Document:

Exhibit 10.3

 

SECURITIES PURCHASE AGREEMENT

 

THIS SECURITIES PURCHASE AGREEMENT is made as
of the 14th day of
May, 2009 by and between XShares Group, Inc., a Delaware corporation (the “Company”), and MGT Capital Investments, Inc.,
a Delaware corporation, (the “Purchaser”).

 

The parties hereby agree as follows:

 

1.                                       Purchase
and Sale of Note and Preferred Stock.

 

1.1.        Issuance
of Convertible Promissory Note.

 

(a)           The
Board of Directors has duly approved the issuance of the Convertible Promissory
Note (the “Note”), in the original
principal amount of $1,100,000, made by the Company in favor of the Purchaser
in the form annexed hereto as Exhibit A.

 

(b)           Subject
to the terms and conditions of this Agreement, the Purchaser agrees to purchase
the Note immediately upon execution of this Agreement, and the Company agrees
to execute and deliver the Note to the Purchaser immediately upon receipt from
the Purchaser of $1,000,000.

 

1.2.        Sale
and Issuance of Series B Preferred Stock.

 

(a)           The
Board of Directors has duly adopted and approved and submitted to the
shareholders of the Company for their adoption and approval, the Second Amended
and Restated Certificate of Incorporation attached to this Agreement as Exhibit B
(the “Certificate”).  Upon due approval of the Certificate by the
shareholders of the Company, the Company shall file the Certificate with the
Secretary of State of the State of Delaware

 

(b)           Subject
to the terms and conditions of this Agreement, the Purchaser agrees to purchase
at the Closings (as defined below) and the Company agrees to sell and issue to
the Purchaser at the Closings that number of shares of Series B Preferred
Stock, $.0001 par value per share (the “Series B
Preferred Stock”), set forth in Section 1.3(a) below, at a
purchase price of $0.0284 per share.  The
shares of Series B Preferred Stock issued to the Purchaser pursuant to
this Agreement shall be referred to in this Agreement as the “Shares” (and together with the Note, the “Purchased  Securities”).

 

1.3.            Closing; Delivery.

 

(a)           Subject
to the compliance with the conditions set forth in Section 4 and 5, the  initial purchase and sale of 38,732,394
Shares shall take place immediately upon filing of the Certificate with the
Secretary of State of the State of Delaware (the “Initial Closing”).

 

(b)           Subject
to the compliance with the conditions set forth in Section 4 and 5, the
second purchase and sale of 35,211,268 Shares shall take place at the offices
of Gersten Savage LLP, 600 Lexington Avenue, New York, New York via the
exchange of documents and signatures, at 11:00 a.m, New York time, on the later
of (i) July 16, 2009 or (ii) five days following the filing of
the Certificate with the Secretary of State of the State of Delaware, or at
such other time and place as the Company and the Purchaser mutually agree upon,
in writing (the “Subsequent Closing”); provided, however, that the
Purchaser, in addition to any other rights of Purchaser set forth herein, shall
have no obligation to purchases the Shares pursuant to this Section 1.3(b) unless
the Purchaser has determined, in its sole discretion, prior to such investment,
that the Company has been operating the Company’s business in accordance with
the budget attached hereto as Exhibit C (the “Budget”), which Budget has been 

 

 

approved by the Company and the Purchaser as of the
date of this Agreement  (the Initial
Closing and the Subsequent Closing shall be collectively referred to herein as
the “Closings.”)

 

(c)           At
each Closing, the Company shall deliver to the Purchaser a certificate
representing the Shares being purchased by the Purchaser at such Closing
against payment of the purchase price therefor by wire transfer to a bank
account designated by the Company, by cancellation or conversion of
indebtedness of the Company to Purchaser, or by any combination of such
methods.  Without limiting the generality
of the foregoing, at the Initial Closing, the Purchaser shall deliver the
original Note as consideration for the Shares issued at the Initial Closing.

 

1.4           Use
of Proceeds.  In accordance with the
directions of the Company’s Board of Directors, the Company will use the
proceeds from the sale of the Shares as set forth in the Budget.

 

1.5           Defined Terms Used in this Agreement.  In
addition to the terms defined above, the following terms used in this Agreement
shall be construed to have the meanings set forth or referenced below.

 

“Affiliate”
means, with respect to any specified Person, any Person, directly or
indirectly, through one or more intermediaries controlling, controlled by or
under common control with such Person.

 

“Bylaws”
means the Bylaws of the Company in the form provided to the Purchaser.

 

“Code”
means the Internal Revenue Code of 1986, as amended.

 

“Company
Intellectual Property” means all patents, patent applications,
trademarks, trademark applications, service marks, tradenames, copyrights,
trade secrets, domain names, mask works, information and proprietary rights and
processes, licenses in to and under any of the foregoing, that are owned by the
Company or used by the Company in the conduct of the Company’s business as now
conducted and as presently proposed to be conducted.

 

“ETF”
means any of the Company’s exchange-traded funds.

 

“Material
Adverse Effect” means any occurrence, state of facts, change, event,
effect or circumstance that, individually or in the aggregate, has, or would
reasonably be expected to have, a material adverse effect on the assets,
liabilities, business, results of operations or financial condition of the
Company, including, without limitation, the Company’s insolvency or a force
majeure event, other than any occurrence, state of facts, change, event, effect
or circumstance to the extent resulting from: (i) the announcement of the
execution of this Agreement, or (ii) any change in United States generally
accepted accounting principles (“GAAP”)
or interpretation thereof after the date hereof or (iii) the execution and
performance of or compliance with this Agreement.

 

“Person” means an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an association,
an unincorporated organization, Governmental Authority and any other entity.

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

 

“Shares”
means the shares of Series B Preferred Stock issued at the Initial Closing
and at the Subsequent Closing, if any.

 

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2.                                       Representations
and Warranties of the Company.  The Company hereby represents and warrants to
each Purchaser that, except as set forth on the Disclosure Schedule attached as
Exhibit F to this Agreement, which exceptions shall be deemed to be
part of the representations and warranties made hereunder, the following
representations are true and complete as of the date hereof, except as
otherwise indicated.  The Disclosure
Schedule shall be arranged in sections corresponding to the numbered and
lettered sections and subsections contained in this Section 2, and
the disclosures in any section or subsection of the Disclosure Schedule shall
qualify other sections and subsections in this Section 2 only to
the extent it is readily apparent from a reading of the disclosure that such
disclosure is applicable to such other sections and subsections.

 

2.1.          Organization, Good Standing, Corporate Power
and Qualification.  Each of the Company, the ETFs, and the
Company Subsidiaries is a corporation or limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.  As set forth in Schedule
2.1, each of the Company, the ETFs, and the Company Subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the character of the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not reasonably be expected to have a Material Adverse
Effect.  The Company has heretofore made
available to Purchaser accurate and complete copies of the Company’s, each
ETFs, and each Company Subsidiaries’ certificate of incorporation, by-laws,
operating agreements and the equivalent organizational documents of each of the
Company Subsidiaries, each as currently in effect.  None of the Company, any ETF or any Company Subsidiary
is in violation of any provision of its respective certificate of
incorporation, by-laws or equivalent organizational documents as the case may
be.

 

2.2.            Capitalization. The authorized capital of the Company shall
consist, immediately prior to the Initial Closing, of:

 

(i)            1,400,000,000 shares of common stock, $0.0001
par value per share (the “Common Stock”),
293,994 shares of which are issued and outstanding.

 

(ii)           672,000,000 shares of preferred stock, $0.0001 par value per share (the
“Preferred Stock”) (the Common
Stock and the Preferred Stock are collectively referred to as the “Securities”): (i) 172,000,000 of which
have been designated Series A Preferred Stock, 162,257,593 shares of which
are issued and outstanding; and (ii) 500,000,000 of which have been designated
Series B Preferred Stock, none of which is issued or outstanding.  The rights, privileges and preferences of the
Preferred Stock are as stated in the Certificate and as provided by the general
corporation law of the jurisdiction of the Company’s incorporation.

 

(b)           All
of the outstanding securities issued by the Company have been duly authorized,
are fully paid and nonassessable and were issued in compliance with all
applicable federal and state securities laws. 
The Company holds no treasury stock.

 

(c)           Other
than (X) the Note and (Y) as otherwise set forth in the Disclosure
Schedule or on the capitalization table attached hereto as Exhibit D,
there are no (i) outstanding options, warrants, puts, calls, convertible
securities, preemptive or similar rights, (ii)  bonds, debentures, notes
or other indebtedness having general voting rights or that are convertible or
exchangeable into securities having such rights, or (iii) subscriptions or
other rights, agreements, arrangements, contracts or commitments of any
character, relating to the issued or unissued securities of the Company or any
of the 

 

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Company Subsidiaries or obligating the Company or
any of the Company Subsidiaries to issue, transfer, deliver or sell or cause to
be issued, transferred, delivered, sold or repurchased any options , or other
equity interest in, the Company or any of the Company Subsidiaries or
securities convertible into or exchangeable for such shares or equity
interests, or obligating the Company or any of the Company Subsidiaries to
grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment for such equity
interest.  There are no outstanding
obligations of the Company or any of the Company Subsidiaries to repurchase,
redeem or otherwise acquire any capital stock of, or other equity interests in,
the Company or any of the Company Subsidiaries or to provide funds to make any
investment (in the form of a loan, capital contribution or otherwise) in any
other entity.

 

(d)           To
the Company’s knowledge, there are no stockholders or members agreements,
voting trusts or other agreements or understandings with respect to the voting
of the Securities or the capital stock or equity interests of any Company
Subsidiary.

 

(e)           The
Company has agreed to reserve 19,000,000 shares of Common Stock for issuance to
officers, directors, employees and consultants of the Company pursuant to a
2008 Stock Option Plan, as amended (the “Stock
Plan”). Of such reserved shares of Common Stock, no shares have been
issued pursuant to restricted stock purchase agreements, and no options to
purchase shares have been granted to officers, directors, employees and
consultants pursuant to the Stock Plan.  The Company has furnished to the Purchaser
complete and accurate copies of the proposed Stock Plan and forms of agreements
used thereunder.

 

(f)            A
true, complete and correct copy of the Company’s capitalization table as of the
date hereof is attached hereto as Exhibit D.

 

2.3.        Authorization.  All corporate action required to be taken by
the Company’s Board of Directors and stockholders in order to authorize the
Company to enter into this Agreement, and to issue the Shares at the Closing
and the Common Stock issuable upon conversion of the Shares, has been taken or
will be taken prior to the Initial Closing. 
All action on the part of the officers of the Company necessary for the
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder to be performed as of the Initial Closing, and the
issuance and delivery of the Shares has been taken or will be taken prior to
the Initial Closing.  This Agreement,
when executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of
general application relating to or affecting the enforcement of creditors’
rights generally, and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief, or other equitable remedies.

 

2.4.        Valid Issuance of Purchased Securities.  The
Purchased Securities, when issued, sold and delivered in accordance with the
terms and for the consideration set forth in this Agreement, will be validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under applicable state and federal securities
laws and liens or encumbrances created by or imposed by the Purchaser.  Assuming the accuracy of the representations
of the Purchaser in Section 3 of this Agreement and subject to the
filings described in Section 2.5(ii) below, the Shares will be
issued in compliance with all applicable federal and state securities
laws.  The Common Stock issuable upon
conversion of the Shares has been duly reserved for issuance, and upon issuance
in accordance with the terms of the Certificate, will be validly issued, fully
paid and nonassessable and free of restrictions on transfer other than
restrictions on transfer under applicable federal and state securities laws and
liens or encumbrances created by or imposed by the Purchaser.  Based in part upon the representations of the
Purchaser in Section 3 of this Agreement, and subject to Section 2.5
below, the Common Stock issuable 

 

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upon conversion of the Shares will be issued
in compliance with all applicable federal and state securities laws.

 

2.5.        Governmental Consents and Filings.  Assuming the accuracy of the
representations made by the Purchaser in Section 3 of this
Agreement, no consent, approval, waiver, authorization or permit of, or notice
to or declaration or filing with (each, a “Consent”),
any nation or government, any state or other political subdivision thereof, any
entity, authority or body exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government,
including any governmental or regulatory authority, agency, department, board,
commission, administration or instrumentality, any court, tribunal or
arbitrator or any self-regulatory organization (each, a “Governmental Authority”), on the part of
the Company, ETF or any of the Company Subsidiaries is required to be obtained
or made in connection with the execution, delivery or performance by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby, other than (i) the filing of the Certificate, which
will have been filed as of the Initial Closing, and (ii) filings pursuant
to Regulation D of the Securities Act, and applicable state securities laws,
which have been made or will be made in a timely manner.

 

2.6.        Litigation.  Except as set forth in the Disclosure
Schedule, there is no claim, action, suit, proceeding, arbitration, complaint,
charge or, investigation pending or to the knowledge of the Company, threatened
against the Company.  The Company is not
a party nor is named as subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.  There is no action,
suit, proceeding or investigation by the Company pending or which the Company
intends to initiate.  The foregoing
includes, without limitation, actions, suits, proceedings or investigations
pending or threatened (or any basis therefor known to the Company) involving
the current or prior employment of or engagement of any of the Company’s
employees or consultants, their services provided in connection with the
Company’s business, or any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers.

 

2.7.        Compliance with Other Instruments.  The Company is not in
violation or default (i) of any provisions of its Certificate or Bylaws, (ii) of
any instrument, judgment, order, writ or decree, (iii) under any note,
indenture or mortgage, or (iv) under any lease, agreement, contract or
purchase order to which it is a party or by which it is bound or, of any
provision of federal or state statute, rule or regulation applicable to
the Company, the violation of which would have a Material Adverse Effect.  The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not result in any such violation or be in conflict with or constitute,
with or without the passage of time and giving of notice, either (i) a
default under any such provision, instrument, judgment, order, writ, decree,
note, indenture, mortgage, lease, agreement, contract or purchase order or (ii) an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, forfeiture, or nonrenewal
of any permit or license applicable to the Company.

 

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2.8.            Agreements; Actions. Except for the Convertible Note and this
Agreement, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to,
the Company in excess of $50,000, (ii) the license of any patent,
copyright, trademark, trade secret or other proprietary right to or from the
Company, (iii) the grant of rights to license, market, or sell its
products to any other Person that limit the Company’s exclusive right to
develop, market or sell its products, or (iv) indemnification by the
Company with respect to infringements of proprietary rights.

 

(b)           The
Company has not (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital
stock, (ii)  incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $50,000 or in excess of $100,000 in
the aggregate, (iii) except as listed on Schedule 2.8(b)(iii), made
any loans or advances to any Person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights.

 

(c)           The
Company is not a guarantor or indemnitor of any indebtedness of any other
Person.

 

(d)           The
Company has not engaged in the past twelve (12) months in any discussion with
any representative of any Person (other than the Purchaser) regarding (i) a
sale or exclusive license of all or substantially all of the Company’s assets,
or (ii) any merger, consolidation or other business combination
transaction of the Company with or into another Person.

 

2.9.            Certain Transactions. 
Except as listed on Schedule 2.9, the Company is not indebted,
directly or indirectly, to any of its directors, officers or employees or to
their respective spouses or children or to any Affiliate of any of the
foregoing, other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or employee relocation expenses and
for other customary employee benefits made generally available to all
employees.  None of the Company’s
directors, officers or employees, or any members of their immediate families,
or any Affiliate of the foregoing are, directly or indirectly, indebted to the
Company.

 

2.10.          Absence of Liens.  The
property and assets that the Company owns are free and clear of all mortgages,
deeds of trust, liens, loans and encumbrances, except for statutory liens for
the payment of current taxes that are not yet delinquent.  With respect to the property and assets it
leases, the Company is in compliance with such leases and, to its knowledge,
except as listed on Schedule 2.10, holds a valid leasehold interest free
of any liens, claims or encumbrances other than those of the lessors of such
property or assets. With respect to each such Company lease, no lessor, lien,
claim, or encumbrance interferes with the Company’s use and quiet enjoyment of
such leased property or asset.

 

2.11.          Financial Statements.  The
Company has delivered to the Purchaser its audited financial statements
(including balance sheet, income statement and statement of cash flows) as of December 31,
2007 and December 31, 2008 and unaudited financial statements for the
three-month period ended March 31, 2009 (collectively, the “Financial Statements”).  The Financial Statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated, except that the unaudited
Financial Statements may not contain all footnotes required by generally
accepted accounting principles.  The
Financial Statements fairly present in all material respects the financial
condition and operating results of the Company as of the dates, and for the
periods, indicated therein, subject in the case of the unaudited Financial
Statements to normal year-end audit adjustments, which are not material. Except
as set forth in the Financial Statements, the Company has no liabilities or
obligations, contingent or otherwise, other than (i) liabilities incurred
in the 

 

6

 

ordinary course of business subsequent to March 31,
2009 and which have been disclosed to the Company in writing (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
which have been disclosed to the Company in writing and (iii) liabilities
and obligations of a type or nature not required under generally accepted
accounting principles to be reflected in the Financial Statements, which, in
all such cases, individually and in the aggregate would not have a Material
Adverse Effect.  The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.

 

2.12.          Changes.  Since the date of the most
recent Financial Statements, other than the Convertible Note,  there has not been:

 

(a)           any
change in the assets, liabilities, financial condition or operating results of
the Company from that reflected in the Financial Statements, except changes in
the ordinary course of business that have not caused, in the aggregate, a
Material Adverse Effect;

 

(b)           any
damage, destruction or loss, whether or not covered by insurance, that would
have a Material Adverse Effect;

 

(c)           any
waiver or compromise by the Company of a valuable right or of a material debt
(in excess of $10,000) owed to it;

 

(d)           any
satisfaction or discharge of any lien, claim, or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and the
satisfaction or discharge of which would not have a Material Adverse Effect;

 

(e)           any
material change to a material contract or agreement (in excess of $10,000) by
which the Company or any of its assets is bound or subject;

 

(f)            any
change in any compensation arrangement or agreement with any employee, officer,
director or stockholder;

 

(g)           any
resignation or termination of employment of any officer, employee, or
consultant of the Company;

 

(h)           any
mortgage, pledge, transfer of a security interest in, or lien, created by the
Company, with respect to any of its material properties or assets (in excess of
$10,000), except liens for taxes not yet due or payable and liens that arise in
the ordinary course of business and do not impair the Company’s ownership or
use of such property or assets;

 

(i)            any
loans or guarantees made by the Company to or for the benefit of its employees,
officers directors or consultants, or any members of their immediate families,;

 

(j)            any
declaration, setting aside or payment or other distribution in respect of any
of the Company’s capital stock, or any direct or indirect redemption, purchase,
or other acquisition of any of such stock by the Company;

 

(k)           any
sale, assignment or transfer of any Company Intellectual Property that could
reasonably be expected to result in a Material Adverse Effect;

 

(l)            receipt
of notice that there has been a loss of, or material order cancellation by, any
major customer of the Company;

 

7

 

(m)          any
other event or condition of any character, other than events affecting the
economy or the Company’s industry generally,   that could reasonably be expected to result in
a Material Adverse Effect; or

 

(n)           any
arrangement or commitment by the Company to do any of the things described in
this Section 2.12.

 

2.13.          Tax Returns and Payments.  The
Company has timely paid all federal, state, county, local or foreign taxes due
and payable.  There are no accrued and
unpaid federal, state, county, local or foreign taxes of the Company which are
due, whether or not assessed or disputed. 
There have been no examinations or audits of any tax returns or reports
by any applicable federal, state, local or foreign governmental agency.  The Company has duly and timely filed all
federal, state, county, local and foreign tax returns required to have been
filed by it and there are in effect no waivers of applicable statutes of
limitations with respect to taxes for any year. 
The Company has properly withheld and paid all taxes required to have
been withheld and paid in connection with any amounts paid or credited to any
employee, independent contractor, creditor, stockholder or other third party.

 

2.14.          Insurance.  The Company, each ETF, and
each Company Subsidiary is covered by valid and currently effective insurance
policies issued in favor of the Company or one or more of the ETFs or Company
Subsidiaries that are customary for companies of similar size in the industry
and locales in which the Company and the Company Subsidiaries operate.  Schedule 2.14 sets forth a true,
correct and complete list of all insurance policies issued in favor of the
Company, any ETF, or any Company Subsidiary, or pursuant to which the Company,
any ETF, or any Company Subsidiary is a named insured or otherwise a
beneficiary, as well as any historic incurrence-based policies still in
force.  With respect to each such
insurance policy, (i) the policy is in full force and effect and all
premiums due thereon have been paid, (ii) neither the Company or any ETF,
nor any Company Subsidiary is in any material respect, in breach of or default
under, and neither the Company or any ETF, nor any Company Subsidiary have
taken any action or failed to take any action which, with notice or the lapse
of time or both, would constitute such a breach or default, or permit
termination or modification of, any such policy, (iii) to the knowledge of
the Company, no insurer on any such policy has been declared insolvent or placed
in receivership, conservatorship or liquidation, and no notice of cancellation
or termination has been received with respect to any such policy,  and (iv) the Company knows of no reason
any such insurance policy would be cancelled or modified in any material
respect as a result of the transactions contemplated hereby.

 

2.15.          Regulatory Agreements; Permits.

 

(a)           There
are no (A) written agreements, consent agreements, memoranda of
understanding, commitment letters, cease and desist orders, or similar undertakings
to which the Company, any ETF, or any Company Subsidiary is a party, on the one
hand, and any Governmental Authority is a party or addressee, on the other
hand, (B ) Orders or directives of or supervisory letters from a Governmental
Authority specifically with respect to the Company, any ETF, or any Company
Subsidiary, or (C) resolutions or policies or procedures adopted by the
Company, any ETF, or any Company Subsidiary at the request of a Governmental
Authority, that (1) limit in any 
respect the ability of the Company, any ETF, or any of the Company
Subsidiaries to conduct its business as currently being conducted or (2) in
any manner relate to the ability of the Company, any ETF,  or any of the Company Subsidiaries to pay
dividends or otherwise restrict the conduct of business of the Company, any
ETF, or any of the Company Subsidiaries in any respect.

 

8

 

(b)           The
Company, the ETFs, and the Company Subsidiaries hold all permits, licenses,
franchises, grants, authorizations, consents, exceptions, variances,
exemptions, orders and other governmental authorizations, certificates,
consents and approvals necessary to lawfully conduct their businesses as
presently conducted and contemplated to be conducted, and to own, lease and
operate their assets and properties (collectively, the “Company Permits”), all of which are in
full force and effect, and no suspension or cancellation of any of the Company
Permits is pending or, to the knowledge of the Company, threatened,.  Schedule 2.15(a) sets forth each
Company Permit.  Each of the Company, the
ETFs, and the Company Subsidiaries are not in violation in any material respect
of the terms of any Company Permit.

 

(c)           No
investigation, review or market conduct examination by any Governmental
Authority with respect to the Company, any ETF, or any Company Subsidiary is
pending or, to the knowledge of the Company, threatened, nor does the Company
have knowledge of any Governmental Authority’s intention to conduct any such
investigation or review.

 

(d)           Each
of the Company, each ETF, and each Company Subsidiary and each of their
respective officers and employees who are required to be registered, licensed
or qualified as (A) an investment company, broker-dealer, investment
adviser, futures commission merchant or (B) a registered principal,
registered representative, investment adviser representative, insurance agent
or salesperson with the SEC or any securities or insurance commission or other
Governmental Authority are duly registered as such and such registrations are
in full force and effect, or are in the process of being registered as such
within the time periods required by applicable law, except in each case for any
failures to be so registered, licensed or qualified that would not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect. Each of the Company, each ETF, and each Company Subsidiary and each of
their respective officers and employees are in compliance with all applicable
federal, state and foreign laws requiring any such registration, licensing or
qualification, and are not subject to any liability or disability by reason of
the failure to be so registered, licensed or qualified, except as would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.

 

(e)           Each
of the Company, each ETF, and each Company Subsidiary, and, to the knowledge of
the Company, its solicitors, third party administrators, managers, brokers and
distributors, have marketed, sold and issued investment products and securities
in compliance with all applicable laws governing sales processes and practices,
except in each case as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.

 

(f)            Each
of the Company, each ETF, and each Company Subsidiary, if and as applicable,
has filed all forms, requests for exemptive orders, reports, schedules,
statements and other documents (inclusive of any certifications mandated by
applicable Law) required to be filed or furnished by the Company with the SEC
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Securities Act, the
Investment Advisers Act of 1940 (the “Advisers
Act”) and the Investment Company Act of 1940 (the “Investment Company Act”) together with
any amendments, restatements or supplements thereto, and will file all such
forms, reports, schedules, statements and other documents required to be filed
subsequent to the date of this Agreement. 
Schedule 2.15(f) lists and the Company has delivered to the
MGT copies in the form filed with the SEC of all of the foregoing forms,
requests for exemptive orders, reports, schedules, statements and other
documents (inclusive of any certifications mandated by applicable Law) and all
communications in connection therewith, except to the extent available in full
without redaction on any publicly available database (including, without
limitation, FINRA or the SEC’s website through EDGAR) for at least two (2) days
prior to the date of this Agreement (collectively, the “Company SEC Reports”).

 

9

 

(g)           The
Company SEC Reports (A) were prepared in all material respects in
accordance with the requirements of the Securities Act, the Exchange Act, the
Investment Advisers Act and the Investment Company Act, as the case may be, and
the rules and regulations thereunder and (B) did not at the time they
were filed with the SEC (except to the extent that information contained in any
Company SEC Report has been revised or superseded by a later filed Company SEC
Report) 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 made therein, in the light of the circumstances under which they
were made, not misleading.  Each director
and executive officer of the Company, each ETF, and each Company Subsidiary, if
and as applicable, has filed with the SEC on a timely basis all statements
required by the applicable Law since the date of the applicable entity’s
formation. As used in this Section 2.15(g), the term “file” shall be broadly construed to
include any manner in which a document or information is furnished, supplied or
otherwise made available to FINRA or the SEC.

 

(h)           No
event or circumstance has occurred or exists with respect to the Company, any
ETF, or any Company Subsidiary 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.

 

2.16.          Corporate Documents.  The Certificate and Bylaws of the Company are
in the forms attached hereto or previously provided to the Purchaser or its
counsel.  The copy of the minute books of
the Company provided to the Purchaser contains minutes of all meetings of
directors and stockholders and all actions by written consent without a meeting
by the directors and stockholders since the date of incorporation and
accurately reflects in all material respects all actions by the directors (and
any committee of directors) and stockholders with respect to all transactions
referred to in such minutes.

 

2.17           Real Property Holding Corporation.  The Company is not now and has never been a
“United States real property holding corporation” as defined in the Code and
any applicable regulations promulgated thereunder.  The Company has filed with the Internal
Revenue Service all statements, if any, with its United States income tax
returns which are required under such regulations.

 

2.18           Investment Company Act.  The Company is not an “investment company” or
a person directly or indirectly “controlled” by or acting on behalf of an “investment
company,” in each case within the meaning of the Investment Company Act of
1940, as amended. Each ETF has obtained all required exemptive orders under the
Investment Company Act to carry on its business as currently conducted and as
proposed to be conducted.

 

2.19           Disclosure. 
The Company has delivered the Budget to the Purchaser certain. There is
a reasonable basis for each of the assumptions set forth in the Budget. No
representation or warranty of the Company contained in this Agreement, and document
delivered to the Purchaser, and no certificate furnished or to be furnished to
Purchasers at the Closings contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.  The Budget was
prepared in good faith; however, the Company does not warrant that it will
achieve any results projected in the Budget. 
It is understood that this representation is qualified by the fact that
the Company has not delivered to the Purchaser, and has not been requested to
deliver, a private placement or similar memorandum or any written disclosure of
the types of information customarily furnished to purchasers of securities
other than as specifically set forth in this Agreement.

 

10

 

2.20                           Employee
Matters.

 

(a)                                  There are no
Actions pending or, to the knowledge of the Company, threatened involving the
Company or any of the Company Subsidiaries and any of their employees,
managers, consultants or former employees, including any harassment,
discrimination, retaliatory act or similar claim.  There has been: (A) no labor union
organizing or attempting to organize any employee of the Company or any of the
Company Subsidiaries into one or more collective bargaining units; and (B) no
labor dispute, strike, work slowdown, work stoppage or lock out or other
collective labor action by or with respect to any employees, managers or
consultants of the Company or any of the Company Subsidiaries pending or, to
the Company’s knowledge, threatened against the Company or any of the Company
Subsidiaries.  Neither the Company nor
any of the Company Subsidiaries is a party to, or bound by, any collective
bargaining agreement or other agreement with any labor organization applicable
to the employees, managers or consultants of the Company or any of the Company
Subsidiaries and no such agreement is currently being negotiated.

 

(b)                                 The Company and
the Company Subsidiaries (A) are in compliance in all respects with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, health and safety and wages and hours, including Laws
relating to discrimination, disability, labor relations, hours of work, payment
of wages and overtime wages, pay equity, immigration, workers compensation,
working conditions, employee scheduling, occupational safety and health, family
and medical leave, and employee terminations, and have not received written
notice, or to the knowledge of the Company any other form of notice, there is
any unfair labor practice charge or complaint against the Company or any of the
Company Subsidiaries pending, (B) are not liable for any arrears of wages
or any material penalty for failure to comply with any of the foregoing and (C) are
not liable for any  payment to any trust
or other fund or to any Governmental Authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the ordinary course of
business and consistent with past practice). 
there are no complaints, lawsuits, arbitrations, administrative
proceedings, or other Actions pending or, to the knowledge of the Company,
threatened against the Company or any Company Subsidiary brought by or on
behalf of any applicant for employment, any current or former employee, any
person alleging to be a current or former employee, any class of the foregoing,
or any Governmental Authority, relating to any such Law or regulation, or
alleging breach of any express or implied contract of employment, wrongful
termination of employment, or alleging any other discriminatory, wrongful or
tortious conduct in connection with the employment relationship.

 

2.21                           Environmental
Matters.

 

(a)                            Neither the
Company nor any of the Company Subsidiaries is the subject of any federal,
state, local or foreign Order, judgment or claim, and neither the Company nor
any of the Company Subsidiaries has received any notice or claim, or entered
into any negotiations or agreements with any person, that would impose a
liability or obligation under any Environmental Law;

 

(b)                           To the
knowledge of the Company, the Company and the Company Subsidiaries are in
compliance with all applicable Environmental Laws;

 

(c)                            Neither the
Company nor any of the Company Subsidiaries has manufactured, treated, stored,
disposed of, arranged for or permitted the disposal of, generated, handled or
released any Hazardous Substance, or owned or operated any property or
facility, in a manner that has given or would reasonably be expected to give
rise to any liability under all applicable Environmental Laws;

 

11

 

(d)                           Each of the
Company and the Company Subsidiaries holds and is in compliance with all
Company Permits required to conduct its business and operations under all
applicable Environmental Laws; and

 

(e)                            Neither the
Company, any Company Subsidiary nor any of their respective properties are
subject to any Order, judgment or written claim asserted or arising under any
Environmental Law.

 

“Environmental Laws” means any Law relating
to (a) the protection, preservation or restoration of the environment
(including air, water vapor, surface water, groundwater, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource) or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances, in each case as in
effect at the date hereof.

 

“Hazardous Substance” means any substance
listed, defined, designated or classified as hazardous, toxic, radioactive or
dangerous or as a pollutant or contaminant under any Environmental Law.  Hazardous Substances include any substance to
which exposure is regulated by any Governmental Authority or any Environmental
Law, including (a) petroleum or any derivative or byproduct thereof, toxic
mold, asbestos or asbestos containing material or polychlorinated biphenyls and
(b) all substances defined as Hazardous Substances, Oils, Pollutants or
Contaminants in the National and Hazardous Substances Contingency Plan, 40
C.F.R. Section 300.5.

 

2.22                           Intellectual
Property

 

(a)                                  Schedule 2.2 contains a
list of (A) all registered Intellectual Property, Intellectual Property
that is the subject of a pending application for registration, and material
unregistered Intellectual Property, in each case that is owned by the Company,
any ETF, or any of the Company Subsidiaries and (B) all material
Intellectual Property, other than Off-the-Shelf Software Agreements, licensed,
used or held for use by the Company, any ETF, or any of the Company
Subsidiaries in the conduct of its business (“Licensed Intellectual Property”).  Except where failure to own, license or
otherwise possess such rights has not had and would not reasonably be expected
to result in a Company Material Adverse Effect, each of the Company, the
ETFs,  and the Company Subsidiaries has (A) all
right, title and interest in and to all Company Intellectual Property, free and
clear of all Encumbrances, other than Permitted Encumbrances and (B) all
necessary proprietary rights in and to all of its Licensed Intellectual
Property, free and clear of all Encumbrances, other than Permitted
Encumbrances.  Neither the Company or any
ETF, nor any of the Company Subsidiaries has received any notice alleging it
has infringed, diluted or misappropriated, or, by conducting its business as
proposed, would infringe, dilute or misappropriate, the Intellectual Property
rights of any person, and to the knowledge of the Company there is no valid
basis for any such allegation.  Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will impair or materially alter the Company’s,
any ETF’s, or any Company Subsidiary’s rights to any Company Intellectual
Property or Licensed Intellectual Property. 
To the knowledge of the Company, there is no unauthorized use,
infringement or misappropriation of the Company Intellectual Property or Licensed
Intellectual Property by any third party. 
All of the rights within the Company Intellectual Property and Licensed
Intellectual Property are valid, enforceable and subsisting, and there is no
Action pending or, to the Company’s knowledge, threatened which challenges the
rights of the Company, any ETF, or any of the Company Subsidiaries in respect
of any Company Intellectual Property or Licensed Intellectual Property or the
validity, enforceability or effectiveness thereof.  The Company Intellectual Property and the
Licensed Intellectual Property constitute all material Intellectual Property
used in or necessary for the operation by the

 

12

 

Company, the ETFs, and the
Company Subsidiaries of their respective businesses as currently
conducted.  Neither the Company or ETF,
nor any of the Company Subsidiaries is in breach or default in any material
respect (or would with the giving of notice or lapse of time or both be in such
breach or default) under any license to use any of the Licensed Intellectual
Property.

 

(b)                                 For purposes of
this Agreement, “Intellectual Property”
means (A) United States, international and foreign patents and patent
applications, including divisionals, continuations, continuations-in-part,
reissues, reexaminations and extensions thereof and counterparts claiming
priority therefrom; utility models; invention disclosures; and statutory
invention registrations and certificates; (B) United States and foreign
registered, pending and unregistered trademarks, service marks, trade dress,
logos, trade names, corporate names and other source identifiers, domain names,
Internet sites and web pages; and registrations and applications for
registration for any of the foregoing, together with all of the goodwill
associated therewith; (C) United States and foreign registered and
unregistered copyrights, and registrations and applications for registration
thereof; rights of publicity; and copyrightable works; (D) all inventions
and design rights (whether patentable or unpatentable) and all categories of
trade secrets as defined in the Uniform Trade Secrets Act, including business,
technical and financial information; and (E) confidential and proprietary
information, including know-how. Add rep that IP does not infringe on the
rights of any third party.

 

2.23                           Books and
Records.  All of the books and records
of the Company, the ETFs, and the Company Subsidiaries are complete and
accurate in all material respects and have been maintained in the ordinary
course and in accordance with applicable Laws and standard industry practices
with regard to the maintenance of such books and records.  The records, systems, controls, data and
information of Company, the ETFs, and the Company Subsidiaries are recorded,
stored, maintained and operated under means (including any electronic,
mechanical or photographic process, whether computerized or not) that are under
the exclusive ownership and direct control of the Company or its accountants
(including all means of access thereto and therefrom).

 

3.                                       Representations and Warranties of the Purchaser.  The
Purchaser hereby represents and warrants to the Company, severally and not
jointly, that:

 

3.1                                 Authorization. 
All corporate action required to be taken by the Purchaser’s board of
directors in order to authorize the Purchaser to enter into this Agreement have
been duly taken, and the Purchaser has full power and authority to enter into
the this Agreement and consummate the transactions contemplated hereby.  This Agreement, when executed and delivered
by the Purchaser, will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors’ rights generally, and as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.

 

3.2           Purchase Entirely for Own Account.  This Agreement is made with the Purchaser in
reliance upon the Purchaser’s representation to the Company, which by the
Purchaser’s execution of this Agreement, the Purchaser hereby confirms, that
the Shares to be acquired by the Purchaser will be acquired for investment for
the Purchaser’s own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that the Purchaser has no
present intention of selling, granting any participation in, or otherwise
distributing the same.  By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
Person to sell, transfer or grant participations to such Person or to any

13

 

third Person, with respect to any of
the Shares. The Purchaser has not been formed for the specific purpose of
acquiring the Shares.

 

3.3           Disclosure of Information.   The Purchaser has been engaged in
discussions with the management of the Company since at least January 1, 2009,
and has had an opportunity to discuss the Company’s business, management,
financial affairs and the terms and conditions of the offering of the Shares
with the Company’s management and has had an opportunity to review the
Company’s operations.  In addition, the
Purchaser has had extensive involvement in the development of the Budget.  The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Purchaser to rely thereon.

 

3.4           Restricted Securities.  The Purchaser understands that the Shares
have not been, and will not be, registered under the Securities Act, by reason
of a specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of the Purchaser’s representations as expressed
herein.  The Purchaser understands that
the Shares are “restricted securities” under applicable U.S. federal and state
securities laws and that, pursuant to these laws, the Purchaser must hold the
Shares indefinitely unless they are registered with the Securities and Exchange
Commission and qualified by state authorities, or an exemption from such
registration and qualification requirements is available.  The Purchaser acknowledges that the Company
has no obligation to register or qualify the Shares, or the Common Stock into
which it may be converted, for resale. 
The Purchaser further acknowledges that if an exemption from
registration or qualification is available, it may be conditioned on various
requirements including, but not limited to, the time and manner of sale, the
holding period for the Shares, and on requirements relating to the Company
which are outside of the Purchaser’s control, and which the Company is under no
obligation and may not be able to satisfy.

 

3.5           No Public Market. The
Purchaser understands that no public market now exists for the Shares, and that
the Company has made no assurances that a public market will ever exist for the
Shares.

 

3.6           Legends.  The Purchaser understands that the Shares and
any securities issued in respect of or exchange for the Shares, may bear one or
all of the following legends:

 

(a)                                  “THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.  NO SUCH TRANSFER MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN
A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 AS AMENDED.”

 

(b)                                 Any legend
required by the securities laws of any state to the extent such laws are
applicable to the Shares represented by the certificate so legended.

 

3.7           Accredited Investor.  The Purchaser is an accredited investor as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

 

14

 

4.                                       Conditions to the Purchaser’s Obligations at
Closing.  The obligations of the Purchaser to purchase
Shares at the Initial Closing or any subsequent Closing are subject to the
fulfillment, on or before such Closing, of each of the following conditions,
unless otherwise waived:

 

4.1.                         Representations
and Warranties.  The
representations and warranties of the Company contained in Section 2
shall be true and correct in all respects as of such Closing.

 

4.2.                         Performance.  The Company shall have performed and complied
with all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by the Company on
or before such Closing.

 

4.3.                         Officer’s
Certificate.  The Chief
Executive Officer of the Company shall deliver to the Purchaser at such Closing
a certificate (i) certifying resolutions of the Board of Directors of the
Company approving this Agreement and the transactions contemplated hereunder, (ii) certifying
resolutions of the Company’s stockholders approving the Certificate, (iii) confirming
the accuracy of the Company’s representations, warranties and covenants as of
the Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4 as of the Closing
Date.

 

4.4.                         Qualifications.  All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Shares pursuant to this Agreement shall be obtained and effective as of
such Closing.

 

4.5.                              Transfer Agent Instructions.  Intentionally omitted.

 

4.6.                              Board of
Directors.  As of the
Initial Closing, the authorized size of the Board shall be seven, and the Board
shall be comprised of Joseph L. Schocken, Jeffrey L. Feldman, Robert Ponzetti,
Paul Clegg, Gustavo Montero, Governor Tommy Thompson, and Tim Paterson-Brown,
as the representative of the Purchaser (the “Series B
Director”).

 

4.7.                              Certificate. 
The Company shall have filed the Certificate with the Secretary of State
of Delaware on or prior to the Initial Closing, which shall continue to be in
full force and effect as of the Initial Closing and each subsequent Closing.

 

4.8.                              Proceedings and Documents. 
All corporate and other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
satisfactory in form and substance to the Purchaser, and the Purchaser (or its
counsel) shall have received all such counterpart original and certified or
other copies of such documents as reasonably requested.  Such documents may include good standing
certificates.

 

5.                                       Conditions of the Company’s Obligations at Closing.  The obligations of the Company to sell Shares
to the Purchaser at the Initial Closing or any subsequent Closing are subject
to the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:

 

5.1                                 Representations
and Warranties.  The representations and warranties of the
Purchaser contained in Section 3 shall be true and correct in all
respects as of such Closing.

 

5.2                                 Performance.  The Purchaser shall have performed and
complied with all covenants, agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by them on
or before such Closing.

 

15

 

5.3                                 Qualifications.  All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Share pursuant to this Agreement shall be obtained and effective as of
the Closing.

 

5.4                                 Officer’s Certificate.  The
Chief Executive Officer of the Purchaser shall deliver to the Company at the
Initial Closing a certificate certifying the resolutions of the Board of
Directors of the Purchaser approving this Agreement and the transactions
contemplated hereunder.

 

6.                                       Indemnification.

 

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

 

(b)                                 Indemnification
Procedure. Any Party entitled to indemnification under this Section 6
(an “Indemnified Party”) will give
written notice to the indemnifying party of any matters 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 Section 6 except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any
action, proceeding or claim is brought against an Indemnified Party in respect
of which indemnification is sought hereunder, the indemnifying party shall be
entitled to participate in and, unless in the reasonable judgment of the
Indemnified Party a conflict of interest between it and the indemnifying party
may exist with respect of such action, proceeding or claim, 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
twenty (20) 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 affected without
its prior written consent. Notwithstanding anything in this Section 6
to the contrary, the indemnifying party shall not, without the Indemnified
Party’s prior written consent, settle or compromise

 

16

 

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 required by this Section 6 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 irrevocably agrees to 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.

 

7.                                       Post-Closing
Covenants. 
So long as the Shares are outstanding and held by the Purchaser, the
Company covenants that:

 

(a)                                  It will hold monthly
management meetings, which the Series B Director shall be entitled to
attend, either in person or by teleconference, and vote.

 

(b)                                 It will not give pay raises
to Company officers, nor pay bonuses, nor issue any stock options nor similar
instruments, unless agreed to by the Series B Director, which approval
shall not be unreasonably withheld;

 

(c)                                  It will distribute monthly
management accounts no later than the 15th working
following the end of the month to which they relate, and such further
information and documents as the Purchaser may from time-to-time reasonably
request, and shall permit, during normal business hours and upon reasonable
request and reasonable notice, the Purchaser or any employees, agents or
representatives thereof, for purposes reasonably related to the Purchaser’s
interests as a stockholder, to examine and make reasonable copies of and
extracts from the records and books of account of, and visit and inspect the
properties, assets, operations and business of the Company, any ETF, and any
Company Subsidiary, and to discuss the affairs, finances and accounts of the
Company, any ETF, and any Company Subsidiary with any of its officers,
consultants, directors, and key employees; provided, the Purchaser and
its representatives shall keep such information confidential, provided such
information may be disclosed (i) to the extent required by applicable law,
regulation or legal process, subpoena, civil investigative demand or other
similar process, (ii) to the extent reasonably necessary in connection
with the enforcement of rights under this Agreement, (iii) to any
governmental, judicial or regulatory authority requiring or requesting such
information, and (iv) to Purchaser’s directors, officers, employees,
agents, managers, consultants, accountants, financial advisers, legal counsel
and other professional advisers to the extent necessary;

 

(d)                                 It will not incur expenses
outside of the Budget, unless such expenses are each separately approved by the
Series B Director, which approval shall not be unreasonably withheld;

 

(e)                                  It will promptly notify the
Purchaser in writing (a “Rights Notice”)
(in no event later than two (2) business days after making or receiving an
applicable offer) of the terms and conditions of any proposed offer or sale to,
or exchange with (or other type of distribution to) any third party, which the
Company intends to effect (a “Subsequent
Financing”), of Common Stock or any debt or equity securities
convertible, exercisable

 

17

 

or exchangeable into Common Stock. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing, the
names and investment amounts of all investors participating in the Subsequent
Financing (if known), the proposed closing date of the Subsequent Financing,
which shall be no earlier than ten (10) business 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 the Purchaser an option (the “Rights Option”) during the ten (10) business days
following delivery of the Rights Notice (the “Option
Period”) to inform the Company whether the Purchaser will purchase
up to up to $5,500,000 of its pro rata
portion of all or a portion of the securities being offered in such Subsequent
Financing on the same, absolute terms and conditions as contemplated by such
Subsequent Financing.  Delivery of any Rights
Notice constitutes a representation and warranty by the Company that there are
no other material terms and conditions, arrangements, agreements or otherwise
except for those disclosed in the Rights Notice, to provide additional
compensation to any party participating in any proposed Subsequent Financing,
including, but not limited to, any type of reset or adjustment of a purchase or
conversion price or to issue additional securities at any time after the
closing date of a Subsequent Financing. If the Company does not receive notice
of exercise of the Rights Option from the Purchaser within the Option Period,
the Company shall have the right to close the Subsequent Financing on the
scheduled closing date with a third party; provided
that all of the material terms and conditions of the closing are the same as
those provided to the Purchaser in the Rights Notice. If the closing of the
proposed Subsequent Financing does not occur 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 7(f), including,
without limitation, the delivery of a new Rights Notice; and

 

(f)                                    Will provide the Series B
Director with each of the following documents as and when they are distributed
to the Board of Directors:

 

(a)                                  unaudited quarterly
financial statements within fifteen (15) days after the end of the applicable
quarter of the first three quarters of the Company’s and the applicable ETF’s
fiscal years;

 

(b)                                 audited financial statements
within sixty (60) days after the end of the Company’s and applicable ETF’s
fiscal years; and

 

(c)                                  a monthly operating and cash
flow budget within fifteen (15) days after the end of the applicable month
(commencing from April 1, 2009) through the later of December 31,
2009, including but not exceeding the use of the current cash balance and an
the proceeds from the issuance of the Shares as set forth in the Budget.

 

8.                                       Miscellaneous.

 

8.1.                              Survival of
Warranties.  Unless
otherwise set forth in this Agreement, the representations and warranties of
the Company and the Purchaser contained in or made pursuant to this Agreement
shall survive until the running of the applicable statute of limitations and
shall in no way be affected by any investigation or knowledge of the subject
matter thereof made by or on behalf of the Purchaser or the Company.

 

18

 

8.2.                              Successors and
Assigns.  The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. 
Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.

 

8.3.                              Governing Law.  This Agreement and any controversy arising
out of or relating to this Agreement shall be governed by and construed in
accordance with the General Corporation Law of the State of Delaware as to
matters within the scope thereof, and as to all other matters shall be governed
by and construed in accordance with the internal laws of the State New York,
without regard to conflict of law principles that would result in the
application of any law other than the law of the State of New York.

 

8.4.                              Counterparts;
Facsimile.  This Agreement
may be executed and delivered by facsimile signature and in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

8.5.                              Titles and
Subtitles.  The titles
and subtitles used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement.

 

8.6.                              Notices.  All notices and other communications given or
made pursuant to this Agreement shall be in writing and shall be deemed
effectively given upon the earlier of actual receipt or:  (a) personal delivery to the party to be
notified, (b), five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (c) one (1) business
day after deposit with a nationally recognized overnight courier, freight
prepaid, specifying next business day delivery, with written verification of
receipt.  All communications shall be
sent to the respective parties at their address as set forth on the signature
page, or to such e-mail address, facsimile number or address as subsequently
modified by written notice given in accordance with this Section 8.6.

 

8.7.                              No Finder’s
Fees.  Each party represents that it
neither is nor will be obligated for any finder’s fee or commission in
connection with this transaction other than as set forth in the Disclosure
Schedule.  The Purchaser agrees to
indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder’s or broker’s fee arising
out of this transaction (and the costs and expenses of defending against such
liability or asserted liability) for which the Purchaser or any of its
officers, employees, or representatives is responsible.  The Company agrees to indemnify and hold
harmless the Purchaser from any liability for any commission or compensation in
the nature of a finder’s or broker’s fee arising out of this transaction (and
the costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.

 

8.8.                              Fees and
Expenses.  The Company
shall pay a fee to the Purchaser in an amount equal to $100,000, which amount
shall be included within the principal amount of the Note as payment in full of
this Company’s obligation under this Section 8.8.

 

8.9.                              Attorneys’ Fees.  If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement
or the Certificate, the prevailing party shall be entitled to reasonable
attorneys’ fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

 

8.10.                        Amendments and
Waivers.  Any term of this Agreement may
be amended, terminated or waived only with the written consent of the Company
and the Purchaser.  Any amendment

 

19

 

or waiver effected in
accordance with this Section 8.10 shall be binding upon the
Purchaser and each transferee of the Shares (or the Common Stock issuable upon
conversion thereof), each future holder of all such securities, and the
Company.

 

8.11.                        Severability.  The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.

 

8.12.                        Delays or
Omissions.  No delay or
omission to exercise any right, power or remedy accruing to any party under
this Agreement, upon any breach or default of any other party under this
Agreement, shall impair any such right, power or remedy of such non-breaching
or non-defaulting party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.  Any waiver,
permit, consent or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the part of any
party of any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such
writing.  All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative and
not alternative.

 

8.13.                        Entire
Agreement.  This
Agreement (including the Exhibits hereto) and the Certificate constitute the
full and entire understanding and agreement between the parties with respect to
the subject matter hereof, and any other written or oral agreement relating to
the subject matter hereof existing between the parties are expressly canceled.

 

8.14.                        Remedies for
Breach of this Agreement.  If
the Company is in material breach of its obligations under this Agreement after
the Initial Closing, including, without limitation, Section 7, above, or,
if the Company is in material breach of any of its obligations under the Note,
and such breach or breaches remain(s) uncured for fifteen (15) business
days following written notice thereof, then, upon demand by the Purchaser, the
Company shall:

 

(a)                                  Deliver to the Purchaser
(free from all and any encumbrances) sufficient shares of Common Stock to
provide that the Purchaser holds a majority of the outstanding Common Stock of
the Company (exclusive of its current equity holdings of the Common Stock); and

 

(b)                                 Shall, subject to the
Purchaser (or its Affiliate) entering into compensatory agreements with the
affected Company personnel, covenants to use its best efforts to (i) make
available the services of its then-current officers, management, staff and any
contactors to provide assistance with the exploitation of the Company’s
proposed business and (ii) provide that such officers, management and
employees of the Company not attempt to exploit the Company’s proposed business
other than for the benefit of the Company or the Purchaser.

 

8.15.                        Dispute
Resolution.  The parties
(a) hereby irrevocably and unconditionally submit to the jurisdiction of
the federal and state courts located within the geographic boundaries of the
United States District Court for the Southern District of New York for the
purpose of any suit, action or other proceeding arising out of or based upon
this Agreement, (b) agree not to commence any suit, action or other
proceeding arising out of or based upon this Agreement except in the federal
and state courts located within the geographic boundaries of the United States
District Court for the Southern District of New York, and (c) hereby waive,
and agree not to assert, by way of motion, as a defense, or otherwise, in

 

20

 

any such suit, action or
proceeding, any claim that it is not subject personally to the jurisdiction of
the above-named courts, that its property is exempt or immune from attachment
or execution, that the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is improper or that
this Agreement or the subject matter hereof may not be enforced in or by such
court.  Each party will bear its own
costs in respect of any disputes arising under this Agreement.  Each of the parties to this Agreement consents
to personal jurisdiction for any equitable action sought in the U.S. District
Court for the Southern District of New York or any court of the State of New
York having subject matter jurisdiction.

 

8.16.                   No Commitment
for Additional Financing.  The
Company acknowledges and agrees that the Purchaser has not made any representation,
undertaking, commitment or agreement to provide or assist the Company in
obtaining any financing, investment or other assistance, other than the
purchase of the Shares as set forth herein and subject to the conditions set
forth herein.  In addition, the Company
acknowledges and agrees that (i) no statements, whether written or oral,
made by any Purchaser or its representatives on or after the date of this
Agreement shall create an obligation, commitment or agreement to provide or
assist the Company in obtaining any financing or investment, (ii) the
Company shall not rely on any such statement by any Purchaser or its
representatives and (iii) an obligation, commitment or agreement to
provide or assist the Company in obtaining any financing or investment may only
be created by a written agreement, signed by the Purchaser and the Company,
setting forth the terms and conditions of such financing or investment and
stating that the parties intend for such writing to be a binding obligation or
agreement.  The Purchaser shall have the
right, in its sole and absolute discretion, to refuse or decline to participate
in any other financing of or investment in the Company, and shall have no
obligation to assist or cooperate with the Company in obtaining any financing,
investment or other assistance.

 

8.17.                   Waiver of
Conflicts.  Each party
to this Agreement acknowledges that Vandeberg Johnson & Gandara, LLP,
counsel for the Company, has in the past performed and may continue to perform
legal services for Broadmark Capital, LLC (an Affiliate of Joseph L. Schocken)
as well as certain of the Company’s existing stockholders in matters unrelated
to the transactions described in this Agreement, including the representation
of Broadmark Capital, LLC in connection with the management agreement between
the Company and Broadmark Capital, LLC. 
Accordingly, each party to this Agreement hereby (a) acknowledges
that it has had an opportunity to ask for information relevant to this
disclosure; and (b) gives its informed consent to Vandeberg Johnson &
Gandara, LLP’s representation of Broadmark Capital, LLC and the Company’s
stockholders in such unrelated matters. 
The Purchaser acknowledges and agrees that (a) Vandeberg Johnson &
Gandara, LLP representation of the Company is limited to the specific matters
with respect to which it has been retained and consulted by the Company, (b) Vandeberg
Johnson & Gandara, LLP has not been retained to represent the EFTs or any
Company Subsidiary, (c) there may exist other matters which could have a
bearing on the Company and/or its Affiliates as to which Vandeberg Johnson &
Gandara, LLP has been neither retained nor consulted, (d) Vandeberg
Johnson & Gandara, LLP does not undertake to monitor the compliance of
the Company or its Affiliates with their respective covenants under this
Agreement, nor does Vandeberg Johnson & Gandara, LLP monitor
compliance by the Company and/or its Affiliates with applicable laws, unless in
each case Vandeberg Johnson & Gandara, LLP has been specifically
retained to do so, (e) Vandeberg Johnson & Gandara, LLP does not
investigate or verify the accuracy and completeness of information set forth in
this Agreement, the Budget, and (f) except for any opinions specifically
set forth in a signed opinion letter issued by Vandeberg Johnson &
Gandara, LLP, Vandeberg Johnson & Gandara, LLP is not providing any
advice, opinion, representation, warranty or other assurance of any kind as to
any matter.

 

21

 

SIGNATURE PAGE TO PURCHASE AGREEMENT

 

IN WITNESS WHEREOF, the
parties have executed this Series B Preferred Stock Purchase Agreement as
of the date first written above.

 

 

	
   

  	
   

  	
   

  	
  XSHARES GROUP, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Jeffrey Feldman

  
	
   

  	
  Name:

  	
   

  	
  Jeffrey Feldman, Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  XShares Group, Inc.

  
	
   

  	
   

  	
   

  	
  420 Lexington Avenue,
  Suite 2550

  
	
   

  	
   

  	
   

  	
  New York, NY 10170

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  MGT CAPITAL INVESTMENTS,
  INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Tim Paterson-Brown

  
	
   

  	
  Name:

  	
   

  	
  Tim Paterson-Brown

  
	
   

  	
  Title:

  	
   

  	
  Chief Executive Officer

  
	
   

  	
  Address:Exhibit 10.4

[FORM OF]

 

SECOND AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

XSHARES GROUP, INC.

 

(Pursuant to Sections 242
and 245 of the

General Corporation Law of the State of Delaware)

 

XShares Group, Inc., a corporation organized and existing under
and by virtue of the provisions of the General Corporation Law of the State of
Delaware (the “General Corporation Law”),

 

DOES HEREBY CERTIFY:

 

1.             That the name of this corporation is XShares Group, Inc.,
and that this corporation was originally incorporated pursuant to the General
Corporation Law on August 7, 2008 under the name XShares Group, Inc.

 

2.             That the Board of Directors duly adopted
resolutions proposing to amend and restate the Certificate of Incorporation of
this corporation, declaring said amendment and restatement to be advisable and
in the best interests of this corporation and its stockholders, and authorizing
the appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment
and restatement is as follows:

 

RESOLVED, that the Certificate of
Incorporation of this corporation be amended and restated in its entirety to
read as follows:

 

FIRST:  The name of this corporation is XShares Group, Inc. (the “Corporation”).

 

SECOND: 
The address of the registered office of the
Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801, County of New Castle.  The name of its registered agent at such
address is The Corporation Trust Company.

 

THIRD: 
The nature of the business or purposes to be
conducted or promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law.

 

FOURTH: 
The total number of shares of all classes of
stock which the Corporation shall have authority to issue is (i) 1,400,000,000
shares of Common Stock, $0.0001 par value per share (“Common Stock”), and (ii) 672,000,000
shares of Preferred Stock, $0.0001 par value per share (“Preferred Stock”).

 

The following is a statement of the designations and
the powers, privileges and rights, and the qualifications, limitations or
restrictions thereof in respect of each class of capital stock of the
Corporation.

 

A.                                   COMMON STOCK

 

1.             General. 
The voting, dividend and liquidation rights of the holders of the Common
Stock are subject to and qualified by the rights, powers and preferences of the
holders of the Preferred Stock set forth herein.

 

 

2.             Voting. 
The holders of the Common Stock are entitled to one vote for each share
of Common Stock held at all meetings of stockholders (and written actions in
lieu of meetings); provided, however, that, except as otherwise
required by law, holders of Common Stock, as such, shall not be entitled to
vote on any amendment to the Certificate of Incorporation that relates solely
to the terms of one or more outstanding series of Preferred Stock if the
holders of such affected series are entitled, either separately or together
with the holders of one or more other such series, to vote thereon pursuant to
the Certificate of Incorporation or pursuant to the General Corporation
Law.  There shall be no cumulative
voting.  The number of authorized shares
of Common Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by (in addition to any vote of the holders of
one or more series of Preferred Stock that may be required by the terms of the
Certificate of Incorporation) the affirmative vote of the holders of shares of
capital stock of the Corporation representing a majority of the votes
represented by all outstanding shares of capital stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of
the General Corporation Law.

 

B.                                     PREFERRED
STOCK

 

One Hundred Seventy-Two Million (172,000,000) shares
of the authorized and unissued Preferred Stock of the Corporation are hereby
designated “Series A Preferred Stock,”
and Five Hundred Million (500,000,000) shares of the authorized and unissued
Preferred Stock of the Corporation are hereby designated “Series B Preferred Stock” with the
following rights, preferences, powers, privileges and restrictions,
qualifications and limitations. Unless otherwise indicated, references to “Sections”
or “Subsections” in this Part B of this Article Fourth refer to
sections and subsections of Part B of this Article Fourth.

 

1.             Dividends.  From and after the date of the issuance of
any shares of Series B Preferred Stock, dividends at the rate per annum of
$0.00284 per share shall accrue on such shares of Series B Preferred Stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to the Series A
Preferred Stock) (the “Accruing Dividends”).  Such Accruing Dividends shall be cumulative.
Accruing Dividends shall accrue from day to day and shall be declared and paid
on November 1st and May 1st of each year during which Series B
Preferred Stock remains issued and outstanding. 
The Accruing Dividends may be paid in either cash or in additional
shares of Series B Preferred Stock, as determined by the Board of
Directors.  Except as set forth above
with respect to the Series B Preferred Stock, the Corporation shall not
declare, pay or set aside any dividends on shares of any other class or series
of capital stock of the Corporation unless (in addition to the obtaining of any
consents required elsewhere in the Certificate of Incorporation) the holders of
the Series A Preferred Stock and Series B Preferred Stock then
outstanding shall first receive, or simultaneously receive, a dividend on each
outstanding share of Series A Preferred Stock and Series B Preferred
Stock in an amount at least equal to (i) in the case of a dividend on
Common Stock or any class or series that is convertible into Common Stock, that
dividend per share of Series A Preferred Stock or Series B Preferred
Stock as would equal the product of (A) the dividend payable on each share
of such class or series determined, if applicable, as if all shares of such
class or series had been converted into Common Stock and (B) the number of
shares of Common Stock issuable upon conversion of a share of Series A
Preferred Stock or Series B Preferred Stock, in each case calculated on
the record date for determination of holders entitled to receive such dividend
or (ii) in the case of a dividend on any class or series that is not
convertible into Common Stock, at a rate per share of Series A Preferred
Stock or Series B Preferred Stock determined by (A) dividing the
amount of the dividend payable on each share of such class or series of capital
stock by the original issuance price of such class or series of capital stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to such class
or series) and (B) multiplying such fraction by an amount equal to the
Original Issue Price (as defined below); provided that, if the Corporation
declares, pays or sets aside, on the same date, a dividend on shares of more
than one class or series of capital stock of the Corporation, the dividend
payable to the holders of Series A Preferred Stock Original Issue Price
pursuant to this Section 1 shall be calculated based upon the dividend
on the class or series of capital 

 

2

 

stock that would result in the
highest Series A Preferred Stock Original Issue Price dividend..  The “Original
Issue Price” shall mean $0.30 per share with respect to the Series A
Preferred Stock and $0.0284 per share with respect to the Series B
Preferred Stock, subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization with
respect to the Series A Preferred Stock or Series B Preferred Stock,
as applicable.

 

2.             Liquidation, Dissolution or
Winding Up; Certain Mergers, Consolidations and Asset Sales.

 

2.1           Payments to Holders of Preferred
Stock.

 

2.1.1        Series B Preferred Stock. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation or a
Deemed Liquidation Event, the holders of shares of Series B Preferred
Stock then outstanding shall be entitled to be paid in cash out of the assets
of the Corporation available for distribution to its stockholders before any
payment shall be made to the holders of securities ranking junior to the Series B
Preferred Stock by reason of their ownership thereof (including, without
limitation, the Series A Preferred Stock), an amount per share equal to
the greater of (i) the Original Issue Price, plus any accrued but unpaid
dividends thereon, or (ii)  such amount per share as would have been
payable had all shares of Series B Preferred Stock been converted into
Common Stock pursuant to Section 4 immediately prior to such
liquidation, dissolution or winding up (the amount payable pursuant to this
sentence is hereinafter referred to as the “Series B
Liquidation Amount”).  If upon
any such liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B Preferred Stock the
full amount to which they shall be entitled under this Subsection 2.1,
the holders of shares of Series B Preferred Stock shall share ratably in
any distribution of the assets available for distribution in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect
to such shares were paid in full.

 

2.1.2        Series A Preferred Stock. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation or a Deemed Liquidation Event, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid in cash out of
the assets of the Corporation available for distribution to its stockholders
following the payment in full of the Series B Liquidation Amount before
any payment shall be made to the holders of securities ranking junior to the Series A
Preferred Stock by reason of their ownership thereof, an amount per share equal
to the greater of (i) the Original Issue Price, plus any dividends
declared but unpaid thereon, or (ii)  such amount per share as would have
been payable had all shares of Series A Preferred Stock been converted
into Common Stock pursuant to Section 4 immediately prior to such
liquidation, dissolution or winding up (the amount payable pursuant to this
sentence is hereinafter referred to as the “Series A
Liquidation Amount”).  If upon
any such liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock the
full amount to which they shall be entitled under this Subsection 2.1,
after the payment in full of the Series B Liquidation Amount, the holders
of shares of Series A Preferred Stock shall share ratably in any
distribution of the assets available for distribution in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect
to such shares were paid in full.

 

2.2           Payments to Holders of Common
Stock.  In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation or a
Deemed Liquidation Event, after the payment of all preferential amounts
required to be paid to the holders of shares of Series A Preferred Stock
and Series B Preferred Stock, the remaining assets of the Corporation
available for distribution to its stockholders shall be distributed among the
holders of shares of Common Stock, pro rata based on the number of shares held
by each such holder.

 

3

 

2.3          Deemed Liquidation Events.

 

2.3.1        Definition. 
Each of the following events shall be considered a “Deemed Liquidation Event”:

 

(a)           a merger or consolidation in which (i) the
Corporation is a constituent party or (ii) a subsidiary of the Corporation
is a constituent party and the Corporation issues shares of its capital stock
pursuant to such merger or consolidation, except any such merger or consolidation
involving the Corporation or a subsidiary in which the shares of capital stock
of the Corporation outstanding immediately prior to such merger or
consolidation continue to represent, or are converted into or exchanged for
shares of capital stock that represent, immediately following such merger or
consolidation, at least a majority, by voting power, of the capital stock of (1) the
surviving or resulting corporation or (2) if the surviving or resulting
corporation is a wholly owned subsidiary of another corporation immediately
following such merger or consolidation, the parent corporation of such
surviving or resulting corporation (provided  that, for the
purpose of this Subsection 2.3.1, all shares of Common Stock issuable
upon exercise of Options (as defined below) outstanding immediately prior to
such merger or consolidation or upon conversion of Convertible Securities (as
defined below) outstanding immediately prior to such merger or consolidation
shall be deemed to be outstanding immediately prior to such merger or
consolidation and, if applicable, converted or exchanged in such merger or
consolidation on the same terms as the actual outstanding shares of Common
Stock are converted or exchanged); or

 

(b)           the sale, lease, transfer, exclusive
license or other disposition, in a single transaction or series of related
transactions, by the Corporation or any subsidiary of the Corporation of all or
substantially all the assets of the Corporation and its subsidiaries taken as a
whole, or the sale or disposition (whether by merger or otherwise) of one or
more subsidiaries of the Corporation if substantially all of the assets of the
Corporation and its subsidiaries taken as a whole are held by such subsidiary
or subsidiaries, except where such sale, lease, transfer, exclusive license or
other disposition is to a wholly owned subsidiary of the Corporation.

 

2.3.2       Effecting a Deemed Liquidation Event.

 

(a)           The Corporation shall not have the
power to effect a Deemed Liquidation Event referred to in Subsection
2.3.1(a)(i) unless the agreement or plan of merger or consolidation
for such transaction (the “Merger Agreement”)
provides that the consideration payable to the stockholders of the Corporation
shall be allocated among the holders of capital stock of the Corporation in
accordance with Subsections 2.1 and 2.2.

 

(b)           In the event of a Deemed Liquidation Event referred to in Subsection
2.3.1(a)(ii) or 2.3.1(b), if the Corporation does not effect a
dissolution of the Corporation under the General Corporation Law within 90 days
after such Deemed Liquidation Event, then (i) the Corporation shall send a
written notice to each holder of Series B Preferred Stock no later than
the 90th day after the Deemed Liquidation Event advising such holders of their
right (and the requirements to be met to secure such right) pursuant to the
terms of the following clause (ii) to require the redemption of
such shares of Series B Preferred Stock, and (ii) if the holders of
at least sixty-seven percent of the then outstanding shares of Series B
Preferred Stock so request in a written instrument delivered to the Corporation
not later than 120 days after such Deemed Liquidation Event, the Corporation
shall use the consideration received by the Corporation for such Deemed
Liquidation Event (net of any retained liabilities associated with the assets
sold or technology licensed, as determined in good faith by the Board of
Directors of the Corporation), together with any other assets of the
Corporation available for distribution to its stockholders (the “Available Proceeds”), to the extent
legally available therefor, on the 150th day after such Deemed Liquidation
Event, to redeem all outstanding shares of Series B Preferred Stock at a
price per share equal to 1.05 times the Series B Liquidation Amount.  Notwithstanding the foregoing, in the event of
a redemption pursuant to the preceding sentence, if the Available Proceeds are 

 

4

 

not sufficient to redeem all outstanding
shares of Series B Preferred Stock, or if the Corporation does not have
sufficient lawfully available funds to effect such redemption, the Corporation
shall redeem a pro rata portion of each holder’s shares of Series B
Preferred Stock to the fullest extent of such Available Proceeds or such
lawfully available funds, based on the respective amounts which would otherwise
be payable in respect of the shares to be redeemed if the Available Proceeds or
lawfully available funds were sufficient to redeem all such shares, and shall
redeem the remaining shares to have been redeemed as soon as practicable after
the Corporation has funds legally available therefor.  The provisions of Subsections 6.2
through 6.4 shall apply, with such necessary changes in the details
thereof as are necessitated by the context, to the redemption of the Series B
Preferred Stock pursuant to this Subsection 2.3.2(b).  Prior to the distribution or redemption
provided for in this Subsection 2.3.2(b), the Corporation shall not
expend or dissipate the consideration received for such Deemed Liquidation
Event, except to discharge expenses incurred in connection with such Deemed
Liquidation Event or in the ordinary course of business.

 

(c)           In
the event of a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(ii) or
2.3.1(b), if the Corporation does not effect a dissolution of the
Corporation under the General Corporation Law within 90 days after such Deemed
Liquidation Event, then (i) the Corporation shall send a written notice to
each holder of Series A Preferred Stock no later than the 90th day after
the Deemed Liquidation Event advising such holders of their right (and the
requirements to be met to secure such right) pursuant to the terms of the
following clause (ii) to require the redemption of such shares of Series B
Preferred Stock, and (ii) if the holders of at least sixty-seven percent
of the then outstanding shares of Series A Preferred Stock so request in a
written instrument delivered to the Corporation not later than 120 days after
such Deemed Liquidation Event, the Corporation shall use the Available Proceeds
remaining after the redemption of the Series B Preferred Stock pursuant to
Subsection 2.3.2(b), is applicable, to the extent legally available therefor,
on the 150th day after such Deemed Liquidation Event, to redeem all outstanding
shares of Series A Preferred Stock at a price per share equal to the Series A
Liquidation Amount.  Notwithstanding the
foregoing, in the event of a redemption pursuant to the preceding sentence, if
the remaining Available Proceeds are not sufficient to redeem all outstanding
shares of Series A Preferred Stock, or if the Corporation does not have
sufficient lawfully available funds to effect such redemption, the Corporation
shall redeem a pro rata portion of each holder’s shares of Series A
Preferred Stock to the fullest extent of such remaining Available Proceeds or
such lawfully available funds, based on the respective amounts which would
otherwise be payable in respect of the shares to be redeemed if the remaining
Available Proceeds or lawfully available funds were sufficient to redeem all
such shares, and shall redeem the remaining shares to have been redeemed as
soon as practicable after the Corporation has funds legally available
therefor.  The provisions of Subsections
6.2 through 6.4 shall apply, with such necessary changes in the
details thereof as are necessitated by the context, to the redemption of the Series A
Preferred Stock pursuant to this Subsection 2.3.2(c).  Prior to the distribution or redemption
provided for in this Subsection 2.3.2(b), the Corporation shall not
expend or dissipate the consideration received for such Deemed Liquidation
Event, except to discharge expenses incurred in connection with such Deemed
Liquidation Event or in the ordinary course of business.

 

2.3.3       Amount Deemed Paid or Distributed.  If the amount deemed paid or distributed
under this Subsection 2.3.3 is made in property other than in cash, the
value of such distribution shall be the fair market value of such property,
determined as follows:

 

(a)           For securities not subject to
investment letters or other similar restrictions on free marketability,

 

(i)            if traded on a securities exchange
or the NASDAQ Stock Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or market over the 30-period
ending three days prior to the closing of such transaction;

 

5

 

(ii)           if actively traded over-the-counter,
the value shall be deemed to be the average of the closing bid prices over the
30-day period ending three days prior to the closing of such transaction; or

 

(iii)          if there is no active public market,
the value shall be the fair market value thereof, as determined in good faith
by the Board of Directors of the Corporation (so long as the Series B
Director concurs).

 

(b)           The method of valuation of securities
subject to investment letters or other similar restrictions on free
marketability (other than restrictions arising solely by virtue of a
stockholder’s status as an affiliate or former affiliate) shall take into
account an appropriate discount (as determined in good faith by the Board of
Directors of the Corporation (so long as the Series B Director concurs))
from the market value as determined pursuant to clause (a) above so as to
reflect the approximate fair market value thereof.

 

3.            Voting.

 

3.1          General;
Series B Director.

 

3.1.1        General.  On any
matter presented to the stockholders of the Corporation for their action or
consideration at any meeting of stockholders of the Corporation (or by written
consent of stockholders in lieu of meeting), each holder of outstanding shares
of Series A Preferred Stock and Series B Preferred Stock shall be
entitled to cast the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock and Series B
Preferred Stock held by such holder are convertible as of the record date for
determining stockholders entitled to vote on such matter.  Except as provided by law or by the other
provisions of the Certificate of Incorporation, holders of Series A
Preferred Stock and Series B Preferred Stock shall vote together with the
holders of Common Stock as a single class.

 

3.1.2        Election of Directors. 
The holders of record of the shares of Series B Preferred Stock,
exclusively and as a separate class, shall be entitled to elect one (1) director
of the Corporation (the “Series B
Director”).  The Board of
Directors shall be comprised of seven (7) individuals (inclusive of the Series B
Director). The Series B Director may be removed without cause by, and only
by, the affirmative vote of the holders of Series B Preferred Stock, given
either at a special meeting of such stockholders duly called for that purpose
or pursuant to a written consent of stockholders.  If the holders of shares of Series B
Preferred Stock fail to elect a director to fill the Series B Director
position, then such directorship shall remain vacant until such time as the
holders of the Series B Preferred Stock elect a person to fill such
directorship by vote or written consent in lieu of a meeting; and no such
directorship may be filled by stockholders of the Corporation other than by the
holders of the Series B Preferred Stock, voting exclusively and as a
separate class.  The holders of
record of the shares of Common Stock, and of any other class or series of
voting stock (including the Series B Preferred Stock), exclusively and
voting together as a single class, shall be entitled to elect the balance of
the total number of directors of the Corporation.  At any meeting held for the purpose of
electing a director, the presence in person or by proxy of the holders of a
majority of the outstanding shares of the class or series entitled to elect
such director shall constitute a quorum for the purpose of electing such
director.

 

3.2          Series A
Preferred Stock Protective Provisions. 
At any time when shares of Series A Preferred Stock are
outstanding, the Corporation shall not, either directly or indirectly by
amendment, merger, consolidation or otherwise, do any of the following without
(in addition to any other vote required by law or the Certificate of
Incorporation) the written consent or affirmative vote of the holders of at
least a majority of the then outstanding shares of Series A Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class:

 

6

 

(a)           liquidate, dissolve or wind-up the
business and affairs of the Corporation, effect any Deemed Liquidation Event,
or consent to any of the foregoing;

 

(b)           amend, alter or repeal any provision
of the Certificate of Incorporation or Bylaws of the Corporation in a manner
that adversely affects the powers, preferences or rights of the Series A
Preferred Stock;

 

(c)           create,
or authorize the creation of, or issue or obligate itself to issue shares of,
any additional class or series of capital stock unless the same ranks junior to
the Series A Preferred Stock with respect to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, the payment of
dividends and rights of redemption, or increase the authorized number of shares
of Series A Preferred Stock or increase the authorized number of shares of
any additional class or series of capital stock unless the same ranks junior to
the Series A Preferred Stock with respect to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, the payment of
dividends and rights of redemption;

 

(d)           (i) reclassify,
alter or amend any existing security of the Corporation that is pari passu with
the Series A Preferred Stock in respect of the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, the payment of
dividends or rights of redemption, if such reclassification, alteration or
amendment would render such other security senior to the Series A
Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify,
alter or amend any existing security of the Corporation that is junior to the Series A
Preferred Stock in respect of the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, the payment of dividends or
rights of redemption, if such reclassification, alteration or amendment would
render such other security senior to or pari passu with the Series A
Preferred Stock in respect of any such right, preference or privilege;

 

(e)           purchase
or redeem (or permit any subsidiary to purchase or redeem) or pay or declare
any dividend or make any distribution on, any shares of capital stock of the
Corporation other than (i) redemptions of or dividends or distributions on
the Series A Preferred Stock as expressly authorized herein, (ii) dividends
or other distributions payable on the Common Stock solely in the form of
additional shares of Common Stock and or (iii) repurchases of stock from
former employees, officers, directors, consultants or other persons who
performed services for the Corporation or any subsidiary in connection with the
cessation of such employment or service at the lower of the original purchase
price or the then-current fair market value thereof;

 

(f)            increase
the number of shares of Common Stock reserved for any of the Company’s equity
incentive plans;

 

(h)           determine
the remuneration of directors of the Corporation; or

 

(i)            increase
or decrease the number of directors of the Corporation to more than 5 members,
including the Series B Director.

 

3.3           Series B Preferred Stock
Protective Provisions.  At any time
when shares of Series B Preferred Stock are outstanding, the Corporation
shall not, either directly or indirectly by amendment, merger, consolidation or
otherwise, do any of the following without (in addition to any other vote
required by law or the Certificate of Incorporation) the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a class:

 

(a)           liquidate, dissolve or wind-up the
business and affairs of the Corporation, effect any Deemed Liquidation Event,
or consent to any of the foregoing;

 

7

 

(b)         amend,
alter or repeal any provision of the Certificate of Incorporation or Bylaws of
the Corporation in a manner that adversely affects the powers, preferences or
rights of the Series B Preferred Stock;

 

(c)         create,
or authorize the creation of, or issue or obligate itself to issue shares of,
any additional class or series of capital stock unless (i) the same ranks
junior to the Series B Preferred Stock with respect to the distribution of
assets on the liquidation, dissolution or winding up of the Corporation, the
payment of dividends and rights of redemption, or increase the authorized
number of shares of Series B Preferred Stock or increase the authorized
number of shares of any additional class or series of capital stock unless the
same ranks junior to the Series B Preferred Stock with respect to the
distribution of assets on the liquidation, dissolution or winding up of the
Corporation, the payment of dividends and rights of redemption; or (ii) the
proceeds of such security shall be used to redeem all of the outstanding Series B
Preferred Stock pursuant to Section 6.1.1 hereof;

 

(d)           (i) reclassify,
alter or amend any existing security of the Corporation that is pari passu with
the Series B Preferred Stock in respect of the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, the payment of
dividends or rights of redemption, if such reclassification, alteration or
amendment would render such other security senior to the Series B
Preferred Stock in respect of any such right, preference or privilege, or (ii) reclassify,
alter or amend any existing security of the Corporation that is junior to the Series B
Preferred Stock in respect of the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, the payment of dividends or
rights of redemption, if such reclassification, alteration or amendment would
render such other security senior to or pari passu with the Series B
Preferred Stock in respect of any such right, preference or privilege;

 

(e)           purchase
or redeem (or permit any subsidiary to purchase or redeem) or pay or declare
any dividend or make any distribution on, any shares of capital stock of the
Corporation other than (i) redemptions of or dividends or distributions on
the Series B Preferred Stock as expressly authorized herein, (ii) dividends
or other distributions payable on the Common Stock solely in the form of
additional shares of Common Stock and or (iii) repurchases of stock from
former employees, officers, directors, consultants or other persons who performed
services for the Corporation or any subsidiary in connection with the cessation
of such employment or service at the lower of the original purchase price or
the then-current fair market value thereof;

 

(f)            increase
the number of shares of Common Stock reserved for any of the Company’s equity
incentive plans;

 

(h)           determine
the remuneration of directors of the Corporation;

 

(i)            increase
or decrease the number of directors of the Corporation to more than 5 members,
including the Series B Director; or

 

(j)            create,
or authorize the creation of, or issue, or authorize the issuance of any debt
security unless the proceeds of such security shall be used to redeem all of
the outstanding Series B Preferred Stock pursuant to Section 6.1.1
hereof.

 

4.            Optional Conversion.  The holders of the Series A Preferred
Stock and Series B Preferred Stock shall have conversion rights as follows
(the “Conversion Rights”):

 

4.1          Right to Convert.

 

4.1.1        Conversion Ratio. 
Each share of Series A Preferred Stock and Series B Preferred
Stock shall be convertible, at the option of the holder thereof, at any time
and from time to time, 

 

8

 

and without the payment of additional consideration by the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Issue Price by the
Conversion Price (as defined below) in effect at the time of conversion.  The “Conversion
Price” shall initially be equal to $0.30 with respect to the Series A
Preferred Stock and $0.0284 with respect to the Series B Preferred
Stock.  Such initial Conversion Price,
and the rate at which shares of Series A Preferred Stock or Series B
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.

 

4.1.2        Termination of Conversion Rights. In the event of a
notice of redemption of any shares of Series A Preferred Stock or Series B
Preferred Stock pursuant to Section 6, the Conversion Rights of the
shares designated for redemption shall terminate on the applicable date set
forth in Section 6.

 

4.2          Fractional
Shares.  No fractional shares of
Common Stock shall be issued upon conversion of the Series A Preferred
Stock or Series B Preferred Stock. 
In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the fair market value of a share of Common Stock as determined in good faith by
the Board of Directors of the Corporation. 
Whether or not fractional shares would be issuable upon such conversion
shall be determined on the basis of the total number of shares of Series A
Preferred Stock or Series B Preferred Stock the holder is at the time
converting into Common Stock and the aggregate number of shares of Common Stock
issuable upon such conversion.

 

4.3          Mechanics
of Conversion.

 

4.3.1        Notice of Conversion. 
In order for a holder of Series A Preferred Stock or Series B
Preferred Stock, if and as applicable, to voluntarily convert shares of Series A
Preferred Stock or Series B Preferred Stock into shares of Common Stock,
such holder shall surrender the certificate or certificates for such shares of Series A
Preferred Stock or Series B Preferred Stock (or, if such registered holder
alleges that such certificate has been lost, stolen or destroyed, a lost
certificate affidavit and agreement reasonably acceptable to the Corporation to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of such
certificate), at the office of the transfer agent for the Series A
Preferred Stock or Series B Preferred Stock (or at the principal office of
the Corporation if the Corporation serves as its own transfer agent), together
with written notice that such holder elects to convert all or any number of the
shares of the Series A Preferred Stock or Series B Preferred Stock
represented by such certificate or certificates and, if applicable, any event
on which such conversion is contingent. 
Such notice shall state such holder’s name or the names of the nominees
in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued, if permitted. 
If required by the Corporation, certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or his, her or its attorney duly authorized in writing.  The close of business on the date of receipt
by the transfer agent (or by the Corporation if the Corporation serves as its
own transfer agent) of such certificates (or lost certificate affidavit and
agreement) and notice shall be the time of conversion (the “Conversion Time”), and the shares of Common
Stock issuable upon conversion of the shares represented by such certificate
shall be deemed to be outstanding of record as of such date.  The Corporation shall, as soon as practicable
after the Conversion Time, (i) issue and deliver to such holder of Series A
Preferred Stock or Series B Preferred Stock, or to his, her or its
nominees, a certificate or certificates for the number of full shares of Common
Stock issuable upon such conversion in accordance with the provisions hereof
and a certificate for the number (if any) of the shares of Series A
Preferred Stock or Series B Preferred Stock represented by the surrendered
certificate that were not converted into Common Stock, (ii) pay in cash
such amount as provided in Subsection 4.2 in lieu of any fraction of a
share of Common Stock otherwise issuable upon such conversion and (iii) pay
all declared but unpaid dividends on the shares of Series A Preferred
Stock or Series B Preferred Stock converted.

 

9

 

4.3.2        Reservation of Shares. 
The Corporation shall at all times when the Series A Preferred
Stock or Series B Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued capital stock, for the purpose of
effecting the conversion of the Series A Preferred Stock or Series B
Preferred Stock, as applicable, such number of its duly authorized shares of
Common Stock equal to 120% of the number of shares of Common Stock as shall
from time to time be sufficient (i) to effect the conversion of all
outstanding Series A Preferred Stock and Series B Preferred Stock and
to effect any dividends paid in shares of the Company’s Common Stock and (ii) in
the event of any breach by the Corporation under that certain Securities
Purchase Agreement (the “Purchase Agreement”) between the Corporation and MGT
Capital Investments, Inc. (“MGT”), dated as of May 14, 2009, or that
certain Convertible Promissory Note held by MGT (the “Note”), dated May 14,
2009, which breach remains uncured after the running of any cure period, such
number of shares of Common Stock sufficient to give MGT fifty (50%) percent of
the Corporation’s outstanding shares (exclusive of MGT’s current equity
holdings); and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock and Series B
Preferred Stock and to effect any dividends paid in shares of the Corporation’s
Common Stock and shares of Common Stock issued as a result of the Corporation’s
breach of the Purchase Agreement or the Note, the Corporation shall take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to the Certificate of
Incorporation.  Before taking any action
which would cause an adjustment reducing the applicable Conversion Price below
the then par value of the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock or Series B Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.

 

4.3.3        Effect of Conversion. 
All shares of Series A Preferred Stock and Series B Preferred
Stock which shall have been surrendered for conversion as herein provided shall
no longer be deemed to be outstanding and all rights with respect to such
shares shall immediately cease and terminate at the Conversion Time, except
only the right of the holders thereof to receive shares of Common Stock in
exchange therefor, to receive payment in lieu of any fraction of a share
otherwise issuable upon such conversion as provided in Subsection 4.2
and to receive payment of any dividends declared but unpaid thereon.  Any shares of Series A Preferred Stock
or Series B Preferred Stock so converted shall be retired and cancelled
and may not be reissued as shares of such series, and the Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock or Series B Preferred Stock accordingly.

 

1.1.2        No Further Adjustment. 
Upon any such conversion, no adjustment to the applicable Conversion
Price shall be made for any declared but unpaid dividends on the Series A
Preferred Stock or Series B Preferred Stock surrendered for conversion or
on the Common Stock delivered upon conversion.

 

4.3.4        Taxes.  The
Corporation shall pay any and all issue and other similar taxes that may be
payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares pursuant to this Section 4.  The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A Preferred Stock or Series B
Preferred Stock so converted were registered, and no such issuance or delivery
shall be made unless and until the person or entity requesting such issuance
has paid to the Corporation the amount of any such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid.

 

4.4           Adjustments to Conversion Price for
Diluting Issues.

 

10

 

4.4.1        Special Definitions. 
For purposes of this Article Fourth, the following definitions
shall apply:

 

(a)           “Option”
shall mean rights, options or warrants to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities.

 

(b)           “Original
Issue Date” shall mean the date on which the first share of the
applicable series of Preferred Stock was issued.

 

(c)           “Convertible
Securities” shall mean any evidences of indebtedness, shares or
other securities directly or indirectly convertible into or exchangeable for
Common Stock, but excluding Options.

 

(d)           “Additional
Shares of Common Stock” shall mean all shares of Common Stock issued
(or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the
Corporation after the Original Issue Date, other than (1) the following
shares of Common Stock and (2) shares of Common Stock deemed issued
pursuant to the following Options and Convertible Securities (clauses (1) and
(2), collectively, “Exempted Securities”):

 

(i)                         shares of
Common Stock, Options or Convertible Securities issued as a dividend or
distribution on Series A Preferred Stock or Series B Preferred Stock;

 

(ii)                      shares of
Common Stock, Options or Convertible Securities issued by reason of a dividend,
stock split, split-up or other distribution on shares of Common Stock that is
covered by Subsection 4.5, 4.6, 4.7 or 4.8; or

 

(iii)                   shares of Common Stock or
Options issued to employees or directors of, or consultants or advisors to, the
Corporation or any of its subsidiaries pursuant to a plan, agreement or
arrangement unanimously approved by the Board of Directors of the Corporation
(including the Series B Preferred Director).

 

4.4.2        No Adjustment of Conversion Price.  No adjustment in the Conversion Price shall
be made as the result of the issuance or deemed issuance of Additional Shares
of Common Stock if the Corporation receives written notice from the holders of
at least majority of the then outstanding shares of Series B Preferred
Stock, each voting as a separate class, agreeing that no such adjustment shall
be made as the result of the issuance or deemed issuance of such Additional
Shares of Common Stock.

 

4.4.3        Deemed Issue of Additional Shares of Common Stock.

 

(a)           If the Corporation at any time or
from time to time after the Original Issue Date shall issue any Options or
Convertible Securities (excluding Options or Convertible Securities which are
themselves Exempted Securities) or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto, assuming the
satisfaction of any conditions to exercisability, convertibility or
exchangeability but without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of 

 

11

 

the time of such issue or,
in case such a record date shall have been fixed, as of the close of business
on such record date.

 

(b)           If the terms of any Option or
Convertible Security, the issuance of which resulted in an adjustment to the
Conversion Price pursuant to the terms of Subsection 4.4.4, are revised
as a result of an amendment to such terms or if any other adjustment is made
pursuant to the provisions of such Option or Convertible Security (but
excluding automatic adjustments to such terms pursuant to anti-dilution or
similar provisions of such Option or Convertible Security) to provide for
either (1) any increase or decrease in the number of shares of Common
Stock issuable upon the exercise, conversion and/or exchange of any such Option
or Convertible Security or (2) any increase or decrease in the
consideration payable to the Corporation upon such exercise, conversion and/or
exchange, then, effective upon such increase or decrease becoming effective,
the Conversion Price computed upon the original issue of such Option or
Convertible Security (or upon the occurrence of a record date with respect
thereto) shall be readjusted to such Conversion Price as would have obtained
had such revised terms been in effect upon the original date of issuance of
such Option or Convertible Security. 
Notwithstanding the foregoing, no readjustment pursuant to this clause
(b) shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the applicable Conversion Price in
effect immediately prior to the original adjustment made as a result of the
issuance of such Option or Convertible Security, or (ii) the applicable
Conversion Price that would have resulted from any issuances of Additional
Shares of Common Stock (other than deemed issuances of Additional Shares of
Common Stock as a result of the issuance of such Option or Convertible
Security) between the original adjustment date and such readjustment date.

 

(c)           If the terms of any Option or
Convertible Security (excluding Options or Convertible Securities which are
themselves Exempted Securities), the issuance of which did not result in an
adjustment to the Conversion Price pursuant to the terms of Subsection 4.4.4
(either because the consideration per share (determined pursuant to Subsection
4.4.5) of the Additional Shares of Common Stock subject thereto was equal
to or greater than the Conversion Price then in effect, or because such Option
or Convertible Security was issued before the Original Issue Date), are revised
after the Original Issue Date as a result of an amendment to such terms or any
other adjustment pursuant to the provisions of such Option or Convertible Security
(but excluding automatic adjustments to such terms pursuant to anti-dilution or
similar provisions of such Option or Convertible Security) to provide for
either (1) any increase in the number of shares of Common Stock issuable
upon the exercise, conversion or exchange of any such Option or Convertible
Security or (2) any decrease in the consideration payable to the
Corporation upon such exercise, conversion or exchange, then such Option or
Convertible Security, as so amended or adjusted, and the Additional Shares of
Common Stock subject thereto (determined in the manner provided in Subsection
4.4.3(a)) shall be deemed to have been issued effective upon such increase
or decrease becoming effective.

 

(d)           Upon the expiration or termination of
any unexercised Option or unconverted or unexchanged Convertible Security (or
portion thereof) which resulted (either upon its original issuance or upon a
revision of its terms) in an adjustment to the Conversion Price pursuant to the
terms of Subsection 4.4.4, the Conversion Price shall be readjusted to
such Conversion Price as would have obtained had such Option or Convertible
Security (or portion thereof) never been issued.

 

(e)           If the number of shares of Common
Stock issuable upon the exercise, conversion and/or exchange of any Option or
Convertible Security, or the consideration payable to the Corporation upon such
exercise, conversion and/or exchange, is calculable at the time such Option or
Convertible Security is issued or amended but is subject to adjustment based
upon subsequent events, any adjustment to the Conversion Price provided for in
this Subsection 4.4.3 shall be effected at the time of such issuance or
amendment based on such number of shares or amount of consideration without
regard to any provisions for subsequent adjustments (and any subsequent
adjustments shall be treated as provided in clauses (b) and (c) of
this Subsection 4.4.3).  If the number of shares of Common Stock 

 

12

 

issuable upon the exercise,
conversion and/or exchange of any Option or Convertible Security, or the
consideration payable to the Corporation upon such exercise, conversion and/or
exchange, cannot be calculated at all at the time such Option or Convertible
Security is issued or amended, any adjustment to the Conversion Price that
would result under the terms of this Subsection 4.4.3 at the time of
such issuance or amendment shall instead be effected at the time such number of
shares and/or amount of consideration is first calculable (even if subject to
subsequent adjustments), assuming for purposes of calculating such adjustment
to the Conversion Price that such issuance or amendment took place at the time
such calculation can first be made.

 

4.4.4        Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock.

 

4.4.4.1     Special Adjustments to Series B
Conversion Price in Absence of Qualfied Equity Financing.  Unless a Qualified Equity Financing has
occurred, and in the event the Series B Preferred Stock is not previously
redeemed pursuant to Subsection 2.3.2 or Section 6, on January 1,
2010, the Series B Conversion Price shall be adjusted to equal $0.001,
where “Qualified Equity Financing”
means an equity financing by the Corporation in an aggregate sum of at least
$5,000,000, upon terms and conditions acceptable to the Corporation’s Board of
Directors, which shall include the specific approval of the Series B
Director, not to be unreasonably withheld, which financing closes on or before December 31,
2009.

 

4.4.4.2     Adjustments to Series A Conversion
Price and Series B Conversion Price. In addition to the adjustment set
forth in Subsection 4.4.4.1, in the event the Corporation shall at any time
after the Original Issue Date of the Series B Preferred Stock issue Additional
Shares of Common Stock (including Additional Shares of Common Stock deemed to
be issued pursuant to Subsection 4.4.3), without consideration or for a
consideration per share less than the applicable Conversion Price in effect
immediately prior to such issue, then

 

(a)           the Conversion Price of the Series A Preferred Stock
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest one-hundredth of a cent) determined in accordance with the following
formula:

 

CP2 = CP1* (A + B) ÷ (A + C).

 

For purposes of the
foregoing formula, the following definitions shall apply:

 

“CP2”          shall mean the Conversion
Price for such series of Preferred Stock in effect immediately after such issue
of Additional Shares of Common Stock

 

“CP1”          shall mean the Conversion
Price for such series of Preferred Stock in effect immediately prior to such
issue of Additional Shares of Common Stock;

 

“A”                    shall mean the
number of shares of Common Stock outstanding immediately prior to such issue of
Additional Shares of Common Stock (treating for this purpose as outstanding all
shares of Common Stock issuable upon exercise of Options outstanding
immediately prior to such issue or upon conversion or exchange of Convertible
Securities (including the Series A Preferred Stock and Series B
Preferred Stock) outstanding (assuming exercise of any 

 

13

 

outstanding Options therefor) immediately prior to such issue);

 

“B”                      shall mean the
number of shares of Common Stock that would have been issued if such Additional
Shares of Common Stock had been issued at a price per share equal to CP1 (determined by dividing the aggregate
consideration received by the Corporation in respect of such issue by CP1); and

 

“C”                      shall mean the
number of such Additional Shares of Common Stock issued in such transaction;
and

 

(b)           the Conversion Price of the Series B Preferred Stock
shall be reduced, concurrently with adjustment to the Series A Preferred
Stock Conversion Price, to a price (calculated to the nearest one-hundredth of
a cent) in order to maintain the ratio of the number of shares of Series B
Preferred Stock to the number of shares of Series A Preferred Stock (each
as measured on an as-converted basis) as existed prior to the adjustment to the
Series A Preferred Stock Conversion Price.

 

4.4.5        Determination of Consideration.  For purposes of this Subsection 4.4,
the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:

 

(a)           Cash and Property:  Such consideration shall:

 

(i)                         insofar as it
consists of cash, be computed at the aggregate amount of cash received by the
Corporation, excluding amounts paid or payable for accrued interest;

 

(ii)                      insofar as it
consists of property other than cash, be computed at the fair market value
thereof at the time of such issue, as determined in good faith by the Board of
Directors of the Corporation (with the concurrence of the Series B
Preferred Stock Director); and

 

(iii)                   in the event Additional
Shares of Common Stock are issued together with other shares or securities or
other assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(i) and (ii) above, as determined in good faith by the
Board of Directors of the Corporation.

 

(b)           Options and Convertible Securities.  The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Subsection 4.4.3, relating to Options and Convertible
Securities, shall be determined by dividing

 

(i)                         the total
amount, if any, received or receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities, plus the minimum aggregate
amount of additional consideration (as set 

 

14

 

forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration) payable to the Corporation upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by

 

(ii)                      the maximum
number of shares of Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities.

 

4.4.6        Multiple Closing Dates.  In the event the Corporation shall issue on
more than one date Additional Shares of Common Stock that are a part of one
transaction or a series of related transactions and that would result in an
adjustment to the Conversion Price pursuant to the terms of Subsection
4.4.4, then, upon the final such issuance, the Conversion Price shall be
readjusted to give effect to all such issuances as if they occurred on the date
of the first such issuance (and without giving effect to any additional
adjustments as a result of any such subsequent issuances within such period).

 

4.5           Adjustment for Stock Splits and
Combinations.  If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price in effect
immediately before that subdivision shall be proportionately decreased so that
the number of shares of Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such increase in the aggregate
number of shares of Common Stock outstanding. 
If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price in effect immediately before the combination shall be
proportionately increased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be decreased in proportion to
such decrease in the aggregate number of shares of Common Stock
outstanding.  Any adjustment under this
subsection shall become effective at the close of business on the date the
subdivision or combination becomes effective.

 

4.6           Adjustment for Certain Dividends
and Distributions.  In the event the
Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable on
the Common Stock in additional shares of Common Stock, then and in each such
event the Conversion Price in effect immediately before such event shall be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction:

 

(1)                                  the numerator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and

 

(2)                                  the denominator
of which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such 

 

15

 

issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution.

 

Notwithstanding the foregoing, (a) if such record date shall have
been fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this subsection as of the time
of actual payment of such dividends or distributions; and (b) that no such
adjustment shall be made if the holders of Series A Preferred Stock or Series B
Preferred Stock simultaneously receive a dividend or other distribution of
shares of Common Stock in a number equal to the number of shares of Common
Stock as they would have received if all outstanding shares of Series A
Preferred Stock and Series B Preferred Stock had been converted into
Common Stock on the date of such event.

 

4.7           Adjustments for Other Dividends
and Distributions.  In the event the
Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation or in other property and the provisions of Section 1
do not apply to such dividend or distribution, then and in each such event the
holders of Series A Preferred Stock and Series B Preferred Stock
shall receive, simultaneously with the distribution to the holders of Common
Stock, a dividend or other distribution of such securities or other property in
an amount equal to the amount of such securities or other property as they
would have received if all outstanding shares of Series A Preferred Stock
and Series B Preferred Stock had been converted into Common Stock on the
date of such event.

 

4.8           Adjustment for Merger or
Reorganization, etc.  Subject to the
provisions of Subsection 2.3, if there shall occur any reorganization, recapitalization,
reclassification, consolidation or merger involving the Corporation in which
the Common Stock (but not the Series A Preferred Stock or Series B
Preferred Stock) is converted into or exchanged for securities, cash or other
property (other than a transaction covered by Subsections 4.4, 4.6
or 4.7), then, following any such reorganization, recapitalization,
reclassification, consolidation or merger, each share of Series A
Preferred Stock and Series B Preferred Stock shall thereafter be convertible
in lieu of the Common Stock into which it was convertible prior to such event
into the kind and amount of securities, cash or other property which a holder
of the number of shares of Common Stock of the Corporation issuable upon
conversion of one share of Series A Preferred Stock and Series B
Preferred Stock immediately prior to such reorganization, recapitalization,
reclassification, consolidation or merger would have been entitled to receive
pursuant to such transaction; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors of the Corporation) shall be
made in the application of the provisions in this Section 4 with
respect to the rights and interests thereafter of the holders of the Series A
Preferred Stock and Series B Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with
respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
securities or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock and Series B Preferred Stock.

 

4.9           Certificate as to Adjustments.  Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall, as promptly as reasonably practicable but
in any event not later than 10 days thereafter, compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of Series A
Preferred Stock and Series B Preferred Stock a certificate setting forth
such adjustment or readjustment (including the kind and amount of securities,
cash or other property into which the Series A Preferred Stock or Series B
Preferred Stock is convertible) and showing in detail the facts upon which such
adjustment or readjustment is based.  The
Corporation shall, as promptly as reasonably practicable after the written
request at any time of any holder of Series A Preferred Stock or Series B
Preferred Stock (but 

 

16

 

in any event not later than 10
days thereafter), furnish or cause to be furnished to such holder a certificate
setting forth (i) the Conversion Price then in effect, and (ii) the
number of shares of Common Stock and the amount, if any, of other securities,
cash or property which then would be received upon the conversion of Series A
Preferred Stock or Series B Preferred Stock.

 

4.10         Notice of Record Date.  In the event:

 

(a)           the Corporation shall take a record
of the holders of its Common Stock (or other capital stock or securities at the
time issuable upon conversion of the Series A Preferred Stock or Series B
Preferred Stock) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of capital stock of any class or any other securities, or
to receive any other security; or

 

(b)           of any capital reorganization of the
Corporation, any reclassification of the Common Stock of the Corporation, or
any Deemed Liquidation Event; or

 

(c)           of the voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation,

 

then, and in each such case, the Corporation will send or cause to be
sent to the holders of the Series A Preferred Stock or Series B
Preferred Stock a notice specifying, as the case may be, (i) the record
date for such dividend, distribution or right, and the amount and character of
such dividend, distribution or right, or (ii) the effective date on which
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up is proposed to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
such other capital stock or securities at the time issuable upon the conversion
of the Series A Preferred Stock or Series B Preferred Stock) shall be
entitled to exchange their shares of Common Stock (or such other capital stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up, and the amount per share and character of such
exchange applicable to the Series A Preferred Stock, Series B
Preferred Stock and the Common Stock. 
Such notice shall be sent at least 10 days prior to the record date or
effective date for the event specified in such notice.

 

5.             Mandatory Conversion.

 

5.1           Upon the date and time, or the
occurrence of an event, specified by vote or written consent of the holders of
at least sixty-seven percent of the then outstanding shares of Series B
Preferred Stock (the time of such closing or the date and time specified or the
time of the event specified in such vote or written consent is referred to
herein as the “Mandatory Conversion Time”),
(i) all outstanding shares of Series A Preferred Stock and Series B
Preferred Stock shall automatically be converted into shares of Common Stock,
at the then effective conversion rate and (ii) such shares may not be
reissued by the Corporation.

 

5.2           Procedural Requirements.  All holders of record of shares of Series A
Preferred Stock and Series B Preferred Stock shall be sent written notice
of the Mandatory Conversion Time and the place designated for mandatory
conversion of all such shares of Series A Preferred Stock and Series B
Preferred Stock pursuant to this Section 5.  Such notice need not be sent in advance of
the occurrence of the Mandatory Conversion Time.  Upon receipt of such notice, each holder of
shares of Series A Preferred Stock and Series B Preferred Stock shall
surrender his, her or its certificate or certificates for all such shares (or,
if such holder alleges that such certificate has been lost, stolen or destroyed,
a lost certificate affidavit and agreement reasonably acceptable to the
Corporation to indemnify the Corporation against any claim that may be made
against the Corporation on account of the alleged loss, theft or destruction of
such certificate) to the Corporation at the place designated in such notice and
shall 

 

17

 

thereafter receive certificates
for the number of shares of Common Stock to which such holder is entitled
pursuant to this Section 5. 
At the Mandatory Conversion Time, all outstanding shares of Series A
Preferred Stock and Series B Preferred Stock shall be deemed to have been
converted into shares of Common Stock, which shall be deemed to be outstanding
of record, and all rights with respect to the Series A Preferred Stock and
Series B Preferred Stock so converted, including the rights, if any, to
receive notices and vote (other than as a holder of Common Stock), will
terminate notwithstanding the failure of the holder or holders thereof to surrender
the certificates at or prior to such time, except only the rights of the
holders thereof, upon surrender of their certificate or certificates (or lost
certificate affidavit and agreement) therefor, to receive the items provided
for in the last sentence of this Subsection 5.2.  If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his, her or its
attorney duly authorized in writing.  As
soon as practicable after the Mandatory Conversion Time and the surrender of
the certificate or certificates (or lost certificate affidavit and agreement)
for Series A Preferred Stock and Series B Preferred Stock, the
Corporation shall issue and deliver to such holder, or to his, her or its
nominees, a certificate or certificates for the number of full shares of Common
Stock issuable on such conversion in accordance with the provisions hereof,
together with cash as provided in Subsection 4.2 in lieu of any fraction
of a share of Common Stock otherwise issuable upon such conversion and the
payment of any declared but unpaid dividends on the shares of Series A
Preferred Stock and Series B Preferred Stock converted.  Such converted Series A Preferred Stock
and Series B Preferred Stock shall be retired and cancelled and may not be
reissued as shares of such series, and the Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be
necessary to reduce the authorized number of shares of Series A Preferred
Stock and Series B Preferred Stock accordingly.

 

6.             Redemption.

 

6.1           Redemption.

 

6.1.1        Shares of Series B Preferred Stock may be redeemed by
the Corporation at any time, out of funds lawfully available therefor, at a
price per share equal to 1.05 times the Original Issue Price, plus all declared
but unpaid dividends thereon, in a single installment payable on the applicable
date set forth in the redemption notice. 
The Corporation shall send written notice of the mandatory redemption to
each holder of record of Series B Preferred Stock not less than 20 days
prior to the redemption date, which notice shall state: (x) the date of
redemption; (y) that the holder’s right to convert such shares has
terminated; and (z) that the holder is to surrender to the Corporation, in
the manner and at the place designated, his, her or its certificate or
certificates representing the shares of Series B Preferred Stock to be
redeemed.  The Series B Preferred
Stock may not be converted following the issuance of the redemption notice,
unless the Corporation fails to timely pay the redemption price as set forth in
the notice.

 

6.1.2        Shares of Series A Preferred Stock shall be redeemed by
the Corporation out of funds lawfully available therefor at a price per share
equal to the Original Issue Price, plus all declared but unpaid dividends
thereon  (the “Redemption Price”), in three annual
installments commencing not more than 60 days after receipt by the Corporation
at any time on or after July 31, 2013, from the holders of at least
sixty-seven percent (67%) of the then outstanding shares of Series A
Preferred Stock, of written notice requesting redemption of all shares of Series A
Preferred Stock. The date of each such installment shall be referred to as a “Redemption Date”.  On each Redemption Date, the Corporation
shall redeem, on a pro rata basis in accordance with the number of shares of Series A
Preferred Stock owned by each holder, that number of outstanding shares of Series A
Preferred Stock determined by dividing (i) the total number of shares of Series A
Preferred Stock outstanding immediately prior to such Redemption Date by (ii) the
number of remaining Redemption Dates (including the Redemption Date to which
such calculation applies).  If the
Corporation does not have sufficient 

 

18

 

funds legally available to redeem on any Redemption Date all
shares of Series A Preferred Stock to be redeemed on such Redemption Date,
the Corporation shall redeem a pro rata portion of each holder’s redeemable
shares of such capital stock out of funds legally available therefor, based on
the respective amounts which would otherwise be payable in respect of the
shares to be redeemed if the legally available funds were sufficient to redeem
all such shares, and shall redeem the remaining shares to have been redeemed as
soon as practicable after the Corporation has funds legally available therefor.

 

6.2           Redemption Notice.  The Corporation shall send written notice of
the mandatory redemption (the “Redemption
Notice”) to each holder of record of Series A Preferred Stock
not less than 40 days prior to each Redemption Date.  Each Redemption Notice shall state:

 

(a)           the number of shares of Series A
Preferred Stock held by the holder that the Corporation shall redeem on the
Redemption Date specified in the Redemption Notice;

 

(b)           the Redemption Date and the
Redemption Price;

 

(c)           the date upon which the holder’s
right to convert such shares terminates (as determined in accordance with Subsection
4.1); and

 

(d)           that the holder is to surrender to
the Corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares of Series A Preferred
Stock to be redeemed.

 

6.3           Surrender of Certificates; Payment.  On or before the applicable Redemption Date,
each holder of shares of Series A Preferred Stock to be redeemed on such
Redemption Date, unless such holder has exercised his, her or its right to
convert such shares as provided in Section 4, shall surrender the
certificate or certificates representing such shares (or, if such registered
holder alleges that such certificate has been lost, stolen or destroyed, a lost
certificate affidavit and agreement reasonably acceptable to the Corporation to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of such
certificate) to the Corporation, in the manner and at the place designated in
the Redemption Notice, and thereupon the Redemption Price for such shares shall
be payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof.  In
the event less than all of the shares of Series A Preferred Stock
represented by a certificate are redeemed, a new certificate representing the
unredeemed shares of Series A Preferred Stock shall promptly be issued to
such holder.

 

6.4           Rights Subsequent to Redemption.  If the Redemption Notice shall have been duly
given, and if on the applicable Redemption Date the Redemption Price payable
upon redemption of the shares of Series A Preferred Stock to be redeemed
on such Redemption Date is paid or tendered for payment or deposited with an
independent payment agent so as to be available therefor in a timely manner,
then notwithstanding that the certificates evidencing any of the shares of Series A
Preferred Stock so called for redemption shall not have been surrendered,
dividends with respect to such shares of Series A Preferred Stock shall
cease to accrue after such Redemption Date and all rights with respect to such
shares shall forthwith after the Redemption Date terminate, except only the
right of the holders to receive the Redemption Price without interest upon
surrender of their certificate or certificates therefor.

 

7.             Redeemed or Otherwise Acquired Shares.  Any shares of Series A Preferred Stock
or Series B Preferred Stock that are redeemed or otherwise acquired by the
Corporation or any of its subsidiaries shall be automatically and immediately
cancelled and retired and shall not be reissued, sold or transferred.  Neither the Corporation nor any of its
subsidiaries may exercise any voting or other rights granted to the holders of Series A
Preferred Stock or Series B Preferred Stock following redemption.

 

19

 

8.             Waiver. 
Any of the rights, powers, preferences and other terms of the Series A
Preferred Stock set forth herein may be waived on behalf of all holders of Series A
Preferred Stock by the affirmative written consent or vote of the holders of at
least sixty-seven percent of the shares of Series A Preferred Stock then
outstanding.  Any of the rights, powers,
preferences and other terms of the Series B Preferred Stock set forth
herein may be waived on behalf of all holders of Series B Preferred Stock
by the affirmative written consent or vote of the holders of at least a
majority of the shares of Series B Preferred Stock then outstanding.

 

9.             Notices. 
Any notice required or permitted by the provisions of this Article Fourth
to be given to a holder of shares of Series A Preferred Stock or Series B
Preferred Stock shall be mailed, postage prepaid, to the post office address
last shown on the records of the Corporation, or given by electronic
communication in compliance with the provisions of the General Corporation Law,
and shall be deemed sent upon such mailing or electronic transmission.

 

SECOND:  The Corporation shall not
recognize any transfer of any of the securities issued by the Corporation
unless the board of directors has first approved such transfer.  For purposes of this article, “Transfer,” “Transferring,” “Transferred”
or words of similar import, mean and include any sale, assignment, encumbrance,
hypothecation, pledge, conveyance in trust, gift, transfer by bequest, devise
or descent, or other transfer or disposition of any kind, including but not
limited to transfers to receivers, levying creditors, trustees or receivers in
bankruptcy proceedings or general assignees for the benefit of creditors,
whether voluntary or by operation of law, directly or indirectly, except
for:  (i) any repurchase of
securities by the Corporation; (ii) any Transfer, other than pursuant to
divorce decree, dissolution, or property settlement, of Shares to a holder’s
spouse, sibling, lineal descendant or ancestor or to a trust established for
the benefit of any such individual; (iii) any Transfer of securities on a
holder’s death by will or intestacy; (iv) bona
fide gifts of up to 10% in the aggregate of the securities held by
the transferring holder as of the date hereof or (v) any Transfer of
securities by a holder to an affiliate.

 

THIRD:  Subject to any additional
vote required by the Certificate of Incorporation or Bylaws, in furtherance and
not in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, repeal, alter, amend and rescind any or all of
the Bylaws of the Corporation.

 

FOURTH:  Subject to any additional
vote required by the Certificate of Incorporation, the number of directors of
the Corporation shall be determined in the manner set forth in the Bylaws of
the Corporation.

 

FIFTH:  Elections of directors need
not be by written ballot unless the Bylaws of the Corporation shall so provide.

 

SIXTH:  Meetings of stockholders may
be held within or without the State of Delaware, as the Bylaws of the
Corporation may provide.  The books of
the Corporation may be kept outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.

 

SEVENTH:  To the fullest extent
permitted by law, a director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.  If the
General Corporation Law or any other law of the State of Delaware is amended
after approval by the stockholders of this Article Tenth to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General
Corporation Law as so amended.

 

20

 

Any repeal or modification of the foregoing provisions of this Article Tenth
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of, or
increase the liability of any director of the Corporation with respect to any
acts or omissions of such director occurring prior to, such repeal or
modification.

 

To
the fullest extent permitted by applicable law, the Corporation is authorized
to provide indemnification of (and advancement of expenses to) directors,
officers and agents of the Corporation (and any other persons to which General
Corporation Law permits the Corporation to provide indemnification) through
Bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law.  Any amendment,
repeal or modification of the foregoing provisions of this Article Tenth
shall not adversely affect any right or protection of any director, officer or
other agent of the Corporation existing at the time of such amendment, repeal
or modification.

 

ELEVENTH:  The Corporation renounces any interest or
expectancy of the Corporation in, or in being offered an opportunity to
participate in, any Excluded Opportunity. 
An “Excluded Opportunity”
is any matter, transaction or interest that is presented to, or acquired, created
or developed by, or which otherwise comes into the possession of, (i) any
director of the Corporation who is not an employee of the Corporation or any of
its subsidiaries, or (ii) any holder of Series A Preferred Stock or
of Series B Preferred Stock, or any partner, member, director,
stockholder, employee or agent of any such holder, other than someone who is an
employee of the Corporation or any of its subsidiaries (collectively, “Covered
Persons”), unless such matter, transaction or interest is presented to, or
acquired, created or developed by, or otherwise comes into the possession of, a
Covered Person expressly and solely in such Covered Person’s capacity as a
director of the Corporation.

 

*     *    
*

 

3.             That the foregoing amendment and restatement was
approved by the holders of the requisite number of shares of this corporation
in accordance with Section 228 of the General Corporation Law.

 

4.             That this Second Amended and Restated Certificate of
Incorporation, which restates and integrates and further amends the provisions
of this corporation’s Certificate of Incorporation, has been duly adopted in
accordance with Sections 242 and 245 of the General Corporation Law.

 

IN WITNESS WHEREOF, this Second Amended and
Restated Certificate of Incorporation has been executed by a duly authorized
officer of this corporation on this 14th day of May, 2009.

 

 

	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Jeffrey
  L. Feldman, Chief Executive Officer

  

 

21

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