exv10w1






Exhibit 10.1




Securities Purchase Agreement




Dated September 2, 2010



between



PostRock Energy Corporation,



White Deer Energy L.P.,



White Deer Energy TE L.P.,



and



White Deer Energy FI L.P.







 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page	 
	ARTICLE I	 	 	 	 
	Purchase; Closing; Closing Conditions	 	 	 	 
	 
	 	 	 	 
	1.1 Purchase
	 	 	1	 
	1.2 Closing
	 	 	1	 
	1.3 Conditions Precedent to Closing
	 	 	2	 
	1.4 Issuance of Additional Warrants
	 	 	4	 
	1.5 Interpretation
	 	 	5	 
	 
	 	 	 	 
	ARTICLE II	 	 	 	 
	Representations and Warranties	 	 	 	 
	 
	 	 	 	 
	2.1 Definitions
	 	 	5	 
	2.2 Representations and Warranties of the Company
	 	 	6	 
	2.3 Representations and Warranties of the Investors
	 	 	13	 
	 
	 	 	 	 
	ARTICLE III	 	 	 	 
	Covenants	 	 	 	 
	 
	 	 	 	 
	3.1 Commercially Reasonable Efforts
	 	 	16	 
	3.2 Expenses
	 	 	16	 
	3.3 Sufficiency of Authorized Common Stock
	 	 	16	 
	3.4 Certain Notifications Until Closing
	 	 	17	 
	3.5 Conduct of Business
	 	 	17	 
	3.6 Restrictions on Sale of Common Stock
	 	 	18	 
	3.7 Financial Statements and Other Reports
	 	 	19	 
	3.8 Confidentiality
	 	 	20	 
	3.9 Transfer Restrictions
	 	 	20	 
	3.10 Legend
	 	 	20	 
	 
	 	 	 	 
	ARTICLE IV	 	 	 	 
	Additional Agreements	 	 	 	 
	 
	 	 	 	 
	4.1 Board Designation
	 	 	21	 
	4.2 Preemptive Rights
	 	 	22	 
	4.3 Survival and Indemnification
	 	 	23	 
	4.4 Company Opportunities
	 	 	25	 
	4.5 Subsequent Investment
	 	 	26	 






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	 	 	Page	 
	ARTICLE V	 	 	 	 
	Miscellaneous	 	 	 	 
	 
	 	 	 	 
	5.1 Termination
	 	 	26	 
	5.2 Effect of Termination
	 	 	27	 
	5.3 Amendment
	 	 	27	 
	5.4 Waivers
	 	 	27	 
	5.5 Counterparts and Facsimile
	 	 	27	 
	5.6 Governing Law; Submission to Jurisdiction, Etc
	 	 	27	 
	5.7 Specific Performance
	 	 	27	 
	5.8 Notices
	 	 	27	 
	5.9 Publicity
	 	 	29	 
	5.10 Entire Agreement, Etc
	 	 	29	 
	5.11 Assignment
	 	 	29	 
	5.12 Severability
	 	 	29	 
	5.13 No Third Party Beneficiaries
	 	 	29	 






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LIST OF ANNEXES AND SCHEDULES 




	 	 	 

	ANNEX A:

	 	FORM OF CERTIFICATE OF DESIGNATIONS — SERIES A
	ANNEX B:

	 	FORM OF CERTIFICATE OF DESIGNATIONS — SERIES B
	ANNEX C:

	 	FORM OF WARRANT
	ANNEX D:

	 	FORM OF REGISTRATION RIGHTS AGREEMENT
	ANNEX E:

	 	FORM OF DIRECTOR INDEMNIFICATION AGREEMENT
	ANNEX F:

	 	FORM OF LEGAL OPINION
	ANNEX G:

	 	FORM OF SHAREHOLDER LETTER






	 	 	 

	SCHEDULE 1.1:

	 	PURCHASED SECURITIES
	SCHEDULE 2.2(A):

	 	SUBSIDIARIES
	SCHEDULE 2.2(B):

	 	CAPITALIZATION
	SCHEDULE 2.2(E):

	 	AUTHORIZATION, ENFORCEABILITY
	SCHEDULE 2.2(G):

	 	NO MATERIAL CHANGES
	SCHEDULE 2.2(K):

	 	LITIGATION
	SCHEDULE 2.2(N):

	 	EMPLOYEE MATTERS
	SCHEDULE 2.2(P):

	 	BROKERS
	SCHEDULE 3.5:

	 	CONDUCT OF BUSINESS






INDEX OF DEFINED TERMS




	 	 	 
	Term	 	Location of Definition
	Accrued and Unpaid Dividend Amount

	 	1.4 
	Affiliate

	 	2.1(a) 
	Agreement

	 	Preamble 
	Antitakeover Laws

	 	2.2(j)(ii) 
	Asset Sale Agreement

	 	2.1(b) 
	Bankruptcy Exceptions

	 	2.2(e)(i) 
	Beneficial Ownership

	 	2.3(d) 
	Board

	 	1.3(c)(iv) 
	business day

	 	1.5 
	Certificates of Designations

	 	Recital B 
	Claim

	 	4.3(e) 
	Closing

	 	1.2(a) 
	Closing Date

	 	1.2(a) 
	Common Stock

	 	Recital A 
	Company

	 	Preamble 
	Confidentiality Agreement

	 	5.1 
	Convertible Securities

	 	3.6(a)(ii) 
	Deductible

	 	4.3(d) 
	Dividend Payment Date

	 	1.4 
	Due Diligence Information

	 	2.3(e) 
	Equity Securities

	 	4.2(a)(i) 
	Evaluation Date

	 	2.2(o) 
	Exchange Act

	 	2.1(c) 






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	Term	 	Location of Definition
	Excluded Securities

	 	3.6(a)(iii) 
	Fully Diluted Basis

	 	4.1 
	GAAP

	 	2.1(d) 
	Governmental Entities

	 	0 
	Indemnified Person

	 	4.3(e) 
	Indemnifier

	 	4.3(e) 
	Investor(s)

	 	Preamble 
	Investor Indemnified Parties

	 	4.3(b) 
	Investor Directors

	 	4.1 
	Investor Material Adverse Effect

	 	2.3(b)(ii) 
	Losses

	 	4.3(b) 
	Market Price

	 	1.4 
	Material Adverse Effect

	 	2.1(e) 
	NASDAQ

	 	1.3(c)(vi) 
	NASDAQ Letter

	 	1.3(c)(vi) 
	NASDAQ Waiver

	 	2.2(f) 
	New Securities

	 	4.2(a)(ii) 
	New Credit Agreements

	 	1.3(a)(ii) 
	Offer

	 	4.2(b) 
	Offered Securities

	 	4.2(b) 
	Options

	 	3.6(a)(iv) 
	Preemptive Period

	 	4.2(b) 
	Preferred Shares

	 	Recital B 
	Preferred Stock

	 	Recital A 
	Pro Rata Share

	 	4.2(a)(iii) 
	Purchase

	 	1.1 
	Purchase Notice

	 	4.2(c) 
	Purchased Securities

	 	Recital B 
	Registration Rights Agreement

	 	1.3(c)(iii) 
	Restructuring

	 	2.1(f) 
	SEC

	 	1.3(c)(vii) 
	SEC Reports

	 	2.1(g) 
	Securities Act

	 	2.1(h) 
	Series A Certificate

	 	Recital B 
	Series B Certificate

	 	Recital B 
	Series A Shares

	 	Recital B 
	Series B Shares

	 	Recital B 
	Specified Representations

	 	4.3(a) 
	Subsidiary

	 	2.1(i) 
	Threshold Ownership Date

	 	4.1 
	Transaction Documents

	 	2.1(k) 
	Transactions

	 	2.1(j) 
	Warrant(s)

	 	Recital B 
	Warrant Shares

	 	2.2(d) 
	White Deer Group

	 	4.4 
	White Deer Group Member

	 	4.4 







iv









 








     SECURITIES PURCHASE AGREEMENT, dated September 2, 2010 (this “Agreement”), between
PostRock Energy Corporation, a Delaware corporation (the “Company”), and White Deer Energy L.P.,
White Deer Energy TE L.P., and White Deer Energy FI L.P., each a Cayman Islands exempted limited
partnership (together, the “Investors” and each an “Investor”).



Recitals:




     A. The Company. As of the date hereof, the Company has 40,000,000 authorized shares
of Common Stock, $0.01 par value per share (“Common Stock”), and 5,000,000 authorized shares of
Preferred Stock, $0.01 par value per share (“Preferred Stock”).



     B. The Issuance. The Company intends to issue to the Investors in a private placement
6,000 shares of its Series A Cumulative Redeemable Preferred Stock (the “Series A Shares”) having
the rights, preferences and privileges set forth in the Series A Certificate of Designations
attached as Annex A hereto (the “Series A Certificate”); 190,476.19 shares of its Series B
Voting Preferred Stock (the “Series B Shares” and, together with the Series A Shares, the
“Preferred Shares”) having the rights, preferences and privileges set forth in the Series B
Certificate of Designations attached as Annex B hereto (the “Series B Certificate” and,
together with the Series A Certificate, the “Certificates of Designations”); and warrants to
purchase 19,047,619 shares of its Common Stock at an exercise price of $3.15 per share (the
“Warrants” and, together with the Preferred Shares, the “Purchased Securities”) in the form
attached as Annex C hereto, and the Investors intend to purchase from the Company the
Purchased Securities.



     NOW, THEREFORE, in consideration of the premises, and of the representations, warranties,
covenants and agreements set forth herein, the parties agree as follows:



ARTICLE I




Purchase; Closing; Closing Conditions



     1.1 Purchase. On the terms and subject to the conditions set forth in this Agreement,
the Company shall sell to the Investors, and the Investors shall purchase from the Company, at the
Closing (as hereinafter defined) (a) 6,000 Series A Shares for a purchase price of approximately
$9,241.9048 per share, (b) 190,476.19 Series B Shares for a purchase price of $0.01 per share, and
(c) Warrants exercisable for a total of 19,047,619 Warrant Shares (as defined in Section 2.2(d))
for a purchase price of $0.2387 per Warrant Share, for an aggregate purchase price of $60,000,000
(the “Purchase”) as set forth on Schedule 1.1.



     1.2 Closing.



     (a) On the terms and subject to the conditions set forth in this Agreement, the closing of the
Purchase (the “Closing”) shall take place at the offices of Vinson & Elkins LLP, 666 Fifth Avenue,
26th Floor, New York, New York 10004, at 9:00 a.m., New York time, on September 24,
2010, or as soon as practicable thereafter after fulfillment or waiver of the conditions to the



 









 




Closing in Section 1.3, or at such other place, time and date as shall be agreed between the
Company and the Investors. The time and date on which the Closing occurs is referred to in this
Agreement as the “Closing Date”.




     (b) At the Closing, the Company shall deliver the Preferred Shares and the Warrants to the
Investors, in each case as evidenced by one or more certificates dated the Closing Date and bearing
appropriate legends as hereinafter provided for, in exchange for payment in full of the aggregate
purchase price therefor by wire transfer of immediately available United States funds to a bank
account that has been designated by the Company at least two business days prior to the Closing
Date.



     1.3 Conditions Precedent to Closing.



     (a) Conditions to Obligations of Each Party. (i) The respective obligations of each of the
Investors and the Company to consummate the Purchase are subject to the fulfillment (or waiver by
the Investors and the Company) prior to the Closing of the conditions that (i) all approvals or
authorizations of Federal, state and local governmental or regulatory authorities (collectively,
“Governmental Entities”), the absence of which would reasonably be expected to make the Purchase
unlawful, shall have been obtained or made in form and substance reasonably satisfactory to each
party and shall be in full force and effect and all waiting periods required by applicable law
shall have expired and (ii) no provision of any applicable law and no judgment, injunction, order
or decree of any Governmental Entity having competent jurisdiction shall prohibit the Purchase; and



          (ii) the Company shall have consummated, or shall consummate concurrently with the Purchase,
the closings contemplated under (x) the Third Amended and Restated Credit Agreement by and between
Quest Eastern Resource LLC, as borrower, and Royal Bank of Canada (“RBC”), as administrative and
collateral agent and lender, relating to a Renewal Term Loan, (y) the Second Amended and Restated
Credit Agreement by and among PostRock Energy Services Corporation and PostRock MidContinent
Production, LLC, as borrowers, RBC, as administrative and collateral agent, and the lenders party
thereto relating to a Borrowing Base Facility and (z) the Second Amended and Restated Credit
Agreement by and among PostRock KPC Pipeline, LLC and PostRock Energy Services Corporation, as
borrowers, RBC, as administrative and collateral agent, and the lenders party thereto relating to a
$15,000,000 Secured Pipeline Term Loan (collectively, the “New Credit Agreements”).




     (b) Conditions Precedent to the Obligations of the Company. The obligation of the Company to
consummate the Closing is also subject to the fulfillment (or waiver by the Company) at or prior to
the Closing of each of the following conditions:



          (i) (A) The representations and warranties of the Investors set forth in this Agreement shall
be true and correct in all material respects (except for any representations and warranties that
are qualified by materiality, all of which shall be true and correct in all respects) as though
made on and as of the Closing Date (other than representations and warranties that by their terms
speak as of another date, which representations and warranties shall be so true and correct as of
such date), and (B) the Investors shall have performed in all material respects all






2









 







obligations required to be performed by them under this Agreement at or prior to the Closing;
and




          (ii) the Investors shall have delivered a certificate, executed on behalf of each Investor by
such Investor’s general partner, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in subsection (i) of this Section 1.3(b).




     (c) Conditions Precedent to the Obligations of the Investors. The obligation of the Investors
to consummate the Closing is also subject to the fulfillment (or waiver by the Investors) at or
prior to the Closing of each of the following conditions:



          (i) (A) The representations and warranties of the Company set forth in Section 2.2 shall be
true and correct in all material respects (except for any representations and warranties that are
qualified by materiality, all of which shall be true and correct in all respects) as though made on
and as of the Closing Date (other than representations and warranties that by their terms speak as
of another date, which representations and warranties shall be so true and correct as of such date)
and (B) the Company shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing;



          (ii) the Company shall have filed with the Secretary of State of the State of Delaware the
Certificates of Designations and such filings shall have been accepted;



          (iii) the Company shall have duly executed and delivered to the Investors or their designee(s)
a Registration Rights Agreement (the “Registration Rights Agreement”) in substantially the form of
Annex D;



          (iv) Thomas J. Edelman, James D. Bennett and Nathan M. Avery shall have been, or shall be
concurrently with the Closing, appointed to the board of directors of the Company (the “Board”);



          (v) the Company shall have duly executed and delivered to the Investor Directors a director
indemnification agreement, in substantially the form of Annex E;



          (vi) the NASDAQ OMX Group Inc. (“NASDAQ”) shall not have amended or revoked its letter dated
July 9, 2010 (the “NASDAQ Letter”) excepting the Company from the shareholder approval rules
pursuant to Marketplace Rule 5635(f), and the Company shall have complied with the ten-day notice
period specified therein;



          (vii) no stop order or suspension of trading shall have been imposed by NASDAQ, the Securities
and Exchange Commission (the “SEC”) or any other Governmental Entity with respect to public trading
in the Common Stock and the Company shall not have received any notice indicating that the Common
Stock will be suspended or limited;



          (viii) none of the Company or any of its Subsidiaries shall be a debtor in a bankruptcy case
or have filed for bankruptcy (under title 11 of the United States Code or any other bankruptcy,
receivership, or any other insolvency proceeding in any jurisdiction);



3









 





          (ix) since the date hereof, there shall not have occurred a Material Adverse Effect;



          (x) there shall not be any proceedings which have been commenced against any of the parties
hereto by any person involving or affecting in any way the consummation of the Transactions; and



          (xi) the Company shall have delivered a certificate, executed on behalf of the Company by any
two of its Chief Executive Officer, Chief Financial Officer and General Counsel, dated as of the
Closing Date, certifying to the fulfillment of the conditions specified in subsections (i), (ii),
(iv) and (vi) — (x) of this Section 1.3(c);



          (xii) the Company shall have delivered good standing certificates with respect to each of the
Company and its Subsidiaries issued by the Secretary of State of the state in which such entity is
organized, each dated as of a recent date;



          (xiii) the Company shall have delivered a certificate, executed on behalf of the Company by
its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board
approving the Transactions and the issuance of the Purchase Securities, certifying the current
versions of the certificate of incorporation and bylaws of the Company and certifying as to the
signatures and authority of persons signing the Transaction Documents and related documents on
behalf of the Company;



          (xiv) the Investors shall have received an opinion from Baker Botts L.L.P., the Company’s
counsel, dated as of the Closing Date, in the form set forth on Annex F;



          (xv) the Company shall have delivered, at least two business days prior to the Closing, a
schedule detailing the use of proceeds from the Transaction, in form and substance reasonably
satisfactory to the Investors;



          (xvi) in accordance with Section 3.2, the Investors and counsel for the Investors shall have
received from the Company reimbursement of all their reasonable costs and expenses incurred in
connection with the Purchase through the Closing Date for which reasonably detailed invoices have
been presented to the Company at least two business days prior to the Closing Date, by a wire
transfer of immediately available funds made on the Closing Date from the Company to bank accounts
designated by the Investors and counsel to the Investors; provided that to the extent invoices
therefor have not been so presented at least two business days prior to the Closing Date, such fees
and expenses shall be paid within 30 days of the invoice having been presented to the Company; and



          (xvii) all other documents, certificates, instruments and writings reasonably requested by the
Investors or their counsel as may be necessary or advisable in connection with the consummation of
the Transactions.



     1.4 Issuance of Additional Warrants. If, on any Dividend Payment Date prior to July
1, 2013, dividends payable on the Series A Shares are not paid to the holders of the Series A
Shares in cash but instead accrue (such amount the “Accrued and Unpaid Dividend Amount”), the
Company shall issue to each such holder additional Warrants exercisable for an amount of



4









 




Warrant Shares equal to (i) the Accrued and Unpaid Dividend Amount due such holder divided by (ii)
the Market Price of the Common Stock on the trading day immediately prior to the applicable
Dividend Payment Date. Such additional Warrants shall have an exercise price per Warrant Share
equal to such Market Price and shall be issued as of the Dividend Payment Date, and the Company
shall deliver duly executed additional Warrants to such holder, in the form attached as Annex
C hereto, promptly after the applicable Dividend Payment Date. The Company shall also issue a
number of fractional Series B Shares stapled to such Warrants such that, at the date of issuance,
the aggregate number of votes that may be cast by such fractional shares shall equal the number of
Warrant Shares in respect of such Warrants. “Dividend Payment Date” and “Market Price” have the
meanings ascribed to them in the Series A Certificate and Warrant, respectively.




     1.5 Interpretation. When a reference is made in this Agreement to “Recitals,”
“Articles,” “Sections” or “Annexes,” such reference shall be to a Recital, Article or Section of,
or Annex to, this Agreement unless otherwise indicated. The terms defined in the singular have a
comparable meaning when used in the plural, and vice versa. References to “herein”, “hereof”,
“hereunder” and the like refer to this Agreement as a whole and not to any particular section or
provision, unless the context requires otherwise. The table of contents and headings contained in
this Agreement are for reference purposes only and are not part of this Agreement. Whenever the
words “include,” “includes” or “including” are used in this Agreement, they shall be deemed
followed by the words “without limitation.” No rule of construction against the draftsperson shall
be applied in connection with the interpretation or enforcement of this Agreement, as this
Agreement is the product of negotiation between sophisticated parties advised by counsel. All
references to “$” or “dollars” mean the lawful currency of the United States of America. Except as
expressly stated in this Agreement, all references to any statute, rule or regulation are to the
statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and,
in the case of statutes, include any rules and regulations promulgated under the statute) and to
any section of any statute, rule or regulation include any successor to the section. References to
a “business day” shall mean a business day in Oklahoma City, Oklahoma or New York, New York.



ARTICLE II




Representations and Warranties



     2.1 Definitions.



     (a) “Affiliate” means, with respect to any person, any person directly or indirectly
controlling, controlled by or under common control with, such other person. For purposes of this
definition, “control” when used with respect to any person, means the possession, directly or
indirectly, of the power to cause the direction of management or policies of such person, whether
through the ownership of voting securities, by contract or otherwise.



     (b) “Asset Sale Agreement” means the Asset Sale Agreement to be entered into between the
Company and Royal Bank of Canada on the Closing Date.



     (c) “Exchange Act” means the Securities Exchange Act of 1934.



5









 





     (d) “GAAP” means generally accepted accounting principles in the United States.



     (e) “Material Adverse Effect” means any change, development or event that has or would
reasonably be expected to have a material adverse effect on (i) the industry, business, properties,
results of operations or financial condition of the Company and its Subsidiaries, taken as a whole
or on the financial markets in the United States; or (ii) the ability of the Company to timely
consummate the Transactions.



     (f) “Restructuring” means a series of corporate transactions involving PostRock Energy
Services Corporation (“PESC”)and its affiliates that includes the amendment of the relevant
organizational documents and the amendment or termination of various material agreements that
relate to the Company and its Subsidiaries and their intercompany transactions or are impacted by
such corporate transactions, including the following: (i) PESC converting to a Delaware close
corporation; (ii) Quest Transmission Company, LLC conveying three laterals to Bluestem (provided
timely approval to do so is obtained from the Kansas Corporation Commission); (iii) Quest
Transmission Company, LLC merging into PostRock Midstream, LLC; (iv) Quest Pipelines (KPC)
converting to a Delaware limited liability company named “PostRock KPC Pipeline, LLC”; (v) Quest
Kansas Pipeline, L.L.C. and Quest Kansas General Partner, L.L.C. merging into PostRock KPC
Pipeline, LLC; (vi) Quest Energy Service, LLC, Quest Mergersub, Inc., Energy & Midstream Partners
JV, LLC and Quest Midstream Holdings Corp. each merging into PESC; (vii) PMP merging into Quest
Cherokee, Quest Cherokee surviving, and the EIN remaining that of Quest Cherokee; (viii) Quest
Cherokee Oilfield Service, LLC and PostRock Midstream, LLC each merging into PESC; (ix) Quest Oil &
Gas, LLC merging into Quest Cherokee; (x) Bluestem conveying all vehicles and equipment to PESC;
(xi) Quest Cherokee merging into Bluestem, Bluestem surviving, and the EIN remaining that of
Bluestem, and Bluestem taking the name “PostRock MidContinent Production, LLC,” to be completed in
the interim period between execution of this Agreement and the Closing Date.



     (g) “SEC Reports” means all reports and forms filed with the SEC by the Company on or after
March 8, 2010.



     (h) “Securities Act” means the Securities Act of 1933.



     (i) “Subsidiary” means, with respect to any person, those entities of which such person owns
or controls more than 50% of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which more than 50% of the outstanding equity securities
is owned directly or indirectly by its parent.



     (j) “Transaction Documents” means, collectively, this Agreement, the Certificates of
Designations, the Warrants and the Registration Rights Agreement, in each case, as amended,
modified or supplemented from time to time in accordance with their respective terms.



     (k) “Transactions” means the transactions contemplated by the Transaction Documents.



     2.2 Representations and Warranties of the Company. The Company represents and
warrants to the Investors that as of the date hereof and as of the Closing Date (or such other date
specified herein):



6









 





     (a) Organization, Authority and Subsidiaries. The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business as currently
conducted, and, has been duly qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each other jurisdiction in which it owns or leases
properties, or conducts any business so as to require such qualification. As of the date hereof,
each of the Company’s Subsidiaries, their jurisdiction of organization and all shares of capital
stock or other voting securities of, or ownership interests in, each such Subsidiary are set forth
on Part 1 of Schedule 2.2(a). As of the Closing Date, each of the Company’s Subsidiaries,
their jurisdiction of organization and all shares of capital stock or other voting securities of,
or ownership interests in, each such Subsidiary will be as set forth on Part 2 of Schedule
2.2(a). Each Subsidiary of the Company has been duly organized and is validly existing in good
standing under the laws of its jurisdiction of organization, with corporate, limited liability
company or other entity power and authority to own its properties and conduct its business as
currently conducted, and, as of the Closing Date, shall be duly qualified as a foreign corporation,
limited liability company or other entity for the transaction of business and shall be in good
standing under the laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification.



     (b) Capitalization. As of August 26, 2010, the authorized capital stock of the Company
consists of 40,000,000 shares of Common Stock, of which 8,053,146 shares are issued and
outstanding, and 5,000,000 shares of Preferred Stock, of which no shares are issued or outstanding.
Schedule 2.2(b) sets forth as of August 26, 2010 all of the options, warrants and equity
incentive plans of the Company, and the number of shares of Common Stock reserved for issuance
pursuant to any outstanding options, warrants or equity incentive plans. The outstanding shares of
the Company’s capital stock have been duly authorized and are validly issued and outstanding, fully
paid and non-assessable, are not subject to preemptive rights (and were not issued in violation of
any preemptive rights) and were issued in full compliance with applicable state and federal
securities laws and any rights of third parties. No person is entitled to preemptive or similar
statutory or contractual rights with respect to any securities of the Company. Except as set forth
above or on Schedule 2.2(b), as of August 26, 2010 there are no outstanding warrants,
options, convertible securities or other rights, agreements or arrangements of any character under
which the Company or any of its Subsidiaries is or may be obligated to issue any equity securities
of any kind and, except as contemplated by this Agreement, neither the Company nor any of its
Subsidiaries is currently in negotiations for the issuance of any equity securities of any kind.
The issuance and sale of the Purchased Securities hereunder will not obligate the Company to issue
shares of Common Stock or other securities to any other person (other than the Investors) and will
not result in the adjustment of the exercise, conversion, exchange or reset price of any
outstanding security.



     (c) Preferred Shares. The Preferred Shares have been duly and validly authorized, and, when
issued and delivered pursuant to this Agreement, the Preferred Shares will be duly and validly
issued, fully paid and non-assessable.



     (d) The Warrants and Warrant Shares. The Warrants (including any Warrants issuable pursuant
to Section 1.4) have been duly authorized and, when executed and delivered as contemplated hereby,
will constitute a valid and legally binding obligation of the Company in



7









 




accordance with their terms, and the shares of Common Stock issuable upon exercise of the
Warrants (including any Warrants issuable pursuant to Section 1.4) (the “Warrant Shares”) have been
duly authorized and reserved for issuance upon exercise of the Warrants and when so issued will be
duly and validly issued, fully paid and non-assessable.




     (e) Authorization, Enforceability.



          (i) The Company has the corporate power and authority to execute and deliver the Transaction
Documents and to carry out its obligations thereunder (which includes the issuance of the Preferred
Shares, Warrants and Warrant Shares). The execution, delivery and performance by the Company of
the Transaction Documents and the consummation of the Transactions have been duly authorized by all
necessary corporate action on the part of the Company, and no further approval or authorization is
required on the part of the Company. The Transaction Documents are or will be valid and binding
obligations of the Company enforceable against the Company in accordance with their respective
terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent transfer or conveyance, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and general equitable principles, regardless of whether such
enforceability is considered in a proceeding at law or in equity (“Bankruptcy Exceptions”).




          (ii) Except as set forth on Schedule 2.2(e), the execution, delivery and performance
by the Company of the Transaction Documents and the consummation of the Transactions and compliance
by the Company with any of the provisions thereof, will not (i) violate, conflict with, or result
in a breach of any provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination of, accelerate the
performance required by, or result in any payment obligations under, or result in a right of
termination, acceleration or payment of, or result in the creation of, any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any of its
Subsidiaries under any of the terms, conditions or provisions of (A) its certificate of
incorporation or by-laws or (B) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which it or any of its Subsidiaries may be bound, or to which the
Company or any of its Subsidiaries or any of the properties or assets of the Company or any of its
Subsidiaries may be subject, including as a result of any change of control or similar provision
(except for violations, conflicts, breaches or defaults that would not be reasonably likely to be
material to the Company and its Subsidiaries, taken as a whole) or (ii) subject to compliance with
the statutes and regulations referred to in the next paragraph, materially violate any statute,
rule or regulation or any judgment, ruling, order, writ, injunction or decree applicable to the
Company or any of its Subsidiaries or any of their respective properties or assets.




          (iii) Other than the filing of the Certificates of Designations with the Secretary of State of
the State of Delaware, any current report on Form 8-K and a Form D required to be filed with the
SEC, and such as have been made or obtained, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any Governmental Entity is required to be made or obtained
by the Company in connection with the consummation of the Transactions.




8









 





     (f) NASDAQ Waiver. By the NASDAQ Letter, NASDAQ granted the Company a financial viability
exception pursuant to NASDAQ Rule 5635(f) waiving the requirement that the Company obtain
stockholder approval for the consummation of the Transactions (the “NASDAQ Waiver”). The NASDAQ
Waiver is in full force and effect, and has not been modified, revoked or expired, as of the date
hereof and the issuance and sale of the Purchased Securities hereunder does not contravene NASDAQ
Rules. The Company has provided true and correct copies of the NASDAQ Waiver to the Investors.



     (g) No Material Changes.



     Since March 5, 2010, except as expressly contemplated by the Transaction Documents, the New
Credit Agreements, the Restructuring, as set forth on Schedule 2.2(g) or as specifically
disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as
amended, the S-4 related to the recombination transaction, a Quarterly Report on Form 10-Q or a
Current Report on Form 8-K filed since March 5, 2010:



          (i) there has not been any damage, destruction or loss, whether or not covered by insurance,
with respect to the property and assets of the Company or any of its Subsidiaries having a
replacement cost of more than $250,000 for any single loss or $500,000 for all such losses;



          (ii) there has not been any declaration, setting aside or payment of any dividend or other
distribution in respect of any shares of capital stock of the Company or any repurchase, redemption
or other acquisition by the Company or any of its Subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interest in, the Company or any of its
Subsidiaries;



          (iii) neither the Company nor any of its Subsidiaries has entered into any employment,
deferred compensation, severance or similar agreement (nor amended any such agreement) or agreed to
increase the compensation payable or to become payable by it to any of the Company’s or any of its
Subsidiaries’ directors, officers, employees, agents or representatives or agreed to increase the
coverage or benefits available under any severance pay, termination pay, vacation pay, company
awards, salary continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, insurance, pension or other employee benefit plan, payment or arrangement
made to, for or with such directors, officers, employees, agents or representatives, in each case
other than increases in the ordinary course of business consistent with past practice;



          (iv) except as described in the notes to the financial statements included in the SEC Reports,
there has not been any change by the Company or any of its Subsidiaries in accounting or tax
reporting principles, methods or policies;



          (v) neither the Company nor any of its Subsidiaries has made or rescinded any election
relating to taxes, settled or compromised any claim relating to taxes;



          (vi) neither the Company nor any of its Subsidiaries has made any loans, advances or capital
contributions to, or investments in, any person other than Subsidiaries of the



9









 





Company or paid any fees or expenses to any director, officer, partner, stockholder or
Affiliate of any other person;



          (vii) neither the Company nor any of its Subsidiaries has acquired any assets or sold,
assigned, transferred, conveyed, leased or otherwise disposed of any assets of the Company or any
of its Subsidiaries, except for assets acquired or sold, assigned, transferred, conveyed, leased or
otherwise disposed of in the ordinary course of business;



          (viii) neither the Company nor any of its Subsidiaries has discharged or satisfied any lien,
or paid any obligation or liability (fixed or contingent), except in the ordinary course of
business and which, in the aggregate, would not be material to the Company and its Subsidiaries
taken as a whole;



          (ix) neither the Company nor any of its Subsidiaries has canceled or compromised any debt or
claim in favor of the Company or amended, canceled, terminated, relinquished, waived or released
any contract or right except in the ordinary course of business and which, in the aggregate, would
not be material to the Company and its Subsidiaries taken as a whole;



          (x) other than those capital expenditures included on a schedule provided to the Investors
that covers capital expenditures through July 31, 2010, neither the Company nor any of its
Subsidiaries has made or committed to make any capital expenditures or capital additions or
betterments in excess of $100,000 individually or $250,000 in the aggregate;



          (xi) neither the Company nor any of its Subsidiaries has instituted or settled any material
legal proceeding; and



          (xii) neither the Company nor any of its Subsidiaries has agreed, committed, arranged or
entered into any understanding to do anything set forth in this Section 2.2(g).



     As of the Closing Date,



          (xiii) other than pursuant to the New Credit Agreements, neither the Company nor any of its
Subsidiaries has any indebtedness for borrowed money in an amount in excess of $25,000 in the
aggregate.



     (h) Reports.



          (i) Since March 5, 2010, the Company has complied in all material respects with the filing
requirements of Sections 13(a), 14(a) and 15(d) of the Exchange Act.



          (ii) The SEC Reports, when they became effective or were filed with the SEC, as the case may
be, conformed in all material respects to the requirements of the Securities Act or the Exchange
Act, as applicable, and the rules and regulations of the SEC thereunder, and none of such
documents, when they became effective or were filed with the SEC, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated therein



10









 




or necessary to make the statements therein, in the light of the circumstances in which they
were made, not misleading.




     (i) Company Financial Statements.



          (i) The consolidated financial statements of the Company and its Subsidiaries included or
incorporated by reference in the SEC Reports filed prior to the Closing, and the monthly financial
statements provided to the Investors covering periods since March 31, 2010 (except with respect to
customary year-end (and, with respect to monthly financial statements, quarter-end) adjustments and
the absence of notes), present fairly in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates indicated therein and the
consolidated results of their operations for the periods specified therein; and except as stated
therein, such financial statements were prepared in conformity with GAAP, applied on a consistent
basis (except for the absence of notes and as otherwise may be noted therein).



          (ii) UHY LLP, who have certified certain financial statements of the Company and its
Subsidiaries, are independent public accountants as required by the Exchange Act and the rules and
regulations of the SEC and the Public Company Accounting Oversight Board.



     (j) Application of Takeover Protections.



          (i) The Investors have been approved as interested shareholders by the Board solely with
respect to the Transactions, and the Board has taken all action necessary, such that the
prohibitions, restrictions, limitations and conditions of Section 203 of the General Corporation
Law of Delaware shall not be applicable to the Transactions.



          (ii) There are no “business combination with interested stockholders” or similar antitakeover
provisions under the certificate of incorporation or by-laws of the Company or the antitakeover
laws and regulations of any state (collectively, the “Antitakeover Laws”) that is or could become
applicable to the Investors as a result of the Investors and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents, including, without
limitation, the Company’s issuance of the Purchased Securities and the Investors’ ownership of the
Purchased Securities or shares of Common Stock issuable upon conversion of the Warrant Shares;
provided, however, that no representation or warranty is made with respect to the application of
any Antitakeover Laws to the Investors to the extent related to any transactions between the
Investors, or their respective affiliates or associates, and the Company other than the
Transactions.



          (iii) Except as may be provided in the certificate of incorporation and bylaws of the Company,
the Company has not adopted any poison pill (including any distribution under a rights agreement)
or other similar antitakeover measure.



     (k) Litigation. Schedule 2.2(k) sets forth a list and brief description of all
securities-related or material actions, suits, claims, or proceedings, or, to the Company’s
knowledge, inquiries or investigations, before or by any court, arbitrator, Governmental Entity,
self-regulatory organization or body pending or, to the knowledge of the Company, threatened



11









 




against or affecting the Company or any of its Subsidiaries as of August 26, 2010. Such
suits, actions or proceedings pending or threatened against the Company or any of its Subsidiaries
do not or would not reasonably be expected to impair in any material respect the ability of the
Company to perform its obligations under the Transaction Documents, or prevent or materially impede
the consummation by the Company of the transactions contemplated under the Transaction Documents.




     (l) Compliance. Neither the Company nor any of its Subsidiaries (i) is in material violation
of any order of any court, arbitrator or Governmental Entity, or (ii) is in material violation of
any statute, rule or regulation of any Governmental Entity, including without limitation all
foreign, federal, state and local laws relating to taxes, environmental protection, occupational
health and safety, product quality and safety and employment and labor matters. The Company is in
compliance in all material respects with all applicable requirements of the Sarbanes-Oxley Act of
2002, as amended, and the rules and regulations thereunder, applicable to it.



     (m) Regulatory Permits. The Company and its Subsidiaries possess all material certificates,
authorizations and permits issued by the appropriate Governmental Entities necessary to conduct
their respective businesses, and neither the Company nor any Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificates, authorizations and
permits. The execution and delivery by the Company of, and the performance by it of its
obligations under, the Transaction Documents and the consummation of the Transactions will not
result in a material violation or breach of any of the terms, conditions or provisions of any such
any such certificates, authorizations and permits.



     (n) Employee Matters. Schedule 2.2(n) sets forth each benefit plan, employment
agreement, trust for the benefit of employees or loan to employees that provides for any
termination payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with
respect to any current or former employee of the Company or any of its Subsidiaries upon a change
of control. Except as set forth in Schedule 2.2(n), the execution and delivery of the
Transaction Documents, and performance of the Transactions, will not (i) trigger any such provision
or (ii) trigger or impose any restrictions or limitations on the right of the Company or any of its
Subsidiaries to amend or terminate any Company benefit plan or employee agreement (or result in any
adverse consequence for any such action). Any such provisions that may be triggered by the
Transactions have been waived by the party or parties entitled thereto.



     (o) Internal Accounting Controls. Except as disclosed in the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2010, the Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e))



12









 





for the Company and designed such disclosure controls and procedures to ensure that material
information relating to the Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in which the Company’s
Form 10-K or Form 10-Q, as the case may be, is being prepared. The Company’s certifying officers
have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the last
day of the period covered by the Company’s most recently filed Form 10-Q (such date, the
“Evaluation Date”). The Company presented in its most recently filed Form 10-Q the conclusions of
the certifying officers about the effectiveness of the disclosure controls and procedures based on
their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no
significant changes in the Company’s internal controls (as described in Item 308(c) of Regulation
S-K under the Exchange Act) or in other factors that could significantly and adversely affect the
Company’s internal controls. The Company’s auditors have not identified any control deficiency,
significant deficiency or material weakness in the Company’s system of internal controls for the
Company’s last fiscal year.




     (p) Brokers or Finders. Except as set forth on Schedule 2.2(p), the Company
represents as to itself, its predecessors and its Affiliates, that no agent, broker, investment
banker or other firm or person is or will be entitled to any broker’s or finder’s fee or any other
commission or similar fee in connection with any of the Transactions as a result of any actions by
such party.



     (q) No Directed Selling Efforts or General Solicitation. Neither the Company nor any person
acting on its behalf has conducted any general solicitation or general advertising (as those terms
are used in Regulation D of the Securities Act) in connection with the offer or sale of any of the
Purchased Securities.



     (r) No Integrated Offering. Neither the Company nor any of its Affiliates, nor any person
acting on its or their behalf has, directly or indirectly, made any offers or sales of any Company
security or solicited any offers to buy any security, under circumstances that would adversely
affect reliance by the Company on Section 4(2) of the Securities Act for the exemption from
registration for the transactions contemplated hereby or would require registration of the
Purchased Securities under the Securities Act.



     (s) Private Placement. Assuming the accuracy of the representations of the Investors in
Section 2.3(c), the offer and sale of the Purchased Securities to the Investors as contemplated
hereby is exempt from the registration requirements of the Securities Act.



     (t) Restructuring. No consent or approval of any person (including any Governmental
Authority) is required to be made or obtained by the Company or its Subsidiaries in connection with
the consummation of the Restructuring, other than any such consents or approvals already obtained.



     2.3 Representations and Warranties of the Investors. The Investors, jointly and
severally, hereby represent and warrant to the Company that as of the date hereof and the Closing
Date:



13









 





     (a) Status. Each Investor has been duly organized and is validly existing as an exempted
limited partnership under the laws of the Cayman Islands, with the limited partnership power and
authority to own its properties and conduct its business as currently conducted.



     (b) Authorization, Enforceability.



          (i) Each Investor, acting through its general partner, has the limited partnership power and
authority to execute and deliver this Agreement and the Registration Rights Agreement and to carry
out its obligations hereunder and thereunder. The execution, delivery and performance by each
Investor of this Agreement and the Registration Rights Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by such Investor’s general
partner and all other necessary limited partnership acting on the part of such Investor, and no
further approval or authorization is required on the part of such Investor or any other party for
such authorization to be effective. This Agreement and the Registration Rights Agreement are or
will be valid and binding obligations of each Investor enforceable against such Investor in
accordance with their respective terms, except as the same may be limited by Bankruptcy Exceptions.



          (ii) The execution, delivery and performance by each Investor of this Agreement and the
Registration Rights Agreement and the consummation of the transactions contemplated hereby and
thereby and compliance by such Investor with any of the provisions hereof and thereof, will not (i)
violate, conflict with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a right of termination
or acceleration of, or result in the creation of, any lien, security interest, charge or
encumbrance upon any of the properties or assets of such Investor under any of the terms,
conditions or provisions of (A) its organizational documents or (B) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or obligation to which such
Investor is a party or by which it may be bound, or to which such Investor or any of the properties
or assets of such Investor may be subject, or (ii) violate any statute, rule or regulation or any
judgment, ruling, order, writ, injunction or decree applicable to such Investor or any of its
properties or assets except, in the case of clauses (i)(B) and (ii), for those occurrences that,
individually or in the aggregate, have not had or would not be reasonably likely to have an
Investor Material Adverse Effect. “Investor Material Adverse Effect” means a material adverse
effect on the ability of the Investors timely to consummate the Purchase and the other transactions
contemplated by this Agreement.



          (iii) Other than such as have been made or obtained, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any Governmental Entity is required to be made
or obtained by any Investor in connection with the consummation by such Investor of the Purchase
except for any such notices, filings, exemptions, reviews, authorizations, consent and approvals
the failure of which to make or obtain would not have an Investor Material Adverse Effect.



     (c) Purchase for Investment. Each Investor acknowledges that the offering and sale of the
Purchased Securities and the Warrant Shares have not been registered under the Securities Act or
under any state securities laws. Each Investor (i) is acquiring the Purchased Securities



14









 




pursuant to an exemption from registration under the Securities Act solely for investment with
no present intention to distribute them to any person in violation of the Securities Act or any
applicable U.S. state securities laws, (ii) will not sell or otherwise dispose of any of the
Purchased Securities or the Warrant Shares, except in compliance with the registration requirements
or exemption provisions of the Securities Act and any applicable U.S. state securities laws, (iii)
has such knowledge and experience in financial and business matters and in investments of this type
that it is capable of evaluating the merits and risks of the Purchase and of making an informed
investment decision, and has conducted a review of the business and affairs of the Company that it
considers sufficient and reasonable for purposes of making the Purchase, and (iv) is an “accredited
investor” (as that term is defined by Rule 501 under the Securities Act).




     (d) Ownership. No Investor is the Beneficial Owner of (i) any Common Stock or (ii) any
securities or other instruments representing the right to acquire Common Stock. No Investor has a
formal or informal agreement, arrangement or understanding with any person (other than the Company)
to acquire, dispose of or vote any securities of the Company. “Beneficial Ownership” shall be
determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act, including the provision
that any member of a “group” shall be deemed to have Beneficial Ownership of all securities
Beneficially Owned by other members of the group, and except that the exclusion in Rule
13d-3(d)(1)(i) for rights to acquire securities that are not exercisable “within 60 days” shall not
apply. “Beneficial Owner” and “Beneficially Own” shall have conforming definitions.



     (e) Company Representations. Each Investor acknowledges that, except as expressly set forth
in this Agreement or the Transaction Documents, the Company is not making any, and the Investor is
not relying on any, representations or warranties, written or oral, statutory, express or implied,
concerning the Company, its Subsidiaries or their respective businesses or assets, including the
Due Diligence Information. In particular, each Investor acknowledges and agrees that (i) the Due
Diligence Information includes certain projections, estimates and other forecasts, and certain
business plan information, (ii) there are uncertainties inherent in attempting to make such
projections, estimates and other forecasts and plans and each Investor is familiar with such
uncertainties, and (iii) each Investor is taking full responsibility for making its own evaluation
of the adequacy and accuracy of all projections, estimates and other forecasts and plans so
furnished to it and any use of or reliance by an Investor on such projections, estimates and other
forecasts and plans shall be at its sole risk. “Due Diligence Information” means any information,
document or material provided or made available, or statements made, to the Investors (including
their respective employees, Affiliates, agents, advisors or representatives) in “data rooms,”
management presentations or supplemental due diligence information provided to the Investors
(including their respective employees, Affiliates, agents, advisors or representatives) in
connection with discussions or access to management of the Company or in any other form in
expectation of the transactions contemplated by this Agreement.



     (f) Investment Company Act. Each Investor is not, and upon the consummation of the
Transactions will not be, an “investment company” or a company “controlled by” and “investment
company” within the meaning of the Investment Company Act of 1940, as amended.



15









 





ARTICLE III




Covenants



     3.1 Commercially Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties shall use its commercially reasonable efforts in good faith to take,
or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of the Purchase as
promptly as practicable and otherwise to enable consummation of the Transactions and shall use
commercially reasonable efforts to cooperate with the other parties to that end. Promptly after
the execution and delivery of this Agreement, the Company shall mail to all shareholders a letter
in substantially the form of Annex G and otherwise comply with the requirements set forth
in the NASDAQ Letter.



     3.2 Expenses. (a) The Company shall reimburse the Investors for their reasonable
costs and expenses, including reasonable legal or other professional fees and expenses, and
reasonable out-of-pocket due diligence expenses, (i) incurred or made in connection with this
Agreement and the Transactions (including any reasonable cost and expenses incurred after the
Closing to the extent related), whether or not consummated, in an amount not to exceed, in the
aggregate $1,000,000 and (ii) in connection with any amendments to the Transaction Documents.
Prior to any such reimbursement, the Investors shall provide the Company with reasonably detailed
invoices setting forth the expenses to be reimbursed. This covenant shall survive the termination
of this Agreement.



     (b) The Company shall reimburse the Investors for their reasonable out-of-pocket costs and
expenses (which may include, but are not limited to, airfare, hotels and cab fare) incurred or made
in connection with ongoing oversight of the Company until the one-year anniversary of the Closing.
Prior to any such reimbursement, the Investors shall provide the Company with reasonably detailed
invoices setting forth the expenses to be reimbursed and a good faith attestation that such costs
were incurred in the course of conducting work for the benefit of all Company shareholders.
Reimbursements shall be made within 30 days of the invoices having been presented to the Company.



     3.3 Sufficiency of Authorized Common Stock. During the period from the Closing Date
until the date on which the Warrants (including any Warrants issuable pursuant to Section 1.4) have
been fully exercised, the Company shall at all times have reserved for issuance, free of preemptive
or similar rights, a sufficient number of shares of authorized and unissued Warrant Shares to
effectuate such exercise (including all Warrant Shares underlying the Warrants issuable pursuant to
Section 1.4). Nothing in this Section 3.3 shall preclude the Company from satisfying its
obligations in respect of the exercise of the Warrants (including any Warrants issuable pursuant to
Section 1.4) by delivery of shares of Common Stock which are held in the treasury of the Company.
As soon as practicable following the Closing, the Company shall, at its expense, (a) cause the
Warrant Shares (including all Warrant Shares underlying the Warrants issuable pursuant to Section
1.4) to be listed on the NASDAQ Global Market at the time they become freely transferable in the
public market under the Securities Act, subject to official notice of issuance, and shall maintain
such listing on the NASDAQ Global Market for so long as any Common Stock is listed on the NASDAQ
Global Market and (b) use its commercially reasonable



16









 




efforts to satisfy all continued listing criteria necessary to maintain the listing of the Common
Stock with NASDAQ until the date that is two years following the date on which the Warrants
(including any Warrants issuable pursuant to Section 1.4) have been fully exercised.




     3.4 Certain Notifications Until Closing. From the date of this Agreement until
the Closing, each party shall promptly notify the other parties of (i) any fact, event or
circumstance of which it is aware and which would be reasonably likely to cause any representation
or warranty of such party contained in this Agreement to be untrue or inaccurate in any material
respect or to cause any covenant or agreement of such party contained in this Agreement not to be
complied with or satisfied in any material respect and (ii) any fact, circumstance, event, change,
occurrence, condition or development of which it is aware and which, individually or in the
aggregate, has had a Material Adverse Effect or an Investor Material Adverse Effect, as the case
may be; provided, however, that delivery of any notice pursuant to this Section 3.4 shall not limit
or affect any rights of or remedies available to the other parties.



     3.5 Conduct of Business.



     (a) Except as set forth in Schedule 3.5 or as otherwise required to perform its
obligations under the Transaction Documents, the New Credit Agreements, in connection with the
Restructuring or any other agreement contemplated herein, or as otherwise agreed to in writing by
the Investors, from the date hereof to the Closing Date, the Company shall, and shall cause each of
its Subsidiaries to (A) conduct its business only in the ordinary course and consistent with past
practice; (B) use its reasonable best efforts to preserve and maintain its assets and properties
and its relationships with its customers, suppliers, clients, advertisers, distributors, agents,
officers and employees and other persons with which it has significant business dealings; (C) use
its reasonable best efforts to maintain all of the material assets it owns or uses in the ordinary
course of business consistent with past practice; (D) use its reasonable best efforts to preserve
the goodwill and ongoing operations of its business; (E) maintain its books and records in the
usual, regular and ordinary manner, on a basis consistent with past practice; (F) perform and
comply in all material respects with its existing contractual arrangements; (G) maintain insurance
in full force and effect with respect to its business with responsible companies, comparable in
amount, scope and coverage to that in effect on the date of this Agreement; and (H) comply in all
material respects with applicable laws.



     (b) Except as set forth in Schedule 3.5 or as expressly contemplated by the
Transaction Documents, the New Credit Agreements, in connection with the Restructuring or any other
agreement contemplated herein, between the date hereof and the Closing Date, without the prior
written consent of the Investors, the Company shall not, and shall cause each of its Subsidiaries
not to, take any of the following actions:



          (i) change its certificate of incorporation or by-laws or other organizational documents
(including by amendment, merger or otherwise);



          (ii) reclassify any capital stock of the Company or its Subsidiaries;



          (iii) increase the authorized number of shares of, authorize the issuance of, or issue any
shares of Preferred Stock; or



17









 





          (iv) authorize the issuance of or issue any shares of Common Stock, other than upon the
exercise of Options or Convertible Securities outstanding on the date hereof;



          (v) accelerate the vesting of any shares of Common Stock subject to vesting;



          (vi) pay any dividends or make any distributions on any shares of Common Stock or any other
capital stock of the Company or repurchase or redeem any Common Stock or any other capital stock of
the Company;



          (vii) take any of the actions that, after the Closing, will require the consent of the holders
of Series A Shares under Section 9 of the Series A Certificate; or



          (viii) agree to take any of the actions restricted by this Section 3.5(b).



     3.6 Restrictions on Sale of Common Stock.



     (a) The following terms have the following meanings:



          (i) “Benchmark Price” means $4.73.



          (ii) “Convertible Securities” means any stock or security convertible into or exchangeable for
Common Stock.



          (iii) “Excluded Securities” means (A) all Warrants and Warrant Shares, (B) shares of Common
Stock, Convertible Securities and Options issued to existing or former officers, directors,
employees or consultants of the Company pursuant to an equity incentive, stock grant, stock
purchase or similar plan or arrangement existing as of the date hereof or thereafter approved by
the Board, including any shares of Common Stock issuable upon exercise of any such Convertible
Security or Option or settlement of any award issued under any such plan or arrangement, (C) shares
of Common Stock issuable upon the exercise or conversion of any other Convertible Securities or
Options outstanding as of the date hereof (provided that such exercise or conversion occurs in
accordance with the terms thereof, at the exercise or conversion price or ratio in effect
immediately prior to the date hereof, subject to the antidilution adjustment provisions thereof),
(D) shares of Common Stock issuable under the terms of the Asset Sale Agreement; and (E) other
securities designated as “Excluded Securities” by the Investors.



          (iv) “Options” means any options, warrants or other rights to subscribe for or to purchase, or
any options for the purchase of, any Common Stock or Convertible Securities.



     (b) Except as expressly contemplated by the Transaction Documents, without the prior written
consent of the Investors, from and after the Closing until the Threshold Ownership Date, the
Company shall not:



          (i) issue or sell any shares of Common Stock (other than Excluded Securities) for other than
cash (unless the Company and the Investors mutually agree that the fair value of any consideration
received by the Company is such that the price per share of Common Stock received by the Company in
such issuance or sale is equal to or greater than the Benchmark Price) or for a price per share
less than the Benchmark Price;



18









 





          (ii) issue or sell for other than cash (unless the Company and the Investors mutually agree on
the fair value of any such non-cash consideration) any Convertible Securities or Options entitling
any person to acquire shares of Common Stock (other than Excluded Securities) (or modify the terms
of any such Option or Convertible Security to entitle any person to acquire thereunder shares of
Common Stock) at an effective price per share less than the Benchmark Price; for purposes of this
clause (ii), the effective price per share for such Common Stock issuable upon exercise, conversion
or exchange of such Convertible Securities or Options shall be deemed to be equal to the amount
determined by dividing (A) the total amount, if any, received or receivable by the Company or any
of its Subsidiaries, as applicable, as consideration for the issuance or sale of such Convertible
Securities or Options, plus the aggregate amount of additional consideration, if any, payable to
the Company or any of its Subsidiaries, as applicable, upon the exercise, conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise,
conversion or exchange of such Convertible Securities or Options so issued; or



          (iii) issue any Options or Convertible Securities entitling the holder thereof to acquire
shares of Common Stock at a price or a number of shares of Common Stock that floats or resets or
otherwise varies.



     3.7 Financial Statements and Other Reports. From and after the Closing until the
Threshold Ownership Date, the Company shall deliver to the Investors:



     (a) as soon as practicable and in any event no later than the day that a Form 10-Q is filed by
the Company with the SEC following each quarterly period (other than the last quarterly period) in
each fiscal year, consolidated statements of operations, statements of stockholders’ equity and
cash flows of the Company for the period from the beginning of the then current fiscal year to the
end of such quarterly period, and a consolidated balance sheet of the Company as of the end of such
quarterly period setting forth in each case in comparative form figures for the corresponding
period or date in the preceding fiscal year, together with a certificate from a senior officer of
the Company to the effect that such financial statements have been prepared in accordance with GAAP
consistently applied during the periods involved (subject to year-end adjustments) and that such
financial statements fairly present in all material respects the consolidated financial position,
results of operations and cash flows of the Company as of and for the period then ended; provided,
however, that the timely filing with the SEC of the Company’s periodic report on Form 10-Q for such
period shall be deemed to satisfy the requirements of this Section 3.7(a);



     (b) as soon as practicable and in any event no later than the day that a Form 10-K is filed by
the Company with the SEC following the end of each fiscal year, a consolidated balance sheet of the
Company as of the end of such fiscal year and the related consolidated statements of operations,
statements of stockholders’ equity and cash flows for such fiscal year, setting forth in each case
in comparative form the corresponding figures from the preceding fiscal year, together with the
audit report of independent public accountants of recognized standing selected by the Company;
provided, however, that the timely filing with the SEC of the Annual Report on Form 10-K of the
Company for such fiscal year shall be deemed to satisfy the requirements of this Section 3.7(b);
and



19









 





     (c) such other financial information as the Investors may reasonably request.



     3.8 Confidentiality.



     (a) At all times following the Closing Date until the first anniversary of the Threshold
Ownership Date, no Investor shall, directly or indirectly, disclose, divulge or use for any purpose
(other than to monitor its investment in the Company) any trade secrets or other confidential and
proprietary information of a business, financial, marketing, technical or other nature pertaining
to the Company or any of its Subsidiaries or their respective business, including information of
others that any of the Company or any of its Subsidiaries has agreed to keep confidential, except
(i) to the extent that such information shall have become public knowledge other than by breach of
this Agreement by any of the Investors, and (ii) to the extent that disclosure of such information
is required by law or legal process (but only after the Investors have provided the Company, to the
extent practicable, with reasonable notice and opportunity to take action against any legally
required disclosure).



     (b) Each Investor acknowledges that any breach or threatened breach by such party of the
provisions of Section 3.8(a) will cause irreparable injury to the Company for which an adequate
monetary remedy does not exist. Accordingly, in the event of any such breach or threatened breach,
the Company shall be entitled, in addition to the exercise of other remedies, to seek and (subject
to court approval) obtain injunctive and other equitable relief, without necessity of posting a
bond, restraining the breaching Investors from committing such breach or threatened breach. The
right provided under this Section 3.8(b) shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company.



     3.9 Transfer Restrictions. The Purchased Securities are, and the Warrant Shares will
be when issued, restricted securities under the Securities Act and may not be offered or sold
except pursuant to an effective registration statement or an available exemption from registration
under the Securities Act. Accordingly, each Investor agrees it shall not, directly or through
others, offer or sell any Purchased Securities or any Warrant Shares except pursuant to a
registration statement or pursuant to Rule 144 or another exemption from registration under the
Securities Act, if available. Prior to any transfer of Purchased Securities or Warrant Shares
other than pursuant to an effective registration statement, each Investor agrees it shall notify
the Company of such transfer and the Company may require such Investor to provide, prior to such
transfer, such evidence that the transfer will comply with the Securities Act (including written
representations and an opinion of counsel) as the Company may reasonably request. The Company may
impose stop-transfer instructions with respect to any securities that are to be transferred in
contravention of this Agreement.



     3.10 Legend. Each Investor agrees that all certificates or other instruments
representing Purchased Securities and Warrant Shares will bear a legend substantially to the
following effect:




“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT



20









 







WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT OR SUCH LAWS. THIS INSTRUMENT IS ISSUED PURSUANT TO AND SUBJECT TO THE
RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT,
DATED SEPTEMBER 2, 2010, AS AMENDED FROM TIME TO TIME, BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTORS REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE WITH
THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR OTHER
TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.”


In the event that (i) any Purchased Securities or Warrant Shares become registered under the
Securities Act or (ii) Purchased Securities or Warrant Shares are eligible to be transferred
without restriction in accordance with Rule 144 under the Securities Act, the Company shall issue
new certificates or other instruments representing such Purchased Securities or Warrant Shares,
which shall not contain such portion of the above legend that is no longer applicable; provided
that the Investors surrender to the Company the previously issued certificates or other
instruments.




ARTICLE IV




Additional Agreements



     4.1 Board Designation. Prior to the Closing Date, the Company shall use its
reasonable best efforts to take all necessary corporate action so that upon the Closing the size of
the Board is increased by three members and three individuals designated by the Investors (the
“Investor Directors”) are appointed to the Board to fill the newly created directorships created by
such increase. The Company, through its Board and subject to the Board’s fiduciary duties to the
stockholders of the Company, shall take all necessary action to nominate and recommend three
Investor Directors for election to the Board in the proxy statements relating to the annual
meetings of the stockholders of Company following the Closing. If the Investors’ aggregate
interest in the Company falls below 25% of the issued and outstanding Common Stock (calculated on a
Fully Diluted Basis), the Company and its Board shall only be required to nominate and recommend
two Investor Directors pursuant to this Section 4.1. If the Investors’ aggregate interest in the
Company falls below 7.5% of the issued and outstanding Common Stock (calculated on a Fully Diluted
Basis) (the date of such occurrence being the “Threshold Ownership Date”), the Company and its
Board shall have no obligation to nominate and recommend any Investor Directors. The initial
Investor Directors shall be Thomas J. Edelman, James D. Bennett and Nathan M. Avery. At any time
that the Company and the Board have an obligation to recommend any Investor Directors pursuant to
this Section 4.1, (i) the Company shall not increase the size of the Board, except as set forth in
this Section 4.1 or in Section 10(i)



21









 




of the Series A Certificate, without the prior consent of the Investors, and (ii) the Board
shall appoint one Investor Director selected by the Investors to the nominating and compensation
committees of the Board, provided that such Investor Director meets the independence requirements
of the applicable Nasdaq listing rules. “Fully Diluted Basis” means as if all securities eligible
for conversion into or exercisable or exchangeable for shares of Common Stock (including the
Warrants) had been converted or exercised in full (excluding (i) any shares of Common Stock that
may be issued upon the exercise of Options under any equity incentive plan if such Options have not
vested and (ii) any shares of Common Stock that may be issued upon the settlement of restricted
stock units under any equity incentive plan if such restricted stock units have not vested).




     4.2 Preemptive Rights.



     (a) The following terms have the following meanings:



          (i) “Equity Securities” means (A) all shares of capital stock of the Company, (B) all
securities convertible into or exchangeable for shares of capital stock of the Company and (C) all
options, warrants, or other rights to purchase or otherwise acquire from the Company shares of such
capital stock, or securities convertible into or exchangeable for shares of such capital stock.



          (ii) “New Securities” means all Equity Securities other than:




          (A) Excluded Securities;




          (B) Shares of any class of capital stock of the Company issued on a pro rata basis to
all holders of such class as a stock dividend or upon any stock split or other subdivision
of shares of capital stock;




          (C) Shares of capital stock of the Company issued as consideration in connection with
the acquisition, approved by the Investors (which approval shall not be unreasonably
withheld), by the Company of assets or capital stock of any person or entity;




          (D) Shares of Common Stock issued pursuant to a public offering, or Convertible
Securities or Shares of Common Stock issuable upon exercise or conversion of Convertible
Securities issued pursuant to a public offering or an offering primarily to “qualified
institutional buyers” in accordance with Rule 144A under the Securities Act, in each case
with aggregate proceeds of at least $20,000,000; and




          (E) Shares of Common Stock issued upon exercise or conversion of Convertible Securities
with respect to which the Investors previously had the opportunity to exercise the
preemptive rights set forth in this Section 4.2.



          (iii) “Pro Rata Share” means, with respect to any Investor, the quotient obtained by dividing
(i) the number of shares of Common Stock owned by such Investor (assuming exercise of all Warrants)
by (ii) the number of shares of Common Stock outstanding on a Fully Diluted Basis.



22









 





     (b) If the Company proposes to offer New Securities to any person or entity at any time, the
Company shall, before such offer, deliver to each Investor an offer (the “Offer”) to issue, upon
the terms set forth in this Section, to the Investor a number of New Securities (the “Offered
Securities”) equal to such Investor’s Pro Rata Share. The Offer shall state that the Company
proposes to issue the Offered Securities and specify their number and terms (including purchase
price). The Offer shall remain open and irrevocable for a period of thirty (30) days (the
“Preemptive Period”) from the date of its delivery.



     (c) The Investor may accept the Offer by delivering to the Company a notice (the “Purchase
Notice”) within the Preemptive Period. The Purchase Notice shall state the number of Offered
Securities the Investor agrees to purchase. The issuance of Offered Securities with respect to
which the Investor delivered a Purchase Notice shall be made on a business day, as designated by
the Company, after expiration of the Preemptive Period on those terms and conditions of the Offer
not inconsistent with this Section.



     (d) If the Investors did not purchase all Offered Securities, the Company may issue the
remaining Offered Securities or any portion thereof to any person or entity within 120 days after
expiration of the Preemptive Period upon terms and conditions no more favorable in the aggregate to
the purchasers thereof than specified in the Offer.



     (e) This Section 4.2 shall terminate and be of no further force or effect on the Threshold
Ownership Date.



     4.3 Survival and Indemnification.



     (a) Survival. The representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing; provided, however, that no action for a breach of the
representations and warranties contained herein or for a breach or violation of a covenant or
agreement set forth in the Transaction Documents that was required to be performed prior to or at
the Closing, shall be brought more than 10 days after the Company’s Annual Report on Form 10-K for
the year ending December 31, 2011 is filed with the SEC, except for claims arising out of the
representations and warranties contained in Sections 2.2(b) (Capitalization), 2.2(c) (Preferred
Shares), 2.2(e)(i)(Authorization, Enforeceability), and 2.2(d) (The Warrants and Warrant Shares)
(collectively, the “Specified Representations”), which shall survive indefinitely after the
Closing.



     (b) Indemnification by the Company. From and after the Closing, the Company shall indemnify
and hold harmless the Investors and their respective Affiliates and their respective directors,
officers, employees and agents (the “Investor Indemnified Parties”) from and against any and all
losses, claims, damages, liabilities and expenses (including without limitation reasonable attorney
fees and disbursements and other expenses reasonably incurred in connection with investigating,
preparing or defending any action, claim or proceeding, pending or threatened and the costs of
enforcement thereof) (collectively, “Losses”) asserted against or incurred by such Investor
Indemnified Party to the extent arising out of or relating to (i) any breach of the representations
or warranties of the Company set forth in this Agreement or (ii) any breach or violation of the
covenants or agreements of the Company set forth in this Agreement.



23









 





     (c) Indemnification by the Purchasers. From and after the Closing, the Investors shall,
severally but not jointly, indemnify and hold the Company harmless from and against all Losses
asserted against or incurred by the Company to the extent arising out of or relating to (i) any
breach of the representations or warranties of the Investors set forth in this Agreement or (ii)
any breach or violation of the covenants or agreements of the Investors set forth in this
Agreement.



     (d) Indemnification Limits. The Investor Indemnified Parties shall not be entitled to recover
any Losses pursuant to Section 4.3(b) (i) unless and until the Investor Indemnified Parties’
aggregate claims therefor exceed $750,000, at which time the Investor Indemnified Parties shall be
entitled to recover Losses only to the extent that the aggregate amount of Investor Indemnified
Parties’ indemnifiable Losses exceeds such amount (the “Deductible”), provided, however, that no
event, claim or item of Loss will constitute a Loss and indemnification will not be available with
respect to such event, claim or item of Loss (nor will any such event, claim or item of Loss be
counted towards the Deductible) unless such event, claim or item of Loss, together with all related
events, claims or items of Loss, results in a Loss of $25,000 or more, in which case the Investor
Indemnified Parties will be entitled to indemnification for the full amount of Losses related to
such event, claim or item of Loss subject to the Deductible and the other limitations set forth
herein (and such Losses will be counted towards the Deductible); or (ii) for an aggregate amount in
excess of $60,000,000; provided, however that claims for breach of any of the Specified
Representations shall not be subject to the foregoing limitations and shall not be included in the
determination of whether a limitation has been reached. In addition, the Losses incurred by any
Investor shall be determined on the basis of the number of Purchased Securities purchased by such
Investor (or such Investor’s Affiliate, as applicable) hereunder and not on the basis of any other
shares of Common Stock beneficially owned by such Investor, whether acquired prior to or after the
consummation of the Transactions.



     (e) Conduct of Indemnification Proceedings. Promptly after receipt by any person (the
“Indemnified Person”) of notice of any demand, claim or circumstances of any kind which would or
might give rise to a claim or the commencement of any action, proceeding or investigation (in each
case, a “Claim”) in respect of which indemnity may be sought pursuant to Section 4.3(b) or Section
4.3(c), such Indemnified Person shall promptly notify the party or parties required to provide such
indemnification (the “Indemnifier”) in writing and the Indemnifier shall assume the defense
thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person,
and shall assume the payment of all fees and expenses; provided, however, that the failure of any
Indemnified Person so to notify the Indemnifier shall not relieve the Indemnifier of its
obligations hereunder except to the extent that it shall be finally determined by a court of
competent jurisdiction that such failure to notify shall have materially prejudiced the
Indemnifier. In any such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified
Person unless: (i) the Indemnifier and the Indemnified Person shall have mutually agreed to the
retention of such counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person
representation of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifier shall not be liable for any settlement
of any proceeding effected without its written consent, which consent shall not be unreasonably
withheld, but if settled with such consent, the Indemnifier shall indemnify and hold harmless such
Indemnified Person from and against any Loss (to the extent



24









 




stated above) by reason of such settlement. Without the prior written consent of the
Indemnified Person, which consent shall not be unreasonably withheld (provided that the Indemnified
Person shall have the absolute right in its sole discretion to withhold consent from any settlement
of any pending or threatened proceeding if such settlement does not include an unconditional
release of such Indemnified Person from any liability arising out of such proceeding), the
Indemnifier shall not effect any settlement of any pending or threatened proceeding in respect of
which any Indemnified Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party. The parties will cooperate fully with each other in
connection with the defense of any Claim.




     (f) Insurance. Any indemnifying party shall be subrogated to the rights of any indemnified
party in respect of any insurance relating to Losses to the extent of any indemnification payments
made under this Agreement, and such indemnified party shall provide all reasonably requested
assistance to such indemnifying party in respect of such subrogation.



     (g) No Duplication. Any liability for indemnification under this Agreement shall be
determined without duplication of recovery by reason of the state of facts giving rise to such
liability constituting a breach or violation of more than one representation, warranty, covenant or
agreement.



     (h) Sole Remedy. If the Closing occurs, the parties agree that the sole and exclusive remedy
of any party to this Agreement or any Investor Indemnified Parties, the events giving rise to this
Agreement and the transactions provided for in this Agreement, shall be limited to the
indemnification provisions set forth in this Section 4.3 and, in furtherance of the foregoing, each
of the parties, on behalf of itself and its Affiliates, waives and releases the other parties to
this Agreement (and such other parties’ Affiliates) from, to the fullest extent permitted under any
applicable law, any and all rights, claims and causes of action it or its Affiliates may have
against the other parties to this Agreement except pursuant to the indemnification provisions set
forth in this Section 4.3; provided, that nothing herein shall limit in any way any such party’s
remedies in respect of fraud, intentional misrepresentation or omission or intentional misconduct
by the other parties in connection herewith or the Transactions.



     (i) NO SPECIAL DAMAGES. IN NO EVENT SHALL ANY PARTY BE LIABLE UNDER THIS SECTION 4.3 OR
OTHERWISE IN RESPECT OF THIS AGREEMENT FOR EXEMPLARY, SPECIAL, PUNITIVE, INDIRECT, REMOTE,
SPECULATIVE OR CONSEQUENTIAL DAMAGES EXCEPT TO THE EXTENT ANY SUCH PARTY SUFFERS SUCH DAMAGES TO AN
UNAFFILIATED THIRD PARTY IN CONNECTION WITH A CLAIM, IN WHICH EVENT SUCH DAMAGES SHALL BE
RECOVERABLE; PROVIDED, HOWEVER, THAT THE INVESTOR INDEMNIFIED PARTIES SHALL BE ENTITLED TO RECOVER
FROM THE COMPANY ANY AMOUNTS FOR LOSSES TO THE EXTENT NECESSARY TO COMPENSATE THE INVESTOR
INDEMNIFIED PARTIES IN FULL FOR THE DIMINUTION IN VALUE OF ITS INVESTMENT IN THE COMPANY IF SUCH
LOSSES RESULT FROM AN INDEMNIFIABLE CLAIM COVERED BY SECTION 4.3(B).



     4.4 Company Opportunities. The Company recognizes that the Investors are private
equity funds and that the Investors, their partners or investors, and professionals affiliated with
the Investors (such persons, together with the operating companies described in this sentence, are



25









 




collectively referred to as the “White Deer Group” and individually as a “White Deer Group Member”)
invest in, serve on the board of directors and other governing boards of, serve as officers of,
provide services to and have minority and controlling ownership interests in existing and future
operating companies. Nothing in this Agreement or the nature of the existing or any future
relationship between any White Deer Group Member, on the one hand, and the Company or any of its
Affiliates, on the other, will prohibit any White Deer Group Member from engaging in any activity
or business opportunity whatsoever for its own account or will require any White Deer Group Member
to make any business opportunity available to the Company, even if such activity or business
opportunity competes with or relates to the business conducted by the Company. Notwithstanding the
foregoing, until six (6) months following the Threshold Ownership Date, no Investor shall, and the
Investors will cause each of their Affiliates not to, (i) acquire any interests in any hydrocarbons
or minerals in place, including mineral interests, mineral fee interests, leasehold interests, net
profits interests, royalties, overriding royalties, carried interests or other rights, in the
Cherokee Basin or (ii) acquire more than 35% of the outstanding capital stock of any entity that
is, directly or indirectly, an owner or operator of oil and gas assets, or otherwise engaged in oil
and gas operations, in the Cherokee Basin and whose Cherokee Basin assets or operations account for
10% or more of its total revenues, in each case without first making the opportunity available to
the Company. No Investor may (and each Investor shall cause its Affiliates not to) engage in any
activity or business opportunity that (i) is presented to an Investor Director in such person’s
capacity as a director of the Company and with respect to which no other member of the White Deer
Group (other than an Investor Director) independently receives notice or otherwise identifies such
activity or opportunity or (ii) is identified by the White Deer Group solely through the disclosure
of information by or on behalf of the Company.




     4.5 Subsequent Investment. For a period of 18 months following the Closing Date, the
Investors shall reserve and have available an aggregate of $30,000,000 of additional capital to be
invested in equity securities of the Company as may reasonably be required for acquisitions, an
accelerated development program or for other corporate purposes on terms mutually acceptable to the
Company and the Investors.



ARTICLE V




Miscellaneous



     5.1 Termination. This Agreement may be terminated at any time prior to the Closing:



     (a) by either the Investors or the Company if the Closing shall not have occurred by September
30, 2010; provided, however, that the right to terminate this Agreement under this Section 5.1(a)
shall not be available to any party whose breach of any representation or warranty or failure to
perform any obligation under this Agreement shall have caused or resulted in the failure of the
Closing to occur on or prior to such date;



     (b) by either the Investors or the Company in the event that any Governmental Entity shall
have issued an order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Transactions and such order, decree, ruling or other action shall have
become final and nonappealable; or



26









 





     (c) by the mutual written consent of the Investors and the Company.



     5.2 Effect of Termination. In the event of termination of this Agreement as provided
in Section 5.1, this Agreement shall forthwith become void (except for the provisions of this
Article V and of the Confidentiality Agreement, which shall continue in full force and effect) and
there shall be no liability on the part of any party hereto, except that nothing herein shall
relieve any party from liability for any willful, material breach of this Agreement.
“Confidentiality Agreement” means the Confidentiality Agreement, dated April 8, 2010, by and
between the Company and White Deer Energy L.P.



     5.3 Amendment. No amendment of any provision of this Agreement shall be effective
unless made in writing and signed by a duly authorized representative of each party.



     5.4 Waivers. The conditions to each party’s obligation to consummate the Purchase are
for the sole benefit of such party and may be waived by such party in whole or in part to the
extent permitted by applicable law. Any failure by any party to comply with any of its
obligations, agreements or covenants herein may be waived by the party to whom such compliance is
owed. No waiver will be effective unless it is in a writing signed by a duly authorized officer of
the waiving party that makes express reference to the provision or provisions subject to such
waiver.



     5.5 Counterparts and Facsimile. For the convenience of the parties hereto, this
Agreement may be executed in any number of separate counterparts, each such counterpart being
deemed to be an original instrument, and all such counterparts will together constitute the same
agreement. Executed signature pages to this Agreement may be delivered by facsimile and such
facsimiles will be deemed as sufficient as if actual signature pages had been delivered.



     5.6 Governing Law; Submission to Jurisdiction, Etc. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State. Each of the parties hereto agrees (a) to submit to
the non-exclusive personal jurisdiction of the State or Federal courts in the Borough of Manhattan,
The City of New York, (b) that non-exclusive jurisdiction and venue shall lie in the State or
Federal courts in the State of New York, and (c) that notice may be served upon such party at the
address and in the manner set forth for such party in Section 5.8. To the extent permitted by
applicable law, each of the parties hereto hereby unconditionally waives trial by jury in any legal
action or proceeding relating to the Transaction Documents or the transactions contemplated hereby
or thereby.



     5.7 Specific Performance. The parties agree that irreparable damage would occur if
any of the provisions of this Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that each of the parties shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the
terms and provisions of this Agreement, without the necessity of proving the inadequacy of money
damages as a remedy, in addition to any other remedy at law or in equity.



     5.8 Notices. Any notice, request, instruction or other document to be given hereunder
by any party to the other will be in writing and will be deemed to have been duly given (a) on the



27









 




date of delivery if delivered personally, or by facsimile, upon confirmation of receipt, or (b) on
the second business day following the date of dispatch if delivered by a recognized next day
courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such notice.




     (a) If to the Investors:


c/o White Deer Energy L.P.

667 Madison Ave, 4th Floor

New York, New York 10065

Attention: Thomas J. Edelman

Facsimile: (212) 888-6877



and



700 Louisiana, Suite 4770

Houston, Texas 77002

Attention: James D. Bennett

Facsimile: (713) 581-6901




          with a copy (which shall not constitute notice) to:



Vinson & Elkins LLP

666 Fifth Avenue, 26th Floor

New York, New York 10103

Attention: Robert Seber

Facsimile: (917) 849-5340




     (b) If to the Company:


PostRock Energy Corporation

210 Park Avenue, Suite 2750

Oklahoma City, OK 73102

Attention: Chief Executive Officer

Telephone: (405) 702-7487

Facsimile: (405) 702-7756




          with a copy (which shall not constitute notice) to:




Baker Botts L.L.P.

98 San Jacinto Boulevard

Austin, Texas 78701-4078

Attention: Laura Tyson

Facsimile: (512) 322-8377



28









 





     5.9 Publicity. Except as set forth below, no public release or announcement
concerning the Transactions shall be issued by the Company, its Subsidiaries or the Investors
without the prior consent of the Company (in the case of a release or announcement by the
Investors) or the Investors (in the case of a release or announcement by the Company or its
Subsidiaries) (which consents shall not be unreasonably withheld), except as such release or
announcement may be required by law or the applicable rules or regulations of any securities
exchange or securities market, in which case the affected party shall allow the other parties
hereto, to the extent reasonably practicable in the circumstances, reasonable time to comment on
such release or announcement in advance of such issuance. The Company shall (i) by 8:30 a.m. (New
York City time) on the trading day immediately following the date of this Agreement, issue a press
release disclosing the execution and delivery of this Agreement and (ii) thereafter, file a Current
Report on Form 8-K attaching the press release described in clause (i) as well as copies of the
Transaction Documents. In addition, the Company will make such other filings and notices in the
manner and time required by applicable law or the SEC or NASDAQ.



     5.10 Entire Agreement, Etc. This Agreement (including the Annexes and Schedules
hereto), the Confidentiality Agreement and the other Transaction Documents constitute the entire
agreement, and supersede all other prior agreements, understandings, representations and
warranties, both written and oral, between the parties, with respect to the subject matter hereof.



     5.11 Assignment. Neither this Agreement nor any right, remedy, obligation nor
liability arising hereunder or by reason hereof shall be assignable by any party hereto without the
prior written consent of the other parties, and any attempt to assign any right, remedy, obligation
or liability hereunder without such consent shall be void. This Section 5.11 applies only to an
assignment of this Agreement and the rights, remedies, obligations and liabilities arising
hereunder and does not apply to a sale, transfer or assignment of Purchased Securities, which is
addressed in Section 3.9.



     5.12 Severability. If any provision of this Agreement or a Transaction Document, or
the application thereof to any person or circumstance, is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the
application of such provision to persons or circumstances other than those as to which it has been
held invalid or unenforceable, will remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal substance of the
Transactions is not affected in any manner materially adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and
equitable substitute provision to effect the original intent of the parties.



     5.13 No Third Party Beneficiaries. Nothing contained in this Agreement, expressed or
implied, is intended to confer upon any person or entity other than the Company and the Investors
(and any persons to whom an Investor has transferred its rights hereunder in accordance with this
Agreement), any benefits, rights, or remedies.



29









 





     In Witness Whereof, this Agreement has been duly executed and delivered by the duly authorized
officers of the parties hereto as of the date first herein above written.



	 	 	 	 	 
	 	POSTROCK ENERGY CORPORATION

 	 
	 	By:  	/s/ David C. Lawler
 	 
	 	 	David C. Lawler 	 
	 	 	President and Chief Executive Officer 	 
	 




 









 





	 	 	 	 	 	 	 

	 	WHITE DEER ENERGY L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Edelman & Guill Energy L.P., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Edelman & Guill Energy Ltd., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Thomas J. Edelman	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Thomas J. Edelman	 	 
	 

	 	 	 	Title: Director	 	 
	 
	 	 	 	 	 	 
	 	WHITE DEER ENERGY TE L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Edelman & Guill Energy L.P., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Edelman & Guill Energy Ltd., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Thomas J. Edelman	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Thomas J. Edelman	 	 
	 

	 	 	 	Title: Director	 	 
	 
	 	 	 	 	 	 
	 

	 	WHITE DEER ENERGY FI L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Edelman & Guill Energy L.P., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Edelman & Guill Energy Ltd., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Thomas J. Edelman	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Thomas J. Edelman	 	 
	 

	 	 	 	Title: Director