EXHIBIT 4.1






Exhibit 4.1




SECURITIES PURCHASE AGREEMENT




     This Securities Purchase Agreement (this “Agreement”) is dated as of January 14, 2009, between
Health Benefits Direct Corporation, a Delaware corporation (the “Company”), and the investors
identified on the signature pages hereto (each, an “Investor” and collectively, the “Investors”).



     WHEREAS, the Company is offering, pursuant to one or more similar Agreements, (the “Other
Securities Purchase Agreements”), on a “best efforts” basis in a private placement to “accredited
investors” (as such term in defined in Regulation D promulgated under the Securities Act of 1933,
as amended (the “Securities Act”)) of units (the “Units”) of up to 1,250,000 shares of the
Company’s Series A Preferred Stock, $0.001 par value per share (the “Preferred Stock”) and
five-year warrants (all such warrants being the “Warrants”) to purchase shares of Preferred Stock,
in the form attached hereto at Exhibit A;



     WHEREAS, each Unit will be offered at a purchase price of $4.00 per Unit (the “Per Unit
Purchase Price”) and will consist of (i) one share of Preferred Stock and (ii) a Warrant to
purchase one share of Preferred Stock (which on and after the Common Stock Authorization Date set
forth in the Warrants, will entitle the holder only to purchase, subject to adjustment, 20 shares
of the Company’s Common Stock, $0.001 par value per share (the “Common Stock”)). The Preferred
Stock shall have the other rights set forth in the Certificate of Designation attached hereto as
Exhibit B (the “Certificate of Designation”);



     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Investor, and each Investor, severally and not jointly, desires to purchase
from the Company certain securities of the Company, as more fully described in this Agreement.



     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, for
all purposes of this Agreement, the following terms shall have the meanings indicated in this
Section 1.1:



          “Action” means any action, suit, inquiry, notice of violation, proceeding (including any
partial proceeding such as a deposition) or investigation pending or threatened in writing against
or affecting the Company, any Subsidiary or any of their respective properties, or the Common
Stock, or any officers, directors or key employees of the Company or any of its Subsidiaries,
before or by any court, arbitrator, governmental or administrative agency, regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or trading facility.



 









 





     “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.



     “Bloomberg” means Bloomberg Financial Markets.



     “Business Day” means any day except Saturday, Sunday and any day which is a federal legal
holiday or a 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 Units pursuant to Section 2.1.



     “Closing Date” means the Business Day immediately following the date on which all of the
conditions set forth in Sections 5.1 and 5.2 hereof are satisfied or waived, or such other date as
the parties may agree, provided that such conditions continue to be so satisfied or waived on such
Business Day.



     “Co-Investment Fund” means The Co-Investment Fund II, L.P.



     “Commission” means the Securities and Exchange Commission.



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



     “Common Stock Exchange Warrant” means a warrant to purchase a share of Common Stock
substantially in the form of Exhibit C



     “Company Counsel” means Morgan, Lewis & Bockius LLP.



     “Company Deliverables” has the meaning set forth in Section 2.2(a).



     “Company Shares” means the shares of Preferred Stock issued to the Investors by the Company
pursuant to this Agreement, including any securities into which such shares of Preferred Stock may
hereafter be reclassified or changed.



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



     “Company’s IP” has the meaning set forth in Section 3.1(p).



     “Confidential Information” means trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, processes, procedures and



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techniques,
research and development information, computer program code, performance
specifications, support documentation, drawings, specifications, designs, business and
marketing plans, and customer and supplier lists and related information).



     “Conversion Shares” means the shares of Common Stock issuable upon conversion of the Preferred
Stock.



     “Delaware Courts” means the state and federal courts sitting in the City of Wilmington, State
of Delaware.



     “Designated Investor” has the meaning set forth in Section 4.15.



     “Disclosure Letter” means any of the disclosures hereto containing information relating to the
Company pursuant to Article III and other provisions hereof that has been provided to the Investors
on the date hereof.



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



     “Effective Date” means the date that the Registration Statement filed pursuant to Section
2(a), 2(b) or 2(c) of the Registration Rights Agreement (as applicable) is first declared effective
by the Commission.



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



     “Exchange Warrant” means a unit consisting of (i) one Preferred Stock Exchange Warrant and
(ii) one Common Stock Exchange Warrant.



     “Exchange Warrant Shares” means the shares of Preferred Stock or Common Stock issuable upon
exercise of the Exchange Warrants.



     “Follow-On Shareholder Financing” has the meaning set forth in Section 4.20.



     “Fundamental Transaction” means (1) any merger or consolidation of the Company with or into
another Person (whether or not the Company is the surviving corporation), (2) any sale, assignment,
transfer, or other disposition of all or substantially all of the Company’s assets in one or a
series of related transactions, (3) the completion of any purchase, tender offer or exchange offer
(whether by the Company or another Person) pursuant to which holders of Common Stock are permitted
to tender or exchange their shares for other securities, cash or property that is accepted by more
than 50% of the outstanding shares of Common Stock, or (3) any stock purchase agreement or other
business combination (including, without limitation, a reorganization, recapitalization, spin-off
or scheme or arrangement ) with another Person whereby such other Person acquires more than 50% of
the outstanding shares of Common Stock (4) any reorganization, recapitalization, or
reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or property.



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     “GAAP” means U.S. generally accepted accounting principles.



     “Infringe” has the meaning set forth in Section 3.1(p).



     “Intellectual Property” shall mean any or all of the following and all rights in, arising out
of, or associated therewith: (a) all United States, international and foreign registered patents
and applications therefor and all underlying patent rights, reissues, divisions, renewals,
extensions, provisionals, continuations and continuations-in-part thereof; (b) all inventions
(whether patentable or not), ideas, processes, invention disclosures, improvements, trade secrets,
proprietary information, know-how, technology, improvements, discoveries, technical data, customer
lists, proprietary processes and formulae, all source and object code, algorithms, architectures,
structures, display screens, layouts, development tools and all documentation and media
constituting, describing or relating to the above, including, without limitation, manuals,
memoranda and records; (c) all copyrights, copyrights registrations and applications therefor,
copyrightable material including derivative works, revisions, transformations and adaptations,
material that is subject to non-copyright disclosure protections, and all other works of authorship
and designs (whether or not copyrightable), and all other rights corresponding thereto throughout
the world; (d) all trade names, logos, trade dress, common law trademarks and service marks,
trademark and service mark registrations and applications therefor throughout the world; (e) domain
names; (f) web sites and related content; (g) intellectual property rights acquired by license or
agreement; (h) damages or benefits derived from any action arising out of or related to the
foregoing, including laws controlling computer and Internet rights; (i) all manuals, documentation
and materials relating to the above; and (j) any equivalent rights to any of the foregoing anywhere
in the world.



     “Investment Amount” means, with respect to each Investor, the Investment Amount indicated on
such Investor’s signature page to this Agreement.



     “Investor Deliverables” has the meaning set forth in Section 2.2(b).



     “Investor Party” has the meaning set forth in Section 4.7.



     “License Agreements” has the meaning set forth in Section 3.1(p).



     “Lien” means any lien, charge, encumbrance, security interest, preemptive or similar rights,
right of first refusal or other restrictions of any kind, other than restrictions on the transfer
of securities arising under federal or state securities laws and regulations.



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



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



     “Preferred Stock Exchange Warrant” means a warrant to purchase shares of Preferred Stock
substantially in the form of Exhibit D.



     “Preferred Stock Warrant Shares” means the Preferred Stock issuable upon exercise of the
Warrants.



     “Principal Market” means the National Association of Securities Dealers, Inc. OTC Bulletin
Board.



     “Prior Warrants” has the meaning set forth in Section 5.1(h).



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



     “Proxy Statement” has the meaning set forth in Section 4.18.



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



     “Registration Statement” means a registration statement meeting the requirements set forth in
the Registration Rights Agreement and covering the resale by the Investors of the Registrable
Securities (as defined therein) to the extent provided for therein.



     “Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date
of this Agreement, among the Company and the Investors, in the form of Exhibit E hereto.



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



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



     “Securities” means, collectively, the Company Shares, the Conversion Shares, the Warrants, the
Exchange Warrants, the Warrant Shares, the Exchange Warrant Shares and the Units.



     “Short Sales” include, without limitation, all “short sales” as defined in Rule 200 of
Regulation SHO and include all types of direct and indirect stock pledges, forward sale contracts,
options, puts, calls, short sales, swaps and similar arrangements (including on a total
return
basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers
having the effect of hedging the securities or investment made under this Agreement.



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     “Stockholder Approval” has the meaning set forth in Section 4.18.



     “Stockholder Approval Deadline” has the meaning set forth in Section 4.18.



     “Subsidiary” means any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation
S-X promulgated by the Commission under the Exchange Act, including without limitation those
entities listed in Exhibit 21.1 to the Form 10-KSB.



     “Trading Day” means any day on which the Common Stock is traded on the Principal Market, or,
if the Principal Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is then traded;
provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to
trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York City time).



     “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 the
Principal Market on which the Common Stock is listed or quoted for trading on the date in question.



     “Transaction Documents” means this Agreement, the Registration Rights Agreement, the Warrants,
the Exchange Warrants, and any other documents or agreements executed in connection with the
transactions contemplated hereunder.



     “VWAP” means, for any security as of any date, the dollar volume-weighted average price for
such security on the Principal Market (or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded) during the period beginning at 9:30:01 am., New York City
Time, and ending at 4:00:00 p.m., New York City Time, as reported by Bloomberg through its “Volume
at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York City Time, and ending at 4:00 p.m., New York
City Time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for
such security by Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If VWAP cannot be
calculated for such security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the Company and the Investor.
If the Company and the Investor are unable to agree upon the fair market value of such security,
then they shall agree in



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good faith on a reputable investment bank to make such determination of
fair market value, whose determination shall be final and binding and whose fees and expenses shall
be borne by the Company. All such determinations shall be appropriately adjusted for any share
dividend, share split or other similar transaction during such period.



          “Warrant Shares” mean the shares of Preferred Stock or Common Stock issuable upon the exercise
of the Warrants being sold under this Agreement.



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 the Investors, and the Investors shall, severally and
not jointly, purchase from the Company the portion of 1,250,000 Units representing such Investor’s
Investment Amount. The Closing shall take place at the offices of Morgan, Lewis & Bockius LLP,
1701 Market Street, Philadelphia, PA 19103 on the Closing Date, or at such other location or time
as the parties may agree.



     2.2  Closing Deliveries. (a)  At each Closing, the Company shall deliver or cause to
be delivered to each Investor the following (the “Company Deliverables”):



               (i) a stock certificate representing a number of Company Shares equal to such Investor’s
Investment Amount divided by the Per Unit Purchase Price, registered in the name of such Investor;



               (ii) a certificate evidencing the formation and good standing of the Company issued by the
Secretary of State of Delaware as of a date within fifteen (15) days of the Closing Date;



               (iii) a certified copy of the Certificate of Incorporation as certified by the Secretary of
State of the State of Delaware within fifteen (15) days of the Closing Date;



               (iv) evidence of the filing of the Certificate of Designation with the Secretary of State of
the State of Delaware;



               (v) a certificate, executed by the Assistant Secretary of the Company and dated as of the
Closing Date, as to (i) the resolutions consistent with Section 3(c) as adopted by the Company’s
board of directors in a form reasonably acceptable to such Investor, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Closing;



               (vi) a Warrant, registered in the name of such Investor pursuant to which such Investor shall
have the right to acquire the number of shares of Preferred Stock equal to the number of Company
Shares issuable to such Investor pursuant to Section 2.2(a)(i);



               (vii) the legal opinion of Company Counsel, in substantially the form previously provided to
the Investors, addressed to the Investors;



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               (viii) the Registration Rights Agreement and any other Transaction Documents which the Company
is required to execute hereunder, duly executed by the Company; and



               (ix) such other documents relating to the transactions contemplated by this Agreement as such
Investor or its counsel may reasonably request.



          (b) At each Closing, each Investor shall deliver or cause to be delivered to the Company the
following (the “Investor Deliverables”):



               (i) its Investment Amount, in United States dollars and in immediately available funds, by
wire transfer to an account designated in writing by the Company for such purpose attached hereto
at Exhibit F ; and



               (ii) the Registration Rights Agreement, duly executed by such Investor.



ARTICLE III.

REPRESENTATIONS AND

WARRANTIES




     3.1 Representations and Warranties of the Company. The Company hereby makes the
following representations and warranties to each Investor:



          (a) Subsidiaries. The Company has no direct or indirect Subsidiaries other than as
specified in the SEC Reports. The Company owns, directly or indirectly, all of the capital stock
of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares
of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar 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.




          (b) Organization and Qualification. The Company and each Subsidiary are duly
incorporated or otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business as currently
conducted and as presently proposed to be conducted, except in each case as would not, individually
or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.
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 are duly qualified to conduct its respective businesses and are 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 power and
authority to enter into and to consummate the transactions contemplated by each of the Transaction
Documents and otherwise to carry out its obligations thereunder. The execution and delivery of
each of the Transaction Documents by the Company and the consummation by it of the transactions
contemplated hereby, including, without limitation, the issuance of the Securities and the
reservation for issuance and issuance of the Warrant Shares issuable upon exercise of the
Warrants, have been duly authorized by all necessary corporate action on the part of the
Company and no consent or further corporate action is required by the Company, its Board of
Directors or its stockholders in connection therewith (except for the Stockholder Approval required
for the issuance of the Conversion Shares, the issuance of the Common Stock Warrant Shares, and, in
the event that all of the investors in the Company’s March 31, 2008 Common Stock and warrant
financing do not exchange all of their warrants for Exchange Warrants, for the issuance of Exchange
Warrant Shares in the form of Common Stock). Each Transaction Document has been (or upon delivery
will have been) duly executed by the Company and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as rights to indemnity and contribution may be limited
by state or federal securities laws or the public policy underlying such laws, and except as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general application.



          (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions contemplated
thereby do not and will not (i) conflict with or violate any provision of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a 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, 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 a Subsidiary is subject (including federal and state
securities laws and regulations and the rules and regulations of the Principal Market), or by which
any property or asset of the Company or a Subsidiary is bound or affected; except in the case of
each of clauses (ii) and (iii), such as would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.



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          (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or registration
with, any court or other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more Registration Statements in
accordance with the requirements of the Registration Rights Agreement, (ii) filings required by
state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the
Commission under Regulation D of the Securities Act, (iv) the filings required in accordance with
Sections 4.4 (and any related amendments to, or related prospectus supplements to, the Company’s
outstanding registration statement filed on Form SB-2) and 4.6, (iv) the Stockholder Approval
required for the issuance of the Conversion Shares and the Common Stock Warrant Shares and (v)
those that have been made or obtained prior to the date of this Agreement. The
Company and its subsidiaries are unaware of any facts or circumstances which might prevent the
Company from obtaining or effecting any of the registration, application or filings pursuant to
this Section 3.1(e).



          (f) Issuance of the Securities. The Company Shares, the Warrants, and the Preferred
Stock Warrant Shares have been duly authorized and, when issued and paid for in accordance with the
Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and
clear of all Liens. Upon Stockholder Approval, the Conversion Shares will be duly authorized and,
upon issuance pursuant to the Company Shares, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens. Upon Stockholder Approval, the Common Stock Warrant
Shares and the Exchange Warrants Shares in the form of Common Stock will be duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be duly and validly
issued, fully paid and nonassessable, free and clear of all Liens.. The Company has reserved from
its duly authorized capital stock the Preferred Shares issuable pursuant to this Agreement and the
Warrants in order to issue the Company Shares and the Preferred Stock Warrant Shares. When issued
pursuant to the terms of the Company Shares and the Warrants, the Conversion Shares, the Warrant
Shares, and the Exchange Warrant Shares will be validly issued, fully paid and non-assessable and
free from all Liens, with the holders being entitled to all rights accorded to a holder of
Preferred Stock or Common Stock, as the case may be. Upon exercise in accordance with the Warrants
and the Exchange Warrants, the Warrant Shares and Exchange Warrant Shares will be validly issued,
fully paid and nonassessable and free from all Liens, Subject to the accuracy of the
representations and warranties of the Investors in this Agreement, the offer and issuance by the
Company of the Securities is exempt from registration under the Securities Act.



          (g) Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of 10,000,000 shares of preferred stock, $0.001 par value per share, none of which
is issued and outstanding, and 90,000,000 shares of Common Stock, of which as of the date hereof,
41,354,645 shares are issued and outstanding, 6,700,000 shares are reserved for issuance pursuant
to the Company’s stock option and purchase plans and 10,874,186 shares are reserved for issuance
pursuant to warrants exercisable for shares of Common Stock (subject to increase to cover the
anti-dilution provisions associated therewith). All of such outstanding shares are duly authorized
and have been, or upon issuance will be, validly issued and are fully paid and nonassessable.
Except as specified in Section 3.1(g) of the Disclosure Letter, no securities of the
Company are entitled to preemptive or similar rights, and no Person has any




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right of first refusal,
preemptive right, right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as specified in Section 3.1(g) of the
Disclosure Letter, there are no outstanding options, warrants, scrip rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of capital stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of capital stock, or
securities or rights convertible or exchangeable into shares of capital stock. Except as specified
in Section 3.1(g) of the Disclosure Letter, the issue and sale of the Securities will not,
immediately or with the passage of time, obligate the Company to issue shares of capital stock or
other securities to any Person (other than the Investors) and will not
result in a right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities (including, without limitation, under any
anti-dilution or similar provisions).




          (h) SEC Reports; Financial Statements. The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding
the date hereof (or such shorter period as the Company was required by law to file such reports)
(the foregoing materials and all exhibits included therein and financial statements, notes and
schedules thereto and documents incorporated by reference therein being collectively referred to
herein as the “SEC Reports” and, together with the Disclosure Letter, the “Disclosure Materials”)
on a timely basis or has timely filed a valid extension of such time of filing and has filed any
such SEC Reports prior to the expiration of any such extension. The Company has made available to
the Investors or their respective representatives true, correct and complete copies of each of the
SEC Reports not available on the EDGAR system (if any). As of their respective dates, the SEC
Reports complied in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of
the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading. The financial statements
of the Company included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing (or amendment, as applicable). Such financial statements have been
prepared in accordance with GAAP, applied on a consistent basis, during the periods involved,
except as may be otherwise specified in such financial statements or the notes thereto, and fairly
present in all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments or which will not be material, either individually or in the aggregate.




          (i) Tax Status. The Company and each of its Subsidiaries (i) has timely 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 timely paid all taxes and other




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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, except in each case as would not
reasonably be expected to have a Material Adverse Effect. 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.




          (j) Material Changes. Since the date of the latest financial statements included in
the SEC Reports, except as set forth in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that would reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A)
trade payables, accrued expenses and other liabilities 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 Commission, (iii) the Company has not altered its method of accounting or the identity of its
auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, (v) the Company has not sold any assets outside of the ordinary
course of business, (vi) the Company has not made any material capital expenditures and (vi) the
Company has not issued any equity securities to any officer, director or Affiliate, except pursuant
to existing Company stock option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. Neither the Company nor any of its Subsidiaries
has 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.




          (k) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents against the Company or the
Securities or (ii) except as specifically disclosed in the SEC Reports, would, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in
a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer
thereof (in his or her capacity as such), is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a claim of breach of
fiduciary duty, except as specifically disclosed in the SEC Reports. There has not been, and to the
knowledge of the Company, there is not pending any investigation by the Commission involving the
Company or any current or former director or officer of the Company (in his or her capacity as
such). The Commission has not issued any stop order or other order suspending the effectiveness of
any registration statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.




          (l) Labor Relations. No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company. Neither the Company nor
any of its Subsidiaries is a party to any collective bargaining agreement or




12









 







employs any member of
a union. The Company and its Subsidiaries believe that their relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the Securities Act) of the Company or any
of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to
leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the
Company or any such Subsidiary. No executive officer of the Company or any of its Subsidiaries is,
or is now expected to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any
other contract or agreement or any restrictive covenant, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any liability with
respect to any of the foregoing matters.




          (m) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by the Company or any Subsidiary under), nor has
the Company or any Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (except to the extent such
default or violation has been waived), (ii) is in violation of any judgment, decree or order of any
court, arbitrator or governmental body, or (iii) is or has been in violation of any statute,
ordinance, rule or regulation of any governmental authority, including without limitation all
foreign, federal, state and local laws relating to taxes, pollution, environmental protection,
occupational health and safety, product quality and safety or employment and labor matters, except
in each case as would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect. Without limiting the generality of the foregoing, the Company
is not in violation of any of the rules, regulations or requirements of the Principal Market and
has no knowledge of any facts or circumstances that could reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future. The Company is in compliance with all
effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder, that are applicable to it, except where such noncompliance would not have or reasonably
be expected to result in a Material Adverse Effect.




          (n) Regulatory Permits. The Company and the Subsidiaries possess all certificates,
authorizations, licenses and permits issued by the appropriate federal, state, local or foreign
regulatory authorities necessary to conduct their respective businesses as described in the SEC
Reports, except where the failure to possess any such certificates, authorizations, licenses or
permits would 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 notice of
proceedings relating to the revocation or modification of any such certificate, authorization,
license or permit.




          (o) Title to Assets. The Company and the Subsidiaries have good and marketable title
in fee simple to all real property owned by them that is material to their respective businesses
and good and marketable title in all personal property owned or used by them that is material to
their respective businesses, in each case free and clear of all Liens, except for Liens as do not
materially affect the value of such property and do not materially interfere with the use




13









 







made and
proposed to be made of such property by the Company or any of its Subsidiaries. Any real property
and facilities held under lease by the Company or any of its Subsidiaries are held by them under
valid, subsisting and, to the Company’s knowledge, enforceable leases of which the Company and the
Subsidiaries are in compliance, except as would not, individually or in the aggregate, have or
reasonably be expected to result in a Material Adverse Effect.




          (p) Patents and Trademarks.




               (i) Section 3.1(p) of the Disclosure Letter accurately sets forth all material
Intellectual Property that is owned and/or used in the business of the Company and its
Subsidiaries, viewed as a whole, as presently conducted (“Company’s IP”). No Intellectual Property
other than the Company’s IP is material to the business of the Company or any of its Subsidiaries
as presently conducted or as presently proposed to be conducted. The Company or one of its
Subsidiaries is the sole and exclusive owner of all right, title and interest in and to
Company’s IP (with no breaks in the chain of title thereof) free and clear of, to its
knowledge, any claim, security interest, lien, pledge, option, charge or encumbrance of any kind
whatsoever. Company’s IP has not been used or enforced or failed to be used or enforced in a
manner that would result in the abandonment, cancellation or unenforceability of any of Company’s
material rights in and to Company’s IP.



               (ii) The Company has not transferred any rights or interest in, or granted any exclusive
license with respect to, any of the Company’s IP to any third party.



               (iii) All of Company’s IP is currently in compliance in all material respects with all legal
requirements (including timely filings, proofs and payments of fees) and is, to the Company’s
knowledge, valid and enforceable. None of Company’s IP which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted has been or is now involved in any pending or threatened
cancellation, dispute or litigation of which the Company is aware. No patent of the Company or its
Subsidiaries has been or is now involved in any interference, reissue, re-examination or opposition
proceeding.



               (iv) All of the licenses and sublicenses and consent, royalty or other agreements concerning
Company’s IP which are necessary for the conduct of the Company’s and each of its Subsidiaries’
respective businesses as currently conducted or as currently proposed to be conducted to which the
Company or any Subsidiary is a party or by which any of their assets are bound (other than
 generally commercially available, non-custom, off-the-shelf software application programs having a
retail acquisition price of less than $25,000 per license) (collectively, “License Agreements”) are
valid and binding obligations of the Company or its Subsidiaries that are parties thereto and, to
the Company’s knowledge, the other parties thereto, enforceable in accordance with their terms,
except to the extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement
of creditors’ rights generally, and there exists no event or condition which, to the Company’s
knowledge, will result in a material violation or breach of or constitute (with or without due
notice or lapse of time or both) a default by the Company or any of its Subsidiaries under any such
License Agreement.



14









 





               (v) The Company and its Subsidiaries own or have the valid right to use all of the
Intellectual Property that is necessary for the operation of the Company’s and each of its
Subsidiaries’ respective businesses as currently conducted or as currently proposed to be
conducted. The Company and its Subsidiaries have a valid and enforceable right to use all third
party Intellectual Property and Confidential Information used or held for use as the Company’s IP.



               (vi) To the best knowledge of the Company, the conduct of the Company’s and its Subsidiaries’
businesses as currently conducted does not infringe or otherwise impair or conflict with
(collectively, “Infringe”) any Intellectual Property rights of any third party or any
confidentiality obligation owed to a third party, and, to the Company’s knowledge, the Company’s IP
which are necessary for the conduct of Company’s and each of its Subsidiaries’ respective
businesses as currently conducted or as currently proposed to be
conducted are not being Infringed by any third party. There is no litigation or order pending
or outstanding or, to the Company’s knowledge, threatened or imminent, that seeks to limit or
challenge or that concerns the ownership, use, validity or enforceability of any of the Company’s
IP or, to the Company’s knowledge, the Company’s and its Subsidiaries’ use of any Intellectual
Property or Confidential Information owned by a third party, and, to the Company’s knowledge, there
is no valid basis for the same.



               (vii) The consummation of the transactions contemplated hereby and by the other Transaction
Documents will not result in the alteration, loss, impairment of or restriction on the Company’s or
any of its Subsidiaries’ ownership or right to use any of the Company’s IP which is necessary for
the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted
or as currently proposed to be conducted.



          (q) Insurance. The Company and the Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and the Subsidiaries are engaged. The Company has
no reason to believe that it will not be able to renew its and the Subsidiaries’ existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business on terms consistent in all material respects with market
for similar size companies as the Company and its Subsidiaries for the lines of business of the
Company and its Subsidiaries at a cost that would not have a Material Adverse Effect. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought or applied for.




          (r) Transactions With Affiliates and Employees. None of the officers or directors of
the Company and, to the knowledge of the Company, none of the employees of the Company is presently
a party to any transaction with the Company or any Subsidiary (other than for ordinary course
services as employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for rental of real




15









 







or
personal property to or from, or otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any entity in which any officer, director, or
any such employee has a substantial interest or is an officer, director, trustee or partner, which
in each case is required to be disclosed in the SEC Reports and has not been so disclosed.




          (s) Internal Accounting Controls. The Company and each of the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset and liability accountability,
(iii) access to assets or incurrence of liabilities is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable intervals and
appropriate action is taken with respect to any differences. The Company has established
disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the
Company and designed such disclosure controls and procedures so that they are effective in ensuring
that information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the Commission, including, without limitation,
controls and procedures designed to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may
be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the
Company’s controls and procedures in accordance with Item 307 of Regulation S-K under the Exchange
Act for the Company’s most recently ended fiscal quarter or in accordance with Item 307 of
Regulation S-B under the Exchange Act for the Company’s most recently ended fiscal year (such date,
the “Evaluation Date”). The Company presented in its most recently filed Form 10-KSB or Form 10-Q
the conclusions of the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no significant changes in the Company’s internal controls (as such term is defined in
Item 308(c) of Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other
factors that would significantly affect the Company’s internal controls. Neither the Company nor
any of its Subsidiaries has received any written notice or correspondence from any accountant
relating to any potential material weakness in any part of the system of internal accounting
controls of the Company or any of its Subsidiaries.




          (t) Solvency. Based on the financial condition of the Company as of the date here of
and as of the Closing Date (assuming that the Closing shall have occurred), (i) the Company’s
present fair saleable value of its assets exceeds the amount that will be required to be paid on or
in respect of the Company’s existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital
to carry on its business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital requirements of
the business conducted by the Company, and projected capital requirements and capital




16









 







availability
thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account all anticipated
uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such
amounts are required to be paid. The foregoing representation and warranty is also true and correct
as to the Company and the subsidiaries on a consolidated basis. Neither the Company nor any
subsidiary intends to incur debts beyond its or their ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be payable on or in respect of its or their
debt).




          (u) Certain Fees. Except as described in Section 3.1(u) of the Disclosure
Letter, no brokerage or finder’s fees or commissions are or will be payable by the Company to
any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this Agreement. The Investors shall
have no obligation with respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such Investor which fees
or commissions shall be the sole responsibility of such Investor) made by or on behalf of other
Persons for fees of a type contemplated in this Section 3.1(u) that may be due in connection with
the transactions contemplated by this Agreement.




          (v) Certain Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Section 3.2(b)-(e), no registration under the
Securities Act is required for the offer and sale of the Units by the Company to the Investors
under the Transaction Documents. The Company is eligible to register the Registrable Securities for
resale by the Investors under Form S-1 promulgated under the Securities Act, except to the extent
that the Commission communicates to the Company that such resale would not constitute a “secondary
offering” permitted by Rule 415 of the Securities Act (as to which the Company makes no
representation or warranty, notwithstanding anything contained in the Transaction Documents to the
contrary). Except as specified in the Registration Rights Agreement and in Section 3.1(v) of
the Disclosure Letter, 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 Commission or any other governmental authority that have not been satisfied.




          (w) Listing and Maintenance Requirements. The Company has not, in the two years
preceding the date hereof, received notice from any Trading Market to the effect that the Company
is not in compliance with the listing or maintenance requirements thereof. The Company is, and has
no reason to believe that it will not in the foreseeable future continue to be, in compliance with
the listing and maintenance requirements for continued listing of the Common Stock on the Trading
Market on which the Common Stock is currently listed or quoted. The issuance and sale of the
Securities under the Transaction Documents does not contravene the rules and regulations of the
Trading Market on which the Common Stock is currently listed or quoted, and no approval of the
stockholders of the Company thereunder is required for the Company to issue and deliver to the
Investors the Securities contemplated by Transaction Documents (other than the Stockholder Approval
required for the issuance of the Conversion Shares and for the issuance of Common Stock Warrant
Shares and Exchange Warrant Shares in the form of Common Stock.




17









 








          (x) Investment Company. The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an “investment company,” an Affiliate of an
“investment company,” a company controlled by an “investment company” or an “affiliated person” of,
or “promoter” or “principal underwriter” for, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended.




          (y) Application of Takeover Protections. The Company and its Board of Directors have
taken all necessary action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or would become applicable to
any of the Investors as a direct result of the transactions contemplated by this Agreement,
including without limitation, the Company’s issuance of the Securities to the Investors. The
Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations
of beneficial ownership of Common Stock or a change in control of the Company.




          (z) No Additional Agreements. The Company does not directly or indirectly have any
agreement or understanding with any Investor with respect to the transactions contemplated by the
Transaction Documents other than as specified in the Transaction Documents and the Disclosure
Materials.




          (aa) Disclosure. The Company confirms that neither it nor, to its knowledge, any
Person acting on its behalf has provided any Investor or its respective agents or counsel with any
information that the Company believes constitutes material, non-public information, except insofar
as the existence and terms of the proposed transactions hereunder and the information contained
herein or in the other Transaction Documents may constitute such information. The Company
understands and confirms that the Investors will rely on the foregoing representations and
warranties in effecting transactions in securities of the Company. The Company acknowledges and
agrees that no Investor makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in Sections 3.2 and 4.14.




          (bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other
relationship between the Company or any of its Subsidiaries and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings
and is not so disclosed and that would be reasonably likely to have a Material Adverse Effect.




          (cc) U.S. Real Property Holding Corporation. The Company is not, and has never been, a
U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue
Code of 1986, as amended, and the Company shall so certify upon the request of any Investor.




18









 








          (dd) Foreign Corrupt Practices. Neither the Company nor any of its Subsidiaries nor
any director, officer, agent, employee or other Person acting on behalf of the Company or any of
its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its
Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee, except in each case as
would not have a Material Adverse Effect.




     3.2 Representations and Warranties of the Investors. Each Investor hereby, for itself
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 or partnership power and authority to enter into and to consummate the
transactions contemplated by the applicable Transaction Documents and otherwise to carry out its
obligations thereunder. The execution, delivery and performance by such Investor of the
transactions contemplated by this Agreement has been duly authorized by all necessary corporate
or, if such Investor is not a corporation, such partnership, limited liability company or
other applicable like action, on the part of such Investor. Each of this Agreement and the
Registration Rights Agreement has been duly executed by such Investor, and when delivered by such
Investor in accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Investor, enforceable against it in accordance with its terms, except as rights
to indemnity and contribution may be limited by state or federal securities laws or the public
policy underlying such laws, and except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by other equitable
principles of general application.




          (b) Investment Intent. Such Investor is acquiring the Securities as principal for its
own account for investment purposes only and not with a view to or for distributing or reselling
such Securities or any part thereof, without prejudice, however, to such Investor’s right at all
times to sell or otherwise dispose of all or any part of such Securities in compliance with
applicable federal and state securities laws. Subject to the immediately preceding sentence,
nothing contained herein shall be deemed a representation or warranty by such Investor to hold the
Securities for any period of time. Such Investor is acquiring the Securities hereunder in the
ordinary course of its business. Such Investor does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.




          (c) Investor Status. At the time such Investor was offered the Securities, it was,
and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the
Securities Act. Such Investor has completed and executed the Investor Questionnaire (attached to
this Agreement as Exhibit E attached hereto and incorporated herein as representations and




19









 







warranties of such Investor under this Section 3.2) and that the information contained in such
document is complete and accurate. Such Investor is not a registered broker-dealer under Section 15
of the Exchange Act. 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 is able to bear the economic risk
of an investment in the Securities and, at the present time, is able to afford a complete loss of
such investment.




          (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 or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.




          (e) 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 about the Company and the Subsidiaries 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.




          (f) Certain Trading Activities. Such Investor has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with such Investor, engaged in any
transactions in the securities of the Company (including, without limitations, any Short Sales
involving the Company’s securities or “locking-up” up borrow with respect to any of the Company’s
securities) since the earlier to occur of (1) the time that such Investor was first contacted by
the Company or any other Person regarding an investment in the Company and (2) the 30th
day prior to the date of this Agreement.




          (g) Independent Investment Decision. Such Investor has independently evaluated the
merits of its decision to purchase Securities pursuant to this Agreement, and such Investor
confirms that it has not relied on the advice of any other Investor’s business and/or legal counsel
in making such decision.




          (h) Reliance. Such Investor understands and acknowledges that: (i) the Securities are
being offered and sold to it without registration under the Securities Act in a private placement
that is exempt from the registration provisions of the Securities Act and (ii) the availability of
such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of,
the foregoing representations and such Investor hereby consents to such reliance.




20









 








          (i) Residency. Such Investor is a resident of the jurisdiction set forth immediately
below such Investor’s name on the signature pages hereto.



The Company acknowledges and agrees that no Investor has made or makes any representations or
warranties with respect to the transactions contemplated hereby other than those specifically set
forth in this Section 3.2 and Section 4.14.




ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES




     4.1 Reasonable Best Efforts. Each party shall use its reasonable best efforts to
timely satisfy each of the conditions to be satisfied by it as provided in Sections 5.1 and 5.2 of
this Agreement.



     4.2 Legends.



          (a) Sales of Securities. Securities may only be disposed of in compliance with state
and federal securities laws. In connection with any transfer of any Securities other than pursuant
to an effective registration statement, to the Company, to an Affiliate of an Investor or in
connection with a pledge as contemplated in Section 4.2(d), the Company may, pursuant to the
provisions of Section 4.2(e) below, require the transferor thereof 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 of such transferred Securities under the Securities Act.




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




          (c) Transfer Agent Instructions. The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates or credit shares to
the applicable balance accounts at The Depository Trust Company (“DTC”) (if DTC is then offered by
the Company and its transfer agent and such Securities qualify for deposit with DTC in accordance
with its rules), registered in the name of each Investor or its respective nominee(s), for the
Securities in such amounts as specified from time to time by each Investor to the Company upon
conversion of the Company Shares or exercise of the Warrants or Exchange Warrants.. The Company
represents and warrants that no instruction other than the irrevocable instructions to its transfer
agent referred to in this Section 4.2(c) will be given by the Company to its transfer agent with
respect to the Securities and that the Securities shall otherwise be freely




21









 







transferable on the
books and records of the Company, as applicable, and to the extent provided in this Agreement and
the other Transaction Documents, except as it may reasonably determine are necessary to comply or
to ensure compliance with those applicable laws that are enacted or modified after the Closing. If
an Investor effects a sale, assignment or transfer of the Securities in accordance with the terms
of the Transaction Documents, the Company shall permit the transfer and shall promptly instruct its
transfer agent to issue one or more certificates or credit shares to the applicable balance
accounts at DTC (if DTC is then offered by the Company and its transfer agent and such Securities
qualify for deposit with DTC in accordance with its rules) in such name and in such denominations
as specified by such Investor to effect such sale, transfer or assignment. In the event that such
sale, assignment or transfer involves Securities sold, assigned or transferred pursuant to an
effective registration statement or in compliance with Rule 144 (provided that in the case of a
sale, transfer or assignment under Rule 144 the foregoing is not an “affiliate” of the Company or
any of its Subsidiaries (as defined in Rule 144)), the transfer agent shall issue such Securities
to the Investor, assignee or transferee, as the case may be, without any restrictive legend in
accordance with Section 4.2(e) below. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to an Investor. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this Section 4.2(c) will
be inadequate and agrees, in the event of a breach or threatened breach by the Company of any
provisions of this Section 4.2(c), that an Investor 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. The Company shall cause its counsel to issue the legal opinion referred to
in the irrevocable transfer agent instructions required to be delivered pursuant
to the terms of the Registration Rights Agreement to the Company’s transfer agent on each
Effective Date. Any fees (with respect to the transfer agent, counsel to the Company or otherwise)
associated with the issuance of such opinion or the removal of any legends on any of the Securities
shall be borne by the Company.




          (d) Certificates evidencing the Securities will contain the following legend, until such time
as they are not required under Section 4.1(e):





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”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY OR (II) RULE 144 OR
RULE 144A UNDER THE SECURITIES ACT. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH
SECURITIES.



22









 





          The Company acknowledges and agrees that an Investor may from time to time pledge, and/or
grant a security interest in some or all of the Securities in accordance with all applicable
federal and state securities laws pursuant to a bona fide margin agreement in connection with a
bona fide margin account and, if required under the terms of such agreement or account, such
Investor may transfer pledged or secured Securities to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval or consent of the Company and no legal opinion
of legal counsel to the pledgee, secured party or pledgor shall be required in connection with the
pledge, but such legal opinion may be required in connection with a subsequent transfer by the
pledgee or secured party following default by such Investor or otherwise. No notice shall be
required of such pledge. 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.




          (e) Certificates evidencing the Securities shall not contain any legend (including the legend
set forth in Section 4.1(d)) at such time as an Investor has provided reasonable evidence to the
Company (including any customary broker’s or selling stockholder’s letters but expressly excluding
an opinion of counsel other than with respect to clauses (iv) or (v) below), that: (i) there has
been a sale of such Securities pursuant to an effective registration statement (including the
Registration Statement(s)), (ii) there has been a sale of such Securities pursuant to Rule 144
(assuming the transferor is not an Affiliate of the Company), (iii) such Securities are
then eligible for sale under Rule 144(b)(i), (iv) in connection with a sale, assignment or
other transfer (other than under Rule 144) provided that, upon request of the Company, such
Investor provides the Company with an opinion of counsel to such Investor, in a reasonably
acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made
without registration under the applicable requirements of the Securities Act or (v) if such legend
is not required under applicable requirements of the Securities Act (including, without limitation,
controlling judicial interpretations and pronouncements issued by the Commission). Following such
time as restrictive legends are not required to be placed on certificates representing Securities
pursuant to the preceding sentence, the Company will, no later than three (3) Trading Days
following the delivery by an Investor to the Company or the Company’s transfer agent of a
certificate representing Securities containing a restrictive legend and the foregoing evidence (and
opinion if applicable), deliver or cause to be delivered to such Investor a certificate
representing such Securities that is free from all restrictive and other legends or credit the
balance account of such Investor’s or such Investor’s nominee with DTC (if DTC is then offered by
the Company and its transfer agent and such Securities qualify for deposit with DTC in accordance
with its rules) with a number of shares of Preferred Stock or Common Stock equal to the number of
shares represented by the certificate so delivered by such Investor (the date by which such
certificate is required to be delivered to such Investor or such shares were required to be
credited to such Investor’s account with DTC (as the case may be) pursuant to the foregoing is
referred to herein as the “Required Delivery Date”). The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge the restrictions on





23









 







transfer set forth in this Section, except as it may reasonably determine are necessary or
appropriate to comply or to ensure compliance with those applicable laws that are enacted or
modified after the Closing.




     4.3 Form D and Blue Sky. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to each Investor who
requests one promptly after such filing. The Company shall, on or before the Closing Date, take
such action as the Company shall reasonably determine is necessary in order to obtain an exemption
for, or to, qualify the Securities for sale to the Investors at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to
obtain an exemption from such qualification), and shall provide evidence of any such action so
taken to the Investors on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under applicable securities or
“Blue Sky” laws of the states of the United States following the Closing Date.



     4.4 Furnishing of Information. As long as any Investor owns any of the Securities,
until the consummation of a Fundamental Transaction (as defined in the Warrants) where the Company
is no longer publicly traded following such Fundamental Transaction (the “Reporting Period”), the
Company covenants to use reasonable best efforts (i) 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 and (ii) to 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 no longer require or otherwise permit such termination. Without
limiting any of the Company’s obligations under the Registration Rights Agreement, during the
Reporting Period, if the Company is not required to file reports pursuant
to such laws, it will use reasonable best efforts to prepare and furnish to the Investors and
make publicly available in accordance with Rule 144(c) such information as is required for the
Investors to sell the Securities under Rule 144. Without limiting any of the Company’s obligations
under the Registration Rights Agreement, the Company further covenants during the Reporting Period
that it will use reasonable best efforts take such further action as any holder of Securities may
reasonably request, all to the extent required from time to time to enable such Person to sell the
Securities in compliance with Rule 144.



     4.5 Integration. The Company shall not sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of the 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 in a manner that would require stockholder approval of the sale
of the securities to the Investors.



     4.6 Securities Laws Disclosure; Publicity. By 5:30 p.m. (New York City time) on the
Trading Day following the execution of this Agreement, and by 5:30 p.m. (New York City time) on the
Trading Day following the Closing Date (unless the Closing Date occurs on the same date as the
execution of this Agreement, in which case only one press release will be required), the



24









 




Company
shall issue press releases disclosing the transactions contemplated hereby (and the material terms
hereof) and the Closing. On the Trading Day following the execution of this Agreement, the Company
will file a Current Report on Form 8-K disclosing the material terms of the Transaction Documents
(and attach as exhibits thereto the Transaction Documents), and on the Trading Day following the
Closing Date the Company will file an additional Current Report on Form 8-K to disclose the Closing
(unless the Closing Date occurs on the same date as the execution of this Agreement, in which case
only one Form 8-K will be required).




     4.7 Indemnification of Investors. In addition to the indemnity provided in the
Registration Rights Agreement, the Company will indemnify and hold each Investor and its directors,
officers, stockholders, partners, employees, members and direct or indirect investors and any of
the foregoing Persons’ agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement) (each, an “Investor
Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages,
costs, expenses, actions, causes of action, suits, penalties and fees, including all judgments,
amounts paid in settlements, court costs and reasonable out-of-pocket attorneys’ fees and costs of
investigation (collectively, “Losses”) that any such Investor Party may suffer or incur as a result
of, arising out of or relating to (a) any misrepresentation, breach or inaccuracy of any
representation, warranty, covenant, obligation or agreement made by the Company in any Transaction
Document or (b) any cause of action, suit or claim brought or made against any Investor Party by a
third party (including for these purposes a derivative action brought on behalf of the Company) and
arising out of or resulting from (i) the execution, delivery, performance or enforcement of the
Transaction Documents, (ii) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of
such Investor Party or holder of the Securities as an investor in the Company pursuant to the
transactions contemplated by the Transaction
Documents; provided, that an Investor Party shall not be entitled to indemnification to the
extent any of the foregoing is caused by such Investor Party’s gross negligence, material violation
of law or regulation or willful misconduct. In addition to the indemnity contained herein, the
Company will reimburse each Investor Party for its reasonable out-of-pocket legal and other
expenses (including the reasonable out-of-pocket cost of any investigation, preparation and travel
in connection therewith) as incurred in connection therewith, as promptly as practicable after such
expenses are incurred and invoiced.



     4.8 Non-Public Information. The Company covenants and agrees that neither it nor any
of its subsidiaries, or other Person acting on its or their behalf will provide the Investor or its
agents or counsel with any material, non-public information regarding the Company or its
subsidiaries without the prior express consent of the Investor; provided, that no such consent
shall be required prior to disclosing any such material, non-public information to (a) a director
designated by the Investor under the Board Rights Agreement (but only when made to such director in
his or her capacity as a director) or (b) the Investor when such disclosure is required by the
express terms of this Agreement or the Registration Rights Agreement. The Company understands that
the Investor shall be relying on the foregoing covenant in effecting transactions in securities of
the Company.



25









 





     4.9 Listing of Securities. The Company shall promptly secure the listing of all of the
Registrable Securities upon each national securities exchange and automated quotation system, if
any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall
maintain such listing of all Registrable Securities from time to time issuable under the terms of
the Transaction Documents on such exchange or automated quotation system or another Trading Market.
The Company shall use reasonable best efforts to maintain the Common Stock’s authorization for
quotation on the Principal Market. If Stockholder Approval is not obtained by the Stockholder
Approval Deadline, the Company will use reasonable best efforts to have the Company’s Preferred
Stock authorized for quotation on the Principal Market at the request of any Investor. The Company
agrees, (i) if the Company applies to have the Common Stock traded on any other Trading Market, it
will include in such application the Company Shares, the Conversion Shares, the Warrant Shares, and
the Exchange Warrant Shares, and will take such other action as is necessary or desirable to cause
the Company Shares, the Conversion Shares, the Warrant Shares, and the Exchange Warrant Shares to
be listed on such other Trading Market as promptly as possible, and (ii) it will use reasonable
best efforts to take all action that it believes is reasonably necessary to continue the listing
and trading of its Preferred Stock and Common Stock on a Trading Market and to comply in all
material respects with the Company’s reporting, filing and other obligations under the bylaws or
rules of the applicable Trading Market; provided that no such action need be taken with respect to
the Company’s Preferred Stock if Stockholder Approval has been obtained by the Stockholder Approval
Deadline. Neither the Company nor any of its subsidiaries shall take any action which it believes
could be reasonably expected to result in the delisting or suspension of the Common Stock (and if
required to be listed by this Section 4.9, the Preferred Stock) on any Trading Market. The Company
shall pay all fees and expenses in connection with satisfying its obligations under this Section
4.9.



     4.10 Use of Proceeds. The Company will use the net proceeds from the sale of the Units
hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s
debt (other than payment of trade payables and accrued expenses in the ordinary course of the
Company’s business and consistent with prior practices), or to redeem any Common Stock or
Equivalents or any other debt or equity securities of the Company or any of its subsidiaries.



     4.11 Additional Issuances of Securities.



          (a) The Company agrees that, except for the Follow-On Shareholder Financing, if any, for the
period commencing on the date hereof and ending ninety (90) days after the Closing, neither the
Company nor any of its subsidiaries shall directly or indirectly issue, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any issuance, offer, sale, grant or any
option to purchase or other disposition of) any of their respective equity or equity equivalent
securities, including, without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time and under any circumstances convertible into or exchangeable
for, or otherwise entitles the holder thereof to receive, capital stock and other securities of the
Company (including, without limitation, Common Stock Equivalents) (collectively with such capital
stock or other securities of the Company, “Equivalents”) (any such issuance, offer, sale, grant,
disposition or announcement being referred to as a “Subsequent Placement”).




26









 








          (b) Except for the Follow-On Shareholder Financing, if any, the Company agrees that it shall
not engage in any Subsequent Placement after the ninety (90) day period set forth in Section
4.11(a) has expired without the prior written consent of Co-Investment Fund, if such Subsequent
Placement seeks to raise less than $15 million.




          (c) Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of the
issuance of (A) Common Stock or standard options to purchase Common Stock issued to directors,
officers, employees or consultants of the Company in connection with their service as directors or
officers of the Company, their employment by the Company or their retention as consultants by the
Company pursuant to an equity compensation program or other contract or arrangement approved by the
Board of Directors of the Company (or the compensation committee of the Board of Directors of the
Company), provided that all such issuances after the date hereof pursuant to this clause (A) do
not, in the aggregate, exceed more than 10% of the Common Stock issued and outstanding immediately
prior to the date hereof, (B) Common Stock or standard warrants (including so-called penny
warrants) to purchase Common Stock in connection with strategic alliances, acquisitions, mergers,
strategic partnerships, joint ventures, vendor and supplier arrangements and as equity kickers in
lease and financing transactions, the primary purpose of which is not to raise capital, and which
are approved in good faith by the Company’s Board of Directors, provided that all such issuances
after the date hereof pursuant to this clause (B) do not, in the aggregate, exceed more than 10% of
the Common Stock issued and outstanding immediately prior to the date hereof, (C) shares issued
upon the conversion or exercise of Equivalents issued prior to the date hereof, provided that such
Equivalents have not been amended since the date of this Agreement to increase the number of shares
issuable thereunder or to lower the exercise or conversion price thereof or otherwise materially
change
the terms or conditions thereof in any manner that adversely affects any of the Investors, (D)
shares issued or issuable by reason of a dividend, stock split or other distribution on Common
Stock, (E) the Conversion Shares, or (F) the Warrant Shares (each of the foregoing in clauses (A)
through (F), collectively the “Excluded Securities”).




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



     4.13 Variable Rate Transaction. From the date hereof until 12 months after the
Closing, the Company shall be prohibited from effecting or entering into an agreement to effect any
Subsequent Placement involving a “Variable Rate Transaction.” The term “Variable Rate Transaction”
shall mean a transaction in which the Company (i) issues or sells any Equivalents either (A) at a
conversion, exercise 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 Equivalents, 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 Equivalents or upon



27









 







the
occurrence of specified or contingent events directly or indirectly related to the business of the
Company or the market for the Common Stock, other than pursuant to a customary “weighted average”
or “full ratchet” anti-dilution provision 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 (other than customary “pre-emptive” or “participation” rights). Each 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.



     4.14 Trading Restrictions. Each Investor represents and warrants to, and covenants
with, the Company that it will not (and its Affiliates acting on its behalf or pursuant to any
understanding with it will not) engage in or effect, directly or indirectly, any transactions in
any securities of the Company (including, without limitation, any Short Sales, “locking-up” borrow
or hedging activities involving the Company’s securities) during the period commencing on the date
hereof and ending on the date that is fifteen (15) months following the Closing Date. In
furtherance (and without limitation) of the foregoing, during such restricted period, neither such
Investor nor any of such Affiliates, (a) will directly or indirectly, sell, agree to sell, grant
any call option or purchase any put option with respect to, pledge, borrow or otherwise dispose of
any securities of the Company, or (b) will establish or increase any “put equivalent position” or
liquidate or decrease any “call equivalent position” with respect to any such securities (in each
case within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder), or otherwise enter into any swap, derivative or other transaction or arrangement that
transfers to another, in whole or in part, any economic consequence of ownership of any such
securities, whether or not such transaction is to be settled by delivery of any such securities,
other securities, cash or other consideration. Notwithstanding the foregoing, it is understood and
agreed that nothing contained in this Section 4.14 shall prohibit such Investor (or such
Affiliates) from (1) purchasing or agreeing to purchase unrestricted securities of the Company or
securities which are covered by an effective registration statement and the prospectus included
therein is available for use on the date of such purchase (including through
block trades or privately negotiated transactions), (2) purchasing or agreeing to purchase
securities of the Company pursuant to Section 4.15 or otherwise from the Company, (3) exercising
any or all Warrants to acquire Warrant Shares or otherwise acting under or enforcing, or receiving
any right or benefit or adjustment under, the Warrants, (4) selling or agreeing to sell “long”
securities of the Company (because such Investor or such Affiliate is “deemed to own such
securities” pursuant to paragraph (b) of Rule 200 under Regulation SHO), including, without
limitation, (I) any Company Shares, Conversion Shares, Warrants, Warrant Shares, Exchange Warrants,
or Exchange Warrant Shares acquired hereunder or pursuant to the transactions contemplated hereby
or any of the Transaction Documents, (II) any shares of Common Stock or warrants to purchase shares
of Common Stock held on the date hereof, (III) any shares of Common Stock acquired after the date
hereof pursuant to the exercise of warrants to purchase Common Stock held on the date hereof, or
(IV) securities acquired after the date hereof in accordance with this paragraph, (5) pledging or
hypothecating any securities of the Company in connection with leverage arrangements engaged in by
such Investor (or such Affiliates) without the purpose of transferring economic risk relating to
such securities or (6) from transferring any of the Securities to any Affiliate who agrees in
writing to be bound by this Section 4.14, in each case, provided such sale is in compliance with
all applicable securities laws and following the public announcement of the transaction
contemplated hereby pursuant to Section 4.6.



28









 





     4.15 Participation Right. From the date hereof until 24 months after the Closing, the
Company shall not effect any Subsequent Placement unless the Company shall have first complied with
this Section 4.15. The Company acknowledges and agrees that the right set forth in this Section
4.15 is a right granted by the Company to Co-Investment Fund, for so long as it or any of its
affiliates in the aggregate holds at least one percent of the Common Stock Deemed Outstanding (as
defined in the Warrants) (the “Designated Investor”).



          (a) The Company shall deliver to the Designated Investor a written notice (the ”Offer Notice”)
of any proposed or intended issuance or sale or exchange (the ”Offer”) of the securities being
offered (the “Offered Securities”) in a Subsequent Placement, which Offer Notice shall (w) identify
and describe the Offered Securities, (x) describe the price and other terms upon which they are to
be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged, (y) identify the Persons (if known) to which or with which the Offered Securities are
to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with the
Designated Investor in accordance with the terms of the Offer the Designated Investor’s pro rata
portion of the Offered Securities, calculated by dividing (i) the number of shares of Common Stock
Deemed Outstanding (as defined in the Warrants) owned by the Designated Investor as of immediately
prior to the Offer, by (ii) the Common Stock Deemed Outstanding (as defined in the Warrants) (such
pro rata portion, the “Basic Amount”).




          (b) To accept an Offer, in whole or in part, the Designated Investor must deliver a written
notice to the Company prior to the end of the third (3rd) Business Day after such
Designated Investor’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion
of the Designated Investor’s Basic Amount that such Designated Investor elects to purchase (the
“Notice of Acceptance”).




          (c) The Company shall have twenty (20) Business Days from the expiration of the Offer Period
above to offer, issue, sell or exchange all or any part of such Offered Securities as to which a
Notice of Acceptance has not been given by the Designated Investor (the “Refused Securities”)
pursuant to a definitive agreement(s) (the “Subsequent Placement Agreement”), but only to the
offerees described in the Offer Notice (if so described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates) that are not materially more
favorable (when viewed on an aggregate basis) to the acquiring Person or Persons or materially less
favorable (when viewed on an aggregate basis) to the Company than those set forth in the Offer
Notice.




          (d) Upon the closing of the issuance, sale or exchange of all or less than all of the Refused
Securities, the Designated Investor shall acquire from the Company, subject to the terms and
conditions specified in the Offer Notice, and the Company shall issue to the Designated Investor,
the number or amount of Offered Securities specified in the Notices of Acceptance, subject to the
terms and conditions specified in the Offer Notice. The purchase by the Designated




29









 







Investor of any
Offered Securities is subject in all cases to the preparation, execution and delivery by the
Company and the Designated Investor of a separate purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Designated Investor and its counsel
and the Company and its counsel.




          (e) The Company and the Designated Investor agree that if the Designated Investor elects to
participate in the Offer, neither the Subsequent Placement Agreement with respect to such Offer nor
any other transaction documents related thereto (collectively, the “Subsequent Placement
Documents”) shall include any term or provisions whereby such Designated Investor shall be required
to agree to any restrictions on trading as to any securities of the Company owned by such
Designated Investor prior to such Subsequent Placement more restrictive in any material respect
than the restrictions contained in the Transaction Documents.




          (f) Notwithstanding anything to the contrary in this Section 4.15 and unless otherwise agreed
to by such Designated Investor, the Company shall either confirm in writing to such Designated
Investor that the transaction with respect to the Subsequent Placement has been abandoned or shall
publicly disclose its intention to issue the Offered Securities, in either case in such a manner
such that such Designated Investor will not be in possession of any material, non-public
information, by the thirtieth (30th) Business Day following delivery of the Offer Notice
(or any later follow-up Offer Notice or offer terms provided pursuant to the terms of this Section
4.15(b) (the “Public Notice Date”). If by the Public Notice Date, no public disclosure regarding a
transaction with respect to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by such Designated Investor, such transaction
shall be deemed to have been abandoned.




          (g) The restrictions contained in this Section 4.15 shall not apply in connection with the
issuance of any Excluded Securities (as defined herein or as defined in the Warrants).




     4.16 Prohibited Actions. The Company shall not without the prior consent of the
Co-Investment Fund knowingly enter into any transaction or take any other action which would create
any liability under Section 16(b) of the Exchange Act, or the rules promulgated thereunder
by the Commission, on the part the Co-Investment Fund as a consequence of having purchased the
Securities under this Agreement (including, without limitation, the conversion of the Company
Shares), having exercised any Warrants for Warrant Shares, having exchanged warrants for the
Exchange Warrants, or having exercised Exchange Warrants for Exchange Warrant Shares.



     4.17 Other Securities Purchase Agreements. In the event that any term or condition
under any of the Other Securities Purchase Agreements is more favorable to the investor thereunder
than the relevant term or condition under this Agreement or in the event that any Other Securities
Purchase Agreement contains a term or condition benefiting the investor thereunder which is not
contained in this Agreement, then at the election of the Investor, such more favorable or
additional term or condition shall be available for the benefit of the Investor and the Company
shall enter into an amendment to this Agreement to incorporate such more favorable or additional
term or condition.



30









 





     4.18 Amendment of Certificate; Stockholder Approval. The Company shall, no later than
75 days after the Closing Date (or 90 days, in the event of SEC review of the Proxy Statement (as
hereinafter defined) (the “Stockholder Approval Deadline”)) and subject to Stockholder Approval (as
hereinafter defined), amend its Certificate of Incorporation to increase the Company’s authorized
shares of Common Stock to an amount equal to at least 100% of the amount that would allow the
issuance of all of the Conversion Shares issuable pursuant to the terms of the Company Shares, the
issuance of Common Stock Warrant Shares, the issuance of Exchange Warrant Shares in the form of
Common Stock, and the issuance of all shares of Common Stock issuable upon the exercise or
conversion of convertible securities, warrants, options, and other derivative securities, after
giving effect to the issuance of the Company Shares, Warrants, and Exchange Warrants. Without
limiting the generality of the foregoing, the Company shall as soon as practicable hold a meeting
of its stockholders (the “Special Meeting”) for the approval of the necessary increase in the
authorized number of shares of Common Stock in accordance with applicable law (the “Stockholder
Proposal” and such affirmative approval being referred to herein as the “Stockholder Approval”),
provide each stockholder a proxy statement, substantially in the form which has been previously
reviewed by the Designated Investor and its counsel (the “Proxy Statement”), use its best efforts
to solicit the Stockholder Approval, and to cause its Board of Directors to recommend to the
stockholders that they provide the Stockholder Approval. In the event that Stockholder Approval is
not obtained by the Stockholder Approval Deadline:



          (a) the Company will take such action reasonably requested by the Designated Investor to
provide the holders of the Prior Warrants then outstanding with the future ability to recognize the
same full value of the Prior Warrants as if the Stockholder Approval had been obtained (such
actions may include, but not be limited to, the amendment of the Prior Warrants to provide for the
future payment by the Company of cash in lieu of shares Common Stock which cannot be issued at the
time of exercise of the Prior Warrants or an exchange of Preferred Stock Exchange Warrants for
Prior Warrants); and




          (b) the Company will not enter into any Fundamental Transaction unless the terms of the
Fundamental Transaction provide the holders of the Prior Warrants with the full
economic benefit they could obtain if shares of Common Stock were available for issuance upon
exercise of the Prior Warrants in connection with such Fundamental Transaction.




     4.19 Stockholder Approval Voting. Each Investor hereby agrees that it will vote all
of the shares of outstanding Common Stock and Preferred Stock beneficially owned by it in favor of
the Stockholder Proposal at the Special Meeting.



     4.20 Follow-On Shareholder Financing. The Company will in good faith consider means of
providing the shareholders of the Company other than the Investors with an opportunity to purchase
securities of the Company on substantially the same or comparable terms as the terms as set forth
in this Agreement, taking into account the cost involved, the existing management resources of the
Company, the likelihood of shareholder interest, and other factors deemed relevant by the Company
(the “Follow-On Shareholder Financing”).



31









 





ARTICLE V.




CONDITIONS PRECEDENT TO CLOSINGS




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



          (a) Representations and Warranties. Each and every representation and warranty of the
Company contained herein shall be true and correct in all respects as of the date when made and in
all material respects as of the Closing Date as though originally made on and as of such date
(except for representations and warranties qualified by materiality or Material Adverse Effect,
which shall be true and correct in all respects). Such Investor shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by such Investor;




          (b) Performance. The Company shall have performed, satisfied and complied in all
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. Such Investor shall have
received a certificate, executed by the Chief Executive Officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested
by such Investor;




          (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 that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;




          (d) Adverse Changes. Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably would have or result in a Material Adverse
Effect;




          (e) No Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock
shall not have been suspended (or threatened to be suspended) by the Commission 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. The Common Stock shall be designated for quotation or
listed on the Principal Market and any required approval of the Principal Market to list the
Company Shares and the Warrant Shares shall have been obtained by the Company;




          (f) Company Deliverables. The Company shall have delivered the Company Deliverables
in accordance with Section 2.2(a);




32









 








          (g) Consents and Approvals. The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the sale of the Securities,
including without limitation, any of those required by the Principal Market;




          (h) Warrant Exchange. The investors in the March 31, 2008 Common Stock and warrant
financing shall have been provided with the opportunity to exchange each warrant they received in
that financing (the “Prior Warrants”) for an Exchange Warrant and Exchange Warrants shall have been
issued to those investors who have elected to make that exchange.




          (i) Certificate of Designation. The Certificate of Designation shall have been filed
with the Secretary of State of the State of Delaware and shall have become effective.




     5.2 Conditions Precedent to the Obligations of the Company to sell Securities. The
obligation of the Company to sell the Units 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 each
Investor 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;




          (b) Performance. Each 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 such Investor at or prior to the Closing;




          (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 that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents; and




          (d) Investor Deliverables. Each Investor shall have delivered its Investor
Deliverables in accordance with Section 2.2(b).




ARTICLE VI.

MISCELLANEOUS




     6.1 Fees and Expenses. Except as specified in Section 6.2 of the Disclosure
Letter, 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 the Transaction Documents. Notwithstanding the
foregoing, the Company shall pay the reasonable legal and closing expenses of Co-Investment Fund,
up to a maximum amount of $40,000, promptly upon receipt of an invoice reflecting such amount.



33









 





     6.2 Entire Agreement. The Transaction Documents, together with the exhibits,
schedules and the Disclosure Letter thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such subject matter, which the
parties acknowledge have been merged into such documents, exhibits and schedules. The Company
confirms that, except for the investment in the Securities as set forth in this Agreement, no
Investor has made any commitment or promise or has any other obligation to provide any financing to
the Company or otherwise.



     6.3 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 (provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section 6.3 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 at the facsimile number specified in this
Section 6.3 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 mailing, if sent by U.S. nationally
recognized overnight courier service (with next day delivery specified), or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such notices and
communications shall be as follows:



	 	 	 
	If to the Company:

	 	Health Benefits Direct Corporation
	 

	 	150 N. Radnor-Chester Road, Radnor, PA 19087
	 

	 	Facsimile: (484) 654-2223
	 

	 	Attn: Chief Financial Officer
	 
	 	 
	With copies to:

	 	Health Benefits Direct Corporation
	 

	 	150 N. Radnor-Chester Road, Radnor, PA 19087
	 

	 	Facsimile: (484) 654-2223
	 

	 	Attn: Vice President and General Counsel
	 
	 	 
	 

	 	Morgan, Lewis & Bockius LLP
	 

	 	1701 Market Street, Philadelphia, PA 19103
	 

	 	Facsimile: (215) 963-5001
	 

	 	Attn: James W. McKenzie, Jr., Esq.
	 
	 	 
	If to an Investor:

	 	To the address set forth under such Investor’s name
on the signature pages hereof;





or such other address as may be designated in writing hereafter, in the same manner, by such
Person.




     6.4 Amendments; Waivers; No Additional Consideration. No provision of any Transaction
Document may be waived or amended except in a written instrument signed by the Company and the
Investors holding a majority of the Securities (or, with respect to Section 4.15



34









 







hereof, in lieu
thereof the consent of the Designated Investor), provided that any party shall have the right to
provide a waiver with regards to itself. No waiver of any default with respect to any provision,
condition or requirement of any Transaction Document shall be deemed to be a continuing waiver in
the future or a waiver of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder
in any manner impair the exercise of any such right. No consideration shall be offered or paid to
any Investor to amend or consent to a waiver or modification of any provision of any Transaction
Document unless the same consideration is also offered to all Investors who then hold the
Securities; provided that with respect to Section 4.15 hereof, such consideration may be offered or
paid solely to the Designated Investor and not any other Investors. No such amendment or waiver
(unless given pursuant to the foregoing provisos) shall be effective to the extent that it applies
to less than all of the holders of the Securities then outstanding.



     6.5 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.
This Agreement shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement or any of the Transaction Documents.



     6.6 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 any or all of its rights under this Agreement and the other
Transaction Documents to any Person to whom such Investor assigns or transfers any Securities,
(other than any rights under Section 4.15 hereof, which are not assignable or transferable except
by the Designated Investor to any affiliate of the Designated Investor) provided such assignee or
transferee agrees in writing to be bound, with respect to the assigned or transferred Securities,
by the provisions hereof that apply to the “Investors,” in which event such assignee or transferee
shall be deemed to be an Investor hereunder with respect to such assigned rights.



     6.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the
parties hereto and their respective successors and permitted assigns and is not for the benefit of,
nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in
Section 4.7 (as to each Investor Party).



     6.8 Governing Law. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of Delaware, without regard to the principles of conflicts of
law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective Affiliates, employees or agents) shall be
commenced exclusively in the Delaware Courts. Each party hereto hereby



35









 







irrevocably submits to the
exclusive jurisdiction of the Delaware Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed herein (including with
respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and
agrees not to assert in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such Delaware Court, or that such Proceeding has been commenced in an improper
or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such 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. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to
trial by jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. If either party shall commence a Proceeding to enforce any
provisions of a Transaction Document, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its reasonable out-of-pocket attorneys’ fees and other reasonable
out-of-pocket costs and expenses incurred with the investigation, preparation and prosecution of
such Proceeding.



     6.9 Survival. The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery of the Securities. Each Investor shall be
responsible only for its own representations, warranties, agreements and covenants hereunder.



     6.10 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, such signature shall create a valid and binding obligation of
the party executing (or on whose behalf such signature is executed) with the same force and effect
as if such facsimile signature page were an original thereof.



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



     6.12 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 under a Transaction Document and the
Company does not timely perform its related obligations within the periods therein provided, then
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.




36









 





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




     6.14 Remedies. In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the parties hereto will be entitled to
specific performance under the Transaction Documents. The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of obligations described
in the foregoing sentence and hereby agrees to waive in any action for specific performance of any
such obligation the defense that a remedy at law would be adequate. The Company therefore agrees
that the Investors shall be entitled to specific performance and temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and without posting a bond
or any other type of security.



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



     6.16 Independent Nature of Investors’ Obligations and Rights. The obligations of each
Investor under the Transaction Documents 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 Document. The decision of each
Investor to purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any other Transaction
Document, and no action taken by any Investor pursuant hereto or thereto, shall be deemed to
constitute the Investors as a partnership, an association, a joint venture or any other kind of
group or entity, or create a presumption that the Investors are in any way acting in concert or as
a group or entity with respect to such obligations or the transactions contemplated by the
Transaction Documents or any other matters, and the Company acknowledges that, to its knowledge,
the Investors are not acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. Each Investor acknowledges



37









 







that no other
Investor has acted as agent for such Investor in connection with such Investor making its
investment hereunder and that no other Investor or counsel or advisor for such other Investor will
be acting as agent of such Investor in connection with monitoring such Investor’s investment in the
Securities or enforcing its rights under the Transaction Documents. The Company and each Investor
confirms that each Investor has independently participated with the Company in the negotiation of
the transaction contemplated hereby with the advice of its own counsel and advisors. 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 any 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. The use of a single agreement to effectuate the purchase and sale of the Securities
contemplated hereby was solely in the control of the Company, not the action or decision of any
Investor, and was done solely for the convenience of the Company and not because it was required or
requested to do so by any Investor. It is expressly understood and agreed that each provision
contained in this Agreement and in each other Transaction Document is between the Company and an
Investor, solely, and not between the Company and the Investors collectively and not between and
among Investors.



     6.17 Delivery of Securities. Notwithstanding anything contained in this Agreement or
any other Transaction Document to the contrary, unless otherwise directed in writing by the
applicable Investor, the Company shall, and shall cause its agents and representatives to, deliver
all of such Investor’s Securities purchased pursuant to this Agreement (and all securities which
are issuable to the Investor pursuant to the terms of this Agreement or any other Transaction
Document) to the address for delivery of Securities set forth on such Investor’s signature page to
this Agreement, and copies of the certificates representing such securities shall be sent to such
Investor to the address of such Investor as set forth on such Investor’s signature page to this
Agreement.



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



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOLLOW]




38









 








     IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the
date first written above.



	 	 	 	 	 
	 	 	Health Benefits Direct Corporation
	 
	 	 	 	 
	 	 	/S/ ANTHONY R. VERDI
	 	 	 
	 

	 	Name:
	 	Anthony R. Verdi
	 

	 	Title:
	 	Chief Financial Officer






[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES FOR INVESTORS FOLLOW]




 









 








     IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the
date first written above.



	 	 	 	 	 
	 	 	THE CO-INVESTMENT FUND II, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	Co-Invest Management II, L.P., its General Partner
	 
	 

	 	By:
	 	Co-Invest II Capital Partners, Inc., its General Partner
	 
	 	 	 	 
	 

	 	By:
	 	/S/ FREDERICK C. TECCE
	 

	 	 	 	 
	 

	 	 	 	Name: Frederick C. Tecce
	 

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	Investment Amount: $4,000,000
	 
	 	 	 	 
	 	 	Tax ID No.: 20-3863585
	 
	 	 	 	 
	 	 	ADDRESS FOR NOTICE
	 
	 	 	 	 
	 	 	c/o Cross Atlantic Capital Partners
	 	 	Five Radnor Corporate Center, Suite 555
	 	 	Radnor, PA 19087
	 	 	Facsimile No.: 610-971-2062
	 	 	*E-mail: ftecce@xacp.com
	 	 	Attn: Frederick C. Tecce