EXHIBIT 10.2


 


SECURITIES
PURCHASE AGREEMENT


 


This Securities Purchase Agreement (this “Agreement”)
is dated as of September 20, 2004 among Wells-Gardner Electronics
Corporation, an Illinois corporation (the “Company”), and the purchasers identified on
the signature pages hereto (each, a “Purchaser” and collectively, the “Purchasers”).


 


WHEREAS, subject to the terms and conditions set
forth in this Agreement and pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the “Securities Act”), the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not
jointly, desires to purchase from the Company, securities of the Company as
more fully described in this Agreement.


 


NOW, THEREFORE, IN CONSIDERATION of the mutual covenants
contained in this Agreement, and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the Company and each
Purchaser, severally and not jointly, agree as follows:


 


DEFINITIONS


 


Definitions. 
In addition to the terms defined elsewhere in this Agreement, the
following terms have the meanings indicated:


 


“Affiliate” means any
Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with a Person, as such
terms are used in and construed under Rule 144 under the Securities Act.


 


“Business Day” means any day other than
Saturday, Sunday or any other day on which commercial banks in The City of New
York or Chicago are authorized or required by law to remain closed, or with
respect to the Commission, is a day on which the Commission is closed.


 


“Closing” means the
closing of the purchase and sale of the Shares and the Warrants pursuant to Section 2.1.


 


“Closing
Date” means the date of the Closing.


 


“Closing
Price” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on an Eligible Market or any other national securities exchange, the
closing price per share of the Common Stock for such date (or the nearest
preceding date that is a Business Day if the Closing Date is not a Business
Day) on the primary Eligible Market or exchange on which the Common Stock is
then listed or quoted; (b) if prices for the Common Stock are then quoted
on the OTC Bulletin Board, the closing bid price per share of the Common Stock
for such date (or the nearest preceding date) so quoted; (c) if prices for
the Common Stock are then reported in the “Pink Sheets” published by the National



 

















 


Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its function of
reporting prices), the most recent closing bid price per share of the Common
Stock so reported; or (d) in all other cases, the fair market value of a share
of Common Stock as determined by an independent appraiser selected in good
faith by Purchasers holding a majority of the Securities.


 


“Commission” means the
Securities and Exchange Commission.


 


“Common
Stock” means the common stock of the Company, par value $1 per share.


 


“Common Stock Equivalents” means,
collectively, Options and Convertible Securities.


 


“Company
Counsel” means Pedersen & Houpt, P.C., counsel to the
Company.


 


“Convertible Securities” means any stock or
securities (other than Options) convertible into or exercisable or exchangeable
for Common Stock.


 


“Effective
Date” means the date that the Registration Statement is first declared
effective by the Commission.


 


“Eligible
Market” means any of the New York Stock Exchange, the American Stock Exchange
or the NASDAQ National Market.


 


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


 


“Excluded
Stock” means the issuance of Common Stock (A) upon exercise or conversion of
any options or other securities described in Schedule 3.1(f)
(provided that such exercise or conversion occurs in accordance with the terms
thereof, without amendment or modification, and that the applicable exercise or
conversion price or ratio is described in such schedule) or otherwise pursuant
to any employee benefit plan described in Schedule 3.1(f) or
hereafter adopted by the Company and approved by its stockholders or (B) in
connection with any issuance of shares or grant of options to employees,
officers, directors or consultants of the Company pursuant to a stock option
plan or other incentive stock plan duly adopted by the Company’s board of
directors or in respect of the issuance of Common Stock upon exercise of any
such options.


 


“Filing
Date” means the 30th day after the Closing Date, or if the 30th
day after the Closing Date is not a Business Day for the Commission, then on
the next day thereafter that is a Business Day for the Commission.


 


“Lien” means any
lien, charge, claim, security interest, encumbrance, right of first refusal or
other restriction.


 


“Losses” means any and
all losses, claims, damages, liabilities, settlement costs and expenses,
including, without limitation, costs of preparation and reasonable attorneys’
fees.


 


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“Market Value” means as to the Shares held
by a Purchaser on any Trading Day, the product of the Closing Price on such
Trading Day and the Shares then held by such Purchaser.


 


“Options” means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.


 


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


 


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


 


“Prospectus” means the
prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by the Registration
Statement, and all other amendments and supplements to the Prospectus including
post effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.


 


“Purchaser
Counsel” has the meaning set forth in Section 6.2(a).


 


“Registrable
Securities” means any Common Stock (including, the Shares and
Underlying Shares) issued or issuable pursuant to the Transaction Documents,
together with any securities issued or issuable upon any stock split, dividend
or other distribution, recapitalization or similar event with respect to the
foregoing.


 


“Registration
Statement” means each registration statement required to be
filed under Article VI, including (in each case) the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.


 


“Required
Effectiveness Date” means the 90th day after Closing Date;
provided, however, that (a) if the 90th day after the Closing Date
is not a Business Day for the Commission, then the Required Effectiveness Date
shall be the first day thereafter which is a Business Day for the Commission,
or (b) in the event the Registration Statement shall be reviewed by the
Commission, the Required Effectiveness Date shall be no later than the 120th
day following the Closing Date, unless the 120th day following the
Closing Date is not a Business Day for the Commission, in which case the
Required Effectiveness Date shall be no later than the first day thereafter
which is a Business Day for the Commission.


 


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“Rule 144,”  “Rule 415,”
and “Rule
424” means Rule 144, Rule 415 and Rule 424, respectively,
promulgated by the Commission pursuant to the Securities Act, as such Rules may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.


 


“Securities” means the
Shares, the Warrants and the Underlying Shares.


 


“Shares” means an
aggregate of 1,216,816 shares of Common Stock, which are being issued and sold
to the Purchasers at the Closing.


 


“Subsidiary” means any
Person in which the Company, directly or indirectly, owns at least ten percent
(10%) of the capital stock or holds an equivalent equity or similar interest.


 


 “Trading Day” means for any such date,
the first of the following clauses to apply: (a) any day on which the Common
Stock is listed or quoted and traded on its primary Trading Market (or any
successor thereto), (b) if the Common Stock is not then listed or quoted and
traded on any Eligible Market, then a day on which trading occurs on the
American Stock Exchange (or any successor thereto), or (c) if trading ceases to
occur on the American Stock Exchange (or any successor thereto), any Business
Day.


 


“Trading
Market” means the American Stock Exchange or any other Eligible Market.


 


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


 


“Transfer Agent Instructions” means the
Irrevocable Transfer Agent Instructions, in the form of Exhibit D,
executed by the Company and delivered to and acknowledged in writing by the
Company’s transfer agent.


 


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


 


“Warrants” means,
collectively, the Common Stock purchase warrants issued and sold under this
Agreement, in the form of Exhibit A, and any warrants or replacement
warrants issued upon exercise, transfer, exchange or partial exchange of such
warrants.


 


PURCHASE AND SALE


 


Closing. 
Subject to the terms and conditions set forth in this Agreement, at the
Closing the Company shall issue and sell to each Purchaser, and each Purchaser
shall, severally and not jointly, purchase from the Company, such number of
Shares and a Warrant to purchase such number of Underlying Shares, each as
indicated below such Purchaser’s name on the signature page of this Agreement,
for an aggregate purchase price to such Purchaser as indicated below


 


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such Purchaser’s name on
the signature page of this Agreement. 
The Closing shall take place at the offices of Company Counsel
immediately following the execution hereof, or at such other location or time
as the parties may agree.


Closing Deliveries.


 


At the Closing, the
Company shall deliver or cause to be delivered to each Purchaser the following:


 


one or more stock
certificates, free and clear of all restrictive and other legends (except as
expressly provided in Section 4.1(b) hereof), evidencing such
number of Shares equal to the number of Shares indicated below such Purchaser’s
name on the signature page of this Agreement, registered in the name of such
Purchaser;


 


a Warrant, registered in
the name of such Purchaser, pursuant to which such Purchaser shall have the
right to acquire such number of Underlying Shares indicated below such
Purchaser’s name on the signature page of this Agreement, on the terms set
forth therein;


 


a legal opinion of
Company Counsel, in the form of Exhibit B, executed by such counsel and
delivered to the Purchasers; and


 


duly executed Transfer
Agent Instructions acknowledged by the Company’s transfer agent.


 


At the Closing, each
Purchaser shall deliver or cause to be delivered to the Company the purchase
price indicated below such Purchaser’s name on the signature page of this
Agreement, in United States dollars and in immediately available funds, by wire
transfer pursuant to the instructions set forth on Schedule 2.2(b).


 


REPRESENTATIONS AND WARRANTIES


 


Representations and
Warranties of the Company.  The Company hereby represents
and warrants to each of the Purchasers as follows:


 


Subsidiaries. 
The Company has no direct or indirect Subsidiaries other than those
listed in Schedule 3.1(a). 
Except as disclosed in Schedule 3.1(a), the Company owns,
directly or indirectly, all of the capital stock or comparable equity interests
of each Subsidiary free and clear of any Lien and all the issued and
outstanding shares of capital stock or comparable equity interest of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.


 


Organization and
Qualification.  Each of the Company and the Subsidiaries is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization (as applicable), with
the requisite power and authority to own and use its properties and assets and
to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to do
business and is in good standing as a 


 


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foreign corporation or
other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not,
individually or in the aggregate, (i) adversely affect the legality, validity
or enforceability of any Transaction Document, (ii) have or result in a
material adverse effect on the results of operations, assets, prospects, business
or condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole on a consolidated basis, or (iii) adversely impair the
Company’s ability to perform fully on a timely basis its material obligations
under any of the Transaction Documents (any of (i), (ii) or (iii), a “Material
Adverse Effect”).


 


Authorization;
Enforcement.  The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. 
The execution and delivery of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of the
Company and no further consent or action is required by the Company, its Board
of Directors or its stockholders.  Each
of the Transaction Documents has been (or upon delivery will be) duly executed
by the Company and is, or when delivered in accordance with the terms hereof,
will constitute, the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.


 


No Conflicts. 
The execution, delivery and performance of the Transaction Documents by
the Company and the consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (i) conflict with or
violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational or charter documents,
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or
other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal
and state securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are
subject), or by which any property or asset of the Company or a Subsidiary is
bound or affected.


 


Issuance of the
Securities.  The Securities (including the Underlying
Shares) are duly authorized and, when issued and paid for in accordance with
the Transaction Documents, will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens and shall not be subject to
preemptive rights or similar rights of stockholders.  The Company has reserved from its duly authorized capital stock
the maximum number of shares of Common Stock issuable upon exercise of the
Warrants.


 


Capitalization. 
The number of shares and type of all authorized, issued and outstanding
capital stock, options and other securities of the Company (whether or not
presently convertible into or exercisable or exchangeable for shares of capital
stock of the Company) is set forth in Schedule 3.1(f).


 


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All outstanding shares of
capital stock are duly authorized, validly issued, fully paid and nonassessable
and have been issued in compliance with all applicable securities laws.  Except as disclosed in Schedule 3.1(f),
there are no outstanding options, warrants, script rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. Except as disclosed in Schedule 3.1(f), there are
no anti-dilution or price adjustment provisions contained in any security
issued by the Company (or in any agreement providing rights to security
holders) and the issue and sale of the Securities (including the Underlying
Shares) will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchasers) and will not result in a
right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under such securities. 
To the knowledge of the Company, except as specifically disclosed in Schedule 3.1(f),
no Person or group of related Persons beneficially owns (as determined pursuant
to Rule 13d-3 under the Exchange Act), or has the right to acquire, by
agreement with or by obligation binding upon the Company, beneficial ownership
of in excess of 5% of the outstanding Common Stock, ignoring for such purposes
any limitation on the number of shares of Common Stock that may be owned at any
single time.


 


SEC Reports; Financial
Statements.  The Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date
hereof (or such shorter period as the Company was required by law to file such
material) (the foregoing materials (together with any materials filed by the
Company under the Exchange Act, whether or not required) being collectively
referred to herein as the “SEC Reports” and, together with this
Agreement and the Schedules to this Agreement, the “Disclosure Materials”) on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension.  The Company has delivered to each Purchaser
true, correct and complete copies of all SEC Reports filed within the 10 days
preceding the date hereof.  As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. 
The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing.  Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the periods
involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial position of
the Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.  All material
agreements to which the Company or any Subsidiary is a party or to which the
property or assets of the Company or any Subsidiary are subject are included as
part of or specifically identified in the SEC Reports.


 


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Material Changes. 
Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in the SEC Reports or
in Schedule 3.1(h), (i) there has been no event, occurrence or
development that, individually or in the aggregate, has had or that could
result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, except as disclosed in its SEC
Reports, (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made
any agreements to purchase or redeem any shares of its capital stock, and (v)
the Company has not issued any equity securities to any officer, director or
Affiliate, except pursuant to existing Company stock-based plans.


 


Absence of Litigation. 
There is no action, suit, claim, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries that could,
individually or in the aggregate, have a Material Adverse Effect.  Schedule 3.1(i) contains a
complete list and summary description of any pending or, to the knowledge of
the Company, threatened proceeding against or affecting the Company or any of
its Subsidiaries, without regard to whether it would, individually or in the
aggregate, have a Material Adverse Effect.


 


Compliance. 
Neither the Company nor any Subsidiary (i) is in default under or in
violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or
any Subsidiary under), nor has the Company or any Subsidiary received notice of
a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
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, except in each
case as could not, individually or in the aggregate, have or result in a
Material Adverse Effect.


 


Title to Assets. Except as set forth on Schedule 3.1(k),
the Company and the Subsidiaries have good and marketable title in fee simple
to all real property owned by them that is material to the business of the
Company and the Subsidiaries and good and marketable title in all personal
property owned by them that is material to the business of the Company and the
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries. Any real property and facilities held under lease
by the Company and the Subsidiaries are held by them under valid, subsisting
and enforceable leases of which the Company and the Subsidiaries are in
compliance.


 


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Certain Fees. 
Except for the fees described in Schedule 3.1(l), all of
which are payable to registered broker-dealers, no brokerage or finder’s fees
or commissions are or will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or
other Person with respect to the transactions contemplated by this Agreement,
and the Company has not taken any action that would cause any Purchaser to be
liable for any such fees or commissions.


 


Private Placement. 
To the best of the Company’s knowledge, neither the Company nor any
Person acting on the Company’s behalf has sold or offered to sell or solicited
any offer to buy the Securities by means of any form of general solicitation or
advertising.  Except as set forth on
Schedule 3.1(m), neither the Company nor any of its Affiliates nor any
Person acting on the Company’s behalf has, directly or indirectly, at any time
within the past six months, made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances that would
(i) eliminate the availability of the exemption from registration under
Regulation D under the Securities Act in connection with the offer and sale of
the Securities as contemplated hereby or (ii) cause the offering of the
Securities pursuant to the Transaction Documents to be integrated with prior
offerings by the Company for purposes of any applicable law, regulation or
stockholder approval provisions, including, without limitation, under the rules
and regulations of any Trading Market. 
The Company is not, and is not an Affiliate of, an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.  The Company is not a United States real
property holding corporation within the meaning of the Foreign Investment in
Real Property Tax Act of 1980.


 


Form S-3 Eligibility. The Company is eligible to register its
Common Stock for resale by the Purchasers using Form S-3 promulgated under the
Securities Act.


 


Listing and Maintenance
Requirements.  The Company has not, in the two years
preceding the date hereof, received notice (written or oral) from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.


 


Registration Rights. 
Except as described in Schedule 3.1(p), the Company has not
granted or agreed to grant to any Person any rights (including “piggy-back”
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority that have not been satisfied.


 


Application of Takeover
Protections.  There is no control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s charter
documents or the laws of its state of incorporation that is or could become applicable
to any of the Purchasers as a result of the Purchasers and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including, without limitation, as a result of the Company’s issuance
of the Securities and the Purchasers’ ownership of the Securities.


 


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Disclosure. 
The Company confirms that neither it nor any other Person acting on its
behalf has provided any of the Purchasers or their agents or counsel with any
information that constitutes or might constitute material, nonpublic
information.  The Company understands
and confirms that each of the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the Company.  All disclosure materials provided to the
Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. 
No event or circumstance has occurred or information exists with respect
to the Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed.  The Company acknowledges and agrees that no
Purchaser makes or has made (i) any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set forth
in Section 3.2 or (ii) any statement, commitment or promise to the
Company or, to its knowledge, any of its representatives which is or was an
inducement to the Company to enter into this Agreement or otherwise.


 


Acknowledgment Regarding
Purchasers’ Purchase of Securities.  The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Company and to this
Agreement and the transactions contemplated hereby.  The Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any Purchaser or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each
Purchaser that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the transactions contemplated
hereby by the Company and its representatives.


 


Patents and Trademarks. 
Except as set forth in Schedule 3.1(t), the Company and the
Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, copyrights,
licenses and other similar rights that are necessary or material for use in
connection with their respective businesses as described in the SEC Reports and
which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”). Neither the
Company nor any Subsidiary has received a written notice that the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes
upon the rights of any Person. To the knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.


 


Insurance. 
The Company and the Subsidiaries are insured by the insurers listed on Schedule 3.1(u)
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are engaged.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance 


 


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coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.


 


Regulatory Permits. 
The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not, individually or in the aggregate, have or result in a
Material Adverse Effect (“Material Permits”), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.


 


Transactions With
Affiliates and Employees.  Except as set forth in Schedule 3.1(w)
and/or in SEC Reports filed at least ten days prior to the date hereof, none of
the officers or directors of the Company and, to the knowledge of the Company,
none of the employees of the Company is presently a party to any transaction
with the Company or any Subsidiary (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.


 


Solvency. The Company and each of its
“significant subsidiaries” (as that term is defined by Rule 1-02 of Regulation
S-X promulgated under the Securities Act) are, and immediately after the
Closing will be, Solvent. As used herein, the term “Solvent” means, with
respect to a particular date, that on such date, (i) the fair market value of
the total assets of each of the Company and its Subsidiaries exceeds their
respective total liabilities (including, without limitation, stated liabilities
and contingent liabilities), and (ii) the Company and each of its Subsidiaries
is currently able to discharge its debts as they come due or mature.  None of the Company nor any of its
“significant subsidiaries” has taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy, insolvency,
debtor relief, reorganization or similar law, nor does the Company have any
knowledge or reason to believe that creditors of the Company and its Subsidiaries
have initiated or intend to initiate involuntary bankruptcy or similar
proceedings.


 


Internal Accounting
Controls.  The Company and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management’s
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset 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.


 


(z)            Sarbanes-Oxley
Act. The Company is in compliance with applicable requirements of the
Sarbanes-Oxley Act of 2002 and applicable rules and regulations promulgated by
the Commission thereunder in effect as of the date of this Agreement,
except 


 


11

















 


where such noncompliance could not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.


 


Representations and
Warranties of the Purchasers.  Each
Purchaser hereby, as to itself only and for no other Purchaser, represents and
warrants to the Company as follows:


 


Organization; Authority. 
Such Purchaser is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite [corporate or partnership] power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder.  The purchase by such Purchaser of the Shares
and the Warrants hereunder has been duly authorized by all necessary action on
the part of such Purchaser.  This Agreement
has been duly executed and delivered by such Purchaser and constitutes the
valid and binding obligation of such Purchaser, enforceable against it in
accordance with its terms.


 


Investment Intent. 
Such Purchaser is acquiring the Securities as principal for investment
purposes only and not with a view to or for distributing or reselling such
Securities or any part thereof, without prejudice, however, to such Purchaser’s
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act or under an exemption
from such registration and in compliance with applicable federal and state
securities laws.


 


Purchaser Status. 
At the time such Purchaser was offered the Shares and the Warrants, it
was, and at the date hereof it is, an “accredited investor” as defined in Rule
501(a) under the Securities Act.


 


Experience of such
Purchaser.  Such Purchaser, either alone or together
with its representatives has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment.  Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.


 


(e)           Certain Trading Limitations. 
Each Purchaser agrees that beginning on the date the Purchaser first
learned of this transaction, and continuing until the Closing Date, it has not
entered into any Short Sales.  For
purposes of this Section 3.2(e), a “Short Sale” by a Purchaser
means a sale of Common Stock that is marked as a short sale and that is
executed at a time when such Purchaser has no equivalent offsetting long
position in the Common Stock.  For
purposes of determining whether a Purchaser has an equivalent offsetting long
position in the Common Stock, all Common Stock and all Common Stock that would
be issuable upon conversion or exercise in full of all Options then held by
such Purchaser (assuming that such Options were then fully convertible or
exercisable, notwithstanding any provisions to the contrary, and giving effect
to any conversion or exercise price adjustments scheduled to take effect in the
future) shall be deemed to be held long by such Purchaser.


 


(f)            Rule 144.  Such
Purchaser acknowledges that the Shares must be held indefinitely unless
subsequently registered for resale under the Securities Act or unless an 


 


12

















 


exemption from such registration is available.  Such Purchaser is aware of the provisions of
Rule 144 promulgated under the Securities Act which permits limited resale of
securities purchased in a private placement, subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party has
purchased and fully paid for the security to be sold, the sale being effected
through a “broker’s transaction” or in a transaction directly with a “market
maker” and the number of shares being sold during any three-month period not
exceeding specified limitations.


 


(g)           Access
to Information.  Such Purchaser has
had an opportunity to discuss the Company’s business, management and financial
affairs with its management.  It has
also had an opportunity to ask questions of officers of the Company.  Such Purchaser understands that such
discussions, as well as any written information issued by the Company, did not
contain any material non-public information and were intended to describe
certain aspects of the Company’s business and prospects.  THE PURCHASER UNDERSTANDS THAT ITS
INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK.


 


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


 


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


 


(j)            Acknowledgment
Regarding 5% Ownership of Company’s Outstanding Common Stock.    The Purchasers acknowledge and agree that if at any
point in time any Purchaser owns five percent (5%) or more of the Company’s
outstanding shares of Common Stock, then said Purchaser may be subject to
obligations, including the filing of applicable documents, under the rules and
regulations of (i) the Commission, and (ii) various gaming regulatory agencies.


 


OTHER AGREEMENTS OF THE PARTIES


 


Transfer Restrictions.


 


Securities may only be
disposed of pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act, and in compliance with any applicable state
securities laws.  In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company or pursuant to Rule 144(k), except as otherwise set
forth herein, the Company may require the transferor to provide to the Company
an opinion of counsel selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.  Notwithstanding the foregoing, the Company
hereby consents to and agrees to register on the books of the 


 


13

















 


Company and with its
transfer agent, without any such legal opinion, any transfer of Securities by a
Purchaser to an Affiliate of such Purchaser, provided that the transferee
certifies to the Company that it is an “accredited investor” as defined in Rule
501(a) under the Securities Act.


 


The Purchasers agree to
the imprinting, so long as is required by this Section 4.1(b), of
the following legend on any certificate evidencing Securities:


 


[NEITHER] THESE
SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE]
HAVE [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. 
NOTWITHSTANDING THE FOREGOING, THESE SECURITIES [AND THE SECURITIES
ISSUABLE UPON EXERCISE OF THESE SECURITIES] MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH
SECURITIES.


 


In addition, the
Purchasers acknowledge that each certificate for Securities shall bear any
additional legend required by any other applicable domestic or foreign
securities or blue sky laws.


 


Certificates evidencing
Securities shall not be required to contain such legend or any other legend (i)
while a Registration Statement covering the resale of such Securities is effective
under the Securities Act, or (ii) following any sale of such Securities
pursuant to Rule 144, or (iii) if such Securities are eligible for sale under
Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission).  The Company shall cause its counsel to issue
the legal opinion included in the Transfer Agent Instructions to the Company’s
transfer agent on the Effective Date. 
Following the Effective Date or at such earlier time as a legend is no
longer required for certain Securities, the Company will no later than three
Trading Days following the delivery by a Purchaser to the Company or the
Company’s transfer agent of a legended certificate representing such
Securities, deliver or cause to be delivered to such Purchaser a certificate
representing such Securities that is free from all restrictive and other
legends.  The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.
The Company acknowledges and agrees that a Purchaser may from time to time
pledge or grant a security interest in some or all of the Securities in
connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Securities and, if required under the terms of such
agreement, loan or arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. 
Such a pledge or transfer would not be subject to 


 


14

















 


approval of the Company
and no legal opinion of the pledgee, secured party or pledgor shall be required
in connection therewith.  Further, no
notice shall be required of such pledge. 
At the appropriate Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of
the Securities, including the preparation and filing of any required prospectus
supplement under Rule 424(b)(3) of the Securities Act or other applicable
provision of the Securities Act to appropriately amend the list of Selling
Stockholders thereunder.


 


Furnishing of Information. 
As long as any Purchaser owns Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to the Exchange Act. 
Upon the request of any Purchaser, the Company shall deliver to such
Purchaser a written certification of a duly authorized officer as to whether it
has complied with the preceding sentence. As long as any Purchaser owns
Securities, if the Company is not required to file reports pursuant to such
laws, it will prepare and furnish to the Purchasers and make publicly available
in accordance with paragraph (c) of Rule 144 such information as is required
for the Purchasers to sell the Securities under Rule 144.  The Company further covenants that it will
take such further action as any holder of Securities may reasonably request to
satisfy the provisions of Rule 144 applicable to the issuer of securities
relating to transactions for the sale of securities pursuant to Rule 144.


 


Integration. 
The Company will not offer, sell or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Securities Act) in a
manner that would cause the offer and sale of the Shares to the Purchasers to
fail to be entitled to the exemption from registration afforded by Rule 506 of
Regulation D and Section 4(2) of the Securities Act or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.


 


Reservation of Securities. 
The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction
Documents.  In the event that at any
time the then authorized shares of Common Stock are insufficient for the
Company to satisfy its obligations in full under the Transaction Documents, the
Company shall promptly take such actions as may be required to increase the
number of authorized shares.


 


Subsequent Placements.


 


From the date hereof
until the Effective Date, the Company will not, directly or indirectly, offer,
sell, grant any option to purchase, or otherwise dispose of (or agree to do any
of the foregoing) (or announce any offer, sale, grant or any option to purchase
or other disposition of) any of its or the Subsidiaries’ equity or equity
equivalent securities, including without limitation any debt, preferred stock
or other instrument or security that is, at any time during its life and under
any circumstances, convertible into or exchangeable or exercisable for Common
Stock or Common Stock Equivalents (any such offer, sale, grant, disposition or
announcement being referred to as a “Subsequent Placement”).


 


15

















 


From the Effective Date
until 30 Trading Days after the Effective Date (the “Blockout Period”), the
Company will not, directly or indirectly, effect any Subsequent Placement,
except with regard to Excluded Stock.


 


The Blockout Period set
forth in Section 4.5(b) above shall be extended for the number of
Trading Days during such period in which (i) trading in the Common Stock is
suspended by any Trading Market, (ii) the Registration Statement is not
effective, or (iii) the prospectus included in the Registration Statement may
not be used by the Purchasers for the resale of Registrable Securities
thereunder.


 


From the end of the
Blockout Period until the seven month anniversary thereof, the Company will
not, directly or indirectly, effect any Subsequent Placement unless the Company
shall have first complied with this Section 4.5(d).


 


The Company shall deliver
to each Purchaser a written notice (the “Offer”) of any proposed or intended
issuance or sale or exchange of the securities being offered (the “Offered
Securities”) in a Subsequent Placement, which Offer shall (w)
identify and describe the Offered Securities, (x) describe the price and other
terms upon which they are to be issued, sold or exchanged, and the number or
amount of the Offered Securities to be issued, sold or exchanged, (y) identify
the persons or entities to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with each Purchaser (A) a pro rata portion of the Offered Securities
based on such Purchaser’s pro rata portion of the aggregate purchase price paid
by the Purchasers for all of the Shares purchased hereunder (the “Basic Amount”),
and (B) with respect to each Purchaser that elects to purchase its Basic
Amount, any additional portion of the Offered Securities attributable to the
Basic Amounts of other Purchasers as such Purchaser shall indicate it will
purchase or acquire should the other Purchasers subscribe for less than their
Basic Amounts (the “Undersubscription Amount”).


 


To accept an Offer, in
whole or in part, a Purchaser must deliver a written notice to the Company prior
to the end of the ten (10) Trading Day period of the Offer, setting forth the
portion of the Purchaser’s Basic Amount that such Purchaser elects to purchase
and, if such Purchaser shall elect to purchase all of its Basic Amount, the
Undersubscription Amount, if any, that such Purchaser elects to purchase (in
either case, the “Notice of Acceptance”).  If the Basic Amounts subscribed for by all
Purchasers are less than the total of all of the Basic Amounts, then each
Purchaser who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the “Available Undersubscription Amount”), each
Purchaser who has subscribed for any Undersubscription Amount shall be entitled
to purchase only that portion of the Available Undersubscription Amount as the
Basic Amount of such Purchaser bears to the total Basic Amounts of all
Purchasers that have subscribed for Undersubscription Amounts, subject to
rounding by the Board of Directors to the extent its deems reasonably
necessary.


 


The Company shall have
five (5) Trading Days from the expiration of the period set forth in Section 4.5(d)(ii)
above to issue, sell or exchange (or any binding commitment thereto) all or any
part of such Offered Securities as to which a Notice of Acceptance has not been
given by the 


 


16

















 


Purchasers (the “Refused
Securities”), but only to the offerees described in the Offer and
only upon terms and conditions (including, without limitation, unit prices and
interest rates) that are not more favorable to the acquiring person or persons
or less favorable to the Company than those set forth in the Offer.


 


In the event the Company
shall propose to sell less than all the Refused Securities (any such sale to be
in the manner and on the terms specified in Section 4.5(d)(iii)
above), then each Purchaser may, at its sole option and in its sole discretion,
reduce the number or amount of the Offered Securities specified in its Notice
of Acceptance to an amount that shall be not less than the number or amount of
the Offered Securities that the Purchaser elected to purchase pursuant to Section 4.5(d)(ii)
above multiplied by a fraction, (i) the numerator of which shall be the number
or amount of Offered Securities the Company actually proposes to issue, sell or
exchange (including Offered Securities to be issued or sold to Purchasers
pursuant to Section 4.5(d)(ii) above prior to such reduction) and
(ii) the denominator of which shall be the original amount of the Offered
Securities.  In the event that any
Purchaser so elects to reduce the number or amount of Offered Securities
specified in its Notice of Acceptance, the Company may not issue, sell or
exchange more than the reduced number or amount of the Offered Securities
unless and until such securities have again been offered to the Purchasers in
accordance with Section 4.5(d)(i) above.


 


Upon the closing of the
issuance, sale or exchange of all or less than all of the Refused Securities,
the Purchasers shall acquire from the Company, and the Company shall issue to
the Purchasers, the number or amount of Offered Securities specified in the
Notices of Acceptance, as reduced pursuant to Section 4.5(d)(iv)
above if the Purchasers have so elected, upon the terms and conditions
specified in the Offer.  The purchase by
the Purchasers of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Purchasers of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Purchasers and their respective counsel.


 


Any Offered Securities
not acquired by the Purchasers or other persons in accordance with Section 4.5(d)(iii)
above may not be issued, sold or exchanged until they are again offered to the
Purchasers under the procedures specified in this Agreement.


 


From the date hereof
until the first anniversary of the Closing Date, the Company will not engage in
a Subsequent Placement in which the offer or sale price for its or the
Subsidiaries’ equity or equity equivalent securities is less than the price
paid for the Shares at Closing.


 


The restrictions
contained in paragraphs (b), (d) and (e) of this Section 4.5 shall
not apply to Excluded Stock


 


Securities Laws
Disclosure; Publicity.  The Company shall, on or
before 7:30a.m., Chicago time, on September 21, 2004, issue a press
release in the form attached hereto as Schedule 4.6.  On the Closing Date, the Company shall file
a Current Report on Form 8-K with the Commission (the “8-K Filing”)  describing
the terms of the transactions contemplated by the Transaction Documents and
including as exhibits to such Current Report on Form 8-K this Agreement and the
form of the Warrants, in the form required by the Exchange Act. Thereafter, the
Company shall timely file any filings and notices required by the Commission or
applicable law with 


 


17

















 


respect to the
transactions contemplated hereby and provide copies thereof to the Purchasers
promptly after filing.  Except with respect to the 8-K Filing (a copy of which
will be provided to the Purchasers for their review as early as practicable
prior to its filing), the Company shall, at least two days prior to the
filing or dissemination of any disclosure required by this paragraph, provide a
copy thereof to the Purchasers for their review.  The Company and Iroquois Capital L.P (the “Lead Purchaser”) shall
consult with each other in issuing any press releases or otherwise making
public statements or filings and other communications with the Commission or
any regulatory agency or Trading Market with respect to the transactions
contemplated hereby, and neither party shall issue any such press release or
otherwise make any such public statement, filing or other communication without
the prior consent of the other, except if such disclosure is required by law,
in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement, filing or other communication.  It being understood that the Lead Purchaser
shall respond to the Company any of its comments within two Trading Days after
receipt of any such filings or statements. 
Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Purchaser, or include the name of any Purchaser in any filing
with the Commission or any regulatory agency or Trading Market, without the
prior written consent of such Purchaser, except to the extent such disclosure
(but not any disclosure as to the controlling Persons thereof) is required by
law or Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure.  The Company shall not, and shall cause each of its Subsidiaries
and its and each of their respective officers, directors, employees and agents
not to, provide any Purchaser with any material nonpublic information regarding
the Company or any of its Subsidiaries from and after the filing of the 8-K
Filing without the express written consent of such Purchaser.  In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, the Company shall make a
public disclosure, in the form of a press release, public advertisement or
otherwise, of such material nonpublic information.  No Purchaser shall have any liability to the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees,
shareholders or agents for any such disclosure.  Subject to the foregoing, neither the Company nor any Purchaser
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of any Purchaser, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the
case of clause (i) the Lead Purchaser shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release). Each press release disseminated during the 12 months preceding the
date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.


 


Use of Proceeds. The Company shall use the net proceeds
from the sale of the Securities hereunder primarily for paying down the
Company’s bank debt.


 


Reimbursement. 
If any Purchaser or any of its Affiliates or any officer, director,
partner, controlling Person, employee or agent of a Purchaser or any of its
Affiliates (a “Related Person”) becomes involved in any capacity in any
Proceeding brought by or against any Person 


 


18

















 


in connection with or as
a result of the transactions contemplated by the Transaction Documents (except
per the indemnification provisions set forth in Section 6.4
hereof), the Company will indemnify and hold harmless such Purchaser or Related
Person for its reasonable legal and other expenses (including the costs of any
investigation, preparation and travel) and for any Losses incurred in
connection therewith which are determined by a court of competent jurisdiction
in a non-appealable order to have resulted from the gross negligence, willful
misconduct or fraud of the Company or its Affiliates.  In addition, the Company shall indemnify and hold harmless each
Purchaser and Related Person from and against any and all Losses arising out of
or relating to any breach by the Company of any of the representations,
warranties or covenants made by the Company in this Agreement or any other
Transaction Document, or any allegation by a third party that, if true, would
constitute such a breach.  The conduct
of any Proceedings for which indemnification is available under this paragraph
shall be governed by Section 6.4(c) below.  Subject to Section 6.4 below,
the indemnification obligations of the Company under this paragraph shall be in
addition to any liability that the Company may otherwise have and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the Purchasers and any such Related Persons.  The Company also agrees that neither the
Purchasers nor any Related Persons shall have any liability to the Company or
any Person asserting claims on behalf of or in right of the Company in
connection with or as a result of the transactions contemplated by the
Transaction Documents, except to the extent that any Losses incurred by the
Company result from the gross negligence or willful misconduct of the
applicable Purchaser or Related Person in connection with such transactions.  If the Company breaches its obligations under
any Transaction Document, then, in addition to any other liabilities the
Company may have under any Transaction Document or applicable law, the Company
shall pay or reimburse the Purchasers on demand for all costs of collection and
enforcement (including reasonable attorneys fees and expenses).  Without limiting the generality of the
foregoing, the Company specifically agrees to reimburse the Purchasers for all
costs of enforcing the indemnification obligations in this paragraph as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review.  Notwithstanding
anything to the contrary contained in this Section 4.8 to the
contrary, this Section 4.8 shall not provide any Person with any
additional remedy for any claim provided by the provisions of Section 6.4
hereof.


 


CONDITIONS


 


Conditions Precedent to
the Obligations of the Purchasers.  The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:


 


Representations and
Warranties.  The representations and warranties of the
Company contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing as though made on and as of such date;
and


 


Performance. 
The Company shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing.


 


19

















 


Conditions Precedent to
the Obligations of the Company.  The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:


 


Representations and
Warranties.  The representations and warranties of the
Purchasers contained herein shall be true and correct in all material respects
as of the date when made and as of the Closing Date as though made on and as of
such date;


 


Performance. 
The Purchasers shall have performed, satisfied and complied in all
material respects with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by the
Purchasers at or prior to the Closing;


 


(c)           No
Injunction.  No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated, endorsed or threatened or be pending by or
before any governmental authority of competent jurisdiction which prohibits or
threatens to prohibit the consummation of any of the transactions contemplated
by this Agreement and the agreements attached as exhibits hereto;


 


(d)           Share
Price.  The Closing Price shall be
no less than $4.50/Share; and


 


(e)           Minimum
Number of Shares Sold.     The Purchasers
shall acquire, in the aggregate, not less than all of the Shares.


 


REGISTRATION RIGHTS


 


Shelf Registration


 


As promptly as possible,
and in any event on or prior to the Filing Date, the Company shall prepare and
file with the Commission a “Shelf” Registration Statement covering the resale
of all Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415.  The Registration
Statement shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance herewith as the
Purchasers may consent) and shall contain (except if otherwise directed by the
Purchasers) the “Plan of Distribution” attached hereto as Exhibit C.


 


The Company shall use
commercially reasonable efforts to cause the Registration Statement to be
declared effective by the Commission as promptly as possible after the filing
thereof, but in any event prior to the Required Effectiveness Date, and shall
use commercially reasonable efforts to keep the Registration Statement
continuously effective under the Securities Act until the earlier of (i) the
date when all Registrable Securities covered by such Registration Statement
have been resold either under the Registration Statement or pursuant to Rule
144, and (ii) the date on which all Registrable Securities may be sold without
restriction or limitation pursuant to paragraph (k) of Rule 144 (“Effectiveness
Period”).


 


20

















 


The Company shall notify
each Purchaser in writing promptly (and in any event within one Trading Day)
after receiving notification from the Commission that the Registration
Statement has been declared effective.


 


Commencing upon the
occurrence of any Event (as defined below) and until the applicable Event is
cured, as partial relief for the damages suffered therefrom by the Purchasers
(which remedy shall not be exclusive of any other remedies available under this
Agreement, at law or in equity), the Company shall pay upon the occurrence of
such Event and on every monthly anniversary thereof to each Purchaser an amount
in cash, as damages and not as a penalty, equal to 1.5% of the greater of (i)
the aggregate purchase price paid by such Purchaser hereunder and (ii) the
Market Value of the Shares then outstanding, in each case, prorated for any
partial month.  The payments to which a
Purchaser shall be entitled pursuant to this Section 6.1(d) are
referred to herein as “Event Payments”.  Any Event Payments payable pursuant to the terms hereof shall
apply on a pro-rata basis for any portion of a month prior to the cure of an
Event.  In the event the Company fails
to make Event Payments in a timely manner, such Event Payments shall bear
interest at the rate of 1.5% per month (prorated for partial months) until paid
in full.


 


For such purposes, each
of the following shall constitute an “Event”:


 


the Registration
Statement is not filed on or prior to the Filing Date or is not declared
effective on or prior to the Required Effectiveness Date;


 


after the Effective Date,
the Commission issues a stop order which has the effect of suspending a
Purchaser’s right to sell Registrable Securities under the Registration
Statement (or a subsequent Registration Statement filed in replacement thereof)
and such suspension is not waived or lifted for five or more Trading Days
(whether or not consecutive);


 


after the Effective Date,
any Registrable Securities covered by such Registration Statement are not
listed on an Eligible Market;


 


the Common Stock is not
listed or quoted, or is suspended from trading, on an Eligible Market for a
period of three Trading Days (which need not be consecutive Trading Days) in
any twelve (12) month period; or


 


the Company fails to have
available a sufficient number of authorized but unissued and otherwise
unreserved shares of Common Stock available to issue Underlying Shares upon any
exercise of the Warrants or, at any time following the Effective Date, any
Shares or Underlying Shares are not listed on an Eligible Market.


 


Notwithstanding
the foregoing, no Event may be deemed to occur entitling a Purchaser to an
Event Payment or other relief if the Event occurs after a Purchaser has
disposed of all of its Registrable Securities.


 


The Company shall not,
prior to the Effective Date of the Registration Statement, prepare and file
with the Commission a registration statement relating to an offering for its
own account or the account of others under the Securities Act of any of its
equity securities.


 


21

















 


Registration Procedures. 
(i) In connection with the Company’s registration obligations hereunder,
the Company shall:


 


Not less than three
Trading Days prior to the filing of a Registration Statement or any related
Prospectus or any amendment, or not less than one Trading Day for any
supplement thereto (including any document that would be incorporated or deemed
to be incorporated therein by reference), the Company shall (i) furnish to each
Purchaser and any counsel designated by any Purchaser in writing to the
Company, if any (each, a “Purchaser Counsel”, and Iroquois Capital
L.P. has initially designated Proskauer Rose LLP as its Purchaser Counsel)
copies of all such documents proposed to be filed, which documents (other than
those incorporated or deemed to be incorporated by reference) will be subject
to the review of each such Purchaser and Purchaser Counsel for up to three
Trading Days, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.  The Company shall not file a Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which Purchasers holding a majority of the Registrable Securities shall
reasonably object in writing


 


(i) Prepare and file with
the Commission such amendments, including post-effective amendments, to each
Registration Statement and the Prospectus used in connection therewith as may
be necessary to keep the Registration Statement continuously effective as to
the applicable Registrable Securities for the Effectiveness Period and prepare
and file with the Commission such additional Registration Statements in order
to register for resale under the Securities Act all of the Registrable
Securities; (ii) cause the related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible,
and in any event within ten days, to any comments received from the Commission
with respect to the Registration Statement or any amendment thereto and as
promptly as reasonably possible provide the Purchasers true and complete copies
of all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Purchasers thereof set forth in the Registration Statement as so amended or in
such Prospectus as so supplemented.


 


Notify the Purchasers and
Purchaser Counsel of Registrable Securities to be sold and as promptly as
reasonably possible, and (if requested by any such Person) confirm such notice
in writing no later than one Trading Day thereafter, of any of the following
events: (i) the Commission notifies the Company whether there will be a
“review” of any Registration Statement; (ii) the Commission comments in writing
on any Registration Statement (in which case the Company shall deliver to each
Purchaser a copy of such comments and of all written responses thereto); (iii)
any Registration Statement or any post-effective amendment is declared
effective; (iv) the Commission or any other Federal or state governmental
authority requests any amendment or supplement to any Registration Statement or
Prospectus or requests additional information related thereto; (v) the
Commission issues any stop order suspending the effectiveness of any
Registration Statement or initiates any Proceedings for that purpose; (vi) the
Company receives notice of any suspension of the qualification or exemption
from qualification of any Registrable 


 


22

















 


Securities for sale in
any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included in any Registration
Statement become ineligible for inclusion therein or any statement made in any
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference is untrue in any material respect or any
revision to a Registration Statement, Prospectus or other document is required
so that it will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.


 


Use its best efforts to
avoid the issuance of or, if issued, obtain the withdrawal of (i) any order
suspending the effectiveness of any Registration Statement, or (ii) any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, as soon as possible.


 


Furnish to each Purchaser
and Purchaser Counsel, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.


 


Promptly deliver to each
Purchaser and Purchaser Counsel, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably request.  The Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Purchasers in connection with the offering and sale of the Registrable
Securities covered by such Prospectus and any amendment or supplement thereto.


 


 (i) In the time and manner required by each
Trading Market on which the Company’s shares are listed, prepare and file with
such Trading Market an additional shares listing application covering all of
the Registrable Securities; (ii) take all steps necessary to cause such
Registrable Securities to be approved for listing on each Trading Market on
which the Company’s shares are listed as soon as possible thereafter; (iii)
provide to the Purchasers evidence of such listing; and (iv) maintain the
listing of such Registrable Securities on such Trading Market or another
Eligible Market.


 


Prior to any public
offering of Registrable Securities, use commercially reasonable efforts to
register or qualify or cooperate with the selling Purchasers and Purchaser
Counsel in connection with the registration or qualification (or exemption from
such registration or qualification) of such Registrable Securities for offer
and sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Purchaser requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement.


 


Cooperate with the
Purchasers to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be delivered to a transferee pursuant to
a Registration Statement, which certificates shall be free, to the extent
permitted by this Agreement, of all 


 


23

















 


restrictive legends, and
to enable such Registrable Securities to be in such denominations and
registered in such names as any such Purchasers may request.


 


Upon the occurrence of
any event described in Section 6.2(c)(vii), as promptly as
reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.


 


Cooperate with any
reasonable due diligence investigation undertaken by the Purchasers in
connection with the sale of Registrable Securities, including, without
limitation, by making available any documents and information; provided that
the Company will not deliver or make available to any Purchaser material,
nonpublic information unless such Purchaser specifically requests in advance to
receive material, nonpublic information in writing.


 


Comply with all
applicable rules and regulations of the Commission.


 


Registration Expenses. 
The Company shall pay (or reimburse the Purchasers for) all reasonable
fees and expenses incident to the performance of or compliance with this
Agreement by the Company, including without limitation (a) all registration and
filing fees and expenses, including without limitation those related to filings
with the Commission, any Trading Market and in connection with applicable state
securities or Blue Sky laws, (b) printing expenses (including without
limitation expenses of printing certificates for Registrable Securities and of
printing prospectuses requested by the Purchasers), (c) messenger, telephone
and delivery expenses, (d) fees and disbursements of counsel for the Company,
(e) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement, and (f) all listing fees to be paid by the Company to the Trading
Market.


 


Indemnification


 


Indemnification by the
Company.  The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Purchaser, the
officers, directors, partners, members, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment
advisors and employees of each of them, each Person who controls any such
Purchaser (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, partners,
members, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all Losses, (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review), arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in the Registration Statement,
any Prospectus or any form of prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or 


 


24

















 


supplement thereto, in
the light of the circumstances under which they were made) not misleading,
except to the extent, but only to the extent, that (i) such untrue statements,
alleged untrue statements, omissions or alleged omissions are based solely upon
information regarding such Purchaser furnished in writing to the Company by
such Purchaser or its authorized agent expressly for use therein, or to the extent
that such information relates to such Purchaser or such Purchaser’s proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Purchaser expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (ii) in the case of an occurrence of an event of the type
specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5.  The Company shall notify the Purchasers
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement.  Notwithstanding the
foregoing, to the extent the Purchasers suffer any Losses pursuant to the
occurrence of an Event under Section 6.1(d), the Purchasers shall
only be entitled to make a claim under this Section 6.4 for Losses
not covered by the Event Payments.


 


Indemnification by
Purchasers. Each
Purchaser shall, severally and not jointly, indemnify and hold harmless the
Company, its directors, officers, agents and employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses (as determined by a
court of competent jurisdiction in a final judgment not subject to appeal or
review) arising solely out of any untrue statement of a material fact contained
in the Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto, or arising solely out of any omission of a
material fact required to be stated therein or necessary to make the statements
therein (in the case of any Prospectus or form of prospectus or supplement
thereto, in the light of the circumstances under which they were made) not
misleading to the extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing by such
Purchaser or its authorized agent to the Company specifically for inclusion in
such Registration Statement or such Prospectus or to the extent that (i) such
untrue statements or omissions are based solely upon information regarding such
Purchaser furnished in writing to the Company by such Purchaser expressly for
use therein, or to the extent that such information relates to such Purchaser
or such Purchaser’s proposed method of distribution of Registrable Securities
and was reviewed and expressly approved in writing by such Purchaser or its
authorized agent expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus or in any amendment or supplement thereto
or (ii) in the case of an occurrence of an event of the type specified in Section 6.2(c)(v)-(vii),
the use by such Purchaser of an outdated or defective Prospectus after the
Company has notified such Purchaser in writing that the Prospectus is outdated
or defective and prior to the receipt by such Purchaser of the Advice
contemplated in Section 6.5. 
In no event shall the liability of any selling Purchaser hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Purchaser upon the sale of the Registrable Securities giving rise to such
indemnification obligation.


 


25

















 


Conduct of
Indemnification Proceedings. If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “Indemnifying Party”) in writing, and the Indemnifying Party
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees
and expenses incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be finally determined
by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.


 


An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (i) the Indemnifying Party has
agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party
shall have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (iii) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised in writing by counsel
that a conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld or delayed.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.


 


All
fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing
to defend such Proceeding in a manner not inconsistent with this Section) the
reimbursement of which is the responsibility of the Indemnifying Party
hereunder, shall be paid to the Indemnified Party, promptly after it is
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review that such Indemnified Party is entitled to indemnification
hereunder.


 


Contribution. 
If a claim for indemnification under Section 6.4(a) or (b)
is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such 


 


26

















 


Indemnifying Party or
Indemnified Party, and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by
a party as a result of any Losses shall be deemed to include, subject to the
limitations set forth in Section 6.4(c), any reasonable attorneys’
or other reasonable fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms.


 


The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6.4(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph.  Notwithstanding the
provisions of this Section 6.4(d), no Purchaser shall be required
to contribute, in the aggregate, any amount in excess of the amount by which
the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.


 


The
indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.


 


Dispositions. 
Each Purchaser agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.  Each Purchaser further agrees that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Sections 6.2(c)(v), (vi) or (vii), such
Purchaser will discontinue disposition of such Registrable Securities under the
Registration Statement until such Purchaser’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by Section 6.2(j),
or until it is advised in writing (the “Advice”) by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus or Registration
Statement.  The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.


 


No Piggyback on
Registrations.  Except as set forth in Schedule 6.6,
neither the Company nor any of its security holders (other than the Purchasers
in such capacity pursuant hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities, and the Company
shall not after the date hereof enter into any agreement providing any such
right to any of its security holders.


 


Piggy-Back Registrations. 
If at any time during the Effectiveness Period there is not an effective
Registration Statement covering all of the Registrable Securities which then
remain unused and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in 


 


27

















 


connection with stock
option or other employee benefit plans, then the Company shall send to each
Purchaser written notice of such determination and if, within fifteen days
after receipt of such notice, any such Purchaser shall so request in writing,
the Company shall include in such registration statement all or any part of
such Registrable Securities such Purchaser requests to be registered.


 


MISCELLANEOUS


 


Termination. 
This Agreement may be terminated by the Company or any Purchaser, by
written notice to the other parties, if the Closing has not been consummated by
the third Trading Day following the date of this Agreement; provided that no
such termination will affect the right of any party to sue for any breach by
the other party (or parties).


 


Fees and Expenses. 
At the Closing, the Company shall pay to Iroquois Capital L.P. an
aggregate of $25,000 for their legal fees and expenses incurred in connection
with its due diligence and the preparation and negotiation of the Transaction
Documents, of which amount $20,000 has been previously paid by the Company to
the Purchaser Counsel.  In lieu of the
foregoing payment, Iroquois Capital L.P. may retain such amount at the
Closing.  Except as expressly set forth
in the Transaction Documents to the contrary, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts, if any, and
all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent
fees, stamp taxes and other taxes and duties levied in connection with the
issuance of the Securities.


 


Entire Agreement. 
The Transaction Documents, together with the Exhibits and Schedules
thereto, contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.  At or after the Closing, and without further
consideration, the parties will execute and deliver to each other such further
documents as may be reasonably requested in order to give practical effect to
the intention of the parties under the Transaction Documents.


 


Notices. 
Any and all notices or other communications or deliveries required or
permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 7.4 prior to 5:30 p.m. (Chicago time) on
a Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than
5:30 p.m. (Chicago time) on any Trading Day, (c) the Trading Day following the
date of deposit with a nationally recognized overnight courier service, or (d)
upon actual receipt by the party to whom such notice is required to be given.  The addresses and facsimile numbers for such
notices and communications are those set forth on the signature pages hereof,
or such other address or facsimile number as may be designated in writing
hereafter, in the same manner, by any such Person.


 


28

















 


Amendments; Waivers. 
No provision of this Agreement may be waived or amended except in a
written instrument signed, in the case of an amendment, by the Company and each
of the Purchasers or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. 
No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right.  Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Purchasers under Article VI
and that does not directly or indirectly affect the rights of other Purchasers
may be given by Purchasers holding at least a majority of the Registrable
Securities to which such waiver or consent relates.


 


Construction. 
The headings herein are for convenience only, do not constitute a part
of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.  The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be
applied against any party.


 


Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Purchasers. Any
Purchaser may assign its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the “Purchasers.”  Notwithstanding anything to the contrary herein, Securities may
be assigned to any Person in connection with a bona fide margin account or
other loan or financing arrangement secured by such Securities.


 


No Third-Party
Beneficiaries.  This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person, except that each Related Person is an intended third party beneficiary
of Section 4.8 and each Indemnified Party is an intended third
party beneficiary of Section 6.4 and (in each case) may enforce the
provisions of such Sections directly against the parties with obligations
thereunder.


 


Governing Law; Venue;
Waiver Of Jury Trial.  ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS. THE COMPANY AND PURCHASERS HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF CHICAGO,
COUNTY OF COOK FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR
ANY PURCHASER HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED
HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF
THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO
ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE 


 


29

















 


COMPANY OR ANY PURCHASER,
ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH
COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER.  EACH PARTY HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF.  NOTHING CONTAINED HEREIN SHALL
BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW.  THE COMPANY AND PURCHASERS HEREBY
WAIVE ALL RIGHTS TO A TRIAL BY JURY.


 


Survival. 
The representations, warranties, agreements and covenants contained
herein shall survive the Closing and the delivery and/or exercise of the
Securities, as applicable.


 


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


 


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


 


Rescission and Withdrawal
Right.  Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Purchaser exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Purchaser
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.


 


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


 


30

















 


Remedies. 
In addition to being entitled to exercise all rights provided herein or
granted by law, including recovery of damages, each of the Purchasers and the
Company will be entitled to specific performance under the Transaction
Documents.  The parties agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and
hereby agree to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate and agree to
waive any requirement that any Purchaser post a bond or other security in
connection with any such proceeding seeking specific performance.


 


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


 


Adjustments in Share
Numbers and Prices.  In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in any Transaction Document to a number of shares or a price per
share shall be amended to appropriately account for such event.


 


Independent Nature of
Purchasers’ Obligations and Rights.  The
obligations of each Purchaser under any Transaction Document are several and
not joint with the obligations of any other Purchaser, and no Purchaser shall
be responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. 
The decision of each Purchaser to purchase Shares pursuant to this
Agreement has been made by such Purchaser independently of any other Purchaser
and independently of any information, materials, statements or opinions as to
the business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or
of the Subsidiary which may have been made or given by any other Purchaser or
by any agent or employee of any other Purchaser, and no Purchaser or any of its
agents or employees shall have any liability to any other Purchaser (or any
other Person) relating to or arising from any such information, materials,
statements or opinions.  Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Document.  Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no other
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment hereunder. 
Each Purchaser shall be entitled to independently protect and enforce
its rights, including without limitation the 


 


31

















 


rights arising out of
this Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser represents that it has been
represented by its own separate legal counsel in its review and negotiations of
this Agreement and the Transaction Documents. 
For reasons of administrative convenience only, the Purchasers acknowledge
and agree that they and their respective counsel have chosen to communicate
with the Company through Proskauer Rose LLP, but Proskauer Rose LLP represents
only Iroquois Capital L.P.


 


[SIGNATURE PAGES TO FOLLOW]


 


32

















 


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


 


	
   

  	
  WELLS-GARDNER ELECTRONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
  Address for Notice:

  
	
   

  	
  9500 West 55th
  Street, Suite A

  
	
   

  	
  McCook, Illinois

  
	
   

  	
  Facsimile No.: (708)
  290-2200

  
	
   

  	
  Telephone No.: (708)
  290-2100

  
	
   

  	
  Attn:  George Toma

  
	
   

  	
   

  
	
  With a copy to:

  	
  Pedersen & Houpt

  
	
   

  	
  161 North Clark Street,
  Suite 3100

  
	
   

  	
  Chicago, IL 60601

  
	
   

  	
  Facsimile No.: (312)
  641-6895

  
	
   

  	
  Telephone No.: (312)
  641-6888

  
	
   

  	
  Attn:  Susan Hermann, Esq.

  



 


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK


SIGNATURE PAGES FOR PURCHASERS FOLLOW]


 


33

















 


	
   

  	
  IROQUOIS CAPITAL L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
  Aggregate Purchase
  Price:

  	
   

  	
   

  
	
   

  	
  Number of Shares:

  	
   

  	
   

  
	
   

  	
  Underlying Shares
  subject to

  
	
   

  	
  Warrants:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
  Iroquois Capital L.P.

  
	
   

  	
  641 Lexington Avenue,
  26th Floor

  
	
   

  	
  New York, NY 10022

  
	
   

  	
   

  
	
   

  	
  Facsimile No.: (212)
  207-3452

  
	
   

  	
  Telephone No.: (212)
  974-3070

  
	
   

  	
  Attn:  Joshua Silverman

  
	
   

  	
   

  
	
   

  	
   

  
	
  With a copy to:

  	
  Proskauer Rose LLP

  
	
   

  	
  1585 Broadway

  
	
   

  	
  New York, New York
  10036-8299

  
	
   

  	
  Facsimile No.:  (212) 969-2900

  
	
   

  	
  Telephone No.:  (212) 969-3000

  
	
   

  	
  Attn:  Adam J. Kansler, Esq.

  
								



 


34

















 


	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
  Aggregate Purchase
  Price:

  	
   

  	
   

  
	
   

  	
  Number of Shares:

  	
   

  	
   

  
	
   

  	
  Underlying Shares
  subject to

  
	
   

  	
  Warrants:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  State of Principal
  Place of Business:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notice:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Facsimile No.:

  	
   

  	
   

  	
   

  
	
   

  	
  Telephone No.:

  	
   

  	
   

  	
   

  
	
   

  	
  Attn:

  	
   

  	
   

  	
   

  
													



 


35

















 


Exhibits:


A             Form of Warrant


B             Opinion of Company Counsel


C             Plan of Distribution


D             Transfer Agent Instructions


 


Schedules:


 


2.2(b)      Wire Transfer Instructions


3.1(a)      Subsidiaries


3.1(f)       Capitalization


3.1(h)      Material Changes


3.1(i)       Litigation


3.1(k)      Title to Assets


3.1(l)       Fees


3.1(m)     Private Placement


3.1(p)      Registration Rights


3.1(t)       Intellectual Property Rights


3.1(u)      Insurance


3.1(w)     Transactions with Affiliates and Employees


4.6           Form of Press Release


6.6           Piggyback Registration


 


36