Document:

exv10w18

 

EXHIBIT 10.18

Description of the RPS Performance Bonus Award Process

     In fiscal years 2006 and 2007, Old RPS and RPS determined and awarded performance
bonuses in the same manner. In each case, the Board of Directors reviewed and approved an annual
budget that included a provision for awarding bonuses to the executive officers based upon
achieving performance targets established by the Board of Directors for each fiscal year.
Depending on whether Old RPS or RPS, as applicable, achieved, exceeded or fell short of the
financial target established by the Board of Directors, the Board of Directors determined, in its
sole discretion, whether an amount equal to or greater or less than the budgeted amount was paid in
performance bonuses. The targets established by the Board of Directors serve as general guidelines
for determining bonuses, but the ultimate determination regarding the performance bonus amount
awarded to individual executive officers is at the discretion of the Board of Directors, taking
into account any contractual provisions in an executive’s employment agreement. During 2006 and
2007, progress towards meeting the financial target was evaluated on a quarterly basis. Each
executive officer was awarded 50% of the bonus that the Board of Directors determined that
executive officer was entitled to receive for the relevant quarter, and the remaining bonus amounts
were paid at the end of the fiscal year.

     The performance target established by the Board of Directors of Old RPS in fiscal year 2006
was an EBITDA target of $3,000,000, for which an aggregate bonus pool of $550,000 was available to
the executive officers of Old RPS. In addition, the Board of Directors had the discretion to
increase the amount available in the bonus pool based on Old RPS exceeding the established EBITDA
target. For example, if EBITDA for 2006 exceeded the established target by up to $150,000, 100% of
such excess could be added to the aggregate amount available for bonuses. Up to 25% of the next
$550,000 in EBITDA could be contributed to the aggregate bonus pool, as well as 15% of any
additional excess EBITDA amounts. The Board of Directors of Old RPS had sole discretion in
determining whether to increase the size of the aggregate bonus pool if the EBITDA target was
exceeded, as well as determining the percentage of the aggregate bonus pool to be paid to
individual executive officers. In determining the amounts to be paid to individual executive
officers, the Board of Directors of Old RPS considered factors including the performance of the
individual executive and the performance of Old RPS as a whole, in addition to the performance
target as measured by EBITDA.

      
The performance target established by the Board of Directors of Old RPS at
the beginning of the 2007 fiscal year, and retained after our merger with
Old RPS, was an EBITDA target of $7.5 million, for which an aggregate bonus
pool of approximately $700,000 was available to the executive officers of
Old RPS and RPS after our merger with Old RPS.  As in fiscal year 2006,
exceeding the EBITDA performance target could result in performance bonuses
exceeding the amounts initially reserved in the aggregate bonus pool, and
falling short of the EBITDA performance target could result in performance
bonuses less than the amount reserved for the aggregate bonus pool.  The Board
of Directors of Old RPS and RPS after our merger with Old RPS had sole discretion
 in determining whether to increase the size of the aggregate bonus pool if the
EBITDA target was exceeded, as well as determining the percentage of the aggregate
bonus pool to be paid to individual executive officers whether the EBITDA target
was achieved, exceeded, or if RPS fell short of the performance target.  Factors
considered by the Board of Directors of Old RPS and RPS after our merger with Old
RPS when determining the amounts to be paid to individual executive officers
included the performance of the individual executive and the performance as a
whole of Old RPS or RPS, as applicable, in addition to the performance target as
measured by EBITDA.

     No executive officer is guaranteed to receive a bonus with the exception that Dr. Koffer’s
bonus was guaranteed for his service in 2006 following his hire in July of 2006.exv10w1

 

Exhibit 10.1

NOTE AND WARRANT PURCHASE

AGREEMENT

Dated as of February 11, 2008

by and among

ECHO THERAPEUTICS, INC.

and

THE PURCHASERS LISTED ON EXHIBIT A

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	NOTE AND WARRANT PURCHASE AGREEMENT
	 	 	1	 
	 
	 	 	 	 
	ARTICLE I PURCHASE AND SALE OF NOTES AND WARRANTS
	 	 	1	 
	Section 1.1 Purchase and Sale of Notes and Warrants
	 	 	1	 
	Section 1.2 Purchase Price and Closing
	 	 	2	 
	Section 1.3 Conversion Shares / Warrant Shares
	 	 	2	 
	 
	 	 	 	 
	ARTICLE II REPRESENTATIONS AND WARRANTIES
	 	 	2	 
	Section 2.1 Representations and Warranties of the Company
	 	 	2	 
	Section 2.2 Representations and Warranties of the Purchasers
	 	 	13	 
	 
	 	 	 	 
	ARTICLE III COVENANTS
	 	 	15	 
	Section 3.1 Securities Compliance
	 	 	15	 
	Section 3.2 Registration and Listing
	 	 	15	 
	Section 3.3 Inspection Rights
	 	 	15	 
	Section 3.4 Compliance with Laws
	 	 	16	 
	Section 3.5 Keeping of Records and Books of Account
	 	 	16	 
	Section 3.6 Reporting Requirements
	 	 	16	 
	Section 3.7 Other Agreements
	 	 	16	 
	Section 3.8 Use of Proceeds
	 	 	16	 
	Section 3.9 Reporting Status
	 	 	17	 
	Section 3.10 Disclosure of Transaction
	 	 	17	 
	Section 3.11 Disclosure of Material Information
	 	 	17	 
	Section 3.12 Pledge of Securities
	 	 	17	 
	Section 3.13 Amendments
	 	 	17	 
	Section 3.14 Distributions
	 	 	17	 
	Section 3.15 Reservation of Shares
	 	 	18	 
	Section 3.16 Transfer Agent Instructions
	 	 	18	 
	Section 3.17 Form SB-2 Eligibility; Opinions
	 	 	18	 
	Section 3.18 Subsequent Financings
	 	 	19	 
	Section 3.19 Variable Rate Securities
	 	 	19	 
	 
	 	 	 	 
	ARTICLE IV CONDITIONS
	 	 	20	 
	Section 4.1  Conditions Precedent to the Obligation of the Company to Close
and to Sell the Securities
	 	 	20	 
	Section 4.2  Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Securities
	 	 	21	 
	 
	 	 	 	 
	ARTICLE V CERTIFICATE LEGEND
	 	 	23	 
	Section 5.1  Legend
	 	 	23	 
	 
	 	 	 	 
	ARTICLE VI INDEMNIFICATION
	 	 	23	 
	Section 6.1 General Indemnity
	 	 	23	 
	Section 6.2  Indemnification Procedure
	 	 	23	 
	 
	 	 	 	 

 

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	Page
	ARTICLE VII MISCELLANEOUS
	 	 	24	 
	Section 7.1 Fees and Expenses
	 	 	24	 
	Section 7.2 Specific Performance; Consent to Jurisdiction; Venue
	 	 	25	 
	Section 7.3 Entire Agreement; Amendment
	 	 	25	 
	Section 7.4 Notices
	 	 	25	 
	Section 7.5 Waivers
	 	 	26	 
	Section 7.6 Headings
	 	 	27	 
	Section 7.7 Successors and Assigns
	 	 	27	 
	Section 7.8 No Third Party Beneficiaries
	 	 	27	 
	Section 7.9 Governing Law
	 	 	27	 
	Section 7.10 Survival
	 	 	27	 
	Section 7.11 Counterparts
	 	 	27	 
	Section 7.12 Publicity
	 	 	27	 
	Section 7.13 Severability
	 	 	27	 
	Section 7.14 Further Assurances
	 	 	28	 
	Section 7.15 Representation of Lead Purchaser
	 	 	28	 

 

 

NOTE AND WARRANT PURCHASE AGREEMENT

     This NOTE AND WARRANT PURCHASE AGREEMENT dated as of February 11, 2008 (this
“Agreement”) by and among Echo Therapeutics, Inc., a Minnesota corporation (the
“Company”), and each of the purchasers of the senior convertible promissory notes of the
Company whose names are set forth on Exhibit A attached hereto (each a “Purchaser”
and collectively, the “Purchasers”).

     WHEREAS, the Company is issuing notes as set forth below to the Purchases in exchange for cash
and/or a Senior Promissory Bridge Note, issued on September 14, 2007, as further set forth below.

     The parties hereto agree as follows:

ARTICLE I

PURCHASE AND SALE OF NOTES AND WARRANTS

          Section 1.1 Purchase and Sale of Notes and Warrants.

          (a) Upon the following terms and conditions, the Company shall issue and sell to the
Purchasers, and the Purchasers shall, severally and not jointly, purchase from the Company, (i) 8%
senior convertible promissory notes in the aggregate principal amount of $2,292,459.00, convertible
into shares of the Company’s common shares, par value $0.01 per share (the “Common Stock”),
in substantially the form attached hereto as Exhibit B (the “Notes”). The Company
and the Purchasers are executing and delivering this Agreement in accordance with and in reliance
upon the exemption from securities registration afforded by Section 4(2) of the U.S. Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities
Act”), including Regulation D (“Regulation D”), and/or upon such other exemption from
the registration requirements of the Securities Act as may be available with respect to any or all
of the investments to be made hereunder. The Company acknowledges that a portion of the Purchase
Price (as defined below) shall be paid by certain Purchasers surrendering for cancellation certain
bridge notes (the “Bridge Notes”) issued by the Company to such Purchasers. Each Purchaser
that applies the principal amount and interest outstanding on the Bridge Notes to purchase the
Notes shall receive Notes in an amount equal to one hundred twenty percent (120%) of the principal
amount plus accrued and unpaid interest of such Bridge Note.

          (b) Upon the following terms and conditions, the Purchasers shall be issued Warrants, in
substantially the form attached hereto as Exhibit C (the “Warrants”), to purchase a
number of shares of Common Stock equal to fifty percent (50%) of the number of Conversion Shares
issuable upon conversion of such Purchaser’s Note at an exercise price per share equal to the
Warrant Price (as defined in the Warrants) for a term of five (5) years following the Closing Date.

 

 

          Section 1.2 Purchase Price and Closing. Subject to the terms and conditions hereof,
the Company agrees to issue and sell to the Purchasers and, in consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase the Notes and Warrants for an
aggregate purchase price equal to the aggregate amount set forth in Exhibit A (the
“Purchase Price”). The closing under this Agreement (the “Closing”) shall take
place on or before February 11, 2008 (the “Closing Date”). The closing of the purchase and
sale of the Notes and Warrants to be acquired by the Purchasers from the Company under this
Agreement shall take place at the offices of Platinum Long Term Growth VII, LLC (the “Lead
Purchaser”), 152 West 57th Street, 54th Floor, New York, 10:00 a.m. New
York time; provided, that all of the conditions set forth in Article IV hereof and
applicable to the Closing shall have been fulfilled or waived in accordance herewith. Subject to
the terms and conditions of this Agreement, at the Closing, upon payment of the Purchase Price, the
Company shall deliver or cause to be delivered to each Purchaser (x) Notes for the principal amount
set forth opposite the name of such Purchaser on Exhibit A hereto and (y) Warrants to
purchase such number of shares of Common Stock as is set forth opposite the name of such Purchaser
on Exhibit A attached hereto. At the Closing, each Purchaser shall deliver its Purchase
Price.

          Section 1.3 Conversion Shares / Warrant Shares. The Company, as of the date hereof,
has authorized and has reserved, free and clear of preemptive rights and other similar contractual
rights and other liens and encumbrances, a number of its authorized but unissued shares of Common
Stock equal to one hundred percent (100%) of the aggregate number of shares of Common Stock
issuable upon exercise or conversion of the Securities to effect the conversion of the Notes and
other charges accrued and outstanding thereon and exercise of the Warrants, assuming no adjustment
to the number of shares underlying the Notes and Warrants, and excluding shares of Common Stock
that may from time to time be issued as Interest on the Notes and the PIK Notes (as defined in the
Notes). Any shares of Common Stock issuable upon conversion of the Notes and any interest accrued
and outstanding on the Notes are herein referred to as the “Conversion Shares”. Any shares
of Common Stock issuable upon exercise of the Warrants (and such shares when issued) are herein
referred to as the “Warrant Shares”. The Notes, the Warrants, the Conversion Shares and
the Warrant Shares are sometimes collectively referred to herein as the “Securities”.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

          Section 2.1 Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers, as of the date hereof and the Closing Date (except as
set forth on the Schedule of Exceptions attached hereto with each numbered Schedule corresponding
to the section number herein), as follows:

          (a) Organization, Good Standing and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State of Minnesota and
has the requisite corporate power to own, lease and operate its properties and assets and to
conduct its business as it is now being conducted. The Company does not have any direct or

2

 

indirect Subsidiaries (as defined in Section 2.1(g)) or own securities of any kind in any other
entity except as set forth on Schedule 2.1(g) hereto. The Company and each such Subsidiary
(as defined in Section 2.1(g)) is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary except for any jurisdiction(s) (alone or in the aggregate)
in which the failure to be so qualified will not have a Material Adverse Effect. For the purposes
of this Agreement, “Material Adverse Effect” means any material adverse effect on the
business, operations, properties, prospects, or financial condition of the Company and its
Subsidiaries and/or any condition, circumstance, or situation that would prohibit or otherwise
materially interfere with the ability of the Company to perform any of its obligations under this
Agreement or any of the Transaction Documents in any material respect.

          (b) Authorization; Enforcement. The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Notes, the Warrants, the Officer’s
Certificate to be delivered by the Company, dated as of the Closing Date, substantially in the form
of Exhibit E attached hereto (the “Officer’s Certificate”) and the Irrevocable
Transfer Agent Instructions (as defined in Section 3.16 hereof) (collectively, the “Company
Transaction Documents”) and to issue and sell the Securities in accordance with the terms
hereof. The execution, delivery and performance of the Company Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action, and, except as set forth on Schedule
2.1(b), no further consent or authorization of the Company, its Board of Directors or
stockholders is required. When executed and delivered by the Company, each of the Company
Transaction Documents shall constitute a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor’s rights and remedies
or by other equitable principles of general application. The Subsidiaries have the requisite
corporate power and authority to enter into and perform the Guaranty, substantially in the form of
Exhibit F attached hereto (the “Guaranty” and, together with the Company Transaction
Documents, the “Transaction Documents”). The execution, delivery and performance of the
Guaranty by the Subsidiaries and the consummation by each of them of the transactions contemplated
thereby have been duly and validly authorized by all necessary corporate action, and, except as set
forth on Schedule 2.1(b), no further consent or authorization is required. When executed and
delivered by the Subsidiaries, the Guaranty is a valid and binding obligation of each of the
Subsidiaries enforceable against each of the Subsidiaries in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization, moratorium,
liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the
enforcement of, creditor’s rights and remedies or by other equitable principles of general
application.

          (c) Capitalization. The authorized capital stock and the issued and outstanding
shares of capital stock of the Company as of the Closing Date is set forth on Schedule
2.1(c) hereto. All of the outstanding shares of the Common Stock and any other outstanding
security of the Company have been duly and validly authorized. Except as set forth in this
Agreement, the Commission Documents (as defined in Section 2.1(f)) or as set forth on Schedule
2.1(c) hereto, no shares of Common Stock or any other security of the Company are

3

 

entitled to
preemptive rights or registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set
forth in this Agreement and as set forth on Schedule 2.1(c) hereto, there are no contracts,
commitments, understandings, or arrangements by which the Company is or may become bound to issue
additional shares of the capital stock of the Company or options, securities or rights convertible
into shares of capital stock of the Company. Except for customary transfer restrictions contained
in agreements entered into by the Company in order to sell restricted securities or as provided on
Schedule 2.1(c) hereto, the Company is not a party to or bound by any agreement or
understanding granting registration or anti-dilution rights to any person with respect to any of
its equity or debt securities. Except as set forth on Schedule 2.1(c), the Company is not
a party to, and it has no knowledge of, any agreement or understanding restricting the voting or
transfer of any shares of the capital stock of the Company.

          (d) Issuance of Securities. The Notes and the Warrants to be issued at the Closing
have been duly authorized by all necessary corporate action and, when paid for or issued in
accordance with the terms hereof, the Notes shall be validly issued and outstanding, free and clear
of all liens, encumbrances and rights of refusal of any kind. When the Conversion Shares and
Warrant Shares are issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, free and clear of all
liens, encumbrances and rights of refusal of any kind and the holders shall be entitled to all
rights accorded to a holder of Common Stock.

          (e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the Subsidiaries, the consummation by the Company and the Subsidiaries
of the transactions contemplated hereby and thereby, and the issuance of the Securities as
contemplated hereby, do not and will not (i) violate or conflict with any provision of the
Company’s Articles of Incorporation (the “Articles”) or Bylaws (the “Bylaws”), each
as amended to date, or any Subsidiary’s comparable charter documents, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease
agreement, instrument or obligation to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries’ respective properties or assets are bound, (iii)
result in a violation of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations) applicable to the
Company or any of its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries are bound or affected, or (iv) create or impose a lien, mortgage, security interest,
charge or encumbrance of any nature on any property or asset of the Company or its
Subsidiaries under any agreement or any commitment to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound or by which any of their
respective properties or assets are bound, except, in all cases, for such conflicts, defaults,
terminations, amendments, acceleration, cancellations and violations as would not, individually or
in the aggregate, have a Material Adverse Effect (other than violations pursuant to clauses (i) or
(iii)). Neither the Company nor any of its Subsidiaries is required under federal, state, foreign
or local law, rule or regulation to obtain any consent, authorization or order of, or make any

4

 

filing or registration with, any court or governmental agency in order for it to execute, deliver
or perform any of its obligations under the Transaction Documents or issue and sell the Securities
in accordance with the terms hereof and the terms of the Notes and the Warrants (other than any
filings, consents and approvals which may be required to be made by the Company under applicable
state and federal securities laws, rules or regulations). The business of the Company and its
Subsidiaries is not being conducted in violation of any laws, ordinances or regulations of any
governmental entity.

          (f) Commission Documents, Financial Statements. The Common Stock of the Company is
registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission pursuant to the
reporting requirements of the Exchange Act (all of the foregoing including filings incorporated by
reference therein being referred to herein as the “Commission Documents”). At the times of
their respective filings, the Form 10-QSB for the fiscal quarters ended September 30, 2007, June
30, 2007 and March 31, 2007 (collectively, the “Form 10-QSB”) and the Form 10-KSB for the
fiscal year ended December 31, 2006 (the “Form 10-KSB”) complied in all material respects
with the requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder and other federal, state and local laws, rules and regulations applicable to
such documents, and the Form 10-QSB and Form 10-KSB did not 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 were made, not
misleading. As of their respective dates, the financial statements of the Company included in the
Commission Documents complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other applicable rules
and regulations with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles (“GAAP”) applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present in all material
respects the financial position of the Company and its Subsidiaries as of the dates thereof and the
results of operations and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).

          (g) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary of the
Company, showing the jurisdiction of its incorporation or organization and showing the
percentage of each person’s ownership of the outstanding stock or other interests of such
Subsidiary. For the purposes of this Agreement, “Subsidiary” shall mean any corporation or
other entity of which at least a majority of the securities or other ownership interest having
ordinary voting power (absolutely or contingently) for the election of directors or other persons
performing similar functions are at the time owned directly or indirectly by the Company and/or any
of its other Subsidiaries. All of the outstanding shares of capital stock of each Subsidiary have
been duly authorized and validly issued, and are fully paid and nonassessable. Except as set forth
on Schedule 2.1(g) hereto, there are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any Subsidiary for the
purchase or acquisition of any shares of capital stock of any Subsidiary or any other

5

 

securities
convertible into, exchangeable for or evidencing the rights to subscribe for any shares of such
capital stock. Neither the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any
Subsidiary or any convertible securities, rights, warrants or options of the type described in the
preceding sentence except as set forth on Schedule 2.1(g) hereto. Neither the Company nor
any Subsidiary is party to, nor has any knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of any Subsidiary.

          (h) No Material Adverse Change. Since September 30, 2007, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed on Schedule 2.1(h)
hereto.

          (i) No Undisclosed Liabilities. Except as disclosed on Schedule 2.1(i)
hereto, neither the Company nor any of its Subsidiaries has incurred any liabilities, obligations,
claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) other than those incurred in the ordinary course of the Company’s or its
Subsidiaries respective businesses or which, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect.

          (j) No Undisclosed Events or Circumstances. Since September 30, 2007, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or exists with
respect to the Company or its Subsidiaries or their respective businesses, properties, prospects,
operations or financial condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly announced or
disclosed.

          (k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the date hereof all
outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness”
shall mean (a) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than
trade accounts payable incurred in the ordinary course of business), (b) all guaranties,
endorsements and other contingent obligations in respect of Indebtedness of others, whether or not
the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of any lease
payments in excess of $100,000 due under leases required to be capitalized in accordance with
GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

          (l) Title to Assets. Each of the Company and the Subsidiaries has good and valid
title to all of its real and personal property reflected in the Commission Documents, free and
clear of any mortgages, pledges, charges, liens, security interests or other encumbrances, except
for those indicated on Schedule 2.1(l) hereto or such that, individually or in the
aggregate, do not cause a Material Adverse Effect. Any leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.

          (m) Actions Pending. There is no action, suit, claim, investigation, arbitration,
alternate dispute resolution proceeding or other proceeding pending or, to the knowledge of the

6

 

Company, threatened against the Company or any Subsidiary which questions the validity of this
Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby
or thereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in
the Commission Documents or on Schedule 2.1(m) hereto, there is no action, suit, claim,
investigation, arbitration, alternate dispute resolution proceeding or other proceeding pending or,
to the knowledge of the Company, threatened against or involving the Company, any Subsidiary or any
of their respective properties or assets, which individually or in the aggregate, would reasonably
be expected, if adversely determined, to have a Material Adverse Effect. There are no outstanding
orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or directors of the Company
or Subsidiary in their capacities as such, which individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.

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

          (o) Taxes. The Company and each of the Subsidiaries has accurately prepared and filed
all federal, state and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional assessments, and
adequate provisions have been and are reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the Company or any Subsidiary is
subject and which are not currently due and payable. Except as disclosed on Schedule
2.1(o) hereto or in the Commission Documents, to the best of the Company’s knowledge, none of
the federal income tax returns of the Company or any Subsidiary have been audited by the Internal
Revenue Service. The Company has no knowledge of any additional assessments, adjustments or
contingent tax liability (whether federal or state) of any nature whatsoever, whether pending
or threatened against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.

          (p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the Company
has not employed any broker or finder or incurred any liability for any brokerage or investment
banking fees, commissions, finders’ structuring fees, financial advisory fees or other similar fees
in connection with the Transaction Documents.

          (q) Disclosure. Except for the transactions contemplated by this Agreement, 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. Neither this Agreement or the Schedules hereto nor any other
documents, certificates or instruments furnished to the Purchasers by or on behalf of

7

 

the Company
or any Subsidiary in connection with the transactions contemplated by this Agreement contain any
untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements made herein or therein, in the light of the circumstances under which they were made
herein or therein, not misleading.

          (r) Operation of Business. Except as set forth on Schedule 2.1(r) hereto, the
Company and each of the Subsidiaries owns or possesses the rights to all patents, trademarks,
domain names (whether or not registered) and any patentable improvements or copyrightable
derivative works thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations which are necessary for the conduct of
its business as now conducted without any conflict with the rights of others.

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

          (t) Books and Records; Internal Accounting Controls. The records and documents of the
Company and its Subsidiaries accurately reflect in all material respects the information relating
to the business of the Company and the Subsidiaries, the location and collection of their assets,
and the nature of all transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company is in material compliance with all provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and its
subsidiary 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

8

 

permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company
and designed such disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Commission’s rules and
forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by the Company’s most
recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).
The Company presented in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there
have been no changes in the Company’s internal control over financial reporting (as such term is
defined in the Exchange Act) that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.

          (u) Material Agreements. Except as disclosed in the Commission Documents or as set
forth on Schedule 2.1(u) hereto, or as would not be reasonably likely to have a Material
Adverse Effect, (i) the Company and each of its Subsidiaries have performed all obligations
required to be performed by them to date under any written or oral contract, instrument, agreement,
commitment, obligation, plan or arrangement, filed or required to be filed with the Commission (the
“Material Agreements”), (ii) neither the Company nor any of its Subsidiaries has received
any notice of default under any Material Agreement and, (iii) to the best of the Company’s
knowledge, neither the Company nor any of its Subsidiaries is in default under any Material
Agreement now in effect.

          (v) Transactions with Affiliates. Except as set forth on Schedule 2.1(v)
hereto or in the Commission Documents or as contemplated by this Agreement, there are no loans,
leases, agreements, contracts, royalty agreements, management contracts or arrangements or
other continuing transactions between (a) the Company, any Subsidiary or any of their respective
customers or suppliers on the one hand, and (b) on the other hand, any officer, employee,
consultant or director of the Company, or any of its Subsidiaries, or any person owning at least
five percent (5%) of the outstanding capital stock of the Company or any Subsidiary or any member
of the immediate family of such officer, employee, consultant, director or stockholder or any
corporation or other entity controlled by such officer, employee, consultant, director or
stockholder, or a member of the immediate family of such officer, employee, consultant, director or
stockholder which, in each case, is required to be disclosed in the Commission Documents or in the
Company’s most recently filed definitive proxy statement on Schedule 14A, that is not so disclosed
in the Commission Documents or in such proxy statement.

          (w) Securities Act of 1933. The Company has complied and will comply with all
applicable federal and state securities laws in connection with the offer, issuance and sale of the
Securities hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly,
has or will sell, offer to sell or solicit offers to buy any of the Securities or similar

9

 

securities to, or solicit offers with respect thereto from, or enter into any negotiations relating
thereto with, any person, or has taken or will take any action so as to bring the issuance and sale
of any of the Securities under the registration provisions of the Securities Act and applicable
state securities laws, and neither the Company nor any of its affiliates, nor any person acting on
its or their behalf, has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the Securities Act) in connection with the offer or sale of any
of the Securities.

          (x) Employees. Neither the Company nor any Subsidiary has any collective bargaining
arrangements or agreements covering any of its employees, except as set forth on Schedule
2.1(x) hereto. Except as set forth on Schedule 2.1(x) hereto or in the Commission
Documents, neither the Company nor any Subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement, confidentiality
agreement, or any other similar contract or restrictive covenant, relating to the right of any
officer, employee or consultant to be employed or engaged by the Company or such Subsidiary
required to be disclosed in the Commission Documents that is not so disclosed. No officer,
consultant or key employee of the Company or any Subsidiary whose termination, either individually
or in the aggregate, would be reasonably likely to have a Material Adverse Effect, has terminated
or, to the knowledge of the Company, has any present intention of terminating his or her employment
or engagement with the Company or any Subsidiary.

          (y) Absence of Certain Developments. Except as set forth in the Commission Documents
or provided on Schedule 2.1(y) hereto, since September 30, 2007, neither the Company nor
any Subsidiary has:

               (i) issued any stock, bonds or other corporate securities or any right, options or warrants
with respect thereto;

               (ii) borrowed any amount in excess of $100,000 or incurred or become subject to any other
liabilities in excess of $100,000 (absolute or contingent) except current
liabilities incurred in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the current nature and volume of the
business of the Company and its Subsidiaries;

               (iii) discharged or satisfied any lien or encumbrance in excess of $100,000 or paid any
obligation or liability (absolute or contingent) in excess of $100,000, other than current
liabilities paid in the ordinary course of business;

               (iv) declared or made any payment or distribution of cash or other property to stockholders
with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or
redeem, any shares of its capital stock, in each case in excess of $50,000 individually or $100,000
in the aggregate;

               (v) sold, assigned or transferred any other tangible assets, or canceled any debts or claims,
in each case in excess of $100,000, except in the ordinary course of business;

10

 

               (vi) sold, assigned or transferred any patent rights, trademarks, trade names, copyrights,
trade secrets or other intangible assets or intellectual property rights in excess of $100,000, or
disclosed any proprietary confidential information to any person except to customers in the
ordinary course of business or to the Purchasers or their representatives;

               (vii) suffered any material losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of prospective
business;

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

               (ix) made capital expenditures or commitments therefor that aggregate in excess of $100,000;

               (x) entered into any material transaction, whether or not in the ordinary course of business;

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

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

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

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

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

          (aa) ERISA. No liability to the Pension Benefit Guaranty Corporation has been
incurred with respect to any Plan by the Company or any of its Subsidiaries which is or would be
materially adverse to the Company and its Subsidiaries. The execution and delivery of this
Agreement and the issuance and sale of the Securities will not involve any transaction which is
subject to the prohibitions of Section 406 of the Employee Retirement Income Security Act of 1974,
as amended (“ERISA”) or in connection with which a tax could be imposed pursuant to Section 4975 of
the Internal Revenue Code of 1986, as amended, provided that, if any of the Purchasers, or any
person or entity that owns a beneficial interest in any of the Purchasers, is an
“employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) with respect to
which the Company is a “party in interest” (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met. As used in this
Section 2.1(aa), the term “Plan” shall mean an “employee pension benefit plan” (as defined in

11

 

Section 3 of ERISA) which is or has been established or maintained, or to which contributions are
or have been made, by the Company or any Subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any Subsidiary, is under common control, as
described in Section 414(b) or (c) of the Code.

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

          (cc) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that would cause the
offering of the Securities pursuant to this Agreement to be integrated with prior offerings by the
Company for purposes of the Securities Act which would prevent the Company from selling the
Securities pursuant to Regulation D and
Rule 506 thereof under the Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will the Company or any of its affiliates or subsidiaries take any action
or steps that would cause the offering of the Securities to be integrated with other offerings.
The Company does not have any registration statement pending before the Commission or currently
under the Commission’s review and except as set

12

 

forth on Schedule 2.1(cc) hereto, since
January 1, 2007, the Company has not offered or sold any of its equity securities or debt
securities convertible into shares of Common Stock.

          (dd) [Reserved].

          (ee) DTC Status. Except as set forth on Schedule 2.1(ee) hereto, the
Company’s transfer agent is a participant in and the Common Stock is eligible for transfer pursuant
to the Depository Trust Company Automated Securities Transfer Program. The name, address,
telephone number, fax number, contact person and email of the Company transfer agent is set forth
on Schedule 2.1(ee) hereto.

          Section 2.2 Representations and Warranties of the Purchasers. Each of the Purchasers
hereby represents, warrants and covenants to the Company with respect solely to itself and not with
respect to any other Purchaser as follows as of the date hereof and as of the Closing Date:

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

          (b) Authorization and Power. Each Purchaser has the requisite power and authority to
enter into and perform the Transaction Documents and to purchase the Securities being sold to it
hereunder. The execution, delivery and performance of the Transaction Documents by each Purchaser
and the consummation by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or authorization of such
Purchaser or its Board of Directors, stockholders, members, or partners, as the case may be, is
required. When executed and delivered by the Purchasers, the other Transaction Documents shall
constitute valid and binding obligations of each Purchaser enforceable against such Purchaser in
accordance with their terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws
relating to, or affecting generally the enforcement of, creditor’s rights and remedies or by other
equitable principles of general application.

          (c) Acquisition for Investment. Each Purchaser is purchasing the Securities solely
for its own account and not with a view to or for sale in connection with distribution. Each
Purchaser does not have a present intention to sell any of the Securities, nor a present
arrangement (whether or not legally binding) or intention to effect any distribution of any of the
Securities to or through any person or entity; provided, however, that by making
the representations herein, such Purchaser does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the Securities at any time in accordance
with Federal and state securities laws applicable to such disposition. Each Purchaser
acknowledges that it (i) has such knowledge and experience in financial and business matters
such that Purchaser is capable of evaluating the merits and risks of Purchaser’s investment in the
Company, (ii) is able to bear the financial risks associated with an investment in the Securities
and (iii) has been given full access to such records of the Company and the Subsidiaries and to

13

 

the
officers of the Company and the Subsidiaries as it has deemed necessary or appropriate to conduct
its due diligence investigation.

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

          (e) General. Each Purchaser understands that the Securities are being offered and
sold in reliance on a transactional exemption from the registration requirements of federal and
state securities laws and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United States federal or
state agency or any government or governmental agency has passed upon or made any recommendation or
endorsement of the Securities. Commencing on the date that the Purchasers were initially contacted
regarding an investment in the Securities, none of the Purchasers has engaged in any short sale of
the Common Stock and will not engage (or instruct any third party to engage on the Purchaser’s
behalf) in any short sale of the Common Stock prior to Closing hereunder. Each Purchaser
covenants and agrees that (i) it will comply with its internal policies and procedures regarding
short sales of securities registered under the Exchange Act, (ii) it will not engage in any short
sale of the Common Stock until after the public announcement of the Closing hereunder, and (iii) it
will not be in a “net short” position with respect to the shares of Common Stock for so long as the
Notes held by such Purchaser are outstanding. For purposes of this Section 2.2(e), a “net short
position” means a sale of Common Stock by a Purchaser that is marked as a short sale and that is
made at a time when there is no equivalent offsetting long position in Common Stock (or securities
convertible or exchangeable into Common Stock) held by such Purchaser.

          (f) No General Solicitation. Each Purchaser acknowledges that the Securities were not
offered to such Purchaser by means of any form of general or public solicitation or general
advertising, or publicly disseminated advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published in any newspaper, magazine, or
similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which such
Purchaser was invited by any of the foregoing means of communications. Each Purchaser, in making
the decision to purchase the Securities, has relied upon independent investigation made by it and
has not relied on any information or representations made by third parties.

          (g) Accredited Investor. Each Purchaser is an “accredited investor” (as defined in
Rule 501 of Regulation D), and such Purchaser has such experience in business and financial matters
that it is capable of evaluating the merits and risks of an investment in the Securities. Such
Purchaser is not required to be registered as a broker-dealer under Section 15 of

14

 

the Exchange Act
and such Purchaser is not a broker-dealer. Each Purchaser acknowledges that an investment in the
Securities is speculative and involves a high degree of risk.

          (h) Independent Investment. No Purchaser has agreed to act with any other Purchaser
for the purpose of acquiring, holding, voting or disposing of the Securities purchased hereunder
for purposes of Section 13(d) under the Exchange Act, and each Purchaser is acting independently
with respect to its investment in the Securities.

          (i) Bridge Notes. If the Purchaser surrenders for cancellation any Bridge Notes as
all or a portion of such Purchaser’s Purchase Price, such Purchaser represents and warrants to the
Company that such Purchaser is the sole payee of any such Bridge Notes and that such Purchaser has
not assigned or otherwise transferred all or any portion of such Purchaser’s rights under any such
Bridge Notes to any third parties.

ARTICLE III

COVENANTS

     The Company covenants with each Purchaser as follows, which covenants are for the benefit of
each Purchaser and their respective permitted assignees.

          Section 3.1 Securities Compliance. The Company shall notify the Commission in
accordance with its rules and regulations, of the transactions contemplated by any of the
Transaction Documents and shall take all other necessary action and proceedings as may be required
and permitted by applicable law, rule and regulation, for the legal and valid issuance of the
Securities to the Purchasers, or their respective subsequent holders.

          Section 3.2 Registration and Listing. The Company shall cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, to comply in all
respects with its reporting and filing obligations under the Exchange Act and to not take any
action or file any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to terminate or suspend its
reporting and filing obligations under the Exchange Act, except as permitted herein. The Company
will take all action necessary to continue the listing or trading of its Common Stock on the OTC
Bulletin Board or other exchange or market on which the Common Stock is trading. If required, the
Company will promptly file the “Listing Application” for, or in connection with, the issuance and
delivery of the Conversion Shares and the Warrant Shares. Subject to the terms of the Transaction
Documents, the Company further covenants that it will take such further action as the Purchasers
may reasonably request, all to the extent required from time to time to enable the Purchasers to
sell the Securities without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act. Upon the request of the
Purchasers, the Company shall deliver to the Purchasers a written certification of a duly
authorized officer as to whether it has complied with such requirements.

          Section 3.3 Inspection Rights. Provided same would not be in violation of Regulation
FD, the Company shall permit, during normal business hours and upon reasonable request and
reasonable notice, each Purchaser or any employees, agents or representatives

15

 

thereof, so long as
such Purchaser shall be obligated hereunder to purchase the Notes or shall beneficially own any
Conversion Shares or Warrant Shares, for purposes reasonably related to such Purchaser’s interests
as a stockholder, to examine the publicly available, non-confidential records and books of account
of, and visit and inspect the properties, assets, operations and business of the Company and any
Subsidiary, and to discuss the publicly available, non-confidential affairs, finances and accounts
of the Company and any Subsidiary with any of its officers, consultants, directors, and key
employees.

          Section 3.4 Compliance with Laws. The Company shall comply, and cause each Subsidiary
to comply, with all applicable laws, rules, regulations and orders, noncompliance with which would
be reasonably likely to have a Material Adverse Effect.

          Section 3.5 Keeping of Records and Books of Account. The Company shall keep and cause
each Subsidiary to keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial transactions of the
Company and its Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made.

          Section 3.6 Reporting Requirements. If the Company ceases to file its periodic
reports with the Commission, or if the Commission ceases making these periodic reports available
via the Internet without charge, then the Company shall furnish the following to each Purchaser so
long as such Purchaser shall be obligated hereunder to purchase the Securities or shall
beneficially own Notes:

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

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

          (c) Copies of all notices, information and proxy statements in connection with any meetings,
that are, in each case, provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.

          Section 3.7 Other Agreements. The Company shall not enter into any agreement in which
the terms of such agreement would restrict or impair the right or ability to perform of the Company
or any Subsidiary under any Transaction Document.

          Section 3.8 Use of Proceeds. The proceeds from the sale of the Securities hereunder
shall be used by the Company for working capital and general corporate purposes, and not to redeem
any Common Stock or securities convertible, exercisable or exchangeable into Common Stock or to
settle any outstanding litigation.

16

 

          Section 3.9 Reporting Status. So long as a Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with the Commission
pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.

          Section 3.10 Disclosure of Transaction. The Company shall issue a press release
describing the material terms of the transactions contemplated hereby (the “Press Release”)
on the next Trading Day immediately following the Closing Date. The Company shall also file with
the Commission a Current Report on Form 8-K (the “Form 8-K”) describing the material terms
of the transactions contemplated hereby (and attaching as exhibits thereto this Agreement, the form
of Note, the form of Warrant and the Press Release) as soon as practicable following the Closing
Date but in no event more than four (4) Trading Days following the Closing Date, which Press
Release and Form 8-K shall be subject to prior review and comment by the Purchasers. “Trading
Day” means any day during which the principal exchange on which the Common Stock is traded
shall be open for trading.

          Section 3.11 Disclosure of Material Information. The Company covenants and agrees
that neither it nor any other person acting on its behalf has provided or will provide any
Purchaser or its agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations in effecting
transactions in securities of the Company.

          Section 3.12 Pledge of Securities. The Company acknowledges that the Securities may
be pledged by a Purchaser in connection with a bona fide margin agreement or other
loan or financing arrangement that is secured by the Securities. The pledge of Securities shall
not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Purchaser
effecting a pledge of the Securities shall be required to provide the Company with any notice
thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other
Transaction Document; provided that a Purchaser and its pledgee shall be required to comply with
the provisions of Article V hereof in order to effect a sale, transfer or assignment of Securities
to such pledgee. At the Purchasers’ expense, the Company hereby agrees to execute and deliver such
documentation as a pledgee of the Securities may reasonably request in connection with a pledge of
the Securities to such pledgee by a Purchaser.

          Section 3.13 Amendments. The Company shall not amend or waive any provision of the
Articles or Bylaws of the Company in any way that would adversely affect exercise rights, voting
rights, conversion rights, prepayment rights or redemption rights of the holder of the Notes or the
Warrants.

          Section 3.14 Distributions. Except as set forth on Schedule 3.14, so long as
any Notes or Warrants remain outstanding, the Company agrees that it shall not, and shall not
permit any Subsidiary to, (i) declare or pay any dividends or make any distributions to any
holder(s) of Common Stock (or security convertible into or exercisable for Common Stock) or (ii)
purchase

17

 

or otherwise acquire for value, directly or indirectly, any Common Stock or other equity
security of the Company.

          Section 3.15 Reservation of Shares. So long as any of the Notes or Warrants remain
outstanding, the Company shall take all action necessary to have authorized and reserved for the
purpose of issuance, one hundred percent (100%) of the aggregate number of shares of Common Stock
needed to provide for the issuance of (a) shares of Common Stock issuable upon conversion of the
Notes, and (b) the Warrant Shares.

          Section 3.16 Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Purchaser or its respective nominee(s), for the Conversion Shares
and the Warrant Shares in such amounts as specified from time to time by each Purchaser to the
Company upon conversion of the Notes or exercise of the Warrants in the form of Exhibit G
attached hereto (the “Irrevocable Transfer Agent Instructions”). Prior to registration of
the Conversion Shares and the Warrant Shares under the Securities Act, all such certificates shall
bear the restrictive legend specified in Section 5.1 of this Agreement. The Company warrants that
no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section
3.16 will be given by the Company to its transfer agent and that the Conversion Shares and Warrant
Shares shall otherwise be freely transferable on the books and records of the Company as and to the
extent provided in this Agreement. Nothing in this Section 3.16 shall affect in any way each
Purchaser’s obligations and agreements set forth in Section 5.1 to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Conversion Shares and the Warrant
Shares. If a Purchaser provides the Company with an opinion of counsel, in a generally acceptable
form, to the effect that a public sale, assignment or transfer of the Conversion Shares or Warrant
Shares may be made without registration under the Securities Act or the Purchaser provides the
Company with reasonable assurances that the Conversion Shares or Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold, the Company shall permit the transfer, and, in
the case of the Conversion Shares and the Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.16 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 3.16 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the provisions of this
Section 3.16, that the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other security being
required.

          Section 3.17 Opinions. The Company will provide, at the Company’s expense, such legal
opinions in the future as are reasonably necessary for the issuance and resale of the
Common Stock issuable upon conversion of the Notes and exercise of the Warrants pursuant to an
effective registration statement, Rule 144 under the Securities Act or another exemption from
registration. In the event that Common Stock is sold in a manner that complies with an exemption
from registration, the Company will promptly instruct its counsel (at its expense) to

18

 

issue to the
transfer agent an opinion permitting removal of the legend (indefinitely, if permitted pursuant to
Rule 144 of the Securities Act, or otherwise to permit sale of the shares pursuant to Rule 144 of
the Securities Act).

          Section 3.18 Subsequent Financings.

          (a) For so long as the Notes remain outstanding, the Company covenants and agrees to promptly
notify (in no event later than five (5) days after making or receiving an applicable offer) in
writing (a “Rights Notice”) the Purchasers of the terms and conditions of any proposed
offer or sale to, or exchange with (or other type of distribution to) any third party (a
“Subsequent Financing”), of Common Stock or any securities convertible, exercisable or
exchangeable into Common Stock, including convertible debt securities (collectively, the
“Financing Securities”). The Rights Notice shall describe, in reasonable detail, the
proposed Subsequent Financing (including all material terms and conditions and a description of any
obligation to issue additional securities to any party to such Subsequent Financing as a result of
an automatic reset or adjustment of a purchase or conversion price or number of securities issuable
at any time after the completion of such financing), the names and investment amounts of all
investors participating in the Subsequent Financing, the proposed closing date of the Subsequent
Financing, which shall be within twenty (20) calendar days from the date of the Rights Notice, and
all of the terms and conditions thereof and proposed definitive documentation to be entered into in
connection therewith. The Rights Notice shall provide each Purchaser an option (the “Rights
Option”) during the five (5) Trading Days following delivery of the Rights Notice (the
“Option Period”) to inform the Company whether such Purchaser will purchase securities in
such Subsequent Financing equal to up to twenty five percent (25%) of the principal amount of the
Notes issued to such Purchaser hereunder, up to its pro rata portion of the securities being
offered in such Subsequent Financing on the same, absolute terms and conditions as contemplated by
such Subsequent Financing. If any Purchaser elects not to participate in such Subsequent
Financing, the remaining Purchasers may participate on a pro-rata basis so long as such
participation in the aggregate does not exceed twenty five percent (25%) of the total Purchase
Price hereunder. For purposes of this Section, all references to “pro rata” means, for any
Purchaser electing to participate in such Subsequent Financing, the percentage obtained by dividing
(x) the principal amount of the Notes purchased by such Purchaser at the Closing by (y) the total
principal amount of all of the Notes purchased by all of the participating Purchasers at the
Closing. If the Company does not receive notice of exercise of the Rights Option from the
Purchasers within the Option Period, the Company shall have the right to close the Subsequent
Financing on the scheduled closing date with a third party; provided that all of the
material terms and conditions of the closing are substantially the same as those provided to the
Purchasers in the Rights Notice. If the closing of the proposed Subsequent Financing does not
occur on that date, any closing of the contemplated Subsequent Financing or any other Subsequent
Financing shall be subject to all of the provisions of this Section 3.18(a), including, without
limitation, the delivery of a new Rights Notice. The provisions of this Section 3.18(a) shall not
apply to issuances of securities in a Permitted Issuance (as defined in the Notes as of the date
hereof).

          Section 3.19 Variable Rate Securities. For so long as any Notes have not been paid in
full or converted in full, notwithstanding whether or not an issuance of securities is a Permitted
Issuance, the Company shall not issue or sell, or agree to issue or sell Variable Equity

19

 

Securities
(as defined below) (the “Variable Equity Securities Lock-Up”), without obtaining the prior
written approval of the holders of at least fifty percent (50%) of the aggregate principal amount
of the Notes then outstanding. For purposes hereof, the following shall be collectively referred
to herein as, the “Variable Equity Securities”: (A) any debt or equity securities which are
convertible into, exercisable or exchangeable for, or carry the right to receive additional shares
of Common Stock either (1) at any conversion, exercise or exchange rate or other price that is
based upon and/or varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security, or (2) with a fixed conversion,
exercise or exchange price that is subject to being reset at some future date at any time after the
initial issuance of such debt or equity security due to a change in the market price of the
Company’s Common Stock since date of initial issuance, or (B) any amortizing convertible security
which amortizes prior to its maturity date, where the Company is required to or has the option to
(or the investor in such transaction has the option to require the Company to) make such
amortization payments in shares of Common Stock (whether or not such payments in stock are subject
to certain equity conditions), or (C) any transaction involving a written agreement between the
Company and an investor or underwriter whereby the Company has the right to “put” its securities to
the investor or underwriter over an agreed period of time and at an agreed price or price formula.
For purposes of the above, the “Market Price” shall mean the volume weighted average price, as
reported by Bloomberg, for the Common Stock for the five (5) trading day period immediately
preceding the date in question. It is expressly agreed and understood that the Variable Equity
Securities Lock-Up shall apply in respect of a Permitted Issuance and that no issuance of Variable
Equity Securities shall be a Permitted Issuance.

ARTICLE IV

CONDITIONS

          Section 4.1 Conditions Precedent to the Obligation of the Company to Close and to Sell the
Securities. The obligation hereunder of the Company to close and issue and sell the Securities
to the Purchasers at the Closing is subject to the satisfaction or waiver, at or before the Closing
of the conditions set forth below. These conditions are for the Company’s sole benefit and may be
waived by the Company at any time in its sole discretion.

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

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

20

 

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

          (d) Delivery of Purchase Price. The Purchase Price for the Securities shall have been
delivered to the Company on the Closing Date.

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

          Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Close and to
Purchase the Securities. The obligation hereunder of the Purchasers to purchase the Securities
and consummate the transactions contemplated by this Agreement is subject to the satisfaction or
waiver, at or before the Closing, of each of the conditions set forth below. These conditions are
for the Purchasers’ sole benefit and may be waived by the Purchasers at any time in their sole
discretion.

          (a) Accuracy of the Company’s Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement and the other Transaction Documents
shall be true and correct in all material respects as of the Closing Date, except for
representations and warranties that speak as of a particular date, which shall be true and correct
in all material respects as of such date.

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

          (c) No Suspension, Etc. Trading in the Common Stock shall not have been suspended by
the Commission or the OTC Bulletin Board, and, at any time prior to the Closing Date, trading in
securities generally as reported by Bloomberg Financial Markets (“Bloomberg”) shall not
have been suspended or limited, or minimum prices shall not have been established on securities
whose trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a banking
moratorium have been declared either by the United States or New York State authorities, nor shall
there have occurred any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or any material adverse change
in any financial market which, in each case, in the judgment of such Purchaser, makes it
impracticable or inadvisable to purchase the Securities.

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

          (e) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator
or any governmental authority shall have been commenced, and no investigation by

21

 

any governmental
authority shall have been threatened, against the Company or any Subsidiary, or any of the
officers, directors or affiliates of the Company or any Subsidiary seeking to restrain, prevent or
change the transactions contemplated by this Agreement, or seeking damages in connection with such
transactions.

          (f) Opinion of Counsel. The Purchasers shall have received one or more opinions of
counsel to the Company, dated the date of the Closing, substantially in the form of Exhibit
H hereto, with such exceptions and limitations as shall be reasonably acceptable to the
Purchasers.

          (g) Notes and Warrants. At or prior to the Closing, the Company shall have delivered
to the Purchasers the Notes (in such denominations as each Purchaser may request) and the Warrants
(in such denominations as each Purchaser may request).

          (h) Secretary’s Certificate. The Company shall have delivered to the Purchasers a
secretary’s certificate, dated as of the Closing Date, as to (i) the resolutions adopted by the
Board of Directors approving the transactions contemplated hereby, (ii) the Articles, (iii) the
Bylaws, each as in effect at the Closing, and (iv) the authority and incumbency of the officers of
the Company executing the Transaction Documents and any other documents required to be executed or
delivered in connection therewith.

          (i) Officer’s Certificate. On the Closing Date, the Company shall have delivered to
the Purchasers a certificate signed by an executive officer on behalf of the Company, dated as of
the Closing Date, confirming the accuracy of the Company’s representations, warranties and
covenants as of such Closing Date and confirming the compliance by the Company with the conditions
precedent set forth in paragraphs (a)-(e) and (k) of this Section 4.2 as of the Closing Date
(provided that, with respect to the matters in paragraphs (d) and (e) of this Section 4.2, such
confirmation shall be based on the knowledge of the executive officer after due inquiry).

          (j) [Reserved]

          (k) Material Adverse Effect. No Material Adverse Effect shall have occurred.

          (l) Termination of Financing Statement. The UCC financing statement No. 200715832020,
naming General Electric Capital Corporation as secured party shall have been terminated.

          (m) Fees and Expenses. The Company shall have paid the fees and expenses of counsel
to the Lead Purchaser as set forth in Section 7.1 hereof.

          (n) Transfer Agent Instructions. The Irrevocable Transfer Agent Instructions, in the
form of Exhibit G attached hereto, shall have been delivered to and executed by the
Company’s transfer agent, and delivered to the Lead Purchaser’s counsel.

22

 

ARTICLE V

CERTIFICATE LEGEND

          Section 5.1 Legend. Each certificate representing the Securities shall be stamped or
otherwise imprinted with a legend substantially in the following form (in addition to any legend
required by applicable state securities or “blue sky” laws):

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

     The Company agrees to issue or reissue certificates representing any of the Conversion Shares
and the Warrant Shares, without the legend set forth above if at such time, prior to making any
transfer of any such Conversion Shares or Warrant Shares, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and removal as the Company
may reasonably request, and (x) such Conversion Shares and/or Warrant Shares have been registered
for sale under the Securities Act and the holder is selling such shares and is complying with its
prospectus delivery requirement under the Securities Act, (y) the holder is selling such Conversion
Shares and/or Warrant Shares in compliance with the provisions of Rule 144 or (z) the provisions of
paragraph (k) of Rule 144 apply to such Shares.

ARTICLE VI

INDEMNIFICATION

          Section 6.1 General Indemnity. The Company agrees to indemnify and hold harmless the
Purchasers (and their respective directors, officers, affiliates, agents, successors and assigns)
from and against any and all losses, liabilities, deficiencies, costs, damages and expenses
(including, without limitation, reasonable attorneys’ fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the representations, warranties or
covenants made by the Company herein.

          Section 6.2 Indemnification Procedure. Any party entitled to indemnification under
this Article VI (an “indemnified party”) will give written notice to the indemnifying party of any
matter giving rise to a claim for indemnification; provided, that the failure of any party entitled
to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Article VI except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. In case any such action,

23

 

proceeding or claim
is brought against an indemnified party in respect of which indemnification is sought hereunder,
the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment
of the indemnifying party a conflict of interest between it and the indemnified party exists with
respect to such action, proceeding or claim (in which case the indemnifying party shall be
responsible for the reasonable fees and expenses of one separate counsel for the indemnified
parties), to assume the defense thereof with counsel reasonably satisfactory to the indemnified
party. In the event that the indemnifying party advises an indemnified party that it will contest
such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any
indemnification notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its
defense at any time after it commences such defense), then the indemnified party may, at its
option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless
and until the indemnifying party elects in writing to assume and does so assume the defense of any
such claim, proceeding or action, the indemnified party’s costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall be losses subject
to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying
party in connection with any negotiation or defense of any such action or claim by the indemnifying
party and shall furnish to the indemnifying party all information reasonably available to the
indemnified party which relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. If the indemnifying party elects to defend any such action or
claim, then the indemnified party shall be entitled to participate in such defense with counsel of
its choice at its sole cost and expense. The indemnifying party shall not be liable for any
settlement of any action, claim or proceeding effected without its prior written consent.
Notwithstanding anything in this Article VI to the contrary, the indemnifying party shall not,
without the indemnified party’s prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future obligation on the indemnified
party or which does not include, as an unconditional term thereof, the giving by the claimant or
the plaintiff to the indemnified party of a release from all liability in respect of such claim.
The indemnification obligations to defend the indemnified party required by this Article VI shall
be made by periodic payments of the amount thereof during the course of investigation or defense,
as and when bills are received or expense, loss, damage or liability is incurred, so long as the
indemnified party shall refund such moneys if it is ultimately determined by a court of competent
jurisdiction that such party was not entitled to indemnification. The indemnity agreements
contained herein shall be in addition to (a) any cause of action or similar rights of the
indemnified party against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.

ARTICLE VII

MISCELLANEOUS

          Section 7.1 Fees and Expenses. Each party shall pay the fees and expenses of its
advisors, counsel, accountants and other experts, if any, and all other expenses, incurred by such
party incident to the negotiation, preparation, execution, delivery and performance of this
Agreement; provided, however, that the Company shall pay all actual attorneys’ fees
and

24

 

expenses (including disbursements and out-of-pocket expenses) incurred by the Lead Purchasers
in connection with (i) the preparation, negotiation, execution and delivery of the Transaction
Documents and the transactions contemplated thereunder, which payment shall be made at Closing and
shall not exceed $17,500 (plus disbursements and out-of-pocket expenses), and (ii) any amendments,
modifications or waivers of this Agreement or any of the other Transaction Documents. In addition,
the Company shall pay all reasonable fees and expenses incurred by the Purchasers in connection
with the enforcement of this Agreement or any of the other Transaction Documents, including,
without limitation, all reasonable attorneys’ fees and expenses.

          Section 7.2 Specific Performance; Consent to Jurisdiction; Venue.

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

          (b) The parties agree that venue for any dispute arising under this Agreement will lie
exclusively in the state or federal courts located in New York County, New York, and the parties
irrevocably waive any right to raise forum non conveniens or any other argument that New York is
not the proper venue. The parties irrevocably consent to personal jurisdiction in the state and
federal courts of the state of New York. The Company and each Purchaser consent to process being
served in any such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing in this Section 7.2
shall affect or limit any right to serve process in any other manner permitted by law. The Company
and the Purchasers hereby agree that the prevailing party in any suit, action or proceeding arising
out of or relating to the Securities, this Agreement or the other Transaction Documents, shall be
entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties
hereby waive all rights to a trial by jury.

          Section 7.3 Entire Agreement; Amendment. This Agreement and the Transaction Documents
contain the entire understanding and agreement of the parties with respect to the matters covered
hereby and, except as specifically set forth herein or in the other Transaction Documents, neither
the
Company nor any Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and agreements with respect to
said subject matter, all of which are merged herein. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the Company and the Purchasers holding at
least a majority of the principal amount of the Notes then held by the Purchasers. Any amendment
or waiver effected in accordance with this Section 7.3 shall be binding upon each Purchaser (and
their permitted assigns) and the Company.

          Section 7.4 Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be

25

 

effective (a) upon
hand delivery by telecopy or facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second business day following the
date of mailing by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for such communications
shall be:

	 	 	 
	If to the Company:

	 	Echo Therapeutics, Inc.
	 

	 	Attn: Chief Financial Officer
	 

	 	10 Forge Parkway
	 

	 	Franklin, MA 02038
	 
	 	 
	with copies (which copies
shall not constitute notice
to the Company) to:

	 	Drinker Biddle & Reath LLP
	 

	 	One Logan Square
	 

	 	18th and Cherry Streets
	 

	 	Philadelphia, PA 19103-6996
	 

	 	Tel: (215) 988-2700
	 

	 	Fax: (215) 988-2757
	 

	 	Attn: Stephen T. Burdumy, Esq.
	 
	 	 
	If to any Purchaser:

	 	At the address of such Purchaser set forth on
Exhibit A to this Agreement, with copies to
Purchaser’s counsel as set forth on Exhibit A
or, if to the Lead Purchaser with copies to:
	 
	 	 
	 

	 	Shane W. McCormack, Esq.
	 

	 	Burak Anderson & Melloni, PLC
	 

	 	30 Main Street, PO Box 787
	 

	 	Burlington, VT 05402-0787
	 

	 	Tel: (802) 862-0500
	 

	 	Fax: (802) 862-8176

     Any party hereto may from time to time change its address for notices by giving written notice
of such changed address to the other party hereto.

          Section 7.5 Waivers. No waiver by either party of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in
the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay
or omission of any party to exercise any right hereunder in any manner impair the exercise of any
such right accruing to it thereafter. No consideration shall be offered or paid to any Purchaser
to amend or consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration is also offered to all of the parties to the

26

 

Transaction
Documents. This provision constitutes a separate right granted to each Purchaser by the Company
and shall not in any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of Securities or otherwise.

          Section 7.6 Headings. The article, section and subsection headings in this Agreement
are for convenience only and shall not constitute a part of this Agreement for any other purpose
and shall not be deemed to limit or affect any of the provisions hereof.

          Section 7.7 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. After the Closing, the assignment by
a party to this Agreement of any rights hereunder shall not affect the obligations of such party
under this Agreement. The Purchasers may assign the Securities and its rights under this Agreement
and the other Transaction Documents and any other rights hereto and thereto without the consent of
the Company.

          Section 7.8 No Third Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other person.

          Section 7.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving effect to any of the
conflicts of law principles which would result in the application of the substantive law of another
jurisdiction. This Agreement shall not be interpreted or construed with any presumption against
the party causing this Agreement to be drafted.

          Section 7.10 Survival. The representations and warranties of the Company and the
Purchasers shall survive the execution and delivery hereof and the Closing until the third
anniversary of the Closing Date, except the agreements and covenants set forth in Articles I, III,
V, VI and VII of this Agreement shall survive the execution and delivery hereof and Closing
hereunder.

          Section 7.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together
shall constitute one and the same instrument and shall become effective when counterparts have
been signed by each party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.

          Section 7.12 Publicity. The Company agrees that it will not disclose, and will not
include in any public announcement, the names of the Purchasers without the consent of the
Purchasers, which consent shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Purchasers consent to being identified in any
filings the Company makes with the Commission to the extent required by law or the rules and
regulations of the Commission.

          Section 7.13 Severability. The provisions of this Agreement are severable and, in the
event that any court of competent jurisdiction shall determine that any one or more of the
provisions or part of the provisions contained in this Agreement shall, for any reason, be held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability

27

 

shall not affect any other provision or part of a provision of this Agreement and
this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible.

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

          Section 7.15 Representation of Lead Purchaser. It is acknowledged by each Purchaser
that the Lead Purchaser has retained Burak Anderson & Melloni, PLC to act as its counsel in
connection with the transactions contemplated by the Transaction Documents and that Burak Anderson
& Melloni, PLC has not acted as counsel for any Purchaser, other than the Lead Purchaser, in
connection with the transactions contemplated by the Transaction Documents and that none of such
Purchasers has the status of a client for conflict of interest or any other purposes as a result
thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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

	 	 	 	 	 
	 	ECHO THERAPEUTICS, INC.

 	 
	 	By:  	/s/ Patrick T. Mooney, M.D.
 	 
	 	 	Name:  	Patrick T. Mooney, M.D. 	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	PURCHASERS LISTED ON
EXHIBIT A

 	 

 

 

	 	 	 	 	 

EXHIBITS TO NOTE AND WARRANT PURCHASE AGREEMENT

Exhibit A—List of Purchasers

Exhibit B—Form of Note

Exhibit C—Form of Warrant

Exhibit D—[Reserved]

Exhibit E—Form of Officer’s Certificate

Exhibit F—Form of Guaranty

Exhibit G—Form of Irrevocable Transfer Agent Instructions

  Attachment 1—Form of Conversion Notice

  Attachment 2—Form of Exercise Notice

Exhibit H—Form of Legal Opinion(s)

SCHEDULES TO NOTE AND WARRANT PURCHASE AGREEMENT

Schedule 2.1(b)—Consents

Schedule 2.1(c)—Capitalization

Schedule 2.1(g)—Subsidiaries and Ownership in Entities

Schedule 2.1(h)—Adverse Changes

Schedule 2.1(l)—Liabilities

Schedule 2.1(j)—Undisclosed Events or Circumstances

Schedule 2.1(k)—Indebtedness

Schedule 2.1(l)—Title to Assets

Schedule 2.1(m)—Actions Pending

Schedule 2.1(o)—Taxes

Schedule 2.1(p)—Certain Fees

Schedule 2.1(r)—Operation of Business

Schedule 2.1(u)—Material Agreements

Schedule 2.1(v)—Transactions with Affiliates

Schedule 2.1(x)—Employees

Schedule 2.1(y)—Absence of Certain Developments

Schedule 2.1(cc)—Offers and Sales of Equity and Debt Securities

Schedule 2.1(ee)—DTC Status

Schedule 3.14—Distributions

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