (prorated for partial months) until paid in full. All pro rated
calculations made pursuant to this paragraph shall be based upon the actual number of days in
such pro rated month. Notwithstanding the foregoing, the maximum payment to an Investor
associated with all Events in the aggregate shall not exceed (i) in any 30-day period, an
aggregate of 1.0% of the purchase price paid by such Investor for its Common Shares then held
(plus interest accrued thereon, if applicable) and (ii) 10.0% of the purchase paid by such
Investor for its Common Shares then held.



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



(i) the Registration Statement is not filed on or prior to the Filing Date;



(ii) the Registration Statement is not declared effective on or prior to the Required
Effectiveness Date;



(iii) except as provided for in Section 6.1(e) (the “Excluded Events”), after the
Effective Date and during the Effectiveness Period, an Investor is not permitted to sell
Registrable Securities under the Registration Statement (or a subsequent Registration Statement
filed in replacement thereof) for any reason (other than the fault of such Investor) for seven (7)
or more Trading Days (whether or not consecutive);



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



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



(vi) during the Effectiveness Period, except as a result of the Excluded Events, the Company
fails to have any Shares listed or quoted on an Eligible Market; or



(vii) The Company shall fail to remain current in its reporting requirements with the SEC
during the twelve month period commencing on the Closing Date.


 


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(e) Notwithstanding anything in this Agreement to the contrary, after 45 consecutive
Trading Days of continuous effectiveness of the initial Registration Statement filed and
declared effective pursuant to this Agreement, the Company may, by written notice to the
Investors, suspend sales under a Registration Statement after the Effective Date thereof and/or
require that the Investors immediately cease the sale of shares of Common Stock pursuant
thereto and/or defer the filing of any subsequent Registration Statement if the Company is
engaged in a material merger, acquisition or sale and the Board of Directors determines in good
faith, by appropriate resolutions, that, as a result of such activity, (A) it would be
materially detrimental to the Company (other than as relating solely to the price of the Common
Stock) to maintain a Registration Statement at such time or (B) it is in the best interests of
the Company to suspend sales under such registration at such time. Upon receipt of such notice,
each Investor shall immediately discontinue any sales of Registrable Securities pursuant to such
registration until such Investor is advised in writing by the Company that the current
Prospectus or amended Prospectus, as applicable, may be used. In no event, however, shall this
right be exercised to suspend sales beyond the period during which (in the good faith
determination of the Company’s Board of Directors) the failure to require such suspension would
be materially detrimental to the Company. The Company’s rights under this Section 6(e)
may be exercised for a period of no more than fifteen (15) Trading Days at a time and not more
than three times in any twelve-month period, without such suspension being considered as part of
an Event Payment determination. Immediately after the end of any suspension period under this
Section 6(e), the Company shall take all necessary actions (including filing any
required supplemental prospectus) to restore the effectiveness of the applicable Registration
Statement and the ability of the Investors to publicly resell their Registrable Securities
pursuant to such effective Registration Statement.




(f) The Company shall not, from the date hereof until the Effective Date of the
Registration Statement, prepare and file with the SEC a registration statement relating to an
offering for its own account or the account of others under the Securities Act of any of its
equity securities, other than any registration statement or post-effective amendment to a
registration statement (or supplement thereto) relating to the Company’s employee benefit plans
registered on Form S-8.



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




(a) Not less than three Trading Days prior to the filing of a Registration Statement or any
related Prospectus or any amendment or supplement thereto, furnish via email to those Investors
who have supplied the Company with email addresses copies of all such documents proposed to be
filed, which documents (other than any document that is incorporated or deemed to be
incorporated by reference therein) will be subject to the review of such Investors. The Company
shall reflect in each such document when so filed with the SEC such comments regarding the
Investors and the plan of distribution as the Investors may reasonably and promptly propose no
later than two Trading Days after the Investors have been so furnished with copies of such
documents as aforesaid.




(b) (i) Subject to Section 6.1(e), prepare and file with the SEC such amendments,
including post-effective amendments, to each Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep the Registration Statement continuously
effective, as to the applicable Registrable Securities for the Effectiveness Period and prepare
and file with the SEC such additional Registration Statements in order to register for resale
under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to
be amended or supplemented by any required Prospectus supplement, and as so supplemented or
amended to be
filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible, and in any
event within twelve (12) Trading Days (except to the extent that the Company reasonably requires
additional time to respond to accounting comments), to any comments received from the SEC with
respect to the Registration Statement or any amendment thereto; and (iv) comply in all material
respects with the provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the Investors
thereof set forth in the Registration Statement as so amended or in such Prospectus as so
supplemented.


 


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




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




(e) If requested by an Investor, provide such Investor without charge, at least one
conformed copy of each Registration Statement and each amendment thereto, including financial
statements and schedules, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the filing of such
documents with the SEC.




(f) Promptly deliver to each Investor, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Investors in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto to the extent permitted by federal and state securities laws and regulations.


 


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




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




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




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




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




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


 


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(m) It shall be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable Securities of any
particular Investor or to make any Event Payments set forth in Section 6.1(c) to such
Investor that such Investor furnish to the Company the information specified in Exhibits B-1,
B-2 and B-3 hereto and such other information regarding itself, the Registrable Securities and
other shares of Common Stock held by it and the intended method of disposition of the
Registrable Securities held by it (if different from the Plan of Distribution set forth on
Exhibit D hereto) as shall be reasonably required to effect the registration of such
Registrable Securities and shall complete and execute such documents in connection with such
registration as the Company may reasonably request.




(n) The Company shall comply with all applicable rules and regulations of the SEC under the
Securities Act and the Exchange Act, including, without limitation, Rule 172 under the
Securities Act, file any final Prospectus, including any supplement or amendment thereof, with
the SEC pursuant to Rule 424 under the Securities Act, promptly inform the Investors in writing
if, at any time during the Effectiveness Period, the Company does not satisfy the conditions
specified in Rule 172 and, as a result thereof, the Investors are required to make available a
Prospectus in connection with any disposition of Registrable Securities and take such other
actions as may be reasonably necessary to facilitate the registration of the Registrable
Securities hereunder.



6.3 Registration Expenses. The Company shall pay all fees and expenses incident to
the performance of or compliance with Article VI of this Agreement by the Company, including
without limitation (a) all registration and filing fees and expenses, including without limitation
those related to filings with the SEC, any Trading Market and in connection with applicable state
securities or Blue Sky laws, (b) printing expenses (including without limitation expenses of
printing certificates for Registrable Securities), (c) messenger, telephone and delivery expenses,
(d) fees and disbursements of counsel for the Company, (e) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions contemplated by
this Agreement, (f) all listing fees to be paid by the Company to the Trading Market, and (g) the
reasonable fees and expenses of one counsel to the Investors in connection with the review of the
Registration Statement, which fees and expenses shall not exceed $5,000.




6.4 Indemnification




(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Investor, the officers,
directors, partners, members, agents and employees of each of them, each Person who controls any
such Investor (within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, partners, members, agents and employees of each such
controlling Person, to the fullest extent permitted by applicable law, from and against any and
all Losses, as incurred, arising out of or relating to (i) any misrepresentation or breach of
any representation or warranty made by the Company in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any breach of any
covenant, agreement or obligation of the Company contained in the Transaction Documents or any
other certificate, instrument or document contemplated hereby or


 


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thereby,
(iii) any cause of action, suit or claim brought or made against such Indemnified Party (as defined in
Section 6.4(c) below) by a third party (including for these purposes a derivative action
brought on behalf of the Company), arising out of or resulting from (x) the execution, delivery,
performance or enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (y) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (z)
the status of Indemnified Party as holder of the Securities (unless, and only to the extent
that, such action, suit or claim is based, including in part, upon a breach of such Investor’s
representations, warranties or covenants under the Transaction Documents or any conduct by such
Investor that constitutes fraud, gross negligence or willful misconduct) or (iv) any untrue or
alleged untrue statement of a material fact contained in the Registration Statement, any
Prospectus or any form of Company prospectus or in any amendment or supplement thereto or in any
Company preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light
of the circumstances under which they were made) not misleading, except to the extent, but only
to the extent, that (A) such untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Investor furnished in writing to the
Company by such Investor for use therein, or to the extent that such information relates to
such Investor or such Investor’s proposed method of distribution of Registrable Securities and
was reviewed and expressly approved by such Investor in writing expressly for use in the
Registration Statement, or (B) with respect to any prospectus, if the untrue statement or
omission of material fact contained in such prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if such corrected prospectus was timely made
available by the Company to the Investor, and the Investor seeking indemnity hereunder was
advised in writing not to use the incorrect prospectus prior to the use giving rise to Losses.




(b) Indemnification by Investors. Each Investor shall, severally and not jointly,
indemnify and hold harmless the Company and its directors, officers, agents and employees to the
fullest extent permitted by applicable law, from and against all Losses (as determined by a
court of competent jurisdiction in a final judgment not subject to appeal or review) arising
solely out of any untrue statement of a material fact contained in the Registration Statement,
any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising
out of or relating to any omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in the light of the circumstances under which they were made) not
misleading, but only to the extent that (i) such untrue statements or omissions are based solely
upon information regarding such Investor furnished to the Company by such Investor in writing
expressly for use therein, or to the extent that such information relates to such Investor or
such Investor’s proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Investor expressly for use in the Registration Statement
(it being understood that the information provided by the Investor to the Company in
Exhibits B-1, B-2 and B-3 and the Plan of Distribution set forth
on Exhibit D, as the same may be modified by such Investor and other information
provided by the Investor to the Company in or pursuant to the Transaction Documents constitutes
information reviewed and expressly approved by such Investor in writing expressly for use in the
Registration Statement), such Prospectus or such form of prospectus or in
any amendment or supplement thereto. In no event shall the liability of any selling
Investor hereunder be greater in amount than the dollar amount of the net proceeds received by
such Investor upon the sale of the Registrable Securities giving rise to such indemnification
obligation.


 


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



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



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


 


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(d) Contribution. If a claim for indemnification under Section 6.4(a) or
(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise),
then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute
to the amount paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that resulted in such
Losses as well as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken or made by, or
relates to information supplied by, such Indemnifying Party or Indemnified Party, and the
parties’ relative intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a result of any
Losses shall be deemed to include, subject to the limitations set forth in Section
6.4(c), any reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been indemnified for
such fees or expenses if the indemnification provided for in this Section was available to such
party in accordance with its terms.



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



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



6.5 Dispositions. Each Investor agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection with sales of
Registrable Securities pursuant to the Registration Statement and shall sell its Registrable
Securities in accordance with the Plan of Distribution set forth in the Prospectus. Each Investor
further agrees that, upon receipt of a notice from the Company of the occurrence of any event of
the kind described in Sections 6.2(c)(v), (vi) or (vii), such Investor will
discontinue disposition of such Registrable Securities under the Registration Statement until such
Investor is advised in writing by the Company that the use of the Prospectus, or amended
Prospectus, as applicable, may be resumed. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph. Each Investor, severally and not jointly with the other
Investors, agrees that the removal of the restrictive legend
from certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company’s reliance that the Investor will comply with the provisions of this
subsection. Both the Company and the Transfer Agent, and their respective directors, officers,
employees and agents, may rely on this subsection.


 


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6.6 No Piggyback on Registrations. Except for Compass Horizon Funding Company LLC,
neither the Company nor any of its security holders (other than the Investors in such capacity
pursuant hereto and the Excluded Investors) may include securities of the Company in the
Registration Statement other than the Registrable Securities.



6.7 Piggy-Back Registrations. If at any time during the Effectiveness Period there is
not an effective Registration Statement covering all of the Registrable Securities and the Company
shall determine to prepare and file with the SEC a registration statement relating to an offering
for its own account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or
their then equivalents relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in connection with stock option
or other employee benefit plans, then the Company shall send to each Investor not then eligible to
sell all of their Registrable Securities under Rule 144 in a three-month period, written notice of
such determination and if, within ten days after receipt of such notice, any such Investor shall so
request in writing, the Company shall include in such registration statement all or any part of
such Registrable Securities such Investor requests to be registered. Notwithstanding the
foregoing, in the event that, in connection with any underwritten public offering, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may
be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or
other factors dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only such limited portion of
the Registrable Securities with respect to which such Investor has requested inclusion hereunder as
the underwriter shall permit; provided, however, that (i) the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding securities, the
holders of which are not contractually entitled to inclusion of such securities in such
Registration Statement or are not contractually entitled to pro rata inclusion with the Registrable
Securities and (ii) after giving effect to the immediately preceding proviso, any such exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to include Registrable
Securities and the holders of other securities having the contractual right to inclusion of their
securities in such Registration Statement by reason of demand registration rights, in proportion to
the number of Registrable Securities or other securities, as applicable, sought to be included by
each such Investor or other holder. If an offering in connection with which an Investor is
entitled to registration under this Section 6.7 is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten
offering using the same underwriter or underwriters and, subject to the provisions of this
Agreement, on the same terms and conditions as other shares of Common Stock included in such
underwritten offering and shall enter into an underwriting agreement in a form and substance
reasonably satisfactory to the Company and the underwriter or underwriters. Upon the effectiveness
the registration statement for which piggy-back registration has been provided in this Section
6.7, any Event Payments payable to an Investor whose Securities are included in such
registration statement shall terminate and no longer be payable.


 


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ARTICLE VII

MISCELLANEOUS




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



7.2 Fees and Expenses. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and
other experts, if any, and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company shall pay all
Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and
issuance of the applicable Securities.



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



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



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


 


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7.6 Construction. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.



7.7 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written consent of the
Investors. Any Investor may assign its rights under this Agreement to any Person to whom such
Investor assigns or transfers any Securities, provided (i) such transferor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the
Company after such assignment, (ii) the Company is furnished with written notice of (x) the name
and address of such transferee or assignee and (y) the Registrable Securities with respect to which
such registration rights are being transferred or assigned, (iii) following such transfer or
assignment, the further disposition of such securities by the transferee or assignee is restricted
under the Securities Act and applicable state securities laws, (iv) such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the provisions hereof that
apply to the “Investors” and (v) such transfer shall have been made in accordance with the
applicable requirements of this Agreement and with all laws applicable thereto.



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



7.9 Governing Law; Venue; Waiver of Jury Trial. THE CORPORATE LAWS OF THE STATE OF
DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION
OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK. THE COMPANY AND INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN FOR THE
ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT
TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO
PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA
REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE
ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL
CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE
COMPANY AND INVESTORS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.


 


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



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



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



7.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction Documents, whenever
any Investor exercises a right, election, demand or option owed to such Investor by the Company
under a Transaction Document and the Company does not timely perform its related obligations within
the periods therein provided, then, prior to the performance by the Company of the Company’s
related obligation, such Investor may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in whole or in part
without prejudice to its future actions and rights.



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


 


-37-









 





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



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



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



7.18 Independent Nature of Investors’ Obligations and Rights. The obligations of each
Investor under any Transaction Document are several and not joint with the obligations of any other
Investor, and no Investor shall be responsible in any way for the performance of the obligations of
any other Investor under any Transaction Documents. The decision of each Investor to purchase
Securities pursuant to this Agreement has been made by such Investor independently of any other
Investor and independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or given by any other
Investor or by any agent or employee of any other Investor, and no Investor or any of its agents or
employees shall have any liability to any other Investor (or any other person) relating to or
arising from any such information, materials, statements or opinions. Nothing contained herein or
in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed
to constitute the Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the Transaction Document.
Each Investor acknowledges that no other Investor has acted as agent for such Investor in
connection with making its investment hereunder and that no other Investor will be acting as agent
of such Investor in connection with monitoring its investment hereunder. Each Investor shall be
entitled to independently protect and enforce its rights, including without limitation the rights
arising out of this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any Proceeding for such
purpose.


 


-38-









 





[SIGNATURE PAGES TO FOLLOW]



 


-39-









 





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



	 	 	 	 	 
	 	 	CEREPLAST, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Frederic Scheer
	 

	 	 	 	 
	 

	 	 	 	Name: Frederic Scheer

Title: Chief Executive Officer
	 
	 	 	 	 
	 	 	Address for Notice:
	 
	 	 	 	 
	 	 	300 N. Continental Blvd.
	 	 	Suite 300
	 	 	El Segundo, CA 90245
	 	 	Tel: 310-676-5000
	 	 	Fax: 310-615-9800
	 	 	Attn: Heather Sheehan, CFO
	 
	 	 	 	 
	 	 	With a copy to:
	 
	 	 	 	 
	 	 	Sichenzia Ross Friedman Ference LLP
	 	 	61 Broadway, 32nd Floor
	 	 	New York, NY 10006
	 	 	Tel: 212-930-9700
	 	 	Fax: 212-930-9725
	 	 	Attn: Gregory Sichenzia, Esq.






COMPANY SIGNATURE PAGE




 


 









 







Investor Signature Page




By its execution and delivery of this signature page, the undersigned Investor hereby joins in
and agrees to be bound by the terms and conditions of the Securities Purchase Agreement dated as of
January 24, 2011 (the “Purchase Agreement”) by and among Cereplast, Inc. and the Investors (as
defined therein), as to the number of shares of Common Stock and Warrants set forth below, and
authorizes this signature page to be attached to the Purchase Agreement or counterparts thereof.



	 	 	 	 	 
	 	Name of Investor:
 	 	 
	 
	 
	 	 	 
	 
	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



	 	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	Telephone No.:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 	 	 	 	 	 
	 

	 	Facsimile No.:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 	 	 	 	 	 
	 

	 	Email Address:	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 	 	 	 	 	 
	 

	 	Number of Shares:	 	 	 	 
	 

	 	 	 	 

	 	 






	 	 	 	 	 	 	 
	 

	 	Number of Warrants:	 	 	 	 
	 

	 	 	 	 

	 	 






	 	 	 	 	 
	 

	 	Aggregate Purchase Price:
	 	$                                        






Delivery Instructions (if different than above):



	 	 	 	 	 
	c/o:
	 	 	 	 
	 

	 	 

	 	 






	 	 	 	 	 
	Address:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	 

	 	 

	 	 






	 	 	 	 	 
	Telephone No.:
	 	 	 	 
	 

	 	 

	 	 






	 	 	 	 	 
	Facsimile No.:
	 	 	 	 
	 

	 	 

	 	 






	 	 	 	 	 
	Other Special Instructions:
	 	 	 	 
	 

	 	 

	 	 





 


 









 






Exhibits:




	 	A 	 	 Form of Warrant

	 
	 	B  	 	Instruction Sheet for Investors

	 
	 	C 	 	 Opinion of Company Corporate Counsel

	 
	 	D 	 	 Plan of Distribution

	 
	 	E 	 	 Company Transfer Agent Instructions






 


-2-









 







Exhibit A




FORM OF WARRANT



 


 









 







Exhibit B




INSTRUCTION SHEET FOR INVESTOR




(to be read in conjunction with the entire Securities Purchase Agreement)





	A.	 	Complete the following items in the Securities Purchase Agreement:







	 	1.	 	Complete and execute the Investor Signature Page. The Agreement must be
executed by an individual authorized to bind the Investor.

	 
	 	2.	 	Exhibit B-1 — Stock Certificate Questionnaire:







Provide the information requested by the Stock Certificate Questionnaire;




	 	3.	 	Exhibit B-2 — Registration Statement Questionnaire:







Provide the information requested by the Registration Statement Questionnaire.




	 	4.	 	Exhibit B-3 — Investor Certificate:







Provide the information requested by the Investor Certificate.




	 	5.	 	Return, via facsimile, the signed Securities Purchase Agreement including the
properly completed Exhibits B-1 through B-3, to:







Facsimile:

Telephone:

Attn:




	 	6.	 	After completing instruction number five (5) above, deliver the original signed
Securities Purchase Agreement including the properly completed Exhibits B-1 through
B-3 to:







Address:




	B.	 	Instructions regarding the wire transfer of funds for the purchase of the Securities will be
telecopied to the Investor by the Company at a later date.




 


-2-









 










Exhibit B-1




Cereplast, Inc.




STOCK CERTIFICATE QUESTIONNAIRE




	 	 	 	 	 
	Please provide us with the following information:
	 	 	 	 
	 
	 	 	 	 
	1. The exact name that the Securities are to be registered in
(this is the name that will appear on the stock and warrant
certificate(s)). You may use a nominee name if appropriate:
	 	 	                                        	 
	 
	 	 	 	 
	2. The relationship between the Investor of the Securities and
the Registered Holder listed in response to item 1 above:
	 	 	                                        	 
	 
	 	 	 	 
	3. The mailing address, telephone and telecopy number and email
address of the Registered Holder listed in response to item 1
above:
	 	 	                                        	 
	 
	 	 	 	 
	 
	 	 	                                        	 
	 
	 	 	 	 
	 
	 	 	                                        	 
	 
	 	 	 	 
	 
	 	 	                                        	 
	 
	 	 	 	 
	 
	 	 	                                        	 
	 
	 	 	 	 
	4. The Tax Identification Number of the Registered Holder listed
in response to item 1 above:
	 	 	                                        	 






 


 









 







Exhibit B-2




Cereplast, Inc.




REGISTRATION STATEMENT QUESTIONNAIRE




In connection with the Registration Statement, please provide us with the following
information regarding the Investor.



1. Please state your organization’s name exactly as it should appear in the Registration
Statement:




 




Except as set forth below, your organization does not hold any equity securities of the
Company on behalf of another person or entity.




State any exceptions here:




 




If the Investor is not a natural person, please identify the natural person or persons who
will have voting and investment control over the Securities owned by the Investor:




 




2. Address of your organization:



	 	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Telephone:	 	 	 	 
	 

	 	 	 	 

	 	 






	 	 	 	 	 	 	 
	 

	 	Fax:	 	 	 	 
	 

	 	 	 	 

	 	 






	 	 	 	 	 	 	 
	 

	 	Contact Person:	 	 	 	 
	 

	 	 	 	 

	 	 





 


 









 





3. Have you or your organization had any position, office or other material relationship within
the past three years with the Company or its affiliates? (Include any relationships involving you
or any
of your affiliates, officers, directors, or principal equity holders (5% or more) that has held any
position or office or has had any other material relationship with the Company (or its predecessors
or affiliates) during the past three years.)




                     Yes                                                              No




If yes, please indicate the nature of any such relationship below:



4. Are you the beneficial owner of any other securities of the Company? (Include any equity
securities that you beneficially own or have a right to acquire within 60 days after the date
hereof, and as to which you have sole voting power, shared voting power, sole investment power or
shared investment power.)




                     Yes                                                              No




If yes, please describe the nature and amount of such ownership as of a recent date.



5. Except as set forth below, you wish that all the shares of the Company’s common stock
beneficially owned by you or that you have the right to acquire from the Company be offered for
your account in the Registration Statement.




State any exceptions here:



6. Have you made or are you aware of any arrangements relating to the distribution of the
shares of the Company pursuant to the Registration Statement?




                     Yes                                                              No



If yes, please describe the nature and amount of such arrangements.


 


-2-









 






7. FINRA Matters



(a) State below whether (i) you or any associate or affiliate of yours are a member of FINRA,
a controlling shareholder of a FINRA member, a person associated with a member, a direct or
indirect affiliate of a member, or an underwriter or related person with respect to the proposed
offering; (ii) you or any associate or affiliate of yours owns any stock or other securities of any
FINRA member not purchased in the open market; or (iii) you or any associate or affiliate of yours
has made any outstanding subordinated loans to any FINRA member. If you are a general or limited
partnership, a no answer asserts that no such relationship exists for you as well as for each of
your general or limited partners.



Yes:                                                             No:                     





If “yes,” please identify the FINRA member and describe your relationship, including, in the
case of a general or limited partner, the name of the partner:




If you answer “no” to Question 7(a), you need not respond to Question 7(b).




(b) State below whether you or any associate or affiliate of yours has been an underwriter,
or a controlling person or member of any investment banking or brokerage firm which has been or
might be an underwriter for securities of the Corporation or any affiliate thereof including,
but not limited to, the common stock now being registered.



Yes:                                                             No:                     





If “yes,” please identify the FINRA member and describe your relationship, including, in the
case of a general or limited partner, the name of the partner.


 


-3-









 





ACKNOWLEDGEMENT




The undersigned hereby agrees to notify the Company promptly of any changes in the foregoing
information which should be made as a result of any developments, including the passage of time.
The undersigned also agrees to provide the Company and the Company’s counsel any and all such
further information regarding the undersigned promptly upon request in connection with the
preparation, filing, amending, and supplementing of the Registration Statement (or any prospectus
contained therein). The undersigned hereby consents to the use of all such information in the
Registration Statement.



The undersigned understands and acknowledges that the Company will rely on the information set
forth herein for purposes of the preparation and filing of the Registration Statement.



The undersigned understands that the undersigned may be subject to serious civil and criminal
liabilities if the Registration Statement, when it becomes effective, either contains an untrue
statement of a material fact or omits to state a material fact required to be stated in the
Registration Statement or necessary to make the statements in the Registration Statement not
misleading. The undersigned represents and warrants that all information it provides to the
Company and its counsel is currently accurate and complete and will be accurate and complete at the
time the Registration Statement becomes effective and at all times subsequent thereto, and agrees
during the Effectiveness Period and any additional period in which the undersigned is making sales
of Shares under and pursuant to the Registration Statement, and agrees during such periods to
notify the Company immediately of any misstatement of a material fact in the Registration
Statement, and of the omission of any material fact necessary to make the statements contained
therein not misleading.




Dated:                     



	 	 	 	 	 
	 

	 	 

Name
	 	 
	 
	 	 	 	 
	 

	 	 

Signature
	 	 
	 
	 	 	 	 
	 

	 	 

Name and Title of Signatory
	 	 





 


-4-









 





Exhibit B-3




Cereplast, Inc.




CERTIFICATE FOR CORPORATE, PARTNERSHIP, LIMITED LIABILITY COMPANY,

TRUST, FOUNDATION AND JOINT INVESTORS




If the Investor is a corporation, partnership, limited liability company, trust, pension plan,
foundation, joint Investor (other than a married couple) or other entity, an authorized officer,
partner, or trustee must complete, date and sign this Certificate.



CERTIFICATE





The undersigned certifies that the representations and responses below are true and accurate:



(a) The Investor has been duly formed and is validly existing and has full power and authority
to invest in the Company. The person signing on behalf of the undersigned has the authority to
execute and deliver the Securities Purchase Agreement on behalf of the Investor and to take other
actions with respect thereto.




(b) Indicate the form of entity of the undersigned:



                     Limited Partnership



                     General Partnership



                     Limited Liability Company



                     Corporation



                     Revocable Trust (identify each grantor and indicate under what circumstances the trust is
revocable by the grantor):        
              
                   
                     
                   
                                        
                                        
                                        
                                                                                            



(Continue on a separate piece of paper, if necessary.)




                     Other type of Trust (indicate type of trust and, for trusts other than pension trusts,
name the grantors and beneficiaries):
        
              
                   
                     
                   
                                        
                                        
                                        
                                                                                            


(Continue on a separate piece of paper, if necessary.)




                     Other form of organization (indicate form of organization (                         
                       ).
                                 
                     
                   
                                        
                                        
                                        
                                                                     
                                           



(c) Indicate
the approximate date the undersigned entity was formed:                                         .


 


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(d) In order for the Company to offer and sell the Securities in conformance with state and
federal securities laws, the following information must be obtained regarding your investor status.
Please initial each category applicable to you as an investor in the Company.




	 	                    	 	1. A bank as defined in Section 3(a)(2) of the Securities Act, or any savings
and loan association or other institution as defined in Section 3(a)(5)(A) of the
Securities Act whether acting in its individual or fiduciary capacity;

	 
	 	                    	 	2. A broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934;

	 
	 	                    	 	3. An insurance company as defined in Section 2(13) of the Securities Act;

	 
	 	                    	 	4. An investment company registered under the Investment Company Act of 1940 or
a business development company as defined in Section 2(a)(48) of that Act;

	 
	 	                    	 	5. A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act of
1958;

	 
	 	                    	 	 6. A plan established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivisions, for the benefit
of its employees, if such plan has total assets in excess of $5,000,000;

	 
	 	                    	 	7. An employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment advisor, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;

	 
	 	                    	 	8. A private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940;

	 
	 	                    	 	9. Any partnership or corporation or any organization described in Section
501(c)(3) of the Internal Revenue Code or similar business trust, not formed for the
specific purpose of acquiring the Shares, with total assets in excess of $5,000,000;

	 
	 	                    	 	10. A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) of the Exchange Act;




 


-6-









 





	 	                    	 	11. An entity in which all of the equity owners qualify under any of the above
subparagraphs. If the undersigned belongs to this investor category only, list the
equity owners of the undersigned, and the investor category which each such equity
owner satisfies:                                                                                  
                   
                     
                   
                                        
                                        
                                        
                                                                                                                                            
(Continue on a separate piece of paper, if necessary.)






Please set forth in the space provided below the (i) states, if any, in the U.S. in which you
maintained your principal office during the past two years and the dates during which you
maintained your office in each state, (ii) state(s), if any, in which you are incorporated or
otherwise organized and (iii) state(s), if any, in which you pay income taxes.




 





 





 




Dated:                                        , 2011



	 	 	 
	 

Print Name of Investor

	 	 
	 
	 	 
	 

Name:

	 	 
	Title:
	 	 
	(Signature and title of authorized officer, partner or trustee)
	 	 





 


-7-









 





Exhibit C




OPINION OF COMPANY COUNSEL




[To be addressed to Investors and Placement Agent]



 


-8-









 







Exhibit D




PLAN OF DISTRIBUTION




The selling stockholders may, from time to time, sell any or all of their shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use
any one or more of the following methods when selling shares:




	•	 	ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;







	•	 	block trades in which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the transaction;







	•	 	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;







	•	 	an exchange distribution in accordance with the rules of the applicable exchange;







	•	 	privately negotiated transactions;







	•	 	short sales;







	•	 	broker-dealers may agree with the selling stockholders to sell a specified number of such
 shares at a stipulated price per share;







	•	 	a combination of any such methods of sale; and







	•	 	any other method permitted pursuant to applicable law.






The selling stockholders may also sell shares under Rule 144 under the Securities Act, if
available, rather than under this prospectus.



Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions
and discounts to exceed what is customary in the types of transactions involved. Any profits on
the resale of shares of common stock by a broker-dealer acting as principal might be deemed to be
underwriting discounts or commissions under the Securities Act. Discounts, concessions,
commissions and similar selling expenses, if any, attributable to the sale of shares will be borne
by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares if liabilities are
imposed on that person under the Securities Act.


 


 









 





The selling stockholders may from time to time pledge or grant a security interest in some or
all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock
from time to time under this prospectus after we have filed a supplement to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 supplementing or
amending the list of selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.



The selling stockholders also may transfer the shares of common stock in other circumstances,
in which case the transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus and may sell the shares of common stock from time
to time under this prospectus after we have filed a supplement to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 supplementing or amending the
list of selling stockholders to include the pledgee, transferee or other successors in interest as
selling stockholders under this prospectus.



The selling stockholders and any broker-dealers or agents that are involved in selling the
shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act
in connection with such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares of common stock purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act.



We are required to pay all fees and expenses incident to the registration of the shares of
common stock. We have agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act.



The selling stockholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding the sale of their
shares of common stock, nor is there an underwriter or coordinating broker acting in connection
with a proposed sale of shares of common stock by any selling stockholder. If we are notified by
any selling stockholder that any material arrangement has been entered into with a broker-dealer
for the sale of shares of common stock, if required, we will file a supplement to this prospectus.
If the selling stockholders use this prospectus for any sale of the shares of common stock, they
will be subject to the prospectus delivery requirements of the Securities Act.



The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may
apply to sales of our common stock and activities of the selling stockholders.



 


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Exhibit E




COMPANY TRANSFER AGENT INSTRUCTIONS




Computershare, Inc.

350 Indiana Street, Suite 750,

Golden CO 80401




Attention: Essential Registry Team




Ladies and Gentlemen:



Reference is made to that certain Securities Purchase Agreement, dated as of January 26, 2011 (the
“Agreement”), by and among Cereplast, Inc., a Nevada corporation (the “Company”), and the investors
named on the Schedule of Investors attached thereto (collectively, the “Holders”), pursuant to
which the Company is issuing to the Holders shares (the “Common Shares”) of Common Stock of the
Company, par value $0.001 per share (the “Common Stock”), and Warrants (the “Warrants”), which are
exercisable into shares of Common Stock.



In connection with the consummation of the transactions contemplated by the Agreement, this
letter shall serve as our irrevocable authorization and direction to you:



(i) to issue an aggregate of 2,596,500 shares of our Common Stock in the names and
denominations set forth on Annex I attached hereto. The certificates should bear the legend set
forth in Section 4.1(b) of the Agreement and “stop transfer” instructions should be placed
against their subsequent transfer. Kindly deliver the certificates to the respective delivery
addresses set forth on Annex I via hand delivery or overnight courier. We confirm that these
shares will be validly issued, fully paid and non-assessable upon issuance; and



(ii) to issue (provided that you are the transfer agent of the Company at such time)
certificates for shares of Common Stock upon transfer or resale of the Common Shares and receipt by
you of certificate(s) for the Common Shares so transferred or sold (duly endorsed or accompanied by
stock powers duly endorsed, in each case with signatures guaranteed and otherwise in form eligible
for transfer); and



(iii) to issue (provided that you are the transfer agent of the Company at such time) shares
of Common Stock upon the exercise of the Warrants (the “Warrant Shares”) to or upon the order of a
Holder from time to time upon delivery to you of a properly completed and duly executed Exercise
Notice, in the form attached hereto as Annex II, which has been acknowledged by the Company
as indicated by the signature of a duly authorized officer of the Company thereon.


 


 









 





You acknowledge and agree that so long as you have previously received (a) written
confirmation from the Company’s legal counsel that either (i) a registration statement covering
resales of the Common Shares and the Warrant Shares has been declared effective by the Securities
and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the
“Securities Act”), or (ii) the Common Shares and the Warrant Shares are eligible for sale in
conformity with Rule 144 under the Securities Act (“Rule 144”) and (b) if applicable, a copy of
such registration statement, then, unless otherwise required by law, within three (3) business days
of your receipt of certificates representing the Common Shares and the Warrant Shares, you shall
issue the certificates representing the Common Shares and the Warrant Shares to the Holders or
their transferees, as the case may be, registered in the names of such Holders or transferees, as
the case may be, and such certificates shall not bear any legend restricting transfer of the Common
Shares and the Warrant Shares thereby and should not be subject to any stop-transfer restriction.
Any certificates tendered for transfer shall be endorsed or with stock powers attached, signatures
guaranteed, and otherwise in form necessary to affect transfer.



A form of written confirmation from the Company’s outside legal counsel that a registration
statement covering resales of the Common Shares and the Warrant Shares has been declared effective
by the SEC under the Securities Act is attached hereto as Annex III.



Please be advised that the Holders are relying upon this letter as an inducement to enter into
the Agreement and, accordingly, each Holder is a third party beneficiary to these instructions.



Please execute this letter in the space indicated to acknowledge your agreement to act in
accordance with these instructions. Should you have any questions concerning this matter, please
contact our counsel, Gregory Sichenzia, Esq., at (212) 930-9700.



	 	 	 	 	 
	 	Very truly yours,



CEREPLAST, INC.

 	 
	 	By:  	/s/ Frederic Scheer
 	 
	 	 	Name:  	Frederic Scheer 	 
	 	 	Title:  	Chief Executive Officer 	 



THE FOREGOING INSTRUCTIONS ARE

ACKNOWLEDGED AND AGREED TO

this 1st day of February, 2011




COMPUTERSHARE, INC.




	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 






Enclosures


 


-2-









 





ANNEX I




SCHEDULE OF INVESTORS




	 	 	 	 	 	 	 	 	 
	 	 	NUMBER OF	 	 	NUMBER OF	 
	NAME	 	SHARES	 	 	WARRANTS	 
	UBS O’Connor F/B/O O’Connor Global Multi-Strategy
Alpha Master Limited
	 	 	210,000	 	 	 	52,500	 
	 
	 	 	 	 	 	 	 	 
	Prescott Group Aggressive Small Cap Master
	 	 	315,790	 	 	 	78,948	 
	 
	 	 	 	 	 	 	 	 
	Kingsbrook Opportunities Master Fund LP
	 	 	315,790	 	 	 	78,948	 
	 
	 	 	 	 	 	 	 	 
	Hudson Bay Master Fund Ltd
	 	 	150,000	 	 	 	37,500	 
	 
	 	 	 	 	 	 	 	 
	Saturn Capital, LLC
	 	 	173,422	 	 	 	43,356	 
	 
	 	 	 	 	 	 	 	 
	Galt Asset Management, LLC
	 	 	210,526	 	 	 	52,632	 
	 
	 	 	 	 	 	 	 	 
	Joseph Fusaro
	 	 	21,052	 	 	 	5,263	 
	 
	 	 	 	 	 	 	 	 
	HFR HE Ardsley Renewable Energy Master Trust
	 	 	43,900	 	 	 	10,975	 
	 
	 	 	 	 	 	 	 	 
	Ardsley Partners Renewable Energy Fund, L.P.
	 	 	130,700	 	 	 	32,675	 
	 
	 	 	 	 	 	 	 	 
	Ardsley Renewable Energy Offshore Fund, Ltd.
	 	 	35,400	 	 	 	8,850	 
	 
	 	 	 	 	 	 	 	 
	AQR Diversified Arbitrage Fund
	 	 	258,156	 	 	 	64,539	 
	 
	 	 	 	 	 	 	 	 
	AQR Opportunistic Premium Offshore Fund, L.P.
	 	 	27,078	 	 	 	6,770	 
	 
	 	 	 	 	 	 	 	 
	CNH Diversified Opportunities Master Account, L.P.
	 	 	4,000	 	 	 	1,000	 
	 
	 	 	 	 	 	 	 	 
	AST Academic Strategies Asset Allocation
	 	 	26,556	 	 	 	6,639	 





 


-3-









 





	 	 	 	 	 	 	 	 	 
	 	 	NUMBER OF	 	 	NUMBER OF	 
	NAME	 	SHARES	 	 	WARRANTS	 
	Juniperhill Master Fund LP
	 	 	21,000	 	 	 	5,250	 
	 
	 	 	 	 	 	 	 	 
	Heller Capital Investments
	 	 	60,000	 	 	 	15,000	 
	 
	 	 	 	 	 	 	 	 
	Octagon Capital Partners
	 	 	90,000	 	 	 	22,500	 
	 
	 	 	 	 	 	 	 	 
	Capital Ventures International
	 	 	150,000	 	 	 	37,500	 
	 
	 	 	 	 	 	 	 	 
	Hartz Capital Investments, LLC
	 	 	125,000	 	 	 	31,250	 
	 
	 	 	 	 	 	 	 	 
	Empery Asset Master, LTD
	 	 	125,000	 	 	 	31,250	 
	 
	 	 	 	 	 	 	 	 
	Pacific Capital Management, LLC
	 	 	103,130	 	 	 	25,783	 





 


-4-









 





 ANNEX II




FORM OF EXERCISE NOTICE




(To be executed by the Holder to exercise the right to purchase shares of Common Stock under the
foregoing Warrant)



To: Cereplast, Inc.



The undersigned is the Holder of Warrant No.                      (the “Warrant”) issued by Cereplast, Inc., a
Nevada corporation (the “Company”). Capitalized terms used herein and not otherwise defined have
the respective meanings set forth in the Warrant.




(1) The Warrant is currently exercisable to purchase a total of                      Warrant Shares.



(2) The undersigned Holder hereby exercises its right to purchase                      Warrant
Shares pursuant to the Warrant.




(3) The Holder intends that payment of the Exercise Price shall be made as (check one):




                     “Cash Exercise” under Section 10




                     “Cashless Exercise” under Section 10



(4) If the holder has elected a Cash Exercise, the holder shall pay the sum of $                    
to the Company in accordance with the terms of the Warrant.



(5) Pursuant to this exercise, the Company shall deliver to the holder                      Warrant
Shares in accordance with the terms of the Warrant.



(6) Following this exercise, the Warrant shall be exercisable to purchase a total of
                     Warrant Shares.



	 	 	 	 	 
	Dated:                                         ,                     	Name of Holder:



(Print)                                        

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	 	
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant) 	 


 


-5-









 





	 	 	 	 	 




ACKNOWLEDGED AND AGREED TO

this
 _____ 
day of                     , 20
 _____ 




CEREPLAST, INC.




	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 





 


-6-









 





ANNEX III




FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT




Computershare, Inc.

350 Indiana Street, Suite 750,

Golden CO 80401




Attention: [                    ] Representative




Re: Cereplast, Inc.



Ladies and Gentlemen:



We are counsel to Cereplast, Inc., a Nevada corporation (the “Company”), and have represented
the Company in connection with that certain Securities Purchase Agreement, dated as of January
[                    ], 2011 (the “Securities Purchase Agreement”), entered into by and among the Company and the
buyers named therein (collectively, the “Purchasers”) pursuant to which the Company issued to the
Purchasers shares of Common Stock of the Company, par value $0.001 per share (the “Common Shares”)
and Warrants (the “Warrants”), which are exercisable into shares of Common Stock (the “Warrant
Shares”). Pursuant to the Securities Purchase Agreement, the Company agreed to register the resale
of the Common Shares and the Warrant Shares (collectively the “Registrable Securities”) under the
Securities Act of 1933, as amended (the “Securities Act”). In connection with the Company’s
obligations under the Securities Purchase Agreement, on [                    ], 2011, the Company filed a
Registration Statement on Form S-3 (File No. 333-[                    ]) (the
“Registration Statement”) with the Securities and Exchange Commission (the “Commission”) relating
to the Registrable Securities which names each of the Purchasers as a selling shareholder
thereunder.



In connection with the foregoing, we advise you that a member of the SEC’s staff has advised
us by telephone that the SEC has entered an order declaring the Registration Statement effective
under the Securities Act at [                    ] [a.m.][p.m.] on [                    ], 20[
 _____ 
], and we have no knowledge, after telephonic inquiry of a member of the staff, that
any stop order suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the Commission and the Registrable Securities are
available for resale under the Securities Act pursuant to the Registration Statement.


 


-7-









 





This letter shall serve as our standing notice to you that the Common Shares and the Warrant
Shares may be freely transferred by the Purchasers pursuant to the Registration Statement so long
as the Holders certify they will comply with the plan of distribution description in connection
with sales or transfers of the Common Shares and the Warrant Shares set forth in the Registration
Statement and with the prospectus delivery requirements of the Securities Act, to the extent such
delivery requirement are applicable. You need not require further letters from us to effect any
future legend-free issuance or reissuance of shares of the Common Shares and the Warrant Shares to
the
Purchasers or the transferees of the Purchasers, as the case may be, as contemplated by the
Company’s Irrevocable Transfer Agent Instructions dated
[                    ],
20[     ].



 


-8-









 







Schedule 3.1(f)




CAPITALIZATION




The Company is authorized to issue (i) 495,000,000 shares of common stock of which 12,992,196 are
presently issued and outstanding, and (ii) 5,000,000 shares of preferred stock of which 0 are
presently issued and outstanding.



As of the date hereof, the Company has 1,208,821 warrants outstanding and options to purchase
140,000 shares of common stock of the Company.



Frederic Scheer beneficially owns 2,797,488 or 21.5% shares of common Stock of the Company jointly
with his wife, Jocelyne Scheer and through the Jocelyne and Frederic Scheer Foundation.


 


 









 





Schedule 3.1(g)




SEC REPORTS




Not applicable


 


-2-









 





Schedule 3.1(h)




MATERIAL CHANGES




Not applicable.


 


-3-









 





Schedule 3.1(p)




REGISTRATION RIGHTS




On December 21, 2010, the Company entered into a Venture Loan and Security Agreement (the “Loan
Agreement”) with Compass Horizon Funding Company, LLC (“Horizon”). In connection therewith, the
Company issued a seven year warrant to purchase 140,000 shares of common stock of the Company to
Horizon and granted Horizon piggy back registration rights.


 


-4-