Document:

EXHIBIT 4.1

REGISTRATION RIGHTS AGREEMENT

This Registration Rights
Agreement (this “Agreement”) is made and entered into as of November 16,
2006, by and among GlobalSCAPE, Inc., a Delaware corporation (the “Company”),
and the purchasers signatory hereto (each a “Purchaser” and
collectively, the “Purchasers”).

This Agreement is made
pursuant to the Securities Purchase Agreement, dated as of the date hereof, by
and among the Company and the Purchasers (the “Purchase Agreement”).

The Company and the
Purchasers hereby agree as follows:

1.                                 Definitions.  Capitalized terms used and not otherwise
defined herein that are defined in the Purchase Agreement shall have the
meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following terms
shall have the following meanings:

“Advice” shall have the meaning set forth in
Section 6(g).

“Blackout Period” shall have the meaning set
forth in Section 6(f).

“Common Stock” means the common stock of the
Company, par value $0.001 per share.

“Commission” means the Securities and Exchange
Commission.

“Company Shares” means the shares of Common
Stock issued by the Company to the Purchasers pursuant to the Purchase
Agreement other than the Warrant Shares.

“Effectiveness Period” shall have the meaning
set forth in Section 2(a).

“Event” shall have the meaning set forth in
Section 2(b).

“Event Date” shall have the meaning set forth
in Section 2(b).

“Exchange Act” means the Securities Exchange
Act of 1934, as amended, or any successor statute, and the rules and
regulations of the Commission thereunder.

“Filing Date” means, with respect to the
Registration Statement required hereunder, the 30th calendar day following the issuance of the
Securities pursuant to the Purchase Agreement.

“Free Writing Prospectus” means a free writing
prospectus as defined in Rule 405 under the Securities Act.

“Holder” or “Holders” means the holder
or holders, as the case may be, from time to time of Registrable Securities.

 

“Indemnified Party” shall have the meaning set
forth in Section 5(c).

“Indemnifying Party” shall have the meaning set
forth in Section 5(c).

“Issuer Free Writing Prospectus” means an
issuer free writing prospectus as defined in Rule 433 under the Securities Act.

“Losses” shall have the meaning set forth in
Section 5(a).

“Permitted Free Writing Prospectus” shall have
the meaning set forth in Section 6(d).

“Plan of Distribution” shall have the meaning
set forth in Section 2(a).

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

“Prospectus” means the prospectus included in a
Registration Statement as supplemented by any and all prospectus supplements
and as amended by any and all amendments including post-effective
amendments, and including all material incorporated by reference or deemed to
be incorporated by reference in such Prospectus.

“Registrable Securities” means all of (i) the
Shares, (ii) the Warrant Shares and (iii) any shares of Common Stock issued or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing.

“Registration Statement” means any registration
statement of the Company under the Securities Act that covers any of the
Registrable Securities pursuant to the provisions of this Agreement, including
the related Prospectus, all amendments and supplements to such registration
statement or Prospectus, including post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

“Required Effective Date” shall have the
meaning set forth in Section 2(a).

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

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

“Securities Act” means the Securities Act of
1933, as amended, or any successor statute, and the rules and regulations of
the Commission thereunder.

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“Selling Shareholder Questionnaire” shall have
the meaning set forth in Section 3(a).

“Selling Stockholder Shares” means the shares
of Common Stock set forth opposite the name of each Selling Stockholder on Schedule
I to the Purchase Agreement.

 “Shares”
means the Company Shares and the Selling Stockholder Shares.

“Trading Market” means whichever of the New
York Stock Exchange, the American Stock Exchange, the NASDAQ Global Market, the
NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is
listed or quoted for trading on the date in question.

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

2.                                 Registration.

(a)                                  On or prior to the
Filing Date, the Company shall prepare and file with the Commission a
Registration Statement covering the resale of all of the Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415, or if
Rule 415 is not available for offers and sales of the Registrable Securities by
such other means of distribution of Registrable Securities as the Holders
owning a majority of the Registrable Securities may specify in writing.  The Registration Statement shall be on Form
S-3 (except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case the Registration Statement
shall be on another appropriate form in accordance herewith) and shall contain
(unless otherwise directed by the Holders owning a majority of the Registrable
Securities) the “Plan of Distribution” attached hereto as Annex A.  Subject to the terms of this Agreement, the
Company shall use its commercially reasonable efforts to cause the Registration
Statement to be declared effective under the Securities Act on or prior to the
earlier of (i) the 90th calendar day following the Closing Date (the
120th calendar day in the event of a full review by
the Commission; provided that, if the Company has filed the Registration
Statement by the Filing Date and the Commission has not completed it review and
declared the Registration Statement effective on or prior to February 13, 2006,
then the time period for being effective shall be extended to the 150th calendar day) and (ii) the 10th business day
after the Commission advises the Company that the Registration Statement will
not be reviewed or the Commission has no further comments on the Registration
Statement (the “Required Effective Date”).  The Company shall use its commercially
reasonable efforts to keep the Registration Statement continuously effective
under the Securities Act until the earlier of (i) the two year anniversary
of the date that the Registration Statement is declared effective by the
Commission, (ii) the date on which all Registrable Securities covered by such
Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable
to the Company’s transfer agent and (iii) otherwise transferred to Persons who
may trade such securities without restriction or limitation under the
Securities Act (the “Effectiveness

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Period”).  The Company shall telephonically request
effectiveness of a Registration Statement as of 5:00 pm Eastern Time on a
Trading Day.  The Company shall
immediately notify the Holders via facsimile of the effectiveness of a
Registration Statement on the same Trading Day that the Company telephonically
confirms effectiveness with the Commission. 
The Company shall, on the Trading Day after the Effective Date (as
defined in the Purchase Agreement), file a 424(b) prospectus with the
Commission.  The Prospectus shall be
filed no later than 9:30 am Eastern Time on the Trading Day after the Effective
Date.

(b)                                 If: (i) a Registration
Statement is not filed on or prior to its Filing Date; or (ii) a Registration
Statement filed or required to be filed hereunder is not declared effective by
the Commission by its Required Effective Date or (iii) after the Required
Effective Date, a 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 not permitted to utilize the
Prospectus therein to resell such Registrable Securities for 30 consecutive
calendar days but no more than an aggregate of 60 calendar days during any
12-month period (which need not be consecutive Trading Days) (any such failure
or breach being referred to as an “Event”, and for purposes of clause
(i) or (ii) the date on which such Event occurs or for purposes of clause (iii)
the date on which such 30 or 60 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 each monthly anniversary of each such Event Date until the applicable Event
is cured, the Company shall pay to each Holder an amount in cash as partial
liquidated damages and not as a penalty, equal to 1.5% of the aggregate
purchase price paid by such Holder pursuant to the Purchase Agreement for any
Company Shares and Warrant Shares then held by such Holder; ­provided,
that such liquidated damages shall not exceed 12% of the aggregate purchase
price paid by all Holders pursuant to the Purchase Agreement for such
shares.  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.  For purposes of clarity, the partial
liquidated damages amount shall be calculated solely based on the purchase price
paid by such Holder pursuant to the Purchase Agreement for any Company Shares
and Warrant Shares then held by such Holder and shall in no way take into
account the purchase price paid by Holder pursuant to the Purchase Agreement
for any Selling Stockholder Shares then held by such Holder.

3.                                 Registration
Procedures.

In connection with the
Company’s registration obligations hereunder, the Company shall:

(a)                                  Not less than five
(5) Trading Days prior to the filing of a Registration Statement or any related
Prospectus or any amendment or supplement thereto, (i) furnish to each Holder
copies of all such documents proposed to be filed, which documents (including
documents incorporated or deemed to be incorporated by reference) will be
subject to the review of such Holders, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be

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necessary, in the reasonable opinion of
respective legal counsel to allow the Holders to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in good faith, provided that, the Company is
notified of such objection in writing no later than three (3) Trading Days
after the Holders have been so furnished copies of such documents.  Each Holder agrees to furnish to the Company
a completed Questionnaire in the form attached to this Agreement as Annex B
(a “Selling Shareholder Questionnaire”) not less than five (5) Trading
Days prior to the Filing Date.

(b)                                 (i) Prepare and file
with the Commission such amendments, including post-effective amendments, to a
Registration Statement and the Prospectus used in connection therewith as may
be necessary to keep a Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period; (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus
supplement (subject to the terms of this Agreement), and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly as
reasonably possible to any comments received from the Commission with respect
to a Registration Statement or any amendment thereto and as promptly as
reasonably possible, (a) provide the Holders with notice in writing that
correspondence relating to a Registration Statement has been received from or
sent to the Commission and (b) upon request, provide the Holders true and
complete copies of all correspondence from and to the Commission relating to a
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by a Registration Statement
during the applicable period in accordance (subject to the terms of this
Agreement) with the intended methods of disposition by the Holders thereof set
forth in such Registration Statement as so amended or in such Prospectus as so
supplemented.

(c)                                  Notify the Holders of
Registrable Securities to be sold as promptly as reasonably possible (and, in
the case of (i)(A) below, not less than two (2) Trading Days prior to such
filing): (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a “review”
of such Registration Statement and whenever the Commission comments in writing
on such Registration Statement (the Company shall provide true and complete
copies thereof and all written responses thereto to each of the Holders who so
requests provided such requesting Holders agree to keep such information
confidential until it is publicly disclosed and to waive Section 4.5 of the
Purchase Agreement with respect thereto); and (C) with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or Prospectus or for additional information; (iii) of the issuance by
the Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose known to the Company; (iv) of the receipt by the Company of any
notification with respect to the suspension of the

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qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (v) of the
occurrence of any event or passage of time that makes the financial statements
included in a Registration Statement ineligible for inclusion therein or any
statement made in a Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to a Registration Statement,
Prospectus or other documents so that, in the case of a Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (provided that such
Holder of Registrable Securities agrees to keep such information confidential
until it is publicly disclosed and to waive Section 4.5 of the Purchase
Agreement with respect thereto).

(d)                                 Use its commercially
reasonable efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of (i) any order suspending the effectiveness of a Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any jurisdiction,
at the earliest practicable moment.

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

(f)                                    Promptly deliver to
each Holder, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request in connection with resales by the Holder of
Registrable Securities; provided, however, that the Company shall have no such
obligation to furnish copies of a final prospectus if the conditions of Rule
172(c) under the Securities Act are satisfied by the Company.  Subject to the terms of this Agreement, the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto, except after the giving of any notice
pursuant to Section 3(c).

(g)                                 If NASD Rule 2710
requires any broker-dealer to make a filing prior to executing a sale by a
Holder, the Company shall (i) make an Issuer Filing with the NASD Regulation,
Inc. Corporate Financing Department (“NASDR”) pursuant to NASD Rule
2710(b)(10)(A)(i), (ii) respond within five (5) Trading Days to any comments
received from NASDR in connection therewith, and (iii) pay the filing fee
required in connection therewith.

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(h)                                 Prior to any resale of
Registrable Securities by a Holder, use its commercially reasonable efforts to
register or qualify or cooperate with the selling Holders in connection with
the registration or qualification (or exemption from the registration or
qualification) of such Registrable Securities for the resale by the Holder
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Holder reasonably requests in writing, to keep each registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things reasonably necessary to
enable the disposition in such jurisdictions of the Registrable Securities
covered by each Registration Statement; provided, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is
not then so qualified, subject the Company to any material tax in any such
jurisdiction where it is not then so subject or file a general consent to
service of process in any such jurisdiction.

(i)                                     If requested by
any Holder, cooperate with such Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

(j)                                     Subject to the
last sentence of this Section 3(j), upon the occurrence of any event set forth
in Section 6(f)(iii) or (iv), as promptly as reasonably possible, prepare a
supplement or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. 
Notwithstanding the foregoing, the Company shall not be required to
amend or supplement a Registration Statement, any related Prospectus or any
document incorporated therein by reference, during a Blackout Period if either
(i) any action by the Company pursuant to this Section 3(j) would violate
applicable law or (ii) (A) an event occurs and is continuing as a result of
which a Registration Statement, any related Prospectus or any document
incorporated therein by reference as then amended or supplemented would, in the
Company’s good faith judgment, contain an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (B) (1) the Company determines in good faith that the
disclosure of such event at such time would have a material adverse effect on
the business, operations or prospects of the Company or (2) the disclosure
otherwise relates to a material business transaction which has not yet been
publicly disclosed in any relevant jurisdiction.

(k)                                  Comply in all
material respects with all applicable rules and regulations of the Commission
and use its commercially reasonable efforts to cause all Registrable Securities
to be listed on a Trading Market.

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(l)                                     If requested by
Holders, in the event of an underwritten offering of the Registrable Securities
by the Holders, the Company shall furnish to the Holders (i) on the date of the
effectiveness of the Registration Statement, a letter, dated such date, from
the Company’s independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the Holders, and
(ii) on the date that Registrable Securities are delivered to the underwriters
for sale in any such registration, an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement,
in form, scope and substance as is customarily given in an underwritten public
offering, addressed to the Holders. 
Notwithstanding anything herein to the contrary, no Holder shall be
designated as an “underwriter” by the Company in any Registration Statement
without the consent of such Holder.  The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such
Holder and, if required by the Commission, the person thereof that has voting
and disposition control over the Shares.

(m)                               In connection with the due
diligence efforts of any Holder who is or is to be identified as an “underwriter,”
the Company shall make available for inspection during business hours and upon
reasonable advance request by (i) any Holder, (ii) counsel for such Holder and
(iii) one firm of accountants or other agents retained by such Holder
(collectively, the “Inspectors”),
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree in writing to hold in strict confidence and
shall not make any disclosure (except to a Holder) or use of any Record or
other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the Securities Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector has knowledge or any Holder is a
party.  Each Holder agrees that it shall,
upon learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. 
Nothing herein (or in any other confidentiality agreement between the
Company and such Holder) shall be deemed to limit such Holders’ ability to sell
Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

(n)                                 The Company shall not
permit any officer, director, underwriter, broker or any other person acting on
behalf of the Company to use any Free Writing Prospectus in connection with the
Registration Statement covering Registrable Securities, without the prior
written consent of the Holders which consent shall not be unreasonably withheld
or

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delayed. 
Any consent to the use of a Free Writing Prospectus included in an
underwriting agreement to which the Holders are parties shall be deemed to
satisfy the requirement for such consent.

4.                                 Registration
Expenses.  All fees and expenses
incident to the performance of or compliance with this Agreement by the Company
shall be borne by the Company whether or not any Registrable Securities are
sold pursuant to a Registration Statement. 
The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to
be made with the Trading Market on which the Common Stock is then listed for
trading, (B) in compliance with applicable state securities or Blue Sky laws
reasonably agreed to by the Company (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as requested by the Holders) and (C) if not previously paid
by the Company in connection with an Issuer Filing, with respect to any filing
that may be required to be made by any broker through which a Holder intends to
make sales of Registrable Securities with NASD Regulation, Inc. pursuant to the
NASD Rule 2710, so long as the broker is receiving no more than a customary
brokerage commission in connection with such sale, (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the holders of a majority of the
Registrable Securities included in a Registration Statement), (iii) messenger,
telephone and delivery expenses of the Company, (iv) fees and disbursements of
counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement.  In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated
by this Agreement (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder. In no event shall the Company be responsible for any broker or
similar commissions or underwriting discounts or commissions, or, except to the
extent provided for in the Transaction Documents, any legal fees or other costs
of the Holders.

5.                                 Indemnification

(a)                                  Indemnification by
the Company.  The Company shall, and
hereby does notwithstanding any termination of this Agreement, indemnify,
defend and hold harmless each Holder, the officers, directors, agents, members,
partners, and employees of each of them, each Person who controls any such
Holder (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) and the officers, directors, agents, members, partners, and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable attorneys’ fees)
and expenses, (collectively, “Losses”),
as incurred, to the extent arising out of or relating to, any untrue or alleged
untrue statement of a material fact contained or incorporated by reference in a

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Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or Issuer Free Writing Prospectus or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, or any violation
or alleged violation by the Company of the Securities Act, the Exchange Act,
any other law, including, without limitation, any state securities law, or any
rule or regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement, but only to the extent, that
(i) such untrue statements or omissions were not based upon information
regarding such Holder furnished in writing to the Company by such Holder, (ii)
in the case of an occurrence of an event of the type specified in Section
3(c)(ii) — (vi), the use by such Holder of an outdated or defective Prospectus
or Issuer Free Writing Prospectus where the Company has failed to notify such
Holder in writing that the Prospectus or Issuer Free Writing Prospectus is
outdated or defective or (iii) any use of a Registration Statement during any
Blackout Period.  The Company shall
notify the Holders promptly of the institution, threat or assertion of any
Proceeding arising from or in connection with the transactions contemplated by
this Agreement of which the Company is aware.

(b)                                 Indemnification by
Holders. Each Holder shall, severally and not jointly, indemnify and hold
harmless the Company, its directors, officers, agents and employees, each
Person who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents or employees of such controlling Persons, to the fullest
extent permitted by applicable law, from and against all Losses, as incurred,
to the extent arising out of or based solely upon: (x) such Holder’s failure to
comply with the prospectus delivery requirements of the Securities Act or (y)
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, any Prospectus, or any form of prospectus, or in any
amendment or supplement thereto or in any preliminary prospectus, or Issuer
Free Writing Prospectus or arising out of or relating to any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading (i) to the extent, but only to
the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such Holder to the Company specifically
for inclusion in such Registration Statement, Prospectus or Issuer Free Writing
Prospectus or (ii) to the extent that (1) such untrue statements or omissions
are based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that
such information relates to such Holder, (2) in the case of an occurrence of an
event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of
an outdated or defective Prospectus or Issuer Free Writing Prospectus after the
Company has notified such Holder in writing that the Prospectus or Issuer Free
Writing Prospectus is outdated or defective and prior to the receipt by such
Holder of the Advice contemplated in Section 6(g) or (3) any use of a
Registration Statement during any Blackout Period.  In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

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

An Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: 
(1) the Indemnifying Party has agreed in writing to pay such fees and
expenses; (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (3) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and the reasonable fees and expenses of one separate
counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld, delayed or conditioned.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.  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 5, except to the extent that the
Indemnifying Party is prejudiced in its ability to defend such action.

Subject to the terms of this Agreement, all reasonable
fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing
to defend such Proceeding in a manner not inconsistent with this Section) shall
be paid promptly to the Indemnified Party, as incurred, but no later than ten
(10) Trading Days of written notice thereof to the Indemnifying Party;
provided, that the Indemnified Party shall promptly reimburse the Indemnifying
Party for that portion of such fees and expenses applicable to such actions for
which such Indemnified Party is not entitled to indemnification hereunder,
determined based upon the relative faults of the parties.

 11
 

 

The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

(d)                                 Contribution.  If the indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party, then each Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or
omission.  The amount paid or payable by
a party as a result of any Losses shall be deemed to include, subject to the
limitations set forth in this Agreement, any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in this Section was available
to such party in accordance with its terms.

The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph.  Notwithstanding the
provisions of this Section 5(d), no Holder shall be required to contribute, in
the aggregate, any amount in excess of the amount by which the proceeds actually
received by such Holder from the sale of the Registrable Securities subject to
the Proceeding exceeds the amount of any damages that such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, except in the case of fraud by such Holder.

The indemnity and contribution agreements contained in
this Section are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.  The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented
by counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 5, and are fully
informed regarding said provisions.  They
further acknowledge that the provisions of this Section 5 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement as required by the Securities Act and the Exchange
Act.  The parties are advised that
federal or state public policy as interpreted by the courts in certain
jurisdictions may be contrary to certain of the provisions of this
Section 5, and the parties hereto hereby expressly waive and relinquish
any right or ability to assert such public

 12
 

 

policy as a defense to a
claim under this Section 5 and further agree not to attempt to assert any
such defense.

6.                                 Miscellaneous

(a)                                  Remedies.  In the event of a breach by the Company or by
a Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

(b)                                 No Piggyback on
Registrations.  Neither the Company
nor any of its security holders (other than the Holders in such capacity
pursuant hereto) may include securities of the Company in the Registration
Statement other than the Registrable Securities and the securities listed on
Schedule 6(b) attached hereto without the consent of the Holders then holding a
majority of the Registrable Securities. 
No Person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company prior to filing the
Registration Statement.  The Company
shall not file any other registration statements except any registration
statement on Form S-4 or S-8 until the initial Registration Statement required
hereunder is declared effective by the Commission, provided that this Section
6(b) shall not prohibit the Company from filing amendments to registration
statements already filed.

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

(d)                                 Free Writing
Prospectuses.  Each Holder represents
that it has not prepared or had prepared on its behalf or used or referred to,
and agrees that it will not prepare or have prepared on its behalf or use or
refer to, any Free Writing Prospectus, and has not distributed and will not
distribute any written materials in connection with the offer or sale of Common
Stock without the prior written consent of the Company and, in connection with
any underwritten offering, the underwriters. 
Any such Free Writing Prospectus consented to by the Company and the
underwriters, as the case may be, is hereinafter referred to as a “Permitted
Free Writing Prospectus.”  The
Company represents and agrees that it has treated and will treat, as the case
may be, each Permitted Free Writing Prospectus as an Issuer Free Writing
Prospectus, including in respect of timely filing with the SEC, legending and
record keeping.

(e)                                  Lock-up.  During the 12 month period following the
Closing, the Company may deliver to the Purchasers the request of the managing
underwriter of a registered public offering of equity securities of the
Company, all of which relates to securities to be sold on a primary basis by the
Company (the “Offering”), that the

 13
 

 

Purchasers refrain from selling or otherwise
transferring or disposing of any Registrable Securities then held by the
Purchasers for a specified period of time during the Offering.  The Purchasers agree to consider such request
upon its receipt from the Company.

(f)                                    Suspension of
Trading.  At any time after the
Registrable Securities are covered by an effective Registration Statement, the
Company may deliver to the Holders of such Registrable Securities a certificate
(the “Suspension Certificate”) approved by the Chief Executive Officer
of the Company and signed by an officer of the Company notifying the Holders
of:

(i)                                     the issuance (or threat of issuance) by the
Commission of any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that purpose or that any
Registration Statement has otherwise ceased to be effective;

(ii)                                  the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities including therein for
sale in any jurisdiction or the initiation of any proceeding for such purpose;

(iii)                               the discovery or happening of any event that
requires the making of any changes in any Registration Statement or any
Prospectus so that, as of such date, the statements therein do not include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (which advice shall be accompanied
by an instruction to suspend the use of such Prospectus until the requisite
changes have been made); and

(iv)                              the Company’s reasonable determination that
the post-effective amendment to any Registration Statement would be
appropriate.

Immediately after the transmission of a Suspension Certificate by the
Company, the Company may, in its sole discretion, require such Holders of
Registrable Securities to refrain from selling or otherwise transferring or
disposing of any Registrable Securities or other Company securities then held
by such Holders for a specified period of time that is customary under the
circumstances (not to exceed 30 days consecutively and 60 days in any 12-month
period) (a “Blackout Period”). 
Notwithstanding the foregoing sentence, the Company shall be permitted
to cause Holders of Registrable Securities to so refrain from selling or
otherwise transferring or disposing of any Registrable Securities or other
securities of the Company on only three (3) occasions during each twelve (12)
consecutive month period that the Registration Statement remains
effective.  The Company may impose stop
transfer instructions to enforce any required agreement of the Holders under
this Section 6(f).

(g)                                 Discontinued
Disposition.  Each Holder agrees by
its acquisition of such Registrable Securities that, upon receipt of a notice
from the Company of the occurrence of any event of the kind described in
Section 3(c), such Holder will forthwith discontinue

 14
 

 

disposition of such Registrable Securities
under a Registration Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement or until it is
advised in writing (the “Advice”) by the Company that the use of the
applicable Prospectus may be resumed, and, in either case, has received copies
of any additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus or Registration Statement.  The Company will use its best efforts to
ensure that the use of the Prospectus may be resumed as promptly as it
practicable.  The Company agrees and
acknowledges that any periods during which the Holder is required to
discontinue the disposition of the Registrable Securities hereunder shall be
subject to the provisions of Section 2(b).

(h)                                 Piggy-Back
Registrations.  If at any time during
the Effectiveness Period there is not an effective Registration Statement
covering all of the Registrable Securities and the Company shall determine to
prepare and file with the Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with the stock
option or other employee benefit plans, then the Company shall send to each
Holder a written notice of such determination and, if within fifteen days after
the date of such notice, any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such Holder requests to be registered subject to
customary underwriter cutbacks; provided, however, that, the
Company shall not be required to register any Registrable Securities pursuant
to this Section 6(h) that are eligible for resale pursuant to Rule 144(k)
promulgated under the Securities Act or that are the subject of a then
effective Registration Statement.

(i)                                     Amendments and Waivers. The
provisions of this Agreement, including the provisions of this sentence, may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the same shall be in
writing and signed by the Company and a majority of the then outstanding
Registrable Securities.  Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of all of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence
may not be amended, modified, or supplemented except in accordance with the provisions
of the immediately preceding sentence.

(j)                                     Notices. Any and all notices or
other communications or deliveries required or permitted to be provided
hereunder shall be delivered as set forth in the Purchase Agreement.

(k)                                  Successors and Assigns. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The Company may not assign its rights or obligations

 15
 

 

hereunder without the prior written consent
of all of the Holders of the then-outstanding Registrable Securities. Each
Holder may assign their respective rights hereunder in the manner and to the
Persons as permitted under the Purchase Agreement.

(l)                                     No Inconsistent Agreements.  Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities, that conflicts with the provisions hereof.

(m)                               Execution and
Counterparts.  This Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same Agreement.  In the event
that any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

(n)                                 Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be determined
in accordance with the provisions of the Purchase Agreement.

(o)                                 Cumulative Remedies.  The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

(p)                                 Severability.
If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction.  It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.

(q)                                 Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

(r)                                    Independent
Nature of Holders’ Obligations and Rights. 
The obligations of each Holder hereunder are several and not joint with
the obligations of any other Holder hereunder, and no Holder shall be
responsible in any way for the performance of the obligations of any other
Holder hereunder.  Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Holder pursuant hereto or thereto, shall be deemed to
constitute the Holders as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Holders are in any way
acting in concert with respect to such obligations or the transactions
contemplated by this Agreement.  Each
Holder shall be entitled to protect

 16
 

 

and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Holder to be joined as an additional party in any
proceeding for such purpose.

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

 17

 

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

	
  

  	
  GLOBALSCAPE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Thomas W. Brown

  
	
   

  	
   

  	
  Name: Thomas W. Brown

  
	
   

  	
   

  	
  Title: Chariman

  
				

 

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[SIGNATURE PAGE OF
HOLDERS TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Iroquois Master Fund
  Ltd.

  	
   

  	
   

  
	
   

  
	
  Signature of Authorized
  Signatory of Holder:

  	
  /s/ Joshua Silverman

  	
   

  	
   

  
	
   

  
	
  Name of Authorized
  Signatory:

  	
  Joshua Silverman

  	
   

  	
   

  
	
   

  
	
  Title of Authorized Signatory:

  	
  Authorized Signatory

  	
   

  	
   

  
									

 

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 A-1

 

[SIGNATURE PAGE OF
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REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Emancipation Capital Master Ltd.

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Charles Frumberg

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Charles Frumberg

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Managing Member

  	
   

  
									

 

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[SIGNATURE PAGE OF
HOLDERS TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Zeke, L.P.

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Edward N. Antoian

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Edward N. Antoian

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Zeke, LP - General Partner

  	
   

  
									

 

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[SIGNATURE PAGE OF
HOLDERS TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  SF Capital Partners Ltd.

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Brian H. Davidson

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Briand H. Davidson

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Managing Director

  	
   

  
									

 

[SIGNATURE PAGES
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[SIGNATURE PAGE OF
HOLDERS TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Dolphin Offshore Partners, L.P.

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Peter E. Salas

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Peter E. Salas

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  General Partner

  	
   

  
									

 

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[SIGNATURE PAGE OF
HOLDERS TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Nite Capital LP

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Keith A. Goodman

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Keith A. Goodman

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Managing of the General Partner

  	
   

  
										

 

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[SIGNATURE PAGE OF
HOLDERS TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Enable Opportunity Partners, L.P.

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Adam Epstein

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Adam Epstein

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Principal

  	
   

  
									

 

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[SIGNATURE PAGE OF HOLDERS
TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Enable Growth Partners, L.P.

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Adam Epstein

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Adam Epstein

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Principal

  	
   

  
									

 

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[SIGNATURE PAGE OF
HOLDERS TO GLOBALSCAPE, INC.

REGISTRATION
RIGHTS AGREEMENT]

	
  Name of Holder:

  	
  Pierce Diversified Strategy Master Fund, LLC Ena

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Authorized Signatory of Holder:

  	
  /s/ Adam Epstein

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
  Adam Epstein

  	
   

  
	
   

  	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
  Principal

  	
   

  
									

 

[SIGNATURE PAGES
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ANNEX A

Plan of Distribution

The selling stockholders,
which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of
common stock received after the date of this prospectus from a selling
stockholder as a gift, pledge, partnership distribution or other transfer, may,
from time to time, sell, transfer or otherwise dispose of any or all of their
shares of common stock or interests in shares of common stock on any stock exchange,
market or trading facility on which the shares are traded or in private
transactions.  These dispositions may be
at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the
time of sale, or at negotiated prices.

The selling stockholders may
use any one or more of the following methods when disposing of shares or
interests therein:

·   ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

·   block
trades in which the broker-dealer will attempt to sell the shares as agent, but
may position and resell a portion of the block as principal to facilitate the
transaction;

·   purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

·   an
exchange distribution in accordance with the rules of the applicable exchange;

·   privately
negotiated transactions;

·   short
sales effected after the date the registration statement of which this
Prospectus is a part is declared effective by the SEC;

·   through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;

·   broker-dealers
may agree with the selling stockholders to sell a specified number of such shares
at a stipulated price per share; and

·   a
combination of any such methods of sale.

The selling stockholders
may, from time to time, pledge or grant a security interest in some or all of
the shares of common stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as

 A-1
 

 

selling stockholders under this prospectus.  The selling stockholders also may transfer
the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.

In connection with the sale
of our common stock or interests therein, the selling stockholders may enter
into hedging transactions with broker-dealers or other financial institutions,
which may in turn engage in short sales of the common stock in the course of
hedging the positions they assume.  The
selling stockholders may also sell shares of our common stock short and deliver
these securities to close out their short positions, or loan or pledge the
common stock to broker-dealers that in turn may sell these securities.  The selling stockholders may also enter into
option or other transactions with broker-dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker-dealer or other financial institution of shares
offered by this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented or amended
to reflect such transaction).

The aggregate proceeds to
the selling stockholders from the sale of the common stock offered by them will
be the purchase price of the common stock less discounts or commissions, if
any.  Each of the selling stockholders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of common stock to be
made directly or through agents.  We will
not receive any of the proceeds from this offering. Upon any exercise of any
warrants by payment of cash, however, we will receive the exercise price of the
warrants.

The selling stockholders
also may resell all or a portion of the shares in open market transactions in
reliance upon Rule 144 under the Securities Act of 1933, provided that they
meet the criteria and conform to the requirements of that rule.

The selling stockholders and
any underwriters, broker-dealers or agents that participate in the sale of the
common stock or interests therein may be “underwriters” within the meaning of
Section 2(11) of the Securities Act.  Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities
Act.  Selling stockholders who are “underwriters”
within the meaning of Section 2(11) of the Securities Act will be subject to
the prospectus delivery requirements of the Securities Act.

To the extent required, the
shares of our common stock to be sold, the names of the selling stockholders,
the respective purchase prices and public offering prices, the names of any
agents, dealer or underwriter, any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying prospectus
supplement or, if appropriate, a post-effective amendment to the registration
statement that includes this prospectus.

In order to comply with the
securities laws of some states, if applicable, the common stock may be sold in
these jurisdictions only through registered or licensed brokers or
dealers.  In addition, in some states the
common stock may not be sold unless it has been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.

 A-2
 

 

We have advised the selling
stockholders that the anti-manipulation rules of Regulation M under the
Exchange Act may apply to sales of shares in the market and to the activities
of the selling stockholders and their affiliates.  In addition, we will make copies of this
prospectus (as it may be supplemented or amended from time to time) available
to the selling stockholders for the purpose of satisfying the prospectus
delivery requirements of the Securities Act. 
The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify
the selling stockholders against liabilities, including liabilities under the
Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.

We have agreed with the selling stockholders to keep
the registration statement of which this prospectus constitutes a part
effective until the earlier of (1) such time as all of the shares covered by
this prospectus have been disposed of pursuant to and in accordance with the
registration statement or (2) the date on which the shares may be sold pursuant
to Rule 144(k) of the Securities Act.

 A-3

 

ANNEX B

	
  

  	
   

  	
   

  
	
   

  	
  Name of Selling Stockholder

  	
   

  

 

GLOBALSCAPE, INC.

QUESTIONNAIRE
FOR SELLING STOCKHOLDERS

SENT
ON:  [            
], 2006

PLEASE
RETURN BY:  [             ],
2006

This Questionnaire is being
furnished to all selling stockholders of GlobalSCAPE, Inc., a Delaware
corporation (the “Company”), and relates to certain information required
to be disclosed in the registration statement (the “Registration Statement”)
being prepared on behalf of you and the Company for filing with the United
States Securities and Exchange Commission (the “SEC”).

Selling stockholders of the
Company may be personally liable under the federal securities laws of the
United States if the Registration Statement contains any statement which is
false or misleading as to any material fact or omits to state any material fact
necessary in order to make the statements therein not false or misleading.

Your careful completion of this
Questionnaire will help ensure that the Registration Statement will be complete
and accurate.  Careful consideration of
the instructions and definitions contained in the endnotes to various items is
essential to an understanding of the questions.

PLEASE PROVIDE A RESPONSE TO EVERY
QUESTION, indicating “None” or “Not Applicable” where appropriate.  Please complete, sign, and fax one copy of
this Questionnaire NO  LATER
THAN [            
], 2006 to:

[                                    ]

Unless stated otherwise, answers
should be given as of the date you complete this Questionnaire.  However, it is your responsibility to
inform us of any changes that may occur to your situation between the date you
complete the Questionnaire and the effective date of the Registration Statement.  If there is any situation about which you
have any doubt, please give relevant facts so that the information may be
reviewed.

 B-1
 

 

QUESTIONNAIRE

STOCK OWNERSHIP

Item 1.  Beneficial
Ownership.

a.             Deemed Beneficial Ownership.  Please state the amount of securities of the
Company you own as of [            
], 2006, assuming the exercise of warrants for shares of Common Stock. (If
none, please so state in each case.)

	
  Amount Beneficially Owned(1)

  	
   

  	
  Number of Shares of Common Stock Owned

  (on an as-converted basis, as applicable)

  
	
   

  	
   

  	
   

  
	
  Total Shares:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Of such shares:

  	
   

  	
   

  
	
   

  	
  Shares as to which you have sole
  voting power:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shares as to which you have shared
  voting power:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shares as to which you have sole
  investment power:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shares as to which you have shared
  investment power:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Please state the number of shares
  owned by family members, trusts and other organizations with which you have a
  relationship, and any other shares of which you may be deemed to be the
  “beneficial owner”(1):

  	
   

  
	
   

  	
   

  	
   

  
	
  Total Shares:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Of such shares:

  	
   

  	
   

  
	
   

  	
  Shares as to which you have sole
  voting power:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shares as to which you have shared
  voting power:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shares as to which you have sole
  investment power:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Shares as to which you have shared
  investment power:

  	
   

  	
   

  
					

 

 B-2
 

 

 

	
  Shares
  which you will have a right to acquire before [date 60 days from expected filing date], through the exercise
  of options, warrants or otherwise:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Shares of Common Stock you intend to offer for sale pursuant
  to the Registration Statement:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Shares of Common Stock that you will hold after the offering
  for sale of Common Stock that is the subject of the Registration
  Statement:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Do you
  have any present plans to exercise options or otherwise acquire, dispose of
  or transfer shares of Common Stock (on an as-converted basis) of the Company
  between the date you complete this Questionnaire and [date 60 days from expected filing date]?

  	
   

  
	
   

  	
   

  	
   

  
	
  Answer:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If so,
  please describe.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				

 

b.             Pledged
Securities.  If any of such
securities have been pledged or otherwise deposited as collateral or are the
subject matter of any voting trust or other similar agreement or of any
contract providing for the sale or other disposition of such securities, please
give the details thereof.

Answer:

c.             Disclaimer
of Beneficial Ownership.  Do you wish
to disclaim beneficial ownership(1) of any of the shares reported in response
to Item 1(a)?

Answer:

If the answer is “Yes”, please
furnish the following information with respect to the person or persons who
should be shown as the beneficial owner(s)(1) of the shares in question.

	
  Name and Address of

  Actual Beneficial Owner

  	
   

  	
  Relationship of

  Such Person To You

  	
   

  	
  Number of Shares

  Beneficially Owned

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 B-3
 

 

Item 2.  Major
Shareholders.  Please state below the
names of persons or groups known by you to own beneficially(1) more than 5% of
the Company’s Common Stock.

Answer:

Item 3.  Change of
Control.  Do you know of any
contractual arrangements, including any pledge of securities of the Company,
the operation of which may at a subsequent date result in a change of control
of the Company?

Answer:

Item 4.  Relationship
with the Company.  Please state the
nature of any position, office or other material relationship you have, or have
had within the past three years, with the Company or its affiliates.

	
  Name

  	
   

  	
  Nature of

  Relationship

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

Item 5.  Correct
Name.  Please confirm that your name
or your organization’s name, as it appears on the signature page to this
Questionnaire, is exactly as it should appear in the “Principal and Selling
Stockholder” section of the Registration Statement:

o Yes, this name is correct.

o No, the correct name should be:
                                                               

 B-4
 

 

SIGNATURE

If at any time any of the
information set forth in my responses to this Questionnaire has changed due to
passage of time, or any development occurs which requires a change in any of my
answers, or has for any other reason become incorrect, I agree immediately to
furnish to the individual to whom a copy of this Questionnaire is to be sent,
as indicated and at the address shown on the first page hereof, any necessary
or appropriate correcting information. 
Otherwise, the Company is to understand that the above information
continues to be, to the best of my knowledge, information and belief, complete
and correct.

I understand that the information that I am furnishing to
you herein will be used by the Company in the preparation of its Registration
Statement on Form S-1 and hereby consent to the inclusion of such information
in the Registration Statement.

	
  

  	
  Name of Stockholder:

  	
   

  
	
   

  	
   

  
	
  Date: 
                                       ,
  2006

  	
  Signature:

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title (if applicable):

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Street

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  City

  	
  State

  	
  Zip Code

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Telephone Number

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile Number

  
								

 

 B-5
 

 

ENDNOTE

1.                     Beneficial Ownership.  You are the beneficial owner of a security,
as defined in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange
Act”), if you, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise have or share: (1) voting power,
which includes the power to vote, or to direct the voting of, such security,
and/or (2) investment power, which includes the power to dispose, or to
direct the disposition of, such security. 
You are also the beneficial owner of a security if you, directly or
indirectly, create or use a trust, proxy, power of attorney, pooling
arrangement or any other contract, arrangement, or device with the purpose or
effect of divesting yourself of beneficial ownership of a security or preventing
the vesting of such beneficial ownership.

You are
deemed to be the beneficial owner of a security if you have the right to
acquire beneficial ownership of such security at any time within sixty (60)
days including, but not limited to, any right to acquire such security
(a) through the exercise of any option, warrant or right, (b) through
the conversion of a security, or (c) pursuant to the automatic termination
of, or the power to revoke a trust, discretionary account, or similar arrangement.

Ordinarily,
shares held in the name of your spouse or minor child should be considered as
beneficially owned by you absent special circumstances to indicate that you do
not have, as a practical matter, voting power or investment power over such
shares.  Similarly, absent countervailing
facts, securities held in the name of relatives who share your home are to be
reported as being beneficially owned by you. 
In addition, securities held for your benefit in the name of others,
such as nominees, trustees and other fiduciaries, securities held by a
partnership of which you are a partner, and securities held by a corporation
controlled by you should be regarded as beneficially owned by you.

This
definition of beneficial ownership is very broad; therefore, even through you
may not actually have or share voting or investment power with respect to
securities owned by persons in your family or living in your home, you should
include such shares in your beneficial ownership disclosure and may then
disclaim beneficial ownership of such securities. Please note, however, that shares in which you have an economic interest
but over which you have no voting or investment control (for example, shares in
a trust of which you are the beneficiary but not the trustee) are not
deemed beneficially owned by you for the purposes of this questionnaire.

 B-6Exhibit
10.1

 

SECURITIES
PURCHASE AGREEMENT

This Securities Purchase
Agreement (this “Agreement”) is dated as of November 13, 2006, among
GlobalSCAPE, Inc., a Delaware corporation (the “Company”), each of the
Persons named on Schedule I hereto (each a “Selling Stockholder”
and collectively the “Selling Stockholders”) and each purchaser
identified on the signature pages hereto (each, including its successors and
assigns, a “Purchaser” and collectively the “Purchasers”).

WHEREAS, subject to the
terms and conditions set forth in this Agreement, the Company desires to issue
and sell to each Purchaser, each Selling Stockholder desires to sell to each
Purchaser, and each Purchaser, severally and not jointly, desires to purchase
from the Company and the Selling Stockholders, securities of the Company as
more fully described in this Agreement.

NOW, THEREFORE, IN
CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the Company and each Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1           Definitions.  In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms have
the meanings indicated in this Section 1.1:

“Action” shall have the meaning ascribed to
such term in Section 3.1(j).

“Affiliate” means any Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with a Person as such terms are used in and construed
under Rule 144 under the Securities Act of 1933, as amended (the “Securities
Act”).  With respect to a Purchaser,
any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.

“Business Day” means any day except Saturday,
Sunday, any day which shall be a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized
or required by law or other governmental action to close.

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

“Closing Date” means the Trading Day when all
of the Transaction Documents have been executed and delivered by the applicable
parties thereto, and all conditions precedent to (i) the Purchasers’
obligations to pay the Subscription Amount and (ii) the Company’s obligations
to deliver the Securities have been satisfied or waived.

“Closing Price” means on any particular date
(a) the last reported closing bid price per share of Common Stock on such
date on the Trading Market (as reported by

 

Bloomberg L.P. at 4:15 PM (New York time)), or (b) if
there is no such price on such date, then the closing bid price on the Trading
Market on the date nearest preceding such date (as reported by Bloomberg L.P.
at 4:15 PM (New York time)), or (c)  if the Common Stock is not then
listed or quoted on the Trading Market and if prices for the Common Stock are
then reported in the “pink sheets” published by Pink Sheets LLC (or a similar
organization or agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported, or (d) if
the shares of Common Stock are not then publicly traded, the fair market value
of a share of Common Stock as determined by an appraiser selected in good faith
by the Purchasers of a majority in interest of the Shares then outstanding.

“Commission” means the Securities and Exchange
Commission.

“Common Stock” means the common stock of the
Company, par value $0.001 per share, and any other class of securities into
which such securities may hereafter be reclassified or changed into.

“Company Shares” means the shares of Common
Stock issued by the Company to the Purchasers pursuant to this Agreement other
than the Warrant Shares.

“Common Stock Equivalents” means any securities
of the Company or the Subsidiaries which would entitle the holder thereof to
acquire at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any
time convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.

“Company Counsel” means Jackson Walker L.L.P.

“Company Securities” means the Company Shares,
the Warrants and the Warrant Shares.

“Company Subscription Amount” means, as to each
Purchaser, the aggregate amount to be paid to the Company for the Company
Shares and Warrants purchased hereunder from the Company as specified opposite
such Purchaser’s name on Schedule II hereto.

“Disclosure Schedules” means the Disclosure
Schedules of the Company delivered concurrently herewith.

“Effective Date” means the date that the initial
Registration Statement filed by the Company pursuant to the Registration Rights
Agreement is first declared effective by the Commission.

“Evaluation Date” shall have the meaning
ascribed to such term in Section 3.1(r).

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 2
 

 

“GAAP” shall have the meaning ascribed to such
term in Section 3.1(h).

“Indemnified Liabilities” shall have the
meaning ascribed to such term is Section 4.9.

“Intellectual Property Rights” shall have the
meaning ascribed to such term in Section 3.1(o).

“Knowledge” means the actual knowledge of the
President and Chief Financial Officer of the Company.

“Legend Removal Date” shall have the meaning
ascribed to such term in Section 4.1(c).

“Liens” means a lien, charge, security
interest, encumbrance, right of first refusal, preemptive right or other
similar restriction.

“Material Adverse Effect” shall have the
meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning
ascribed to such term in Section 3.1(m).

“Non-Disclosure Agreement” means as to each
Purchaser, the confidentiality or similar agreement executed and delivered by
the Company and such Purchaser relating to the transactions contemplated by
this Agreement.

“Per Share Purchase Price” equals $2.50,
subject to adjustment for reverse and forward stock splits, stock dividends,
stock combinations and other similar transactions of the Common Stock that
occur after the date of this Agreement and prior to the Closing Date.

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

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

“Purchaser Counsel” shall have the meaning
ascribed to such term in Section 4.4.

“Purchaser Party” shall have the meaning
ascribed to such term in Section 4.9.

“Registration Rights Agreement” means the
Registration Rights Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit A attached hereto.

 3
 

 

“Registration Statement” means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement and covering the resale by the Purchasers of the Shares and the Warrant
Shares.

“Required Approvals” shall have the meaning
ascribed to such term in Section 3.1(e).

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

“SEC Reports” shall have the meaning ascribed
to such term in Section 3.1(h).

“Securities” means the Company Securities and
the Selling Stockholder Shares.

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

“Selling Stockholder Shares” means the shares
of Common Stock set forth opposite the name of each Selling Stockholder on Schedule
I which are being sold to the Purchasers pursuant to this Agreement.

“Selling Stockholder Subscription Amount”
means, as to each Purchaser, the aggregate amount to be paid to the Selling
Stockholders for the Selling Stockholder Shares purchased hereunder from the Selling
Stockholders as specified opposite such Purchaser’s name on Schedule II
hereto.

“Shares” means the Company Shares and the
Selling Stockholder Shares.

“Short Sales” shall include all “short sales”
as defined in Rule 200 of Regulation SHO under the Exchange Act and all types
of direct and indirect stock pledges, forward sale contracts, options, puts,
calls, short sales, swaps and similar arrangements (including on a total return
basis) and sales and other transactions having the effect of hedging securities
or investments made pursuant to this Agreement.

“Subscription Amount” means, as to each
Purchaser, the aggregate amount of such Purchaser’s Company Subscription Amount
and Selling Stockholder Subscription Amount.

“Subsidiary” means any subsidiary of the
Company as set forth on Schedule 3.1(a).

“Trading Day” means a day on which the Common
Stock is traded on a Trading Market.

 4
 

 

“Trading Market” means the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq
Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or
the OTC Bulletin Board.

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

“VWAP” means, for any date, the price
determined by the first of the following clauses that applies: (a) if the
Common Stock is then listed or quoted on a Trading Market, the daily volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg Financial L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City
time); (b)  if the OTC Bulletin Board is not a Trading Market, the volume
weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
quoted for trading on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so reported;
or (d) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the
Holder and reasonably acceptable to the Company.

“Warrants” means collectively the Common Stock
purchase warrants, in the form of Exhibit C delivered to the Purchasers
at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall
be initially exercisable on the date six (6) months after the date of issuance
and have a term of exercise equal to five (5) years thereafter.

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

ARTICLE II.

PURCHASE AND SALE

2.1           Closing.  On
the Closing Date, upon the terms and subject to the conditions set forth
herein, substantially concurrent with the execution and delivery of this
Agreement by the parties hereto, (i) the Company agrees to sell, and each Purchaser
agrees to purchase, severally and not jointly, from the Company the amount of
Company Shares and Warrants set forth opposite each such Purchaser’s name on Schedule II
hereto, and (ii) the Selling Stockholders agree to sell, and each Purchaser agrees
to purchase, severally and not jointly, from the Selling Stockholders the
amount of Selling Stockholder Shares set forth opposite each such Purchaser’s
name on Schedule II hereto.  Each
Purchaser shall deliver via wire transfer to Mellon Investor Services,  L.L.C. (the “Escrow Agent”), to be
held in escrow pursuant to the Escrow Agreement by and among the Escrow Agent,
the Company, the Selling Stockholders and the Purchasers of even date herewith,
pending the Closing, the Company Subscription Amount and the Selling

 5
 

 

Stockholder Subscription Amount.  The Company shall deliver to each Purchaser
its respective Company Shares and Warrants as determined pursuant to Section
2.2(a) and the other items set forth in Section 2.2 deliverable at the
Closing.  The Selling Stockholders shall
deliver to each Purchaser its respective Selling Stockholder Shares and the
other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the conditions set forth
in Sections 2.2 and 2.3, the Closing shall occur at the offices of Company
Counsel, or such other location as the parties shall mutually agree, and the
Subscription Amounts shall be disbursed in accordance with Annex A.

2.2           Deliveries.

(a)           On or prior to the Closing Date, the
Company shall deliver or cause to be delivered to each Purchaser the following:

(i)            this Agreement duly executed by the
Company;

(ii)           a legal opinion of Company Counsel,
in substantially the form of Exhibit B attached hereto;

(iii)          a copy of the irrevocable instructions
to the Company’s transfer agent instructing the transfer agent to deliver, on
an expedited basis, a certificate evidencing a number of Company Shares equal
to such Purchaser’s Company Subscription Amount divided by the Per Share
Purchase Price, registered in the name of such Purchaser;

(iv)          a Warrant registered in the name of
such Purchaser to purchase up to a number of shares of Common Stock equal to
40% of the Shares to be purchased by such Purchaser, with an exercise price
equal to $3.15, subject to
adjustment therein;

(v)           the Registration Rights Agreement
duly executed by the Company;

(vi)          a
certificate signed by the chief executive officer and chief financial officer
of the Company, dated as of the Closing Date, to the effect that, to the
Knowledge of the Company and such officers, the conditions set forth in
Section 2.3(b)(i), (ii), (iii), (iv), (v) and (vi) have been satisfied;
and

(vii)         a
certificate signed by the Secretary of the Company, dated as of the Closing
Date, as to: (i) a copy, certified by the Secretary of the Company, of the
resolutions of the Board of Directors of the Company evidencing approval of the
Transaction Documents and consummation of the transactions contemplated therein
and other matters contemplated hereby; (ii) a copy, certified by the Secretary
of the Company, of the By-laws of the Company; (iii) certified copies of
all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement; (iv) certifying
the names, titles and signatures of the officers of the Company authorized to
sign this Agreement and the other documents or certificates to be delivered
pursuant to this Agreement by the Company or any of its officers, together with
the true

 6
 

 

signatures of such officers; and (v) a copy,
certified by the Secretary of the Company and certified by the Secretary of
State of Delaware, of the Certificate of Incorporation of the Company as in
effect on the Closing Date. 

(b)           On or prior to the Closing Date, each
Selling Stockholder shall deliver or cause to be delivered to each Purchaser
the following:

(i)            this Agreement duly executed the
Selling Stockholder;

(ii)           one or more stock certificates
representing, in the aggregate, the Selling Stockholder Shares being sold by
the Selling Stockholder accompanied by an irrevocable stock power duly executed
in blank;

(iii)          a
certificate signed by the Selling Stockholder, dated as of the Closing Date, to
the effect that, to the Knowledge of the Selling Stockholder, the conditions
set forth in Section 2.3(b) (vi), (vii)
and (viii) have been satisfied; and

(c)           On or prior to the Closing Date, each
Purchaser shall deliver or cause to be delivered to the Company and the Selling
Stockholders the following:

(i)            this Agreement duly executed by such
Purchaser;

(ii)           such Purchaser’s Subscription Amount
by wire transfer to the account as specified in writing by the Company and the
Selling Stockholders; and

(iii)          the Registration Rights Agreement duly
executed by such Purchaser.

2.3           Closing
Conditions.

(a)           The
obligations of the Company and the Selling Stockholders hereunder in connection
with the Closing are subject to the following conditions being met:

(i)            the
accuracy in all material respects when made and on the Closing Date of the
representations and warranties of the Purchasers contained herein;

(ii)           all obligations, covenants and
agreements of the Purchasers required to be performed at or prior to the
Closing Date shall have been performed in all material respects; and

(iii)          the
delivery by the Purchasers of the items set forth in Section 2.2(c) of this
Agreement.

(b)           The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

(i)            the
accuracy in all material respects on the Closing Date of the representations
and warranties of the Company contained herein;

 7
 

 

(ii)           all obligations, covenants and
agreements of the Company required to be performed at or prior to the Closing
Date shall have been performed in all material respects;

(iii)          the
delivery by the Company of the items set forth in Section 2.2(a) of this
Agreement;

(iv)          there
has been no event, occurrence or development that has or that could reasonably
be expected to result in a Material Adverse Effect;

(v)           from the date hereof to the Closing
Date, trading in the Common Stock shall not have been suspended by the
Commission or the Company’s principal Trading Market (except for any suspension
of trading of limited duration agreed to by the Company, which suspension shall
be terminated prior to the Closing), and, at any time prior to the Closing
Date, trading in securities generally as reported by Bloomberg Financial
Markets shall not have been suspended or limited, or minimum prices shall not
have been established on securities whose trades are reported by such service,
or on any Trading Market, nor shall a banking moratorium have been declared
either by the United States or New York State authorities nor shall there have
occurred any material outbreak or escalation of hostilities or other national
or international calamity of such magnitude in its effect on, or any material
adverse change in, any financial market which, in each case, in the reasonable
judgment of each Purchaser, makes it impracticable or inadvisable to purchase the
Shares and Warrants at the Closing;

(vi)          the
accuracy in all material respects on the Closing Date of the representations
and warranties of the Selling Stockholders contained herein;

(vii)         all obligations, covenants and
agreements of the Selling Stockholder required
to be performed at or prior to the Closing Date shall have been performed in
all material respects; and

(viii)        the
delivery by the Selling Stockholders of the items set forth in Section 2.2(b)
of this Agreement.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1           Representations
and Warranties of the Company. 
Except as set forth in the SEC Reports (as defined below) or in the
Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof
and to qualify any representation or warranty otherwise made herein to the
extent of such disclosure, the Company hereby makes the representations and
warranties set forth below to each Purchaser:

(a)           Subsidiaries.  Schedule 3.1(a) sets forth a list of
all of the direct and indirect Subsidiaries of the Company.  The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each Subsidiary free and
clear of any Liens, and all the issued and outstanding shares of capital stock
of each Subsidiary are validly

 8
 

 

issued and are fully paid, non-assessable and
free of preemptive and similar rights to subscribe for or purchase securities.

(b)           Organization and Qualification.  The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any
Subsidiary is in violation or default of any of the provisions of its
respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. 
Each of the Company and the Subsidiaries is duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or
reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material
Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

(c)           Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution
and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, its board of directors or its
stockholders in connection therewith other than in connection with the Required
Approvals.  Each Transaction Document has
been (or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

(d)           No Conflicts.  The execution, delivery and performance of
the Transaction Documents by the Company, the issuance and sale of the Company
Shares and the Warrants and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other

 9
 

 

organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, result in the creation of any
Lien upon any of the properties or assets of the Company or any Subsidiary, or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any material
agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any applicable law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected; except
in the case of each of clauses (ii) and (iii), such as would not reasonably be
expected to result in a Material Adverse Effect.

(e)           Filings, Consents and Approvals.  The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the
filing with the Commission of the Registration Statement, (iii) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities or “Blue Sky” laws, rules and regulations and the
application(s) to each Trading Market for the listing of the Shares for trading
thereon in the time and manner required thereby, (v) those made or obtained
prior to Closing (collectively, the “Required Approvals”), and (vi)
those Required Approvals, the failure of which by the Company to obtain would
not have a Material Adverse Effect.

(f)            Issuance of the Securities.  The Company Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents and applicable federal and
state securities or “Blue Sky” laws, rules or regulations.  The Warrant Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company.  The Company has reserved from its duly
authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Warrants.

(g)           Capitalization.  The capitalization of the Company is as set
forth on Schedule 3.1(g).  Except
as set forth in Schedule 3.1(g), the Company has not issued any capital
stock since its most recently filed periodic report
under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plan and pursuant to the conversion or exercise of Common Stock Equivalents
outstanding as of the date of the most recently filed periodic

 10
 

 

report under the Exchange Act.  Except as disclosed on Schedule 3.1(g),
no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. 
Except as a result of the purchase and sale of the Company Securities
and as set forth in Schedule 3.1(g), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or exercisable or exchangeable for, or giving any Person any right to subscribe
for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents.  Except as disclosed on Schedule
3.1(g), the issuance and sale of the Company Securities will not obligate
the Company to issue shares of Common Stock or other securities to any Person
(other than the Purchasers) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. 
No further approval or authorization of any stockholder, the Board of
Directors of the Company or others is required for the issuance and sale of the
Company Securities pursuant to the terms of the Transaction Documents.  Except as disclosed on Schedule 3.1(g),
there are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company’s capital stock to which the Company is
a party or, to the Knowledge of the Company, between or among any of the
Company’s stockholders.

(h)           SEC Reports; Financial Statements.  The Company has filed all reports required to
be filed by it under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the
date hereof (or such shorter period as the Company was required by law or
regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports” and together with
the Disclosure Schedule to this Agreement, the “Disclosure Materials”) on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Reports prior
to the expiration of any such extension. 
As of their respective dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act, as
applicable, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.  The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes

 11
 

 

required by GAAP, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.

(i)            Material Changes; Undisclosed
Events, Liabilities or Developments. 
Since the date of the latest audited financial statements included
within the SEC Reports, except as specifically disclosed in the SEC Reports,
(i) there has been no event, occurrence or development that has had or that
could reasonably be expected to result in a Material Adverse Effect, (ii) the
Company has not incurred any liabilities (contingent or otherwise) other than
(A) trade payables and accrued expenses incurred in the ordinary course of
business consistent with past practice, and (B) liabilities not required to be
reflected in the Company’s financial statements pursuant to GAAP or required to
be disclosed in the filings made with the Commission, (iii) except as required
by applicable law or GAAP, the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans
and except as set forth in Schedule 3.1(i).  The Company does not have pending before the
Commission any request for confidential treatment of information.  Except for the issuance of the Company
Securities contemplated by this Agreement or as set forth on Schedule 3.1(i),
no event, liability or development has occurred or exists with respect to the
Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws at the time this representation is
made that has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.

(j)            Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the Knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Company Securities or (ii) would, if there were an unfavorable
decision, reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor,
to the Company’s Knowledge, any director or officer thereof, is or has been the
subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the Knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act. 
There are no disagreements of any kind presently existing, or reasonably
anticipated by the Company or any Subsidiary to arise, between accountants and
lawyers formerly or

 12
 

 

presently engaged by the Company or any
Subsidiary and the Company and each Subsidiary is current with respect to any
fees owed to its accountant and lawyers.

(k)           Labor Relations.  No material labor dispute exists or, to the
Knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect.

(l)            Compliance.  Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority including, without limitation, all foreign, federal,
state and local laws applicable to its business except in each case as would
not reasonably be expected to result in a Material Adverse Effect.

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

(n)           Title to Assets.  The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of
all Liens, except for Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties and the Liens set forth on Schedule
3.1(n).  Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases with which the Company and
the Subsidiaries are in compliance.

(o)           Patents and Trademarks.  The Company and the Subsidiaries own, or have
rights to use, all patents, patent rights, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, trade secrets,
inventions, know-how, licenses and other similar rights necessary or material
for use in connection with their respective businesses as described in the SEC
Reports and which the failure to so have could reasonably be expected to have a
Material Adverse Effect (collectively, the

 13

 

“Intellectual Property Rights”).  Neither the Company nor any Subsidiary has
received a written notice or has Knowledge that the Intellectual Property
Rights used by the Company or any Subsidiary violates or infringes, or
allegedly violates or allegedly infringes, upon the rights of any Person.  To the Knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights of
others.  The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of Intellectual Property Rights, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.

(p)           Insurance.  The Company and the Subsidiaries are, to the
Knowledge of the Company, insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.

(q)           Transactions With Affiliates and
Employees.  Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to the
Knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
Knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than (i) for payment of
salary or consulting fees for services rendered, (ii) reimbursement for
expenses incurred on behalf of the Company (iii) for other employee benefits,
including stock option agreements under any stock option plan of the Company,
(iv) customary indemnification arrangements and (v) those not required to be
disclosed in the SEC Reports.  Except as
described above or in any SEC Reports, none of the officers, directors or, to
the best of the Company’s Knowledge, key employees or stockholders of the
Company or any members of their immediate families, are indebted to the Company
or any Subsidiary, individually or in the aggregate, in excess of $120,000 or
have any direct or indirect ownership interest in any firm or corporation with
which the Company or any Subsidiary is affiliated or with which the Company or
any Subsidiary has a business relationship, or any firm or corporation which
competes with the Company or any Subsidiary, other than passive investments in
publicly traded companies (representing less than one percent (1%) of such
company) which may compete with the Company or any Subsidiary.  Except as set forth in any SEC Reports, the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.

 14
 

 

(r)            Sarbanes-Oxley; Internal
Accounting Controls.  The Company is
in material compliance with all provisions of the Sarbanes-Oxley Act of 2002
which are applicable to it as of the Closing Date.  The Company
and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company has established
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the Company and designed such disclosure controls and
procedures to ensure that information required to be disclosed by the Company
in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms.  The
Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by the
Company’s most recently filed periodic report under the Exchange Act (such
date, the “Evaluation Date”).  The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date.  Since the Evaluation
Date, there have been no changes in the Company’s internal control over
financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting, and no significant deficiencies or
material weaknesses in internal controls over financial reporting, or other
factors that could significantly affect the Company’s internal controls over
financial reporting, have been identified.

(s)           Certain Fees.  Except as disclosed on Schedule 3.1(s),
no brokerage or finder’s fees or commissions are or will be payable by the
Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by the Transaction Documents. 
The Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the
transactions contemplated by the Transaction Documents.

(t)            Private Placement. Assuming
the accuracy of the Purchasers representations and warranties set forth in
Section 3.3, no registration under the Securities Act is required for the offer
and sale of the Securities as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the Trading
Market.

(u)           Investment Company. The
Company is not, and is not an Affiliate of, and immediately after receipt of
payment for the Securities, will not be or be an Affiliate of,

 15
 

 

an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.

(v)           Registration Rights.  Except as disclosed on the Disclosure
Schedule to the Registration Rights Agreement, other than each of the
Purchasers and any registered broker-dealer receiving compensation in the form
of equity in connection with the transactions contemplated by this Agreement,
no Person has any right to cause the Company to effect the registration under
the Securities Act of any securities of the Company.

(w)          Listing and Maintenance
Requirements.  The Company’s Common
Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration.  The Company has not, in the 12 months
preceding the date hereof, received notice from any Trading Market on which the
Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such Trading
Market. The Company is, and has no reason to believe that it will not in the
foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.

(x)            Application of Takeover
Protections.  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 Company’s Certificate of Incorporation (or similar charter
documents) or the laws of its state of incorporation that is or could become
applicable to the Purchasers as a result of the Purchasers and the Company
fulfilling their obligations or exercising their rights under the Transaction
Documents, including without limitation as a result of the sale of the
Securities pursuant to this Agreement and the Purchasers’ ownership of the
Securities.

(y)           Disclosure.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents and
for certain information disclosed to each Purchaser pursuant to a Non-Disclosure
Agreement (the “Additional Information”), the Company confirms that, neither it
nor any other Person acting on its behalf has provided any of the Purchasers or
their agents or counsel with any information that constitutes or might
constitute material, non-public information. 
The Company understands and confirms that the Purchasers will rely on
the foregoing representation in effecting transactions in securities of the
Company.  All disclosure furnished by or
on behalf of the Company to the Purchasers regarding the Company, its business
and the transactions contemplated hereby, including the Disclosure Schedules to
this Agreement and the Additional Information, with respect to the
representations and warranties made herein, are true and correct with respect
to such representations and warranties and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. The press releases disseminated by the Company
during

 16
 

 

the twelve months preceding the date of this
Agreement taken as a whole do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements, in light of the circumstances under
which they were made and when made, not misleading.  The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.3 hereof.

(z)            No Integrated Offering.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.3, neither the Company, nor any of its affiliates, nor any
Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to be
integrated with prior offerings by the Company for purposes of the Securities
Act or any applicable shareholder approval provisions of any Trading Market on
which any of the securities of the Company are listed or designated. 

(aa)         Tax Status.  Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each Subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened against the
Company or any Subsidiary.

(bb)         No General Solicitation.  Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. 
The Company has offered the Company Securities for sale only to the
Purchasers and certain other “accredited investors” within the meaning of Rule
501 under the Securities Act.

(cc)         Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is  in
violation of law, or (iv) violated in any material respect any provision of the
Foreign Corrupt Practices Act of 1977, as amended.

(dd)         Accountants.  The Company’s independent auditors are Helin,
Donovan, Trubee & Wilkinson, LLP. To the knowledge of the Company, such
accountants, who the Company expects will express their opinion with respect to
the financial statements to be included in the Company’s Annual Report on Form
10-K for the year ending December 31, 2006, are a registered public accounting
firm as required by the Exchange Act and registered with the Public Company
Accounting Oversight Board.  The Company
expects

 17
 

 

such accountants to consent to the inclusion
of their opinion on such financial statements into the Registration Statement
and the Prospectus which forms a part thereof.

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

(ff)           Acknowledgement Regarding Purchasers’
Trading Activity.  Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Section 4.13 hereof), it is understood and acknowledged by the Company (i) that
none of the Purchasers have been asked to agree, nor has any Purchaser agreed,
to hold the Securities for any specified term; (ii) that past or future open
market or other transactions by any Purchaser, including Short Sales, and
specifically including, without limitation, Short Sales or “derivative”
transactions executed in compliance with applicable federal law, may negatively
impact the market price of the Company’s publicly-traded securities; and (iii)
that each Purchaser shall not be deemed to have any affiliation with or control
over any arm’s length, unaffiliated, counter-party in any “derivative”
transaction. The
Company further understands and acknowledges that, except as set forth in
Section 4.13, (a) one or more Purchasers may engage in hedging activities at
various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Warrant Shares
deliverable with respect to Warrants are being determined and (b) such hedging
activities (if any) could reduce the value of the existing stockholders’ equity
interests in the Company at and after the time that the hedging activities are
being conducted.  The Company acknowledges that such aforementioned
hedging activities do not constitute a breach of any of the Transaction
Documents.

(gg)         Manipulation of Price.  The
Company has not, and to its knowledge no one acting on its behalf has, (i)
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 or resale of any of the Securities, (ii) sold, bid for, purchased, or,
paid any compensation for soliciting purchases of, any of the Securities, or
(iii) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company, other than, in the
case of clauses (ii) and (iii), compensation paid to the Company’s placement
agent in connection with the placement of the Securities.

 18
 

 

3.2           Representations
and Warranties of the Selling Stockholders. 
Each Selling Stockholder hereby, for itself and for no other Selling
Stockholder, represents and warrants as of the date hereof and as of the
Closing Date to the Company as follows:

(a)           Organization and Qualification.  Such Selling Stockholder, if such Selling
stockholder is not a natural Person, is an entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to enter into this Agreement and fulfill its
obligations hereunder.

(b)           Authorization; Enforcement.  Such Selling Stockholder has the legal right
and power, and all authorizations and approvals required by law and, to the
extent applicable, under its charter or by-laws, partnership agreement, trust
agreement or other organizational documents to enter into this Agreement to
sell, transfer and deliver all of the Selling Stockholder Shares which may be
sold by such Selling Stockholder pursuant to this Agreement and to comply with
its other obligations hereunder and thereunder. 
This Agreement has been (or upon delivery will have been) duly executed
by such Selling Stockholder, when delivered in accordance with the terms hereof
and thereof, will constitute the valid and binding obligation of such Selling
Stockholder enforceable against such Selling Stockholder in accordance with its
terms except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.

(c)           No Conflicts.  The execution, delivery and performance of
this Agreement by such Selling Stockholder, the sale of the Selling Stockholder
Shares by such Selling Stockholder and the consummation by such Selling
Stockholder of the other transactions contemplated hereby do not and will not
(i) if such Selling Stockholder is not a natural Person, conflict with or
violate any provision of the Company’s or any Subsidiary’s certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) result in the creation of any Lien upon any Shares being sold by such
Selling Stockholder.

(d)           Title to Shares to be Sold.  Such Selling Stockholder is, on the Closing
Date, the record and beneficial owner of, and has good and valid title to, the
Selling Stockholder Shares to be sold by it free and clear of all Liens,
encumbrances, equities, pledges or claims and has duly indorsed such Shares in
blank, and assuming that the Purchasers acquire their interest in the Shares
they have purchased without notice of any adverse claim (within the meaning of
Section 8-105 of the Uniform Commercial Code (“UCC”)), such Purchasers
that have purchased the Shares by making payment therefor, as provided herein,
and that have had such Shares delivered to, or credited to the securities
account or accounts of, such Purchasers shall have acquired a security
entitlement (within the meaning of Section 8-102(a)(17) of the UCC) to such
Shares purchased by such Purchasers, and no action based on an adverse claim,
may be asserted against such Purchasers with respect to such Shares.

 19
 

 

(e)           Delivery of the Shares to be Sold.  Upon delivery of the Selling Stockholder
Shares which are being sold by such Selling Stockholder pursuant to this
Agreement and assuming that each Purchaser has no knowledge of an adverse
claim, such Purchaser shall be a protected purchaser (within the meaning of
Section 8-303 of the UCC).

(f)            Disclosure.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, such
Selling Stockholder confirms that, neither he, she or it nor any other Person
acting on his, her or its behalf has provided any of the Purchasers or their
agents or counsel with any information that constitutes or might constitute
material, non-public information.  Such
Selling Stockholder understands and confirms that the Purchasers will rely on
the foregoing representation in effecting transactions in securities of the
Company.  Such Selling Stockholder has
reviewed the representations and warranties made by the Company pursuant to
Section 3.1 hereof as modified by the Disclosure Schedules and hereby
represents and warrants that such Selling Stockholder has no actual knowledge
of any facts or circumstances that would make any statements made therein, in
light of the circumstances under which they were made, untrue or misleading in
any material respect.  Such Selling
Stockholder acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.3 hereof.

(g)           Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending against such Selling Stockholder
or, to the knowledge of such Selling Stockholder, threatened against or
affecting the legality, validity or enforceability of this Agreement with
respect to the obligations of such Selling Stockholder, and, to the knowledge
of such Selling Stockholder, no event has occurred and no condition exists that
could form the basis of any such action, suit, inquiry, notice of violation,
proceeding or investigation.

(h)           Private Placement. Assuming
the accuracy of the Purchasers representations and warranties set forth in
Section 3.3, no registration under the Securities Act is required for the offer
and sale of the Securities as contemplated hereby.

3.3           Representations
and Warranties of the Purchasers. 
Each Purchaser hereby, for itself and for no other Purchaser, represents
and warrants as of the date hereof and as of the Closing Date to the Company
and the Selling Stockholders as follows:

(a)           Organization; Authority.  Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of such Purchaser.  Each Transaction Document to which it is a
party has been duly executed by such Purchaser, and when delivered by such
Purchaser in accordance with the terms

 20
 

 

hereof, will constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.

(b)           Own Account.  Such Purchaser understands that the
Securities are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Securities as principal for its own account and not with a view to or for
distributing or reselling such Securities any part thereof in violation of the
Securities Act or any applicable state securities law, has no present intention
of distributing any of such Securities in violation of the Securities Act or
any applicable state securities law and has no direct or indirect arrangement
or understandings with any other persons to distribute or regarding the
distribution of such Securities (this representation and warranty not limiting
such Purchaser’s right to sell the Securities pursuant to the Registration
Statement or otherwise in compliance with applicable federal and state
securities laws) in violation of the Securities Act or any applicable state
securities law.  Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business.

(c)           Purchaser Status.  At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises any Warrants, it will be either: (i) an “accredited investor” as defined
in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or
(ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act.  Such Purchaser is not a
registered broker-dealer or an entity engaged in the business of being a
broker-dealer under Section 15 of the Exchange Act.

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

(e)           General Solicitation.  Such Purchaser is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media, broadcast over television or radio, disseminated over the
Internet or presented at any seminar or any other general solicitation or
general advertisement.

(f)            Short Sales and Confidentiality
Prior To The Date Hereof.  Other than
the transactions contemplated by this Agreement, such Purchaser has not
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Purchaser, executed any disposition, including
Short Sales, in the securities of the

 21
 

 

Company during the period commencing from the
time that such Purchaser executed and delivered a Non-Disclosure Agreement
until the date hereof (“Discussion Time”).  Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement.  Other than to other Persons party to this
Agreement, such Purchaser has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and
terms of this transaction).

(g)           Access to Information.  Each Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information
that the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect
to the investment.  Neither such
inquiries nor any other investigation conducted by or on behalf of each
Purchaser or its representatives or counsel shall modify, amend or affect such
Purchaser’s right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company’s representations and warranties contained
in the Transaction Documents or the Selling Stockholders’ representations and
warranties contained herein.

(h)           Independent Investment Decision.  Each Purchaser has independently evaluated
the merits of its decision to purchase Securities pursuant to this Agreement,
such decision has been independently made by such Purchaser and such Purchaser
confirms that it has only relied on the advice of its own business and/or legal
counsel and not on the advice of any other Purchaser’s business and/or legal
counsel, or the Company’s legal counsel, in making such decision.  Each Purchaser has not relied on the truth,
accuracy or completeness of the statements contained in any research report
concerning the Company that was prepared by an investment banking firm.

(i)            Reliance.  Each Purchaser understands and acknowledges
that: (i) the Securities are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (ii) the availability of such
exemption depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and such Investor hereby
consents to such reliance.

 22
 

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

The Company hereby
covenants and agrees with each of the Purchasers that:

4.1           Transfer
Restrictions.

(a)           The Securities may only be disposed
of in compliance with state and federal securities laws.  In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144, to the
Company or to an affiliate of a Purchaser or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act.  As a condition of
transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.

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

THESE SECURITIES HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN 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.  THESE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER
OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH
SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the Securities to
a financial institution that is an “accredited investor” as defined in Rule
501(a) under the Securities Act and who agrees to be bound by the provisions of
this Agreement and the Registration Rights Agreement

 23
 

 

and, if required
under the terms of such arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be
subject to approval of the Company and no legal opinion of legal counsel of the
pledgee, secured party or pledgor shall be required in connection therewith, but such legal opinion shall be required in
connection with a subsequent transfer or foreclosure following default by the
Purchaser transferee of the pledge. 
Further, no notice shall be required of such pledge but Purchaser’s transferee shall promptly
notify the Company of the pledge. 
At the appropriate Purchaser’s expense, the Company will execute and
deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of
the Securities, including, if the Securities are subject to registration
pursuant to the Registration Rights Agreement, the preparation and filing of
any required prospectus supplement under Rule 424(b)(3) under the Securities
Act or other applicable provision of the Securities Act to appropriately amend
the list of Selling Stockholders thereunder.   Each Purchaser acknowledges
that the Company shall not be responsible for any pledges relating to, or the
grant of any security interest in, any of the Securities or for any agreement,
understanding or arrangement between any Purchaser and its pledgee or secured
party. The Company’s indemnification obligations pursuant to this Agreement
shall not extend to any Proceeding or Losses arising out of or related to this
Section 4.1(b).

(c)           The Company agrees, upon a Purchaser’s
reasonable request, to reissue certificates evidencing the Shares and Warrant
Shares which do not contain any legend (including the legend set forth in
Section 4.1(b)), (i) subject to Section 4.1(d) while a registration statement
(including the Registration Statement) covering the resale of such security is
effective under the Securities Act, or (ii) following any sale of such Shares
or Warrant Shares pursuant to Rule 144, or (iii) if such Shares or Warrant
Shares are eligible for sale under Rule 144(k) (to the extent that the applicable Purchaser
provides a certification or legal opinion to the Company to that effect),
or (iv) if the Company receives an opinion of counsel reasonably satisfactory
to it to the effect that such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission).  The Company shall cause its counsel to issue
a legal opinion to the Company’s transfer agent promptly after the Effective
Date if required by the Company’s transfer agent to effect the removal of the
legend hereunder subject to Section 4.1(d). 
If all or any portion of a Warrant is exercised at a time when there is
an effective registration statement to cover the resale of the Warrant Shares,
such Warrant Shares shall be issued free of all legends.  The Company agrees that following the
Effective Date or at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than three Trading Days following the
delivery by a Purchaser to the Company or the Company’s transfer agent of a
certificate representing Shares or Warrant Shares, as the case may be, issued
with a restrictive legend (endorsed or
with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer) (such third Trading
Day, the “Legend Removal Date”), deliver or cause to be delivered to
such Purchaser a certificate representing such shares that is free from all
restrictive and other legends.   The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this

 24
 

 

Section.  Certificates for Securities subject to legend
removal hereunder shall be transmitted by the transfer agent of the Company to
the Purchasers by crediting the account of the Purchaser’s prime broker with
the Depository Trust Company System, if practicable.

(d)           Each Purchaser, severally and not
jointly with the other Purchasers, agrees that the removal of the restrictive
legend from certificates representing Securities as set forth in this Section
4.1 is predicated upon the Company’s reliance that the Purchaser will sell any
Securities pursuant to either the registration requirements of the Securities
Act, including any applicable prospectus delivery requirements, or an exemption
therefrom, and that if Securities are sold pursuant to a Registration
Statement, they will be sold in compliance with the plan of distribution set
forth therein. To
provide further assurance in connection with legend removal, each Purchaser
hereunder commits that it will continue to hold the shares in its own name, and
not in the name of a nominee, until such time as the shares are duly and
properly sold in compliance with all relevant securities laws. Both the Company
and its transfer agent, and their respective directors, officers, employees and
agents, may rely on this subsection (d) and each Purchaser hereunder will
indemnify and hold harmless each of such persons from any breaches or
violations of this paragraph.

4.2           Furnishing
of Information.  As long as any
Purchaser owns Securities, the Company covenants to use its reasonable
commercial efforts to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act.  As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to the Exchange Act, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) such information as is required for the Purchasers
to sell the Securities under Rule 144. The Company further covenants that it
will use commercially reasonable efforts to take such further action as any
holder of Securities may reasonably request, to the extent required from time
to time to enable such Person to sell such Securities without registration
under the Securities Act within the requirements of the exemption provided by
(a) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (b) any similar rule or regulation hereafter adopted by the SEC.  Upon request, the Company will provide to a
Purchaser written certification of its compliance with the provisions of this
Section 4.2.

4.3           Integration.  The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market such that it would require
shareholder approval prior to the closing of such other transaction unless
shareholder approval is obtained before the closing of such subsequent
transaction.

4.4           Securities
Laws Disclosure; Publicity.  The
Company shall, by 9:00 a.m. Eastern time on the earlier of (i) the fourth
Business Day immediately following the date hereof and (ii) the first Business
day after the Closing Date, issue a Current Report on Form 8-K, reasonably

 25
 

 

acceptable to Michael E. Dahm, counsel to SF Capital Partners, Ltd. (“Purchaser
Counsel”) disclosing the material terms of the transactions contemplated
hereby, and shall attach the Transaction Documents thereto.  The Company and each Purchaser Counsel shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor any Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
any Purchaser, or without the prior consent of each Purchaser as indicated by
each Purchaser Counsel, with respect to any press release of the Company, which
consent shall not unreasonably be withheld or delayed, except if such
disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication.  Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Purchaser,
or include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such
Purchaser, except (i) as required by federal securities law in connection with
(A) any registration statement contemplated by the Registration Rights
Agreement and (B) the filing of final Transaction Documents (including
signature pages thereto) with the Commission and (ii) to the extent such
disclosure is required by law or Trading Market regulations, in which case the
Company shall provide the Purchasers with prior notice of such disclosure
permitted under this subclause (ii).  In
addition, the
Company shall publicly disclose the Additional Information on or prior to December 15, 2006.

4.5           Shareholder
Rights Plan.  No claim will be made
or enforced by the Company or, with the consent of the Company, any other
Person, that any Purchaser is an “Acquiring Person” under any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under the Transaction Documents or under any other
agreement between the Company and the Purchasers.  The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.

4.6           Non-Public
Information.  Except with respect to
the material terms and conditions of the transactions contemplated by the
Transaction Documents, the Company covenants and agrees that neither it nor any
other Person acting on its behalf will provide any Purchaser or its agents or
counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement regarding the confidentiality and use of such
information.  The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

4.7           Use
of Proceeds.  Except as set forth on Schedule
4.7 attached hereto, the Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company’s debt (other than payment of trade
payables in the ordinary course of the Company’s business and prior practices),
to redeem any Common Stock or Common Stock Equivalents or to settle any
outstanding litigation.

 26

 

4.8           Indemnification
of Purchasers.  Subject to the
provisions of this Section 4.8, in consideration of each Purchaser’s execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company’s other obligations under the
Transaction Documents, the Company will indemnify, protect and hold the
Purchasers and their directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role
of a Person holding such titles notwithstanding a lack of such title or any
other title), each Person who controls such Purchaser (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title) of such
controlling persons (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, actions,
causes of action, suits, penalties, fees, costs and expenses, (irrespective of
whether any such Purchaser Party is a party to the action for which
indemnification hereunder is sought), including all judgments, amounts paid in
settlements, court costs and reasonable attorneys’ fees and costs of
investigation (collectively, the “Indemnified Liabilities”) that any such
Purchaser Party may suffer or incur as a result of, arising out or, or relating
to (a) any misrepresentation or breach of any representation or warranty made
by the Company in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents
or any other certificate, instrument or document contemplated hereby or thereby
or (c) any cause of action, suit or claim brought or made against such
Purchaser Party by a third party (including for these purposes a derivative
action brought on behalf of the Company) and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (ii) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the issuance of the
Securities, or (iii) the status of such Purchaser or holder of the Securities
as an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents (unless, and only to the extent that, such action is
based solely upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any conduct by such Purchaser
which constitutes fraud, gross negligence or willful misconduct).  To the extent that the foregoing undertaking
by the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.  If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing reasonably acceptable to such Purchaser.  Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel reasonably acceptable to such Purchaser, or (iii) in such action there
is, in the reasonable opinion of such separate counsel, a material conflict on
any material issue between the position of the Company and the position of such
Purchaser Party.  The Company will not be
liable to any Purchaser Party under this Agreement (i) for any settlement by a
Purchaser Party effected

 27
 

 

without the Company’s prior written consent, which shall not be
unreasonably withheld or delayed; or (ii) to the extent, but only to the extent
that a loss, claim, damage or liability is attributable to any Purchaser Party’s
breach of any of the representations, warranties, covenants or agreements made
by the Purchasers in this Agreement or in the other Transaction Documents. The
Company shall not, without the prior written consent of the applicable
Purchaser Party, consent to entry of any judgment or enter into any settlement
or other compromise which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the applicable Purchaser Party of a
release from all liability in respect to such Claim (as defined in the
Registration Rights Agreement) or litigation. 
The failure to deliver written notice to the Company within a reasonable
time of the commencement of any such action shall not relieve the Company party
of any liability to the Purchase Party under this Section 4.8, except to the
extent that the Company is prejudiced in its ability to defend such action.

4.9           Reservation
of Common Stock. As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue Shares pursuant to this Agreement and
Warrant Shares pursuant to any exercise of the Warrants.

4.10         Equal
Treatment of Purchasers.  No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration is also offered to all of the parties to the
Transaction Documents.  For clarification
purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended to
treat for the Company the Purchasers as a class and shall not in any way be
construed as the Purchasers acting in concert or as a group with respect to the
purchase, disposition or voting of Securities or otherwise.

4.11         Additional
Registration Statements.  From the
date hereof until six months after the Closing Date, without the prior written
consent of Purchasers owning a majority of the shares, the Company will not
file a registration statement other than a Registration Statement or a
registration statement on Form S-8, Form S-4 or any successor form thereto.

4.12         Lock-Up
Agreements.  From the date hereof
until six months after the Effective Date, the Selling Stockholders shall not,
directly or indirectly offer, sell, pledge, contract to sell, (including any
short sale), grant any option to purchase or otherwise dispose of any equity
securities of the Company or enter into any hedging transaction relating to any
equity securities of the Company; provided, however, that subject to applicable
provisions of the Securities Act, this Section 4.12 shall not apply to
dispositions of Common Stock purchased by the Selling Stockholders after the
date hereof in an open market transaction.

4.13         Short
Sales and Confidentiality After The Date Hereof.  Each Purchaser severally and not jointly with
the other Purchasers covenants that neither it nor any Affiliate acting on its
behalf or pursuant to any understanding with it will engage, directly or
indirectly, in any transactions in the securities of the Company (including,
without limitation, any Short Sales involving the Company’s securities) during
the period commencing at the Discussion Time and until such time as (i) the transactions
contemplated by this Agreement are first publicly

 28
 

 

announced
as described in Section 4.4 or (ii) this Agreement is terminated in full
pursuant to Section 5.1.  Each
Purchaser understands and acknowledges, severally and not jointly with any
other Purchaser, that the Commission currently takes the position that coverage
of short sales of shares of the Common Stock “against the box” prior to the
Effective Date of the Registration Statement with the Securities is a violation
of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Except in compliance with the Securities Act and the rules and regulations
promulgated thereunder and applicable state securities laws, the Purchaser will
not engage in any Short Sales that result in the disposition of the Securities
(including the Warrant Shares) acquired hereunder by the Purchaser.  Notwithstanding the foregoing, in the case of
a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase
the Securities covered by this Agreement.

4.14         Delivery
of Securities After Closing.  The
Company shall deliver, or cause to be delivered, the respective Securities
purchased by each Purchaser to such Purchaser within 3 Trading Days of the
Closing Date.

4.15         Form D; Blue Sky Filings.  The
Company agrees to timely file a Form D with respect to the Securities as
required under Regulation D and to provide a copy thereof, promptly upon
request of any Purchaser. The Company shall take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for, or
to qualify the Securities for, sale to the Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States,
and shall provide evidence of such actions promptly upon request of any
Purchaser.

4.16         Limitation on Material Non-Public Information.  As
long as such Purchaser holds any Shares, the Company shall not disclose
material nonpublic information to a Purchaser, or to advisors to or
representatives of such Purchaser, unless prior to disclosure of such
information the Company identifies such information as being material nonpublic
information and provides such Purchaser, such advisors and representatives with
the opportunity to accept or refuse to accept such material nonpublic
information for review. The Company may, as a condition to disclosing any
material nonpublic information hereunder, require such Purchaser’s advisors and
representatives to enter into a confidentiality agreement (including an
acknowledgement by such advisors and representatives as to their legal
obligations regarding trading in Common Stock during such period of time as
they are in possession of material nonpublic information) in form reasonably
satisfactory to the Company and such Purchaser.

ARTICLE V.

MISCELLANEOUS

5.1           Termination.  This
Agreement may be terminated by any Purchaser, as to such Purchaser’s
obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other
parties, if the

 29
 

 

Closing has
not been consummated on or before November 22, 2006; provided, however,
that no such termination will affect the right of any party to sue for any
breach by the other party (or parties).

5.2           Fees
and Expenses.  The Company shall
reimburse America’s
Growth Capital, LLC (“AGC”), for its fees and expenses incurred
in connection with the transactions contemplated in the Transaction
Documents.  The Company shall deliver,
prior to the Closing, a completed and executed copy of the Closing Statement,
attached hereto as Annex A. 
Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.  The
Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to the
Purchasers.

5.3           Entire
Agreement.  The Transaction
Documents, together with the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the parties acknowledge have been merged into
such documents, exhibits and schedules.

5.4           Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile number set forth on the signature pages attached hereto prior to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number 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, (c) the 2nd Trading Day following the date of mailing, if
sent by U.S. nationally recognized overnight courier service, or (d) upon
actual receipt by the party to whom such notice is required to be given.  The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.  A notice delivered to the
Purchasers must be delivered to each Purchaser hereto in accordance with this
Section 5.4.

5.5           Amendments;
Waivers.  No provision of this
Agreement may be waived or amended except in a written instrument signed, in
the case of an amendment, by the Company and Purchasers subscribing for at
least a majority of the Securities
or, in the case of a waiver, by the party against whom enforcement of any such
waived provision is sought.  No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver
of any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right.

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

 30
 

 

5.7           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.  The Company may not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of each Purchaser (other than by merger).  Any Purchaser may assign any or all of its
rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions of the
Transaction Documents that apply to the “Purchasers”.

5.8           No
Third-Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.9.

5.9           Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of the Transaction
Documents 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
conflicts of law thereof.  Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City 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 (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 any such court, that
such suit, action or proceeding is improper or is an 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 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 other manner permitted by law. 
The parties hereby waive all rights to a trial by jury.  If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.

5.10         Survival.  The representations and warranties contained
herein shall survive the Closing and the delivery of the Shares and Warrant
Shares.

5.11         Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. 
In the event that any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file,

 31
 

 

such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile or “.pdf” signature page were an original
thereof.

5.12         Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.

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

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

5.15         Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents.  The
parties agree that monetary damages may not be adequate compensation for any
loss incurred by reason of any breach of obligations contained in the Transaction
Documents and hereby agrees to waive and not to assert in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.

5.16         Payment
Set Aside.  To the extent that the
Company makes a payment or payments to any Purchaser pursuant to any
Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a
trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof

 32
 

 

originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.

5.17         Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance or non-performance of the obligations of any other Purchaser under
any Transaction Document.  Nothing
contained herein or in any other Transaction Document, and no action taken by
any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Documents.  Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out
of the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation
of the Transaction Documents.  For
reasons of administrative convenience only, Purchasers and their respective
counsel have chosen to communicate with the Company through Goodwin Procter
LLP.  Goodwin Procter LLP does not
represent the Purchasers but only AGC, who has acted as placement agent to the transaction.  The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the Purchasers.

5.18         Liquidated
Damages.  The Company’s obligations
to pay any partial liquidated damages or other amounts owing under the
Transaction Documents is a continuing obligation of the Company and shall not
terminate until all unpaid partial liquidated damages and other amounts have
been paid or such payments have been waived or otherwise satisfied,
notwithstanding the fact that the instrument or security pursuant to which such
partial liquidated damages or other amounts are due and payable shall have been
canceled.

5.19         Construction. The parties agree
that each of them and/or their respective counsel has reviewed and had an
opportunity to revise the Transaction Documents and, therefore, the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of the
Transaction Documents or any amendments hereto.

5.20         Written Consent.  By execution of this Agreement, each
Purchaser hereby consents to the amendments to the Company’s Amended and
Restated Certificate of Incorporation as set forth in Exhibit C hereto and each
Purchaser acknowledges and agrees that the consent set forth in this Section
5.20 shall constitute a written consent of such Purchaser pursuant to Section 228
of the Delaware General Corporation Law.

(Signature
Pages Follow)

 33
 

 

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

	
  THE COMPANY:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GLOBALSCAPE,
  INC.

  	
   

  	
  Address for Notice:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GlobalSCAPE, Inc.

  6000 Northwest Parkway, Suite 100

  San Antonio, TX 78249

  Attn: Thomas W. Brown

  
	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  Thomas W. Brown

  	
   

  	
   

  
	
   

  	
  Name: Thomas W.
  Brown

  	
   

  	
   

  
	
   

  	
  Title: Chariman

  	
   

  	
   

  
	
   

  	
   

  	
   

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

  	
   

  	
  Jackson Walker L.L.P.

  
	
   

  	
   

  	
  Weston Centre

  112 E. Pecan Street, Suite 2400

  San Antonio, Texas 78205

  Attn: Steven Jacobs, Esq.

  
	
   

  	
   

  	
   

  
	
  SELLING
  STOCKHOLDERS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notice:
c/o GlobalSCAPE, Inc.

  6000 Northwest Parkway, Suite 100

  
	
   /s/ Thomas W. Brown

  	
   

  	
  San Antonio, TX 78249

  
	
  Thomas W. Brown

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notice:

  c/o GlobalSCAPE,
  Inc.

  6000 Northwest Parkway, Suite 100

  
	
   /s/ David
  L. Mann

  	
   

  	
  San Antonio, TX 78249

  
	
  David L. Mann

  	
   

  	
   

  

 

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGES
FOR PURCHASERS FOLLOW]

 34
 

 

Schedule I

SELLING
STOCKHOLDERS

	
  Selling Stockholder

  	
   

  	
  Selling Stockholder

  Shares Sold

  	
   

  	
  Aggregate Sale Price ($)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Thomas W. Brown

  	
   

  	
  1,178,000

  	
   

  	
  $

  	
  2,945,000.00

  	
   

  
	
  David L. Mann

  	
   

  	
  850,000

  	
   

  	
  $

  	
  2,125,000.00

  	
   

  
	
  Total:

  	
   

  	
  2,028,000

  	
   

  	
  $

  	
  5,070,000.00

  	
   

  

 

 35
 

 

Schedule II

PURCHASERS

	
  Purchaser*

  	
   

  	
  Company

  Shares

  Purchased

  	
   

  	
  Warrants

  Purchased

  	
   

  	
  Company

  Subscription

  Amount ($)

  	
   

  	
  Selling

  Stockholder

  Shares

  Purchased

  	
   

  	
  Selling

  Stockholder

  Subscription

  Amount ($)

  	
   

  	
  Total

  Subscription

  Amount ($)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Zeke, LP

  	
   

  	
  480,000

  	
   

  	
  480,000

  	
   

  	
  $

  	
  1,200,000.00

  	
   

  	
  720,000

  	
   

  	
  $

  	
  1,800,000.00

  	
   

  	
  $

  	
  3,000,000.00

  	
   

  
	
  SF Capital
  Partners Ltd.

  	
   

  	
  480,000

  	
   

  	
  480,000

  	
   

  	
  $

  	
  1,200,000.00

  	
   

  	
  720,000

  	
   

  	
  $

  	
  1,800,000.00

  	
   

  	
  $

  	
  3,000,000.00

  	
   

  
	
  Enable Growth
  Partners, L.P.

  	
   

  	
  102,000

  	
   

  	
  102,000

  	
   

  	
  $

  	
  255,000.00

  	
   

  	
  153,000

  	
   

  	
  $

  	
  382,500.00

  	
   

  	
  $

  	
  637,500.00

  	
   

  
	
  Enable
  Opportunity Partners, L.P.

  	
   

  	
  12,000

  	
   

  	
  12,000

  	
   

  	
  $

  	
  30,000.00

  	
   

  	
  18,000

  	
   

  	
  $

  	
  45,000.00

  	
   

  	
  $

  	
  75,000.00

  	
   

  
	
  Pierce
  Diversified Strategy Master Fund, LLC Ena

  	
   

  	
  6,000

  	
   

  	
  6,000

  	
   

  	
  $

  	
  15,000.00

  	
   

  	
  9,000

  	
   

  	
  $

  	
  22,500.00

  	
   

  	
  $

  	
  37,500.00

  	
   

  
	
  Dolphin Offshore
  Partners, L.P.

  	
   

  	
  112,000

  	
   

  	
  112,000

  	
   

  	
  $

  	
  280,000.00

  	
   

  	
  168,000

  	
   

  	
  $

  	
  420,000.00

  	
   

  	
  $

  	
  700,000.00

  	
   

  
	
  Emancipation
  Capital Master Ltd.

  	
   

  	
  80,000

  	
   

  	
  80,000

  	
   

  	
  $

  	
  200,000.00

  	
   

  	
  120,000

  	
   

  	
  $

  	
  300,000.00

  	
   

  	
  $

  	
  500,000.00

  	
   

  
	
  Iroquois Master
  Fund Ltd.

  	
   

  	
  40,000

  	
   

  	
  40,000

  	
   

  	
  $

  	
  100,000.00

  	
   

  	
  60,000

  	
   

  	
  $

  	
  150,000.00

  	
   

  	
  $

  	
  250,000.00

  	
   

  
	
  Nite Capital LP

  	
   

  	
  40,000

  	
   

  	
  40,000

  	
   

  	
  $

  	
  100,000.00

  	
   

  	
  60,000

  	
   

  	
  $

  	
  150,000.00

  	
   

  	
  $

  	
  250,000.00

  	
   

  
	
  Total:

  	
   

  	
  1,352,000

  	
   

  	
  1,352,000

  	
   

  	
  $

  	
  3,380,000.00

  	
   

  	
  2,028,000

  	
   

  	
  $

  	
  5,070,000.00

  	
   

  	
  $

  	
  8,450,000.00

  	
   

  

 

 36

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