Document:

ex10_1.htm

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of June 28, 2010, between Rexahn Pharmaceuticals, Inc., a Delaware corporation (the “Company”), 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 and pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser 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 set forth in this Section 1.1:

 

“Acquiring Person” shall have the meaning ascribed to such term in Section 4.5.

 

“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 405 under the Securities Act.

 

“Board of Directors” means the board of directors of the Company.

 

“Business Day” means any day except any Saturday, any Sunday, any day which is 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 on which 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, in each case, have been satisfied or waived, but in no event later than the third Trading Day following the date hereof.

 

  

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“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

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

 

“Company Counsel” means Patton Boggs LLP with offices located at 2550 M Street N.W., Washington, DC 20037 and Venable LLP with offices located at 575 7th Street, N.W., Washington, DC 20004.

 

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

 

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

 

“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.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities, (c) securities issued to existing stockholders of the Company in satisfaction of their existing contractual rights, (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities and (e) securities to a pharmaceutical company or biotechnology company in connection with a strategic development partnership or a licensing agreement, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital

 

  

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

 

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

 

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

 

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

 

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

 

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

 

“NYSE Amex Approval” means the approval by the NYSE Amex of the Company’s additional listing applications with regard to the listing of the Shares and Warrant Shares.

 

“Participation Maximum” shall have the meaning ascribed to such term in Section 4.11(a).

 

“Per Share Purchase Price” equals $1.50, 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.

 

“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.

 

“Pharmaceutical Product” shall have the meaning ascribed to such term in Section 3.1(gg).

 

“Pre-Notice” shall have the meaning ascribed to such term in Section 4.11(b).

 

“Pro Rata Portion” shall have the meaning ascribed to such term in Section 4.11(e).

 

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

 

  

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“Prospectus” means the final prospectus filed for the Registration Statement.

 

“Prospectus Supplement” means the supplement to the Prospectus complying with Rule 424(b) of the Securities Act that is filed with the Commission and delivered by the Company to each Purchaser at the Closing.

 

“Purchaser Party” shall have the meaning ascribed to such term in Section 4.8.

 

“Registration Statement” means the effective registration statement with Commission file No. 333-152640 which registers the sale of the Shares, the Warrants and the Warrant Shares by the Purchaser(s).

 

“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 or interpreted 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 or interpreted 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.

 

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

 

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

 

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

 

“Shares” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.

 

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).

 

 “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.11(a).

 

  

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“Subsequent Financing Notice” shall have the meaning ascribed to such term in Section 4.11(b).

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a), and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof; provided however, that if the Company does not list any Person on Schedule 3.1(a), then the term “Subsidiary” shall not be applicable for this Agreement or any of the Transaction Documents and of no further meaning or force and effect.

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

 

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE Amex, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).

 

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

 

“Transfer Agent” means Olde Monmouth Stock Transfer, the current transfer agent of the Company, with a mailing address of 200 Memorial Parkway, Atlantic Highlands, NJ 07716 and a facsimile number of (732)872-2728, and any successor transfer agent of the Company.

 

“Variable Rate Transaction” shall have the meaning ascribed to such term in Section 4.12(b).

 

“Warrants” means, collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately following the Closing Date and have a term of exercise equal to 4 years from the initial date of their exercisability, in the form of Exhibit A attached hereto.

 

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

 

“WS” means Weinstein Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

 

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, the Company agrees to sell, and the Purchasers, severally and not jointly,  agree to purchase, up to an aggregate of $10,000,000.50 of Shares and Warrants as set forth on their respective signature pages to this Agreement.  Each Purchaser shall deliver to the Company on or prior to the Closing Date, via wire transfer to the Company, as provided in Section 2.2(b), equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed by such Purchaser and the Company shall deliver to each Purchaser its respective Shares and a Warrant as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of WS or such other location as the parties shall mutually agree.

 

  

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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, substantially in the form of Exhibit B;

 

(iii)          a copy of the irrevocable instructions to the Company’s transfer agent instructing the transfer agent to deliver via The Depository Trust Company Deposit or Withdrawal at Custodian system (“DWAC”) Shares equal to such Purchaser’s 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 30% of such Purchaser’s Shares (such Warrant certificate may be delivered within three Trading Days of the Closing Date), with an initial exercise price equal to $1.90 per share of Common Stock underlying the Warrant; and

 

(v)           the Prospectus and Prospectus Supplement (which may be delivered in accordance with Rule 172 under the Securities Act).

 

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

 

(i)            this Agreement duly executed by such Purchaser; and

 

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

 

2.3           Closing Conditions.

 

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

 

(i)            the representations and warranties of the Purchasers contained herein shall be accurate in all material respects on the Closing Date (unless as of a specific date therein);

 

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

 

(iii)          each Purchaser shall have delivered the items set forth in Section 2.2(b).

 

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

 

  

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(i)            the representations and warranties of the Company contained herein shall be accurate in all material respects when made and on the Closing Date (unless as of a specific date therein);

 

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

 

(iii)          the Company shall have delivered the items set forth in Section 2.2(a);

 

(iv)          there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(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 L.P. 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 Securities at the Closing.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations and Warranties of the Company.  Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to each Purchaser:

 

  

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(a)           Subsidiaries.  All direct and indirect Subsidiaries of the Company are set forth on Schedule 3.1(a).  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 of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.  If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded and shall not be applicable or have any further force or effect for this Agreement or any of the Transaction Documents.

 

(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, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is 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, would 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 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”); provided that none of the following alone shall be deemed, in and of itself, to constitute a Material Adverse Effect: (x) a change in the market price or trading volume of the Common Stock or (y) changes in general economic conditions or changes affecting the industry in which the Company operates generally (as opposed to Company-specific changes) so long as such changes do not have a materially disproportionate effect on the Company. No Proceeding has been instituted, or to the knowledge of the Company, threatened 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, the Board of Directors or the Company’s stockholders in connection therewith other than in connection with the Required Approvals.  Each Transaction Document to which it is a party 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.

 

  

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(d)           No Conflicts.  The execution, delivery and performance by the Company of the Transaction Documents, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and as of the Closing will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, 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 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 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 could not have or 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) the filings and approval required pursuant to Section 4.4, (ii) the filing with the Commission of the Prospectus Supplement, (iii) application(s) to each applicable Trading Market for the listing of the Securities for trading thereon in the time and manner required thereby and (iv) such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).

 

(f)            Issuance of the Securities; Registration.  The Shares and Warrant Shares are duly authorized and, when issued and paid for in accordance with the applicable 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. The Company has prepared and filed the Registration Statement, which became effective on August 8, 2008 (the “Effective Date”), including the Prospectus, and such amendments and supplements thereto as may have been required to the date of this Agreement.  The Registration Statement is effective under the Securities Act and no stop order preventing or suspending the effectiveness of the Registration Statement or suspending or preventing the use of the Prospectus has been issued by the Commission and no proceedings for that purpose have been instituted or, to the knowledge of the Company, are threatened by the Commission.  The Company, if required by the rules and regulations of the Commission, proposes to file the Prospectus with the Commission pursuant to Rule 424(b).  At the time the Registration Statement and any amendments thereto became effective, at the date of this Agreement and at the Closing Date, the Registration Statement and any amendments thereto conformed and will conform in all material respects to the requirements of the Securities Act and did not and 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 not misleading; and the Prospectus and any amendments or supplements thereto filed in connection with the transactions contemplated by this Agreement, at time the Prospectus or any such amendment or supplement thereto was issued and at the Closing Date, conformed and will conform in all material respects to the requirements of the Securities Act and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

  

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(g)           Capitalization.  The capitalization of the Company is as set forth on 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 plans and pursuant to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act.  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.  As a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip 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.  The issuance and sale of the 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.  Except for the approval by the NYSE Amex of the Company’s additional shares listing application to be filed pursuant to Section 4.10 and other Required Approvals, no further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities.  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.

 

  

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(h)           SEC Reports; Financial Statements.  The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for one year preceding the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) 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 Exchange Act.  The Company is not an issuer subject to Rule 144(i) under the Securities Act.  The Company’s financial statements including in the Registration Statement, the Prospectus and the Prospectus Supplement have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved, 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 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 year-end audit adjustments.

 

(i)            Material Changes; Undisclosed Events, Liabilities or Developments.  Since the date of the latest audited financial statements included within the Registration Statement, Prospectus and Prospectus Supplement, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (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 disclosed in filings made with the Commission, (iii) 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.  The Company does not have pending before the Commission any request for confidential treatment of information.  Except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective business, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one Trading Day prior to the date that this representation is made.

 

  

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(j)            Litigation.  There is no Proceeding 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 Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any Subsidiary, nor 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.

 

(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.  None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good.  No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have 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 judgment, decree or order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

  

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(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 Registration Statement, Prospectus and the Prospectus Supplement, except where the failure to possess such permits could not 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 does not own any real property.  The Company and the Subsidiaries have 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.  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, except where failure to be in compliance would not reasonably be expected to have a Material Adverse Effect.

 

(o)           Patents and Trademarks.  The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses as described in the Registration Statement, Prospectus (collectively, the “Intellectual Property Rights”) and the Prospectus Supplement and which the failure to so have could have a Material Adverse Effect.  Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person.  To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, 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 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.

 

  

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(q)           Transactions With Affiliates and Employees.  Except as set forth in the Registration Statement, Prospectus and the Prospectus Supplement, 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 for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

(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 designed 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 that are designed 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.

 

  

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(s)           Certain Fees.  Except as set forth in the Prospectus Supplement, 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 3.1(s) that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(t)            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, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(u)           Registration Rights.  Except as set forth in Schedule 3.1(u) and SEC Reports, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

 

(v)           Listing and Maintenance Requirements.  The 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.  Except as set forth in the SEC Reports, 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.

 

(w)           Application of Takeover Protections.  The Company and the 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 Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(x)            Disclosure.  Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, 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 it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the Registration Statement, Prospectus or Prospectus Supplement.  The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.  All of the 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, is true and correct and does 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 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 therein, 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 3.2.

 

  

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(y)           No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, 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 any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

(z)            Solvency.  Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).  The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.   The outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments are set forth in the Registration Statement, Prospectus or Prospectus Supplement.  For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

  

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(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)         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.

 

(cc)         Accountants.  The Company’s accounting firm is set forth on Schedule 3.1(cc) of the Disclosure Schedules and in the Prospectus Supplement.  To the knowledge and belief of the Company, such accounting firm is a registered public accounting firm as required by the Exchange Act and such accounting firm expressed its opinion with respect to the financial statements included in the Company’s Annual Report for the year ending December 31, 2009.

 

(dd)        Acknowledgment Regarding Purchasers’ Purchase of Securities.  To the Company’s knowledge: (i) each Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby and (ii) 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. The Company acknowledges that 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 Shares and Warrants.  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.

 

  

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(ee)         Acknowledgement Regarding Purchaser’s Trading Activity.  Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(e) and 4.14), it is understood and acknowledged by the Company that: (i) none of the Purchasers have been asked by the Company to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Common Stock; and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.  The Company further understands and acknowledges that (y) one or more Purchasers may engage in hedging activities in compliance with applicable law 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 Securities are being determined, and (z) 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.

 

(ff)           Regulation M Compliance.  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.

 

(gg)         FDA.  As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (“FDCA”) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by the Company or any of its Subsidiaries (each such product, a “Pharmaceutical Product”), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by the Company in compliance with all applicable requirements under FDCA and similar FDA  laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Material Adverse Effect.  There is no pending, completed or, to the Company's knowledge, threatened, Proceeding against the Company or any of its Subsidiaries, and none of the Company or any of its Subsidiaries has received any notice, warning letter or other communication from the FDA or any other U.S. federal or state governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by the Company or any of its Subsidiaries, (iv) enjoins production at any facility of the Company or any of its Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with the Company or any of its Subsidiaries, or (vi) otherwise alleges any violation of any U.S. laws, rules or regulations by the Company or any of its Subsidiaries, and which, either individually or in the aggregate, would have a Material Adverse Effect.  The properties, business and operations of the Company have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA.  The Company has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by the Company nor has the FDA that it will not approve or clear for marketing any product being developed or proposed to be developed by the Company.

 

  

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3.2           Representations and Warranties of the Purchasers.  Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

 

(a)        Organization; Authority.  Such Purchaser is either an individual or 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 this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, 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 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)        Understandings or Arrangements.  Such Purchaser is acquiring the Securities as principal for its own account 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).  Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

  

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(c)        Purchaser Status.  At the time such Purchaser was offered the Securities, it was, and as of 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 required to be registered as 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)        Certain Transactions and Confidentiality.  Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) as of the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof.  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). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar transactions in the future.

 

The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

  

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ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Warrant Shares.  If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the issuance or resale of the Warrant Shares or if the Warrant is exercised via cashless exercise, the Warrant Shares issued pursuant to any such exercise shall be issued free of all legends, provided that at the time of the issuance of the Warrant Shares the holder of the Warrant is not an Affiliate of the Company.  If at any time following the date hereof the Registration Statement (or any subsequent registration statement registering the sale or resale of the Warrant Shares) is not effective or is not otherwise available for the sale or resale of the Warrant Shares, the Company shall immediately notify the holders of the Warrants in writing that such registration statement is not then effective and thereafter shall promptly notify such holders when the registration statement is effective again and available for the sale or resale of the Warrant Shares (it being understood and agreed that the foregoing shall not limit the ability of the Company to issue, or any Purchaser to sell, any of the Warrant Shares in compliance with applicable federal and state securities laws).  The Company shall use best efforts to keep a registration statement (including the Registration Statement) registering the issuance or resale of the Warrant Shares effective during the term of the Warrants.

 

4.2           Furnishing of Information.  Until the earliest of the time that (i) no Purchaser is the holder of Warrants or (ii) expiration of the Warrants or (iii) all Warrant Shares having been issued, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of 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, including without limitation, under Rule 144. The Company further covenants that it will 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, including without limitation, within the requirements of the exemption provided by Rule 144.

 

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 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 (a) by 9:00 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby as permitted by the Securities Act, and (b) file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act.  From and after the issuance of such press release, the Company shall have publicly disclosed all material, non-public information delivered to any of the Purchasers by the Company or any of its subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents.  The Company and each Purchaser 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 nor 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, 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 (a) as required by federal securities law in connection with the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) 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 clause (b).

 

  

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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.

 

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 with the Company regarding the confidentiality and use of such information.  The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

4.7           Use of Proceeds.  The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and as otherwise described under the section titled “Use of Proceeds” in the Prospectus Supplement.

 

4.8           Indemnification of Purchasers.   Subject to the provisions of this Section 4.8, the Company will indemnify and hold each Purchaser and its 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, costs and expenses, including all judgments, amounts paid in settlements (except as otherwise provided in this Section 4.8), court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any material breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by such Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance).  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 the Purchaser Party.  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 or (iii) in such action there is, in the reasonable written opinion of counsel to the Purchaser which is furnished to the Company, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel.  The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent, that a loss, claim, damage or liability is attributable to (A) any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents or (B) any violations by such Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance.

 

  

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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         Listing of Common Stock. The Company hereby agrees to use commercially reasonable efforts to maintain the listing or quotation of the Common Stock on the Trading Market on which it is currently listed, and the Company shall promptly apply to list or quote all of the Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of the Shares and Warrant Shares on such Trading Market. The Company further agrees that, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible.  The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market.

 

  

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4.11         Participation in Future Financing.

 

(a)           Beginning on the Closing Date and ending on a date that is 180 days after the Closing, upon the issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration or Indebtedness or a combination thereof (a “Subsequent Financing”), the Purchasers shall have the right to participate in up to an amount of the Subsequent Financing equal to 50% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

 

(b)           At least five (5) Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).  Upon the written request of a Purchaser to the Company, and only upon a request by such Purchaser for a Subsequent Financing Notice, the Company shall promptly, but no later than one (1) Trading Day after receiving such request, deliver a Subsequent Financing Notice to such Purchaser.  The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include a term sheet or similar document relating thereto as an attachment.  In the event a Purchaser agrees to receive a Subsequent Financing Notice, such Purchaser shall maintain the confidentiality of the existence of the transaction and the terms of the information contained in the Subsequent Financing Notice and the information included in any financing documents provided in connection therewith until the earlier of the time such financing is publicly disclosed, the Company notifies the Purchaser the offering is abandoned or the date of the anticipated closing set forth in the Subsequent Financing Notice (but in no event more than 5 Trading Days from the date the Subsequent Financing Notice is received from the Company).

 

(c)           Any Purchaser desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after a Purchaser has received the Pre-Notice that such Purchaser is willing to participate in the Subsequent Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds ready, willing, and available for investment on the terms and timing set forth in the Subsequent Financing Notice.  If the Company receives no such notice from a Purchaser as of such fifth (5th) Trading Day after a Purchaser receives the Pre-Notice, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.

 

  

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(d)           If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with such other Persons participating in the Subsequent Financing Notice.

 

(e)           If by 5:30 p.m. (New York City time) on the fifth (5th) Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under this Section 4.11 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers participating under this Section 4.11.

 

(f)           The Company must provide the Purchasers with a second Subsequent Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.11, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 30 Trading Days after the date of the initial Subsequent Financing Notice.

 

(g)           Notwithstanding the foregoing, this Section 4.11 shall not apply in respect of (i) an Exempt Issuance or (ii) an underwritten public offering of Common Stock or Common Stock Equivalents.

 

4.12           Subsequent Equity Sales.

 

(a)           From the date hereof until 90 days after the Closing Date, neither the Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or Common Stock Equivalents.

 

(b)           From the date hereof until the earliest of the time that (i) no Purchaser is the holder of Warrants, (ii) expiration of the Warrants, (iii) all Warrant Shares having been issued or (iv) one year after the date of the Closing, as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration (or a combination of units hereof) involving a Variable Rate Transaction.  “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (1) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (2) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) unless otherwise consented to by the Purchasers, enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price.  Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.

 

  

25

  

(c)           Notwithstanding the foregoing, this Section 4.12 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.

 

4.13         Equal Treatment of Purchasers.  No consideration (including any modification of any Transaction Document) shall be offered or paid to any Purchaser to amend or consent to a waiver or modification of any provision of any of this Agreement unless the same consideration is also offered to all of the parties to this Agreement.  For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and has been negotiated separately by each Purchaser, and is intended for the Company to treat 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.

 

4.14         Certain Transactions and Confidentiality. 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 execute any purchases or sales, including Short Sales of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4.  Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.4, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Disclosure Schedules.  Notwithstanding the foregoing and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) no Purchaser shall have any duty of confidentiality to the Company or its Subsidiaries after the issuance of the initial press release as described in Section 4.4.  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.

 

  

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4.15         Capital Changes.  Until the one year anniversary of the Closing Date, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest of the Shares.

 

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 Closing has not been consummated on or before July 6, 2010; 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.  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, the Prospectus and the Prospectus Supplement, 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 second (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.

 

  

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5.5           Amendments; Waivers.  No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 67% in interest of the Shares based upon the initial Subscription Amounts hereunder 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.

 

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 its Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Warrants, 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 4.8.

 

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.  If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.8, 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.

 

  

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

 

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, 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 within five (5) Business Days, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of an exercise of a Warrant to the extent permitted by the Warrant and applicable law, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).

 

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.

 

  

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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 agree 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 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, each Purchaser and its respective counsel have chosen to communicate with the Company through WS.  WS does not represent any of the Purchasers and only represents Rodman & Renshaw, LLC, the placement agent. 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 any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.

 

  

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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 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         Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.20         Construction. The parties agree that each of them and/or their respective counsel have 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 thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be 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.

 

5.21         WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

 

(Signature Pages Follow)

 

  

31

  

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.

 

	
REXAHN PHARMACEUTICALS, INC.

	  	
Address for Notice:

	  	  	  	  
	  	  	  	
15245

	  	  	  	
Shady

	  	  	  	
Grove Rd

	  	  	  	
Suite 455

	  	  	  	
Rockville, MD 20850

	
By:  

	  	  	
Facsimile: (240) 268-5310

	  	
Name: Tae Heum Jeong

	  	  
	  	
Title: Chief Financial Officer

	  	  

 

 

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

	
Patton Boggs LLP

	
2550 M Street, N.W.

	
Washington, DC 20037

	
Telephone:     

	  	
(202) 457-6000

	
Facsimile:     

	  	
(202) 457-6315

	
Attention:     

	  	
Hwan Kim, Esq.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

  

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[PURCHASER SIGNATURE PAGES TO RNN SECURITIES PURCHASE AGREEMENT]

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

 

	
Name of Purchaser:

	  

 

	
Signature of Authorized Signatory of Purchaser:

	  

 

	
Name of Authorized Signatory:

	  

 

	
Title of Authorized Signatory:

	  

 

	
Email Address of Authorized Signatory:

	  

 

	
Facsimile Number of Authorized Signatory:

	  

Address for Notice of Purchaser:

Address for Delivery of Securities for Purchaser (if not same as address for notice):

Subscription Amount: $_________________

Shares: _________________

Warrant Shares: __________________

EIN Number:  [PROVIDE THIS UNDER SEPARATE COVER]

o  Notwithstanding anything contained in this Agreement to the contrary, by checking this box (i) the obligations of the above-signed to purchase the securities set forth in this Agreement to be purchased from the Company by the above-signed, and the obligations of the Company to sell such securities to the above-signed, shall be unconditional and all conditions to Closing shall be disregarded, (ii) the Closing shall occur on the third (3rd) Trading Day following the date of this Agreement and (iii) any condition to Closing contemplated by this Agreement (but prior to being disregarded by clause (i) above) that required delivery by the Company or the above-signed of any agreement, instrument, certificate or the like or purchase price (as applicable) shall no longer be a condition and shall instead be an unconditional obligation of the Company or the above-signed (as applicable) to deliver such agreement, instrument, certificate or the like or purchase price (as applicable) to such other party on the Closing Date.

[SIGNATURE PAGES CONTINUE]

 

 

33PATIENT
SAFETY TECHNOLOGIES, INC.

     

    CERTIFICATE
OF DESIGNATION OF PREFERENCES,

    RIGHTS
AND LIMITATIONS

    OF

    SERIES
B CONVERTIBLE PREFERRED STOCK

     

    PURSUANT
TO SECTION 151 OF THE

    DELAWARE
GENERAL CORPORATION LAW

     

    The
undersigned, Steven H. Kane and Marc L. Rose do hereby certify
that:

     

    1.         
They are the President and Chief Executive Officer, and Chief Financial Officer,
Treasurer and Secretary, respectively, of Patient Safety Technologies, Inc., a
Delaware corporation (the “Corporation”).

     

    2.          The
Corporation is authorized to issue 1,000,000 shares of preferred stock, of which
500,000 shares were previously designated as “Series A Convertible Preferred
Stock,” of which 10,950 are issued and outstanding.

     

    3.          All
of the presently undesignated shares of preferred stock of the Corporation may
be issued with such rights and powers as the board of directors of the
Corporation (the “Board of Directors”)
may designate.

     

    4.          The
following resolutions were duly adopted by the Board of Directors:

     

    WHEREAS,
the amended and restated certificate of incorporation of the Corporation
provides for a class of its authorized stock known as preferred stock,
consisting of 1,000,000 shares, $1.00 par value per share, issuable from time to
time in one or more series;

     

    WHEREAS,
the Board of Directors is authorized to fix the dividend rights, dividend rate,
voting rights, conversion rights, rights and terms of redemption and liquidation
preferences of any wholly unissued series of preferred stock and the number of
shares constituting any series and the designation thereof, of any of them;
and

     

    WHEREAS,
it is the desire of the Board of Directors, pursuant to its authority as
aforesaid, to fix the rights, preferences, restrictions and other matters
relating to a series of the preferred stock, which shall consist of 150,000
shares of the preferred stock which the Corporation has the authority to issue,
as follows:

     

    NOW,
THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for
the issuance of a series of preferred stock for cash or exchange of other
securities, rights or property and does hereby fix and determine the rights,
preferences, restrictions and other matters relating to such series of preferred
stock as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    TERMS
OF PREFERRED STOCK

     

    Section 1. Definitions. For the
purposes hereof, the following terms shall have the following
meanings:

     

    “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 405 of the Securities Act.

     

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

     

    “Business Day” means
any day except any Saturday, any Sunday, any day which is 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.

     

    “Change of Control
Transaction” means the occurrence after the date hereof of any of the
following: (i) the Corporation, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Corporation with or into
another Person (other than any merger or consolidation in which stockholders of
the Corporation immediately prior to such merger or consolidation beneficially
own more than 50% of the voting shares of the surviving corporation immediately
following such merger or consolidation), (ii) the Corporation, directly or
indirectly, effects any sale, exclusive license, assignment, transfer,
conveyance or other disposition of all or substantially all of its assets in one
or a series of related transactions to an “Independent Third Party” (defined
below), (iii)  the Corporation, directly or indirectly, in one or more
related transactions consummates a stock or share purchase agreement or other
business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement), with another Person
whereby such other Person acquires more than 50% of the outstanding shares of
Common Stock (assuming conversion of all convertible Preferred Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock or share purchase agreement or other business combination)
unrelated to the sale by the Corporation of its securities for capital raising
purposes or (iv) the stockholders of the Corporation accept a tender offer that
would have substantially the same effect as the transaction described in clause
(iii) immediately above.

     

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

     

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

     

    “Commission” means the
United States Securities and Exchange Commission.

     

    “Common Stock” means
the Corporation’s common stock, par value $0.33 per share, and stock of any
other class of securities into which such securities may hereafter be
reclassified or changed.

     

    “Common Stock
Equivalents” means any securities of the Corporation 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.

     

    “Conversion Amount”
means the sum of the Stated Value at issue.

     

    
      
         

      

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

     

    “Conversion Price”
shall have the meaning set forth in Section 6(b).

     

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

     

    “Dividend Payment
Date” shall have the meaning set forth in Section 3(a).

     

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

     

    “Holder” shall have
the meaning given such term in Section 2.

     

    “Independent Third
Party” means any person (and/or “group” as defined in Section 13 of the
Securities Exchange Act of 1934, as amended, who, immediately prior to a
contemplated transaction, (a) does not beneficially own in excess of the 10% of
the Corporation’s issued and outstanding Common Equivalents (a “10% Owner”), (b) is
not a controlling, controlled by or under common control with any 10% Owner, (c)
is not the spouse or descendant (by birth or adoption) of any 10% Owner, or (d)
is not a trust for the benefit of (i) any 10% Owner, (ii) an entity controlling,
controlled by or under common control with any 10% Owner, and/or (iii) the
spouse or descendant (by birth or adoption) of any 10% Owner.

     

    “Junior Securities”
means the Common Stock, the Series A Convertible Preferred Stock and all other
Common Stock Equivalents of the Corporation other than those securities which
are explicitly senior or pari passu to the
Preferred Stock in dividend rights or redemption or liquidation
preference.

     

    “Limited Liquidation
Preference” shall have the meaning set forth in Section 5.

     

    “Liquidation” shall
have the meaning set forth in Section 5.

     

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

     

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

     

    “Original Issue Date”
means the date of the first issuance of any shares of the Preferred Stock
regardless of the number of transfers of any particular shares of Preferred
Stock and regardless of the number of certificates which may be issued to
evidence such Preferred Stock. 

     

    “Payments Due” shall
have the meaning set forth in the definition of Junior Securities.

     

    “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.

     

    “PIK Dividends” shall
have the meaning set forth in Section 3(a).

     

    “Preferred Stock”
shall have the meaning set forth in Section 2.

     

    “Purchase Agreement”
means the Securities Purchase Agreement, dated as of June 24, 2010, among the
Corporation and the original Holders, as amended, modified or supplemented from
time to time in accordance with its terms.

     

    “Securities” means the
Preferred Stock and the Underlying Shares.

     

    
      
         

      

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

     

    “Series A Convertible
Preferred Stock” means that series of preferred stock of the Corporation
designated as “Series A Convertible Preferred Stock” in Article V(D) of the
Corporation’s Amended and Restated Certificate of Incorporation as in effect on
the Original Issue Date.

     

    “Series B Directors”
shall have the meaning set forth in Section 4(a).

     

    “Share Delivery Date”
shall have the meaning set forth in Section 6(c).

     

    “Special Committee”
shall have the meaning set forth in Section 8.

     

    “Stated Value” shall
have the meaning set forth in Section 2, as the same may be increased pursuant
to Section 3 and as adjusted for reverse and forward stock splits, stock
dividends, reclassifications and the like after the Original Issue
Date.

     

    “Subscription Amount”
shall mean, as to each Holder, the aggregate amount to be paid for the Preferred
Stock purchased pursuant to the Purchase Agreement as specified below such
Holder’s name on the signature page of the Purchase Agreement and next to the
heading “Subscription Amount,” in United States dollars and in immediately
available funds.

     

    “Subsidiary” means any
subsidiary of the Corporation as set forth on Schedule 3.1(a) of the Purchase
Agreement and shall, where applicable, also include any direct or indirect
subsidiary of the Corporation formed or acquired after the date of the Purchase
Agreement.

     

    “Trading Day” means a
day on which the principal Trading Market is open for business.

     

    “Trading Market” means
any of the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the NYSE Amex, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board (or any successors to any of the
foregoing).

     

    “Transaction
Documents” means this Certificate of Designation, the Purchase Agreement,
the Registration Rights Agreement, all exhibits and schedules thereto and hereto
and any other documents or agreements executed in connection with the
transactions contemplated pursuant to the Purchase Agreement.

     

    “Transfer Agent” means
Transfer Online, Inc., the current transfer agent of the Company, with a mailing
address of 317 SW Alder Street, 2nd Floor,
Portland, OR  97204 and a facsimile number of (503) 227-6874, and any
successor transfer agent of the Corporation.

     

    “Underlying Shares”
means the shares of Common Stock issued and issuable upon conversion or
redemption of the Preferred Stock.

     

    “Voting Rights Class”
shall have the meaning set forth in Section 4(a).

     

    “Voting Rights Triggering
Event” shall mean the first to occur of (i) dividends on the Preferred
Stock being in arrears and unpaid with respect to two or more consecutive
quarterly Dividend Payment Periods, or with respect to three or more quarterly
Dividend Payment Periods (whether or not consecutive) and (ii) the fifth (5th)
anniversary of the Original Issue Date.

     

    
      
         

      

      
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    “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 as reported by Bloomberg 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 listed or 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 OTC Markets, Inc. (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 Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the Corporation, the
fees and expenses of which shall be paid by the Corporation.

     

    Section 2. Designation, Amount and Par
Value. The series of preferred stock established hereunder shall be
designated as Series B Convertible Preferred Stock (the “Preferred Stock”) and
the number of shares so designated shall be 150,000 (which shall not be subject
to increase without the written consent of the holders of the Preferred Stock
(each, a “Holder” and
collectively, the “Holders”) in
accordance with Section 4(b) hereof).  Each share of Preferred Stock
shall have a par value of $1.00 per share and a stated value equal to One
Hundred Dollars ($100) (the “Stated
Value”).

     

    Section 3. Dividends.

     

    (a) Dividends in Cash; PIK
Dividends.  Subject to the PIK Dividend (as defined below)
provisions in this Section 3(a), Holders shall be entitled to receive, and the
Corporation shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) of 7.00% per annum, payable quarterly
on January 1, April 1, July 1 and October 1, beginning on July 1, 2010 and each
Conversion Date (with respect only to Preferred Stock being converted) (each
such date, a “Dividend
Payment Date”) (if any Dividend Payment Date is not a Trading Day, the
applicable payment shall be due on the next succeeding Trading Day) in cash;
provided, however, with respect
to all such dividends due on or prior to December 31, 2011, such dividends shall
be payable in kind in the form of additional shares of Preferred Stock (each
such dividend, a “PIK
Dividend”); provided,
further, all dividends due after
December 31, 2011 must be paid solely in cash.  With respect to the
payment of any PIK Dividend, the number of shares of Preferred Stock to be
issued in payment of such PIK Dividend with respect to each outstanding share of
Preferred Stock shall be determined by dividing (i) the
amount of the PIK Dividend (were it paid in cash) by (ii) the Stated Value per share of
Preferred Stock.  To the extent that any PIK Dividend would result in
the issuance of a fractional share of Preferred Stock to any Holder, then the
amount of such fraction multiplied by the Stated Value shall be paid in cash
(unless there are no legally available funds with which to make such cash
payment, in which event such cash payment shall be made as soon as legally
possible thereafter).

     

    (b) Dividend Calculations. Dividends on
the Preferred Stock shall be calculated on the basis of a 360-day year,
consisting of twelve 30 calendar day periods, and shall accrue daily commencing
on the Original Issue Date, and shall be deemed to accrue from such date whether
or not earned or declared and whether or not there are profits, surplus or other
funds of the Corporation legally available for the payment of
dividends.

     

    
      
         

      

      
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    (c) Late Fees. Any dividends that are not
paid within 10 Trading Days following a Dividend Payment Date shall continue to
accrue and shall entail a late fee, which must be paid in cash, at the rate of
15% per annum or the lesser rate permitted by applicable law, which shall accrue
daily from the Dividend Payment Date through and including the date of actual
payment in full.

     

    (d) Restricted Payments. So long as any
shares of Preferred Stock are outstanding, neither the Corporation nor any
Subsidiary thereof shall redeem, purchase or otherwise acquire directly or
indirectly any Junior Securities (other than repurchases of Common Stock or
Common Stock Equivalents of departing officers and directors of the Corporation,
provided that such repurchases shall not exceed an aggregate of $100,000 in any
fiscal year for all officers and directors).  So long as any shares of
Preferred Stock are outstanding, neither the Corporation nor any Subsidiary
thereof shall directly or indirectly pay or declare any dividend or make any
distribution upon (other than a dividend or distribution described in Section 3
or dividends due and paid in the ordinary course on the Series A Convertible
Preferred Stock of the Corporation at such times when the Corporation is in
compliance with its payment and other obligations hereunder), nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities or shares pari passu with the
Preferred Stock.

     

    (e) Surplus.  The Corporation
acknowledges and agrees that the capital of the Corporation (as such term is
used in Section 154 of the Delaware General Corporation Law) in respect of the
Preferred Stock and any future issuances of the Corporation’s capital stock
shall be equal to the aggregate par value of such Preferred Stock or capital
stock, as the case may be, and that, on or after the date of the Purchase
Agreement, it shall not increase the capital of the Corporation with respect to
any shares of the Corporation’s capital stock issued and outstanding on such
date. The Corporation also acknowledges and agrees that it shall not create any
special reserves under Section 171 of the Delaware General Corporation Law
without the prior written consent of each Holder.

     

    Section 4. Voting Rights. The
shares of Preferred Stock shall have no voting rights except as set forth below
or as otherwise required by Delaware law from time to time:

     

    (a) Voting Rights Triggering
Events.  If and whenever at any time or times a Voting Rights
Triggering Event occurs, then the holders of shares of Preferred Stock, voting
as a single class consisting solely of shares Series B Convertible Preferred
Stock (the “Voting
Rights Class”), shall be entitled at the next regular or special meeting
of stockholders of the Company to elect two additional directors to the Board of
Directors (the “Series
B Directors”).  Upon the election of any such additional
directors, the number of directors that comprise the Board of Directors shall be
increased by such number of additional directors.  In connection with
the voting rights provided for in this Section 4(a), the following additional
provisions shall apply:

     

    
      
         

      

      
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    (i) Such
voting rights may be exercised at a special meeting of the Company’s
stockholders, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at each such annual meeting until (x) if the
Voting Rights Triggering Event is a failure to pay dividends, such time as all
dividends in arrears on the shares of Preferred Stock shall have been paid in
full, at which time or times such voting rights and the term of the directors
elected pursuant to Section 4(a) shall terminate or (y) if the Voting Rights
Triggering Event is occurrence of the fifth (5th) anniversary of the Original
Issue Date (even if a dividend failure has occurred and has been cured), such
time as the Voting Rights Class votes affirmatively to remove its
directors.  In the case of a special meeting of stockholders for the
purpose of electing the Series B Directors, the Corporation shall call such
meeting as promptly as possible, but not later than 60 days after receiving the
written demand (which, if submitted in connection with the occurrence of the
fifth (5th) anniversary of the Original Issue Date, may be submitted prior to
such anniversary such that the 60 day maximum period in which to hold the
special meeting can be made to end on or shortly after such fifth (5th)
anniversary) of holders of a majority of the outstanding shares of Preferred
Stock to hold such meeting.

     

    (ii) At
any meeting at which the holders of the Voting Rights Class shall have the right
to elect directors as provided herein, the presence in person or by proxy of the
holders of shares representing more than fifty percent (50%) in voting power of
the then outstanding shares of the Voting Rights Class shall be required and
shall be sufficient to constitute a quorum of such class for the election of
directors by such class. The affirmative vote of the holders of shares of
Preferred Stock constituting a majority of the shares of Preferred Stock present
at such meeting, in person or by proxy, shall be sufficient to elect any such
director.

     

    (iii) Any
director elected pursuant to the voting rights created under this Section 4(a)
shall hold office until the next annual meeting of stockholders (unless such
term was previously terminated pursuant to Section 4(a)(i)) and any vacancy in
respect of any such director shall be filled only by vote of the remaining
director so elected by holders of the Voting Rights Class, or if there be no
such remaining director, by the holders of shares of the Voting Rights Class at
the next annual meeting of stockholders. Upon any termination of such voting
rights, the term of office of all directors elected pursuant to this Section 4
shall terminate.

     

    (b) Negative Covenants.  So long
as any shares of Preferred Stock remain outstanding, unless a greater percentage
shall then be required by law, the Corporation shall not, and shall not permit
any of the Subsidiaries to, without the consent of the holders of a majority of
the outstanding shares of Preferred Stock, directly or indirectly: 

     

    (i)       
alter or change adversely the powers, preferences or rights given to the
Preferred Stock or alter or amend this Certificate of Designation,

     

    (ii)      
authorize, create or issue any class or series of stock (or issue additional
shares of Series A Convertible Preferred Stock) ranking as to dividends,
redemption or distribution of assets upon a Liquidation (as defined in Section
5) senior to, or otherwise pari passu with, the
Preferred Stock,

     

    (iii)    
 amend its certificate of incorporation, by-laws or other charter documents
(by merger or otherwise) in any manner that adversely affects any rights of the
Holders;

     

    (iv)    
 increase the number of authorized shares of Preferred Stock,

     

    
      
         

      

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

     

    (vi)    
 issue rights, options or warrants to all holders of Common Stock (and not
proportionately to the Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share that is lower than the VWAP on the
record date for the determination of stockholders entitled to receive such
rights, options or warrants;

     

    (vii)  
 distribute (other than as a dividend) to all holders of Common Stock (and
not proportionately to the Holders) evidences of its indebtedness or assets
(including cash and cash dividends) or rights or warrants to subscribe for or
purchase any security (other than Common Stock, which shall be subject to
Section 4(b)(vi)); or

     

    (viii)  
enter into any agreement with respect to any of the foregoing;

     

    provided, however, that for the avoidance of
doubt, the Corporation may authorize, increase the authorized amount of, or
issue any class or series of Junior Securities, without the consent of the
holders of the Preferred Stock, and in taking such actions the Company shall not
be deemed to have affected adversely the rights, preferences, privileges or
voting rights of holders of shares of Preferred Stock.

     

    (c) Votes Per Share.  In
exercising the voting rights set forth in Sections 4(a) and 4(b), each share of
Preferred Stock shall be entitled to one vote.

     

    Section 5. Liquidation; Deemed
Liquidation; Special Limited Preference to Series A Convertible Preferred
Stock. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary (a “Liquidation”),
subject to the prior distribution of the Limited Liquidation Preference (defined
below), the Holders shall be entitled to receive out of the assets, whether
capital or surplus, of the Corporation available to stockholders an amount per
share of Preferred Stock equal to the greater of (i) the Stated Value, plus
accrued but unpaid dividends, or (ii) such amount per share as would have been
payable had all shares of Preferred Stock been converted into Common Stock
pursuant to Section 6 hereof immediately prior to such Liquidation (the “Series
B Liquidation Preference”) , in each case plus any fees or liquidated damages
then due and owing thereon under this Certificate of Designation, and in each
case before any distribution or payment shall be made to the holders of any
Junior Securities (except that the first $1,095,000 in aggregate liquidation
preference shall, in any Liquidation, first be paid with respect to the Series A
Convertible Preferred Stock in accordance with the terms thereof as in existence
on the Original Issue Date (the “Limited Liquidation
Preference”); all other amounts payable with respect to the Series A
Convertible Preferred Stock shall be deemed payments to holders of Junior
Securities and shall be subject to the priorities in favor of the Preferred
Stock stated herein), and if the assets of the Corporation shall be insufficient
to pay in full such amounts, then, subject to the Limited Liquidation
Preference, the entire assets to be distributed to the Holders shall be ratably
distributed among the Holders in accordance with the respective amounts that
would be payable on such shares if all amounts payable thereon were paid in
full. After payment in full of the Series B Liquidation Preference to a Holder,
such Holder shall not be entitled to any further participation in any
distribution of assets of the Corporation. A Change of Control Transaction shall
be deemed a Liquidation, unless a majority of the outstanding shares of
Preferred Stock elect in writing delivered to the Corporation prior to such
Change of Control to not treat such Change of Control as a
Liquidation.  The Corporation shall mail written notice of any such
Liquidation, not less than 20 days prior to the payment date stated therein, to
each Holder.

     

    
      
         

      

      
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    Section 6. Conversion.

     

    (a) Conversions at Option of
Holder; and Mandatory Conversion.

     

    (i) Conversion at the Option of
the Holder. Each share of Preferred Stock shall be convertible, at any
time and from time to time from and after the Original Issue Date at the option
of the Holder thereof, into that number of shares of Common Stock (subject to
the limitations set forth in Section 6(d)) determined by dividing the Stated
Value of such share of Preferred Stock by the Conversion
Price.  Holders shall effect conversions by providing the Corporation
with the form of conversion notice attached hereto as Annex A (a “Notice of
Conversion”).  Each Notice of Conversion shall specify the
number of shares of Preferred Stock to be converted, the number of shares of
Preferred Stock owned prior to the conversion at issue, the number of shares of
Preferred Stock owned subsequent to the conversion at issue and the date on
which such conversion is to be effected, which date may not be prior to the date
the applicable Holder delivers by facsimile such Notice of Conversion to the
Corporation (such date, the “Conversion
Date”).  If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
to the Corporation is deemed delivered hereunder.  The calculations
and entries set forth in the Notice of Conversion shall control in the absence
of manifest or mathematical error.  To effect conversions of shares of
Preferred Stock, a Holder shall not be required to surrender the certificate(s)
representing the shares of Preferred Stock to the Corporation unless all of the
shares of Preferred Stock represented thereby are so converted, in which case
such Holder shall deliver the certificate representing such shares of Preferred
Stock promptly following the Conversion Date at issue. Shares of Preferred Stock
converted into Common Stock or redeemed in accordance with the terms hereof
shall be canceled and shall not be reissued.  The Corporation shall
maintain records showing the number of shares of Preferred Stock converted for
each Holder and the applicable Conversion Date.  Each Holder and any
assignee, by acceptance of a certificate for the Preferred Stock, acknowledges
and agrees that, by reason of the provisions of this paragraph, the number of
shares of Preferred Stock represented by such certificate may at any given time
be less than the amount stated on the face thereof.

     

    
      
         

      

      
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    (ii)
Mandatory
Conversion. Each share of Preferred Stock will be automatically
converted, without cost and on the terms of this Section 6, into the number of
whole shares of Common Stock into which the share of Preferred Stock would be
convertible under Section 6(a)(1) above when and if, at any time on or after the
Original Issue Date, either (I) both of
the following conditions are satisfied: (x) the VWAP of the Common Stock for all
of the Trading Days during any six consecutive month period is equal to or in
excess of $1.50 per share, and (y) the number of shares traded during such
period averages at least 50,000 shares of Common Stock per Trading Day (with
both the price and volume requirements being subject to proportional adjustment
in the even of any subsequent stock splits, stock combinations or stock
dividends), or
(II) the Corporation’s operating income (excluding the effects, whether positive
or negative, or any non-cash expenses or gains) is positive for at least four
consecutive fiscal quarters and the Corporation’s cumulative operating income
(excluding the effects, whether positive or negative, or any non-cash expenses
or gains) during such four fiscal quarters is at least $5,000,000, in each case
determining operating income in accordance with generally accepted accounting
principles from the Corporation’s audited financial statements audited by its
independent registered public accounting firm and covering the periods in
question (and in the event of any disagreement as to compliance with this clause
(II), such independent registered public accounting firm’s written determination
shall be binding) and, in the case of either clause (I) or clause (II), the
Corporation shall have provided written notice to all Holders at least 20 days
prior to the conversion setting forth in reasonable detail the calculations on
which the conversion determination is based.  Any dividends or
distributions accrued or declared but unpaid at the time of conversion with
respect to the Preferred Stock converted will be paid to the holder of Common
Stock issued on conversion of the Preferred Stock (unless there are no legally
available funds with which to make such cash payment, in which event such cash
payment shall be made as soon as legally possible thereafter); and further
provided that the failure to pay such dividend or distribution shall not
preclude the automatic conversion of such Preferred Stock unless a Voting Rights
Triggering Event has previously occurred.

     

    (b) Conversion Price. The
conversion price for the Preferred Stock shall equal $0.75, subject to
adjustment herein (the “Conversion
Price”).

     

    (c) Mechanics of
Conversion

     

    (i) Delivery of Certificate Upon
Conversion. Not later than three (3) Trading Days after each Conversion
Date (the “Share
Delivery Date”), the Corporation shall deliver, or cause to be delivered,
to the converting Holder a certificate or certificates representing the
Conversion Shares being acquired upon the conversion of the Preferred
Stock.  The Corporation shall use its best efforts to deliver any
certificate or certificates required to be delivered by the Corporation under
this Section 6 electronically through the Depository Trust Company or another
established clearing corporation performing similar functions.

     

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

     

    
      
         

      

      
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    (iii)
Obligation
Absolute. The Corporation’s obligation to issue and timely deliver the
Conversion Shares upon conversion of Preferred Stock in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by a Holder to enforce the same, any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by such Holder or any other
Person of any obligation to the Corporation or any violation or alleged
violation of law by such Holder or any other person, and irrespective of any
other circumstance which might otherwise limit such obligation of the
Corporation to such Holder in connection with the issuance of such Conversion
Shares; provided, however, that such
delivery shall not operate as a waiver by the Corporation of any such action
that the Corporation may have against such Holder.  In the event a
Holder shall elect to convert any or all of the Stated Value of its Preferred
Stock, the Corporation may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with such Holder has been engaged in
any violation of law, agreement or for any other reason, unless an injunction
from a court, on notice to Holder, restraining and/or enjoining conversion of
all or part of the Preferred Stock of such Holder shall have been sought and
obtained, and, if the Corporation sought such injunction, the Corporation posts
a surety bond for the benefit of such Holder in the amount of 150% of the Stated
Value of Preferred Stock which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the
underlying dispute and the proceeds of which shall be payable to such Holder to
the extent it obtains judgment.  In the absence of such injunction,
the Corporation shall issue Conversion Shares and, if applicable, cash, upon a
properly noticed conversion.  If the Corporation fails to take those
actions within its control to deliver to a Holder such certificate or
certificates pursuant to Section 6(c)(i) on the second Trading Day after the
Share Delivery Date applicable to such conversion, the Corporation shall pay to
such Holder, in cash, as liquidated damages and not as a penalty, for each
$10,000 of Stated Value of Preferred Stock being converted, $25 per Trading Day
for each Trading Day after such second Trading Day after the Share Delivery Date
until such certificates are delivered or Holder rescinds such
conversion.  Nothing herein shall limit a Holder’s right to pursue
actual damages for the Corporation’s failure to deliver Conversion Shares in
accordance with its obligations as specified herein and such Holder shall have
the right to pursue all remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief.  The exercise of any such rights shall not prohibit
a Holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law.

     

    (iv)
Reservation of Shares
Issuable Upon Conversion. The Corporation covenants that it will at all
times reserve and keep available out of its authorized and unissued shares of
Common Stock for the sole purpose of issuance upon conversion of the Preferred
Stock, as herein provided, free from preemptive rights or any other actual
contingent purchase rights of Persons other than the Holder (and the other
holders of the Preferred Stock), not less than such aggregate number of shares
of the Common Stock as shall (subject to the terms and conditions set forth in
the Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 7) upon the conversion of the then outstanding shares of
Preferred Stock. The Corporation covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable.

     

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

     

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

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (d) Beneficial Ownership
Limitation. The Corporation shall not effect any conversion of the
Preferred Stock, and a Holder shall not have the right to convert any portion of
the Preferred Stock, to the extent that, after giving effect to the conversion
set forth on the applicable Notice of Conversion, such Holder (together with
such Holder’s Affiliates, and any Persons acting as a group together with such
Holder or any of such Holder’s Affiliates) would beneficially own in excess of
the Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
such Holder and its Affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Preferred Stock with respect to which such
determination is being made, but shall exclude the number of shares of Common
Stock which are issuable upon (i) conversion of the remaining, unconverted
Stated Value of Preferred Stock beneficially owned by such Holder or any of its
Affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Corporation subject to a limitation on
conversion or exercise analogous to the limitation contained herein (including,
without limitation, the Preferred Stock) beneficially owned by such Holder or
any of its Affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 6(d), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. To the extent that the limitation contained in this
Section 6(d) applies, the determination of whether the Preferred Stock is
convertible (in relation to other securities owned by such Holder together with
any Affiliates) and of how many shares of Preferred Stock are convertible shall
be in the sole discretion of such Holder, and the submission of a Notice of
Conversion shall be deemed to be such Holder’s determination of whether the
shares of Preferred Stock may be converted (in relation to other securities
owned by such Holder together with any Affiliates) and how many shares of the
Preferred Stock are convertible, in each case subject to the Beneficial
Ownership Limitation. To ensure compliance with this restriction, each Holder
will be deemed to represent to the Corporation each time it delivers a Notice of
Conversion that such Notice of Conversion has not violated the restrictions set
forth in this paragraph and the Corporation shall have no obligation to verify
or confirm the accuracy of such determination. In addition, a determination as
to any group status as contemplated above shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder. For purposes of this Section 6(d), in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as stated in the most recent of the
following: (i) the Corporation’s most recent periodic or annual report filed
with the Commission, as the case may be, (ii) a more recent public announcement
by the Corporation or (iii) a more recent written notice by the Corporation or
the Transfer Agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Corporation shall
within two Trading Days confirm orally and in writing to such Holder the number
of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Corporation, including the
Preferred Stock, by such Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was reported.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    The “Beneficial
Ownership Limitation”
shall be 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock
issuable upon conversion of Preferred Stock held by the applicable Holder. A
Holder, upon not less than 61 days’ prior notice to the Corporation, may
increase or decrease the Beneficial Ownership Limitation provisions of this
Section 6(d) applicable to its Preferred Stock provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon conversion of this Preferred Stock held by the
Holder and the provisions of this Section 6(d) shall continue to apply. Any such
increase or decrease will not be effective until the 61 st  day after such notice is
delivered to the Corporation and shall only apply to such Holder and no other
Holder. The provisions of this paragraph shall be construed and implemented in a
manner otherwise than in strict conformity with the terms of this Section 6(d)
to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation contained herein
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of Preferred Stock.

     

    Section 7. Certain
Adjustments.

     

    (a) Stock Dividends and Stock
Splits. If the Corporation, at any time while this Preferred Stock is
outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any
other Common Stock Equivalents (which, for avoidance of doubt, shall not include
any shares of Common Stock issued by the Corporation upon conversion of, or
payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding
shares of Common Stock into a larger number of shares, (iii) combines (including
by way of a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares, or (iv) issues, in the event of a reclassification of
shares of the Common Stock, any shares of capital stock of the Corporation, then
the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding any treasury shares of
the Corporation) outstanding immediately before such event, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this Section 7(a)
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

     

    (b) Calculations. All
calculations under this Section 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 7,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
any treasury shares of the Corporation) issued and outstanding.

     

    (c) Notice to the
Holders.

     

    (i) Adjustment to Conversion
Price. Whenever the Conversion Price is adjusted pursuant to any
provision of this Section 7, the Corporation shall promptly deliver to each
Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (ii)
Notice to Allow
Conversion by Holder. If (A) the Corporation shall declare a dividend (or
any other distribution in whatever form) on the Common Stock, (B) the
Corporation shall declare a special nonrecurring cash dividend on or a
redemption of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Corporation shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to
which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (E) the
Corporation shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, then, in each case,
the Corporation shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Preferred Stock, and shall cause to be
delivered to each Holder at its last address as it shall appear upon the stock
books of the Corporation, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided hereunder constitutes, or
contains, material, non-public information regarding the Corporation or any of
the Subsidiaries, the Corporation shall simultaneously file such notice with the
Commission pursuant to a Current Report on Form 8-K. The Holder shall remain
entitled to convert the Conversion Amount of this Preferred Stock (or any part
hereof) during the 20-day period commencing on the date of such notice through
the effective date of the event triggering such notice except as may otherwise
be expressly set forth herein.

     

    Section
8. Liquidity
Rights.  Upon the occurrence of a Voting Rights Triggering
Event and the election of the Series B Directors, then, in addition to any other
rights or remedies the Holders may have in connection with any failure to pay
dividends, the Corporation shall within two (2) business days of such event
create a special committee of the Board of Directors consisting of not more than
3 directors, of which two (2) must be the Series B Directors (the “Special Committee”)
and promptly take the following other actions: (a) grant the Special Committee,
through appropriate action of the Board of Directors, sole and exclusive
authority and power, on behalf of the Corporation, to investigate and negotiate
a sale of the Company or other Change of Control transaction or strategic
alternative thereto, including the corporate power and authority to, on behalf
of the Corporation, execute, enter, deliver and perform all applicable
transaction agreements (including merger agreements, asset purchase agreements,
etc.), that such Special Committee deems advisable, and to cause the Corporation
to call a special meeting of stockholders to consider the proposed transaction,
submit the proposed transaction to the stockholders for consideration at such
special meeting, include in any proxy materials the recommendation of the
special committee (along with any other appropriate materials) and, subject to
any applicable stockholder approval requirements, consummate any such
transaction approved by the Special Committee, (b) grant the Special Committee
the right and resources to hire its own independent counsel and investment
bankers at the Corporation’s sole expense, (c) provide the Special Committee
members with reasonable compensation for their services commensurate with
existing board of directors compensation for meetings of committees, (d) enable
the Special Committee to have confidential, attorney client privileged
discussions with the Special Committee’s counsel and (e) cooperate with the
Special Committee so as to enable it to carry out its plans, and generally grant
the Special Committee such rights, powers, resources and protections as a full
board of directors would have in connection with similar
transactions.  The Special Committee shall remain in existence so long
as the Voting Rights Class continues to have the right to elect the Series B
Directors pursuant to Section 4(b).  Notwithstanding anything in this
Section 9 to the contrary, the Special Committee shall have no power to approve
any transaction with any Affiliate of any member of the Special
Committee.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    Section 9. Miscellaneous.

     

    (a) Notices. Any and all
notices or other communications or deliveries to be provided by the Holders
hereunder including, without limitation, any Notice of Conversion, shall be in
writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Corporation, at 5
Caufield Place, Suite 102, Newtown, PA  18940, Attention: Corporate
Secretary, facsimile number (215) 579-6937, or such other facsimile number or
address as the Corporation may specify for such purposes by notice to the
Holders delivered in accordance with this Section 9. Any and all notices or
other communications or deliveries to be provided by the Corporation hereunder
shall be in writing and delivered personally, by facsimile, or sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number or address of such Holder appearing on the books of the
Corporation, or if no such facsimile number or address appears on the books of
the Corporation, at the principal place of business of such Holder, as set forth
in the Purchase Agreement. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth in this Section prior to 5:30 p.m. (New York City
time) on any date, (ii) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth in this Section on a day that is not a Trading Day or later than 5:30
p.m. (New York City time) on any Trading Day, (iii) the second Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.

     

    (b) Absolute Obligation.
Except as expressly provided herein, no provision of this Certificate of
Designation shall alter or impair the obligation of the Corporation, which is
absolute and unconditional, to pay liquidated damages and accrued interest, as
applicable, on the shares of Preferred Stock at the time, place, and rate, and
in the coin or currency, herein prescribed.

     

    (c) Lost or Mutilated Preferred
Stock Certificate. If a Holder’s Preferred Stock certificate shall be
mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated
certificate, or in lieu of or in substitution for a lost, stolen or destroyed
certificate, a new certificate for the shares of Preferred Stock so lost, stolen
or destroyed, but only upon receipt of evidence of such loss, theft or
destruction of such certificate, and of the ownership hereof reasonably
satisfactory to the Corporation (including indemnity or security reasonably
satisfactory to the Corporation).

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

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

     

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

     

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

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

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

     

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

     

    (i) Status of Converted or
Redeemed Preferred Stock. Shares of Preferred Stock may only be issued
pursuant to the Purchase Agreement. If any shares of Preferred Stock shall be
converted, redeemed or reacquired by the Corporation, such shares shall resume
the status of authorized but unissued shares of preferred stock and shall no
longer be designated as Series B Convertible Preferred Stock.

     

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

     

    RESOLVED,
FURTHER, that the Chairman, the president or any vice-president, and the
secretary or any assistant secretary, of the Corporation be and they hereby are
authorized and directed to prepare and file this Certificate of Designation of
Preferences, Rights and Limitations in accordance with the foregoing resolution
and the provisions of Delaware law.

     

    IN
WITNESS WHEREOF, the undersigned have executed this Certificate this 24th day of
June, 2010.

     

    
      	
              /s/ Steven H. Kane

            	 
      	
              /s/ Marc L. Rose

            
	 
      	 
      	 
      
	
              Name:
      Steven H. Kane

            	 
      	
              Name:
      Marc L. Rose

            
	
              Title:
      Chief Executive Officer

            	 
      	
              Title:
      Secretary

            

    

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    ANNEX
A

     

    NOTICE OF
CONVERSION

     

    (TO BE
EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED
STOCK)

     

    The
undersigned hereby elects to convert the number of shares of Series B
Convertible Preferred Stock indicated below into shares of common stock, par
value $1.00 per share (the “Common Stock”), of
Patient Safety Technologies, Inc., a Delaware corporation (the “Corporation”),
according to the conditions hereof, as of the date written below. If shares of
Common Stock are to be issued in the name of a Person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as may be
required by the Corporation in accordance with the Purchase Agreement. No fee
will be charged to the Holders for any conversion, except for any such transfer
taxes. 

     

    Conversion
calculations:

     

    Date to
Effect

    Conversion:

    

    Number of
shares of

    Preferred
Stock

    owned
prior to

    Conversion:

    

    Number of
shares of

    Preferred
Stock to be

    Converted:

    

    Stated
Value of

    shares of
Preferred

    Stock to
be

    Converted:

    

    Number of
shares

    of Common
Stock

    to be
Issued:

    

    
      	
              Applicable

            	 
      
	
              Conversion
      Price:

            	
              $0.75

            

    

     

    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    

    Number of
shares of

    Preferred
Stock

    subsequent
to

    Conversion:

    

    Address
for

    Delivery:

    

    or

     

    DWAC
Instructions*:

    

    Name of
DTC

    Participant
(Holder’s

    prime
broker-dealer):

    

    DTC
Participant

    Number:

    

    Name of
Account at

    DTC
Participant to

    be
credited with the

    shares:

    

    Account
Number at

    DTS
Participant to

    be
credited with the

    shares:

    

    *  You must contact your broker-dealer
and ask them to initiate the DWAC or you will not receive the
shares.

    

    
      	 
      	
                

            
	 
      	
              (Print
      Name of Holder)

            
	 
      	 
      
	 
      	
              By:

            	 
      
	 
      	 
      	
                

            
	 
      	 
      	
              Name:

            
	 
      	 
      	 
      
	 
      	 
      	
              Title:

            

    

     

    
      
         

      

      
        A-2

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