acar8k20100325ex10i.htm


    Exhibit 10(i)

      

      

    

    EXECUTION
COPY

    
       

       

      


      SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

       

      This
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”) is dated
as of March 23, 2010 by and among ActiveCare, Inc., a Delaware corporation (the
“Company”), and
each of the purchasers of shares of Series B Convertible Preferred Stock of the
Company whose names are set forth on Exhibit A hereto and
such purchasers’ respective successors and assigns (individually, a “Purchaser” and
collectively, the “Purchasers”).

       

      The
parties hereto agree as follows:

       

      ARTICLE
I.

      PURCHASE
AND SALE OF PREFERRED STOCK

       

      Section
1.01          Purchase and Sale of
Stock. Upon the following terms and conditions, the Company shall issue
and sell to the Purchasers and each of the Purchasers shall purchase from the
Company, the number of shares of the Company’s Series B Convertible Preferred
Stock, par value $0.00001 per share (the “Series B Convertible
Preferred Stock”), at a purchase price equal to $1.75 per share (the
“Preferred
Shares”), convertible into shares of the Company’s common stock, par
value $0.00001 per share (the “Common Stock”), in
the amounts set forth opposite such Purchaser’s name on Exhibit A hereto. The
designation, rights, preferences and other terms and provisions of the Series B
Convertible Preferred Stock are set forth in the Certificate of Designation of
the Relative Rights and Preferences of the Series B Convertible Preferred Stock
attached hereto as Exhibit B (the “Certificate of
Designation”). The Company and the Purchasers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded by Rule 506 of Regulation D (“Regulation D”) as
promulgated by the United States Securities and Exchange Commission (the “Commission”) under
the Securities Act of 1933, as amended (the “Securities Act”), or
Section 4(2) of the Securities Act.

       

      Section
1.02          Warrants. The Company
agrees to issue to each of the Purchasers a Class C Warrant in substantially the
form attached hereto as Exhibit C (the “Warrants”),  to
purchase a number of shares of Common Stock equal to one hundred percent (100%)
of the number of Conversion Shares initially issuable upon conversion of such
Purchaser’s Preferred Shares purchased. The number of Warrants each Purchaser
shall be issued pursuant to this Agreement is set forth opposite such
Purchaser’s name on Exhibit A hereto. The
Warrants shall have an initial term of five (5) years from the Closing Date and
shall have an exercise price per share equal to $3.00 (as defined in the
applicable Warrant).

       

      Section
1.03          Conversion Shares.
The Company has authorized and has reserved and covenants to continue to
reserve, free of preemptive rights and other similar contractual rights of
stockholders, a number of shares of Common Stock equal to one hundred twenty
percent (120%) of the number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Preferred Shares and
exercise of the Warrants then outstanding. Any shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants (and such
shares when issued) are herein referred to as the “Conversion Shares”
and the
“Warrant
Shares”, respectively. The Preferred Shares, the Conversion Shares and
the Warrant Shares are sometimes collectively referred to as the “Shares”.

      


      
        
          
             


          

          
             


            
              

            

          

          
             


            
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      Section
1.04          Purchase Price and
Closing. Subject to the terms and conditions hereof, the Company agrees
to issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Purchasers, severally but not jointly with respect to the
amounts set forth opposite the name of each such Purchaser respectively on Exhibit A, agree to
purchase the Preferred Shares and the Warrants for an aggregate purchase price
of $700,000 (the “Purchase Price”). The
closing of the purchase and sale of the Preferred Shares and the Warrants to be
acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Haynes and Boone, LLP, 1221 Avenue of the Americas,
26th
Floor, New York, New York 10020 (the “Closing”) at 10:00
a.m., New York time (i) on or before March 24, 2010; provided, that all of the
conditions set forth in Article IV hereof and applicable to the Closing shall
have been fulfilled or waived in accordance herewith, or (ii) at such other time
and place or on such date as the Purchasers and the Company may agree upon (the
“Closing
Date”). Subject to the terms and conditions of this Agreement, at the
Closing the Company shall deliver or cause to be delivered to each Purchaser (x)
a certificate for the number of Preferred Shares set forth opposite the name of
such Purchaser on Exhibit A hereto, (y)
a Warrant to purchase such number of shares of Common Stock as is set forth
opposite the name of such Purchaser on Exhibit A attached
hereto and (z) any other documents required to be delivered pursuant to Article
IV hereof.

       

      ARTICLE
II.

      REPRESENTATIONS
AND WARRANTIES

       

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

       

      (a)           Organization, Good Standing
and Power. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to own, lease and operate its properties and
assets and to conduct its business as it is now being conducted. The Company
does not have any subsidiaries except as set forth in the Company’s Annual
Report on Form 10-K for the year ended September 30, 2009, including the
accompanying financial statements (the “Form 10-K”), or in
the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 2009 (the “Form 10-Q”), or on
Schedule
2.01(g) hereto. The Company and each such subsidiary is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary except for any jurisdiction(s) (alone or
in the aggregate) in which the failure to be so qualified will not have a
Material Adverse Effect (as defined in Section 2.01(c) hereof) on the Company’s
financial condition.

       

      (b)           Authorization;
Enforcement. The Company has the requisite corporate power and authority
to enter into and perform this Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 3.14 hereof), the Certificate of Designation
and the Warrants (collectively, the “Transaction
Documents”) and to issue and sell the Shares and the Warrants in
accordance with the terms hereof and otherwise carry out its obligations
thereunder. The execution, delivery and performance of the Transaction Documents
by the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required. This Agreement has been duly
executed and delivered by the Company. The other Transaction Documents will have
been duly executed and delivered by the Company at the Closing. Each of the
Transaction Documents constitutes, or shall constitute when executed and
delivered, a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or
affecting generally the enforcement of, creditor’s rights and remedies or by
other equitable principles of general application.

      


      
        
          
             


          

          
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      (c)           Capitalization. The
authorized capital stock of the Company, the number of shares of such capital
stock issued and outstanding, and the number of shares of capital stock reserved
for issuance upon the exercise or conversion of all outstanding warrants, stock
options, and other securities issued by the Company, as of the date hereof, are
set forth on Schedule
2.01(c) hereto.  All of the outstanding shares of the Common
Stock and any other outstanding security of the Company have been duly and
validly authorized and validly issued, fully paid and nonassessable and were
issued in accordance with the registration or qualification provisions of the
Securities Act, or pursuant to valid exemptions therefrom. Except as set forth
in this Agreement and as set forth on Schedule 2.01(c)
hereto, no shares of Common Stock or any other security of the Company are
entitled to preemptive rights, registration rights, rights of first refusal or
similar rights and there are no outstanding options, warrants, scrip, rights to
subscribe to, call or commitments of any character whatsoever granted by the
Company or existing pursuant to agreements to which the Company is a party and
relating to, or securities or rights convertible into, any shares of capital
stock of the Company. Furthermore, except as set forth in this Agreement and as
set forth on Schedule
2.01(c) hereto, there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except as set forth in
this Agreement or as set forth on Schedule 2.01(c)
hereto, the Company is not a party to or bound by any agreement or understanding
granting registration or anti-dilution rights to any person with respect to any
of its equity or debt securities. Except as set forth on Schedule 2.01(c)
hereto, the Company is not a party to, and it has no knowledge of, any agreement
or understanding restricting the voting or transfer of any shares of the capital
stock of the Company. Except as disclosed on Schedule 2.01(c) or
2.01(k) hereto,
(i) there are no outstanding debt securities, or other form of material debt of
the Company or any of its subsidiaries, (ii) there are no outstanding securities
of the Company or any of its subsidiaries that contain any redemption or similar
provisions, and there are no contracts, commitments, understandings, agreements
or arrangements by which the Company or any of its subsidiaries
is or may become bound to redeem a security of the Company or any of its
subsidiaries, (iii) the Company does not have any stock appreciation rights or
“phantom stock” plans or agreements, or any similar plan or agreement and (iv)
as of the date of this Agreement, except as disclosed on Schedule 2.01(c)
hereto, to the Company’s and each of its subsidiaries’ knowledge, no Person (as
defined below) or group of related Persons beneficially owns or has the right to
acquire by agreement with or by obligation binding upon the Company, beneficial
ownership of in excess of 5% of the Common Stock. Any Person with any right to
purchase securities of the Company that would be triggered as a result of the
transactions contemplated hereby or by any of the other Transaction Documents
has waived such rights or the time for the exercise of such rights has passed.
Except as set forth on Schedule 2.01(c)
hereto, there are no options, warrants or other outstanding securities of the
Company (including, without limitation, any equity securities issued pursuant to
any Company stock incentive plan or employee stock purchase plan) the vesting of
which will be accelerated by the transactions contemplated hereby or by any of
the other Transaction Documents. The Company has furnished or made available to
the Purchasers true and correct copies of the Company’s Certificate of
Incorporation as in effect on the date hereof (the “Certificate”), and
the Company’s Bylaws as in effect on the date hereof (the “Bylaws”). For
purposes of this Agreement, “Person” shall mean 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.
For the purposes of this Agreement, “Material Adverse
Effect” means any material adverse effect on the business, operations,
assets, properties, prospects or financial condition of the Company and its
subsidiaries, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
perform any of its obligations under the Transaction Documents in any material
respect.

      


      
        
          
             


          

          
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      (d)           Issuance of Shares.
The Preferred Shares and the Warrants to be issued at the Closing have been duly
authorized by all necessary corporate action and the Preferred Shares, when paid
for or issued in accordance with the terms hereof, shall be validly issued and
outstanding, fully paid and nonassessable and entitled to the rights and
preferences set forth in the Certificate of Designation. When the Conversion
Shares and the Warrant Shares are issued in accordance with the terms of the
Certificate of Designation and the Warrants, respectively, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders shall be entitled to
all rights accorded to a holder of Common Stock.

       

      (e)           No Conflicts. The
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designation and the Warrants and the consummation by the Company of the
transactions contemplated herein and therein do not and will not (i) conflict
with or violate any provision of the Company’s Certificate or Bylaws or the
organizational documents of any subsidiary of the Company, (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument
or obligation to which the Company or any subsidiary of the Company is a party
or by which it or its properties or assets are bound, (iii) create or impose a
lien, mortgage, security interest, charge or encumbrance of any nature on any
property of the Company or any subsidiary of the Company under any agreement or
any commitment to which the Company or any subsidiary of the Company is a party
or by which the Company is bound or by which any of its respective properties or
assets are bound or (iv) result in a violation of any federal, state, local or
foreign statute, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations) applicable to the Company or any of
its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries are bound or affected, except, in all cases other than violations
pursuant to clauses (i) and (iv) above, for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect.  The business of the Company and its
subsidiaries is not being conducted in violation of any laws, ordinances or
regulations of any government entity, except for possible violations which
singly or in the aggregate do not and will not have a Material Adverse
Effect.

      


      
        
          
             


          

          
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      (f)           Commission Documents,
Financial Statements.  The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act, including material filed pursuant to
Section 13(a) or 15(d) of the Exchange Act from January 1, 2009 through the date
hereof (all of the foregoing including filings incorporated by reference therein
being referred to herein as the “Commission
Documents”).  The Company has delivered or made available to
each of the Purchasers true and complete copies of the Commission
Documents.  The Company has not provided to the Purchasers any
material non-public information or other information which, according to
applicable law, rule or regulation, was required to have been disclosed publicly
by the Company but which has not been so disclosed, other than with respect to
the transaction contemplated by this Agreement.  At the times of their
respective filings, the Commission Documents complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the
Commission promulgated thereunder and other federal, state and local laws, rules
and regulations applicable to such documents and, as for their respective dates,
none of the Commission Documents 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 Commission Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission or other applicable rules and
regulations with respect thereto.  Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles (“GAAP”) applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the case
of unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements), and fairly present in all material
respects the financial
position of the Company and its subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit
adjustments).

      


      
        
          
             


          

          
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      (g)           Subsidiaries. Schedule 2.01(g)
hereto sets forth each subsidiary of the Company, showing the jurisdiction of
its incorporation or organization and showing the percentage of each Person’s
ownership. For the purposes of this Agreement, “subsidiary” shall
mean any corporation or other entity of which at least a majority of the
securities or other ownership interest having ordinary voting power (absolutely
or contingently) for the election of directors or other persons performing
similar functions are at the time owned directly or indirectly by the Company
and/or any of its other subsidiaries. All of the outstanding shares of capital
stock of each subsidiary have been duly authorized and validly issued, and are
fully paid and nonassessable.  There are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or issued by
or binding upon any subsidiary for the purchase or acquisition of any shares of
capital stock of any subsidiary or any other securities convertible into,
exchangeable for or evidencing the rights to subscribe for any shares of such
capital stock. Neither the Company nor any subsidiary is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of the capital stock of any subsidiary or any convertible
securities, rights, warrants or options of the type described in the preceding
sentence. Neither the Company nor any subsidiary is party to, nor has any
knowledge of, any agreement restricting the voting or transfer of any shares of
the capital stock of any subsidiary.

       

      (h)           No Material Adverse
Change. Since September 30, 2009, neither the Company nor any subsidiary
has experienced or suffered any Material Adverse Effect or any event, occurrence
or development that could reasonably be expected to result in a Material Adverse
Effect.

       

      (i)     
      No Undisclosed
Liabilities. Neither the Company nor any of its subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company’s or its subsidiaries
respective businesses since September 30, 2009, and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the Company
or its subsidiaries.

       

      (j)    
       No Undisclosed Events or
Circumstances. No event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial condition, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or
disclosed.

       

      (k)           Indebtedness. Schedule 2.01(k)
hereto sets forth as of a recent date all outstanding secured and unsecured
Indebtedness of the Company or any subsidiary, or for which the Company or any
subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” shall
mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000
(other than trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and (c) the present
value of any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.

      


      
        
          
             


          

          
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      (l)         
  Title to
Assets. Each of the Company and its subsidiaries has good and marketable
title to all of its real and personal property set forth in the Form 10-K and
the Form 10-Q, free and clear of any mortgages, pledges, charges, liens,
security interests or other encumbrances (collectively, “Liens”) except for
those that, individually or in the aggregate, do not cause and are not
reasonably likely to cause a Material Adverse Effect. All leases of the Company
and each of its subsidiaries are valid and subsisting and in full force and
effect.

       

      (m)           Actions Pending.
There is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge of
the Company, threatened against the Company or any subsidiary which questions
the validity of this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby or any action taken or to be taken
pursuant hereto or thereto. Except as set forth in Schedule 2.01(m),
there is no action, suit, claim, investigation, arbitration, alternate dispute
resolution proceeding or any other proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary or any
of their respective properties or assets. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, arbitrator or
governmental or regulatory body against the Company or any subsidiary or any
officers or directors of the Company or subsidiary in their capacities as
such.

       

      (n)           Compliance with Law.
The business of the Company and its subsidiaries has been and is presently being
conducted in accordance with all applicable federal, state, local and foreign
governmental laws, rules, regulations and ordinances, except for such
noncompliance that, individually or in the aggregate, would not cause a Material
Adverse Effect. The Company and each of its subsidiaries have all franchises,
permits, licenses, consents and other governmental or regulatory authorizations
and approvals necessary for the conduct of its business as now being conducted
by it unless the failure to possess such franchises, permits, licenses, consents
and other governmental or regulatory authorizations and approvals, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

       

      (o)           Taxes. The Company
and each of its subsidiaries has accurately prepared and filed all federal,
state, foreign and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company and its subsidiaries for all current
taxes and other charges to which the Company or any subsidiary is subject and
that are not currently due and payable. None of the federal income tax returns
of the Company or any subsidiary have been
audited by the Internal Revenue Service (the “IRS”). The Company
has no knowledge of any additional assessments, adjustments or contingent tax
liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Company or any subsidiary for any completed tax
period, nor of any basis for any such assessment, adjustment or
contingency.

      


      
        
          
             


          

          
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      (p)           Certain Fees. No
brokers, finders or financial advisory fees or commissions will be payable by
the Company or any subsidiary or any Purchaser with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by a Purchaser pursuant to written agreements executed by such
Purchaser which fees or commissions shall be the sole responsibility of such
Purchaser) made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.

       

      (q)           Disclosure. Neither
this Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
subsidiary in connection with the transactions contemplated by this Agreement
(the “Disclosure
Materials”) contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under which they were made herein or
therein, not misleading.

       

      (r)      
     Intellectual
Property. The Company and each of its subsidiaries owns or possesses all
patents, trademarks, domain names (whether or not registered) and any patentable
improvements or copyrightable derivative works thereof, websites and
intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations as set forth in Schedule 2.01(r)
hereto, and all rights with respect to the foregoing, that are necessary for the
conduct of its business as now conducted without any conflict with the rights of
others (the “Intellectual
Property”). There are no material options, licenses or agreements
relating to the Intellectual Property, nor is the Company or any subsidiary
bound by or a party to any material options, licenses or agreements relating to
the patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names or copyrights of any other person or entity. There is no claim or action
or proceeding pending or, to the Company’s knowledge, threatened that challenges
the right of the Company or any subsidiary with respect to any Intellectual
Property or challenges the validity or scope of any Intellectual Property owned
or licensed by the Company or any subsidiary.  There is no claim or
action or proceeding pending or, to the Company’s knowledge, threatened by
others that the Company or any subsidiary violates any patent, trademark,
copyright, trade secret or other proprietary right of others. The Company is
unaware of any reasonably discernable facts or circumstances that might give
rise to any claim, action or proceeding against the Company or any subsidiary
for infringement of any issued patent, trademark, or copyright of any third
party.

      


      
        
          
             


          

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

       

      (t)           Books and Record Internal
Accounting Controls. The books and records of the Company and its
subsidiaries accurately reflect in all material respects the information
relating to the business of the Company and its subsidiaries, the location and
collection of their assets, and the nature of all transactions giving rise to
the obligations or accounts receivable of the Company or any subsidiary. Except
as set forth in the Commission Documents, the Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company, to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate actions are taken with respect to any differences.
The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and its subsidiaries and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its subsidiaries, is made known to the certifying
officers by others within those entities.

      


      
        
          
             


          

          
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      (u)           Material Agreements.
Neither the Company nor any subsidiary is a party to any written or oral
contract, instrument, agreement, commitment, obligation, plan or arrangement, a
copy of which would be required to be filed with the Commission as an exhibit to
a registration statement on Form S-1 or applicable form (collectively, “Material Agreements”)
if the Company or any subsidiary were registering securities under the
Securities Act that has not been so filed. The Company and each of its
subsidiaries have in all material respects performed all the obligations
required to be performed by them to date under the foregoing agreements, have
received no notice of default and are not in default under any Material
Agreement now in effect, the result of which could cause a Material Adverse
Effect. Except as set forth on Schedule 2.01(u)
hereto, no written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company or of any subsidiary limits or
shall limit the payment of dividends on the Company’s Preferred Shares, other
preferred stock, if any, or its Common Stock.

       

      (v)           Transactions with
Affiliates. Except as set forth in Schedule 2.01(v)
hereto there are no loans, leases, agreements, contracts, royalty agreements,
management contracts or arrangements or other continuing transactions between
(a) the Company or any subsidiary on the one hand, and (b) on the other hand,
any officer or director of the Company, or any of its subsidiaries, or any
person owning 5% or more of any class of the Company’s voting securities or any
member of the immediate family of such officer, director or stockholder or any
corporation or other entity controlled by such officer, director or stockholder,
or a member of the immediate family of such officer, director or
stockholder.

       

      (w)           Securities Act of
1933. Based in material part upon the representations herein of the
Purchasers, the Company has complied and will comply with all applicable federal
and state securities laws in connection with the offer, issuance and sale of the
Shares and Warrants hereunder. Neither the Company nor anyone acting on its
behalf, directly or indirectly, has or will sell, offer to sell or solicit
offers to buy any of the Shares, the Warrants or similar securities to, or
solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any person, or has taken or
will take any action so as to bring the issuance and sale of any of the Shares
and the Warrants under the registration provisions of the Securities Act and
applicable state securities laws, and neither the Company nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
any of the Shares and the Warrants.

       

      (x)           Certain Registration
Matters. Assuming the accuracy of the Purchasers’ representations and
warranties set forth herein, no registration under the Securities Act is
required for the offer and sale of the Shares or the Warrants by the Company to
the Purchasers under the Transaction Documents.

       

      (y)           Governmental
Approvals. Except for the filing of any notice prior or subsequent to the
Closing Date that may be required under applicable state and/or federal
securities laws (which if required, shall be filed on a timely basis), including
the filing of a Form D, and the filing of the Certificate of Designation with
the Secretary of State for the State
of Delaware, no authorization, consent, approval, license, exemption of, filing
or registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Shares and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.

      


      
        
          
             


          

          
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      (z)           Employees. Neither
the Company nor any subsidiary has any collective bargaining arrangements or
agreements covering any of its employees. Except as set forth on Schedule 2.01(z)
hereto, neither the Company nor any subsidiary has any employment contract,
agreement regarding proprietary information, non-competition agreement,
non-solicitation agreement, confidentiality agreement, or any other similar
contract or restrictive covenant, relating to the right of any officer, employee
or consultant to be employed or engaged by the Company or such subsidiary. No
officer, consultant or key employee of the Company or any subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any subsidiary.

       

      (aa)           Absence of Certain
Developments. Except as set forth on Schedule 2.01(aa)
hereto, since September 30, 2009 neither the Company nor any subsidiary
has:

       

      
        	
                 
      

              	
                (i)

              	
                issued
      any stock, bonds or other corporate securities or any rights, options or
      warrants with respect thereto;

              


      

       

      
        	
                 
      

              	
                (ii)

              	
                borrowed
      any amount or incurred or become subject to any liabilities (absolute or
      contingent) except current liabilities incurred in the ordinary course of
      business that are comparable in nature and amount to the current
      liabilities incurred in the ordinary course of business during the
      comparable portion of its prior fiscal year, as adjusted to reflect the
      current nature and volume of the Company’s or such subsidiary’s
      business;

              


      

       

      
        	
                 
      

              	
                (iii)

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

              


      

       

      
        	
                 
      

              	
                (iv)

              	
                declared
      or made any payment or distribution of cash or other property to
      stockholders with respect to its stock, or purchased or redeemed, or made
      any agreements so to purchase or redeem, any shares of its capital
      stock;

              


      

       

      
        	
                 
      

              	
                (v)

              	
                sold,
      assigned or transferred any other tangible assets, or canceled any debts
      or claims, except in the ordinary course of
  business;

              


      

       

      
        	
                 
      

              	
                (vi)

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

              


      

       

      
        
          
             


          

          
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                (vii)

              	
                suffered
      any substantial losses or waived any rights of material value, whether or
      not in the ordinary course of business, or suffered the loss of any
      material amount of prospective business from an existing
      customer;

              


      

       

      
        	
                 
      

              	
                (viii)

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

              


      

       

      
        	
                 
      

              	
                (ix)

              	
                made
      capital expenditures or commitments therefor that aggregate in excess of
      $50,000;

              


      

       

      
        	
                 
      

              	
                (x)

              	
                entered
      into any other contract or agreement involving payment obligations of more
      than $25,000 other than in the ordinary course of business, or entered
      into any other material contract or agreement involving payment
      obligations of more than $50,000 or performable over a period of more than
      one year, whether or not in the ordinary course of
    business;

              


      

       

      
        	
                 
      

              	
                (xi)

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

              


      

       

      
        	
                 
      

              	
                (xii)

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

              


      

       

      
        	
                 
      

              	
                (xiii)

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

              


      

       

      
        	
                 
      

              	
                (xiv)

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

              


      

       

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

       

      (cc)           ERISA. No liability
to the Pension Benefit Guaranty Corporation has been incurred with respect to
any Plan (as defined below) by the Company or any of its subsidiaries that is or
would be materially adverse to the Company and its subsidiaries. The execution
and delivery of this Agreement and the issuance and sale of the Preferred Shares
and Warrants will not involve any transaction that is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended (the “Code”), provided
that, if any of the Purchasers, or any person or entity that owns a beneficial
interest in any of the Purchasers, is an “employee pension benefit plan” (within
the meaning of Section 3(2) of ERISA) with respect to which the Company is a
“party in interest” (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.
As used in this Section 2.01(cc), the term “Plan” shall mean an
“employee pension benefit plan” (as defined in Section 3 of ERISA) that is or
has been established or maintained, or to which contributions are or have been
made, by the Company or any subsidiary or by any trade or business, whether or
not incorporated, which, together with the Company or any subsidiary, is under
common control, as described in Section 414(b) or (c) of the
Code.

      


      
        
          
             


          

          
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      (dd)           Dilutive Effect. The
Company understands and acknowledges that its obligation to issue Conversion
Shares upon conversion of the Preferred Shares in accordance with this Agreement
and the Certificate of Designation and its obligation to issue the Warrant
Shares upon the exercise of the Warrants in accordance with this Agreement and
the Warrants, is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interest of other
stockholders of the Company.

       

      (ee)           No Integrated
Offering. Neither the Company, nor any subsidiary nor any of its or their
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Shares
and the Warrants pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the Securities Act that would prevent
the Company from selling the Shares and the Warrants pursuant to Rule 506 under
the Securities Act, or any applicable exchange-related stockholder approval
provisions, nor will the Company or any of its affiliates or subsidiaries take
any action or steps that would cause the offering of the Shares or the Warrants
to be integrated with other offerings. The Company does not have any
registration statement pending but not yet effective before the Commission or
currently under the Commission’s review and except as set forth on Schedule 2.01(ee)
hereto, since September 10, 2009, the Company has not offered or sold any of its
equity securities or debt securities convertible into shares of Common
Stock.

       

      (ff)           Sarbanes-Oxley Act.
The Company is in compliance with the applicable provisions of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),
and the rules and regulations promulgated thereunder that are effective, and
intends to comply with other applicable provisions of the Sarbanes-Oxley Act and
the rules and regulations promulgated thereunder upon the effectiveness of such
provisions.

       

      (gg)           Independent Nature of
Purchasers. The Company acknowledges that the obligations of each
Purchaser under the Transaction Documents are several and not joint with the
obligations of any other Purchaser, and no Purchaser shall be responsible in any
way for the performance of the obligations of any other Purchaser under the
Transaction Documents. The Company acknowledges that to the best of its
knowledge, the decision of each Purchaser to purchase securities pursuant to
this Agreement has been made by such Purchaser independently of any other
purchase and independently of any information, materials, statements or opinions
as to the business, affairs, operations, assets, properties, liabilities,
results of operations, condition (financial or otherwise) or prospects of the
Company or of its subsidiaries that may have been made or given by any other
Purchaser or by any agent or employee of any other Purchaser, and no Purchaser
or any of its agents or employees shall have any liability to any Purchaser (or
any other person)
relating to or arising from any such information, materials, statements or
opinions. The Company acknowledges that nothing contained herein, or in any
Transaction Document, and no action taken by any Purchaser pursuant hereto or
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges that each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that for reasons of administrative convenience only, the
Transaction Documents have been prepared by counsel for one of the Purchasers
and such counsel does not represent all of the Purchasers but only such
Purchaser and the other Purchasers have retained their own individual counsel
with respect to the transactions contemplated hereby. The Company acknowledges
that it has elected to provide all Purchasers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Purchasers.

      


      
        
          
             


          

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

       

      (ii)           Insurance. Except as
set forth on Schedule
2.01(ii) hereto, the Company and its 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
its subsidiaries are engaged. To the best of Company’s knowledge, such insurance
contracts and policies are valid and in full force and effect. Neither the
Company nor any subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business without a significant increase in cost.

       

      (jj)           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 (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation the
Company’s issuance of the Shares and the Warrants and the Purchasers’ ownership
of the Shares and the Warrants.

      


      
        
          
             


          

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

      

       

      (ll)      
      Off-Balance Sheet
Arrangements. There is no transaction, arrangement, or other relationship
between the Company and an unconsolidated or other off balance sheet entity that
is not disclosed in its financial statements that should be disclosed in
accordance with GAAP and that would be reasonably likely to have a Material
Adverse Effect.

       

      (mm)           Manipulation of
Price. The Company has not, and to its knowledge no one acting on its
behalf has, (i) taken, directly or indirectly, any action designed to cause or
to result or that could reasonably be expected to cause or result, in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Shares or the Warrants or (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Shares and the Warrants.

       

      (nn)           No Disagreements with
Accountants. There are no unresolved disagreements regarding the
Company’s accounting policies presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants formerly or
presently employed by the Company. The Company’s accountants are set forth in
the Schedule
2.01(nn) hereto. To the Company’s knowledge, such accountants are an
independent registered public accounting firm as required by the Securities
Act.

       

      (oo)           Material Non-Public
Information. Except with respect to the transactions contemplated hereby,
the Company has not provided any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information.

       

      (pp)           Solvency.  Except
as set forth on Schedule 2.01(pp)
hereto, the Company has not taken any steps to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings or any
actual knowledge of any fact which would reasonably lead a creditor to do
so.

       

      Section
2.02          Representations and
Warranties of the Purchasers. Each of the Purchasers hereby makes the
following representations and warranties to the Company with respect solely to
itself and not with respect to any other Purchaser:

      


      
        
          
             


          

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

      

       

      (b)           Authorization and
Power. Each Purchaser has the requisite power and authority to enter into
and perform this Agreement and to purchase the Preferred Shares and the Warrants
being sold to it hereunder. The execution, delivery and performance of this
Agreement by such Purchaser and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
partnership action, and no further consent or authorization of such Purchaser or
its Board of Directors, stockholders, or partners, as the case may be, is
required. This Agreement has been duly authorized, executed and delivered by
such Purchaser and constitutes, or shall constitute when executed and delivered,
a valid and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with the terms thereof.

       

      (c)           Purchase For Own
Account. Each Purchaser is acquiring the Preferred Shares and the
Warrants solely for its own account and not with a view to or for sale in
connection with distribution. Each Purchaser does not have a present intention
to sell the Preferred Shares or the Warrants, nor a present arrangement (whether
or not legally binding) or intention to effect any distribution of the Preferred
Shares or the Warrants to or through any person or entity; provided, however, that by
making the representations herein and subject to Section 2.02(g) below, such
Purchaser does not agree to hold the Preferred Shares or the Warrants for any
minimum or other specific term and reserves the right to dispose of the
Preferred Shares or the Warrants at any time in accordance with federal and
state securities laws applicable to such disposition. Each Purchaser
acknowledges that it is able to bear the financial risks associated with an
investment in the Preferred Shares and the Warrants and that it has been given
full access to such records of the Company and its subsidiaries and to the
officers of the Company and its subsidiaries and received such information as it
has deemed necessary or appropriate to conduct its due diligence investigation
and has sufficient knowledge and experience in investing in companies similar to
the Company in terms of the Company’s stage of development so as to be able to
evaluate the risks and merits of its investment in the Company.

       

      (d)           Status of
Purchasers. Such Purchaser
is an “accredited investor” as defined in Regulation D promulgated under the
Securities Act. Such Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act and such Purchaser is not a
broker-dealer.

       

      (e)           Opportunities for Additional
Information. Each Purchaser acknowledges that such Purchaser has had the
opportunity to ask questions of and receive answers from, or obtain additional
information from, the executive officers of the Company concerning the financial
and other affairs of the Company, and to the extent deemed necessary in light of
such Purchaser’s personal knowledge of the Company’s affairs, such Purchaser has
asked such questions and received answers to the full satisfaction of such
Purchaser, and such Purchaser desires to invest in the Company. Neither such
inquiries nor any other investigation conducted by or on behalf of such
Purchaser or its representatives or counsel shall modify, amend or affect such
Purchaser’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.

      


      
        
          
             


          

          
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      (f)        
   No
General Solicitation. Each Purchaser acknowledges that the Preferred
Shares and the Warrants were not offered to such Purchaser by means of any form
of general or public solicitation or general advertising, or publicly
disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media, or broadcast over television or radio or
(ii) any seminar or meeting to which such Purchaser was invited by any of the
foregoing means of communications.

       

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

       

      (h)           General. Such
Purchaser understands that the Preferred Shares and the Warrants are being
offered and sold in reliance on a transactional exemption from the registration
requirement of federal and state securities laws and the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Preferred Shares and the Warrants.

       

      (i)          
 Governmental
Review.  The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Shares or the
Warrants.

       

      (j)      
     Independent
Investment. Except as may be disclosed in any filings with the Commission
by the Purchasers under Section 13 and/or Section 16 of the Exchange Act, no
Purchaser has agreed to act with any other Purchaser for the purpose of
acquiring, holding, voting or disposing of the Shares and the Warrants purchased
hereunder for purposes of Section 13(d) under the Exchange Act, and each
Purchaser is acting independently with respect to its investment in the Shares
and the Warrants.

       

      
      

      


      
        
          
             


          

          
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        ARTICLE
III.

        COVENANTS

         

        The
Company covenants with the Purchasers as follows (subject to the provisions of
Section 7.03 hereof), which covenants are for the benefit of the Purchasers and
their permitted assignees (as defined herein).


      

      Section
3.01           Securities
Compliance. The Company shall notify the Commission in accordance with
its rules and regulations, of the transactions contemplated by any of the
Transaction Documents, including filing a Form D with respect to the Shares and
the Warrants as required under Regulation D, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares and the Warrants
to the Purchasers or subsequent holders. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to be taken on or before the Closing Date in order to obtain an
exemption for or to qualify the Shares and the Warrants for sale to the
Purchasers 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 Purchasers on or prior to the Closing Date. The Company shall make all
filings and reports relating to the offer and sale of the Shares and the
Warrants required under applicable securities or “Blue Sky” laws of the states
of the United States following the Closing Date.

       

      Section
3.02           Reporting Obligations and
Sales of Unregistered Securities.  So long as any Purchaser
holds any Shares or Warrants, the Company shall cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, to
comply in all respects with its reporting and filing obligations under the
Exchange Act and shall not take any action or file any document (whether or not
permitted by the Securities Act or the rules promulgated thereunder) to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company further covenants
that it will take such further action as the Purchasers may reasonably request,
all to the extent required from time to time to enable the Purchasers to sell
the Shares and Warrants, without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act. Upon the request of the Purchasers, the Company shall deliver to
the Purchasers a written certification of a duly authorized officer as to
whether it has complied with such requirements.

       

      Section
3.03           Listing.  So
long as any Purchaser holds any Shares or Warrants, the Company shall take all
action necessary to continue the listing or trading of the Company’s Common
Stock on the Over the Counter Bulletin Board automated quotation system
maintained by the Financial Industry Regulatory Authority, Inc. (the “OTCBB”). Furthermore,
upon the Company satisfying the initial listing standards of either the Nasdaq
Capital Market, the Nasdaq Global Market or the Nasdaq Global Select Market, the
Company shall use its best efforts to have its Common Stock (including the
Conversion Shares and the Warrant Shares) approved for trading on either the
Nasdaq Capital Market, the Nasdaq Global Market or the Nasdaq Global Select
Market, as the case may be, and, upon any such approval, to take all action
necessary to continue the listing or trading of the Company’s Common Stock on
one of these three national exchanges.

      


      
        
          
             


          

          
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        Section
3.04           Inspection Rights. So
long as any Purchaser holds any Shares or Warrants, the Company shall permit,
during normal business hours and upon reasonable request and reasonable notice,
each Purchaser or any employees, agents or representatives thereof, for purposes
reasonably related to such Purchaser’s interests as a stockholder, to examine
and make reasonable copies of and extracts from the records and books of account
of, and visit and inspect the properties, assets, operations and business of the
Company and any subsidiary, and to discuss the
affairs, finances and accounts of the Company and any subsidiary with any of its
officers, consultants, directors, and key employees.

      

       

      Section
3.05          Compliance with Laws.
The Company shall comply, and cause each subsidiary to comply, with all
applicable laws, rules, regulations and orders, noncompliance with which could
have a Material Adverse Effect.

       

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

       

      Section
3.07           Reporting
Requirements. So long as any Purchaser holds any Shares or Warrants, if
the Commission ceases making periodic reports filed under the Exchange Act
available via the Internet, then at a Purchaser’s request the Company shall
furnish the following to such Purchaser:

       

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

       

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

       

      (c)           Copies
of all notices and information, including, without limitation, notices and proxy
statements in connection with any meetings, that are provided to holders of
shares of Common Stock, contemporaneously with the delivery of such notices or
information to such holders of Common Stock.

       

      Section
3.08          Amendments. The
Company shall not amend or waive any provision of the Certificate or Bylaws of
the Company in any way that would adversely affect the liquidation preferences,
dividends rights, conversion rights, voting rights or redemption rights of the
Preferred Shares; provided, however, that (i) any
other class or series of equity securities which by its terms shall rank pari passu or senior to the
Preferred Shares may be created and issued with the prior written consent of the
holders of seventy-five percent (75%) of the Preferred Shares then outstanding
and (ii) any creation and issuance of another series of Junior Stock (as defined
in the Certificate of Designation) or any other class or series of equity
securities which by its terms shall rank junior to the Preferred Shares shall
not be deemed to materially and adversely affect such rights, preferences or
privileges. 

      


      
        
          
             


          

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



      Section
3.10           Distributions. So
long as any Purchaser holds any Shares or Warrants, the Company agrees that it
shall not (i) declare or pay any dividends or make any distributions to any
holder(s) of Common Stock or (ii) purchase or otherwise acquire for value,
directly or indirectly, any Common Stock or other equity security of the Company
(other than repurchases from employees of the Company not to exceed $50,000 in
the aggregate amount per fiscal year, or provided that all dividends have been
paid upon the Preferred Shares, repurchases pursuant to Rule 10b-18 under the
Exchange Act of up to $50,000 per fiscal year).

       

      Section
3.11           Status of Dividends.
The Company covenants and agrees that (i) in no report to stockholders or to any
governmental body having jurisdiction over the Company or otherwise will it
treat the Preferred Shares other than as equity capital or the dividends paid
thereon other than as dividends paid on equity capital unless required to do so
by a governmental body having jurisdiction over the accounts of the Company or
by a change in GAAP required as a result of action by an authoritative
accounting standards setting body and (ii) it will take no action that would
result in the dividends paid by the Company on the Preferred Shares out of the
Company’s current or accumulated earnings and profits being ineligible for the
dividends received deduction provided by Section 243(a)(1) of the Code. The
preceding sentence shall not be deemed to prevent the Company from designating
the Preferred Stock as “Convertible Preferred Stock” in its annual and quarterly
financial statements. In the event that the Purchasers have reasonable cause to
believe that dividends paid by the Company on the Preferred Shares out of the
Company’s current or accumulated earnings and profits will not be treated as
eligible for the dividends received deduction provided by Section 243(a)(1) of
the Code, or any successor provision, the Company will, at the reasonable
request of the Purchasers of 51% of the outstanding Preferred Shares, join with
the Purchasers in the submission to the IRS of a request for a ruling that
dividends paid on the Preferred Shares will be so eligible for federal income
tax purposes. In addition, the Company will reasonably cooperate with the
Purchasers in any litigation, appeal or other proceeding challenging or
contesting any ruling, technical advice, finding or determination that earnings
and profits are not eligible for the dividends received deduction provided by
Section 243(a)(1) of the Code, or any successor provision to the extent that the
position to be taken in any such litigation, appeal, or other proceeding is not
contrary to any provision of the Code. Notwithstanding the foregoing, nothing
herein contained shall be deemed to preclude the Company from claiming a
deduction with respect to such dividends if (i) the Code shall hereafter be
amended, or final Treasury regulations thereunder are issued or modified, to
provide that dividends on the Preferred Shares should not be treated as
dividends for federal income tax purposes or that a deduction with respect to
all or a portion of the dividends on the Preferred Shares is allowable for
federal income tax purposes or (ii) in the absence of such an amendment,
issuance or modification and after a submission of a request for ruling or
technical advice, the IRS shall issue a published ruling or advise that
dividends on the Preferred Shares should not be treated as dividends for federal
income tax purposes. If the IRS specifically determines that the Preferred
Shares constitute debt, the Company may file protective claims for
refund.

      


      
        
          
             


          

          
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        Section
3.12          Use of Proceeds. The
net proceeds from the sale of the Preferred Shares and the Warrants shall be
used by the Company for research and development expense, sales and marketing
expense, and inventory purchases, as set forth on Schedule 3.12 hereto;
provided, however, the net
proceeds from the sale of the Preferred Shares and the Warrants hereunder shall
not be
used to redeem any Common Stock or securities convertible, exercisable or
exchangeable into Common Stock or to settle any outstanding
litigation.

      

       

      Section
3.13           Reservation of
Shares. So long as any Purchaser holds any Shares or Warrants, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than one hundred twenty percent
(120%) of the aggregate number of shares of Common Stock needed to provide for
the issuance of the Conversion Shares and the Warrant Shares.

       

      Section
3.14          Transfer Agent
Instructions. The Company shall issue irrevocable instructions to its
transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such denominations as specified from
time to time by each Purchaser to the Company upon conversion of the Preferred
Shares or exercise of the Warrants in the form of Exhibit D attached
hereto (the “Irrevocable Transfer Agent
Instructions”). The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 3.14 will be
given by the Company to its transfer agent and that the Shares shall otherwise
be freely transferable on the books and records of the Company as and to the
extent provided in this Agreement.

       

      Section
3.15          Disposition of
Assets. So long as any Purchaser holds any Preferred Shares, neither the
Company nor any subsidiary shall sell, transfer or otherwise dispose of any of
its properties, assets and rights including, without limitation, its software
and intellectual property, to any person except (i) for sales to customers in
the ordinary course of business, (ii) for sales or leases of permanently
retired, obsolete or worn out assets or assets no longer used or useful in the
business or (iii) with the prior written consent of the holders of seventy-five
percent (75%) of the Preferred Shares then outstanding.

       

      Section
3.16           Reverse Stock Split.
So long as any Purchaser holds any Preferred Shares, the Company shall not
effect a reverse stock split of its Common Stock without the prior written
consent of the holders of seventy-five percent (75%) of the Preferred Shares
then outstanding.

       

      Section
3.17          Disclosure of
Transaction. The Company shall issue a press release describing the
material terms of the transactions contemplated hereby (the “Press Release”) as
soon as practicable after the Closing but in no event later than 9:00 a.m. New
York time on the first Trading Day (as defined below) following the Closing
Date. The Company shall also file with the Commission a Current Report on Form
8-K (the “Form
8-K”) describing the material terms of the transactions contemplated
hereby (and attaching as exhibits thereto this Agreement, the Certificate of
Designation, the form of Warrant and the Press Release) as soon as practicable
following the Closing Date but in no event later than four (4) Trading Days
following the Closing Date, which Press Release and Form 8-K shall be subject to
prior review and comment by the Purchasers. “Trading Day” means
any day during which the OTCBB (or other principal exchange on which the Common
Stock is traded) shall be open for trading.

      


      
        
          
             


          

          
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        Section
3.18           Disclosure of Material
Information. The Company covenants and agrees that neither it nor any
other person acting on its behalf has provided or will provide any Purchaser or
its agents or counsel with any information that the Company believes constitutes
material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that each Purchaser shall be relying on the
foregoing representations in effecting transactions in securities of the
Company.

      

       

      Section
3.19          Pledge of Securities.
The Company acknowledges and agrees that the Shares may be pledged by a
Purchaser in connection with a bona fide margin agreement or other loan or
financing arrangement that is secured by the Common Stock. The pledge of Common
Stock shall not be deemed to be a transfer, sale or assignment of the Common
Stock hereunder, and no Purchaser effecting a pledge of Common Stock shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document; provided that a Purchaser and its pledgee shall be required to comply
with the provisions of Article V hereof in order to effect a sale, transfer or
assignment of Common Stock to such pledgee. At the Purchasers’ expense, the
Company hereby agrees to execute and deliver such documentation as a pledgee of
the Common Stock may reasonably request in connection with a pledge of the
Common Stock to such pledgee by a Purchaser.

       

      Section
3.20           Subsequent
Financings.

       

      (a)           For
a period of one (1) year following the following the Closing Date, the Company
covenants and agrees to promptly notify (in no event later than five (5) days
after making or receiving an applicable offer) in writing (a “Rights Notice”) each
Purchaser of the terms and conditions of any proposed offer or sale to, or
exchange with (or other type of distribution to) any third party (a “Subsequent
Financing”), of Common Stock or any debt or equity securities
convertible, exercisable or exchangeable into Common Stock; provided, however, that prior
to delivering a Rights Notice to each Purchaser, the Company shall first deliver
to each Purchaser a written notice of the Company’s intention to effect a
Subsequent Financing (“Pre-Notice”) within
three (3) Trading Days of receiving an applicable offer, which Pre-Notice shall
ask such Purchaser if it wants to review the details of such financing. Each
Purchaser must notify the Company within three (3) Trading Days of receipt of
the Pre-Notice that such Purchaser elects to review the details of such
financing (“Pre-Notice
Acceptance”). Upon the Company’s receipt of a Pre-Notice Acceptance, and
only upon the Company’s receipt of a Pre-Notice Acceptance, the Company shall
promptly, but no later than two (2) Trading Days after such receipt, deliver a
Rights Notice to such Purchaser. The Rights Notice shall describe, in reasonable
detail, the proposed Subsequent Financing, the names and investment amounts of
all investors participating in the Subsequent Financing (if known at such time),
the proposed closing date of the Subsequent Financing, which shall be within
twenty (20) calendar days from the date of the Rights Notice, and all of the
terms and conditions thereof and proposed definitive documentation to be entered
into in connection therewith. The Rights Notice shall provide each Purchaser an
option (the “Rights
Option”) during the ten (10) Trading Days following delivery of the
Rights Notice (the “Option Period”) to
inform the Company whether such Purchaser will purchase up to its pro rata
portion of all or a portion of the securities being offered in such Subsequent
Financing on the same, absolute terms and conditions as contemplated by such
Subsequent Financing. If any Purchaser elects not to participate in such Subsequent
Financing, the other Purchasers may participate on a pro-rata basis so long as
such participation in the aggregate does not exceed the aggregate Purchase Price
of all Purchasers hereunder. For purposes of this Section, all references to
“pro rata” means, for any Purchaser electing to participate in such Subsequent
Financing, the percentage obtained by dividing (x) the number of Preferred
Shares purchased by such Purchaser at the Closing by (y) the total number of all
of the Preferred Shares purchased by all of the participating Purchasers at the
Closing. Delivery of any Rights Notice constitutes a representation and warranty
by the Company that there are no other material terms and conditions,
arrangements, agreements or otherwise except for those disclosed in the Rights
Notice, to provide additional compensation to any party participating in any
proposed Subsequent Financing, including, but not limited to, additional
compensation based on changes in the purchase price or any type of reset or
adjustment of a purchase or conversion price or to issue additional securities
at any time after the closing date of a Subsequent Financing. If the Company
does not receive notice of exercise of the Rights Option from the Purchasers
within the Option Period, the Company shall have the right to close the
Subsequent Financing on the scheduled closing date with a third party; provided
that all of the material terms and conditions of the closing are the same as
those provided to the Purchasers in the Rights Notice. If the closing of the
proposed Subsequent Financing does not occur on that date, any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.20(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section
3.20(a) shall not apply to issuances of securities in a Permitted Financing (as
defined hereinafter).

      


      
        
          
             


          

          
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      (b)           For
purposes of this Agreement, a Permitted Financing shall not be considered a
Subsequent Financing. A “Permitted Financing”
shall mean (i) securities issued (other than for cash) in connection with a
merger, acquisition, or consolidation, (ii) securities issued pursuant to the
conversion or exercise of convertible or exercisable securities issued or
outstanding on or prior to the date of this Agreement or issued pursuant to this
Agreement (so long as the conversion or exercise price of such securities are
not amended to lower such price, except as a result of stock dividends,
subdivisions or combinations, and/or adversely affect the Purchasers), (iii)
securities issued in connection with bona fide strategic license agreements or
other partnering arrangements so long as such issuances are not for the purpose
of raising capital, (iv) shares of Common Stock issued for consideration per
share of at least $1.75 (as adjusted for any stock dividend, stock split, stock
combination, reclassification or similar transaction) or options with an
exercise price of at least $1.75 per share (as adjusted for any stock dividend,
stock split, stock combination, reclassification or similar transaction), in
each case, issued to employees, officers, consultants or directors of the
Company pursuant to any stock or option plan duly adopted for such purpose by a
majority of the non-employee members of the Board of Directors or a majority of
the members of a committee of non-employee directors established for such
purpose and (v) the payment of dividends on the Preferred Shares in shares of
Common Stock or additional Preferred Shares.

      


      
        
          
             


          

          
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        (c)           So
long as any Preferred Shares are outstanding, the Company shall be prohibited
from effecting or entering into an agreement to effect any Subsequent
Financing
involving a “Variable Rate Transaction”. The term “Variable Rate
Transaction” shall mean a transaction in which the Company issues or
sells (i) any debt or equity securities that are convertible into, exchangeable
or exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, 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 debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price.

      

       

      Section
3.21          Indebtedness and
Liens.  So long as any Purchaser holds any Shares or Warrants,
the Company shall not, nor shall the Company allow any of its subsidiaries to,
without the prior written consent of the holders of seventy-five percent (75%)
of the Preferred Shares then outstanding, (a) enter into, create, incur, assume,
guarantee or suffer to exist any indebtedness for borrowed money of any kind in
excess of an aggregate of $250,000, including but not limited to, a guarantee,
on or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom) or (b)
enter into, create, incur, assume or suffer to exist any Liens of any kind, on
or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom other than, (i) Liens
for any indebtedness or guaranteed indebtedness, in each case, not in excess of
an aggregate of $250,000, (ii) Liens for taxes, assessments and other
governmental charges or levies not yet due or Liens for taxes, assessments and
other governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves (in the good faith judgment
of the management of the Company) have been established in accordance with GAAP
and (iii) Liens imposed by law which were incurred in the ordinary course of the
Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens,
statutory landlords’ Liens, and other similar Liens arising in the ordinary
course of the Company’s business, and which (x) do not individually or in the
aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Company and its subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the
foreseeable future the forfeiture or sale of the property or asset subject to
such Lien.

       

      Section
3.22           Integration.  The
Company shall not, and shall use its best efforts to ensure that no affiliate of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the Preferred Shares and
the Warrants in a manner that would require the registration under the
Securities Act of the sale of the Preferred Shares and the Warrants to the
Purchasers.

      


      
        
          
             


          

          
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        Section
3.23           Directors and Officers
Insurance. So long as any Purchaser holds any Shares or Warrants, the
Company shall maintain directors and officers insurance of at least $2 million
from an insurance company acceptable to the Purchasers.



      Section
3.24           Key Man Life
Insurance.  Until the earlier of (a) the election by the
holders of seventy-five percent (75%) of the Preferred Shares then outstanding
to terminate such coverage or (b) such time as the Purchasers do not hold any
Shares or Warrants, the Company shall maintain $3 million of key man life
insurance for James Dalton, which policy shall name the Purchasers, together
with the purchasers under that certain Series A Convertible Preferred Stock
Purchase Agreement, dated as of September 10, 2009, by and among the Company and
each of the purchases whose names are set forth on Exhibit A thereto
(the “Series A
Purchasers”), as amended, as its sole beneficiaries, and the premiums of
which shall be paid by the Purchasers and the Series A Purchasers.

       

      ARTICLE
IV.

      CONDITIONS

       

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

       

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

       

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

       

      (d)           Delivery of Purchase
Price. The Purchase Price for the Preferred Shares and the Warrants shall
have been delivered to the Company.

       

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

      


      
        
          
             


          

          
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        Section
4.02           Conditions Precedent to the
Obligation of the Purchasers to Purchase the Preferred Shares and the
Warrants. The obligation hereunder of each Purchaser to acquire and pay
for the Preferred Shares and the Warrants is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below.
These conditions are for each Purchaser’s sole benefit and may be waived by such
Purchaser at any time in its sole discretion.



      (a)           Accuracy of the Company’s
Representations and Warranties. Each of the representations and
warranties of the Company in this Agreement shall be true and correct in all
respects as of the date when made and as of the Closing Date as though made at
that time, except for representations and warranties that are expressly made as
of a particular date, which shall be true and correct in all respects as of such
date.

       

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

       

      (c)           No Suspension, Etc.
Trading in the Company’s Common Stock on the OTCBB shall not have been suspended
by the Commission or the Financial Industry Regulatory Authority, Inc. (except
for any suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to the applicable Closing), and, at
any time prior to the Closing Date, trading in securities generally as reported
by Bloomberg Financial Markets (“Bloomberg”) shall not
have been suspended or limited, or minimum prices shall not have been
established on securities whose trades are reported by Bloomberg, or on the New
York Stock Exchange, nor shall a banking moratorium have been declared either by
the United States or New York State authorities, nor shall there have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any
material adverse change in any financial market which, in each case, in the
judgment of such Purchaser, makes it impracticable or inadvisable to purchase
the Preferred Shares and the Warrants.

       

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

       

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

       

      (f)           Certificate of Designation
of Rights and Preferences. The Certificate of Designation in the form of
Exhibit B
attached hereto shall have been filed with the Secretary of State of
Delaware.

       

      
        
          
             


          

          
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        (g)           Opinion of Counsel,
Etc. The Purchasers shall have received an opinion of Durham Jones &
Pinegar P.C., counsel to the Company, dated the date of the Closing, in the form
of Exhibit E
hereto, and such other certificates and documents as the Purchasers or its
counsel shall reasonably require incident to the Closing.



      (h)          Certificates. The
Company shall have executed and delivered to the Purchasers the certificates (in
such denominations as such Purchaser shall request) for the Preferred Shares and
the Warrants being acquired by such Purchaser at the Closing (in such
denominations as such Purchaser shall request). 

       

      (i)           Resolutions. The
Board of Directors of the Company shall have adopted resolutions consistent with
Section 2.01(b) hereof in a form reasonably acceptable to the Purchasers (the
“Resolutions”).

       

      (j)           Reservation of
Shares. The Company shall have reserved out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of the
Preferred Shares and the exercise of the Warrants, a number of shares of Common
Stock equal to one hundred twenty percent (120%) of the aggregate number of
Conversion Shares issuable upon conversion of the Preferred Shares outstanding
on the Closing Date and the number of Warrant Shares issuable upon exercise of
the number of Warrants outstanding on the Closing Date.

       

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

       

      (l)           Secretary’s
Certificate. The Company shall have delivered to the Purchasers a
secretary’s certificate, dated as of the Closing Date, as to (i) the
Resolutions, (ii) the Certificate, (iii) the Bylaws, (iv) the Certificate of
Designation, each as in effect at the Closing, and (v) the authority and
incumbency of the officers of the Company executing the Transaction Documents
and any other documents required to be executed or delivered in connection
therewith.

       

      (m)          Officer’s
Certificate. The Company shall have delivered to the Purchasers a
certificate of an executive officer of the Company, dated as of the Closing
Date, confirming the accuracy of the Company’s representations, warranties and
covenants as of the Closing Date and confirming the compliance by the Company
with the conditions precedent set forth in this Section 4.02 as of the Closing
Date.

       

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

       

      (o)          Completion of Due
Diligence. The Purchasers shall have satisfactorily completed their
financial and legal due diligence investigation of the Company.

      


      
        
          
             


          

          
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        (p)          Payment of Past
Dividends.  The Company shall have paid all accrued but unpaid
dividends on its Series A Convertible Preferred Stock, $0.00001 par value per
share, to the holders of such shares of its Series A Convertible Preferred
Stock.

         

        ARTICLE
V.

        STOCK
CERTIFICATE LEGEND

      

       

      

        Section
5.01           Legend. Each
certificate representing the Preferred Shares, the Warrants, and, if
appropriate, securities issued upon conversion thereof, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required by applicable state securities or “blue sky”
laws):

         

      

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

       

      The
Company agrees to reissue certificates representing any of the Conversion Shares
and the Warrant Shares without the legend set forth above if at such time, prior
to making any transfer of any such securities, such holder thereof shall give
written notice to the Company describing the manner and terms of such transfer
and removal as the Company may reasonably request. Such proposed transfer and
removal will not be effected until (i) the Company has received an opinion of
counsel reasonably satisfactory to the Company, to the effect that the
registration of the Conversion Shares or the Warrant Shares under the Securities
Act is not required in connection with such proposed transfer, (ii) a
registration statement under the Securities Act covering such proposed
disposition has been filed by the Company with the Commission and has become
effective under the Securities Act, (iii) the Company has received other
evidence reasonably satisfactory to the Company that such registration and
qualification under the Securities Act and state securities laws are not
required or (iv) the holder provides the Company with reasonable assurances that
such security can be sold pursuant to Rule 144 under the Securities Act. The
Company will respond to any such notice from a holder within three (3) Trading
Days (the “Legend
Removal Date”). In the case of any proposed transfer under this Section
5.01, the Company will use reasonable efforts to comply with any such applicable
state securities or “blue sky” laws, but shall in no event be required (x) to
qualify to do business in any state where it is not then qualified, (y) to take
any action that would subject it to tax or to the general service of process in
any state where it is not then subject or (z) to comply with state securities or
“blue sky” laws of any state for which registration by coordination is
unavailable to the Company. The restrictions on transfer contained in this
Section 5.01 shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this Agreement.
Whenever a certificate representing the Conversion Shares or the Warrant Shares
is required to be issued to a Purchaser without a legend, in lieu of delivering
physical certificates representing the Conversion Shares or the Warrant Shares
(provided that a registration statement under the Securities Act providing for
the resale of the Conversion Shares or the Warrant Shares is then in effect, as
the case may be, or the Conversion Shares or the Warrant Shares may be sold
pursuant to Rule 144 of the Securities Act without restriction), the Company
shall cause its transfer agent to electronically transmit the Conversion Shares
or the Warrant
Shares, as the case may be, to a Purchaser by crediting the account of such
Purchaser’s Prime Broker with the Depository Trust Company (“DTC”) through its
Deposit Withdrawal Agent Commission (“DWAC”) system (to the
extent not inconsistent with any provisions of this Agreement) provided that the
Company and the Company’s transfer agent are participating in DTC through the
DWAC system.

      


      
        
          
             


          

          
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      Section
5.02           Liquidated Damages.
In addition to such Purchasers’ other available remedies, the Company shall pay
to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for
each $2,000 of Conversion Shares or the Warrant Shares (based on the VWAP (as
defined hereinafter) of the Common Stock on the date such securities are
submitted to the transfer agent) delivered for removal of the restrictive legend
and subject to Section 5.01, $10 per Trading Day (increasing to $20 per Trading
Day five (5) Trading Days after such damages have begun to accrue) for each
Trading Day after the fourth (4th) Trading Day following the Legend Removal Date
until such certificate is delivered without a legend. Nothing herein shall limit
such Purchasers’ rights to pursue actual damages for the Company’s failure to
deliver certificates representing any securities as required by the Transaction
Documents, and such Purchaser shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

       

      For
purposes hereof, “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market (as defined
hereinafter), the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time); (b)  if the OTCBB is not a Trading Market, the volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the OTCBB; (c) if the Common Stock is not then quoted for trading on the
OTCBB and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink OTC Markets Inc. (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price per
share of the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the holders of a majority of the Preferred
Stock then outstanding and reasonably acceptable to the Company.

       

      For
purposes hereof, “Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the NYSE Amex Equities, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTCBB.

       

      
      

      


      
        
          
             


          

          
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        ARTICLE
VI.

        INDEMNIFICATION

         

        Section
6.01          General
Indemnity.  The Company agrees to indemnify and hold harmless
the Purchasers (and their respective directors, officers, managers, partners,
members, shareholders, affiliates, agents, successors and assigns) from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys’ fees, charges and
disbursements) incurred by the Purchasers as a result of any inaccuracy
in or breach of the representations, warranties or covenants made by the Company
herein.  Each Purchaser severally but not jointly agrees to indemnify
and hold harmless the Company and its directors, officers, affiliates, agents,
successors and assigns from and against any and all losses, liabilities,
deficiencies, costs, damages and expenses (including, without limitation,
reasonable attorneys’ fees, charges and disbursements) incurred by the Company
as result of any inaccuracy in or breach of the representations, warranties or
covenants made by such Purchaser herein. The maximum aggregate liability of each
Purchaser pursuant to its indemnification obligations under this Article VI
shall not exceed the portion of the Purchase Price paid by such Purchaser
hereunder.

      

       

      Section
6.02           Indemnification
Procedure.  Any party entitled to indemnification under this
Article VI (an “indemnified party”) will give written notice to the indemnifying
party of any matter giving rise to a claim for indemnification; provided, that
the failure of any party entitled to indemnification hereunder to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice.  In case any such
action, proceeding or claim is brought against an indemnified party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
indemnifying party a conflict of interest between it and the indemnified party
exists with respect to such action, proceeding or claim (in which case the
indemnifying party shall be responsible for the reasonable fees and expenses of
one separate counsel for the indemnified parties), to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party.  In the
event that the indemnifying party advises an indemnified party that it will not
contest such a claim for indemnification hereunder, or fails, within thirty (30)
days of receipt of any indemnification notice to notify, in writing, such person
of its election to defend, settle or compromise, at its sole cost and expense,
any action, proceeding or claim (or discontinues its defense at any time after
it commences such defense), then the indemnified party may, at its option,
defend, settle or otherwise compromise or pay such action or
claim.  In any event, unless and until the indemnifying party elects
in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party’s costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder.  The indemnified
party shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim.  The
indemnifying party shall keep the indemnified party fully apprised at all times
as to the status of the defense or any settlement negotiations with respect
thereto.  If the indemnifying party elects to defend any such action
or claim, then the indemnified party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.  The
indemnifying party shall not be liable for any settlement of any action, claim
or proceeding effected without its prior written
consent.  Notwithstanding anything in this Article VI to the contrary,
the indemnifying party shall not, without the indemnified party’s prior written
consent, settle or compromise any claim or consent to entry of any judgment in
respect thereof which imposes any future obligation on the indemnified party or
which does not include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the indemnified party of a release from all
liability in respect of such claim.  The indemnification obligations
to defend the indemnified party required by this Article VI shall be made by
periodic payments of the amount thereof during the course of investigation or
defense, as and when bills are received or expense, loss, damage or liability is
incurred, so long as the indemnified party shall refund such moneys if it is
ultimately determined by a court of competent jurisdiction that such party was
not entitled to indemnification.  The indemnity agreements contained
herein shall be in addition to (a) any cause of action or similar rights of the
indemnified party against the indemnifying party or others, and (b) any
liabilities the indemnifying party may be subject to pursuant to the
law.  No indemnifying party will be liable to the indemnified party
under this Agreement to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to the indemnified party’s breach of any of
the representations, warranties or covenants made by such party in this
Agreement or in the other Transaction Documents.  To the extent that
the foregoing undertaking by an indemnifying party is unenforceable for any
reason, the indemnifying party will make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities that is permissible
under applicable law.

      


      
        
          
             


          

          
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      ARTICLE
VII.

      MISCELLANEOUS

       

      Section
7.01           Fees and Expenses.
Except as otherwise set forth in this Agreement and the other Transaction
Documents, each party shall pay the fees and expenses of its advisors, counsel,
accountants and other experts, if any, and all other expenses, incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement, provided however,
that the Company shall pay all actual attorneys’ fees and expenses (including
disbursements and out-of-pocket expenses) incurred by the Purchasers in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Transaction Documents and the transactions contemplated
thereunder up to an aggregate amount equal to $15,000.  The Company
shall pay all stamp or other similar taxes and duties levied in connection with
issuance of the Shares and the Warrants pursuant hereto.

       

      Section
7.02           Specific Enforcement,
Consent to Jurisdiction.

       

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

       

      
        
          
             


          

          
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        (b)           Each
of the Company and the Purchasers (i) hereby irrevocably submits to the
jurisdiction of the United States District Court sitting in the Southern
District of New York and the courts of the State of New York located in New York
County for the purposes of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Transaction Documents or the
transactions contemplated hereby or thereby and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the
suit, action or proceeding is improper. Each of the Company and the Purchasers
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this Section 7.02
shall affect or limit any right to serve process in any other manner permitted
by law.

      

       

      Section
7.03          Entire Agreement;
Amendment. This Agreement (including all exhibits and schedules hereto)
and the Transaction Documents contain the entire understanding and agreement of
the parties with respect to the matters covered hereby and, except as
specifically set forth herein or in the Transaction Documents, neither the
Company nor any of the Purchasers makes any representations, warranty, covenant
or undertaking with respect to such matters and they supersede all prior
understandings and agreements with respect to said subject matter, all of which
are merged herein. No provision of this Agreement may be waived or amended other
than by a written instrument signed by the Company and the holders of Preferred
Shares convertible into at least seventy-five percent (75%) of the Conversion
Shares issuable upon the conversion of the Preferred Shares then outstanding,
and no provision hereof may be waived other than by a written instrument signed
by the party against whom enforcement of any such amendment or waiver is sought.
No such amendment shall be effective to the extent that it applies to less than
all of the holders of the Preferred Shares then outstanding. No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration is also offered to all of the parties to the Transaction
Documents or holders of Preferred Shares, as the case may be.

       

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

       

      
        
          
             


          

          
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        (a)           If
to the Company:

         

        ActiveCare,
Inc.

        5095 West
2100 South

        Salt Lake
City, UT 84120

        Attention:
James J. Dalton

        Fax No.: (801)
974-9553


      

      with
copies to:

      


      Durham Jones & Pinegar
P.C.

      111 East Broadway, Suite
900

      Salt Lake
City, UT  84111

      Attention:
Kevin R. Pinegar, Esq.

      Fax No.: (801) 415-3500

       
 

      (b)           If
to any Purchaser at the address of such Purchaser set forth on Exhibit A to this
Agreement, with copies to:

       

      Haynes
and Boone, LLP

      1221
Avenue of the Americas, 26th  Floor

      New York,
New York 10022

      Attention:
Rick A. Werner, Esq.

      Fax No.:
(212) 884-8234

      


      and

      


      Peter J.
Weisman, P.C.

      767 Third
Avenue, 6th Floor

      New York,
New York 10017

      Fax No.:
(212) 676-5665

      


      Any party
hereto may from time to time change its address for notices by giving at least
ten (10) days written notice of such changed address to the other party
hereto.

       

      Section
7.05          Waivers. No waiver by
either party of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provisions, condition or requirement hereof, nor
shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right accruing to it
thereafter.

       

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

       

      Section
7.07           Successors and Assigns;
Restrictions on Transfer. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. The Company may
not assign this Agreement or any rights or obligations hereunder without the
prior written consent of the Purchasers.

      


      
        
          
             


          

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



      Section
7.09           Governing Law. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York, without giving effect to any of the conflicts of
law principles which would result in the application of the substantive law of
another jurisdiction. This Agreement shall not be interpreted or construed with
any presumption against the party causing this Agreement to be drafted. Each
party hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all rights to a trial by jury in any legal proceeding arising out
of or relating to this Agreement or the transactions contemplated
hereby.

       

      Section
7.10           Survival. The
representations and warranties of the Company and the Purchasers shall survive
the execution and delivery hereof and the Closing hereunder for the applicable
statute of limitations period.

       

      Section
7.11           Counterparts. This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement and shall become effective when
counterparts have been signed by each party and delivered to the other parties
hereto, it being understood that all parties need not sign the same counterpart.
In the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

       

      Section
7.12           Publicity. The
Company agrees that it will not disclose, and will not include in any public
announcement, the name of the Purchasers without the consent of the Purchasers
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.

       

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

       

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

      


      
        
          
             


          

          
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        Section
7.15          Limitation of
Liability.  Notwithstanding anything herein to the contrary,
the Company acknowledges and agrees that the liability of a Purchaser arising
directly or indirectly, under any Transaction Document of any and every nature
whatsoever shall be satisfied solely out of the assets of such Purchaser, and
that no trustee, officer, other investment vehicle
or any other affiliate of such Purchaser or any investor, shareholder or holder
of shares of beneficial interest of such a Purchaser shall be personally liable
for any liabilities of such Purchaser.

      

       

      Section
7.16           Like Treatment of
Purchasers.  No consideration shall be offered or paid to any
Person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents. Further, the Company shall not
make any payments or issue any securities to the Purchasers in amounts which are
disproportionate to the respective numbers of outstanding Preferred Shares held
by any Purchasers at any applicable time.  For clarification purposes,
this provision constitutes a separate right granted to each Purchaser by the
Company and negotiated separately by each Purchaser, and is intended for the
Company to treat the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of the Shares, the Warrants or otherwise.

       

      Section
7.17           Stay, Extension and Usury
Laws.  The Company covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law or other law wherever enacted, now or at any time hereafter in
force, that would prohibit or forgive it from paying all or any portion of
payments relating to the Preferred Shares and the Conversion Shares, or which
may affect the covenants under, or the performance of, any of the Transaction
Documents; and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not, by resort to any such law, hinder, delay or impede the execution of
any power granted to any Purchaser herein or in any of the other Transaction
Documents, but will suffer and permit the execution of every such power as
though no such law has been enacted.

       

      [SIGNATURE
PAGE FOLLOWS]

      


      
        
          
             


          

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

       

       
 

      ACTIVECARE,
INC.

       
 

      


      By:___________________________________

           Name:
James J. Dalton

           Title:  Chief
Executive Officer

       
 

      


      HARBORVIEW
MASTER FUND, L.P.

      


      


      By:___________________________________

           Name:

           Title:

      


      GEMINI
MASTER FUND, LTD.

      


      


      By:___________________________________

           Name:

           Title:

      


      


       

       

      Signature
Page to Series B Convertible Preferred Stock Purchase Agreement

      
        
          
             


          

          
            
            

            
              

            

          

          
             


            
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      EXHIBIT
A to the

      SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

      ACTIVECARE,
INC.

       
 

      
        	
                Names
      and Addresses of Purchasers

              	 
      	
                Number
      of Preferred Shares Purchased

              	 
      	
                Number
      of Warrants Purchased

              	 
      	
                Dollar
      Amount of Investment

              
	
                Harborview
      Master Fund, L.P.

                c/o
      Harborview Advisors, LLC

                850
      Third Ave, Suite 1801

                New
      York, NY  10022

              	 
      	
                228,571

              	 
      	
                228,571

              	 
      	
                $400,000

              
	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	
                Gemini
      Master Fund, Ltd.

                c/o
      Gemini Strategies, LLC

                135
      Liverpool Drive, Suite C

                Cardiff,
      CA 92007

              	 
      	
                114,286

              	 
      	
                114,286

              	 
      	
                $200,000

              


      

       
 

      


      
        
          
             


          

          
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      EXHIBIT
B to the

      SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

      ACTIVECARE,
INC.

       

      FORM
OF CERTIFICATE OF DESIGNATION

       

      


      
        
          
             


          

          
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      EXHIBIT
C to the

      SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

      ACTIVECARE,
INC.

       

      FORM
OF CLASS C WARRANT

       

      


      
        
          
             


          

          
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      EXHIBIT
D to the

      SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

      ACTIVECARE,
INC.

       

      FORM
OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

       

      ACTIVECARE,
INC.

       

      as of
March __, 2010

       

      [Transfer
Agent name and address]

       

       

       

      Ladies
and Gentlemen:

       

      Reference
is made to that certain Series B Convertible Preferred Stock Purchase Agreement
(the “Purchase
Agreement”), dated as of March 23, 2010, by and among ActiveCare, Inc., a
Delaware corporation (the “Company”), and the
purchasers named therein (collectively, the “Purchasers”) pursuant
to which the Company is issuing to the Purchasers shares of its Series B
Convertible Preferred Stock, par value $0.00001 per share, (the “Preferred Shares”)
and warrants (the “Warrants”) to
purchase shares of the Company’s common stock, par value $0.00001 per share (the
“Common
Stock”). This letter shall serve as our irrevocable authorization and
direction to you (provided that you are the transfer agent of the Company at
such time) to issue shares of Common Stock upon conversion of the Preferred
Shares (the “Conversion Shares”)
and exercise of the Warrants (the “Warrant Shares”) to
or upon the order of a Purchaser from time to time upon (i) surrender to you of
a properly completed and duly executed Conversion Notice or Exercise Notice, as
the case may be, in the form attached hereto as Exhibit I and Exhibit II,
respectively and (ii) in the case of the conversion of Preferred Shares, a copy
of the certificates (with the original certificates delivered to the Company)
representing Preferred Shares being converted or, in the case of Warrants being
exercised, a copy of the Warrants (with the original Warrants delivered to the
Company) being exercised (or, in each case, an indemnification undertaking with
respect to such share certificates or the warrants in the case of their loss,
theft or destruction). So long as you have previously received (x) written
confirmation from counsel to the Company that the Conversion Shares or the
Warrant Shares may be sold without the requirement to be in compliance with Rule
144(c)(1) of the Securities Act of 1933, as amended (the “Securities Act”), and
otherwise without restriction or limitation pursuant to Rule 144 of the
Securities Act, then certificates representing the Conversion Shares or the
Warrant Shares, as the case may be, shall not bear any legend restricting
transfer of the Conversion Shares and the Warrant Shares, as the case may be,
thereby and should not be subject to any stop-transfer restriction; provided, however, that if you
have not previously received those items and representations listed above, then
the certificates for the Conversion Shares and the Warrant Shares shall bear the
following legend:

       

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

      


      
        
          
             


          

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

       

      Please
execute this letter in the space indicated to acknowledge your agreement to act
in accordance with these instructions. Should you have any questions concerning
this matter, please contact me at (801) 974-9474.

       

      
        	 
      	
                Very
      truly yours,

              
	
                 

              	 
      
	 
      	
                ACTIVECARE,
      INC.

              
	
                 

              	 
      
	 
      	
                By:______________________________________

              
	 
      	
                     Name:

              
	 
      	
                     Title:

              


      

      ACKNOWLEDGED
AND AGREED:

       

      [TRANSFER
AGENT]

       

      By:________________________________________________

       

           Name:

       

           Title:

       

      Date:______________]

       

      


      
        
          
             


          

          
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      EXHIBIT
I

       

      ACTIVECARE,
INC.

      CONVERSION
NOTICE

       

      Reference
is made to the Certificate of Designation of the Relative Rights and Preferences
of the Series B Convertible Preferred Stock of ActiveCare, Inc. (the “Certificate of
Designation”). In accordance with and pursuant to the Certificate of
Designation, the undersigned hereby elects to convert the number of shares of
Preferred Stock, par value $0.00001 per share (the “Preferred Shares”),
of ActiveCare, Inc., a Delaware corporation (the “Company”), indicated
below into shares of common stock, par value $0.00001 per share (the “Common Stock”), of
the Company, by tendering the stock certificate(s) representing the Preferred
Shares specified below as of the date specified below.

       

      
        	
                Date
      of Conversion

              	 
      
	 
      	 
      
	
                Number
      of Preferred Shares to be converted:

              	 
      


      

      


      The
Common Stock has been sold pursuant to a registration statement.

       

      Yes:           o           No: o

       

      Please
confirm the following information:

       

      
        	
                Conversion
      Price:

              	 
      
	 
      	 
      
	
                Number
      of shares of Common Stock to be issued:

              	 
      
	 
      	 
      
	
                Number
      of shares of Common Stock beneficially owned or deemed beneficially owned
      by the Holder on the Date of Conversion:

              	 
      
	 
      	 
      


      

      Please
issue the Common Stock into which the Preferred Shares are being converted and,
if applicable, any check drawn on an account of the Company in the following
name and to the following address:

       

      
        	
                Issue
      to:

              	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	
                Facsimile
      Number:

              	 
      
	 
      	 
      
	
                Authorization:

              	 
      
	 
      	
                By:_____________________

              
	 
      	
                Title:

              
	
                Dated________________

              	 
      


      

      


       

      


      
        
          
             


          

          
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      EXHIBIT
II

       

      EXERCISE
FORM

      CLASS C
WARRANT

       

      ACTIVECARE,
INC.

       

      The
undersigned ____________________, pursuant to the provisions of the Class C
Warrant (the “Warrant”), hereby elects to purchase _______________ shares of
Common Stock of ActiveCare, Inc. covered by the within Warrant.

       

      
        	
                Dated:

              	 
      	 
      	
                Signature

              	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                Address

              	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      


      

      


      Number of
shares of Common Stock beneficially owned or deemed beneficially owned by the
Holder on the date of Exercise: ___________________________

       

      The
undersigned is an “accredited investor” as defined in Regulation D under the
Securities Act of 1933, as amended.

       

      The
undersigned intends that payment of the Warrant Price shall be made as (check
one):

       

      Cash
Exercise                                       o

       

      Cashless
Exercise                                o

       

      If the
Holder has elected a Cash Exercise, the Holder shall pay the sum of
$______________ by certified or official bank check (or via wire transfer) to
the Issuer in accordance with the terms of the Warrant.

       

      If the
Holder has elected a Cashless Exercise, a certificate shall be issued to the
Holder for the number of shares equal to the whole number portion of the product
of the calculation set forth below, which is _______________. The Issuer shall
pay a cash adjustment in respect of the fractional portion of the product of the
calculation set forth below in an amount equal to the product of the fractional
portion of such product and the Per Share Market Value on the date of exercise,
which product is _____________ .

       

      

      Where:

       

      The
number of shares of Common Stock to be issued to the Holder
_________________  (“X”).

      


      
        
          
             


          

          
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      The
number of shares of Common Stock purchasable upon exercise of all of the Warrant
or, if only a portion of the Warrant is being exercised, the portion of the
Warrant being exercised _______________________ (“Y”).

       

      The
Warrant Price ___________________ (“A”).

       

      The Per
Share Market Value of one share of Common Stock on the Trading Day immediately
preceding the date of such election ______________________ (“B”).

       

      


      
        
          
             


          

          
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      EXHIBIT
E to the

      SERIES
B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR

      ACTIVECARE,
INC.

       

      FORM
OF OPINION OF COUNSEL

       

      1.           The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of Delaware and has the requisite corporate
power to own, lease and operate its properties and assets, and to carry on its
business as presently conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary.

       

      2.           The
Company has the requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to issue the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion of
the Preferred Stock and exercise of the Warrants. The execution, delivery and
performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Preferred Stock and the Warrants have been duly executed,
issued and delivered by the Company and each of the Transaction Documents
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms. The Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants is
not subject to any preemptive rights under the Certificate of Incorporation or
the Bylaws.

       

      3.           The
Preferred Stock and the Warrants have been duly authorized and, when delivered
against payment in full as provided in the Purchase Agreement, will be validly
issued, fully paid and nonassessable. The shares of Common Stock issuable upon
conversion of the Preferred Stock and exercise of the Warrants have been duly
authorized and reserved for issuance, and, when delivered upon conversion or
against payment in full as provided in the Certificate of Designation and the
Warrants, as applicable, will be validly issued, fully paid and
nonassessable.

       

      4.           The
execution, delivery and performance of and compliance with the terms of the
Transaction Documents and the issuance of the Preferred Stock, the Warrants and
the Common Stock issuable upon conversion of the Preferred Stock and exercise of
the Warrants do not (i) violate any provision of the Certificate of
Incorporation or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, mortgage, deed of trust, indenture,
note, bond, license, lease agreement, instrument or obligation to which the
Company is a party, (iii) create or impose a lien, charge or encumbrance on any
property of the Company under any agreement or any commitment to which the
Company is a party or by which the Company is bound or by which any of its
respective properties or assets are bound, or (iv) result in a violation of any
federal, state, local or foreign statute, rule, regulation, order, judgment,
injunction or decree (including federal
and state securities laws and regulations) applicable to the Company or by which
any property or asset of the Company is bound or affected, except, in all cases
other than violations pursuant to clauses (i) and (iv) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.

      


      
        
          
             


          

          
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      5.           No
consent, approval or authorization of or designation, declaration or filing with
any governmental authority on the part of the Company is required under federal,
state or local law, rule or regulation in connection with the valid execution
and delivery of the Transaction Documents, or the offer, sale or issuance of the
Preferred Stock, the Warrants or the Common Stock issuable upon conversion of
the Preferred Stock and exercise of the Warrants other than the Certificate of
Designation.

       

      6.           There
is no action, suit, claim, investigation or proceeding pending or threatened
against the Company which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. There is no action, suit, claim, investigation or proceeding
pending, or to our knowledge, threatened, against or involving the Company or
any of its properties or assets and which, if adversely determined, is
reasonably likely to result in a Material Adverse Effect. There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.

       

      7.           The
offer, issuance and sale of the Preferred Stock and the Warrants and the offer,
issuance and sale of the shares of Common Stock issuable upon conversion of the
Preferred Stock and exercise of the Warrants pursuant to the Purchase Agreement,
the Certificate of Designation and the Warrants, as applicable, are exempt from
the registration requirements of the Securities Act.

       

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

       

       

       

      
        E-2