exv10w1






Exhibit 10.1




STOCK AND WARRANT PURCHASE AGREEMENT




     This STOCK AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made as of October 28,
2008, by and among Echo Therapeutics, Inc., a Delaware corporation (the “Company”), and
each of the purchasers of the Series A-1 Preferred Stock of the Company whose names are set forth
on Exhibit A attached hereto (each a “Purchaser” and collectively, the
“Purchasers”).



     WHEREAS, the Company is issuing Series A-1 Preferred Stock and warrants to purchase a number
of shares of Common Stock of the Company in exchange for cash, as further set forth below.



     The parties hereto agree as follows:



ARTICLE I




PURCHASE AND SALE OF STOCK AND WARRANTS




          Section 1.1 Purchase and Sale of Series A-1 Preferred Stock and Warrants.




          (a) Upon the following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall, severally and not jointly, purchase from the Company
1,400,000 shares of Series A-1 Preferred Stock which shall be convertible into shares of the
Company’s common stock, par value $0.01 per share (the “Common Stock”), with the terms set
forth in that certain Certificate of Designation, Preferences and Rights of Series A-1 Preferred
Stock of the Company (the “Series A-1 Preferred Stock”). The Company and the Purchasers
are executing and delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the “Securities Act”),
including Regulation D (“Regulation D”), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with respect to any or all of
the investments to be made hereunder.




          (b) Upon the following terms and conditions, the Purchasers shall be issued five-year
Warrants, in substantially the form attached hereto as Exhibit B (the “Warrants”),
to purchase thirty-five thousand (35,000) shares of Common Stock for each $100,000 of face value of
Series A-1 Preferred Stock purchased hereunder at an initial exercise price equal to one dollar and
fifty cents ($1.50) per share.




          Section 1.2 Purchase Price and Closing. Subject to the terms and conditions hereof,
the Company agrees to issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Series A-1 Preferred Stock and
Warrants for an aggregate purchase price equal to the aggregate amount set forth in Exhibit
A (the “Purchase Price”). The sale of the Series A-1 Preferred Stock and
Warrants to the Purchasers shall take place through a closing or series of closings under this
Agreement (each



 









 






referred to as the “Closing”), each taking place on or before October 31,
2008 (each such date referred to as the “Closing Date”). Exhibit A to this
Agreement shall be amended from time to time to reflect any additional Closings, without any
further action of the parties hereto. Each Closing of the purchase and sale of the Series A-1
Preferred Stock and Warrants to be acquired by the Purchasers from the Company under this Agreement
shall take place at the offices of Drinker Biddle & Reath LLP, One Logan Square, 18th
and Cherry Streets, Philadelphia, PA 19103, 10:00 a.m. New York time; provided, that all of
the conditions set forth in Article IV hereof and applicable to the Closing shall have been
fulfilled or waived in accordance herewith. Subject to the terms and conditions of this Agreement,
at the Closing, upon payment of the Purchase Price, the Company shall deliver or cause to be
delivered to each Purchaser (x) the number of shares of Series A-1 Preferred Stock set forth
opposite the name of such Purchaser on Exhibit A hereto and (y) Warrants to purchase such
number of shares of Common Stock as is set forth opposite the name of such Purchaser on Exhibit
A attached hereto. At the Closing, each Purchaser shall deliver its Purchase Price.




          Section 1.3 Conversion Shares / Warrant Shares. The Company, as of the date hereof,
has authorized and has reserved, free and clear of preemptive rights and other similar contractual
rights and other liens and encumbrances, a number of its authorized but unissued shares of Common
Stock equal to one hundred ten percent (110%) of the aggregate number of shares of Common Stock
issuable upon conversion of the Series A-1 Preferred Stock and exercise of the Warrants, assuming
no adjustment to the number of shares underlying the Series A-1 Preferred Stock and Warrants. Any
shares of Common Stock issuable upon conversion of the Series A-1 Preferred Stock are herein
referred to as the “Conversion Shares.” Any shares of Common Stock issuable upon exercise
of the Warrants (and such shares when issued) are herein referred to as the “Warrant
Shares.” The Series A-1 Preferred Stock, the Warrants, the Conversion Shares and the Warrant
Shares are sometimes collectively referred to herein as the “Securities.”




ARTICLE II




REPRESENTATIONS AND WARRANTIES




          Section 2.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers, as of the date hereof and the Closing Date (except as
set forth on the Schedule of Exceptions attached hereto with each numbered Schedule corresponding
to the section number herein), as follows:




          (a) Organization, Good Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to own, lease and operate its properties and assets and to conduct
its business as it is now being conducted. The Company does not have any direct or indirect
Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind in any other entity
except as set forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary (as
defined in Section 2.1(g)) is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary except for any jurisdiction(s) (alone or in the
aggregate)




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in which the failure to be so qualified will not have a Material Adverse Effect. For
the purposes of this Agreement, “Material Adverse Effect” means any material adverse effect
on the business, operations, properties, prospects, or financial condition of the Company and its
Subsidiaries and/or any condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to perform any of its obligations under this
Agreement or any of the Transaction Documents in any material respect.




          (b) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Warrants, the Officer’s Certificate to be
delivered by the Company, dated as of the Closing Date, substantially in the form of Exhibit
C attached hereto (the “Officer’s Certificate”) and the Irrevocable Transfer Agent
Instructions (as defined in Section 3.16 hereof) (collectively, the “Transaction
Documents”) and to issue and sell the Securities in accordance with the terms hereof. The
execution, delivery and performance of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly and validly authorized
by all necessary corporate action, and, except as set forth on Schedule 2.1(b), no further
consent or authorization of the Company, its Board of Directors or stockholders is required. When
executed and delivered by the Company, each of the Transaction Documents shall constitute a valid
and binding obligation of the Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the
enforcement of, creditor’s rights and remedies or by other equitable principles of general
application.




          (c) Capitalization. The authorized capital stock and the issued and outstanding
shares of capital stock of the Company as of the Closing Date is set forth on Schedule
2.1(c) hereto. All of the outstanding shares of the Common Stock and any other outstanding
security of the Company have been duly and validly authorized. Except as set forth in this
Agreement, the Commission Documents (as defined in Section 2.1(f)) or as set forth on Schedule
2.1(c) hereto, no shares of Common Stock or any other security of the Company are entitled to
preemptive rights or registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set
forth in this Agreement and as set forth on Schedule 2.1(c) hereto, there are no contracts,
commitments, understandings, or arrangements by which the Company is or may become bound to issue
additional shares of the capital stock of the Company or options, securities or rights convertible
into shares of capital stock of the Company. Except for customary transfer restrictions contained
in agreements entered into by the Company in order to sell restricted securities or as provided on
Schedule 2.1(c) hereto, the Company is not a party to or bound by any agreement or
understanding granting registration or anti-dilution rights to any person with respect to any of
its equity or debt securities. Except as set forth on Schedule 2.1(c), the Company is not
a party to, and it has no knowledge of, any agreement or understanding restricting the voting or
transfer of any shares of the capital stock of the Company.




          (d) Issuance of Securities. The Series A-1 Preferred Stock and the Warrants to be
issued at the Closing have been duly authorized by all necessary corporate action. When
the Series A-1 Preferred Stock, Conversion Shares and Warrant Shares are issued and paid for
in






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accordance with the terms of this Agreement and as set forth in the Certificate of Designation,
Preferences and Rights of the Series A-1 Preferred Stock and Warrants, such shares will be duly
authorized by all necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal of any kind and the
holders shall be entitled to, in the case of the Series A-1 Preferred Stock, all rights set forth
in the Certificate of Designation, Preferences and Rights of the Series A-1 Preferred Stock, and
with respect to the Warrants, all rights accorded to a holder of Common Stock.




          (e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the Subsidiaries, the consummation by the Company and the Subsidiaries
of the transactions contemplated hereby and thereby, and the issuance of the Securities as
contemplated hereby, do not and will not (i) violate or conflict with any provision of the
Company’s Articles of Incorporation (the “Articles”) or Bylaws (the “Bylaws”), each
as amended to date, or any Subsidiary’s comparable charter documents, (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, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries’ respective properties or assets are bound, (iii)
result in a violation of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries are bound or affected, or (iv) create or impose a lien, mortgage, security interest,
charge or encumbrance of any nature on any property or asset of the Company or its Subsidiaries
under any agreement or any commitment to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound or by which any of their respective
properties or assets are bound, except, in all cases, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect (other than violations pursuant to clauses (i) or (iii)).
Neither the Company nor any of its Subsidiaries is required under federal, state, foreign or local
law, rule or regulation to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under the Transaction Documents or issue and sell the Securities in
accordance with the terms hereof and the terms of the Series A-1 Preferred Stock and the Warrants
(other than any filings, consents and approvals which may be required to be made by the Company
under applicable state and federal securities laws, rules or regulations). The business of the
Company and its Subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity.




          (f) Commission Documents, Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the Commission pursuant to the reporting
requirements of the Exchange Act (all of the foregoing including filings incorporated by reference
therein being referred to herein as the “Commission Documents”). At the times of their
respective filings, the Form 10-Q or 10-QSB, as the case may be, for the fiscal
quarters ended June 30, 2008 and March 31, 2008 (collectively, the “Form 10-Q”) and
the Form




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10-KSB for the fiscal year ended December 31, 2007 (the “Form 10-KSB”) complied in
all material respects with the requirements of the Exchange Act and the rules and regulations of
the Commission promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such documents, and the Form 10-Q and Form
10-KSB did not contain any
untrue statement of a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates, the financial statements of the
Company included in the Commission Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of the Commission or
other applicable rules and regulations with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a
consistent basis during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary statements), and fairly
present in all material respects the financial position of the Company and its Subsidiaries as of
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).




          (g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and showing the percentage
of each person’s ownership of the outstanding stock or other interests of such Subsidiary. For the
purposes of this Agreement, “Subsidiary” shall mean any corporation or other entity of
which at least a majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company and/or any of its
other Subsidiaries. All of the outstanding shares of capital stock of each Subsidiary have been
duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth on
Schedule 2.1(g) hereto, there are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any Subsidiary for the
purchase or acquisition of any shares of capital stock of any Subsidiary or any other securities
convertible into, exchangeable for or evidencing the rights to subscribe for any shares of such
capital stock. Neither the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any
Subsidiary or any convertible securities, rights, warrants or options of the type described in the
preceding sentence except as set forth on Schedule 2.1(g) hereto. Neither the Company nor
any Subsidiary is party to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any Subsidiary.




          (h) No Material Adverse Change. Since December 31, 2007, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed on Schedule 2.1(h)
hereto.




          (i) No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i)
hereto, neither the Company nor any of its Subsidiaries has incurred any liabilities, obligations,
claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent
or otherwise) other than those incurred in the ordinary course of the Company’s or its




5









 







Subsidiaries respective businesses or which, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect.




          (j) No Undisclosed Events or Circumstances. Since December 31, 2007, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective businesses, properties, prospects,
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.




          (k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess of $500,000 (other than
trade accounts payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of others, whether or not
the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of any lease payments in
excess of $100,000 due under leases required to be capitalized in accordance with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any Indebtedness.




          (l) Title to Assets. Each of the Company and the Subsidiaries has good and valid
title to all of its real and personal property reflected in the Commission Documents, free and
clear of any mortgages, pledges, charges, liens, security interests or other encumbrances, except
for those indicated on Schedule 2.1(l) hereto or such that, individually or in the
aggregate, do not cause a Material Adverse Effect. Any leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.




          (m) Actions Pending. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or other proceeding pending or, to the knowledge of the
Company, threatened against the Company or any Subsidiary which questions the validity of this
Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby
or thereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in
the Commission Documents or on Schedule 2.1(m) hereto, there is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other proceeding pending or,
to the knowledge of the Company, threatened against or involving the Company, any Subsidiary or any
of their respective properties or assets, which individually or in the aggregate, would reasonably
be expected, if adversely determined, to have a Material Adverse Effect. There are no outstanding
orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or directors of the Company
or Subsidiary in their capacities as such, which individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.




          (n) Compliance with Law. The business of the Company and the Subsidiaries has been
and is presently being conducted in accordance with all applicable federal, state and
local governmental laws, rules, regulations and ordinances, except such that, individually or
in




6









 







the aggregate, the noncompliance therewith could not reasonably be expected to have a Material
Adverse Effect. The Company and each of its Subsidiaries have all franchises, permits, licenses,
consents and other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to possess such franchises,
permits, licenses, consents and other governmental or regulatory authorizations and approvals,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.




          (o) Taxes. The Company and each of the Subsidiaries has accurately prepared and filed
all federal, state and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the Company or any Subsidiary is
subject and which are not currently due and payable. Except as disclosed on Schedule
2.1(o) hereto or in the Commission Documents, to the best of the Company’s knowledge, none of
the federal income tax returns of the Company or any Subsidiary have been audited by the Internal
Revenue Service. The Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever, whether pending or
threatened against the Company or any Subsidiary for any period, nor of any basis for any such
assessment, adjustment or contingency.




          (p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the Company
has not employed any broker or finder or incurred any liability for any brokerage or investment
banking fees, commissions, finders’ structuring fees, financial advisory fees or other similar fees
in connection with the Transaction Documents.




          (q) Disclosure. Except for the transactions contemplated by this Agreement, the
Company confirms that neither it nor any other person acting on its behalf has provided any of the
Purchasers or their agents or counsel with any information that constitutes or might constitute
material, nonpublic information. Neither this Agreement or the Schedules hereto nor any other
documents, certificates or instruments furnished to the Purchasers by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by this Agreement contain any
untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.




          (r) Operation of Business. Except as set forth on Schedule 2.1(r) hereto, the
Company and each of the Subsidiaries owns or possesses the rights to all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or copyrightable
derivative works thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.




          (s) Environmental Compliance. The Company and each of its Subsidiaries have obtained
all material approvals, authorization, certificates, consents, licenses, orders and permits or
other similar authorizations of all governmental authorities, or from any other person,
that are required under any Environmental Laws. “Environmental Laws” shall mean all





7









 







applicable laws relating to the protection of the environment including, without limitation, all
requirements pertaining to reporting, licensing, permitting, controlling, investigating or
remediating emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or land, or relating
to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or
handling of hazardous substances, chemical substances, pollutants, contaminants or toxic
substances, material or wastes, whether solid, liquid or gaseous in nature. The Company has all
necessary governmental approvals required under all Environmental Laws as necessary for the
Company’s business or the business of any of its subsidiaries. To the best of the Company’s
knowledge, the Company and each of its subsidiaries are also in compliance with all other
limitations, restrictions, conditions, standards, requirements, schedules and timetables required
or imposed under all Environmental Laws. Except for such instances as would not individually or in
the aggregate have a Material Adverse Effect, there are no past or present events, conditions,
circumstances, incidents, actions or omissions relating to or in any way affecting the Company or
its Subsidiaries that violate or may violate any Environmental Law after the Closing Date or that
may give rise to any environmental liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding, hearing, study or investigation (i) under any Environmental Law, or (ii)
based on or related to the manufacture, processing, distribution, use, treatment, storage
(including without limitation underground storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any hazardous substance.




          (t) Books and Records; Internal Accounting Controls. The records and documents of the
Company and its Subsidiaries accurately reflect in all material respects the information relating
to the business of the Company and the Subsidiaries, the location and collection of their assets,
and the nature of all transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and its
subsidiary maintain a system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company
and designed such disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Commission’s rules and
forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by the Company’s most
recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in
the Company’s internal control over financial reporting (as such term is defined in the
Exchange




8









 







Act) that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.




          (u) Material Agreements. Except as disclosed in the Commission Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a Material
Adverse Effect, (i) the Company and each of its Subsidiaries have performed all obligations
required to be performed by them to date under any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, filed or required to be filed with the Commission (the
“Material Agreements”), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the Company’s
knowledge, neither the Company nor any of its Subsidiaries is in default under any Material
Agreement now in effect.




          (v) Transactions with Affiliates. Except as set forth on Schedule 2.1(v)
hereto or in the Commission Documents or as contemplated by this Agreement, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its Subsidiaries, or any person owning at least
five percent (5%) of the outstanding capital stock of the Company or any Subsidiary or any member
of the immediate family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee, consultant, director or
stockholder which, in each case, is required to be disclosed in the Commission Documents or in the
Company’s most recently filed definitive proxy statement on Schedule 14A, that is not so disclosed
in the Commission Documents or in such proxy statement.




          (w) Securities Act of 1933. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer, issuance and sale of the
Securities hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy any of the Securities or similar
securities to, or solicit offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring the issuance and sale
of any of the Securities under the registration provisions of the Securities Act and applicable
state securities laws, and 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 under the Securities Act) in connection with the offer or sale of any
of the Securities.




          (x) Employees. Neither the Company nor any Subsidiary has any collective bargaining
arrangements or agreements covering any of its employees, except as set forth on Schedule
2.1(x) hereto. Except as set forth on Schedule 2.1(x) hereto or in the Commission
Documents, neither the Company nor any Subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating to the right of any
officer, employee or consultant to be employed or engaged by the Company or such
Subsidiary required to be disclosed in the Commission Documents that is not so disclosed. No






9









 







officer, consultant or key employee of the Company or any Subsidiary whose termination, either
individually or in the aggregate, would be reasonably likely to have a Material Adverse Effect, has
terminated or, to the knowledge of the Company, has any present intention of terminating his or her
employment or engagement with the Company or any Subsidiary.




          (y) Absence of Certain Developments. Except as set forth in the Commission Documents
or provided on Schedule 2.1(y) hereto, since June 30, 2008, neither the Company nor any
Subsidiary has:




               (i) issued any stock, bonds or other corporate securities or any right, options or warrants
with respect thereto;



               (ii) borrowed any amount in excess of $100,000 or incurred or become subject to any other
liabilities in excess of $100,000 (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable portion of its prior
fiscal year, as adjusted to reflect the current nature and volume of the business of the Company
and its Subsidiaries;



               (iii) discharged or satisfied any lien or encumbrance in excess of $100,000 or paid any
obligation or liability (absolute or contingent) in excess of $100,000, other than current
liabilities paid in the ordinary course of business;



               (iv) declared or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock, in each case in excess of $50,000 individually or $100,000
in the aggregate;



               (v) sold, assigned or transferred any other tangible assets, or canceled any debts or claims,
in each case in excess of $100,000, except in the ordinary course of business;



               (vi) sold, assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in excess of $100,000, or
disclosed any proprietary confidential information to any person except to customers in the
ordinary course of business or to the Purchasers or their representatives;



               (vii) suffered any material losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of prospective
business;



               (viii) made any changes in employee compensation except in the ordinary course of business and
consistent with past practices;



               (ix) made capital expenditures or commitments therefor that aggregate in excess of $100,000;



10









 






               (x) entered into any material transaction, whether or not in the ordinary course of business;



               (xi) made charitable contributions or pledges in excess of $10,000;



               (xii) suffered any material damage, destruction or casualty loss, whether or not covered by
insurance;



               (xiii) experienced any material problems with labor or management in connection with the terms
and conditions of their employment; or



               (xiv) entered into an agreement, written or otherwise, to take any of the foregoing actions.



          (z) Investment Company Act Status. The Company is not, and as a result of and
immediately upon the Closing will not be, an “investment company” or a company “controlled” by an
“investment company,” within the meaning of the Investment Company Act of 1940, as amended.




          (aa) ERISA. No liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan by the Company or any of its Subsidiaries which is or would be
materially adverse to the Company and its Subsidiaries. The execution and delivery of this
Agreement and the issuance and sale of the Securities will not involve any transaction which is
subject to the prohibitions of Section 406 of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”) or in connection with which a tax could be imposed pursuant to Section 4975 of
the Internal Revenue Code of 1986, as amended, provided that, if any of the Purchasers, or any
person or entity that owns a beneficial interest in any of the Purchasers, is an “employee pension
benefit plan” (within the meaning of Section 3(2) of ERISA) with respect to which the Company is a
“party in interest” (within the meaning of Section 3(14) of ERISA), the requirements of Sections
407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this Section 2.1(aa), the term
“Plan” shall mean an “employee pension benefit plan” (as defined in Section 3 of ERISA) which is or
has been established or maintained, or to which contributions are or have been made, by the Company
or any Subsidiary or by any trade or business, whether or not incorporated, which, together with
the Company or any Subsidiary, is under common control, as described in Section 414(b) or (c) of
the Code.




          (bb) Independent Nature of Purchasers. The Company acknowledges that the obligations
of each Purchaser under the Transaction Documents are several and not joint with the obligations of
any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the
obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that
the decision of each Purchaser to purchase Securities pursuant to this Agreement has been made by
such Purchaser independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of its Subsidiaries which may have made or given by any
other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its




11









 







agents
or employees shall have any liability to any Purchaser (or any other person) relating to or
arising from any such information, materials, statements or opinions. The Company acknowledges
that nothing contained herein, or in any Transaction Document, and no action taken by any Purchaser
pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges that for reasons
of administrative convenience only, the Transaction Documents have been prepared by counsel for one
of the Purchasers and such counsel does not represent all of the Purchasers but only such Purchaser
and the other Purchasers have retained their own individual counsel with respect to the
transactions contemplated hereby. The Company acknowledges that it has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of the Company and not
because it was required or requested to do so by the Purchasers. The Company acknowledges that
such procedure with respect to the Transaction Documents in no way creates a presumption that the
Purchasers are in any way acting in concert or as a group with respect to the Transaction Documents
or the transactions contemplated hereby or thereby. The Company acknowledges that each Purchaser
shall be entitled to independently protect and enforce its rights, including without limitation,
the rights arising out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in any proceeding for
such purpose.




          (cc) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that would cause the
offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company from selling the
Securities pursuant to Regulation D and Rule 506 thereof under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will the Company or any of its
affiliates or subsidiaries take any action or steps that would cause the offering of the Securities
to be integrated with other offerings. The Company does not have any registration statement
pending before the Commission or currently under the Commission’s review and except as set forth on
Schedule 2.1(cc) hereto, since January 1, 2007, the Company has not offered or sold any of
its equity securities or debt securities convertible into shares of Common Stock.




          (dd) [Reserved].




          (ee) DTC Status. Except as set forth on Schedule 2.1(ee) hereto, the
Company’s transfer agent is a participant in and the Common Stock is eligible for transfer pursuant
to the Depository Trust Company Automated Securities Transfer Program. The name, address,
telephone number, fax number, contact person and email of the Company transfer agent is set forth
on Schedule 2.1(ee) hereto.




          Section 2.2 Representations and Warranties of the Purchasers. Each of the Purchasers
hereby represents, warrants and covenants to the Company with respect solely to itself and not with
respect to any other Purchaser as follows as of the date hereof and as of the Closing Date:




12









 








          (a) Organization and Standing of the Purchasers. If the Purchaser is an entity, such
Purchaser is a corporation, limited liability company or partnership duly incorporated or
organized, validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization.




          (b) Authorization and Power. Each Purchaser has the requisite power and authority to
enter into and perform the Transaction Documents and to purchase the Securities being sold to it
hereunder. The execution, delivery and performance of the Transaction Documents by each Purchaser
and the consummation by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, members, or partners, as the case may be, is
required. When executed and delivered by the Purchasers, the other Transaction Documents shall
constitute valid and binding obligations of each Purchaser enforceable against such Purchaser in
accordance with their terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws
relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.




          (c) Acquisition for Investment. Each Purchaser is purchasing the Securities solely
for its own account and not with a view to or for sale in connection with distribution. Each
Purchaser does not have a present intention to sell any of the Securities, nor a present
arrangement (whether or not legally binding) or intention to effect any distribution of any of the
Securities to or through any person or entity; provided, however, that by making
the representations herein, such Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any time in accordance
with Federal and state securities laws applicable to such disposition. Each Purchaser acknowledges
that it (i) has such knowledge and experience in financial and business matters such that Purchaser
is capable of evaluating the merits and risks of Purchaser’s investment in the Company, (ii) is
able to bear the financial risks associated with an investment in the Securities and (iii) has been
given full access to such records of the Company and the Subsidiaries and to the officers of the
Company and the Subsidiaries as it has deemed necessary or appropriate to conduct its due diligence
investigation.




          (d) Rule 144. Each Purchaser understands that the Securities must be held
indefinitely unless such Securities are registered under the Securities Act or an exemption from
registration is available. Each Purchaser acknowledges that such person is familiar with Rule 144
of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities
Act (“Rule 144”), and that such Purchaser has been advised that Rule 144 permits resales
only under certain circumstances. Each Purchaser understands that to the extent that Rule 144 is
not available, such Purchaser will be unable to sell any Securities without either registration
under the Securities Act or the existence of another exemption from such registration requirement.




          (e) General. Each Purchaser understands that the Securities are being offered and
sold in reliance on a transactional exemption from the registration requirements of federal and
state securities laws and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of such Purchaser




13









 







set
forth herein in order to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United States federal or
state agency or any government or governmental agency has passed upon or made any recommendation or
endorsement of the Securities. Commencing on the date that the Purchasers were initially contacted
regarding an investment in the Securities, none of the Purchasers has engaged in any short sale of
the Common Stock and will not engage (or instruct any third party to engage on the Purchaser’s
behalf) in any short sale of the Common Stock prior to Closing hereunder. Each Purchaser
covenants and agrees that (i) it will comply with its internal policies and procedures regarding
short sales of securities registered under the Exchange Act, (ii) it will not engage in any short
sale of the Common Stock until after the pubic announcement of the Closing hereunder, and (iii) it
will not be in a “net short” position with respect to the shares of Common Stock for so long as the
Purchaser beneficially owns shares of Series A-1 Preferred Stock. For purposes of this Section
2.2(e), a “net short position” means a sale of Common Stock by a Purchaser that is marked as a
short sale and that is made at a time when there is no equivalent offsetting long position in
Common Stock (or securities convertible or exchangeable into Common Stock) held by such Purchaser.




          (f) No General Solicitation. Each Purchaser acknowledges that the Securities were not
offered to such Purchaser by means of any form of general or public solicitation or general
advertising, or publicly disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any newspaper, magazine, or
similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which such
Purchaser was invited by any of the foregoing means of communications. Each Purchaser, in making
the decision to purchase the Securities, has relied upon independent investigation made by it and
has not relied on any information or representations made by third parties.




          (g) Accredited Investor. Each Purchaser (i) is an “accredited investor” (as defined
in Rule 501 of Regulation D), (ii) has such experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Securities, and (iii) has
completed an accredited investor certification in the form attached as Exhibit D hereto.
Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange
Act and such Purchaser is not a broker-dealer. Each Purchaser acknowledges that an investment in
the Securities is speculative and involves a high degree of risk.




          (h) Independent Investment. No Purchaser has agreed to act with any other Purchaser
for the purpose of acquiring, holding, voting or disposing of the Securities purchased hereunder
for purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting independently
with respect to its investment in the Securities.




ARTICLE III




COVENANTS




     The Company covenants with each Purchaser as follows, which covenants are for the benefit of
each Purchaser and their respective permitted assignees.



14









 





          Section 3.1 Securities Compliance. The Company shall notify the Commission in
accordance with its rules and regulations, of the transactions contemplated by any of the
Transaction Documents and shall take all other necessary action and proceedings as may be required
and permitted by applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Purchasers, or their respective subsequent holders.




          Section 3.2 Registration and Listing. The Company shall cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, to comply in all
respects with its reporting and filing obligations under the Exchange Act and to not take any
action or file any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Exchange Act, except as permitted herein. The Company
will take all action necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading. If required, the
Company will promptly file the “Listing Application” for, or in connection with, the issuance and
delivery of the Conversion Shares and the Warrant Shares. Subject to the terms of the Transaction
Documents, the Company further covenants that it will take such further action as the Purchasers
may reasonably request, all to the extent required from time to time to enable the Purchasers to
sell the Securities without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act. Upon the request of the
Purchasers, the Company shall deliver to the Purchasers a written certification of a duly
authorized officer as to whether it has complied with such requirements.




          Section 3.3 Inspection Rights. Provided same would not be in violation of Regulation
FD, the Company shall permit, during normal business hours and upon reasonable request and
reasonable notice, each Purchaser or any employees, agents or representatives thereof, so long as
such Purchaser shall be obligated hereunder to purchase the Series A-1 Preferred Stock or shall
beneficially own any Conversion Shares or Warrant Shares, for purposes reasonably related to such
Purchaser’s interests as a stockholder, to examine the publicly available, non-confidential records
and books of account of, and visit and inspect the properties, assets, operations and business of
the Company and any Subsidiary, and to discuss the publicly available, non-confidential affairs,
finances and accounts of the Company and any Subsidiary with any of its officers, consultants,
directors, and key employees.




          Section 3.4 Compliance with Laws. The Company shall comply, and cause each Subsidiary
to comply, with all applicable laws, rules, regulations and orders, noncompliance with which would
be reasonably likely to have a Material Adverse Effect.




          Section 3.5 Keeping of Records and Books of Account. The Company shall keep and cause
each Subsidiary to keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial transactions of the
Company and its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made.




          Section 3.6 Reporting Requirements. If the Company ceases to file its periodic
reports with the Commission, or if the Commission ceases making these periodic reports




15









 







available
via the Internet without charge, then the Company shall furnish the following to each Purchaser so
long as such Purchaser shall be obligated hereunder to purchase the Securities or shall
beneficially own Series A-1 Preferred Stock:




          (a) Quarterly Reports filed with the Commission on Form 10-Q as soon as practical after the
document is filed with the Commission, and in any event within five (5) days after the document is
filed with the Commission;




          (b) Annual Reports filed with the Commission on Form 10-K as soon as practical after the
document is filed with the Commission, and in any event within five (5) days after the document is
filed with the Commission; and




          (c) Copies of all notices, information and proxy statements in connection with any meetings,
that are, in each case, provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.




          Section 3.7 Other Agreements. The Company shall not enter into any agreement in which
the terms of such agreement would restrict or impair the right or ability to perform of the Company
or any Subsidiary under any Transaction Document.




          Section 3.8 Use of Proceeds. The proceeds from the sale of the Securities hereunder
shall be used by the Company for working capital and general corporate purposes, and not to redeem
any Common Stock or securities convertible, exercisable or exchangeable into Common Stock or to
settle any outstanding litigation.




          Section 3.9 Reporting Status. So long as a Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with the Commission
pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.




          Section 3.10 Disclosure of Transaction. The Company shall file with the Commission a
Current Report on Form 8-K (the “Form 8-K”) describing the material terms of the
transactions contemplated hereby (and attaching as exhibits thereto this Agreement, the Certificate
of Designation, Preferences and Rights of the Series A-1 Preferred Stock, and the form of Warrant)
as soon as practicable following the Closing Date but in no event more than
four (4) Trading Days following the Closing Date. “Trading Day” means any day during
which the principal exchange on which the Common Stock is traded shall be open for trading.




          Section 3.11 [Reserved]




          Section 3.12 Pledge of Securities. The Company acknowledges that the Securities may
be pledged by a Purchaser in connection with a bona fide margin agreement or other
loan or financing arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Purchaser
effecting a pledge of the Securities shall be required to provide the Company with any




16









 







notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other
Transaction Document; provided that a Purchaser and its pledgee shall be required to comply with
the provisions of Article V hereof in order to effect a sale, transfer or assignment of Securities
to such pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in connection with a pledge of
the Securities to such pledgee by a Purchaser.




          Section 3.13 Amendments. The Company shall not amend or waive any provision of the
Articles or Bylaws of the Company in any way that would adversely affect exercise rights, voting
rights, conversion rights, prepayment rights or redemption rights of the holder of the Series A-1
Preferred Stock or the Warrants.




          Section 3.14 Distributions. Except as set forth on Schedule 3.14, so long as
any Series A-1 Preferred Stock or Warrants remain outstanding, the Company agrees that it shall
not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or make any
distributions to any holder(s) of Common Stock (or security convertible into or exercisable for
Common Stock) or (ii) purchase or otherwise acquire for value, directly or indirectly, any Common
Stock or other equity security of the Company.




          Section 3.15 Reservation of Shares. So long as any of the Series A-1 Preferred Stock
or Warrants remain outstanding, the Company shall take all action necessary to have authorized and
reserved for the purpose of issuance, one hundred percent (100%) of the Conversion Shares and the
Warrant Shares.




          Section 3.16 Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each Purchaser to the
Company upon conversion of the Series A-1 Preferred Stock or exercise of the Warrants in the form
of Exhibit E attached hereto (the “Irrevocable Transfer Agent Instructions”).
Prior to registration of the Conversion Shares and the Warrant Shares under the Securities Act, all
such certificates shall bear the restrictive legend specified in Section 5.1 of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer Agent Instructions
referred to in this Section 3.16 will be given by the Company to its transfer agent and that the
Conversion Shares and Warrant Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement. Nothing in this Section
3.16 shall affect in any way each Purchaser’s obligations and agreements
set forth in Section 5.1 to comply with all applicable prospectus delivery requirements, if
any, upon resale of the Conversion Shares and the Warrant Shares. If a Purchaser provides the
Company with an opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of the Conversion Shares or Warrant Shares may be made without
registration under the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Conversion Shares or Warrant Shares can be sold pursuant to Rule 144 without
any restriction as to the number of securities acquired as of a particular date that can then be
immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or more certificates in
such name and in such denominations as specified by such Purchaser and without any restrictive
legend. The





17









 







Company acknowledges that a breach by it of its obligations under this Section 3.16
will cause irreparable harm to the Purchasers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Section 3.16 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section 3.16, that the
Purchasers shall be entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer, without the
necessity of showing economic loss and without any bond or other security being required.




          Section 3.17 Opinions. The Company will provide, at the Company’s expense, such legal
opinions in the future as are reasonably necessary for the issuance and resale of the Conversion
Shares and the Warrant Shares pursuant to an effective registration statement, Rule 144 under the
Securities Act or another exemption from registration. In the event that Common Stock is sold in a
manner that complies with an exemption from registration, the Company will promptly instruct its
counsel (at its expense) to issue to the transfer agent an opinion permitting removal of the legend
(indefinitely, if permitted pursuant to Rule 144 of the Securities Act, or otherwise to permit sale
of the shares pursuant to Rule 144 of the Securities Act).




ARTICLE IV




CONDITIONS




          Section 4.1 Conditions Precedent to the Obligation of the Company to Close and to Sell the
Securities. The obligation hereunder of the Company to close and issue and sell the Securities
to the Purchasers at the Closing is subject to the satisfaction or waiver, at or before the Closing
of the conditions set forth below. These conditions are for the Company’s sole benefit and may be
waived by the Company at any time in its sole discretion.




          (a) Accuracy of the Purchasers’ Representations and Warranties. The representations
and warranties of each Purchaser shall be true and correct in all material respects as of the date
when made and as of the Closing Date as though made at that time, except for representations and
warranties that are expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.




          (b) Performance by the Purchasers. Each Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchasers at or prior to the Closing
Date.




          (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.




          (d) Delivery of Purchase Price. The Purchase Price for the Securities shall have been
delivered to the Company on the Closing Date.





18









 








          (e) Delivery of Transaction Documents. The Transaction Documents shall have been duly
executed and delivered by the Purchasers to the Company.




          Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities. The obligation hereunder of the Purchasers to purchase the Securities
and consummate the transactions contemplated by this Agreement is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below. These conditions are
for the Purchasers’ sole benefit and may be waived by the Purchasers at any time in their sole
discretion.




          (a) Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the other Transaction Documents
shall be true and correct in all material respects as of the Closing Date, except for
representations and warranties that speak as of a particular date, which shall be true and correct
in all material respects as of such date.




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




          (c) No Suspension, Etc. Trading in the Common Stock shall not have been suspended by
the Commission or the OTC Bulletin Board, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets (“Bloomberg”) shall not
have been suspended or limited, or minimum prices shall not have been established on securities
whose trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking
moratorium have been declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any material adverse change
in any financial market which, in each case, in the judgment of such Purchaser, makes it
impracticable or inadvisable to purchase the Securities.




          (d) No Injunction. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the consummation of any of
the transactions contemplated by this Agreement.




          (e) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator
or any governmental authority shall have been commenced, and no investigation by any governmental
authority shall have been threatened, against the Company or any Subsidiary, or any of the
officers, directors or affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in connection with such
transactions.




19









 








          (f) Stock and Warrants. At or prior to the Closing, the Company shall have delivered
or caused to be delivered to the Purchasers the shares of Series A-1 Preferred Stock and the
Warrants (in such denominations as each Purchaser may request).




          (g) Secretary’s Certificate. The Company shall have delivered to the Purchasers a
secretary’s certificate, dated as of the Closing Date, as to (i) the resolutions adopted by the
Board of Directors approving the transactions contemplated hereby, (ii) the Articles, (iii) the
Bylaws, each as in effect at the Closing, and (iv) the authority and incumbency of the officers of
the Company executing the Transaction Documents and any other documents required to be executed or
delivered in connection therewith.




          (h) Officer’s Certificate. On the Closing Date, the Company shall have delivered to
the Purchasers a certificate signed by an executive officer on behalf of the Company, dated as of
the Closing Date, confirming the accuracy of the Company’s representations, warranties and
covenants as of such Closing Date and confirming the compliance by the Company with the conditions
precedent set forth in paragraphs (a)-(e) and (i) of this Section 4.2 as of the Closing Date
(provided that, with respect to the matters in paragraphs (c) through (e) of this Section 4.2, such
confirmation shall be based on the knowledge of the executive officer after due inquiry).




          (i) Material Adverse Effect. No Material Adverse Effect shall have occurred.




          (j)  Transfer Agent Instructions. The Irrevocable Transfer Agent Instructions, in the
form of Exhibit E attached hereto, shall have been delivered to and executed by the
Company’s transfer agent.




          (k) Delivery of Transaction Documents. The Transaction Documents shall have been duly
executed and delivered by the Company to the Purchasers.




ARTICLE V




CERTIFICATE LEGEND




          Section 5.1 Legend. Each certificate representing the Securities shall be stamped or
otherwise imprinted with a legend substantially in the following form (in addition to any legend
required by applicable state securities or “blue sky” laws):





THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES
LAWS OR ECHO THERAPEUTICS, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE



20









 






PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.



     The Company agrees to issue or reissue certificates representing any of the Conversion Shares
and the Warrant Shares, without the legend set forth above if at such time, prior to making any
transfer of any such Conversion Shares or Warrant Shares, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and removal as the Company
may reasonably request, and (x) such Conversion Shares and/or Warrant Shares have been registered
for sale under the Securities Act and the holder is selling such shares and is complying with its
prospectus delivery requirement under the Securities Act, (y) the holder is selling such Conversion
Shares and/or Warrant Shares in compliance with the provisions of Rule 144 or (z) such Shares may
be sold without restriction under Rule 144.



ARTICLE VI




INDEMNIFICATION




          Section 6.1 General Indemnity. The Company agrees to indemnify and hold harmless the
Purchasers (and their respective directors, officers, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein.




          Section 6.2 Indemnification Procedure. Any party entitled to indemnification under
this Article VI (an “indemnified party”) will give written notice to the indemnifying party of any
matter giving rise to a claim for indemnification; provided, that the failure of any party entitled
to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action, proceeding or claim
is brought against an indemnified party in respect of which indemnification is sought hereunder,
the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment
of the indemnifying party a conflict of interest between it and the indemnified party exists with
respect to such action, proceeding or claim (in which case the indemnifying party shall be
responsible for the reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to the indemnified
party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification hereunder, or fails,
within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense, any action,
proceeding or claim (or discontinues its defense at any time after it commences such defense), then
the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action
or claim. In any event, unless and until the indemnifying party elects in writing to assume and
does so assume the defense of any such claim, proceeding or action, the indemnified party’s costs
and expenses arising out of the defense, settlement or compromise of any such action, claim or
proceeding shall be losses subject to indemnification hereunder. The indemnified party





21









 







shall
cooperate fully with the indemnifying party in connection with any negotiation or defense of any
such action or claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the indemnified party which relates to such action or claim.
The indemnifying party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If the indemnifying
party elects to defend any such action or claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at its sole cost and expense. The
indemnifying party shall not be liable for any settlement of any action, claim or proceeding
effected without its prior written consent. Notwithstanding anything in this Article VI to the
contrary, the indemnifying party shall not, without the indemnified party’s prior written consent,
settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes
any future obligation on the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim. The indemnification obligations to defend the indemnified
party required by this Article VI shall be made by periodic payments of the amount thereof during
the course of investigation or defense, as and when bills are received or expense, loss, damage or
liability is incurred, so long as the indemnified party shall refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was not entitled to
indemnification. The indemnity agreements contained herein shall be in addition to (a) any cause
of action or similar rights of the indemnified party against the indemnifying party or others, and
(b) any liabilities the indemnifying party may be subject to pursuant to the law.




ARTICLE VII




MISCELLANEOUS




          Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses of its
advisors, 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.




          Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.




          (a) The Company and the Purchasers acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement or the other Transaction Documents were
not performed in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement or the other
Transaction Documents and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by law or equity.




          (b) The parties agree that venue for any dispute arising under this Agreement will lie
exclusively in the state or federal courts located in New York County, New York, and the parties
irrevocably waive any right to raise forum non conveniens or any other argument that New York is
not the proper venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent to




22









 







process being
served in any such suit, action or proceeding by mailing a copy thereof 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 in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted by law. The Company
and the Purchasers hereby agree that the prevailing party in any suit, action or proceeding arising
out of or relating to the Securities, this Agreement or the other Transaction Documents, shall be
entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties
hereby waive all rights to a trial by jury.




          Section 7.3 Entire Agreement; Amendment. This Agreement and the Transaction Documents
contain the entire understanding and agreement of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the other Transaction Documents, neither
the Company nor any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and agreements with respect to
said subject matter, all of which are merged herein. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the Company and the Purchasers holding at
least a majority of the shares of Series A-1 Preferred Stock then held by the Purchasers. Any
amendment or waiver effected in accordance with this Section 7.3 shall be binding upon each
Purchaser (and their permitted assigns) and the Company.




          Section 7.4 Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be effective (a) upon
hand delivery by telecopy or facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications
shall be:




	 	 	 
	If to the Company:

	 	Echo Therapeutics, Inc.
	 

	 	Attn: Chief Financial Officer
	 

	 	10 Forge Parkway
	 

	 	Franklin, MA 02038






23









 






	 	 	 
	with copies (which copies
	 	 
	shall not constitute notice
	 	 
	to the Company) to:

	 	Drinker Biddle & Reath LLP
	 

	 	One Logan Square
	 

	 	18th and Cherry Streets
	 

	 	Philadelphia, PA 19103-6996
	 

	 	Tel: (215) 988-2700
	 

	 	Fax: (215) 988-2757
	 

	 	Attn: Stephen T. Burdumy, Esq.
	 
	 	 
	If to any Purchaser:

	 	At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser’s counsel as set forth on Exhibit A.






     Any party hereto may from time to time change its address for notices by giving written notice
of such changed address to the other party hereto.



          Section 7.5 Waivers. No waiver by either party 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 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 accruing to it thereafter. No consideration shall be offered or paid to any Purchaser
to amend or consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to the Transaction
Documents. This provision constitutes a separate right granted to each Purchaser by the Company
and shall not in any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.




          Section 7.6 Headings. The article, section and subsection headings in this Agreement
are for convenience only and shall not constitute a part of this Agreement for any other purpose
and shall not be deemed to limit or affect any of the provisions hereof.




          Section 7.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. After the Closing, the assignment by
a party to this Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement. The Purchasers may assign the Securities and its rights under this Agreement
and the other Transaction Documents and any other rights hereto and thereto without the consent of
the Company.




          Section 7.8 No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other person.




          Section 7.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the substantive law



24









 






of another jurisdiction. This Agreement shall not be interpreted or construed with any
presumption against the party causing this Agreement to be drafted.




          Section 7.10 Survival. The representations and warranties of the Company and the
Purchasers shall survive the execution and delivery hereof and the Closing until the third
anniversary of the Closing Date, except the agreements and covenants set forth in Articles I, III,
V, VI and VII of this Agreement shall survive the execution and delivery hereof and Closing
hereunder.




          Section 7.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same instrument and shall
become effective when counterparts have been signed by each party and delivered to the other
parties hereto, it being understood that all parties need not sign the same counterpart.




          Section 7.12 Publicity. The Company agrees that it will not disclose, and will not
include in any public announcement, the names of the Purchasers without the consent of the
Purchasers, which consent shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Purchasers consent to being identified in any
filings the Company makes with the Commission to the extent required by law or the rules and
regulations of the Commission.




          Section 7.13 Severability. The provisions of this Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or more of the
provisions or part of the provisions contained in this Agreement shall, for any reason, be held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of this Agreement and
this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible.




          Section 7.14 Further Assurances. From and after the date of this Agreement, upon the
request of the Purchasers or the Company, the Company and each Purchaser shall execute and deliver
such instruments, documents and other writings as may be reasonably necessary or desirable to
confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the
other Transaction Documents




[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




25









 





     IN WITNESS WHEREOF, the parties hereto have caused this Stock and Warrant Purchase Agreement
to be duly executed by their respective authorized officers as of the date first above written.



	 	 	 	 	 
	 	ECHO THERAPEUTICS, INC.

 	 
	 	By:  	/s/ Patrick T. Mooney
 	 
	 	 	Name:  	Patrick T. Mooney, M.D. 	 
	 	 	Title:  	Chief Executive Officer 	 
	 



[Additional Signature Pages Follow]




 









 








	 	 	 	 	 
	 	 	 
	 	By:  	     /s/ Robert M. Bernstein
 	 
	 	 	    Robert M. Bernstein 	 
	 



[Signature Page to Stock and Warrant Purchase Agreement]




 









 








	 	 	 	 	 
	 	 	 
	 	By:  	     /s/ Joseph Reynolds
 	 
	 	 	    Joseph Reynolds 	 
	 



[Signature Page to Stock and Warrant Purchase Agreement]




 









 








	 	 	 	 	 
	 	Guslani Family Living Trust

 	 
	 	By:  	/s/ Chris Guslani
 	 
	 	 	Name:  	Chris Guslani 	 
	 	 	Title:  	Trustee 	 
	 



[Signature Page to Stock and Warrant Purchase Agreement]




 









 








	 	 	 	 	 
	 	 	 
	 	By:  	     /s/ Andrew Mitchell
 	 
	 	 	    Andrew Mitchell 	 
	 



[Signature Page to Stock and Warrant Purchase Agreement]




 









 








	 	 	 	 	 
	 	MKM Opportunity Master Fund, Ltd.

 	 
	 	By:  	/s/ David Skriloff
 	 
	 	 	Name:  	David Skriloff 	 
	 	 	Title:  	Portfolio Manager 	 
	 



[Signature Page to Stock and Warrant Purchase Agreement]




 









 








	 	 	 	 	 
	 	Platinum Long Term Growth VII, LLC

 	 
	 	By:  	/s/ Michael Goldberg
 	 
	 	 	Name:  	Michael Goldberg 	 
	 	 	Title:  	Portfolio Manager 	 
	 



[Signature Page to Stock and Warrant Purchase Agreement]