Form of Purchase Agreement



 






EXHIBIT 10.15




PURCHASE AGREEMENT




     THIS AGREEMENT (this “Agreement”) is made as of the ___day of December 2005, by and between
Sunair Services Corporation (formerly known as Sunair Electronics, Inc.) (the “Company”), a
corporation organized under the laws of the State of Florida, with its principal offices at 3005 SW
Third Avenue, Fort Lauderdale, Florida 33315, and the purchaser whose name and address is set forth
on the signature page hereof (the “Purchaser”). As used herein, the term “Placement Agent” shall
mean Roth Capital Partners, LLC.



     IN CONSIDERATION of the mutual covenants contained in this Agreement, the Company and the
Purchaser agree as follows:



     SECTION 1. Authorization of Sale of the Securities. Subject to the terms and
conditions of this Agreement, the Company has authorized, subject to the Company obtaining
Stockholder Approval (as defined herein), the issuance and sale to the Purchaser pursuant to this
Agreement, in two tranches, an Initial Closing and a Second Closing (as such terms are defined in
Sections 3.2 and 3.3, respectively), of shares of Common Stock, par value $0.10 per share (the
“Common Stock”), of the Company, and warrants (the “Warrants”) to purchase shares of Common Stock
of the Company. The shares of Common Stock and Warrants (including the underlying shares of Common
Stock) to be issued and sold by the Company to the Purchaser pursuant to this Agreement at the
Initial Closing are referred to herein as the “Initial Securities” and shall in no event exceed an
amount equal to 19.9% of the Company’s issued and outstanding Common Stock as of the Initial
Closing. The shares of Common Stock and Warrants (including the underlying shares of Common Stock)
to be issued and sold to the Purchaser pursuant to this Agreement at the Second Closing are
referred to herein as the “Additional Securities”. The Initial Securities and the Additional
Securities, together with those additional shares of Common Stock issued to the Purchaser pursuant
to Section 8 hereof (the “Anti-Dilution Shares”), are referred to herein as the “Securities”. One
share of Common Stock and the accompanying one Warrant shall also be referred to as a “Unit”.



     SECTION 2. Agreement to Sell and Purchase the Securities. At each Closing (as defined
in Section 3), the Company will issue and sell to the Purchaser, and the Purchaser will buy from
the Company, upon the terms and subject to the conditions hereinafter set forth, the aggregate
number of shares of Common Stock and Warrants at a purchase price of $5.25 per Unit.



     SECTION 3. Delivery of the Securities at the Closings.



          3.1 Location of the Closings. The Initial Closing (as defined below) and the Second
Closing (as defined below) shall occur at the offices of Lowenstein Sandler PC, 1251 Avenue of the
Americas, New York, New York 10020.




          3.2 The Initial Closing. The completion of the purchase and sale of the Initial
Securities (the “Initial Closing”) shall occur as soon as practicable and as agreed to by the
parties hereto within, but not more than, three (3) business days following the execution of this
Agreement, or on such later date or at such different location as the parties shall agree in
writing,

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but not prior to the date that all of the conditions precedent to the Initial Closing set
forth in Section 3.5(a) below have been satisfied or waived by the appropriate party (the “Initial
Closing Date”). The Initial Closing shall occur at a time to be agreed upon by the Company and the
Placement Agent and of which the Purchaser will be notified by facsimile transmission or otherwise.




          3.3 The Second Closing. The completion of the purchase and sale of the Additional
Securities (the “Second Closing”) shall occur as soon as practicable, but not more than three (3)
business days following the date on which all of the conditions relevant to the Second Closing set
forth in Section 3.5(b) below have been satisfied or waived by the appropriate party but no later
than 45 days after the Initial Closing Date or such later date or at such different location as the
Company and the Purchaser shall agree in writing (the “Second Closing Date”). The Second Closing
shall occur at a time to be agreed upon by the Company and the Placement Agent and of which the
Purchaser will be notified by facsimile transmission or otherwise.




          3.4 Actions to be Taken Prior to, and at, each Closing. (a) At the Initial Closing,
the Company shall deliver to the Purchaser one or more certificates registered in the name of the
Purchaser, or, if so indicated on the Securities Certificate Questionnaire attached hereto as
Appendix II, in such nominee name(s) as designated by the Purchaser, representing the number of
shares of Common Stock and Warrants to be purchased by the Purchaser at the Initial Closing, each
bearing an appropriate legend referring to the fact that the Initial Securities were sold in
reliance upon the exemption from registration under the Securities Act of 1933, as amended (the
“Securities Act”) provided by Section 4(2) thereof and Rule 506 thereunder. The name(s) in which
the certificates are to be registered are set forth in the Securities Certificate Questionnaire
attached hereto as Appendix II.




               (b) At the Second Closing, the Company shall deliver to the Purchaser one or more certificates
registered in the name of the Purchaser, or, if so indicated on the Securities Certificate
Questionnaire attached hereto as Appendix II, in such nominee name(s) as designated by the
Purchaser, representing the number of shares of Common Stock and Warrants to be purchased by such
Purchaser at the Second Closing, each bearing an appropriate legend referring to the fact that the
Additional Securities were sold in reliance upon the exemption from registration under the
Securities Act provided by Section 4(2) thereof and Rule 506 thereunder. The name(s) in which the
certificates are to be registered are set forth in the Securities Certificate Questionnaire
attached hereto as Appendix II.



          3.5 Conditions Precedent to each Closing. (a) The Initial Closing. The
Company’s obligation to complete the purchase and sale of the Initial Securities and deliver
certificates representing the Initial Securities to the Purchaser at the Initial Closing shall be
subject to the following conditions, any one or more of which may be waived by the Company: (i)
receipt by the Company of same-day funds in the full amount of the purchase price for the Initial
Securities being purchased hereunder; (ii) simultaneously with, or prior to, the Initial Closing,
the Company shall have sold shares of Common Stock and Warrants to third party purchasers, who are
not acting in concert with the Purchaser, for an aggregate minimum of $11 million, which shares of
Common Stock and Warrants shall be sold to such third party purchasers on the same terms and
conditions as are set forth herein; (iii) the sale of the Initial




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Securities shall not be prohibited by any law or governmental law or governmental order or
regulation, including the American Stock Exchange; and (iv) the accuracy in all material respects
of the representations and warranties made by the Purchaser (as if such representations and
warranties were made on the Initial Closing Date) and the fulfillment of those undertakings of the
Purchaser to be fulfilled prior to the Initial Closing. The Purchaser’s obligation to accept
delivery of such certificates and to pay for the Initial Securities evidenced thereby shall be
subject to the following conditions, any one or more of which may be waived by the Placement Agent
after consultation with the Purchaser: (i) the accuracy in all material respects of the
representations and warranties of the Company made herein as of the Initial Closing Date; (ii) the
delivery to the Purchaser by counsel to the Company of a legal opinion in form and substance
reasonably satisfactory to counsel to the Placement Agent; (iii) the execution of those certain
Lock-up Agreements attached hereto as Exhibits C-1 and C-2, (iv) the fulfillment in all material
respects of those undertakings of the Company to be fulfilled prior to the Initial Closing; and (v)
simultaneously with the Initial Closing, the Company shall have sold shares of Common Stock and
Warrants to third party purchasers, who are not acting in concert with the Purchaser, for an
aggregate minimum of $11 million, which shares of Common Stock and Warrants shall be sold to such
third party purchasers on the same terms and conditions as are set forth herein.




               (b) The Second Closing. The Company’s obligation to complete the purchase and sale of
the Additional Securities and deliver certificates representing such securities to the Purchaser at
the Second Closing shall be subject to the following conditions, any one of which may be waived by
the Company: (i) receipt by the Company of same-day funds in the full amount of the purchase price
for the Additional Securities being purchased hereunder; (ii) the accuracy in all material respects
of the representations and warranties made by the Purchaser (as if such representations and
warranties were made on the Second Closing Date) and the fulfillment of those undertakings of the
Purchaser to be fulfilled prior to the Second Closing; (iii) the sale of the Additional Securities
shall not be prohibited by any law or governmental law or governmental order or regulation; (iv)
the Company shall have obtained the requisite stockholder approval via written consent (the
“Stockholder Approval”) for the issuance of the Additional Securities at the Second Closing
(together with the Initial Securities) and the Anti-Dilution Shares in a manner that complies with
Section 705 of the American Stock Exchange Company Guide and all other relevant rules and
regulations of the American Stock Exchange; and (v) simultaneously with, or prior to, the Second
Closing, the Company shall have sold shares of Common Stock and Warrants to third party purchasers,
who are not acting in concert with the Purchaser, for an aggregate minimum of $11 million, which
shares of Common Stock and Warrants shall be sold to such third party purchasers on the same terms
and conditions as are set forth herein. The Purchaser’s obligation to accept delivery of such
certificates and to pay for the Additional Securities evidenced thereby shall be subject to the
following conditions, any one or more of which may be waived by the Placement Agent after
consultation with the Purchaser: (i) the Company shall have scheduled the Second Closing for a date
on or prior to the 45th day following the Initial Closing Date; (ii) each of the
representations and warranties of the Company made herein shall be accurate in all material
respects as of the Second Closing Date; (iii) the delivery to the Purchaser by counsel to the
Company of a legal opinion in a form and substance reasonably satisfactory to counsel to the
Placement Agent; (iv) the Company shall have filed with the Securities and Exchange Commission (the
“Commission”) (x) a preliminary information statement at least 11 calendar days prior to the date
on which the definitive Information Statement (as defined below) was mailed to security holders and
(y) a definitive information



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statement (the “Information Statement”) at least 20 calendar days prior to the Second Closing
Date; (v) the absence of any material adverse change affecting the Company, its financial condition
or its results of operations; (vi) the sale of the Additional Securities shall not be prohibited by
any law or governmental order or regulation; (vii) the fulfillment in all material respects of
those undertakings of the Company to be fulfilled prior to the Second Closing and (viii)
simultaneously with, or prior to, the Second Closing, the Company shall have sold shares of Common
Stock and Warrants to third party purchasers, who are not acting in concert with the Purchaser, for
an aggregate minimum of $11 million, which shares of Common Stock and Warrants shall be sold to
such third party purchasers on the same terms and conditions as are set forth herein.




          3.6 Escrow of Purchase Price.




               3.6.1 Simultaneously with the execution and delivery of a counterpart to this Agreement by the
Purchaser, such Purchaser shall promptly cause a wire transfer of immediately available funds (U.S.
dollars) in an amount representing such Purchaser’s “Aggregate Purchase Price”, as set forth on
such Purchaser’s signature page, to be paid to the non-interest bearing escrow account of
Lowenstein Sandler PC, the Placement Agent’s counsel (“Placement Agent’s Counsel”), set forth on
Appendix I hereto (the aggregate amounts being held in escrow are referred to herein as the “Escrow
Amount”). Placement Agent’s Counsel shall hold the Escrow Amount in escrow until (i) Placement
Agent’s Counsel receives written instructions from the Company and the Placement Agent authorizing
the release of the Escrow Amount; (ii) Placement Agent’s Counsel receives written instructions from
the Company and/or the Purchaser that the Agreement has been terminated in accordance with Section
21 in which case Placement Agent’s Counsel shall return to the Purchaser the portion of the Escrow
Amount such Purchaser delivered to the Placement Agent’s Counsel; or (iii) ninety (90) days after
the date of this Agreement in which case Placement Agent’s Counsel shall return to such Purchaser
the portion of the Escrow Amount such Purchaser delivered to the Placement Agent’s Counsel. The
Company hereby authorizes the Placement Agent’s Counsel to release from the Escrow Amount, at the
Initial Closing and the Second Closing, without further action or deed (other than receipt of the
written instructions from the Company and the Placement Agent authorizing the release of the Escrow
Amount), the (i) the cash commission (the “Placement Fee”) to be paid to the Placement Agent
pursuant to the terms of the agreement between the Company and the Placement Agent; and (ii) the
Escrow Amount less the Placement Fee to the Company.



               3.6.2. The Company and the Purchaser acknowledge and agree for the benefit of Placement
Agent’s Counsel (which shall be deemed to be a third party beneficiary of this Section 3.6) as
follows:



                    (a) Placement Agent’s Counsel (i) is not responsible for the performance by the Company or the
Purchaser of this Agreement or the Warrant or for determining or compelling compliance therewith;
(ii) is only responsible for (A) holding the Escrow Amount in escrow pending receipt of written
instructions from the Placement Agent and the Company directing the release of the Escrow Amount in
accordance with Section 3.6.1, (B) disbursing the Escrow Amount in accordance with the written
instructions from the Company and/or the Purchaser in accordance with Section 3.6.1 or (C)
disbursing the Escrow Amount to such Purchaser 90 days following the date of this Agreement, each
of the responsibilities of



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Placement Agent’s Counsel in clauses (A), (B) and (C) is ministerial in nature, and no implied
duties or obligations of any kind shall be read into this Agreement against or on the part of
Placement Agent’s Counsel (collectively, the “Placement Agent’s Counsel Duties”); (iii) shall not
be obligated to take any legal or other action hereunder which might in its judgment involve or
cause it to incur any expense or liability unless it shall have been furnished with indemnification
acceptable to it, in its sole discretion; (iv) may rely on and shall be protected in acting or
refraining from acting upon any written notice, instruction (including, without limitation, wire
transfer instructions, whether incorporated herein or provided in a separate written instruction),
instrument, statement, certificate, request or other document furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper person, and shall
have no responsibility for making inquiry as to, or for determining, the genuineness, accuracy or
validity thereof, or of the authority of the person signing or presenting the same; and (v) may
consult counsel satisfactory to it, and the opinion or advice of such counsel in any instance shall
be full and complete authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the opinion or advice of such counsel.
Documents and written materials referred to in this Section 3.6.2(a) include, without limitation,
e-mail and other electronic transmissions capable of being printed, whether or not they are in fact
printed; and any such e-mail or other electronic transmission may be deemed and treated by
Placement Agent’s Counsel as having been signed or presented by a person if it bears, as sender,
the person’s e-mail address.




                    (b) Placement Agent’s Counsel shall not be liable to anyone for any action taken or omitted to
be taken by it hereunder in connection with its Placement Agent’s Counsel Duties, except in the
case of Placement Agent’s Counsel’s gross negligence, willful misconduct or bad faith (in each
case, as finally determined by a court of competent jurisdiction) in breach of the Placement
Agent’s Counsel Duties. IN NO EVENT SHALL THE PLACEMENT AGENT BE LIABLE FOR INDIRECT, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGE OR LOSS (INCLUDING BUT NOT LIMITED TO LOST PROFITS) WHATSOEVER,
EVEN IF PLACEMENT AGENT’S COUNSEL HAS BEEN INFORMED OF THE LIKELIHOOD OF SUCH LOSS OR DAMAGE AND
REGARDLESS OF THE FORM OF ACTION.



                    (c) The Company and the Purchaser hereby indemnify and hold harmless Placement Agent’s Counsel
from and against, any and all loss, liability, cost, damage and expense, including, without
limitation, reasonable counsel fees and expenses, which Placement Agent’s Counsel may suffer or
incur by reason of any action, claim or proceeding brought against Placement Agent’s Counsel
arising out of or relating to the performance of the Placement Agent’s Counsel Duties, unless such
action, claim or proceeding is the result of the gross negligence, willful misconduct or bad faith
(in each case, as finally determined by a court of competent jurisdiction) of Placement Agent’s
Counsel.



                    (d) Placement Agent’s Counsel has acted as legal counsel to the Placement Agent in connection
with this Agreement, is merely acting as an escrow agent under this Agreement and is, therefore,
hereby authorized to continue acting as legal counsel to the Placement Agent including, without
limitation, with regard to any dispute arising out of this Agreement, the Warrant, the Escrow
Amount or any other matter. Each of the Company and the Purchaser hereby expressly consents to
permit Placement Agent’s Counsel to represent the



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Placement Agent in connection with all matters relating to or arising from this Agreement,
including, without limitation, with regard to any dispute arising out of this Agreement, the
Warrant, the Escrow Amount or any other matter, and hereby waives any conflict of interest or
appearance of conflict or impropriety with respect to such representation. Each of the Company and
the Purchaser has consulted with its own counsel specifically about this Section 3.6 to the extent
they deemed necessary, and has entered into this Agreement after being satisfied with such advice.




     SECTION 4. Representations, Warranties and Covenants of the Company. The Company
hereby represents and warrants to, and covenants with, the Purchaser on the date hereof, on the
Initial Closing Date and on the Second Closing Date as follows:



          4.1 Organization and Qualification. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Florida and the Company is
qualified to do business as a foreign corporation in each jurisdiction in which qualification is
required, except where failure to so qualify would not reasonably be expected to have a Material
Adverse Effect (as defined herein). The material subsidiaries of the Company are listed on Exhibit
A (each a “Subsidiary” and collectively, the “Subsidiaries”). Each Subsidiary is a direct or
indirect wholly owned subsidiary of the Company. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization and is qualified
to do business as a foreign entity in each jurisdiction in which qualification is required, except
where failure to so qualify would not reasonably be expected to have a Material Adverse Effect.
For purposes of this Agreement, the term “Material Adverse Effect” shall mean a material adverse
effect upon the business, prospects, financial condition, properties or results of operations of
the Company and its Subsidiaries, taken as a whole.




          4.2 Authorized Capital Stock. The Company has the outstanding capital stock as most
recently set forth in the Company Documents as filed with the Commission. The issued and
outstanding shares of the Company’s Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable, have been issued in compliance with all federal and state securities
laws, were not issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities. The Company has authorized the issuance and sale of the
Securities to the Purchasers at the Initial Closing and the Second Closing. Except as disclosed in
the Company Documents as filed with the Commission, the Company does not have outstanding any
options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities or obligations.
The description of the Company’s stock, stock bonus and other stock plans or arrangements and the
options or other rights granted and exercised thereunder set forth in the Company Documents as
filed with the Commission accurately and fairly presents all material information with respect to
such plans, arrangements, options and rights. With respect to each Subsidiary, (i) all the issued
and outstanding shares of each Subsidiary’s capital stock have been duly authorized and validly
issued, are fully paid and nonassessable, have been issued in compliance with applicable federal
and state securities laws, were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities, and (ii) there are no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities
or obligations convertible into, or any contracts or




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commitments to issue or sell, shares of any Subsidiary’s capital stock or any such options,
rights, convertible securities or obligations.




          4.3 Issuance, Sale and Delivery of the Securities.




               (a) The Securities have been duly authorized and, when issued, delivered and paid for in the
manner set forth in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and free and clear of all pledges, liens, restrictions and encumbrances (other than
restrictions on transfer under state and/or federal securities laws).



               (b) The Warrants have been duly authorized. Upon the exercise of the Warrants, the Common
Stock issuable upon exercise of the Warrants will be duly authorized, validly issued, fully paid
and nonassessable and free and clear of all pledges, liens, restrictions and encumbrances (other
than restrictions on transfer under state and/or federal securities laws). The Company has reserved
sufficient number of shares of Common Stock for issuance upon the exercise of the Warrants free and
clear of all pledges, liens, restrictions and encumbrances (other than restrictions on transfer
under state and/or federal securities laws). The Warrants shall take the form of and conform with
that certain Form of Warrant attached as Exhibit B hereto.



               (c) The Anti-Dilution Shares have been duly authorized. When issued pursuant to Section 8
hereof, the Anti-Dilution Shares will be validly issued, fully paid and nonassessable, and free and
clear of all pledges, liens, restrictions and encumbrances (other than restrictions on transfer
under state and/or federal securities laws). The Company has reserved sufficient number of shares
of Common Stock for issuance of the Anti-Dilution Shares in accordance with Section 8 free and
clear of all pledges, liens, restrictions and encumbrances (other than restrictions on transfer
under state and/or federal securities laws).



               (d) No preemptive rights or other rights to subscribe for or purchase exist with respect to
the issuance and sale of the Securities by the Company pursuant to this Agreement. Except as
disclosed the Company Documents as filed with the Commission, no stockholder of the Company has any
right (which has not been waived or has not expired by reason of lapse of time following
notification of the Company’s intent to file the registration statement to be filed by it pursuant
to Section 7.1 (the “Registration Statement”)) to require the Company to register the sale of any
shares owned by such stockholder under the Securities Act in the Registration Statement. Other
than the Stockholder Approval to be obtained in connection with the Additional Securities and the
Anti-Dilution Shares, no further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of the Securities to be sold by
the Company as contemplated herein.



          4.4 Due Execution, Delivery and Performance of this Agreement. The Company has full
legal right, corporate power and authority to enter into this Agreement and to perform the
transactions contemplated hereby, subject in the case of the issuance, sale and delivery of the
Additional Securities and the Anti-Dilution Shares to obtaining Stockholder Approval. This
Agreement has been duly authorized, executed and delivered by the Company. The execution, delivery
and performance of this Agreement by the Company and the consummation of the transactions herein
contemplated will not violate any provision of the certificate of incorporation or bylaws of the
Company or any of its Subsidiaries and will not




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result in the creation of any lien, charge, security interest or encumbrance upon any assets
of the Company or any of its Subsidiaries pursuant to the terms or provisions of, and will not (i)
conflict with, result in the breach or violation of, or constitute, either by itself or upon notice
or the passage of time or both, a default under (A) any agreement, lease, franchise, license,
permit or other instrument to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries or any of their respective properties may be bound or
affected and in each case which would have a Material Adverse Effect, or (B) to the Company’s
knowledge, any statute or any judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to the Company or any
of its Subsidiaries or any of their respective properties where such conflict, breach, violation or
default is likely to result in a Material Adverse Effect. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the blue sky laws and federal securities
laws applicable to the offering of the Securities to the Purchaser. Upon the execution and
delivery of this Agreement, and assuming the valid execution thereof by the Purchaser, this
Agreement will constitute a valid and binding obligation of the Company, enforceable in accordance
with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights
generally and except as enforceability may be subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at law) and except as the
indemnification agreements of the Company in Section 7.3 hereof may be limited by federal or state
securities laws or the public policy underlying such laws.




          4.5 Accountant. The firm of Berenfeld Spritzer Schechter & Sheer, which has expressed
its opinion with respect to the consolidated financial statements to be included or incorporated by
reference in the Registration Statement and the prospectus which forms a part thereof (the
“Prospectus”), is an independent accountant as required by the Securities Act and the rules and
regulations promulgated thereunder (the “Rules and Regulations”).




          4.6 No Defaults. Neither the Company nor any of its Subsidiaries is in violation or
default of any provision of its certificate of incorporation or bylaws, or in breach of or default
with respect to any provision of any agreement, judgment, decree, order, lease, franchise, license,
permit or other instrument to which it is a party or by which it or any of its properties are bound
which could reasonably be expected to have a Material Adverse Effect and there does not exist any
state of facts which, with notice or lapse of time or both, would constitute an event of default on
the part of the Company or any of its Subsidiaries as defined in such documents and which would
have a Material Adverse Effect.




          4.7 Contracts. All of the Company’s material contracts have been filed with the
Commission. All of such contracts are in full force and effect on the date hereof; and neither the
Company nor any of its Subsidiaries is, nor, to the Company’s knowledge, is any other party in
breach of or default under any of such contracts which would have a Material Adverse Effect.




          4.8 No Actions. Except as disclosed in the Company Documents as filed with the
Commission, (1) there are no legal or governmental actions, suits or proceedings pending and




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(2) to the Company’s knowledge, there are no inquiries or investigations, nor are there any
legal or governmental actions, suits, or proceedings threatened to which the Company or any of its
Subsidiaries is or may be a party or of which property owned or leased by the Company or any of its
Subsidiaries is or may be the subject, or related to environmental or discrimination matters, which
actions, suits or proceedings, individually or in the aggregate, might reasonably be expected to
have a Material Adverse Effect; and no labor disturbance by the employees of the Company or any of
its Subsidiaries exists or, to the Company’s knowledge, is imminent which might reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is
party to or subject to the provisions of any injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental body which might reasonably be
expected to have a Material Adverse Effect.




          4.9 Properties. The Company and the Subsidiaries have good and marketable title to
all properties and assets reflected as owned in the financial statements included in the Company
Documents as filed with the Commission, subject to no lien, mortgage, pledge, charge or encumbrance
of any kind except (i) those, if any, reflected in such financial statements, or (ii) those which
are not material in amount and do not adversely affect the use of such property by the Company and
its Subsidiaries. Each of the Company and its Subsidiaries holds its leased properties under valid
and binding leases, with such exceptions as are not materially significant in relation to its
business taken as a whole.




          4.10 No Material Change. Except as disclosed in the Company Documents as filed with
the Commission, since March 31, 2005 (i) the Company and its Subsidiaries have not incurred any
material liabilities or obligations, indirect, or contingent, or entered into any material oral or
written agreement or other transaction which is not in the ordinary course of business or which
could reasonably be expected to result in a material reduction in the future earnings of the
Company and its Subsidiaries; (ii) the Company and its Subsidiaries have not sustained any material
loss or interference with their businesses or properties from fire, flood, windstorm, accident or
other calamity not covered by insurance; (iii) the Company and its Subsidiaries have not paid or
declared any dividends or other distributions with respect to their capital stock and neither the
Company nor any of its Subsidiaries is in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital stock of the
Company or any of its Subsidiaries other than the sale of the Securities hereunder, shares or
options issued pursuant to employee equity incentive plans or purchase plans approved by the
Company’s Board of Directors and repurchases of shares or options pursuant to repurchase plans
already approved by the Company’s Board of Directors, or indebtedness not incurred in the ordinary
course of business that is material to the Company and its Subsidiaries, taken as a whole; and (v)
there has not been any other event which has caused a Material Adverse Effect.




          4.11 Intellectual Property. Each of the Company and its Subsidiaries owns or has
obtained valid and enforceable licenses or options for the inventions, patent applications,
patents, trademarks (both registered and unregistered), trade names, copyrights and trade secrets
necessary for the conduct of the its business as currently conducted (collectively, the
“Intellectual Property”). There are no third parties who have any ownership rights to any
Intellectual Property that is owned by, or has been licensed to, the Company or its Subsidiaries
for the products described in the Company Documents as filed with the Commission that would




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preclude the Company or its Subsidiaries from conducting its business as currently conducted
and have a Material Adverse Effect, except for the ownership rights of the owners of the
Intellectual Property licensed or optioned by the Company or its Subsidiaries. To the Company’s
knowledge, there are currently no sales of any products that would constitute an infringement by
third parties of any Intellectual Property owned, licensed or optioned by the Company or its
Subsidiaries, which infringement would have a Material Adverse Effect. There is no pending or, to
the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the
rights of the Company or its Subsidiaries in or to any Intellectual Property owned, licensed or
optioned by the Company or its Subsidiaries, other than claims which would not reasonably be
expected to have a Material Adverse Effect. There is no pending or, to the Company’s knowledge,
threatened action, suit, proceeding or claim by others challenging the validity or scope of any
Intellectual Property owned, licensed or optioned by the Company or its Subsidiaries, other than
non-material actions, suits, proceedings and claims. There is no pending or, to the Company’s
knowledge, threatened action, suit, proceeding or claim by others that the Company any of its
Subsidiaries infringes or otherwise violates any patent, trademark, copyright, trade secret or
other proprietary right of others, other than non-material actions, suits, proceedings and claims.




          4.12 Compliance. Neither the Company nor any of its Subsidiaries has been advised,
nor has reason to believe, that it is not conducting its business in compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is conducting its business, including,
without limitation, all applicable local, state and federal environmental laws and regulations;
except where failure to be so in compliance would not have a Material Adverse Effect.




          4.13 Taxes. Each of the Company and its Subsidiaries has filed all necessary federal,
state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and neither the Company nor any of its Subsidiaries has knowledge of a tax deficiency
which has been or might be asserted or threatened against it which might reasonably be expected to
have a Material Adverse Effect.




          4.14 Transfer Taxes. On each Closing Date, all stock transfer or other taxes (other
than income taxes) which are required to be paid in connection with the sale and transfer of the
Securities to be sold to the Purchaser hereunder will be, or will have been, fully paid or provided
for by the Company and all laws imposing such taxes will be or will have been complied with.




          4.15 Investment Company. The Company is not an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for an investment company, within the meaning
of the Investment Company Act of 1940, as amended.




          4.16 Offering Materials. The Company has not distributed and will not distribute
prior to the Closing Date any offering material in connection with the offering and sale of the
Securities to the Purchaser other than the Company Documents. Neither the Company nor any person
acting on its behalf has in the past or will hereafter take any action independent of the Placement
Agent to sell, offer for sale or solicit offers to buy any securities of the Company which would
subject the offer, issuance or sale of the Securities to the Purchaser, as




10









 







contemplated by this Agreement, to the registration requirements of Section 5 of the
Securities Act.




          4.17 Insurance. The Company and its Subsidiaries maintain insurance of the types and
in the amounts that the Company reasonably believes is adequate for their businesses, including,
but not limited to, insurance covering all real and personal property leased by the Company and its
Subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily
insured against by similarly situated companies, all of which insurance is in full force and
effect.




          4.18 Additional Information. The information contained in (a) through (h) below (the
“Company Documents”) did not, as of the date of the applicable document, include any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances in which they were
made, not misleading, as of their respective filing dates or, if amended, as so amended:




               (a) the Company’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2004;



               (b) the Company’s Quarterly Report on Form 10-QSB for the quarter ended December 31, 2004;



               (c) the Company’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005;



               (d) the Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005;



               (e) the Company’s Current Reports on Form 8-K filed on May 20, 2005; June 10, 2005; August 19,
2005; August 25, 2005; September 9, 2005; and November 30, 2005;



               (f) the Company’s Proxy Statement for the Annual Meeting of Stockholders held on February 4,
2005;



               (g) the Company’s Definitive Information Statement filed on November 11, 2005; and



               (h) all other documents, if any, filed by the Company with the Commission since September 30,
2004 pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).



          4.19 Price of Common Stock. The Company has not taken, and will not take, directly or
indirectly, any action designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the price of the shares
of the Common Stock to facilitate the sale or resale of the Securities.




11









 








          4.20 Corporate Legal Opinion. As a condition to the Purchaser’s obligation to
purchase the Securities, legal counsel to the Company will deliver one or more legal opinions to
the Purchaser in a form reasonably satisfactory to counsel to the Placement Agent. Such opinions
also shall state that the Placement Agent may rely thereon as though the opinions were addressed
directly to such Placement Agent.




          4.21 Certificate. At each Closing, the Company will deliver to the Purchaser a
certificate executed by the chief executive officer and the chief financial or accounting officer
of the Company, dated as of the applicable Closing Date, in form and substance reasonably
satisfactory to the Purchaser, to the effect that the representations and warranties of the Company
set forth in this Section 4 are true and correct as of the date of this Agreement and as of such
Closing Date and that the Company has complied with all the agreements and satisfied all the
conditions herein on its part to be performed or satisfied on or prior to such Closing Date.




          4.22 Reporting Company; Form S-3. The Company is subject to the reporting
requirements of the Exchange Act. The Company is eligible to register the Securities for resale by
the Purchaser on a registration statement on Form S-3 under the Securities Act. There exist no
facts or circumstances (including without limitation any required approvals or waivers or any
circumstances that may delay or prevent the obtaining of accountant’s consents) that reasonably
could be expected to prohibit or delay the preparation and filing of a registration statement on
Form S-3 that will be available for the resale of the Securities by the Purchaser.




          4.23 Use of Proceeds. The Company expects to use the proceeds from the sale of
Securities for working capital and general corporate purposes, as well as in connection with
selected acquisitions that may be considered in the future in the lawn and pest control business.
Pending such uses, the Company intends to invest the net proceeds in short-term, interest-bearing,
investment grade securities.




          4.24 Approvals. Prior to the Initial Closing, the Company shall obtain approval of
the American Stock Exchange for the transactions contemplated by this Agreement. Prior to the
Second Closing, the Company shall obtain the Stockholder Approval and shall obtain the approval of
the American Stock Exchange for the transactions contemplated by this Agreement. For clarification
purposes only and without implication to the contrary, the transactions contemplated by this
Agreement include only the transaction between the Company and the Purchaser and do not include any
other transaction between the Company and any other third party purchaser of the Company’s
securities.




          4.25 Non-Public Information. Neither the Company nor, to the Company’s knowledge, any
person acting on behalf of the Company, has provided the Purchaser with any information that the
Company believes constitutes material, non-public information. On or before 9:00 a.m. New York
City time on the first business day after the execution of this Agreement, the Company shall issue
a press release announcing the execution of this Agreement, and on or before 5:30 p.m. New York
City time on the fourth business day after the execution of this Agreement, the Company shall file
a Current Report on Form 8-K describing the material terms of the transactions contemplated by this
Agreement and attaching as an exhibit to such Form 8-K a copy of the press release and this
Agreement (including such exhibit, the “8-K Filing”). On or before 9:00 a.m. New York City
time, on the first business day after each




12









 







Closing, the Company shall issue a press release announcing the consummation of the
transactions contemplated by this Agreement at such Closing, and on or before 5:30 p.m. New York
City time on the fourth business day after each Closing, the Company shall file a Current Report on
Form 8-K attaching such press release. The Company shall not, and shall cause each of its
officers, directors, employees, and use its best efforts to cause its agents, not to, provide the
Purchaser with any material nonpublic information regarding the Company from and after the filing
of the 8-K Filing without the express written consent of the Purchaser. The Company understands
and confirms that the Purchaser will rely on the representations and covenants set forth in this
section in effecting transactions in securities of the Company.




          4.26 Use of Purchaser Name. Except as may be required by applicable law or
regulation, the Company shall not use the Purchaser’s name or the name of any of its affiliates in
any advertisement, announcement, press release or other similar public communication unless it has
received the prior written consent of the Purchaser for the specific use contemplated or as
otherwise required by applicable law or regulation.




          4.27 Related Party Transactions. No transaction has occurred between or among the
Company, any of the Subsidiaries and their affiliates, officers or directors or any affiliate or
affiliates of any such officer or director that is required to have been described under applicable
securities laws in the Company’s Exchange Act filings and is not so described in such filings.




          4.28 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
required to be disclosed by the Company in the Company’s Exchange Act filings and is not so
disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect. There
are no such transactions, arrangements or other relationships with the Company that may create
contingencies or liabilities that are not otherwise disclosed by the Company in the Company’s
Exchange Act filings.




          4.29 Governmental Permits, Etc. Each of the Company and its Subsidiaries has all
franchises, licenses, certificates and other authorizations from such federal, state or local
government or governmental agency, department or body that are currently required for the operation
of the business of the Company and its Subsidiaries as currently conducted, except where the
failure to possess currently such franchises, licenses, certificates and other authorizations is
not reasonably expected to have a Material Adverse Effect. The Company and its Subsidiaries have
not received any notice of proceedings relating to the revocation or modification of any such
permit which, if the subject of an unfavorable decision, ruling or finding, could reasonably be
expected to have a Material Adverse Effect.




13









 








          4.30 Financial Statements. The consolidated financial statements of the Company and
the related notes contained in the Company’s last quarterly report on Form 10-QSB present fairly,
in accordance with generally accepted accounting principles, the consolidated financial position of
the Company and its Subsidiaries as of the dates indicated, and the results of their operations,
cash flows and the changes in stockholders’ equity for the periods therein specified, subject, in
the case of unaudited financial statements for interim periods, to normal year-end audit
adjustments. Such consolidated financial statements (including the related notes) have been
prepared in accordance with generally accepted accounting principles applied on a consistent basis
throughout the periods therein specified, except that unaudited financial statements may not
contain all footnotes required by generally accepted accounting principles.




          4.31 Intentionally deleted.




          4.32 Sarbanes-Oxley Act. The Company is, and at each Closing Date will be, in
compliance in all material respects with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it. The Company maintains a system of internal accounting controls that the Company
reasonably believes are sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorization; and (ii) transactions
are recorded as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for assets.




          4.33 Listing. The Company has not, in the two years preceding the date hereof,
received any notice (written or oral) from the American Stock Exchange, any stock exchange, market
or trading facility on which the Common Stock is or has been listed (or on which it has been
quoted) to the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange, market or trading facility. The Company shall comply with all
requirements of the American Stock Exchange with respect to the issuance of the Securities and
shall use its best efforts to have the Securities listed on the American Stock Exchange prior to
applicable Closing Date.




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




          4.35 Employee Relations. Neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or employs any member of a union. No executive officer of the
Company (as defined in Rule 501(f) of the Securities Act) has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer’s employment with the
Company. No executive officer of the Company, to the knowledge of the




14









 







Company, is, or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement, non-competition
agreement, or any other contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters.




          4.36 ERISA. The Company is in compliance, in all material respects, with all
presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder (“ERISA”); no “reportable event”
(as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title (IV) of ERISA with respect to termination of, or withdrawal from,
any “pension plan” or (ii) Sections 412 or 4917 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the “Code”); and each “pension
plan” for which the Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which, in each case, would cause the loss of such qualification,
except as would not reasonably be expected to have a Material Adverse Effect.




          4.37 Environmental Matters. There has been no storage, disposal, generation,
manufacture, transportation, handling or treatment of toxic wastes, hazardous wastes or hazardous
substances by the Company or to its knowledge, any of its Subsidiaries (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or any of its Subsidiaries in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial
action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit;
there has been no material spill, discharge, leak, emission, injection, escape, dumping or release
of any kind into such property or into the environment surrounding such property of any toxic
wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by
the Company or any of its Subsidiaries or with respect to which the Company or any of its
Subsidiaries have knowledge; the terms “hazardous wastes”, “toxic wastes”, “hazardous substances”,
and “medical wastes” shall have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.




          4.38 Removal of Legend. The legend set forth in Section 5(f) shall be removed from the
certificates evidencing the Securities (i) following any sale of such Securities pursuant to Rule
144 or at the written request of a Purchaser after the Registration Statement has been declared
effective, (ii) if such Securities are eligible for sale under Rule 144(k) (and the holder of such
Securities has submitted a written request for removal of the legend indicating that the holder has
complied with the applicable provisions of Rule 144 or such judicial interpretation or
pronouncement), or (iii) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by the Staff of the
Commission) and the holder of such Securities has submitted a written request for removal of the
legend indicating that such legend is not required under applicable requirements of the Securities
Act (including such judicial interpretations and pronouncements issued by the Staff of the




15









 







Commission). The Company shall cause its counsel to issue a legal opinion to the Company’s
transfer agent promptly upon the occurrence of any of the events in clauses (i), (ii) or (iii)
above to effect the removal of the legend on certificates evidencing the Securities and shall also
cause its counsel to issue a “blanket” legal opinion to the Company’s transfer agent promptly after
the effective date of any registration statement covering the resale of the Securities, if required
by the Company’s transfer agent, to allow sales without restriction pursuant to an effective
registration statement. The Company agrees that at such time as such legend is no longer required
under this Section 4.38, it will, no later than five (5) business days (or three (3) business days
in the event the Purchaser needs to deliver unlegended certificates in connection with settlement
of a sale of Securities and such Purchaser has communicated such settlement date in writing to the
Company) following the delivery by the Purchaser to the Company or the Company’s transfer agent of
a certificate representing the Securities issued with a restrictive legend, deliver or cause to be
delivered to such Purchaser a certificate representing such Securities that is free from all
restrictive and other legends; provided that in the case of removal of the legend for reasons set
forth in clause (ii) above, the holder of such Securities has submitted a written request for
removal of the legend indicating that the holder has complied with the applicable provisions of
Rule 144. The Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section
4.38.




     SECTION 5. Representations, Warranties and Covenants of the Purchaser. (a) The
Purchaser represents and warrants to, and covenants with, the Company that: (i) the Purchaser is
knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with
respect to investments in shares representing an investment decision like that involved in the
purchase of the Securities, including investments in securities issued by the Company and
comparable entities, and has had the opportunity to request, receive, review and consider all
information it deems relevant in making an informed decision to purchase the Securities; (ii) the
Purchaser is acquiring the number of Securities set forth on the signature page hereto in the
ordinary course of its business and for its own account for investment only and with no present
intention of distributing any of the Securities or any arrangement or understanding with any other
persons regarding the distribution of any of the Securities (this representation and warranty
notwithstanding, such Purchaser does not agree to hold any of the Securities for any minimum or
other specific term and this representation and warranty does not limit the Purchaser’s right to
sell pursuant to the Registration Statement or in compliance with the Securities Act and the Rules
and Regulations, or, other than with respect to any claims arising out of a breach of this
representation and warranty, the Purchaser’s right to indemnification under Section 7.3); (iii) the
Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Securities except in compliance with the Securities Act and the Rules and Regulations and any
applicable state securities laws, nor has the Purchaser, during the last thirty (30) days prior to
the date of this Agreement, directly or indirectly, effected or agreed to effect any transactions
in the securities of the Company, including any short sale, whether or not against the box,
established any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) with
respect to the Common Stock, granted any other right (including, without limitation, any put or
call option) with respect to the Common Stock or with respect to any security that includes,
relates to or derived any significant part of its value from the Common Stock or otherwise sought
to hedge its position in the Securities (each, a “Prohibited Transaction”), and such Purchaser
shall not



16









 







engage, directly or indirectly, in a Prohibited Transaction during the period from the date of
this Agreement until such time as (A) the transactions contemplated by this Agreement are first
publicly announced or (B) this Agreement is terminated pursuant to Section 21 hereof; (iv) the
Purchaser has completed or caused to be completed the Registration Statement Questionnaire attached
hereto as part of Appendix II, for use in preparation of the Registration Statement, and the
answers thereto are true and correct as of the date hereof and will be true and correct as of the
effective date of the Registration Statement and the Purchaser will notify the Company immediately
of any material change in any such information provided in the Registration Statement Questionnaire
until such time as the Purchaser has sold all of the Securities or until the Company is no longer
required to keep the Registration Statement effective; (v) the Purchaser has, in connection with
its decision to purchase the number of shares of Common Stock and Warrants set forth on the
signature page hereto, relied solely upon the Company Documents as filed with the Commission and
the documents included therein or incorporated by reference and the representations and warranties
of the Company contained herein; (vi) the Purchaser has had an opportunity to discuss this
investment with representatives of the Company and ask questions of them; (vii) the Purchaser is an
“accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the
Securities Act ; and (viii) the Purchaser agrees to notify the Company immediately of any change in
any of the foregoing information until such time as the Purchaser has sold all of the Securities or
the Company is no longer required to keep the Registration Statement effective.



               (b) The Purchaser understands that the Securities are being offered and sold to it in reliance
upon specific exemptions from the registration requirements of the Securities Act, the Rules and
Regulations and state securities laws and that the Company is relying upon the truth and accuracy
of, and the Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire the Securities.



               (c) For the benefit of the Company, the Purchaser previously agreed orally with the Placement
Agent to keep confidential all information concerning the private placement of the Securities to
the Purchaser. The Purchaser understands that the existence and nature of all conversations and
presentations, if any, regarding the Company and this offering must be kept strictly confidential.
The Purchaser understands that the federal securities laws impose restrictions on trading based on
information regarding the offering of the Securities to the Purchaser. In addition, the Purchaser
hereby acknowledges that unauthorized disclosure of information regarding the offering of the
Securities to the Purchaser may result in a violation of Regulation FD. This obligation will
terminate upon submission by the Company of the 8-K Filing. In addition to the above, the
Purchaser shall maintain in confidence the receipt and content of any notice of a Suspension (as
defined in Section 5(h) below). The foregoing agreements shall not apply to any information that
is or becomes publicly available through no fault of the Purchaser, or that the Purchaser is
legally required to disclose; provided, however, that if the Purchaser is requested or ordered to
disclose any such information pursuant to any court or other government order or any other
applicable legal procedure, it shall provide the Company with prompt notice of any such request or
order in time sufficient to enable the Company to seek (at its own expense) an appropriate
protective order.



17









 





               (d) The Purchaser understands that its investment in the Securities involves a significant
degree of risk, including a risk of total loss of the Purchaser’s investment, and the Purchaser has
full cognizance of and understands all of the risk factors related to the Purchaser’s purchase of
the Securities. The Purchaser understands that the market price of the Common Stock can be
volatile and that no representation is being made as to the future value of the Common Stock. The
Purchaser has the knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Securities and has the ability to bear the
economic risks of an investment in the Securities.



               (e) 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
Securities.



               (f) The Purchaser understands that, until such time as the Registration Statement has been
declared effective or the Securities may be sold pursuant to Rule 144 under the Securities Act
without any restriction as to the number of securities as of a particular date that can then be
immediately sold, the Securities will bear a restrictive legend in substantially the following
form:




“The Securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended (the
“Securities Act”), or the securities laws of any state or other
jurisdiction. The Securities may not be offered, sold, pledged or
otherwise transferred except (1) pursuant to an exemption from
registration under the Securities Act or (2) pursuant to an
effective registration statement under the Securities Act, in each
case in accordance with all applicable securities laws of the states
and other jurisdictions, and in the case of a transaction exempt
from registration, unless the Company has received an opinion of
counsel reasonably satisfactory to it that such transaction does not
require registration under the Securities Act and such other
applicable laws.”



               (g) The Purchaser’s principal executive offices are in the jurisdiction set forth immediately
below the Purchaser’s name on the signature pages hereto.



               (h) The Purchaser hereby covenants with the Company not to make any sale of the Securities
under the Registration Statement without complying with the provisions of this Agreement and
without effectively causing the prospectus delivery requirement under the Securities Act to be
satisfied to the extent applicable, and the Purchaser acknowledges and agrees that the Securities
are not transferable on the books of the Company in connection with any sale under the Registration
Statement unless the certificate submitted to the transfer agent evidencing the Securities is
accompanied by a separate Purchaser’s Certificate of Subsequent Sale delivered by the Purchaser:
(i) in the form of Appendix III hereto, (ii) executed by an officer of, or other authorized person
designated by, the Purchaser, and (iii) to the effect that (A) the Securities have been sold in
accordance with the Registration Statement, the Securities Act and any applicable state securities
or blue sky laws and (B) the requirement of



18









 




delivering a current prospectus has been satisfied, to the extent applicable. Purchaser will
notify the Company promptly after the sale of all of the Securities. Purchaser acknowledges that
there may occasionally be times when the Company, in the good faith determination of its Board of
Directors, but if not practical under the circumstances in the good faith determination of the
Company’s executive officers, must suspend the use of the Prospectus forming a part of the
Registration Statement (a “Suspension”) until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the Commission, or until such
time as the Company has filed an appropriate report with the Commission pursuant to the Exchange
Act. The Purchaser hereby covenants that it will not sell any of the Securities pursuant to said
Prospectus during the period commencing at the time at which the Company gives the Purchaser
written notice of the Suspension of the use of said Prospectus and ending at the time the Company
gives the Purchaser written notice that the Purchaser may thereafter effect sales pursuant to said
Prospectus. Notwithstanding the foregoing, the Company agrees that no Suspension shall be for a
period of longer than 60 consecutive days, and no Suspension shall be for a period of an aggregate
in any 365-day period of longer than 90 days.




               (i) The Purchaser further represents and warrants to, and covenants with, the Company that (i)
the Purchaser has full right, power, authority and capacity to enter into this Agreement and to
consummate the transactions contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, (ii) the making and performance of this
Agreement by the Purchaser and the consummation of the transactions herein contemplated will not
violate any provision of the organizational documents of the Purchaser or conflict with, result in
the breach or violation of, or constitute, either by itself or upon notice or the passage of time
or both, a default under any material agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which the Purchaser is a party, or any statute or
any authorization, judgment, decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Purchaser, (iii) no consent,
approval, authorization or other order of any court, regulatory body, administrative agency or
other governmental body is required on the part of the Purchaser for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this Agreement, (iv) upon
the execution and delivery of this Agreement, this Agreement shall constitute a legal, valid and
binding obligation of the Purchaser, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and except as
enforceability may be subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except to the extent
enforcement of the indemnification provisions, set forth in Section 7.3 of this Agreement, may be
limited by federal or state securities laws or the public policy underlying such laws, and (v)
there is not in effect any order enjoining or restraining the Purchaser from entering into or
engaging in any of the transactions contemplated by this Agreement.



     SECTION 6. Survival of Representations, Warranties and Agreements. Notwithstanding
any investigation made by any party to this Agreement or by the Placement Agent, all covenants,
agreements, representations and warranties made by the Company and the Purchaser herein and in the
certificates for the Securities delivered pursuant hereto shall survive



19









 







the execution of this Agreement, the delivery to the Purchaser of the Securities being
purchased and the payment therefore.



     SECTION 7. Registration of the Securities; Compliance with the Securities Act.



          7.1 Registration Procedures and Expenses. The Company shall:




               (a) as soon as reasonably practicable, but in no event later than five (5) days following the
Second Closing Date, or if the Second Closing shall not have taken place, within 45 days after the
Initial Closing Date, then in no event later than 45 days after the Initial Closing Date (such
date, “Filing Date”), prepare and file with the Commission the Registration Statement on Form S-3
relating to the sale of the Securities by the Purchaser, as well as any shares of Common Stock
issued or issuable upon any stock split, dividend or other distribution, recapitalization or other
similar event with respect to the Securities (such shares together with the Securities are
collectively referred to as, the “Shares”) from time to time on the American Stock Exchange, or the
facilities of any national securities exchange on which the Common Stock is then traded or in
privately-negotiated transactions (the parties acknowledge that the Company may choose to include
the Shares on a registration statement with other similar securities issued by the Company);



               (b) use its best efforts, subject to receipt of necessary information from the Purchaser, to
cause the Commission to declare the Registration Statement effective within 45 days after the
Filing Date (such date, the “Required Effective Date”). However, so long as the Company filed the
Registration Statement by the Filing Date, if the Registration Statement receives Commission
review, then the Required Effective Date will be the seventy-fifth (75th) calendar day after the
Filing Date;



               (c) use its best efforts to promptly prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection therewith as may be
necessary to keep the Registration Statement effective until the earliest of (i) two years after
the effective date of the Registration Statement, or (ii) such time as the Shares become eligible
for resale by non-affiliates pursuant to Rule 144(k) under the Securities Act of 1933, as amended;



               (d) promptly furnish to the Purchaser with respect to the Shares registered under the
Registration Statement (and to each underwriter, if any, of such Shares) such number of copies of
prospectuses and such other documents as the Purchaser may reasonably request, in order to
facilitate the public sale or other disposition of all or any of the Shares by the Purchaser;



               (e) file documents required of the Company for normal Blue Sky clearance in states specified
in writing by the Purchaser; provided, however, that the Company shall not be
required to qualify to do business or consent to service of process in any jurisdiction in which it
is not now so qualified or has not so consented;



               (f) bear all expenses in connection with the procedures in paragraphs (a) through (e) of this
Section 7.1 and the registration of the Shares pursuant to the Registration



20









 




Statement, other than fees and expenses, if any, of counsel or other advisers to the Purchaser
or underwriting discounts, brokerage fees and commissions incurred by the Purchaser, if any;




               (g) file a Form D with respect to the Securities as required under Regulation D and to provide
a copy thereof to the Purchaser promptly after filing;



               (h) issue a press release describing the transactions contemplated by this Agreement on each
of the Closing Dates;



               (i) make available, while the Registration Statement is effective and available for resale,
its Chief Executive Officer, Chief Financial Officer, and Chief Administrative Officer for
questions regarding information which the Purchaser may reasonably request in order to fulfill any
due diligence obligation on its part; and



               (j) promptly provide to the Purchaser notice of (i) effectiveness of the Registration
Statement, (ii) any Suspension, or (iii) the issuance of any stop order with respect to the
Registration Statement.



     The Company understands that the Purchaser disclaims being an underwriter, but the Purchaser
being deemed an underwriter shall not relieve the Company of any obligations it has hereunder. A
questionnaire related to the Registration Statement to be completed by the Purchaser is attached
hereto as Appendix II.



          7.2 Transfer of Securities After Registration. The Purchaser agrees that it will not
effect any disposition of the Securities or its right to purchase the Securities that would
constitute a sale within the meaning of the Securities Act or any applicable state securities laws,
except as contemplated in the Registration Statement referred to in Section 7.1 or as otherwise
permitted by law, and that it will promptly notify the Company of any changes in the information
set forth in the Registration Statement regarding the Purchaser or its plan of distribution.
Notwithstanding anything contained in this Agreement to the contrary, it is expressly understood
and agreed that (i) the number of Shares set forth in the Registration Statement shall decrease by
virtue of sales of the Shares by the Purchaser, (ii) the Purchaser shall have no obligation to
inform the Company of such sales or any changes to the number of Shares set forth in the
Registration Statement, the Prospectus or any supplement or update to either of them and (iii) the
Purchaser shall have no liability whatsoever for failing to inform the Company of any such sales or
changes to the number of Shares set forth in the Registration Statement, the Prospectus or any
supplement or update to either of them; provided, however, that if the Company notifies the
Purchaser of its intent to amend the Registration Statement, and the Company shall request from the
Purchaser in such notice an update to the information in the Registration Statement, the Purchaser
shall provide to the Company any changes to the information set forth in the Registration
Statement.




          7.3 Indemnification. For the purpose of this Section 7.3:





(i) the term “Purchaser/Affiliate” shall mean any affiliate of
the Purchaser, including a transferee who is an affiliate of
the Purchaser, and any person who controls the Purchaser or any



21









 






affiliate of the Purchaser within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act; and




(ii) the term “Registration Statement” shall include any
preliminary prospectus, final prospectus, exhibit, supplement
or amendment included in or relating to, and any document
incorporated by reference in, the Registration Statement
referred to in Section 7.1.



               (a) The Company agrees to indemnify and hold harmless the Purchaser and each
Purchaser/Affiliate against any losses, claims, damages, liabilities or expenses, joint or several,
to which the Purchaser or any Purchaser/Affiliate may become subject, under the Securities Act, the
Exchange Act, or any other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is effected with the prior
written consent of the Company), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the Registration Statement,
including the Prospectus, financial statements and schedules, and all other documents filed as a
part thereof, as amended at the time of effectiveness of the Registration Statement, including any
information deemed to be a part thereof as of the time of effectiveness pursuant to paragraph (b)
of Rule 430A, or pursuant to Rule 434, of the Rules and Regulations, or the Prospectus, in the form
first filed with the Commission pursuant to Rule 424(b) of the Regulations, or filed as part of the
Registration Statement at the time of effectiveness if no Rule 424(b) filing is required, or any
amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission
to state in any of them a material fact required to be stated therein or necessary to make the
statements in any of them, in light of the circumstances under which they were made, not
misleading, or arise out of or are based in whole or in part on any inaccuracy in the
representations or warranties of the Company contained in this Agreement, or any failure of the
Company to perform its obligations hereunder or under law, and will promptly reimburse the
Purchaser and each Purchaser/Affiliate for any legal and other expenses as such expenses are
reasonably incurred by the Purchaser or any Purchaser/Affiliate in connection with investigating,
defending or preparing to defend, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the Company will not be
liable in any such case to the extent, but only to the extent, that any such loss, claim, damage,
liability or expense arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Purchaser expressly for use therein, or (ii) the
failure of the Purchaser to comply with the covenants and agreements contained in Sections 5 or
7.2, or (iii) the inaccuracy of any representation or warranty made by the Purchaser herein or (iv)
any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was
delivered to the Purchaser prior to the pertinent sale or sales by the Purchaser.



               (b) The Purchaser will severally indemnify and hold harmless the Company, each of its
directors, each of its executive officers, including such officers who signed the Registration
Statement, and each person, if any, who controls the Company within the



22









 




meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act in an amount not
to exceed in the aggregate for all indemnification obligations arising pursuant to Section 7.3(b)
the net proceeds received by the Purchaser from sales of Shares under the Registration Statement,
against any losses, claims, damages, liabilities or expenses to which the Company, each of its
directors, each of its officers who signed the Registration Statement or controlling person may
become subject, under the Securities Act, the Exchange Act, or any other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of the Purchaser) insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon (i) any failure of the Purchaser to comply with its covenants and
agreements contained in Sections 5 or 7.2 hereof, or (ii) any untrue or alleged untrue statement of
any material fact contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Purchaser expressly for use
therein, and will reimburse the Company, each of its directors, each of its officers who signed the
Registration Statement or controlling person for any legal and other expense reasonably incurred by
the Company, each of its directors, each of its officers who signed the Registration Statement or
controlling person in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action.




               (c) Promptly after receipt by an indemnified party under this Section 7.3 of notice of the
threat or commencement of any action, such indemnified party will, if a claim in respect thereof is
to be made against an indemnifying party under this Section 7.3, promptly notify the indemnifying
party in writing thereof; but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party for contribution or otherwise under
the indemnity agreement contained in this Section 7.3 to the extent it is not prejudiced as a
result of such failure. In case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish, jointly with all
other indemnifying parties similarly notified, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded, based on an opinion of counsel reasonably
satisfactory to the indemnifying party, that there may be a conflict of interest between the
positions of the indemnifying party and the indemnified party in conducting the defense of any such
action or that there may be legal defenses available to it and/or other indemnified parties which
are different from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified party of its
election to assume the defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such



23









 




indemnified party under this Section 7.3 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the indemnified party
shall have employed such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate counsel, reasonably
satisfactory to such indemnifying party, representing all of the indemnified parties who are
parties to such action) or (ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of action, in each of which cases the reasonable fees and expenses of
counsel shall be at the expense of the indemnifying party. In no event shall any indemnifying
party be liable in respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved in writing the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party from all liability on claims that are the subject
matter of such proceeding.




               (d) If the indemnification provided for in this Section 7.3 is required by its terms but is
for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified
party under paragraphs (a), (b) or (c) of this Section 7.3 in respect to any losses, claims,
damages, liabilities or expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the Purchaser from the
private placement of the Securities to the Purchaser hereunder or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but the relative fault of
the Company and the Purchaser in connection with the statements or omissions or inaccuracies in the
representations and warranties in this Agreement and/or the Registration Statement which resulted
in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable
considerations; provided, however, that the Purchaser shall only be required to contribute an
amount up to the net proceeds received by the Purchaser from sales of the Shares under the
Registration Statement. The respective relative benefits received by the Company on the one hand
and the Purchaser on the other shall be deemed to be in the same proportion as the amount paid by
the Purchaser to the Company pursuant to this Agreement for the Shares purchased by the Purchaser
that were sold pursuant to the Registration Statement bears to the difference (the “Difference”)
between the amount the Purchaser paid for the Shares that were sold pursuant to the Registration
Statement and the amount received by the Purchaser from such sale. The relative fault of the
Company, on the one hand, and the Purchaser on the other shall be determined by reference to, among
other things, whether the untrue or alleged statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged inaccurate representation and/or
warranty relates to information supplied by the Company or by the Purchaser and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include, subject to the
limitations set forth in paragraph (c)



24









 




of this Section 7.3, any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The provisions set forth in
paragraph (c) of this Section 7.3 with respect to the notice of the threat or commencement of any
threat or action shall apply if a claim for contribution is to be made under this paragraph (d);
provided, however, that no additional notice shall be required with respect to any
threat or action for which notice has been given under paragraph (c) for purposes of
indemnification. The Company and the Purchaser agree that it would not be just and equitable if
contribution pursuant to this Section 7.3 were determined solely by pro rata allocation (even if
the Purchaser were treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this paragraph.
Notwithstanding the provisions of this Section 7.3, the Purchaser shall not be required to
contribute any amount in excess of the amount by which the Difference exceeds the amount of any
damages that the Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The Purchaser’s obligation to
contribute pursuant to this Section 7.3 is several and not joint.




          7.4 Termination of Conditions and Obligations. The restrictions imposed by Section 5
or this Section 7 upon the transferability of the Securities shall cease and terminate as to any
particular number of the Securities upon the passage of two years from the effective date of the
Registration Statement covering the Securities or at such time as an opinion of counsel
satisfactory in form and substance to the Company shall have been rendered to the effect that such
conditions are not necessary in order to comply with the Securities Act.




          7.5 Information Available. So long as the Registration Statement is effective
covering the resale of the Shares owned by the Purchaser, the Company will furnish to the
Purchaser:




               (a) as soon as practicable after available (but in the case of the Annual Report to the
Stockholders, within 150 days after the end of each fiscal year of the Company), one copy of (i)
its Annual Report to Stockholders (which Annual Report shall contain financial statements audited
in accordance with generally accepted accounting principles by a national firm of certified public
accountants), (ii) if not included in substance in the Annual Report to Stockholders, upon the
request of Purchaser, its Annual Report on Form 10-K, (iii) upon request of Purchaser, its
quarterly reports on Form 10-Q, and (iv) a full copy of the particular Registration Statement
covering the Shares (the foregoing, in each case, excluding exhibits);



               (b) upon the reasonable request of the Purchaser, a reasonable number of copies of the
Prospectuses, and any supplements thereto, to supply to any other party requiring such
Prospectuses; and



               (c) the Company, upon the reasonable request of the Purchaser and with prior notice, will be
available to the Purchaser or a representative thereof at the Company’s headquarters to discuss
information relevant for disclosure in the Registration Statement covering the Shares and will
otherwise cooperate with the Purchaser conducting an investigation for the purpose of reducing or
eliminating the Purchaser’s exposure to liability under the



25









 




Securities Act, including the reasonable production of information at the Company’s
headquarters, subject to appropriate confidentiality limitations.




          7.6 Delay in Filing or Effectiveness of Registration Statement. If (i) the
Registration Statement is not filed by the Company with the Commission on or prior to the Filing
Date, then for each day following the Filing Date, until but excluding the date the Registration
Statement is filed, or (ii) the Registration Statement is not declared effective by the Commission
by the Required Effective Date, then for each day following the Required Effective Date, until but
excluding the date the Commission declares the Registration Statement effective, in each case, the
Company shall, for each such day, pay the Purchaser with respect to any such failure, as partial
damages and not as a penalty, an amount equal to 0.0667% of the purchase price paid by the
Purchaser for the Securities pursuant to this Agreement; and for any such day, such payment shall
be made no later than the first business day of the calendar month next succeeding the month in
which such day occurs. If the Purchaser shall be prohibited from selling any of the Shares under
the Registration Statement as a result of a Suspension of more than thirty (30) days or Suspensions
on more than two (2) occasions of not more than thirty (30) days each in any 12-month period, then
for each day on which a Suspension is in effect that exceeds the maximum allowed period above for a
Suspension or Suspensions, but not including any day on which a Suspension is lifted, the Company
shall pay the Purchaser, as partial damages and not as a penalty, an amount equal to 0.0667% of the
purchase price paid by the Purchaser for the Securities purchased pursuant to this Agreement for
each such day, and such payment shall be made no later than the first business day of the calendar
month next succeeding the month in which such day occurs. For purposes of this Section 7.6, a
Suspension shall be deemed lifted on the date that notice that the Suspension has been lifted is
delivered to the Purchaser pursuant to Section 11 of this Agreement. Any payments made pursuant to
this Section 7.6. shall not constitute the Purchaser’s exclusive remedy for such events.
Notwithstanding the foregoing provisions, in no event shall the Company be obligated to pay such
partial damages to more than one person in respect of the same Securities for the same period of
time. Such payments shall be made to the Purchaser in cash.




     SECTION 8. Certain Adjustments. (a) Subject to Section 8(c), except with respect to
the issuance of Excluded Securities (as such term is defined in the Warrant), if at any time on or
before the one year anniversary of the Second Closing (the “Full Ratchet Period”), the Company
shall issue or sell or agree to issue or sell any shares of Common Stock or Common Stock
Equivalents (as defined below) to any person or persons for a price per share (in each case, as
determined in accordance with Section 2.8 of the Warrant) less than the Strike Price (as defined
below) in effect immediately prior to the time of such issue or sale or agreement related thereto,
then and in each such case (a “Trigger Issuance”), the Company shall issue without the payment of
additional consideration, in connection with such Trigger Issuance, a number of additional shares
of Common Stock to the Purchaser equal to difference of: (A) the number of shares of Common Stock
that would have been issued to such Purchaser, based on such Purchaser’s purchase price of Common
Stock at the Initial Closing (i.e., $5.25 per share), if the Strike Price in effect immediately
prior to such Trigger Issuance was equal to the Strike Price in effect immediately after such
Trigger Issuance; minus (B) the number of shares of Common Stock initially issued to such
Purchaser upon payment of its purchase price (and, to the extent there has been a previous
adjustment to the price per share, any Anti-Dilution Shares previously issued to such Purchaser).



26









 





               (b) Subject to Section 8(c), except with respect to the issuance of Excluded Securities, if at
any time after the Full Ratchet Period, the Company shall effect a Trigger Issuance, the Company
shall issue without the payment of additional consideration, in connection with such Trigger
Issuance, a number of additional shares of Common Stock to the Purchaser equal to the difference
of: (A) the number of shares of Common Stock that would have been issued to such Purchaser at each
Closing that occurred under this Agreement, if the price per share for such Purchaser was equal to
the product of the Strike Price in effect immediately prior to such Trigger Issuance multiplied by
a fraction, the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Trigger Issuance plus the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of additional shares of Common
Stock so issued in the Trigger Issuance would purchase at the purchase price paid by the Purchaser
at the Initial Closing (i.e., $5.25), and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Trigger Issuance plus the number of such
additional shares of Common Stock so issued; minus (B) the number of shares of Common Stock
initially issued to such Purchaser upon payment of its purchase price (and, to the extent there has
been a previous adjustment to the price per share, any Anti-Dilution Shares previously issued to
such Purchaser).



               (c) The provisions of this Section 8(c) shall be applicable to Sections 8(a) and 8(b) and to
Section 9. The price per share at which the Company issues or sells or agrees to issue or sell
shares of Common Stock or Common Stock Equivalents shall be determined in accordance with the
provisions of Section 2.8 of the Warrant. For the avoidance of doubt, the issuance of Common Stock
Equivalents (and not the actual conversion or exercise of such Common Stock Equivalent into shares
of Common Stock) is the event that gives rise to the issuance of Anti-Dilution Shares pursuant to
this Section 8. Promptly following the occurrence of any event giving rise to the issuance of any
Anti-Dilution Shares (but in no event more than four (4) business days thereafter), the Company
shall issue irrevocable instructions authorizing its transfer agent to issue such Anti-Dilution
Shares to the Purchaser. Without further action or deed, automatically after each Trigger
Issuance, the Strike Price shall be reset to the per share price at which the Common Stock, or the
Common Stock underlying the Common Stock Equivalents, was issued in the Trigger Issuance; as
determined in accordance with the provisions of Section 2.8 of the Warrant. The “Strike Price”
shall initially be equal to $5.25, and shall be re-set from time to time in accordance with the
immediately preceding sentence upon each Trigger Issuance. Notwithstanding the foregoing, Sections
8(a) and 8(b) and Section 9 shall not apply to the issuance of Excluded Securities.



     SECTION 9. Participation Right on Future Financings.



               (a) Notice of Proposed Issuance. Except with respect to the issuance of Excluded
Securities or Common Stock and Common Stock Equivalents to Strategic Investors (as defined below)
of the Company, in the event that the Company proposes to issue any (i) shares of Common Stock,
(ii) warrants, options or other rights to purchase shares of Common Stock or (iii) any notes,
debentures or other securities convertible into or exercisable or exchangeable for shares of Common
Stock (collectively, the “Common Stock Equivalents”), the Company will deliver to the Purchaser a
written notice (the “Offer Notice”) prior to effecting any such issuance (the “New Issuance”),
offering to such Purchaser the right, for a period of ten (10)



27









 




days, to purchase for cash at an amount equal to the price or other consideration for which
such Common Stock or Common Stock Equivalents are to be issued, on a pro rata basis with all other
purchasers of Securities at the Initial Closing who then own such Securities (each, a “Recipient”),
a number of shares of such Common Stock or Common Stock Equivalents equal to the lesser of (i) the
number of shares to be issued in such New Issuance equal to the number of shares of Common Stock or
Common Stock Equivalents, as the case may be, that could be purchased for the aggregate purchase
price paid at the Initial Closing and the Second Closing, and (ii) twenty percent (20.0%) of the
number of shares of Common Stock or Common Stock Equivalents, as the case may be, to be issued in
such New Issuance. The Offer Notice shall describe the securities proposed to be issued by the
Company and specify the number, price and payment terms in the New Issuance.




               (b) Right to Purchase Common Stock or Common Stock Equivalents.



                    (i) The Purchaser may accept the Company’s offer as to the full number of securities offered
to it in the Offer Notice or any lesser number, by written notice thereof (an “Exercise Notice”)
given by it to the Company prior to the expiration of the aforesaid 10-day period. A delivery of
an Exercise Notice (which notice shall specify the number (or amount) of Common Stock Equivalents
to be purchased by the Purchaser as permitted under this Section 9) shall constitute a binding
agreement of the holder to purchase, at the price and on the terms specified in the Offer Notice,
the number (or amount) of Common Stock or Common Stock Equivalents specified in the Purchaser’s
Exercise Notice. If at the termination of such 10-day period the Purchaser shall not have
exercised its rights to purchase Common Stock or Common Stock Equivalents pursuant to this Section
9, the Purchaser shall be deemed to have waived any and all of its rights under this Section 9 with
respect to that purchase of such Common Stock or Common Stock Equivalents (such waiver shall not
apply to any subsequently offered Common Stock or Common Stock Equivalents). Notwithstanding
anything in this Section 9 to the contrary, if, with respect to a given New Issuance, any other
Recipient elects not to exercise fully its rights or is deemed to have waived its rights, then the
Company shall provide the Purchaser and each other Recipient who exercised its rights with a second
Offer Notice, and the Purchaser and each other Recipient who exercised its rights may include in
its Exercise Notice for such New Issuance, upon delivery to the Company of an Exercise Notice
within five (5) business days after receipt by the Purchaser and each other Recipient of such
second Offer Notice, an additional number (or amount) of Common Stock or Common Stock Equivalents
equal to its pro rata share of the unexercised number (or amount) of Common Stock or Common Stock
Equivalents in such New Issuance.



                    (ii) The Company shall have ninety (90) days from the date of the Offer Notice to consummate
the proposed New Issuance at the price and upon substantially the same terms specified in the Offer
Notice, provided that, if such issuance is subject to regulatory and shareholder approval, such
ninety (90) day period shall be extended until the expiration of five (5) business days after all
such approvals have been received, but in no event later than one hundred eighty (180) days from
the date of the Offer Notice. At the consummation of such New Issuance, the Company shall issue
certificates representing the Common Stock or Common Stock Equivalents to be purchased by the
Purchaser registered in the name of such Purchaser, against payment by such Purchaser of the
purchase price for such Common Stock or Common Stock Equivalents specified in such Purchaser’s
Exercise Notice. If



28









 




the Company proposed to issue any class of Common Stock or Common Stock Equivalents after such
time period above, it shall again comply with the procedures set forth in this Section 9.




                    (iii) The value of any non-cash consideration to be received by the Company in any New
Issuance shall be determined by the Board of Directors in good faith, and shall be specified in the
Offer Notice delivered in connection with any such New Issuance. If the Purchaser elects to
exercise its rights under this Section 9 in connection with any New Issuance in which there is any
such non-cash consideration, then, such Purchaser may elect in its Exercise Notice to tender, in
lieu of tendering any such non-cash consideration, an amount in cash equal to the reasonably
determined good faith value of such non-cash consideration.



               (c) Expiration of Participation Right. The participation right granted pursuant to
this Section 9 shall expire on the two (2) year anniversary of the date of this Agreement.


For purposes of this Section 9, the term “Strategic Investor” means (i) any person that has been
resolved by a majority of a quorum of the Company’s Board of Directors to constitute a
“strategic investor” on the basis of such person’s (A) existing or prospective business
relationship with the Company and/or its subsidiaries; or (B) existing or anticipated ability to
further the business objectives of the Company and/or its subsidiaries; or (ii) a corporation,
partnership or other entity that has at the time of its initial investment in the Company (A) an
equity market capitalization in excess of $100 million or (B) assets in excess of $100 million.




     SECTION 10. Broker’s Fee. The Purchaser acknowledges that the Company intends to pay
to the Placement Agent a fee in respect of the sale of the Securities to the Purchaser. The
Purchaser and the Company hereby agree that the Purchaser shall not be responsible for such fee and
that the Company will indemnify and hold harmless the Purchaser and each Purchaser/Affiliate
against any losses, claims, damages, liabilities or expenses, joint or several, to which the
Purchaser or any Purchaser/Affiliate may become subject with respect to such fee. Each of the
parties hereto hereby represents that, on the basis of any actions and agreements by it, there are
no other brokers or finders entitled to compensation in connection with the sale of the Securities
to the Purchaser.



     SECTION 11. Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (i) upon delivery to the party to be notified; (ii) when
received by confirmed facsimile or (iii) one (1) business day after deposit with a nationally
recognized overnight carrier, specifying next business day delivery, with written verification of
receipt. All communications shall be sent to the Company and the Purchaser as follows or at such
other addresses as the Company or the Purchaser may designate upon ten (10) days’ advance written
notice to the other party:



29









 






	 	(a)	 	if to the Company, to:
	 
	 	 	 	Sunair Services Corporation.

3005 SW Third Avenue

Fort Lauderdale, Florida 33315

Facsimile: (561) 955-7333

Attention:
	 
	 	 	 	with a copy to:
	 
	 	 	 	Akerman Senterfitt

One Southeast Third Avenue, 28th Floor

Miami, Florida 33131

Facsimile: (305) 374-5618

Attention: Stephen K. Roddenberry
	 
	 	(b)	 	if to the Placement Agent, to:
	 
	 	 	 	Roth Capital Partners, LLC

11100 Santa Monica Blvd.

Suite 550

Los Angeles, California 90025

Facsimile: (310) 445-5864

Attention: John Dalfonsi
	 
	 	 	 	with a copy to:
	 
	 	 	 	Lowenstein Sandler PC

1251 Avenue of the Americas

New York, New York 10020

Facsimile: (973) 597-2507

Attention: Steven E. Siesser





               (c) if to the Purchaser, at its address as set forth at the end of this Agreement.



     SECTION 12. Changes. This Agreement may not be modified or amended except pursuant to
an instrument in writing signed by the Company and the Purchaser. No provision hereunder may be
waived other than in a written instrument executed by the waiving party.



     SECTION 13. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be part of this
Agreement.



     SECTION 14. Severability. In case any provision contained in this Agreement should be
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or impaired thereby.



30









 





     SECTION 15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the federal law of the United States of
America.



     SECTION 16. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken together, shall constitute
but one instrument, and shall become effective when one or more counterparts have been signed by
each party hereto and delivered to the other parties. In the event that any signature is delivered
by facsimile transmission or by an e-mail which contains an electronic file of an executed
signature page, such signature shall create a valid and binding obligation of the party executing
(or on whose behalf such signature is executed) with the same force and effect as if such facsimile
or electronic file signature page (as the case may be) were an original thereof.



     SECTION 17. Entire Agreement. This Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the Company nor the
Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters.



     SECTION 18. Assignment. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the parties hereto and their respective
permitted successors, assigns, heirs, executors and administrators. This Agreement and the rights
of the Purchaser hereunder may be assigned by the Purchaser with the prior written consent of the
Company, except such consent shall not be required in cases of assignments by an investment adviser
to a fund for which it is the adviser or by or among funds that are under common control, provided
that such assignee agrees to be bound by the terms of this Agreement.



     SECTION 19. Further Assurances. Each party agrees to cooperate fully with the other
parties and to execute such further instruments, documents and agreements and to give such further
written assurance as may be reasonably requested by any other party to evidence and reflect the
transactions described herein and contemplated hereby and to carry into effect the intents and
purposes of this Agreement.



     SECTION 20. Independent Nature of the Purchaser’s Obligations and Rights. The
obligations of the Purchaser under this Agreement are several and not joint with the obligations of
any other third party purchasers of the Company’s securities, and the Purchaser shall not be
responsible in any way for the performance of the obligations of any other third party purchasers
of the Company’s securities. Each of the Purchaser and the Company agree and acknowledge that (i)
the decision of the Purchaser to purchase the Securities pursuant to this Agreement has been made
by the Purchaser independently of any other third party purchasers of the Company’s securities and
(ii) no other third party purchasers of the Company’s securities have acted as agent for the
Purchaser in connection with the Purchaser making its investment hereunder and that no such other
third party purchasers will be acting as agent of the Purchaser in connection with monitoring its
investment hereunder or enforcing its rights under this Agreement. Nothing contained herein or in
any other document contemplated hereby or any agreement of any such other third party purchaser,
and no action taken by the Purchaser pursuant hereto or any other third party purchaser pursuant
thereto, shall be deemed to constitute the Purchaser or any such



31









 







other third party purchasers as a partnership, an association, a joint venture or any other
kind of entity, or create a presumption that the Purchaser or any such other third party purchasers
are in any way acting in concert or as a group with respect to any matters. The Purchaser shall be
entitled to independently protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of any of the other documents contemplated hereby, and it
shall not be necessary for any such other third party purchasers to be joined as an additional
party in any proceeding for such purpose. To the extent that any such other third party purchasers
purchase the same or similar securities as the Purchaser hereunder or on the same or similar terms
and conditions or pursuant to the same or similar documents, all such matters are solely in the
control of the Company, not the action or decision of the Purchaser, and would be solely for the
convenience of the Company and not because it was required or requested to do so by the Purchaser
or any such other third party purchaser.



     SECTION 21. Termination. Purchaser may terminate this Agreement without any
obligation or liability hereunder or otherwise if the Initial Closing does not occur within fifteen
(15) business days after the execution of this Agreement. After the Initial Closing, Purchaser may
also terminate this Agreement, but only with respect to the Second Closing and the Additional
Securities to be purchased by the Purchaser, without any obligation or liability hereunder or
otherwise if the Second Closing does not occur within forty-five (45) days after the Initial
Closing, and in such event all applicable sections and provisions of this Agreement shall survive
such termination.



32









 





     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the day and year first above written.



	 	 	 	 	 	 	 	 	 
	 	 	SUNAIR SERVICES CORPORATION	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 	 	 





33









 






[Investor Signature Page]




	 	 	 	 	 
	Print or Type:
	 	 	 	 
	 	 	Name of Purchaser
	 	 	(Individual or Institution):
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	Name of Individual representing
	 	 	Purchaser (if an Institution):
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	Title of Individual representing
	 	 	Purchaser (if an Institution):
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Signature by:
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 	 	Individual Purchaser or Individual

representing Purchaser:
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Telephone:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Telecopier:	 	 
	 

	 	 	 	 





	 	 	 	 	 	 	 	 	 	 	 
	Number of	 	 	 	 	 	 	 	 	 	 
	Securities to Be	 	 	 	Aggregate Price	 	Number of Securities	 	 	 	Aggregate Price
	Purchased by the	 	 	 	to be paid by the	 	to be Purchased by the	 	Price Per	 	to be paid by
	Purchaser at the	 	Price Per Share	 	Purchaser	 	Purchaser at the	 	Share In	 	the Purchaser
	Initial Closing	 	In Dollars	 	at Initial Closing	 	Second Closing	 	Dollars	 	at Second Closing
	Common Stock
	 	$
	 	 	 	Common Stock
	 	$
	 	$
	Warrants
	 	 	 	 	 	Warrants	 	 	 	 







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