Document:

Exhibit
10.1

 

 

 

SECURITIES
PURCHASE AGREEMENT

 

by and
between

 

META
FINANCIAL GROUP, INC.

 

and

 

CASH
AMERICA INTERNATIONAL, INC.

 

January 22,
2010

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  PURCHASE AND SALE OF COMMON
  STOCK

  	
  1

  
	
   

  	
   

  	
   

  
	
  (A)

  	
  COMMON STOCK

  	
  1

  
	
  (B)

  	
  CLOSING

  	
  1

  
	
  (C)

  	
  PURCHASE PRICE

  	
  1

  
	
  (D)

  	
  FORM OF PAYMENT

  	
  2

  
	
   

  	
   

  	
   

  
	
  2.

  	
  BUYER’S REPRESENTATIONS AND
  WARRANTIES

  	
  2

  
	
   

  	
   

  	
   

  
	
  (A)

  	
  ORGANIZATION; AUTHORITY

  	
  2

  
	
  (B)

  	
  NO PUBLIC SALE OR DISTRIBUTION

  	
  2

  
	
  (C)

  	
  ACCREDITED INVESTOR STATUS; SOPHISTICATION

  	
  2

  
	
  (D)

  	
  RELIANCE ON EXEMPTIONS

  	
  2

  
	
  (E)

  	
  CERTAIN SECURITIES TRANSACTIONS

  	
  3

  
	
  (F)

  	
  INFORMATION

  	
  3

  
	
  (G)

  	
  NO GOVERNMENTAL REVIEW

  	
  3

  
	
  (H)

  	
  TRANSFER OR RESALE

  	
  3

  
	
  (I)

  	
  LEGENDS

  	
  4

  
	
  (J)

  	
  VALIDITY; ENFORCEMENT

  	
  5

  
	
  (K)

  	
  NO CONFLICTS

  	
  5

  
	
  (L)

  	
  BANK REGULATORY AGENCIES

  	
  5

  
	
  (M)

  	
  STOCK OWNERSHIP

  	
  6

  
	
  (N)

  	
  RESIDENCY

  	
  6

  
	
  (O)

  	
  NO BROKER

  	
  6

  
	
   

  	
   

  	
   

  
	
  3.

  	
  REPRESENTATIONS AND WARRANTIES
  OF THE COMPANY

  	
  6

  
	
   

  	
   

  	
   

  
	
  (A)

  	
  ORGANIZATION AND QUALIFICATION

  	
  6

  
	
  (B)

  	
  STATUS OF COMPANY AND SUBSIDIARIES

  	
  7

  
	
  (C)

  	
  AUTHORIZATION; ENFORCEMENT; VALIDITY

  	
  7

  
	
  (D)

  	
  ISSUANCE OF PURCHASED SHARES; NO RESTRICTIONS ON
  TRANSFER

  	
  7

  
	
  (E)

  	
  NO CONFLICTS

  	
  7

  
	
  (F)

  	
  CONSENTS

  	
  8

  
	
  (G)

  	
  NO GENERAL SOLICITATION; PLACEMENT AGENT’S FEES

  	
  8

  
	
  (H)

  	
  NO INTEGRATED OFFERING

  	
  8

  
	
  (I)

  	
  APPLICATION OF TAKEOVER AND OTHER PROTECTIONS;
  RIGHTS AGREEMENT

  	
  8

  
	
  (J)

  	
  SEC DOCUMENTS; FINANCIAL STATEMENTS

  	
  9

  
	
  (K)

  	
  ACCURACY OF INFORMATION

  	
  9

  
	
  (L)

  	
  ABSENCE OF CERTAIN CHANGES

  	
  10

  
	
  (M)

  	
  NO UNDISCLOSED LIABILITIES

  	
  10

  
	
  (N)

  	
  CONDUCT OF BUSINESS; REGULATORY PERMITS

  	
  11

  
	
  (O)

  	
  INVESTMENT COMPANY STATUS

  	
  11

  
	
  (P)

  	
  TRANSACTIONS WITH AFFILIATES

  	
  11

  
	
  (Q)

  	
  AGREEMENTS WITH REGULATORY AGENCIES

  	
  12

  
				

 

i

 

	
  (R)

  	
  EQUITY CAPITALIZATION

  	
  12

  
	
  (S)

  	
  SUBSIDIARIES

  	
  13

  
	
  (T)

  	
  ABSENCE OF LITIGATION

  	
  13

  
	
  (U)

  	
  PROPERTIES AND LEASES

  	
  13

  
	
  (V)

  	
  INSURANCE

  	
  14

  
	
  (W)

  	
  TAX STATUS

  	
  14

  
	
  (X)

  	
  MANIPULATION OF PRICE

  	
  14

  
	
  (Y)

  	
  SHELL COMPANY STATUS

  	
  14

  
	
  (Z)

  	
  U.S. REAL PROPERTY HOLDING CORPORATION STATUS

  	
  14

  
	
   

  	
   

  	
   

  
	
  4.

  	
  COVENANTS

  	
  14

  
	
   

  	
   

  	
   

  
	
  (A)

  	
  FORM D AND BLUE SKY

  	
  14

  
	
  (B)

  	
  REPORTS

  	
  15

  
	
  (C)

  	
  USE OF PROCEEDS

  	
  15

  
	
  (D)

  	
  LISTING

  	
  15

  
	
  (E)

  	
  EXPENSES

  	
  15

  
	
  (F)

  	
  PLEDGE OF PURCHASED SHARES

  	
  15

  
	
  (G)

  	
  DISCLOSURE OF TRANSACTIONS AND OTHER MATERIAL
  INFORMATION

  	
  15

  
	
  (H)

  	
  CERTAIN FUTURE ACTIONS

  	
  16

  
	
   

  	
   

  	
   

  
	
  5.

  	
  CONDITIONS TO THE COMPANY’S
  OBLIGATION TO SELL

  	
  17

  
	
   

  	
   

  	
   

  
	
  6.

  	
  CONDITIONS TO THE BUYER’S
  OBLIGATION TO PURCHASE

  	
  18

  
	
   

  	
   

  	
   

  
	
  7.

  	
  SURVIVAL AND INDEMNIFICATION

  	
  19

  
	
   

  	
   

  	
   

  
	
  (A)

  	
  SURVIVAL

  	
  19

  
	
  (B)

  	
  INDEMNIFICATION

  	
  19

  
	
  (C)

  	
  PROCEDURE

  	
  20

  
	
  (D)

  	
  REIMBURSEMENT

  	
  21

  
	
   

  	
   

  	
   

  
	
  8.

  	
  TERMINATION

  	
  21

  
	
   

  	
   

  	
   

  
	
  (A)

  	
  TERMINATION BY MUTUAL AGREEMENT

  	
  21

  
	
  (B)

  	
  TERMINATION FOR FAILURE TO CLOSE

  	
  21

  
	
  (C)

  	
  TERMINATION FOR BREACH

  	
  21

  
	
  (D)

  	
  EFFECTS OF TERMINATION

  	
  21

  
	
   

  	
   

  	
   

  
	
  9.

  	
  MISCELLANEOUS

  	
  22

  
	
   

  	
   

  	
   

  
	
  (A)

  	
  DEFINITIONS

  	
  22

  
	
  (B)

  	
  GOVERNING LAW; JURISDICTION; JURY TRIAL

  	
  26

  
	
  (C)

  	
  COUNTERPARTS

  	
  26

  
	
  (D)

  	
  HEADINGS

  	
  26

  
	
  (E)

  	
  SEVERABILITY

  	
  26

  
	
  (F)

  	
  ENTIRE AGREEMENT; AMENDMENTS

  	
  27

  
	
  (G)

  	
  NOTICES

  	
  27

  
	
  (H)

  	
  SUCCESSORS AND ASSIGNS

  	
  28

  
	
  (I)

  	
  NO THIRD PARTY BENEFICIARIES

  	
  28

  
	
  (J)

  	
  FURTHER ASSURANCES

  	
  28

  
	
  (K)

  	
  NO STRICT CONSTRUCTION

  	
  28

  
				

 

ii

 

	
  (L)

  	
  REMEDIES

  	
  28

  
	
  (M)

  	
  ACKNOWLEDGMENT REGARDING BUYER’S PURCHASED SHARES

  	
  28

  
	
  (N)

  	
  INTERPRETIVE MATTERS

  	
  29

  
	
   

  	
   

  	
   

  
	
  Disclosure Letter

  	
   

  

 

iii

 

SECURITIES PURCHASE
AGREEMENT

 

SECURITIES PURCHASE
AGREEMENT (the “Agreement”), dated as of January 22, 2010, by and
among Meta Financial Group, Inc., a Delaware corporation, with
headquarters located at 121 East Fifth Street, Storm Lake, Iowa 50588 (the “Company”),
and Cash America International, Inc., a Texas corporation (the “Buyer”).  Certain defined terms used herein are listed
in Section 9(a).

 

WHEREAS:

 

A.            Each of the Company and the
Buyer is executing and delivering this Agreement in reliance upon the exemption
from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “1933 Act”), and Rule 506
of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B.            The Buyer wishes to
purchase, and the Company wishes to sell, upon the terms and conditions stated
in this Agreement, 265,000  shares (the “Purchased
Shares”) of the Company’s common stock, par value $0.01 per share (the “Common
Stock”).

 

C.            The Company has agreed to
file a registration statement with respect to the resale  of the Purchased Shares in accordance with
the terms of the Registration Rights Agreement (hereinafter defined).

 

NOW, THEREFORE, the Company
and the Buyer hereby agree as follows:

 

1.             PURCHASE AND SALE OF COMMON STOCK.

 

(a)          Common Stock.  Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 5 and 6 below, the Company
shall issue and sell to the Buyer, and the Buyer agrees to purchase from the
Company, on the Closing Date the Purchased Shares.

 

(b)         Closing.  The closing (the “Closing”) of the
purchase of the Purchased Shares by the Buyer shall occur at the offices of
Katten Muchin Rosenman LLP, 2900 K Street, NW, Suite 200, Washington, DC
20007.  The date and time of the Closing
(the “Closing Date”) shall be 10:00 a.m., New York City Time, on
Tuesday, January 26, 2010, subject to the satisfaction of the conditions
to the Closing set forth in Sections 5 and 6 below (or such other
date and time as is mutually agreed to by the Company and the Buyer).

 

(c)          Purchase Price.  The aggregate purchase price for all the
Purchased Shares to be purchased by the Buyer (the “Purchase Price”)
shall be an amount equal to (i) 265,000 multiplied by (ii) the price
which represents the average per share closing “bid” price of the Company’s
common stock on the Principal Market for the twenty (20) trading days
immediately preceding the day that is three (3) trading days prior to the
Closing Date (unless the transaction is announced publicly more than three (3) trading
days prior to the Closing Date, in which case the average per share closing “bid”
price shall be measured through the 20-day period preceding the day the
transaction is publicly announced) (in each case determined without regard to
after hours trading or any other trading outside of the regular trading session
trading hours).

 

 

(d)         Form of Payment.  On the Closing Date, (i) the Buyer shall
pay the Purchase Price to the Company for the Purchased Shares to be issued and
sold to the Buyer at the Closing, by wire transfer of immediately available
funds in accordance with the Company’s written wire instructions which shall be
given to the Buyer in writing not later than one (1) day prior to the
Closing Date, and (ii) the Company shall instruct its transfer agent,
Registrar and Transfer Company (the “Transfer Agent”), to issue and deliver to
the Buyer the Purchased Shares in a single stock certificate, free and clear of
all restrictive legends (except as expressly provided in Section 2(i) hereof),
evidencing the number of Purchased Shares being purchased by the Buyer.

 

2.             BUYER’S REPRESENTATIONS AND WARRANTIES.

 

As of the date hereof, the
Buyer represents and warrants that:

 

(a)          Organization; Authority.  The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate power and authority to enter into and
to consummate the transaction contemplated by this Agreement and otherwise to
carry out its obligations hereunder. This Agreement has been duly executed and
delivered by the Buyer and constitutes the legal, valid and binding obligation
of the Buyer, enforceable against the Buyer in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar Laws relating to, or affecting generally, the enforcement of applicable
creditors’ rights and remedies.

 

(b)         No Public Sale or Distribution.  The Buyer is acquiring the Purchased Shares
for its own account and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempt from the registration requirements under the 1933 Act; provided,
however, that by making the representations herein, the Buyer does not
agree to hold any of the Purchased Shares for any minimum or other specific
term and reserves the right to dispose of the Purchased Shares at any time in
accordance with or pursuant to a registration statement or an exemption from
the registration requirements under the 1933 Act.  The Buyer does not presently have any agreement
or understanding, directly or indirectly, with any Person to resell or
distribute any of the Purchased Shares in violation of the 1933 Act.

 

(c)          Accredited Investor Status; Sophistication.

 

(i)            The
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.

 

(ii)           The
Buyer has, by reason of its business and financial experience, such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of the type contemplated hereby that it is capable of (A) evaluating
the merits and risks of an investment in the Purchased Shares and making an
informed investment decision, (B) protecting its own interests
(financially or otherwise), and (C) bearing the economic risk of
such investment for an indefinite period of time.

 

(d)         Reliance on Exemptions.  The Buyer understands that the Purchased
Shares are being offered and sold to it in reliance on specific exemptions from
the registration requirements

 

2

 

of United States federal and
state securities laws and that the Company is relying in part upon the truth
and accuracy of, and the Buyer’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Purchased Shares.

 

(e)          Certain Securities Transactions.  During the period (the “Pre-Announcement
Period”) beginning with the date on which the Buyer commenced discussions
with the Company in respect of the transaction contemplated hereby and ending
on the date of the 8-K Filing (as defined below), and except for the purchase
of the Purchased Shares hereunder on the Closing Date, neither the Buyer nor
any Affiliate controlled by the Buyer, nor to the knowledge of the Buyer any
Affiliate controlling the Buyer or under common control with the Buyer, has
entered, or will not enter, into any transaction in respect of or involving the
Common Stock or any Convertible Securities or Options, including any purchase
or sale, derivative or hedging transaction. 
Without limiting the foregoing, during the Pre-Announcement Period, the
Buyer has not and will not engage in any transaction constituting a “short sale”
(as defined in Rule 200 of Regulation SHO under the 1934 Act) of shares of
Common Stock or establish an open “put equivalent position” (within the meaning
of Rule 16a-1(h) under the 1934 Act) with respect to the Common
Stock.

 

(f)          Information.  The Buyer and its advisors, if any, have
received all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Purchased Shares
which have been requested by the Buyer. 
The Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of, and have received answers from, the Company regarding the
Company and the transactions contemplated hereby.  Neither such inquiries nor any other due
diligence investigations conducted by the Buyer or its advisors or
representatives, nor any other statement made by Buyer in this Section 2,
shall modify, amend or affect the Company’s representations and warranties
contained herein or the Buyer’s right to rely thereon.  The Buyer understands that its investment in
the Purchased Shares involves a high degree of risk.  The Buyer has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Purchased Shares.

 

(g)         No Governmental Review.  The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Purchased Shares or
the fairness or suitability of the investment in the Purchased Shares nor have
such authorities passed upon or endorsed the merits of the offering of the
Purchased Shares.

 

(h)         Transfer or Resale.  The Buyer understands that:

 

(i)            the
Purchased Shares have not been and, except as provided in the Registration
Rights Agreement, are not being registered under the 1933 Act or any state
securities Laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder and sold, assigned or
transferred pursuant to an effective registration statement, (B) the Buyer
shall have delivered to the Company an opinion of counsel reasonably acceptable
to the Company, which opinion shall be in a form reasonably acceptable

 

3

 

to
the Company and the transfer agent for the Common Stock, to the effect that
such Purchased Shares to be sold, assigned or transferred have been or are
being sold, assigned or transferred pursuant to an exemption from such
registration, or (C) the Buyer provides the Company with reasonable
assurance, and certifications to the effect, that (I) such Purchased
Shares have been or are being sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act (or a successor rule thereto) (“Rule 144”)
or (II) the Buyer is not an Affiliate of the Company and the Purchased
Shares can then be sold by the Buyer pursuant to Rule 144 without any
restrictions or limitations thereunder and without compliance with the current
public information requirement thereof;

 

(ii)           any
sale of the Purchased Shares made in reliance on Rule 144 shall be made in
accordance with the terms of Rule 144 and, further, if Rule 144 is
not applicable, any resale of the Purchased Shares under circumstances in which
the seller (or the Person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations
of the SEC thereunder; and

 

(iii)          except
as set forth in the Registration Rights Agreement, neither the Company nor any
other Person is under any obligation to register the Purchased Shares under the
1933 Act or any state securities Laws or to comply with the terms and
conditions of any exemption thereunder.

 

The Purchased Shares may be
pledged in connection with a bona fide margin account or other loan or
financing arrangement secured by the Purchased Shares and such pledge of
Purchased Shares shall not be deemed to be a transfer, sale or assignment of
the Purchased Shares hereunder, and, except as required by applicable law, the
Buyer shall not be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement,
including this Section 2(h), in connection with such a pledge.

 

(i)           Legends.  The Buyer understands that the stock
certificates representing the Purchased Shares, except as set forth below,
shall bear any legend as required by the “blue sky” Laws of any state and a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates in violation of
the restrictions on transfer set forth herein):

 

THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “1933 ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR (B) AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY AND THE TRANSFER AGENT FOR THE
COMPANY’S COMMON STOCK, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD

 

4

 

PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE 1933 ACT.

 

The legend set forth above
shall be removed and the Company shall issue a certificate without such legend
to the holder of the Purchased Shares upon which it is stamped, unless
otherwise required by state securities Laws, if (i) such Purchased Shares
are registered for resale and shall be resold pursuant to an effective
registration statement under the 1933 Act, (ii) the Buyer shall have
delivered to the Company an opinion of counsel reasonably acceptable to the
Company, which opinion shall be in a form reasonably acceptable to the Company
and the transfer agent for the Common Stock, to the effect that such Purchased
Shares may be freely sold without restriction or limitation without
registration under the 1933 Act, or (iii) such holder provides the Company
with reasonable assurance, and certification to the effect, that (A) the
Purchased Shares have been or are being sold, assigned or transferred pursuant
to Rule 144 or (B) such holder is not an Affiliate of the Company and
the Purchased Shares can be sold by such holder pursuant to Rule 144
without any restrictions or limitations under Rule 144 and without
compliance with the current public information requirement thereof.

 

(j)           Validity; Enforcement.  This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and constitutes the
legal, valid and binding obligation of the Buyer, enforceable against the Buyer
in accordance with its terms, except as such enforceability may be limited by
general principles of equity or by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar Laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

(k)          No Conflicts.  The execution, delivery and performance by
the Buyer of this Agreement and the consummation by the Buyer of the
transactions contemplated hereby, will not (i) result in a violation of
the organizational documents of the Buyer, (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Buyer is a party, or (iii) result in a violation
of any Law (including federal and state securities Laws) applicable to the
Buyer, except in the case of clauses (ii) and (iii) above,
for such conflicts, defaults, rights or violations which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of the Buyer to perform its obligations
hereunder.

 

(l)           Bank Regulatory Agencies.  Assuming the Purchased Shares at all times
constitute less than ten percent (10.0%) of the total Common Stock issued and
outstanding, neither the Buyer nor its Affiliates is required to obtain any
consent, authorization or order of, or make any filing or registration with,
any bank regulatory authority or agency (including the OTS) in order for the
Buyer to execute or deliver this Agreement or perform any of its obligations
under or as contemplated by this Agreement in accordance with the terms hereof.

 

(m)         Status of Buyer.   Assuming the Purchased Shares at all times
constitute less than ten percent (10.0%) of the total Common Stock of the
Company issued and outstanding, neither Buyer nor any of its Affiliates shall,
as a result of Buyer entering into, or performing under, this Agreement, to the
knowledge of Buyer (A) have the power, directly or indirectly, to

 

5

 

exercise a controlling
influence over, or direct, the management or policies of the Company or any
Subsidiary, (B) be in “control” of the Company or any Subsidiary,
as such term is used in 12 CFR Part 574, or otherwise be required to
register as a savings and loan holding company, as such term is defined in 12
C.F.R. § 583.20, or (C) be an “affiliate” (as defined under 12
C.F.R. § 223.2) of any Subsidiary, such that any transactions between Buyer and
such Subsidiary would be subject to compliance with §§ 23A and 23B of the
Federal Reserve Act or Regulation W, 12 C.F.R. Part 223.

 

(n)         Stock Ownership.  Neither the Buyer nor any of its Affiliates
own beneficially or of record any Common Stock or other securities of the
Company other than (i) in the case of the Buyer as of the Closing
Date, the Purchased Shares, and (ii) in the case of any such Affiliate,
shares of capital stock of the Company that are held through the mutual fund
holdings of such Affiliate.

 

(o)         Residency.  The Buyer is incorporated, and its principal
office is located, in the State of Texas.

 

(p)         No Broker.  Buyer has not engaged any broker or other
similar agent in connection with its purchase of the Purchased Shares.

 

3.             REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and
warrants to the Buyer that, except as otherwise disclosed or incorporated by
reference and readily apparent in: (i) the Company’s Annual Report on Form 10-K
for the year ended September 30, 2009 or any of its other reports and
forms filed with or furnished to the SEC under Section 12, 13, 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the “1934 Act”), after September 30,
2009 and publicly available before the date of this Agreement (including any
amendments or supplements thereto, but excluding risk factors and/or any other
disclosures of risks included in any forward-looking statement disclaimers or
other statements that are similarly nonspecific and are predictive and forward-looking
in nature) (all such reports and forms, collectively, the “SEC Reports”);
or (ii) as set forth in the disclosure letter dated as of the date hereof
provided to the Buyer separately (the “Disclosure Letter”), it being
agreed that a disclosure set forth on any particular Schedule of the Disclosure
Letter shall constitute disclosure on each other Schedule thereof provided it
is readily apparent that the information so disclosed on the first Schedule
shall apply to such other Schedule or the representation and warranty as to
which such Schedule relates:

 

(a)          Organization and Qualification.  The Company and its Subsidiaries (other than
MetaBank) are entities duly organized and validly existing and in good
standing, and MetaBank is duly organized and validly existing, under the laws
of the jurisdiction in which they are formed, and have the requisite power and
authorization to own their properties and to carry on their business as now
being conducted.  Each of the Company and
its Subsidiaries is duly qualified as a foreign entity to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not reasonably be expected to have a Material Adverse Effect.

 

6

 

(b)                                 Status of
Company and Subsidiaries.  The
Company is a savings and loan holding company under the Home Owners’ Loan Act
of 1933, as amended (“HOLA”). 
MetaBank is a federally chartered stock savings bank duly organized and
validly existing under HOLA.  The deposit
accounts of MetaBank are insured up to applicable limits by the Deposit
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation, and no proceedings for the termination or revocation of such
insurance are pending or, to the Knowledge of the Company, threatened.  The federal stock savings bank charter of
MetaBank complies in all material respects with applicable law.  MetaBank is considered “well capitalized” and
“well managed” under the prompt corrective action provisions of the Federal
Deposit Insurance Act.

 

(c)                                  Authorization;
Enforcement; Validity.  The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement and to issue the Purchased Shares in
accordance with the terms hereof.  The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby, including the issuance of
the Purchased Shares, have been duly authorized by the Company’s board of directors
(the “Board of Directors”).  No
further corporate consent or authorization is required by the Company, the
Board of Directors or the Company’s stockholders in connection with the
execution and delivery by the Company of this Agreement and the performance of
the Company’s obligations hereunder, including the issuance of the Purchased
Shares.  This Agreement has been duly
executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar Laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

(d)                                 Issuance of
Purchased Shares; No Restrictions on Transfer.  Upon the issuance of and payment for the
Purchased Shares in accordance with this Agreement, such Purchased Shares will
be validly issued, fully paid and nonassessable, and free and clear of all
liens and/or restrictions on transfer (other than restrictions on transfer
provided for by applicable federal and state securities Laws or expressly
provided for herein) and will not be subject to preemptive rights of any other
stockholder of the Company.  Subject to
the representations and warranties of the Buyer in this Agreement, the offer
and sale by the Company of the Purchased Shares to the Buyer hereunder are
exempt from registration under the 1933 Act.

 

(e)                                  No Conflicts.  Except as set forth on Schedule 3(e) of
the Disclosure Letter, the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transaction
contemplated hereby (including the issuance of the Purchased Shares) will not (i) violate
the Certificate of Incorporation or the Bylaws, (ii) violate, conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, (iii) assuming the filing of a Form D and state securities Law
filings, and such filings as are required by the Principal Market (or the rules and
regulations thereof), result in a violation of any Law, or rules and
regulations of the Principal Market, applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected or (iv) result in or require the
creation or imposition of any 

 

7

 

lien upon or with respect to any of the properties or assets of the Company
or any of its Subsidiaries, except in the case of clauses (ii) and (iv),
as would not reasonably be expected to have a Material Adverse Effect.

 

(f)                                    Consents.  Neither the Company nor any of its
Subsidiaries is required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, including
the OTS, or any regulatory or self-regulatory agency (including the Principal
Market) or any other Person in order for the Company to execute, deliver or perform
any of its obligations under or contemplated by this Agreement in accordance
with the terms hereof, other than the filing with the SEC of a Form D and
any other filings as may be required by any state securities agencies and such
filings as are required by the Principal Market (or the rules and
regulations thereof).

 

(g)                                 No General
Solicitation; Placement Agent’s Fees.  Neither the Company, nor any of its
Subsidiaries or Affiliates, nor any Person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D) in connection with the offer or sale of the Purchased
Shares.  The Company shall be responsible
for the payment of any placement agent’s fees, financial advisory fees, or
brokers’ commissions (other than for persons engaged by the Buyer) relating to
or arising out of the transaction contemplated hereby.  The Company shall pay, and hold the Buyer
harmless against, any liability, loss or expense (including, without limitation,
reasonable attorney’s fees and out-of-pocket expenses) arising in connection
with any fee claimed by any placement agent, financial advisor or broker
claiming to have been engaged by, or to otherwise have been acting on the
Company’s behalf, in connection with the transaction contemplated hereby.  Neither the Company nor any of its
Subsidiaries has engaged any placement agent or other similar agent in
connection with the sale of the Purchased Shares.

 

(h)                                 No Integrated
Offering.  None of the
Company, its Subsidiaries, any of their Affiliates, and any Person acting on
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of the offer or sale to the Buyer of any of the
Purchased Shares under the 1933 Act or require approval by the stockholders of
the Company of the sale to the Buyer of the Purchased Shares under the rules and
regulations of the Principal Market. 
None of the Company or its Subsidiaries or any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of the offer or sale to the Buyer of any of the
Purchased Shares under the 1933 Act (except as contemplated by the Registration
Rights Agreement) or require approval by the stockholders of the Company of the
sale to the Buyer of the Purchased Shares under the rules and regulations
of the Principal Market.

 

(i)                                     Application of
Takeover and Other Protections; Rights Agreement.  The Company and its Board of Directors have
taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Certificate of Incorporation or any certificates of designations or
the laws of the jurisdiction of its formation or incorporation which is or
could become applicable to the Buyer as a result of the transaction
contemplated by this Agreement, including the Company’s issuance of the
Purchased Shares and the Buyer’s ownership of the Purchased Shares.

 

8

 

(j)                                     SEC Documents; Financial Statements.

 

(i)                                     Except as set forth on Schedule 3(j)(i) of the
Disclosure Letter, since September 30, 2009, the Company has timely filed
with or furnished to the SEC all forms, reports, schedules, statements,
certificates and other documents required to be filed by it with or furnished
by it to the SEC pursuant to the reporting requirements of the 1934 Act (all of
the foregoing filed or furnished since September 30, 2009 and prior to the
date hereof being hereinafter referred to as the “SEC Documents”).  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with or furnished to the SEC, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.  There are no outstanding unresolved written
comments from the SEC with respect to any SEC Document.

 

(ii)                                  As of their respective dates, the consolidated financial
statements of the Company and its Subsidiaries included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto as in effect as of the time of filing.  Such financial statements (A) have been
prepared from, and are in accordance in all material respects with, the books
and records of the Company and its Subsidiaries, (B) have been prepared in
accordance with GAAP, consistently applied, during the periods involved (except
(1) as may be otherwise indicated in such financial statements or the
notes thereto, or (2) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements),
and (C) fairly present in all material respects the financial position of
the Company as of the dates thereof and the results of its operations, changes
in stockholders’ equity and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end adjustments). 
Since the date of the most recent balance sheet included in the SEC
Documents, the Company has not effected any
change in any method of accounting or accounting practice, except for any such
change required because of a concurrent change in GAAP, nor has it been advised
by its independent registered accounting firm or any Governmental Entity that
any such change in method of accounting or accounting practice is appropriate.

 

(iii)                               Solely to the extent that the Sarbanes-Oxley Act of 2002, as
amended, and the rules and regulations promulgated by the SEC and the
Principal Market thereunder (collectively, the “Sarbanes-Oxley Act”) has
been applicable to the Company, the Company is in compliance in all material
respects with any provision of the Sarbanes-Oxley Act applicable to the
Company.

 

(k)                                  Accuracy of
Information.  All factual
information, taken as a whole, furnished by or on behalf of the Company in
writing to the Buyer on or prior to the date of this Agreement for purposes of
this Agreement and all other such factual information, taken as a whole,
furnished by the Company on behalf of itself and its Subsidiaries in writing to
the Buyer pursuant to the terms of this Agreement does not, when taken together
with the SEC Documents, contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not 

 

9

 

misleading; provided, however, that with respect to any
projected financial information or forward-looking statements, business
assumptions, strategic plans or similar information, the Company represents
only that such information was prepared in good faith based upon assumptions,
and subject to such qualifications, believed to be reasonable at the time.  The Company understands and confirms that the
Buyer will rely on the representations and warranties contained in this Section 3
in effecting transactions in securities of the Company.

 

(l)                                     Absence of Certain Changes.

 

(i)                                     Except as disclosed in Schedule 3(l)(i) of the
Disclosure Letter or in the SEC Documents, since September 30, 2009, no
event or events have occurred that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.

 

(ii)                                  Except as set forth in Schedule 3(l)(ii) of the
Disclosure Letter or in the SEC Documents, since September 30, 2009, each
of the Company and each Subsidiary has conducted its business in the ordinary
course of business consistent with past practice, and during such period
neither the Company nor any Subsidiary has:

 

(A)                              issued any
note, bond, or other debt security or created, incurred, assumed, or guaranteed
any Indebtedness for borrowed money or capitalized lease obligation,
individually or in the aggregate, in excess of $250,000;

 

(B)                                (x) acquired
any other Person (or any significant business, portion or division thereof),
whether by merger, consolidation or reorganization or by purchase of such
Person’s assets or capital stock or otherwise and/or (y) terminated and/or
made material modifications to any material provisions of any agreements
evidencing or relating to the transactions described in the preceding clause (x);

 

(C)                                incurred any
material loss except for losses adequately provided for on the Company’s most
recent balance sheet included in the SEC documents and expenses associated with
this transaction;

 

(D)                               in the case of
the Company, declared or paid any dividends;

 

(E)                                 sold any
material assets outside the ordinary course of business; or

 

(F)                                 committed to
any of the foregoing.

 

(iii)                               Neither the Company nor any of its Subsidiaries has taken
any steps to seek protection pursuant to any bankruptcy Law nor does the
Company have any Knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings or any actual Knowledge of any fact that
would reasonably lead a creditor to do so.

 

(m)                               No Undisclosed
Liabilities.  Neither the
Company nor any of its Subsidiaries has any liabilities or obligations of any
nature (absolute, accrued, contingent or otherwise) which are not properly
reflected or reserved against in the Company’s financial statements included in
the SEC Documents to the extent required to be so reflected or reserved against
in accordance with generally accepted accounting principles in the United
States, except for (i) liabilities that are 

 

10

 

listed or disclosed in Schedule 3(m) included in the
Disclosure Letter, and (ii) liabilities that have not had, and would not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.

 

(n)                                 Conduct of Business; Regulatory Permits.

 

(i)                                     Neither the Company nor any of its Subsidiaries is in
violation of any term of its Certificate of Incorporation, any certificate of
designation, preferences or rights of any outstanding series of its preferred
stock or its Bylaws.

 

(ii)                                  The Company is not in violation in any material respect of
any of the rules, regulations or requirements of the Principal Market and has
no Knowledge of any facts or circumstances existing as of the date hereof that
would reasonably lead to delisting or suspension of the Common Stock by the
Principal Market in the foreseeable future. 
Since September 30, 2009, (A) the Common Stock has been
listed on the Principal Market, (B) trading in the Common Stock has
not been suspended by the SEC or the Principal Market (other than pursuant to
ordinary marketwide circuit breakers and excluding ordinary temporary
suspensions in connection with announcements of material Company news) and (C) the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market.

 

(iii)                               The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate regulatory authorities
necessary for them to own or lease their properties and assets and to conduct
their respective businesses as presently conducted, except where the failure to
possess such certificates, authorizations or permits would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect,
and neither the Company nor any such Subsidiary has received any written notice
of proceedings relating to the revocation or modification of any such
certificate, authorization or permit, except where such revocation or
modification would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.  The Company and its Subsidiaries have complied with and are
not in default or violation in any respect of, and none of them is, to the
Knowledge of the Company, under investigation with respect to or, to the
Knowledge of the Company, has been threatened to be charged with or given
notice of any material violation of, any applicable material domestic (federal,
state or local) or foreign law, statute, ordinance, license, rule, regulation,
policy or guideline, order, demand, writ, injunction, decree or judgment of any
Governmental Entity, other than such defaults, violations or investigations
that, individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect.

 

(o)                                 Investment
Company Status.  The Company
is not, and upon consummation of the sale of the Purchased Shares will not be,
an “investment company”, or an “affiliated person” of, or “promoter” or “principal
underwriter” for, an “investment company” as such terms are defined in the
Investment Company Act of 1940, as amended.

 

(p)                                 Transactions
With Affiliates.  Except as
set forth in the SEC Documents and other than the outstanding stock options
and/or restricted stock disclosed on Schedule 3(p) of the
Disclosure Letter, none of the officers, directors or employees of the Company
or any of its Subsidiaries, or any of their respective Family Members, is
presently a party to any transaction 

 

11

 

with the Company or any of its Subsidiaries (other than for services as
employees, officers or directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from, any such officer, director, employee or Family Member, or, to the
Knowledge of the Company or any of its Subsidiaries, any corporation,
partnership, trust or other entity in which any such officer, director,
employee or Family Member has a substantial interest or is an officer,
director, trustee or partner.

 

(q)                                 Agreements with
Regulatory Agencies.  Neither the
Company, nor any of its Subsidiaries is subject to any cease and desist order
or similar order or enforcement action issued by, or is a party to any written
agreement, consent agreement memorandum of understanding with, or is a party to
any commitment letter or similar undertaking to, or is subject to any capital
directive of, any governmental agency that in a material manner relates to its
capital adequacy, its liquidity and funding policies and practices, its ability
to pay dividends, its credit, risk management or compliance policies, its
internal controls, its management or its operations or business, including
compliance with applicable bank secrecy, anti-money laundering and consumer
protection laws, regulations and interpretations of any governmental agency to
which Company or any Subsidiary is subject (a “Regulatory Agreement”).

 

(r)                                    Equity
Capitalization.  As of the
date hereof (and without giving effect to the issuance of the Purchased
Shares), the authorized capital stock of the Company consists of (i) 5,200,000
shares of Common Stock, par value $.01 per share, of which as of the date
hereof, 2,650,895 are issued and outstanding and 1,118,497 shares are reserved
for issuance pursuant to securities exercisable or exchangeable for, or
convertible into, shares of Common Stock and (ii) 800,000  shares of preferred stock, par value $.01 per share, of
which as of the date hereof none are issued and outstanding.  All of such outstanding and reserved shares
have been, or upon issuance will be, validly issued and are fully paid and
nonassessable.  Except as disclosed in Schedule
3(r) of the Disclosure Letter: (i) none of the Company’s capital
stock is subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company; (ii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any capital stock of the
Company or any of its Subsidiaries, or contracts or arrangements by which the
Company or any of its Subsidiaries is bound to issue additional capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, or exercisable or exchangeable for,
any capital stock of the Company or any of its Subsidiaries; (iii) except
as provided in the Registration Rights Agreement, there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities, whether presently outstanding or
securities that may be issued subsequently, under the 1933 Act; (iv) there
are no outstanding securities or instruments of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and, except as
set forth in Section 4(h)(ii), there are no contracts, commitments
or arrangements by which the Company or any of its Subsidiaries is bound to
redeem a security of the Company or any of its Subsidiaries; (v) there are
no securities or instruments of the Company containing anti-dilution or similar
provisions, other than provisions for equitable adjustments upon a stock split,
stock dividend, combination or similar recapitalizations with respect to the
Company’s capital stock; and (vi) the Company does not 

 

12

 

have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement. 
To the Company’s Knowledge, no stockholder of the Company has entered
into any agreement with respect to the voting of equity securities of the
Company.  The Company has furnished to
the Buyer true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and the Company’s Bylaws, as amended and as in effect
on the date hereof (the “Bylaws”).

 

(s)                                  Subsidiaries.  Schedule 3(s) of the Disclosure
Letter sets forth a complete and accurate list of all direct and indirect
Subsidiaries of the Company, showing in each case as of the date of this
Agreement (as to each such Subsidiary) the jurisdiction of its formation, and,
with respect to each non-wholly owned Subsidiary, the number of shares,
membership interests or partnership interests (as applicable) of each class of
its equity interests authorized, and the number outstanding, on the date of
this Agreement and the percentage of each such class of its equity interests
owned (directly or indirectly) by the Company, and the number of shares covered
by all outstanding options, warrants, rights of conversion or purchase and
similar rights as of the date of this Agreement.  All of the outstanding equity interests in
each of the Subsidiaries of the Company have been validly issued, are fully paid
and non-assessable and are owned by the Company or one or more of its
subsidiaries, free and clear of all liens. 
Except as set forth in Schedule 3(s) of the Disclosure
Letter, the Company or one of its Subsidiaries has the unrestricted right to
vote, and (subject to limitations imposed by applicable Law) to receive
dividends and distributions on, all capital securities of its Subsidiaries as
owned by the Company or such Subsidiary.

 

(t)                                    Absence of
Litigation.  Except as
set forth in Schedule 3(t) of the Disclosure Letter or as set forth
in the SEC Documents, there is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, arbiter, mediator, self-regulatory organization or body
pending or, to the Knowledge of the Company, threatened against or affecting
the Company or any of its Subsidiaries, or, to the Company’s Knowledge, any of
the Company’s or its Subsidiaries’ officers or directors, that (i) is
reasonably likely to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of this Agreement or the
consummation of the transaction contemplated by this Agreement.

 

(u)                                 Properties and
Leases.  The Company and its
Subsidiaries have good and marketable title to all real properties and all
other material properties and assets that purport to be owned by them, in each
case free from liens, encumbrances, claims and defects that would affect the
value thereof or interfere with the use made or to be made thereof by them,
except for such defects in title or liens, encumbrances and claims that would
not, individually or in the aggregate, reasonably be likely to result in a
Material Adverse Effect.  The Company and
its Subsidiaries hold all leased real or personal property under valid and
enforceable leases with no exceptions that would interfere with the use made or
to be made thereof by them, and neither the Company nor any of its Subsidiaries
has any notice of any claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any such Subsidiary under any such
leases, or affecting or questioning the rights of such entity to the continued
possession of the leased premises, except for such title exceptions or claims
that would not, individually or in the aggregate, reasonably be likely to
result in a Material Adverse Effect.

 

13

 

(v)                                 Insurance.  The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as companies engaged in a similar business would,
in accordance with good business practice, customarily be insured.

 

(w)                               Tax Status.  (i) Each of the Company and its
Subsidiaries has (A) duly and timely filed (including pursuant to
applicable extensions granted without penalty) all material Tax Returns
required to be filed by it, (B) paid in full all Taxes due, whether or not
shown as due on such Tax Returns, other than such Taxes being contested in good
faith or such Taxes the nonpayment of which would not, individually or in the
aggregate, reasonably be likely to result in a Material Adverse Effect, and (C) made
adequate provision for any unpaid Taxes not yet due in the financial statements
of the Company (in accordance with GAAP); (ii) no material deficiencies
for any Taxes have been proposed, asserted or assessed in writing against or
with respect to any Taxes due by or Tax Returns of the Company or any of its
Subsidiaries, which deficiencies have not since been resolved, except for Taxes
proposed, asserted or assessed that are being contested in good faith by
appropriate proceedings and for which reserves adequate in accordance with GAAP
have been provided in the financial statements of the Company; and (iii) there
are no material liens for Taxes upon the assets of either the Company or its
material Subsidiaries except for statutory liens for current Taxes not yet due
or liens for Taxes that are being contested in good faith by appropriate
proceedings and for which reserves adequate in accordance with GAAP have been
provided in the financial statements of the Company.

 

(x)                                   Manipulation of
Price.  The Company has not, and to
its Knowledge no one acting on its behalf has, taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale of any of
the Purchased Shares to the Buyer hereunder.

 

(y)                                 Shell Company
Status.  The Company is not, and has
never been, an issuer of the type described in paragraph (i) of Rule 144
under the 1933 Act.

 

(z)                                   U.S. Real
Property Holding Corporation Status.  The Company is not, nor has ever been, a U.S.
real property holding corporation within the meaning of Section 897 of the
Code of 1986, as amended.

 

4.                                       COVENANTS.

 

(a)                                  Form D and
Blue Sky.  The Company
agrees to file a Form D with respect to the Purchased Shares as required
under Regulation D and to provide a copy thereof to the Buyer promptly after such
filing.  The Company shall, on or before
the Closing Date, take such action (if any) as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Purchased Shares for sale to the Buyer at the Closing pursuant to this
Agreement under applicable securities or “Blue Sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to the Buyer on or prior to the
Closing Date.  The Company shall make all
filings and reports relating to the offer and sale to the Buyer of the
Purchased Shares required under applicable securities or “Blue Sky” laws of the
states of the United States following the Closing Date.

 

14

 

(b)                                 Reports.  The Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act from and after the
date hereof and so long as the Company shall be required to do so.

 

(c)                                  Use of Proceeds.  The Company will use the proceeds from the
sale of the Purchased Shares for general corporate purposes (including to pay
expenses associated with the transactions contemplated hereby and to make
contributions to the capital of its Subsidiaries).

 

(d)                                 Listing.  The Company shall promptly secure the listing
of all of the Purchased Shares upon the Principal Market and, at all times
while the Common Stock is listed on the Principal Market, shall maintain such
listing of all Purchased Shares.  The
Company shall use its commercially reasonable efforts to maintain the Common
Stock’s authorization for quotation on the Principal Market or any other
Eligible Market, and so long as the Buyer owns at least 33% of the number of
Purchased Shares originally purchased hereunder, neither the Company nor any of
its Subsidiaries shall take any action which would reasonably be expected to
result in the delisting or suspension of the Common Stock on the Principal
Market or any other Eligible Market (other than in connection with a change of
listing to another Eligible Market and excluding ordinary temporary suspensions
in connection with announcements of material Company news).  The Company shall pay all fees and expenses
in connection with satisfying its obligations under this Section 4(d).

 

(e)                                  Expenses.  Each party hereto shall be responsible for
its own costs and expenses incurred by it in connection with the transaction
contemplated hereby.

 

(f)                                    Pledge of
Purchased Shares.  The Company
acknowledges and agrees that the Purchased Shares may be pledged by the Buyer
and that such pledge of Purchased Shares shall not be deemed to be a transfer,
sale or assignment of the Purchased Shares hereunder, and, except as required
by applicable Law, the Buyer shall not be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement; provided, however, that the Buyer and its pledgee shall be
required to provide notice to the Company and comply with the applicable
provisions hereof, including the requirements of Section 2(h), in order to
effect (and otherwise in connection with) any sale, transfer or assignment of
the Purchased Shares to such pledgee.

 

(g)                                 Disclosure of
Transactions and Other Material Information.  On or before 5:30 p.m., New York City
time, on the fourth (4th) Business Day
following the date of this Agreement, the Company shall issue a press release
and file a current report on Form 8-K describing the terms of the
transaction contemplated by this Agreement, in the form required by the 1934
Act and attaching this Agreement as an exhibit to such filing (including such
attachment, the “8-K Filing”).  A
reasonable time prior to issuing the press release referred to in the previous
sentence, the Company shall provide the Buyer with a copy of the proposed press
release and shall consult with Buyer with respect to the content of such press
release and Form 8-K.  Subject to
the foregoing, none of the Company, its Subsidiaries and the Buyer shall issue
any press releases or any other public statements with respect to the
transaction contemplated hereby; provided, however, that (i) the
Company shall be entitled, without the prior approval of the Buyer, to make any
press release or other public disclosure with respect to such transaction in
substantial conformity with the 8-K Filing (provided that the Company shall
consult with the

 

15

 

Buyer
in connection with any such press release or other public disclosure prior to
its release) and (ii) either party may make such disclosure as is required
by applicable Law.

 

(h)                                 Certain Future Actions.

 

(i)                                     From the Closing Date and so
long as the Buyer and its Affiliates, individually or collectively, shall hold
any Purchased Shares, neither the Buyer nor the Company shall, or permit any of
their respective Affiliates to, knowingly enter into any transaction or
otherwise take any other action that, after giving effect thereto, would result
in Buyer or any of its Affiliates to be determined by the OTS (A) to
have the power, directly or indirectly, to exercise a controlling influence
over, or direct, the management or policies of the Company or any Subsidiary, (B) to
be in “control” (as such term is used in 12 CFR Part 574) of the Company
or any Subsidiary, or otherwise be required to register as a savings and loan
holding company, as such term is defined in 12 C.F.R. § 583.20, (C) to
be an “affiliate” (as defined under 12 C.F.R. § 223.2) of any Subsidiary, such
that any transactions between Buyer and such Subsidiary would be subject to
compliance with §§ 23A and 23B of the Federal Reserve Act or Regulation W, 12
C.F.R. Part 223, or (D) to be an “insider” (as defined in 12
C.F.R. § 215.2) of the Company or any Subsidiary such that any transactions
between Buyer and its Affiliates, on the one hand, and the Company and such
Subsidiary, on the other, would be subject to compliance with Regulation O
of 12 C.F.R. § 215.  Notwithstanding the foregoing, the Buyer
hereby agrees that no pro-rata repurchase or pro-rata redemption by the Company
of any shares of its Common Stock shall result in a breach by the Company of
the provisions of this Section 4(h)(i).

 

(ii)                                  From the Closing Date and so
long as the Buyer and its Affiliates (who are known to the Company to be a
holder of any Purchased Shares), individually or collectively, shall hold any
Purchased Shares, if the
Company offers a redemption or repurchase of Common Stock to any holder of
Common Stock on a non-pro-rata basis that would cause the Buyer’s and such
Affiliates’ collective ownership of the Company’s Common Stock to exceed 9.999%
of the total outstanding Common Stock of the Company, as calculated for the purposes
of the Bank Holding Company Act of 1956, as amended or HOLA, then, provided the
Company shall have so redeemed or repurchased Common Stock pursuant to such
offer (such shares so redeemed or repurchased, the “Non-Pro-Rata Repurchased
Shares”) the Company shall, on or prior to the date of the redemption or
repurchase of such Non-Pro-Rata Repurchased Shares, purchase that portion of
the shares of Company Common Stock held by the Buyer and/or such Affiliates in
excess of 9.999% of the total outstanding Common Stock of the Company for an
aggregate cash purchase price equal to (x) in the case of any purchase
occurring during the period commencing on the Closing Date and ending on the
eighteen (18) month anniversary of the Closing Date, the greater of the fair
market value of such excess shares and the price paid for the shares purchased
under this Agreement, and (y) in the case of any purchase occurring at any
time after the eighteen (18) month anniversary of the Closing Date, the fair
market value of such excess shares. For purposes of this commitment, fair
market value shall mean (a) if the Company’s common stock is traded on an
Eligible Market, the price which represents the trailing 20-trading day average
of the closing “bid” price (determined without regard to after hours trading or
any other trading outside of the regular trading session trading hours) or (b) if
not so traded, the fair market value of such shares on such date as determined
in good faith between the Buyer and the Company.  Should the Company and the Buyer not reach an
agreement as to such shares fair market value within 15 days from the date the
Company provided notice to the Buyer pursuant to 

 

16

 

this
commitment, then such fair market value shall be determined by an independent,
nationally recognized investment banking firm, accounting firm or appraisal
firm selected by the Buyer and reasonably acceptable to the Company and paid
for by the Company. The closing of any purchase and sale shall occur as soon as
practicable but no later than 45 days from the date that the Company provided
notice to the Buyer, at such place as the Company and the Buyer may agree and
pursuant to a stock purchase or redemption agreement in form and substance reasonably
acceptable to the Company and the Buyer. 
At the closing, the Buyer and/or its Affiliates, as applicable, shall
assign the relevant excess shares then owned by them to the Company free and
clear of all liens, and the Company shall pay the purchase price for such
shares in cash or other immediately available funds. Notwithstanding anything
to the contrary contained herein, the Company’s obligation to repurchase any
such excess shares pursuant to this Section 4(h)(ii) shall be subject
to applicable law (including the provisions of Section 160 of the Delaware
General Corporation Law).

 

(i)                                     Stock Certificates.  The Company shall instruct the Transfer Agent
to issue the stock certificates representing the Purchased Shares as required
by this Agreement and take such actions as shall be requested by the Transfer
Agent such that such stock certificates shall be delivered to the Buyer within
five (5) Business Days after the Closing Date.

 

5.                                       CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The
obligation of the Company hereunder to issue and sell the Purchased Shares to
the Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions; provided that these
conditions are for the Company’s sole benefit and may be waived by the Company
at any time in its sole discretion by providing the Buyer with prior written
notice thereof:

 

(i)                                     The Buyer shall have delivered to the Company the Purchase
Price for the Purchased Shares by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.

 

(ii)                                  The representations and warranties of the Buyer shall be
true and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect, which
shall be true and correct in all respects) as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which shall be true and correct as
of such specified date), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date. 
The Company shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer (or other senior executive officer
reasonably acceptable to the Company) of the Buyer and dated as of the Closing
Date, to the foregoing effect.

 

(iii)                               No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement, nor
shall there be on file any complaint by any Governmental 

 

17

 

Entity
seeking an order or decree, restraining, enjoining or prohibiting the
transactions contemplated by this Agreement.

 

(iv)                              The Buyer shall have delivered to the Company a certificate,
executed by the Secretary of the Buyer and dated as of the Closing Date, as to (A) the
certificate of incorporation of the Buyer, as in effect at the Closing, (B) the
by-laws of the Buyer as in effect at the Closing, and (C) the incumbency
signatures of the officers of the Buyer executing this Agreement or any other
document executed in connection with this Agreement.

 

6.                                       CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

 

The
obligation of the Buyer hereunder to purchase the Purchased Shares at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the Buyer’s
sole benefit and may be waived by the Buyer at any time in its sole discretion
by providing the Company with prior written notice thereof:

 

(i)                                     No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement, nor shall there be on file any complaint by any Governmental Entity
seeking an order or decree, restraining, enjoining or prohibiting the
transactions contemplated by this Agreement.

 

(ii)                                  The Company shall have delivered to the Buyer a copy of the
instructions delivered to the Transfer Agent instructing the Transfer Agent to
issue the stock certificates evidencing the Purchased Shares as required by
this Agreement and deliver such stock certificates to the Buyer within five (5) Business
Days after the Closing Date.

 

(iii)                               The Buyer shall have received the opinion of Katten Muchin
Rosenman LLP, the Company’s outside counsel, substantially in the form of Exhibit A-1
hereof, and a certificate or letter of representation from John Hagy, Chief
Legal Officer of the Company, substantially in the form of Exhibit A-2 hereof,
in each case dated as of the Closing Date.

 

(iv)                              The Company shall have delivered to the Buyer a certificate
evidencing the formation and good standing of the Company issued by the
Secretary of State of the State of Delaware as of a date within fifteen (15)
days of the Closing Date.

 

(v)                                 The Company shall have delivered to the Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as
to (A) the resolutions consistent with Section 3(c) as
adopted by the Board of Directors, (B) the Certificate of
Incorporation, as in effect at the Closing, (C) the Bylaws, as in
effect at the Closing, and (D) the incumbency signatures of the
officers of the Company executing this Agreement or any other document executed
in connection with this Agreement.

 

(vi)                              The representations and warranties of the Company shall be
true and correct in all material respects (except for those representations and
warranties that are qualified by materiality or Material Adverse Effect or like
qualifiers, which shall be true and correct in all respects) as of the date
when made and as of the Closing Date as though made at that time 

 

18

 

(except
for representations and warranties that speak as of a specific date, which
shall be true and correct as of such specified date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.  The Buyer shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer (or other
senior executive officer reasonably acceptable to the Buyer) of the Company,
dated as of the Closing Date, to the foregoing effect.

 

(vii)                           The Company shall have delivered to the Buyer a letter from
the Company’s transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) Business Days of the Closing
Date.

 

(viii)                        The Common Stock (A) shall be listed on the
Principal Market and (B) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the Principal
Market nor shall suspension by the SEC or the Principal Market have been
threatened, as of the Closing Date, either (x) in writing by the SEC or
the Principal Market or (y) by the Company’s falling below the minimum
listing maintenance requirements of the Principal Market.

 

(ix)                                The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale of the
Purchased Shares.

 

(x)                                   The Company shall have executed and delivered to the Buyer
the Registration Rights Agreement.

 

(xi)                                The Company shall have delivered to the Buyer such other
documents relating to the transaction contemplated by this Agreement as the
Buyer or its counsel may reasonably request.

 

7.                                       SURVIVAL AND INDEMNIFICATION.

 

(a)                                  Survival.  Unless this Agreement is terminated under Section 8,
the representations and warranties of the Company and the Buyer contained in Sections 2
and 3 and the agreements and covenants set forth in Sections 4
and 8 shall survive the Closing and the delivery of the Purchased
Shares.

 

(b)                                 Indemnification.  Subject to the other terms and conditions of
this Section 7, the Company shall indemnify, defend and hold
harmless the Buyer, its Affiliates and their respective partners, directors,
officers, employees, advisors and representatives (each, an “Indemnified
Party” and collectively, the “Indemnified Parties”) against any and
all Losses (as hereinafter defined), including Losses arising out of or
relating to any legal, administrative or other actions (including actions
brought by the Buyer or the Company or any equity holders of the Company or
derivative actions brought by any Person claiming through or in the Company’s
name other than actions brought by the Company for breach of any of the Buyer’s
representations, warranties or covenants made by it under this Agreement),
proceedings or investigations (whether formal or informal), or threats thereof,
based upon, resulting from, relating to or arising out of (i) any breach
of any representation or warranty of the Company in this Agreement, or (ii) any
breach of any covenant, agreement or obligation of the Company contained in
this 

 

19

 

Agreement; provided, that if and to the extent that such
indemnification is unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of such Losses which shall
be permissible under applicable Laws; and, provided, further,
that the Company shall have no obligation to indemnify, defend or hold harmless
(or make contribution to the payment and satisfaction to) any Indemnified Party
to the extent the Losses suffered by such Indemnified Party arise out of or
result from a breach of any representation, warranty or covenant made or to be
complied with by such Indemnified Party hereunder or the gross negligence or
willful misconduct of such Indemnified Party.

 

(c)                                  Procedure.  Promptly after receipt by an Indemnified
Party of notice by a third party of any complaint or the commencement of any
audit, investigation, action or proceeding with respect to which such
Indemnified Party may be entitled to receive payment from the Company for any
Losses, such Indemnified Party will notify the Company in writing following the
Indemnified Party’s receipt of such complaint or of notice of the commencement
of such audit, investigation, action or proceeding; provided, however,
that the failure to so notify the Company in writing will not relieve the
Company from liability under this Agreement with respect to such claim unless
such failure to notify the Company in writing results in the forfeiture of
material rights or defenses otherwise available to the Company with respect to
such claim.  The Company will have the
right, upon written notice delivered to the Indemnified Party within 20 days
thereafter, which notice shall include the Company’s written statement that it
is assuming full responsibility for any Losses resulting from such audit,
investigation, action or proceeding, to assume the defense of such audit,
investigation, action or proceeding, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of the fees
and disbursements of such counsel.  In
the event, however, that the Company declines or fails to assume the defense of
the audit, investigation, action or proceeding on the terms provided above or
to employ counsel reasonably satisfactory to the Indemnified Party, in either
case within such 20 day period, then such Indemnified Party may employ counsel
to represent or defend it in any such audit, investigation, action or
proceeding and the Company will pay the reasonable fees and disbursements of
such counsel as incurred; provided, however, that the Company will not
be required to pay the fees and disbursements of more than one counsel plus
appropriate local counsel for all Indemnified Parties in any jurisdiction in
any single audit, investigation, action or proceeding.  In any audit, investigation, action or
proceeding with respect to which indemnification is being sought hereunder, the
Indemnified Party or the Company, whichever is not assuming the defense of such
action, will have the right to participate in such matter and to retain its own
counsel at such party’s own expense.  The
Company or the Indemnified Party, as the case may be, shall at all times use
reasonable efforts to keep the Company or the Indemnified Party, as the case
may be, reasonably apprised of the status of the defense of any matter the
defense of which they are maintaining and to cooperate in good faith with each
other with respect to the defense of any such matter.  No Indemnified Party may settle or compromise
any claim or consent to the entry of any judgment with respect to which
indemnification is being sought hereunder without the prior written consent of
the Company, unless (i) the Company fails to assume and maintain the
defense of such claim pursuant to this Section 7(c) or (ii) such
settlement, compromise or consent (A) includes an unconditional release of
the Company from all liability arising out of such claim, (B) does not
contain any admission or statement suggesting any wrongdoing or liability on
behalf of the Company, and (C) does not contain any equitable order,
judgment or term which in any manner affects, restrains or interferes with the
business of the Company or any of the Company’s Affiliates.  The Company may not, 

 

20

 

without the prior written consent of the Indemnified Party (which
consent shall not be unreasonably withheld or delayed), settle or compromise any
claim or consent to the entry of any judgment with respect to which
indemnification is being sought hereunder unless such settlement, compromise or
consent (A) includes an unconditional release of the Indemnified Party
from all liability arising out of such claim, (B) does not contain any
admission or statement suggesting any wrongdoing or liability on behalf of the
Indemnified Party, (C) does not contain any equitable order, judgment or
term which in any manner affects, restrains or interferes with the business of
the Indemnified Party or any of the Indemnified Party’s Affiliates and (D) does
not require payment of any amount that is not being paid by the Company.

 

(d)                                 Reimbursement.  In the event the Company is obligated to
indemnify for expenses, the Company shall, subject to the provisions of this Section 7,
upon presentation of appropriate invoices containing reasonable detail,
reimburse each Indemnified Party for all such expenses (including reasonable
expenses of investigation and reasonable fees, disbursements and other charges
of counsel in connection with any claim, action, suit or proceeding) as they
are incurred by such Indemnified Party.  “Losses”
means all losses, claims (including any claim by a third party), damages and
expenses (including reasonable expenses of investigation and reasonable fees,
disbursements and other charges of counsel in connection with any claim,
action, suit or proceeding) actually incurred by the Indemnified Party in
connection with any claim, action, suit or proceeding.

 

8.                                       TERMINATION.

 

(a)                                  Termination by
Mutual Agreement.  This
Agreement may be terminated prior to the Closing by mutual written agreement of
the Company and the Buyer.

 

(b)                                 Termination for
Failure to Close.  In the
event that the Closing shall not have occurred on or before January 27,
2010, either the Company or the Buyer shall have the option to terminate this
Agreement at the close of business on such date, without liability to such
party, by the giving of written notice of termination, unless the Closing has
not occurred by reason of the failure of the party seeking to terminate this
Agreement to comply in all material respects with its obligations under this
Agreement.

 

(c)                                  Termination for
Breach.  This Agreement may be
terminated by the Company or the Buyer in the event the other party is in
breach in any material respect of any representation, warranty, covenant or
agreement contained in this Agreement such that the conditions to the
nonbreaching party’s obligation to consummate the transactions contemplated by
this Agreement would not be satisfied, the terminating party has notified the
other party of the breach, and such breach has continued without cure for a
period of ten (10) days after the notice of breach.

 

(d)                                 Effects of
Termination.  In the event
of any termination of this Agreement as provided in Section 8(a), 8(b) or
8(c), this Agreement (other than this Section 8(d), Section 7
and Section 9, which shall remain in full force and effect) shall
forthwith become wholly void and of no further force and effect; provided,
that the Company will remain liable to the Buyer for any breach of this
Agreement by the Company existing at the time of such termination, the Buyer
will remain liable to the Company for any breach of this Agreement by the Buyer
existing at the time of such termination, and the Buyer or the Company, as the
case may be, may seek such 

 

21

 

remedies against the other with respect to any such breach as are
provided in this Agreement or as are otherwise available at Law or in equity.

 

9.                                       MISCELLANEOUS.

 

(a)                                  Definitions.

 

“8-K Filing” has the meaning set forth in Section 4(g).

 

“1933 Act” has the meaning set forth in the first Whereas
clause.

 

“1934 Act” has the meaning set forth in Section 3.

 

“Affiliate” means any Person controlling, controlled by or under
common control with any other Person. 
For purposes of this definition, “control” (including “controlled by”
and “under common control with”) means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of securities, partnership or other
ownership interests, by contract or otherwise.

 

“Agreement” has the meaning set forth in the preamble.

 

“Board of Directors” has the meaning set forth in Section 3(c).

 

“Business Day” any day other than a Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or
required by Law to remain closed.

 

“Buyer” has the meaning set forth in the preamble.

 

“Bylaws” has the meaning set forth in Section 3(r).

 

“Certificate of Incorporation” has the meaning set forth in Section 3(r).

 

“Closing” has the meaning set forth in Section 1(b).

 

“Closing Date” has the meaning set forth in Section 1(b).

 

“Common Stock” has the meaning set forth in the second Whereas
clause.

 

“Company” has the meaning set forth in the preamble.

 

“Company Controlled Affiliate” means any Affiliate controlled,
directly or indirectly, by the Company.

 

“Confidentiality Agreement” shall mean that certain Mutual
Confidentiality Agreement by and between the Company and the Buyer dated as of December 9,
2009.

 

“Contingent Obligation” means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such 

 

22

 

liability, or the primary effect thereof, is to provide assurance to
the obligee of such liability that such liability will be paid or discharged,
or that any agreements relating thereto will be complied with, or that the
holders of such liability will be protected (in whole or in part) against loss
with respect thereto.

 

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

 

“Disclosure Letter” has the meaning set forth in Section 3.

 

“Eligible Market” means the NYSE Amex, the NASDAQ Capital
Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the New York
Stock Exchange or the Over-the-Counter Bulletin Board.

 

“Family Member” means, with respect to any Person, such Person’s
spouse, children, parents or siblings.

 

“FDIC” means the Federal Deposit Insurance Corporation

 

“GAAP” means U.S. generally accepted accounting principles.

 

“Governmental Entity” means any federal, state, local or
foreign, court, governmental, legislative, judicial, administrative or
regulatory authority, agency, commission, body or other governmental entity or
self regulatory organization or stock exchange, including the OTS, the FDIC and
the SEC.

 

“HOLA” has the meaning set forth in Section 3(b).

 

“Indebtedness” of any Person means, without duplication (i) all
indebtedness (including principal, interest, fees and charges) for borrowed
money, but exclusive of “deposits” (as defined in 12 U.S.C. § 1813(l)), (ii) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with generally accepted accounting principles) (other than trade
payables incurred in the ordinary course of business), (iii) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and
other similar instruments, (iv) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses, (v) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with generally accepted accounting principles, consistently applied
for the periods covered thereby, is classified as a capital lease, (vii) all
indebtedness referred to in clauses (i) through (vi) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such 

 

23

 

indebtedness; provided that the amount of the indebtedness
included in “Indebtedness” pursuant to this clause (vii) shall be limited
to the fair market value of the property or asset subject to such mortgage,
lien, pledge, charge, security interest or other encumbrance, and (viii) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (i) through (vii) above.

 

“Indemnified Party” or “Indemnified Parties” has the meaning set
forth in Section 7(b).

 

“Knowledge of the Company” or phrases of similar effect
(including the words “Known” or “Know”) means the knowledge,
after reasonable investigation, of the individuals listed on Schedule 9(a) attached
hereto.

 

“Law” means any statute, ordinance, license, rule, regulation,
order, demand, writ, injunction, decree or judgment of any Governmental Entity,
including any of the foregoing which relate to the business of banking
generally, lending activities, deposit taking, money transmission, stored value
cards, credit cards, savings associations, savings and loan holding companies,
trust operations, government contracts, national security, and protection of
classified information, including, without limitation, the Home Owners Loan Act
of 1934, the Savings and Loan Holding Company Act, the Bank Secrecy Act, the
United States Foreign Corrupt Practices Act, the Fair Housing Act, the Home
Mortgage Disclosure Act, the Equal Credit Opportunity Act, the Community
Reinvestment Act of 1977, the Gramm-Leach-Bliley Act, the Fair Consumer Credit
Protection Act, and all regulations promulgated thereunder.

 

“Material Adverse Effect” means any material adverse effect on
the business, properties, assets, operations, results of operations or
condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole, or on the transaction contemplated hereby, or on the authority or
ability of the Company to perform its obligations under this Agreement, but
shall not include facts, circumstances, effects, events or changes: (i) generally
affecting any of the industries in which the Company, taken together with its
Subsidiaries, operates, in the United States or elsewhere in the world or the
economy or the financial or securities markets in the United States or
elsewhere in the world; (ii) resulting from political conditions,
including acts of war (whether or not declared), armed hostilities and
terrorism, or developments or changes therein; (iii) resulting from any
announcement of this Agreement or the transactions contemplated hereby, in each
case, solely to the extent due to such announcement; (iv) resulting from a
change in the Company’s stock price or the trading volume in the Common Stock
in and of itself (it being understood that the underlying circumstances, event
or reasons giving rise to any such failure (to the extent provided for in this
definition) can be taken into account in determining whether a Material Adverse
Effect has occurred or would reasonably be expected to occur); or (v) resulting
from a failure to meet securities analysts’ published revenue or earnings
predictions for the Company in and of itself (it being understood that the
underlying circumstances, event or reasons giving rise to any such failure (to
the extent provided for in this definition) can be taken into account in
determining whether a Material Adverse Effect has occurred or would reasonably
be expected to occur); provided, however, that the facts,
circumstances, events or changes set forth in clause (i) above
may be taken into account in determining whether there is or has been a
Material Adverse Effect if and only to the extent such act, circumstance,
event, effect or change has a materially disproportionate impact on the 

 

24

 

Company and its Subsidiaries, relative to the other participants in the
industries in which the Company and its Subsidiaries operate.

 

“MetaBank” means MetaBank, a federally-chartered savings
association and wholly owned subsidiary of the Company.

 

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

 

“OTS” means the U.S. Department of Treasury’s Office of Thrift
Supervision.

 

“Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization or a government or any department or agency thereto.

 

“Pre-Announcement Period” has the meaning set forth in Section 2(e).

 

“Principal Market” means the NASDAQ Global Market.

 

“Purchase Price” has the meaning set forth in Section 1(c).

 

“Purchased Shares” has the meaning set forth in the second
Whereas clause.

 

“Registration Rights Agreement” means a Registration Rights
Agreement between the Company and the Buyer substantially in the form set forth
on Exhibit B hereto.

 

“Regulation D” has the meaning set forth in the first Whereas
clause.

 

“Regulatory Agreement” has the meaning set forth in Section 3(q).

 

“Rule 144” has the meaning set forth in Section 2(h)(i).

 

“Sarbanes-Oxley Act” has the meaning set forth in Section 3(j)(iii).

 

“SEC” has the meaning set forth in the first Whereas clause.

 

“SEC Documents” has the meaning set forth in Section 3(j)(i).

 

“SEC Reports” has the meaning set forth in Section 3.

 

“Securities” has the meaning set forth in Section 4(j)(i).

 

“Subsidiaries” means MetaBank, First Midwest Financial Capital
Trust I, Meta Trust Company, First Services Financial Limited, Brookings
Service Corporation and any other joint venture or any entity in which the
Company, directly or indirectly, owns capital stock or holds an equity or
similar interest having general voting power in respect of more than fifty
percent (50%) of all of the capital stock or equity or similar interest of such
joint venture or entity.

 

25

 

“Tax” means all
federal, state, local, foreign or other governmental taxes, assessments,
duties, fees, levies or similar charges of any kind imposed by a Governmental
Entity, including, but not limited to, all income, profit, gross receipts,
franchise, excise, property, use, intangibles, sales, payroll, social security,
employment, value added, withholding and other taxes, and including all
interest, penalties and additional amounts imposed with respect to such
amounts, whether as a primary obligor or as a result of being a “transferee”
(within the meaning of Section 6901 of the Code or any other applicable
Law) of another Person or as a result of being a member of an affiliated,
consolidated, unitary or combined group.

 

“Tax
Return” means any return, declaration, report, claim for refund,
information return, statement or other document relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.

 

“Transfer
Agent” has the meaning set forth in Section 1(d).

 

(b)           Governing Law; Jurisdiction;
Jury Trial.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal Laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the Laws of any jurisdictions other than the
State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address for
such notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by Law.

 

(c)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided, that a facsimile or
electronic (i.e., “PDF”) signature shall be considered due execution and
shall be binding upon the signatory thereto with the same force and effect as
if the signature were an original.

 

(d)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

 

(e)           Severability.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.

 

26

 

(f)            Entire Agreement; Amendments.  This Agreement and the Confidentiality
Agreement supersede all other prior oral or written agreements among the Buyer
and the Company, their Affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the
Confidentiality Agreement contain the entire understanding of the parties
hereto with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters.  No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the Buyer.  No provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought.

 

(g)           Notices.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight courier service, in each
case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

 

If
to the Company:

 

Meta Financial Group, Inc.

5501 S. Broadband Lane

Sioux Falls, South Dakota  57108

	
  Telephone:

  	
  (605) 782-1738

  
	
  Facsimile:

  	
  (605) 338-0596

  
	
  Attention:

  	
  General Counsel

  

 

with
a copy (for informational purposes only) to:

 

Katten Muchin Rosenman LLP

2900 K Street, NW

Suite 200

Washington, DC  20007

	
  Telephone:

  	
  (202) 625-3500

  
	
  Facsimile:

  	
  (202) 339-8281

  
	
  Attention:

  	
  Jeffrey
  M. Werthan, Esq.

  

 

If
to the Buyer:

 

Cash America International, Inc.

1600 West 7th Street

Fort Worth, TX  76102

	
  Telephone:

  	
  (817) 335-1100

  
	
  Facsimile:

  	
  (817) 570-1647

  
	
  Attention:

  	
  Christian
  Schroder, Esq.

  

 

27

 

with a copy (for
informational purposes only) to:

 

Arnold &
Porter LLP

555
Twelfth Street, NW

Washington,
DC 20004

	
  Telephone:

  	
  (202) 942-5455

  
	
  Facsimile:

  	
  (202) 942-5999

  
	
  Attention:

  	
  Beth
  S. DeSimone, Esq.

  

 

or to such other address
and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party
pursuant to this Section.

 

(h)           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns.  Neither the Company
nor the Buyer shall assign or delegate this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party
hereto.

 

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

 

(j)            Further Assurances.  Each party hereto shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.

 

(k)           No Strict Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rules of strict construction will be applied against any
party.

 

(l)            Remedies.  The Buyer shall have all rights and remedies
set forth in this Agreement and all rights and remedies which it has been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any Law.  Each
party hereto shall be entitled to enforce its rights hereunder specifically
(without posting a bond or other security or proving actual damages), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by Law. 
Notwithstanding anything to the contrary contained herein, neither party
hereto shall be entitled to consequential, special, exemplary, indirect or
incidental damages hereunder.

 

(m)          Acknowledgment Regarding
Buyer’s Purchased Shares.  The
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of arm’s length purchaser with respect to this Agreement and the transaction
contemplated hereby.  The Company further
acknowledges that the Buyer is not acting as a financial advisor or fiduciary
of the Company or any of its Subsidiaries (or in any similar capacity) with
respect to this Agreement and the transaction contemplated hereby, and any
advice given by the Buyer or any of its representatives or agents in connection
with this Agreement and the transaction contemplated hereby is merely 

 

28

 

incidental to the Buyer’s purchase of the Purchased Shares.  The Company further represents to the Buyer
that the Company’s decision to enter into this Agreement has been based solely
on the independent evaluation by the Company and its representatives.

 

(n)           Interpretive
Matters.  Unless the context otherwise
requires, (i) all references to Sections, Schedules, Appendices or
Exhibits are to Sections, Schedules, Appendices or Exhibits contained in or
attached to this Agreement, (b) words in the singular or plural include
the singular and plural and pronouns stated in either the masculine, the
feminine or neuter gender shall include the masculine, feminine and neuter, (c) the
words “hereof,” “herein” and words of similar effect shall reference this
Agreement in its entirety, and (d) the use of the word “including” in this
Agreement shall be by way of example rather than limitation.

 

[Signature Page Follows]

 

29

 

IN WITNESS WHEREOF, the
Buyer and the Company have caused their respective signature page to this
Securities Purchase Agreement to be duly executed as of the date first written
above.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  META FINANCIAL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Tyler Haahr

  
	
   

  	
   

  	
  Name: 

  	
  J. Tyler Haahr

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUYER:

  
	
   

  	
   

  
	
   

  	
  CASH AMERICA INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Daniel R. Feehan

  
	
   

  	
   

  	
  Name: 

  	
  Daniel R. Feehan

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer and President

  

 

 

Schedule 9(a)

 

Knowledge of the Company

 

James S. Haahr

 

J. Tyler Haahr

 

Troy Moore

 

David W. Leedom

 

Brad C. Hanson

 

 

EXHIBIT B

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”),
dated as of January 26, 2010, by and among Meta Financial Group, Inc.,
a Delaware corporation (the “Company”), and Cash America International, Inc.,
a Texas corporation (the “Buyer”).

 

RECITALS:

 

WHEREAS, this Agreement is made in connection
with the Securities Purchase Agreement (the “Securities Purchase Agreement”),
dated as of January 22, 2010, by and among the Company and the Buyer; and

 

WHEREAS, as an inducement to the Buyer’s
investment in the Company pursuant to the Securities Purchase Agreement, the
parties desire to enter into this Agreement in order to grant certain
registration rights to the Buyer as set forth below.

 

NOW, THEREFORE, in consideration of the
foregoing premises and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

SECTION 1.

GENERAL

 

1.1           Definitions.  As used in this
Agreement, the following terms shall have the following respective meanings:

 

“Affiliate” of any particular Person
means any other Person controlling, controlled by or under common control with
such particular Person or entity.

 

“Agreement” shall have the meaning
ascribed to it in the preamble hereof.

 

“Business Day” means any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.

 

“Buyer” shall have the meaning
ascribed to it in the preamble hereof.

 

“Closing Date” means the date on which
the closing of the transactions contemplated by the Securities Purchase
Agreement occurs.

 

“Common Stock” means shares of common
stock, $0.01 par value per share, of the Company.

 

“Company” shall have the meaning
ascribed to it in the preamble hereof.

 

 

“Exchange Act” means the Securities Exchange Act of 1934, as
amended, or similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

 

“Holder” or “Holders” means the
Buyer and any holder of Registrable Securities to whom the registration rights
conferred by this Agreement have been transferred in compliance with Section 2.8
hereof.

 

“Mandatory Registration Statement”
shall have the meaning ascribed to it in Section 2.1 hereof.

 

“Misstatement” shall have the meaning
ascribed to it in Section 2.4 hereof.

 

“Person” means any individual,
corporation, partnership, joint venture, limited liability company, business
trust, joint stock company, trust or unincorporated organization or any
government or any agency or political subdivision thereof.

 

“Register,” “registered,” and “registration”
shall refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement.

 

“Registrable Securities” means (a) the
Shares; and (b) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right, preferred stock or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Shares held by the Holders; provided,
however, that Registrable Securities shall not include any shares of
Common Stock (i) which have been sold or otherwise disposed of either
pursuant to a registration statement or Rule 144 under the Securities Act;
(ii) which have been sold in a private transaction in which the transferor’s
rights under this Agreement are not assigned in compliance with the terms of
this Agreement; or (iii) which may be sold by the Holder in question
pursuant to Rule 144 without volume restrictions or public information
requirements.

 

“Registration Expenses” shall mean all
expenses incurred by the Company in effecting any registration pursuant to this
Agreement (including any Mandatory Registration Statement), including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and
expenses of the Company’s independent accountants in connection with any
regular or special reviews or audits incident to or required by any such
registration, and any other Persons retained by the Company and the
compensation of regular employees of the Company, which shall be paid in any
event by the Company, but shall not include Selling Expenses.

 

“SEC” or “Commission” means the
Securities and Exchange Commission and any successor agency.

 

2

 

“Securities Act” shall mean the
Securities Act of 1933, as amended, or similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.

 

“Securities Purchase Agreement” shall
have the meaning ascribed to it in the recitals hereof.

 

“Selling Expenses” shall mean all
underwriting discounts, selling commissions, fees of underwriters, selling
brokers, dealer managers and similar securities industry professionals and
stock transfer taxes applicable to the sale of Registrable Securities and fees
and disbursements of counsel for any Holder.

 

“Shares” mean shares of Common Stock
issued by the Company to the Buyer pursuant to the Securities Purchase
Agreement.

 

“Violation” shall have the meaning
ascribed to it in Section 2.7(a) hereof.

 

SECTION 2.

REGISTRATION

 

2.1           Registration Statement.

 

2.1.1        In accordance with the requirements of Section 2.3
below, the Company shall file with the SEC within 30 calendar days after the
Closing Date, and shall use commercially reasonable efforts to cause to be
declared effective by the SEC as soon as practicable after the date of such filing,
and in any event within 120 calendar days after the Closing Date, a
registration statement on Form S-1 or Form S-3 with respect to the
resale of the Registrable Securities by the Holders thereof.  The
Company shall also, once such registration statement becomes effective,
maintain the effectiveness of the registration effected pursuant to this Section 2.1
and keep such registration statement free of any material misstatements or
omissions at all times, subject only to the limitations on effectiveness set
forth below.  The registration statement contemplated by this Section 2.1
is referred to herein as the “Mandatory Registration Statement.”  The Company shall cause the Mandatory
Registration Statement to remain effective until such date as is the earlier of
(i) the date on which all Registrable Securities included in the
registration statement shall have been sold or shall have otherwise ceased to
be Registrable Securities and (ii) the date on which all remaining
Registrable Securities may be sold pursuant to Rule 144 without volume
restrictions or public information requirements and any and all restrictive
legends have been removed from the Shares.

 

2.1.2        If: (i) the Mandatory Registration Statement is
not filed on or prior to 30 calendar days after the Closing Date (subject to
the provisions of Section 2.11), or (ii) the Company fails to file
with the Commission a request for acceleration in accordance with Rule 461
promulgated under the Securities Act, within five Business Days after the date
that the Company is notified (orally or in writing, whichever is earlier) by
the Commission that the Mandatory Registration Statement will not be “reviewed,”
or not subject to further review, or (iii) the Mandatory Registration
Statement filed or required to be filed hereunder is not declared effective by
the 

 

3

 

Commission within 120 calendar days after the Closing Date (the “120-Day
Deadline”), or (iv) in the event that, after the 120-Day Deadline, the
Registrable Securities have not been listed on the Trading Markets (as defined
below), or (v) after the 120-Day Deadline, the Mandatory Registration
Statement ceases for any reason to remain continuously effective as to all
Registrable Securities for which it is required to be effective, or the Holders
are otherwise not permitted to utilize the prospectus therein to resell such
Registrable Securities (except as may be restricted pursuant to Section 2.4
or 2.11) for more than 14 consecutive calendar days or more than an aggregate
of 20 calendar days during any 12-month period (which need not be consecutive
calendar days) (any such failure or breach being referred to as an “Event”,
and for purposes of clause (i), (iii) or (iv) the date on which such
Event occurs, or for purposes of clause (ii) the date on which such five
Business Day period is exceeded, or for purposes of clause (v) the date on
which such 14 or 20 calendar day period, as applicable, is exceeded being
referred to as “Event Date”), then in addition to any other rights the
Holders may have hereunder or under applicable law, on each such Event Date and
on the expiration of each thirty (30) day-period following such Event Date (if
the applicable Event shall not have been cured by such date) until the
applicable Event is cured or such Holder no longer owns Registrable Securities,
the Company shall pay to each Holder an amount in cash, as partial liquidated
damages and not as a penalty, equal to two and one-half percent (2.50%) of the
aggregate purchase price paid by such Holder for all Registrable Securities
then held by such Holder.    If
the Company fails to pay any partial liquidated damages pursuant to this Section in
full within seven calendar days after the date payable, the Company will pay
interest thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the Holder, accruing daily from
the date such partial liquidated damages are due until such amounts, plus all
such interest thereon, are paid in full. The partial liquidated damages
pursuant to the terms hereof shall apply on a daily pro-rata basis for any
portion of a month prior to the cure of an Event.

 

2.2           Expenses of Registration.  All
reasonable Registration Expenses incurred in connection with any registration
hereunder shall be borne by the Company. 
All Selling Expenses incurred in connection with any registrations
hereunder, shall be borne by the Holders of the Registrable Securities so
registered pro rata on the basis of the number of shares so registered.

 

2.3           Additional Obligations of the Company.  The Company shall:

 

(a)  At least three Business Days before
filing the Mandatory Registration Statement, furnish to counsel selected by the
Holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed
(except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K and any similar or successor reports that
have been filed via EDGAR which may be incorporated or deemed to be
incorporated by reference thereto), and the Company shall in good faith
consider any reasonable comments of such counsel received at least one Business
Day prior to filing.

 

(b) 
Promptly notify the Holders when the Mandatory Registration Statement is
declared effective by the Commission.  The Company shall respond as
promptly as reasonably practicable to any comments received from the Commission
with respect to the registration

 

4

 

statement
or any amendments thereto and shall furnish to the Holders, upon request, any
comments of the Commission staff regarding the Holders.  The Company
shall promptly file with the Commission a request for acceleration of
effectiveness in accordance with Rule 461 promulgated under the Securities
Act after the Company concludes that the staff of the Commission has no further
comments on the filing.

 

(c) 
Furnish to the Holders such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.

 

(d) 
Use commercially reasonable efforts to register and qualify the securities
covered by the Mandatory Registration Statement under such other securities or
Blue Sky laws of such U.S. jurisdictions as shall be reasonably requested by
the Holders unless an exemption from registration and qualification exists; provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business, file a general consent to service
of process or subject itself to general taxation in any such states or
jurisdictions.

 

(e) 
Promptly notify each Holder of Registrable Securities covered by the Mandatory
Registration Statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
(provided that in no event shall such notice contain any material, non-public
information regarding the Company) and, when such state of facts no longer
exists whether due to passage of time or filing of supplemental disclosure by
the Company, the Company shall promptly furnish to each such Holder a
reasonable number of copies of any supplement or amendment to such prospectus
filed by the Company.

 

(f) 
Use commercially reasonable efforts to prevent the issuance of any stop order
or other suspension of effectiveness of the Mandatory Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction in the United States, and in the event of the
issuance of any stop order suspending the effectiveness of such registration
statement, or any order suspending or preventing the use of any related
prospectus or suspending the qualification of any equity securities included in
such registration statement for sale in any jurisdiction, the Company shall use
commercially reasonable efforts to obtain promptly the withdrawal of such
order.

 

(g) 
Cause all Shares to be listed on each securities exchange  on which similar securities issued by the
Company are then listed (collectively, the “Trading Markets”),
including, without limitation, the filing of any required additional listing
applications.

 

(h) 
Use commercially reasonable efforts to cooperate with the Holders who hold
Registrable Securities being offered and, to the extent applicable, facilitate
the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable 

 

5

 

Securities
sold pursuant to the Mandatory Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Holders may reasonably request and registered in such names as the Holders may
request.

 

(i) 
Provide and cause to be maintained a registrar and transfer agent for all
Registrable Securities covered by any registration statement from and after a
date not later than the effective date of the Mandatory Registration Statement.

 

(j) 
Not, nor shall any subsidiary or affiliate thereof, identify any Holder as an
underwriter in any public disclosure or filing with the SEC or the NASDAQ Stock
Market or any other securities exchange or market without the consent of such
Holder except as required by law.

 

2.4           Suspension of Sales.  Upon receipt of written notice from the
Company that the Mandatory Registration Statement or a prospectus relating
thereto contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading (a “Misstatement”), each Holder of Registrable
Securities shall forthwith discontinue disposition of Registrable Securities
until such Holder has received copies of the supplemented or amended prospectus
that corrects such Misstatement, or until such is advised in writing by the
Company that the use of the prospectus may be resumed, and, if so directed by
the Company, such Holder shall deliver to the Company all copies, other than
permanent file copies then in such Holder’s possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.  The total number of calendar days that any such suspension
may be in effect in any 365 day period shall not exceed 90 days.

 

2.5           Termination of Registration
Rights.  A Holder’s registration rights, including any right to
payment under Section 2.1.2, shall expire if all Registrable
Securities held by such Holder may be sold pursuant to Rule 144 without
volume restrictions or public information requirements.  Termination
of such registration rights shall be conditioned upon the Company’s removal of
the restrictive legends from any Registrable Securities held by such Holder and
the Holder agrees to take such reasonable actions requested by the Company to
facilitate such removal.

 

2.6           Furnishing Information.  It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Agreement that the selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held by
them and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities.

 

2.7           Indemnification.  In
the event any Registrable Securities are included in a registration statement
under this Section 2:

 

(a) 
To the extent permitted by law, the Company shall indemnify and hold harmless
each Holder and each person, if any, who controls such Holder within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Investment Company 

 

6

 

Act
or the Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a “Violation”):  (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any related preliminary prospectus or final prospectus or
any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Exchange Act, or state securities laws or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any other federal or
state securities law in connection with the registration of the Registrable
Securities; and the Company will pay to each such Holder or controlling person,
as incurred any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained
in this Section 2.7(a) shall not apply to any Holder (or any
related controlling person) with respect to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs (i) solely in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration statement by any such Holder or controlling person, (ii) as
a result of  any failure of such Holder
or controlling person to deliver or cause to be delivered a prospectus made
available by the Company in a timely manner, or (iii) as a result of a
violation by such Holder or controlling person of such Holder’s obligations
under Section 2.4 hereof.

 

(b) 
To the extent permitted by law and provided that such Holder is not entitled to
indemnification pursuant to Section 2.7(a) above with respect
to such matter, each selling Holder (severally and not jointly) shall indemnify
and hold harmless the Company, each of its directors, officers, persons, if
any, who control the Company within the meaning of the Securities Act, any
other Holder selling securities in such registration statement and any
controlling person of any such other Holder, against any losses, claims,
damages, or liabilities to which any of the foregoing persons may become
subject under the Securities Act, the Exchange Act or other federal or state
securities law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any (i) untrue
statement or alleged untrue statement of a material fact regarding such Holder
and provided in writing by such Holder expressly for use in connection with a
registration statement which is contained in such registration statement,
including any related preliminary prospectus or final prospectus or any
amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, in each case to the extent (and
only to the extent) that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or final prospectus, amendment or supplement thereto, in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration statement, (iii) any
failure by such Holder or controlling person to deliver or cause to be
delivered a prospectus made available by the Company in a timely manner, or (iv) violation
by such Holder or controlling person of such Holder’s obligations under 

 

7

 

Section 2.4 hereof; and
each such Holder will pay, as incurred, any legal or other expenses reasonably
incurred by any Person intended to be indemnified pursuant to this Section 2.7(b),
in connection with investigating or defending any such loss, claim, damage,
liability, or action as a result of such Holder’s untrue statement, omission,
failure or violation; provided, however, that the indemnity
agreement contained in this Section 2.7(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder (which consent
shall not be unreasonably withheld); provided, that, (x) the
indemnification obligations in this Section 2.7(b) shall be
individual and ratable not joint and several for each Holder and (y) in no
event shall the aggregate of all indemnification payments by any Holder under
this Section 2.7(b) exceed the net proceeds from the offering
received by such Holder.

 

(c) 
Promptly after receipt by an indemnified party under this Section 2.7
of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.7, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the reasonable fees and expenses of such counsel to be
paid by the indemnifying party, if (i) the indemnifying party shall have
failed to assume the defense of such claim within twenty (20) days after
receipt of notice of the claim and to employ counsel reasonably satisfactory to
such indemnified party, as the case may be; or (ii) in the reasonable
opinion of counsel retained by the indemnifying party, representation of such
indemnified party by such counsel would be inappropriate due to actual or
potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding.  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 reasonably
apprised of the status of the defense or any settlement negotiations with
respect thereto.  No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its prior
written consent; provided, however, that the indemnifying party
shall not unreasonably withhold, delay or condition its consent.  The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the indemnified party under this Section 2.7,
except to the extent such failure to give notice actually and materially
prejudices the indemnifying party.

 

(d) 
If the indemnification provided for in this Section 2.7 is held by
a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand 

 

8

 

and
of the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations.  The relative
fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties’ relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.  Notwithstanding the foregoing, the amount
that any Holder will be obligated to contribute pursuant to this Section 2.7(d) will
be limited to an amount equal to the per share public offering price (less any
underwriting discount and commissions) multiplied by the number of shares of
Registrable Securities sold by such Holder pursuant to the registration
statement which gives rise to such obligation to contribute (less the aggregate
amount of any damages which such Holder has otherwise been required to pay in
respect of such loss, liability, claim, damage, or expense or any substantially
similar loss, liability, claim, damage, or expense arising from the sale of
such Registrable Securities).  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution hereunder from any person who
was not guilty of such fraudulent misrepresentation.

 

(e) 
The obligations of the Company and Holders under this Section 2.7
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.

 

2.8           Assignment of Registration
Rights.  The rights to cause the Company to register Registrable
Securities pursuant to this Agreement may be assigned by a Holder to a
transferee or assignee of Registrable Securities if (a) such transferee is
an Affiliate, subsidiary or parent company of a party hereto, or (b)  such
transferee acquires at least 25% of the Registrable Securities then owned by
such Holder; provided, that (i) the transferor shall furnish to the
Company written notice at or prior to the time of transfer of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned, (ii) such transferee shall
agree in writing to be subject to all restrictions set forth in this Agreement
in the same capacity and to the same extent as the transferring Holder; and (iii) such
transferee shall acknowledge, immediately following such assignment, that the
further disposition of such securities by such assignee may be restricted under
the Securities Act.

 

2.9           Rule 144 Reporting.  With
a view to making available to the Holders the benefits of certain rules and
regulations of the SEC which may permit the sale of the Registrable Securities
to the public without registration, the Company agrees to use its reasonable
best efforts to:

 

(a) 
make and keep public information available, as those terms are understood and
defined in Securities Act Rule 144 or any similar or analogous rule promulgated
under the Securities Act, at all times after the effective date of this
Agreement;

 

(b) 
file with the SEC, in a timely manner, all annual and quarterly reports
required of the Company under Section 13 or Section 15(d) of the
Exchange Act; and

 

9

 

(c) 
so long as a Holder owns any Registrable Securities, furnish to such Holder
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of Rule 144 under the Securities Act, and
of the Exchange Act; a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing
it to sell any such securities without registration.

 

2.10         Obligations of the Holders

 

(a)           Each Holder shall furnish in
writing to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request in
connection therewith.  Upon the execution
of this Agreement, each Holder shall complete, execute and deliver to the
Company a selling securityholder notice and questionnaire in form reasonably
satisfactory to the Company.  At least five Business Days prior to
the first anticipated filing date of any registration statement, the Company
shall notify each Holder of any additional information the Company requires
from such Holder if such Holder elects to have any of the Registrable
Securities included in such registration statement.  A Holder shall
provide such information to the Company at least two Business Days prior to the
first anticipated filing date of such Registration Statement. Each holder
agrees that, in connection with any sale of Registrable Securities by it
pursuant to a registration statement, it shall comply with the “Plan of
Distribution” section of the then current prospectus relating to such
registration statement.

 

(b)           Each Holder, by its
acceptance of the Registrable Securities, agrees to cooperate with the Company
as reasonably requested by the Company in connection with the preparation and
filing of a Registration Statement hereunder, unless such Holder has notified
the Company in writing of its election to exclude all of its Registrable
Securities from such Registration Statement.

 

(c) 
Each Holder covenants and agrees that it shall comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection
with sales of Registrable Securities pursuant to any Registration Statement.

 

2.11         Suspension of Registration
Rights.

 

(a)           Notwithstanding anything to
the contrary herein, if the Company shall at any time furnish to the Holders a
certificate signed by any of its authorized officers (a “Suspension Notice”)
stating that the Company is engaged in a material merger, acquisition or sale,
or a pending material financing, material corporate reorganization or other
material corporate transaction, and the Board of Directors of the Company
determines, in good faith and by appropriate resolution after consultation with
its outside counsel, that the filing of the Mandatory Registration Statement
would require additional disclosure of material information that would be
materially detrimental to the Company, then the right of the Holders to require
the Company to file the Mandatory Registration Statement shall be suspended for
a period (a “Black Out Period”) 

 

10

 

of
not more than sixty (60) days in the aggregate in any three hundred and sixty
(360) consecutive-day period (and no more than ten (10) consecutive
Business Days in any three hundred and sixty (360) consecutive day period.

 

(b)           Notwithstanding anything to
the contrary in this Section 2.11, the Company shall not impose any
Black Out Period in a manner that is more restrictive (including, without
limitation, as to duration) than the comparable restrictions that the Company
may impose on transfers of the Company’s equity securities by its directors and
senior executive officers.

 

(c)           During any Black Out Period,
no Holder shall offer or sell any Registrable Securities pursuant to or in
reliance upon the Mandatory Registration Statement (or the prospectus relating
thereto) filed by the Company. Notwithstanding the foregoing, if the public
announcement of the applicable material transaction or material, nonpublic
information is made during a Black Out Period, then the Black Out Period shall
terminate without any further action of the parties and the Company shall
immediately notify the Holders of such termination.

 

SECTION 3.

MISCELLANEOUS

 

3.1           Successors and Assigns.  Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties (including, subject to Section 2.8,
transferees of Registrable Securities).  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.

 

3.2           Governing Law; Jurisdiction;
Jury Trial.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal Laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdictions) that would cause the application of the Laws
of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by Law.

 

11

 

3.3           Counterparts.  This
Agreement may be executed 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

 

3.4           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

 

3.5           Notices.  Any
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed
to have been delivered:  (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) Business Day after deposit with a nationally recognized overnight
courier service, in each case properly addressed to the party to receive the
same.  The addresses and facsimile
numbers for such communications shall be:

 

If
to the Company:

 

Meta Financial Group, Inc.

5501 S. Broadband Lane

Sioux Falls, South Dakota  57108

	
  Telephone:

  	
  (605) 782-1738

  
	
  Facsimile:

  	
  (605) 338-0596

  
	
  Attention:

  	
  General
  Counsel

  

 

with
a copy (for informational purposes only) to:

 

Katten Muchin Rosenman LLP

2900 K Street, NW

Suite 200

Washington, DC  20007

	
  Telephone:

  	
  (202) 625-3500

  
	
  Facsimile:

  	
  (202)
  339-8281

  
	
  Attention:

  	
  Jeffrey
  M. Werthan, Esq.

  

 

If
to the Buyer:

 

Cash America International, Inc.

1600
West 7th Street

Fort
Worth, TX  76102

	
  Telephone:

  	
  (817)
  335-1100

  
	
  Facsimile:

  	
  (817)
  570-1647

  
	
  Attention:

  	
  Christian
  Schroder

  

 

12

 

with a copy (for
informational purposes only) to:

 

Arnold &
Porter LLP

555
Twelfth Street, NW

Washington,
DC 20004

	
  Telephone:

  	
  (202) 942-5455

  
	
  Facsimile:

  	
  (202) 942-5999

  
	
  Attention:

  	
  Beth
  S. DeSimone, Esq.

  

 

or
to such other address and/or facsimile number and/or to the attention of such
other Person as the recipient party has specified by written notice given to
each other party pursuant to this Section.

 

3.6           Expenses.  If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, 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.

 

3.7           Amendments and Waivers.  Any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the prior written consent of
the Company and a majority-in-interest of the Holders.

 

3.8           Severability.  Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
(to the full extent permitted by law) not invalidate or render unenforceable
such provision in any other jurisdiction.

 

3.9           Entire Agreement.  This
Agreement supersedes all other prior oral or written agreements between the
Buyer, the Company, their Affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.

 

[Remainder of page intentionally left blank]

 

13

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  META
  FINANCIAL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BUYER:

  
	
   

  	
   

  
	
   

  	
  CASH
  AMERICA INTERNATIONAL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:Exhibit 4.1

 

NEITHER THIS SECURITY NOR
THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 
THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original
Issue Date: January 25, 2010

Original
Conversion Price (subject to adjustment herein): $0.50

 

$250,000.00

 

10% SENIOR SECURED CONVERTIBLE DEBENTURE

DUE SEPTEMBER 30, 2011

 

THIS 10% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 10% Senior Secured Convertible Debentures of Etelos, Inc., a Delaware corporation, (the “Company”), having its principal place of business at 26828 Maple Valley Highway-297, Maple Valley, WA 98038, designated as its 10% Senior Secured Convertible Debenture due September 30, 2011 (this debenture, the “Debenture” and, collectively with the other debentures of such series, the “Debentures”).
 

FOR VALUE RECEIVED, the Company promises to pay to Don Morissette, LLC,
a Delaware limited liability company, or its registered assigns (the “Holder”),
or shall have paid pursuant to the terms hereunder, the principal sum of
$250,000.00 on September 30, 2011 (the
“Maturity Date”) or such
earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. 
This Debenture is subject to the following additional provisions:

 

Section 1.               Definitions.  For the purposes hereof, in addition to the
terms defined elsewhere in this Debenture, (a) capitalized terms not
otherwise defined herein shall have the meanings set forth in the Purchase
Agreement and (b) the following terms shall have the following meanings:

 

1

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of
Regulation S-X) thereof commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Significant Subsidiary thereof, (b) there
is commenced against the Company or any Significant Subsidiary thereof any such
case or proceeding that is not dismissed within 60 days after commencement, (c) the
Company or any Significant Subsidiary thereof is adjudicated insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered, (d) the Company or any Significant Subsidiary
thereof suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
calendar days after such appointment, (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the
Company or any Significant Subsidiary thereof calls a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts or (g) the Company or any Significant Subsidiary thereof, by any act
or failure to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the purpose
of effecting any of the foregoing.

 

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

 

“Beneficial Ownership Limitation” shall have the meaning set
forth in Section 4(d).

 

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control Transaction” means the occurrence after the
date hereof of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated
under the Exchange Act) of effective control (whether through legal or
beneficial ownership of capital stock of the Company, by contract or otherwise)
of in excess of 40% of the voting securities of the Company (other than by
means of conversion or exercise of the Debentures and the Securities issued
together with the Debentures), (b) the Company merges into or consolidates
with any other Person, or any Person merges into or consolidates with the
Company and, after giving effect to such transaction, the stockholders of the
Company immediately prior to such transaction own less than 60% of the
aggregate voting power of the Company or the successor entity of such
transaction, (c) the Company sells or transfers all or substantially all
of its assets to another Person and the stockholders of the Company immediately
prior to such transaction own less than 60% of the aggregate voting power of
the acquiring entity immediately after the transaction, (d) a replacement
at one time or within a two year period of more than one-half of the members of
the Board of Directors which is not approved by a majority of those individuals
who are members of the Board of Directors on the Original Issue Date (or by
those individuals who are serving as members of the 

 

2

 

Board of Directors on any date whose nomination to the Board of
Directors was approved by a majority of the members of the Board of Directors
who are members on the date hereof), or (e) the execution by the Company
of an agreement to which the Company  is
a party or by which it is bound, providing for any of the events set forth in
clauses (a) through (d) above.

 

“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Conversion Schedule” means the Conversion Schedule in the form
of Schedule 1 attached hereto.

 

“Conversion Shares” means, collectively, the shares of Common
Stock issuable upon conversion of this Debenture in accordance with the terms
hereof.

 

“Debenture Register” means the records of the Company regarding
registration and transfers of this Debenture.

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“Equity Conditions” means, during the period in question, (a) the
Company shall have duly honored all conversions and redemptions scheduled to
occur or occurring by virtue of one or more Notices of Conversion of the
Holder, if any, (b) the Company shall have paid all liquidated damages and
other amounts owing to the Holder in respect of this Debenture, (c) there
is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares of
Common Stock issuable pursuant to the Transaction Documents (and the Company
believes, in good faith, that such effectiveness will continue uninterrupted
for the foreseeable future), (d) the Common Stock is trading on a Trading
Market and all of the shares issuable pursuant to the Transaction Documents are
listed or quoted for trading on such Trading Market (and the Company believes,
in good faith, that trading of the Common Stock on a Trading Market will
continue uninterrupted for the foreseeable future), (e) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares then issuable pursuant to
the Transaction Documents, (f) there is no existing Event of Default and
no existing event which, with the passage of time or the giving of notice,
would constitute an Event of Default, (g) the issuance of the shares in
question to the Holder would not violate the limitations set forth in Section 4(d) herein,
(h) there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has not been
consummated, (i) the applicable Holder is not in possession of any
information provided by the Company that constitutes, or may constitute,
material non-

 

3

 

public information and (j) for each Trading Day in a period of 20
consecutive Trading Days prior to the applicable date in question, the daily
dollar trading volume for the Common Stock on the principal Trading Market
exceeds $250,000 per Trading Day.

 

“Event of Default” shall have the meaning set forth in Section 8(a).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“Late Fees” shall have the meaning set forth in Section 2(d).

 

“Make-Whole Interest
Amount” shall have the meaning set forth in Section 2(a).

 

“Mandatory Default Amount” 
means the sum of (a) the greater of (i) the outstanding
principal amount of this Debenture, plus all accrued and unpaid interest
hereon, divided by the Conversion Price on the date the Mandatory Default
Amount is either (A) demanded (if demand or notice is required to create
an Event of Default) or otherwise due or (B) paid in full, whichever has a
lower Conversion Price, multiplied by the VWAP on the date the Mandatory
Default Amount is either (x) demanded or otherwise due or (y) paid in
full, whichever has a higher VWAP, or (ii) 120% of the outstanding
principal amount of this Debenture, plus 100% of accrued and unpaid interest
hereon and all interest that would have accrued if the outstanding principal
amount had remained outstanding through the Maturity Date and (b) all
other amounts, costs, expenses and liquidated damages due in respect of this
Debenture.

 

“New York Courts” shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Optional Redemption” shall have the meaning set forth in Section 6(a).

 

“Optional Redemption Amount” means the sum of (a) 100% of
the then outstanding principal amount of the Debenture, (b) accrued but
unpaid interest and (c) all liquidated damages and other amounts due in
respect of the Debenture.

 

“Optional Redemption Date” shall have the meaning set forth in Section 6(a).

 

“Optional Redemption Notice” shall have the meaning set forth in
Section 6(a).

 

“Optional Redemption Notice Date” shall have the meaning set
forth in Section 6(a).

 

“Optional Redemption Period” shall have the meaning set forth in
Section 6(a).

 

“Original Issue Date” means the date of the first issuance of
this Debenture, regardless of any transfers of this Debenture and regardless of
the number of instruments which may be issued to evidence this Debenture.

 

4

 

“Permitted Indebtedness” means (a) the indebtedness
evidenced by the Debentures, (b) the Indebtedness existing on the Original
Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase
Agreement and (c) indebtedness that (i) is expressly subordinate to
the Debentures pursuant to a written subordination agreement with the
Purchasers that is acceptable to each Purchaser in its sole and absolute
discretion, and delivered prior to the incurrence of such indebtedness and (ii) matures
at a date later than the 91st day following the Maturity Date.

 

“Permitted Lien” means the individual and collective reference
to the following: (a) Liens for taxes, assessments and other governmental
charges or levies not yet due or Liens for taxes, assessments and other
governmental charges or levies being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good faith judgment of the
management of the Company) have been established in accordance with GAAP, (b) Liens
imposed by law which were incurred in the ordinary course of the Company’s
business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory
landlords’ Liens, and other similar Liens arising in the ordinary course of the
Company’s business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially
impair the use thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for
the foreseeable future the forfeiture or sale of the property or asset subject
to such Lien, (c) Liens incurred in connection with Permitted
Indebtedness.

 

“Purchase Agreement” means the Securities Purchase Agreement,
dated as of January 25,
2010 among the Company and the original Holder, as amended, modified or
supplemented from time to time in accordance with its terms.

 

“Registration Statement” means a registration statement filed,
registering the resale, by the Purchasers, of the Underlying Shares.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).
 

Section 2.               Interest.

 

a)             Payment of Interest in Cash.
The Company shall pay interest to the Holder on the aggregate unconverted and
then outstanding principal amount of this Debenture at the rate of 10 % per
annum, payable quarterly on January 1, April 1, July 1 and October 1,
beginning on April 1, 2010, on each Conversion Date (as to that principal
amount then being converted) and on the Maturity Date (each such date, an “Interest
Payment Date”) (if any Interest Payment Date is not a Business Day, then
the applicable payment shall be due on the next succeeding Business Day), in
cash. In addition to the payment of interest described above, on each
Conversion Date and in connection with the payment of a Mandatory Default
Amount or Optional Redemption Amount, the Company shall pay the 

 

5

 

Holder via a bank check or
wire transfer in the amount equal to all interest that would have accrued if
the principal amount subject to such Notice of Conversion or payment, as
applicable, had remained outstanding through the stated Maturity Date (such
amount, the “Make-Whole Interest Amount”).

 

b)            Interest
Calculations. Interest shall be calculated on the basis of a 360-day year,
consisting of twelve 30 calendar day periods, and shall accrue daily commencing
on the Original Issue Date until payment in full of the outstanding principal,
together with all accrued and unpaid interest, liquidated damages and other
amounts which may become due hereunder, has been made.

 

c)             Late Fee.  All overdue accrued and unpaid interest to be
paid hereunder shall entail a late fee at an interest rate equal to the lesser
of 18% per annum or the maximum rate permitted by applicable law (the “Late
Fees”) which shall accrue daily from the date such interest is due
hereunder through and including the date of actual payment in full.

 

d)            Prepayment.  Except as otherwise set forth in this
Debenture, the Company may not prepay
any portion of the principal amount of this Debenture without the prior written
consent of the Holder.

 

Section 3.               Registration
of Transfers and Exchanges.

 

a)             Different
Denominations. This Debenture is exchangeable for an equal aggregate principal
amount of Debentures of different authorized denominations, as requested by the
Holder surrendering the same.  No service
charge will be payable for such registration of transfer or exchange.

 

b)            Investment
Representations. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance with the
Purchase Agreement and applicable federal and state securities laws and regulations.

 

c)             Reliance on
Debenture Register. Prior to due presentment for transfer to the Company of
this Debenture, the Company and any agent of the Company may treat the Person
in whose name this Debenture is duly registered on the Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture is overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4.               Conversion.

 

a)             Voluntary
Conversion. At any time after the Original Issue Date until this Debenture
is no longer outstanding, this Debenture shall be convertible, in whole or in
part, into shares of Common Stock at the option of the Holder, at any time and
from time to time.  The Holder shall
effect conversions by delivering to the Company a Notice of Conversion, the
form of which is attached hereto as Annex A (each, a “Notice of 

 

6

 

Conversion”), specifying therein the principal amount of this
Debenture to be converted and the date on which such conversion shall be
effected (such date, the “Conversion Date”).  If no Conversion Date is specified in a
Notice of Conversion, the Conversion Date shall be the date that such Notice of
Conversion is deemed delivered hereunder. 
To effect conversions hereunder, the Holder shall not be required to
physically surrender this Debenture to the Company unless the entire principal
amount of this Debenture, plus all accrued and unpaid interest thereon, has
been so converted and paid. Conversions hereunder shall have the effect of
lowering the outstanding principal amount of this Debenture in an amount equal
to the applicable conversion.  The Holder
and the Company shall maintain records showing the principal amount(s) converted
and the date of such conversion(s).  The
Company may deliver an objection to any Notice of Conversion within one (1) Business
Day of delivery of such Notice of Conversion. 
In the event of any dispute or discrepancy, the records of the Holder
shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture may be less than the amount stated on the
face hereof.

 

b)            Conversion Price.  The conversion price in effect on any
Conversion Date shall be equal to $0.50, subject to adjustment herein (the
“Conversion Price”).

 

c)                                      Mechanics of
Conversion.

 

i.              Conversion
Shares Issuable Upon Conversion of Principal Amount.  The number of Conversion Shares issuable upon
a conversion hereunder shall be determined by the quotient obtained by dividing
(x) the outstanding principal amount of this Debenture to be converted by (y) the
Conversion Price.

 

ii.             Delivery of
Certificate Upon Conversion. Not later than three (3) Trading Days
after each Conversion Date (the “Share Delivery Date”), the Company
shall deliver, or cause to be delivered, to the Holder (A) a certificate
or certificates representing the Conversion Shares which, on or after the
earlier of (i) the six month anniversary of the Original Issue Date or (ii) the
Effective Date, shall be free of restrictive legends and trading restrictions
(other than those which may then be required by the Purchase Agreement)
representing the number of Conversion Shares being acquired upon the conversion
of this Debenture  and (B) a bank
check in the amount of accrued and unpaid interest (plus any Make-Whole
Interest Amount(s)). On or after the earlier of (i) the six month
anniversary of the Original Issue Date or (ii) the Effective Date, the
Company shall use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 4(c) electronically
through the Depository Trust Company or another established clearing
corporation performing similar functions.

 

7

 

iii.            Failure to
Deliver Certificates.  If, in the
case of any Notice of Conversion, such certificate or certificates are not
delivered to or as directed by the applicable Holder by the Share Delivery
Date, the Holder shall be entitled to elect by written notice to the Company at
any time on or before its receipt of such certificate or certificates, to
rescind such Conversion, in which event the Company shall promptly return to
the Holder any original Debenture delivered to the Company and the Holder shall
promptly return to the Company the Common Stock certificates issued to such
Holder pursuant to the rescinded Conversion Notice.

 

iv.            Obligation
Absolute; Partial Liquidated Damages. 
The Company’s obligations to issue and deliver the Conversion Shares
upon conversion of this Debenture in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the
Holder to enforce the same, any waiver or consent with respect to any provision
hereof, the recovery of any judgment against any Person or any action to
enforce the same, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with the issuance of such Conversion Shares; provided, however,
that such delivery shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. 
In the event the Holder of this Debenture shall elect to convert any or
all of the outstanding principal amount hereof, the Company may not refuse
conversion based on any claim that the Holder or anyone associated or
affiliated with the Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to
Holder, restraining and or enjoining conversion of all or part of this
Debenture shall have been sought and obtained, and the Company posts a surety
bond for the benefit of the Holder in the amount of 150% of the outstanding
principal amount of this Debenture, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the underlying dispute and the proceeds of which shall be payable to the Holder
to the extent it obtains judgment.  In the
absence of such injunction, the Company shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion.  If the Company fails for any reason to
deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by
the Share Delivery Date, the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1,000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading Day on the
fifth (5th) Trading Day
after such liquidated damages begin to accrue) for each Trading Day after such
Share Delivery Date until such certificates are delivered or Holder rescinds
such conversion.  Nothing herein shall
limit a Holder’s right to pursue actual damages or declare an Event of Default
pursuant to Section 8 hereof for the Company’s failure to deliver
Conversion Shares within the period specified herein and the Holder shall have
the right to pursue all 

 

8

 

remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief.  The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

 

v.             Compensation for
Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In
addition to any other rights available to the Holder, if the Company fails for
any reason to deliver to the Holder such certificate or certificates by the
Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share
Delivery Date the Holder is required by its brokerage firm to purchase (in an
open market transaction or otherwise), or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Conversion Shares which the Holder was entitled to receive upon
the conversion relating to such Share Delivery Date (a “Buy-In”), then
the Company shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount, if any, by which (x) the
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that the Holder was entitled to
receive from the conversion at issue multiplied by (2) the actual sale
price at which the sell order giving rise to such purchase obligation was
executed (including any brokerage commissions) and (B) at the option of
the Holder, either reissue (if surrendered) this Debenture in a principal
amount equal to the principal amount of the attempted conversion (in which case
such conversion shall be deemed rescinded) or deliver to the Holder the number
of shares of Common Stock that would have been issued if the Company had timely
complied with its delivery requirements under Section 4(c)(ii).  For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted conversion of this Debenture with respect to which the actual
sale price of the Conversion Shares (including any brokerage commissions)
giving rise to such purchase obligation was a total of $10,000 under clause (A) of
the immediately preceding sentence, the Company shall be required to pay the
Holder $1,000.  The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss.  Nothing herein shall limit
a Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon conversion of
this Debenture as required pursuant to the terms hereof.

 

vi.            Reservation of
Shares Issuable Upon Conversion. The Company covenants that it will at all
times reserve and keep available out of its authorized and unissued shares of
Common Stock for the sole purpose of issuance upon conversion of this Debenture
as herein provided, free from preemptive rights or any other actual contingent
purchase rights of Persons other than the Holder (and 

 

9

 

the other holders of the Debentures), not less than such aggregate
number of shares of the Common Stock as shall (subject to the terms and
conditions set forth in the Purchase Agreement) be issuable (taking into
account the adjustments and restrictions of Section 5) upon the conversion
of the then outstanding principal amount of this Debenture.  The Company covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable and, if a Registration Statement
is then effective under the Securities Act, shall be registered for public
resale in accordance with such Registration Statement.

 

vii.           Fractional
Shares. No fractional shares or scrip representing fractional shares shall
be issued upon the conversion of this Debenture.  As to any fraction of a share which the
Holder would otherwise be entitled to purchase upon such conversion, the
Company shall at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the Conversion
Price or round up to the next whole share.

 

viii.          Transfer Taxes.  The issuance of certificates for shares of
the Common Stock on conversion of this Debenture shall be made without charge
to the Holder hereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificates, provided
that, the Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of this
Debenture so converted and the Company shall not be required to issue or
deliver such certificates unless or until the Person or Persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.

 

d)            [RESERVED.]

 

Section 5.               Certain
Adjustments.

 

a)             Stock Dividends
and Stock Splits.  If the Company, at
any time while this Debenture is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions payable in shares of Common
Stock on shares of Common Stock or any Common Stock Equivalents (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company upon conversion of the Debentures), (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, (iii) combines
(including by way of a reverse stock split) outstanding shares of Common Stock
into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock (excluding
any treasury shares of the Company) outstanding immediately before such event,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. 
Any 

 

10

 

adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or re-classification.

 

b)            Subsequent Equity
Sales.  If, at any time while this
Debenture is outstanding,  the Company or
any Subsidiary, as applicable, sells or grants any option to purchase or sells
or grants any right to reprice, or otherwise disposes of or issues (or
announces any sale, grant or any option to purchase or other disposition), any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock at an effective price per share that is lower than the then
Conversion Price (such lower price, the “Base Conversion Price” and such
issuances, collectively, a “Dilutive Issuance”) (if the holder of the
Common Stock or Common Stock Equivalents so issued shall at any time, whether
by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which are issued in connection with such issuance,
be entitled to receive shares of Common Stock at an effective price per share
that is lower than the Conversion Price, such issuance shall be deemed to have
occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price.  Such adjustment shall
be made whenever such Common Stock or Common Stock Equivalents are issued.  Notwithstanding the foregoing, no adjustment
will be made under this Section 5(b) in respect of an Exempt
Issuance.  If the Company enters into a
Variable Rate Transaction, despite the prohibition set forth in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion price at which such
securities may be converted or exercised. The Company shall notify the Holder
in writing, no later than the Trading Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this Section 5(b), indicating
therein the applicable issuance price, or applicable reset price, exchange
price, conversion price and other pricing terms (such notice, the “Dilutive
Issuance Notice”).  For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice
pursuant to this Section 5(b), upon the occurrence of any Dilutive
Issuance, the Holder is entitled to receive a number of Conversion Shares based
upon the Base Conversion Price on or after the date of such Dilutive Issuance,
regardless of whether the Holder accurately refers to the Base Conversion Price
in the Notice of Conversion. Notwithstanding anything to the contrary in this Section 5(b),
in no event shall then Conversion Price be reduced to less than $0.10 (subject
to adjustment pursuant to Section 5(a)) as a result of any adjustment to
the Conversion Price pursuant to this Section 5(b).

 

c)             Subsequent
Rights Offerings.  If the Company, at
any time while the Debenture is outstanding, shall issue rights, options or
warrants to all holders of Common Stock (and not to the Holders) entitling them
to subscribe for or purchase shares of Common Stock at a price per share that
is lower than the VWAP on the record date referenced below, then the Conversion
Price shall be multiplied by a fraction of which the denominator shall be the
number of shares of the Common Stock outstanding on the date of issuance of
such rights, options or warrants plus the number of additional shares 

 

11

 

of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of the Common Stock outstanding on the
date of issuance of such rights, options or warrants plus the number of shares
which the aggregate offering price of the total number of shares so offered
(assuming delivery to the Company in full of all consideration payable upon
exercise of such rights, options or warrants) would purchase at such VWAP.  Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants.

 

d)            Pro Rata
Distributions. If the Company, at any time while this Debenture is
outstanding, distributes to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security
(other than the Common Stock, which shall be subject to Section 5(b)),
then in each such case the Conversion Price shall be adjusted by multiplying
such Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness or rights or warrants so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors of the Company in good faith.  In either case the adjustments shall be
described in a statement delivered to the Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. 
Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.

 

e)             Fundamental
Transaction. If, at any time while this Debenture is outstanding, (i) the
Company, directly or indirectly, in one or
more related transactions effects any merger or consolidation of the
Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other
disposition of all or substantially all of its assets in one or
a series of related transactions, (iii) any, direct or indirect, purchase
offer, tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
sell, tender or exchange their shares for other securities, cash or property
and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company,
directly or indirectly, in one or more related transactions effects any
reclassification, reorganization or recapitalization of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, (v) the
Company, directly or indirectly, in one or
more related transactions  consummates
a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another
Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock
(not including any shares of Common Stock held by the other Person or other
Persons making or party to, or associated or affiliated with the other Persons 

 

12

 

making or party to, such stock or
share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this
Debenture, the Holder shall have the
right to receive, for each Conversion Share that would have been issuable upon
such conversion immediately prior to the occurrence of such Fundamental
Transaction (without regard to any limitation in Section 4(d)), the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction
by a holder of the number of shares of Common Stock for which this Debenture is
convertible immediately prior to such Fundamental Transaction (without
regard to any limitation in Section 4(d) on the conversion of this
Debenture). 
For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one (1) share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Debenture following such
Fundamental Transaction.  The Company
shall cause any successor entity in a Fundamental Transaction in which the
Company is not the survivor (the “Successor Entity”) to assume in
writing all of the obligations of the Company under this Debenture and the
other Transaction Documents (as defined in the Purchase Agreement) in
accordance with the provisions of this Section 5(e) pursuant to
written agreements in form and substance reasonably satisfactory to the Holder
and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the holder of this
Debenture, deliver to the Holder in exchange for this Debenture a security of
the Successor Entity evidenced by a written instrument substantially similar in
form and substance to this Debenture which is convertible for a corresponding
number of shares of capital stock of such Successor Entity (or its parent
entity) equivalent to the shares of Common Stock acquirable and receivable upon
conversion of this Debenture (without regard to any limitations on the conversion
of this Debenture) prior to such Fundamental Transaction, and with a conversion
price which applies the conversion price hereunder to such shares of capital
stock (but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of
capital stock, such number of shares of capital stock and such conversion price
being for the purpose of protecting the economic value of this Debenture
immediately prior to the consummation of such Fundamental Transaction), and
which is reasonably satisfactory in form and substance to the Holder. Upon the
occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Debenture and the other
Transaction Documents referring to the “Company” shall refer instead to the
Successor Entity), and may exercise every right and power of the Company and
shall assume all of the obligations of the Company under this Debenture and the
other Transaction 

 

13

 

Documents with the same effect as if such Successor Entity had been
named as the Company herein.

 

f)             Calculations.  All calculations under this Section 5
shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be.  For purposes of this Section 5,
the number of shares of Common Stock deemed to be issued and outstanding as of
a given date shall be the sum of the number of shares of Common Stock
(excluding any treasury shares of the Company) issued and outstanding.

 

g)            Notice to the
Holder.

 

i.              Adjustment to
Conversion Price.  Whenever the
Conversion Price is adjusted pursuant to any provision of this Section 5,
the Company shall promptly deliver to each Holder a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.

 

ii.             Notice to Allow
Conversion by Holder.  If (A) the
Company shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) the Company shall declare a special nonrecurring
cash dividend on or a redemption of the Common Stock, (C) the Company
shall authorize the granting to all holders of the Common Stock of rights or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company, then, in each case, the Company shall cause to be filed at each
office or agency maintained for the purpose of conversion of this Debenture,
and shall cause to be delivered to the Holder at its last address as it shall
appear upon the Debenture Register, at least twenty (20) calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not
to be taken, the date as of which the holders of the Common Stock of record to
be entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange,
provided that the failure to deliver such notice or any defect therein or in
the delivery thereof shall not affect the validity of the corporate action
required to be specified in such notice. 
To the extent that any notice 

 

14

 

provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current
Report on Form 8-K.  The Holder
shall remain entitled to convert this Debenture during the 20-day period
commencing on the date of such notice through the effective date of the event
triggering such notice except as may otherwise be expressly set forth herein;
provided, however, that the foregoing shall not limit Holder’s right to convert
this Debenture after the date of the event triggering such notice.

 

Section 6.

 

a)             Optional Redemption at Election of Company.  Subject to the provisions of this Section 6(a),
at any time after Effective Date, the Company may deliver a notice to the
Holder (an “Optional Redemption Notice” and the date such notice is
deemed delivered hereunder, the “Optional Redemption Notice Date”) of
its irrevocable election to redeem all of the then outstanding principal amount
of this Debenture for cash in an amount equal to the Optional Redemption Amount
on the 20th Trading Day following the Optional Redemption
Notice Date (such date, the “Optional Redemption Date”, such 20 Trading
Day period, the “Optional Redemption Period” and such redemption, the “Optional
Redemption”).  The Optional
Redemption Amount is payable in full on the Optional Redemption Date.  The Company may only effect an Optional
Redemption if each of the Equity Conditions shall have been met (unless waived
in writing by the Holder) on each Trading Day during the period commencing on
the Optional Redemption Notice Date through to the Optional Redemption Date and
through and including the date payment of the Optional Redemption Amount is
actually made in full.  If any of the
Equity Conditions shall cease to be satisfied at any time during the Optional
Redemption Period, then the Holder may elect to nullify the Optional Redemption
Notice by notice to the Company within 3 Trading Days after the first day on
which any such Equity Condition has not been met (provided that if, by a
provision of the Transaction Documents, the Company is obligated to notify the
Holder of the non-existence of an Equity Condition, such notice period shall be
extended to the third Trading Day after proper notice from the Company) in
which case the Optional Redemption Notice shall be null and void, ab  initio.  The Company covenants and agrees that it will
honor all Notices of Conversion tendered from the time of delivery of the
Optional Redemption Notice through the date all amounts owing thereon are due
and paid in full. The Company’s
determination to pay an Optional Redemption in cash shall be applied ratably to
all of the holders of the then outstanding Debentures based on their (or their
predecessor’s) initial purchases of Debentures pursuant to the Purchase
Agreement.

 

b)            Redemption Procedure.  The payment of cash pursuant to an Optional
Redemption shall be payable on the Optional Redemption Date.  If any portion of the payment pursuant to an
Optional Redemption shall not be paid by the Company by the applicable due
date, interest shall accrue thereon at an interest rate equal to the lesser of
18% per annum or the maximum rate permitted by applicable law until such amount
is paid in full.  Notwithstanding
anything herein contained to the contrary, if any portion of the Optional
Redemption Amount remains unpaid after such date, the Holder may elect,

 

15

 

by written notice to the Company given at any time
thereafter, to invalidate such Optional Redemption, ab initio, and, with
respect to the Company’s failure to honor the Optional Redemption, the Company
shall have no further right to exercise such Optional Redemption.  The Holder may elect to convert the
outstanding principal amount of the Debenture pursuant to Section 4 prior
to actual payment in cash for any redemption under this Section 6 by the
delivery of a Notice of Conversion to the Company.

 

Section 7.               Negative
Covenants. As long as any portion of this Debenture remains outstanding,
unless the holders of at least 75% in principal amount of the then outstanding
Debentures shall have otherwise given prior written consent, the Company shall
not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)             other than
Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer
to exist any indebtedness for borrowed money of any kind, including, but not
limited to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or
profits therefrom;

 

b)            other than Permitted
Liens, enter into, create, incur, assume or suffer to exist any Liens of any
kind, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom;

 

c)             amend its charter
documents, including, without limitation, its certificate of incorporation and
bylaws, in any manner that materially and adversely affects any rights of the
Holder;

 

d)            repay, repurchase or
offer to repay, repurchase or otherwise acquire more than a de  minimis
number of shares of its Common Stock or Common Stock Equivalents other than as
to (i) the Conversion Shares or Warrant Shares as permitted or required
under the Transaction Documents and (ii) repurchases of Common Stock or
Common Stock Equivalents of departing officers and directors of the Company,
provided that such repurchases shall not exceed an aggregate of $100,000 for
all officers and directors during the term of this Debenture;

 

e)             repay, repurchase
or offer to repay, repurchase or otherwise acquire any Indebtedness, other than
(x) the Debentures if on a pro-rata basis or (y) subject to the terms
of the Subordination Agreements, regularly scheduled principal and interest
payments as such terms are in effect as of the Original Issue Date;

 

f)             pay cash dividends
or distributions on any equity securities of the Company;

 

g)            enter into any
transaction with any Affiliate of the Company which would be required to be
disclosed in any public filing with the Commission, unless such transaction is
made on an arm’s-length basis and expressly approved by a majority of the
disinterested directors of the Company (even if less than a quorum otherwise
required for board approval); or

 

16

 

h)            enter into any
agreement with respect to any of the foregoing.

 

Section 8.               Events
of Default.

 

a)             “Event of
Default” means, wherever used herein, any of the following events (whatever
the reason for such event and whether such event shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any
administrative or governmental body):

 

i.              any default in the payment of (A) the
principal amount of any Debenture or (B) interest, liquidated damages and
other amounts owing to a Holder on any Debenture, as and when the same shall
become due and payable (whether on a Conversion Date or the Maturity Date or by
acceleration or otherwise) which default, solely in the case of an interest
payment or other default under clause (B) above, is not cured within 3
Trading Days;

 

ii.             the Company shall fail to observe
or perform any other covenant or agreement contained in the Debentures (other
than a breach by the Company of its obligations to deliver shares of Common
Stock to the Holder upon conversion, which breach is addressed in clause (ix) below)
which failure is not cured, if possible to cure, within the earlier to occur of
(A) 5 Trading Days after notice of such failure sent by the Holder or by
any other Holder to the Company and (B) 10 Trading Days after the Company
has become or should have become aware of such failure;

 

iii.            a default or event of default
(subject to any grace or cure period provided in the applicable agreement,
document or instrument) shall occur under (A) any of the Transaction
Documents or (B) any other material agreement, lease, document or
instrument to which the Company or any Subsidiary is obligated (and not covered
by clause (vi) below);

 

iv.            any representation or warranty made
in this Debenture, any other Transaction Documents, any written statement
pursuant hereto or thereto or any other report, financial statement or
certificate made or delivered to the Holder or any other Holder shall be untrue
or incorrect in any material respect as of the date when made or deemed made;

 

v.             the Company or any Significant
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X)  shall be subject to a Bankruptcy
Event;

 

vi.            the Company or any Subsidiary shall
default on any of its obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be 

 

17

 

issued,
or by which there may be secured or evidenced, any indebtedness for borrowed
money or money due under any long term leasing or factoring arrangement that (a) involves
an obligation greater than $150,000, whether such indebtedness now exists or
shall hereafter be created, and (b) results in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;

 

vii.           the Common Stock shall not be
eligible for listing or quotation for trading on a Trading Market and shall not
be eligible to resume listing or quotation for trading thereon within five
Trading Days;

 

viii.          the Company shall be a party to any
Change of Control Transaction or Fundamental Transaction or shall agree to sell
or dispose of all or in excess of 40% of its assets in one transaction or a
series of related transactions (whether or not such sale would constitute a
Change of Control Transaction);

 

ix.            the Company shall fail for any reason to deliver
certificates to a Holder prior to the fifth Trading Day after a Conversion Date
pursuant to Section 4(c) or the Company shall provide at any time
notice to the Holder, including by way of public announcement, of the Company’s
intention to not honor requests for conversions of any Debentures in accordance
with the terms hereof;

 

x.             the Company does not meet the current public information
requirements under Rule 144; or

 

xi.            any monetary judgment, writ or
similar final process shall be entered or filed against the Company, any
subsidiary or any of their respective property or other assets for more than
$150,000, and such judgment, writ or similar final process shall remain
unvacated, unbonded or unstayed for a period of 45 calendar days.

 

b)            Remedies Upon
Event of Default. If any Event of Default occurs, the outstanding principal
amount of this Debenture, plus accrued but unpaid interest, liquidated damages
and other amounts owing in respect thereof through the date of acceleration,
shall become, at the Holder’s election, immediately due and payable in cash at
the Mandatory Default Amount.  Commencing
5 days after the occurrence of any Event of Default that results in the
eventual acceleration of this Debenture, the interest rate on this Debenture
shall accrue at an interest rate equal to the lesser of 18% per annum or the
maximum rate permitted under applicable law. 
Upon the payment in full of the Mandatory Default Amount, the Holder
shall promptly surrender this Debenture to or as directed by the Company.  In connection with such acceleration described
herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law.  Such acceleration may be
rescinded and annulled by Holder at any time prior to payment hereunder and the
Holder 

 

18

 

shall have all rights as a holder of the Debenture until such time, if
any, as the Holder receives full payment pursuant to this Section 8(b).  No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.

 

Section 9.               Miscellaneous.

 

a)             Notices.  Any and all notices or other communications
or deliveries to be provided by the Holder hereunder, including, without
limitation, any Notice of Conversion, shall be in writing and delivered
personally, by facsimile, or sent by a nationally recognized overnight courier
service, addressed to the Company, at the address set forth above, or such
other facsimile number or address as the Company may specify for such purposes
by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized
overnight courier service addressed to each Holder at the facsimile number or
address of the Holder appearing on the books of the Company, or if no such
facsimile number or address appears on the books of the Company, at the
principal place of business of such Holder, as set forth in the Purchase
Agreement.  Any notice or other
communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City
time) on any date, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day
that is not a Trading Day or later than 5:30 p.m. (New York City time) on
any Trading Day, (iii) the second Trading Day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon
actual receipt by the party to whom such notice is required to be given.

 

b)            Absolute
Obligation. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, liquidated damages and
accrued interest, as applicable, on this Debenture at the time, place, and
rate, and in the coin or currency, herein prescribed.  This Debenture is a direct debt obligation of
the Company.  This Debenture ranks pari
passu with all other Debentures now or hereafter issued under the terms
set forth herein.

 

c)             Lost or
Mutilated Debenture.  If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation of
a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of 

 

19

 

such loss, theft or destruction of such Debenture, and of the ownership
hereof, reasonably satisfactory to the Company.

 

d)            Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Debenture shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflict of laws thereof.  Each party agrees that all legal proceedings
concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a
party hereto or its respective Affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting
in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the New York Courts for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such New York Courts,
or such New York Courts are improper or inconvenient venue for such
proceeding.  Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by applicable law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating
to this Debenture or the transactions contemplated hereby. If any party shall
commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys fees and other costs and expenses incurred in
the investigation, preparation and prosecution of such action or proceeding.

 

e)             Waiver.  Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture.  The
failure of the Company or the Holder to insist upon strict adherence to any
term of this Debenture on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Debenture on any other occasion.  Any waiver by the Company or the Holder must
be in writing.

 

f)             Severability.  If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this Debenture shall remain
in effect, and if any provision is inapplicable to any Person or circumstance,
it shall nevertheless remain applicable to all other Persons and
circumstances.  If it shall be found that
any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate 

 

20

 

of interest permitted under applicable law. The Company covenants (to
the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on this Debenture as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the performance
of this indenture, and the Company (to the extent it may lawfully do so) hereby
expressly waives all benefits or advantage of any such law, and covenants that
it will not, by resort to any such law, hinder, delay or impede the execution
of any power herein granted to the Holder, but will suffer and permit the
execution of every such as though no such law has been enacted.

 

g)            Next Business Day.  Whenever any payment or other obligation
hereunder shall be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day.

 

h)            Headings.  The headings contained herein are for
convenience only, do not constitute a part of this Debenture and shall not be
deemed to limit or affect any of the provisions hereof.

 

i)              Secured
Obligation.  The obligations of the
Company under this Debenture are secured by all assets of the Company and each
Subsidiary pursuant to the Security Agreement, dated as of September 29,
2009 between the Company, the Subsidiaries of the Company and the Secured
Parties (as defined therein).

 

j)              Amendments.  This Debenture may be modified or amended or
the provisions hereof waived with the prior written consent of the Company and
Holders holding Debentures at least equal to 75% of the aggregate principal
amount then outstanding under all Debentures.

 

*********************

 

(Signature
Pages Follow)

 

21

 

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.

 

 

	
   

  	
  ETELOS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Daniel J.A. Kolke

  
	
   

  	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
  Facsimile No. for delivery of Notices: 425.458.4511

  

 

[SIGNATURE
PAGE TO MORISSETTE DEBENTURE]

 

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby
elects to convert principal under the 10%
Senior Secured Convertible Debenture due September 30, 2011 of Etelos, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”), of the
Company according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith.  No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this
Notice of Conversion the undersigned represents and warrants to the Company
that its ownership of the Common Stock does not exceed the amounts specified
under Section 4 of this Debenture, as determined in accordance with Section 13(d) of
the Exchange Act.

 

The undersigned agrees to
comply with the prospectus delivery requirements under the applicable
securities laws in connection with any transfer of the aforesaid shares of
Common Stock.

 

Conversion
calculations:

 

	
   

  	
  Date to Effect Conversion:

  
	
   

  	
   

  
	
   

  	
  Principal Amount of Debenture to be Converted:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common Stock to be issued:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Address for Delivery of Common Stock Certificates:

  
	
   

  	
   

  
	
   

  	
  Or

  
	
   

  	
   

  
	
   

  	
  DWAC Instructions:

  
	
   

  	
   

  
	
   

  	
  Broker No:

  
	
   

  	
  Account No:

  

 

 

Schedule 1

 

CONVERSION SCHEDULE

 

The 10%
Senior Secured Convertible Debentures due on September 30, 2011 in
the aggregate principal amount of
$                        
are issued by Etelos, Inc., a
Delaware corporation.  This
Conversion Schedule reflects conversions made under Section 4 of the above
referenced Debenture.

 

Dated:

 

	
  Date of Conversion

  (or for first entry, 

  Original Issue Date)

  	
   

  	
  Amount of

  Conversion

  	
   

  	
  Aggregate

  Principal

  Amount

  Remaining

  Subsequent to

  Conversion

  (or original

  Principal

  Amount)

  	
   

  	
  Company Attest

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