Document:

Exhibit
10.30

 

AGREEMENT FOR THE SALE

AND PURCHASE OF THE

GAITHERSBURG BUSINESS

 

This Agreement for the Sale and
Purchase of the Gaithersburg Business (this “Agreement”) is made and entered
into this 8th day of October, 2003, effective as of the Effective Time by and
between On-Site Sourcing, Inc., a Delaware corporation (“Seller”), and Colornet
Printing and Graphics, Inc., a Maryland close corporation (“Buyer”).

 

RECITALS

 

A.            Seller,
which has facilities located in seven states, provides digital imaging, reprographic
and digital printing services throughout the United States of America (the
“Overall Business”).

 

B.            Seller’s
digital printing and off-set printing business operated located at 18630
Woodfield Road, Gaithersburg, Maryland 20879-4711 (the “Gaithersburg
Business”), has been operated by Seller as a separate business segment from the
Overall Business.

 

C.            Seller
desires to sell, and Buyer desires to purchase, the Gaithersburg Business as a
going concern effective as of the Effective Time for the consideration, on the
terms, and subject to the conditions set forth in this Agreement.

 

The parties, intending to be legally
bound, hereby agree as follows:

 

ARTICLE 1.  DEFINITIONS AND USAGE

 

1.1          DEFINITIONS.

 

The definitions of certain capitalized
terms and variations thereof used in this Agreement are as set forth on Schedule 1.1.

 

1.2          USAGE.

 

(a)           In this Agreement, unless a
clear contrary intention appears:

 

(i)            the
singular number includes the plural number and vice versa;

(ii)           reference to any Person includes
such Person’s successors and assigns but, if applicable, only if such
successors and assigns are not prohibited by this Agreement, and reference to a
Person in a particular capacity excludes such Person in any other capacity or
individually;

(iii)          reference to any gender includes
each other gender;

(iv)          reference to any agreement,
document or instrument means such agreement, document or instrument as amended,
modified or supplemented and in effect from time to time in accordance with the
terms thereof;

 

 

(v)           reference to any Legal
Requirement means such Legal Requirement as amended, modified, codified,
replaced or reenacted, in whole or in part, and in effect from time to time,
including rules and regulations promulgated thereunder, and reference to any
section or other provision of any Legal Requirement means that provision
of such Legal Requirement from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or reenactment
of such section or other provision;

(vi)          “hereunder,” “hereof,” “hereto,”
and words of similar import shall be deemed references to this Agreement as a
whole and not to any particular Article, Section or other provision
hereof;

(vii)         “including” (and with
correlative meaning “include”) means including without limiting the generality
of any description preceding such term;

(viii)        “or”
is used in the inclusive sense of “and/or”;

(ix)           with respect to the
determination of any period of time, “from” means “from and including” and “to”
means “to but excluding”; and

(x)            references
to documents, instruments or agreements shall be deemed to refer as well to all
addenda, exhibits, or schedules thereto.

 

(b)           Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, and all
accounting determinations hereunder shall be made, in accordance with GAAP.

 

(c)           This Agreement was negotiated by
the parties with the benefit of legal representation, and any rule of
construction or interpretation otherwise requiring this Agreement to be
construed or interpreted against any party shall not apply to any construction
or interpretation hereof.

 

ARTICLE 2.  SALE AND TRANSFER OF ASSETS

 

2.1          ASSETS TO BE
SOLD.  Upon
the terms and subject to the conditions set forth in this Agreement, at the
Closing but effective as of the Effective Time, Seller shall sell, convey,
assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire
from Seller, free and clear of any Encumbrances other than Permitted
Encumbrances, the Gaithersburg Business as a going concern, including all of
Seller’s right, title and interest in and to all of Seller’s property and
assets, real, personal or mixed, tangible and intangible, of every kind and
description, which were at the Effective Time (or which at any time during the
period from September 24, 2003, to the Effective Time were) located at the
Gaithersburg Facility or used in the Gaithersburg Business, including those
assets used in the preparation, copying, printing, binding, drilling, labeling,
collating, assembling and sale of its digital printing and off-set printing
products and the furnishing of related services to customers (including graphic
design, mailing, special finishing, storage, fulfillment and delivery) as well
as any goodwill associated therewith, including the following (but excluding
the Excluded Assets):

 

(a)           the Gaithersburg Lease,
including those items listed on Schedule 2.1(a);

(b)           all Gaithersburg Tangible
Personal Property, including those items listed on Schedule 2.1(b);

(c)           all Gaithersburg Software which
was located at the Gaithersburg Facility on or after September 24, 2003,
including those listed on Schedule 2.1(c);

 

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(d)           all Gaithersburg Inventories;

(e)           all Gaithersburg Contracts,
including those Contracts with customers of the Gaithersburg Business listed on
Schedule 2.1(e)(i) and those Contracts with vendors or suppliers of
the Gaithersburg Business listed on Schedule 2.1(e)(ii), and all
outstanding offers or solicitations made by or to Seller to enter into any
Contract related to the Gaithersburg Business;

(f)            all
Gaithersburg Government Authorizations, in each case if and to the extent
transferable to Buyer;

(g)           all Gaithersburg Records;

(h)           all Gaithersburg Intangible
Rights and Property;

(i)            all
Gaithersburg Claims;

(j)            the
right to prepaid expense with respect to Heidelberg Service Contract 700006240
for Heidelberg QuickMaster DI 46-4 (PLUS VERSION) 991225, Serial No. 991225;
and

(k)           all other properties and assets
of every kind, character and description, tangible or intangible, owned by
Seller and used or held for use in connection with the Gaithersburg Business,
whether or not similar to the items specifically set forth above.

 

All of the property and assets to be
transferred to Buyer hereunder are herein referred to collectively as the
“Assets.”

 

Notwithstanding the foregoing, the
transfer of the Assets pursuant to this Agreement shall not include the
assumption of any Liability arising out of or related to the Assets unless
Buyer expressly assumes that Liability pursuant to Section 2.4(a).

 

2.2          EXCLUDED ASSETS.  Notwithstanding anything to the
contrary contained in Section 2.1 or elsewhere in this Agreement, all
assets of the Seller not specifically identified in Section 2.1
(collectively, the “Excluded Assets”) are not part of the sale and purchase
contemplated hereunder, are excluded from the Assets, and shall remain the
property of Seller after the Effective Time. Notwithstanding anything to the
contrary contained in Section 2.1 or elsewhere in this Agreement, the
Excluded Assets shall also include, without limitation, the following:

 

(a)           all cash, short-term investments
and other cash equivalents as of the Effective Time;

(b)           all Accounts Receivable which
arose before the Effective Time;

(c)           all rights to payment from
customers of Seller arising out of the Gaithersburg Business which (i) do not
constitute Accounts Receivable which arose before the Effective Time, (ii)
relate to products which were substantially completed but which were not been
shipped to or received by the customer at the Effective Time, and (iii) are
identified on Schedule 2.2(c), including any claim, remedy or other
right related thereto;

(d)           all Gaithersburg Tangible
Personal Property which was consumed, expended or sold by Seller in the
Ordinary Course of Business from September 24, 2003 to the Effective Time;

(e)           all Gaithersburg Inventories
consumed, expended or sold by Seller from September 24, 2003, to the
Effective Time and any products described in Section 2.2(c)(ii);

(f)            all
Contracts with customers as to which Seller fully performs its obligations
prior to the Effective Time, all Contracts with customers as to which Seller
has been paid in whole or in part, or has accrued an Account Receivable, prior
to or at the Effective Time, and all Contracts with

 

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customers as to which Seller is
entitled to any payment under Section 2.2(c) after the Effective Time;

(g)           all Gaithersburg Intangible Rights
and Property sold by Seller in the Ordinary Course of Business from
September 24, 2003, to the Effective Time, and all Gaithersburg Intangible
Property Rights and Property the Seller’s Contract for which expired or
terminated in the Ordinary Course of Business prior to the Effective Time;

(h)           all Gaithersburg Claims (i) for
refund of Taxes and other governmental charges of whatever nature, and (ii)
that are collected by, satisfied or paid to the Seller prior to the Effective
Time;

(i)            all
rights of Seller under this Agreement, the Bill of Sale, the Security
Agreement, the Lender Subordination Agreement, the Gaithersburg Lease
Assignment, the Assignment and Assumption Agreement, and the Promissory Note;

(j)            all
rights to the name On-Site Sourcing and any variations thereof and any
trademarks or trade names related thereto;

(k)           any asset or right relating to
the any of the Retained Liabilities; and

(l)            the
assets listed on Schedule 2.2(l).

 

2.3          CONSIDERATION.  The consideration for the Assets
(the “Purchase Price”) will be (a) One Million Four Hundred Twenty-five
Thousand Dollars ($1,425,000.00) and (b) the assumption of the Assumed
Liabilities.  In accordance with
Section 2.7(b), at the Closing, the Purchase Price shall be delivered by
Buyer to Seller as follows: (a) Nine Hundred Twenty-five Thousand Dollars
($925,000) by wire transfer, cashier’s check or certified check, as set forth
in Section 2.7(b)(i); (b) Five Hundred Thousand Dollars ($500,000.00)
payable in the form of the Promissory Note (and the corresponding grant of a
security interest); and (c) the balance of the Purchase Price by the execution
and delivery of the Assignment and Assumption Agreement.

 

2.4          LIABILITIES.

 

(a)           On the Closing Date, but
effective as of the Effective Time, Buyer shall assume sole responsibility for
and agree to retain, pay, perform or discharge only the following Liabilities
of Seller (the “Assumed Liabilities”):

 

(i)            any
Liability arising after the Effective Time under any of the Assets;

(ii)           any Liability of Buyer arising
out of or relating to Buyer’s Breach of this Agreement, the Bill of Sale, the
Security Agreement, the Lender Subordination Agreement, the Gaithersburg Lease
Assignment, the Assignment and Assumption Agreement, or the Promissory Note;
and

(iii)          fifty percent (50%) of the
Maryland sales and use tax due and payable with respect to the Contemplated
Transactions.

 

(b)           The Retained Liabilities shall
remain the sole responsibility of and shall be retained, paid, performed and
discharged solely by Seller. “Retained Liabilities” shall mean every Liability
of Seller other than the Assumed Liabilities, including:

 

(i)            all
trade accounts payable, including all trade accounts payable arising out of the
Gaithersburg Business, prior to the Effective Time;

 

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(ii)           all Liability under the
Gaithersburg Lease arising prior to the Effective Time, including any Liability
arising out of or relating to a Breach that occurred prior to the Effective
Time (subject to the Gaithersburg Lease Assignment);

(iii)          all Liability arising out of or
related to any Breach that occurred prior to the Effective Time under, arising
out of or related to any Asset;

(iv)          all Liability under, arising out
of or related to any Excluded Asset, including any Liability arising out of or
relating to Seller’s loan agreements, credit facilities or any security
interest related thereto;

(v)           all Liability arising out of or
relating to products or services of Seller to the extent prepared, provided or
sold prior to the Effective Time, including under any warranty given by Seller
with respect to such products or services, other than to the extent assumed
under Section 2.4(a);

(vi)          all Liability for Taxes,
including (A) any Taxes arising as a result of Seller’s operation of its
business or ownership of the Assets prior to the Effective Time, (B) any Taxes
that will arise as a result of the sale of the Assets pursuant to this
Agreement, other than to the extent assumed under Section 2.4(a)(iii), and
(C) any deferred Taxes of any nature;

(vii)         any Liability under any Contract
not assumed by Buyer under Section 2.4(a), including any Liability arising
out of or relating to Seller’s loan agreements, credit facilities or any
security interest related thereto;

(viii)        any Environmental,
Health and Safety Liabilities arising out of or relating to the operation of
Seller’s business (including the Gaithersburg Business prior to the Effective
Time only) or Seller’s leasing, ownership or operation of real property
(including the Gaithersburg Lease prior to the Effective Time only), subject to
the Gaithersburg Lease Assignment;

(ix)           any Liability under the Seller’s
Employee Plans, whether or not affected employees are hired by Buyer;

(x)            any
Liability arising prior to or at the Effective Time, or arising out of or
related to the Contemplated Transactions (excluding Buyer’s employment of or
offer to employ any Seller employee after the Effective Time), under or
relating to payroll, vacation, sick leave, workers’ compensation, unemployment
benefits, pension benefits, employee stock option or profit-sharing plans,
health care plans or benefits or any other employee plans or benefits of any
kind for Seller’s employees or former employees or both maintained by Seller,  including any Liability under COBRA, whether
or not affected employees are hired by Buyer;

(xi)           any Liability arising prior to
or at the Effective Time, or arising out of or related to the Contemplated
Transactions (excluding Buyer’s employment of any Seller employee after the
Effective Time), under any employment, severance, retention or termination
agreement with any employee of Seller or any of its Related Persons, whether or
not affected employees are hired by Buyer;

(xii)          any Liability arising prior to
or at the Effective Time, or arising out of or related to the Contemplated
Transactions, arising out of or relating to any employee grievance, whether or
not the affected employees are hired by Buyer, so long as the foregoing are not
affected by actions taken by Buyer which are not contemplated by this
Agreement;

 

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(xiii)         any
Liability to indemnify, reimburse or advance amounts to any officer, director,
employee or agent of Seller;

(xiv)        any Liability to distribute to
any of Seller’s shareholders or otherwise apply all or any part of the
consideration received hereunder;

(xv)         any
Liability arising out of any Proceeding pending as of the Effective Time;

(xvi)        any Liability arising out of any
Proceeding commenced after the Effective Time 
and arising out of or relating to any occurrence or event happening
prior to the Effective Time;

(xvii)       any
Liability arising out of or resulting from Seller’s compliance or noncompliance
with any Legal Requirement or Order of any Governmental Body;

(xviii)      any
Liability of Seller under this Agreement or any other document executed in
connection with the Contemplated Transactions;

(xix)         any Liability of Seller based
upon Seller’s acts or omissions occurring after the Effective Time; and

(xx)          any Liability of Seller for
brokerage or finders’ fees or other similar payments in connection with the
sale of the Gaithersburg Business or the Assets or the Contemplated
Transactions, including to any Person identified on Schedule 3.19.

 

2.5          ALLOCATION.  The Purchase Price shall be
allocated in accordance with Exhibit 2.5. After the Closing, the parties
shall make consistent use of the allocation, fair market value and useful lives
specified in Exhibit 2.5 for all Tax purposes and in all filings,
declarations and reports with the IRS in respect thereof, including the reports
required to be filed under Section 1060 of the Code. Buyer shall prepare
and deliver IRS Form 8594 to Seller within ninety (90) days after the Closing
Date to be filed with the IRS. In any Proceeding related to the determination
of any Tax, neither Buyer nor Seller shall contend or represent that such
allocation is not a correct allocation.

 

2.6          CLOSING.  The purchase and sale provided
for in this Agreement (the “Closing”) will take place at the offices of Buyer’s
counsel Shulman, Rogers, Gandal, Pordy & Ecker, P.A., 11921 Rockville Pike,
Third Floor, Rockville, Maryland 20852, commencing at 3:00 p.m. (local time)
on  October 8, 2003, unless Buyer
and Seller otherwise agree.

 

2.7          CLOSING OBLIGATIONS.  In addition to any other
documents to be delivered under other provisions of this Agreement, at the
Closing:

 

(a)           Seller shall deliver to Buyer,
together with funds sufficient to pay all Taxes necessary for  the transfer, filing or recording thereof
(excluding any Maryland sales and use tax, which is governed by
Section 2.7(d) below):

 

(i)            an
assignment and assumption agreement in the form of Exhibit 2.7(a)(i) to
transfer the Gaithersburg Lease from Seller to Buyer with the consent of the
Landlord (the “Gaithersburg Lease Assignment”), executed by Seller and
Landlord;

(ii)           a bill of sale for all of the
Assets other than the Gaithersburg Lease and the Gaithersburg Intellectual
Property Assets in the form of Exhibit 2.7(a)(ii) (the “Bill of Sale”),
executed by Seller;

 

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(iii)          an assignment of the
Gaithersburg Intellectual Property Assets in the form of Exhibit 2.7(a)(iii),
which assignment shall also contain Buyer’s undertaking and assumption of the
Assumed Liabilities (the “Assignment and Assumption Agreement”), executed by
Seller;

(iv)          such other deeds, bills of sale,
assignments, certificates of title, documents 
and other instruments of transfer and conveyance as may reasonably be
requested by Buyer, each in form and substance satisfactory to Buyer and its
legal counsel and executed by Seller;

(v)           a security agreement between
Buyer, as the debtor, and Seller, as the secured party, in the form of Exhibit
2.7(a)(v) (the “Security Agreement”), executed by Seller;

(vi)          a “Subordination of Debt
Agreement” between Seller, as the subordinating creditor, and People’s Capital
and Leasing Corp. (the “Lender”), as the senior creditor, with the assent of
Buyer, and a lien subordination letter from Seller to Lender, whereby, in
general and among other things, Seller agrees to the subordination of Seller’s
security interests to Lender’s security interests, in the forms attached as Exhibit
2.7(a)(vi) (collectively, the “Lender Subordination Agreement”), both of which
executed by Seller;

(vii)         a certificate executed by Seller
as to the accuracy of Seller’s representations and warranties as of the
Effective Time (as though made at and as of the Effective Time) and as of date
of the Closing Date, and as to Seller’s compliance with and performance of its
covenants and obligations to be performed or complied with at or before the
Closing; and

(viii)        a
certificate of the Secretary or an Assistant Secretary of Seller certifying, as
complete and accurate as of the Closing, attached copies of the certificate of
incorporation and bylaws of Seller, certifying and attaching all requisite
resolutions or actions of Seller’s board of directors and (if applicable)
shareholders approving the execution and delivery of this Agreement and the
consummation of the Contemplated Transactions, and certifying to the incumbency
and signatures of the officers of Seller executing this Agreement and any other
document relating to the Contemplated Transactions.

 

(b)           Buyer shall deliver to Seller:

 

(i)            Nine
Hundred Twenty-five Thousand Dollars ($925,000) by wire transfer of immediately
available funds to an account specified by Seller in a writing delivered to
Buyer prior to the Closing Date, or by cashier’s check or certified check;

(ii)           a non-negotiable secured
promissory note executed by Buyer and payable to Seller in the principal amount
of Five Hundred Thousand Dollars ($500,000.00) in the form of Exhibit
2.7(b)(ii) (the “Promissory Note”);

(iii)          the
Assignment and Assumption Agreement, executed by Buyer;

(iv)          the
Gaithersburg Lease Assignment, executed by Buyer;

(v)           the
Security Agreement, executed by Buyer;

(vi)          as to the Lender Subordination
Agreement, the “Subordination of Debt Agreement” executed by Buyer to assent
thereto;

(vii)         a certificate executed by Buyer
as to the accuracy of Buyer’s representations and warranties as of the
Effective Time (as though made at and as of the Effective Time) and as of date
of the Closing Date, and as to Buyer’s compliance with and performance of its
covenants and obligations to be performed or complied with at or before the
Closing; and

 

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(viii)        a
certificate of the Secretary or Assistant Secretary of Buyer certifying, as
complete and accurate as of the Closing, attached copies of the articles of
incorporation and bylaws of Buyer and certifying and attaching all requisite
resolutions or actions of Buyer’s shareholders (Buyer being a closed
corporation without a board of directors) approving the execution and delivery
of this Agreement and the consummation of the Contemplated Transactions and
certifying to the incumbency and signatures of the officers of Buyer executing
this Agreement and any other document relating to the Contemplated
Transactions.

 

(c)           Except
as otherwise provided on Schedule 2.7(c), Lender shall have or be
entitled to a first priority security interest or other Encumbrance (“Lender’s
Encumbrance”) in or on all Assets, and all other property and assets of Buyer,
including the Buyer’s accounts receivable, fixed assets and other tangible and
intangible property  (“Buyer’s Other
Assets”).  As is more fully set forth in
the Lender Subordination Agreement, the Promissory Note and the Security
Agreement, Seller shall have or be entitled to a junior lien in the Assets and
Buyer’s Other Assets; provided, however, that Seller shall not be
entitled to any lien or other Encumbrance on those items listed in Schedule 2.7(c).  As is more fully set forth in the Security
Agreement, under certain circumstances and subject to certain terms and
conditions, Seller has agreed to subordinate its Encumbrances on Assets and
Buyer’s Other Assets to those of certain Post-Closing Lenders (as defined in
the Promissory Note).

 

(d)           At Closing Seller shall pay and
be solely responsible for fifty percent (50%) of the Maryland sales and use tax
due or payable with respect to the Contemplated Transactions.  At Closing Buyer shall pay to Seller the
other fifty percent (50%) of the Maryland sales and use tax due or payable with
respect to the Contemplated Transactions.

 

2.8          CONSENTS.

 

(a)           As more fully set forth in
Section 5.3(a), it shall be a condition to Buyer’s obligation to
consummate the Closing that the Landlord and Seller shall have Consented to the
sale, assignment and transfer of the Gaithersburg Lease from Seller to Buyer by
executing and delivering the Gaithersburg Lease Assignment at or prior to
Closing, which Gaithersburg Lease Assignment shall be in full force and effect
at Closing.

 

(b)           As more fully set forth in
Section 5.3(b), it shall be a condition to Buyer’s obligation to
consummate the Closing that the Lender and Seller shall have Consented to the
Security Agreement, and Consented to the subordination of the security interest
granted by Buyer to Seller by executing and delivering the Lender Subordination
Agreement at or prior to Closing, which Lender Subordination Agreement shall be
in full force and effect at Closing.

 

(c)           Except as otherwise provided on Schedule 2.8(c),
if there are any Consents, excluding those referred to in Sections 2.8(a) and
2.8(b),  necessary for the sale,
assignment and transfer of any Assets to Buyer (the “Nonmaterial Consents”)
which have not been obtained (or otherwise are not in full force and effect)
prior to or at Closing, Buyer shall elect at the Closing, in the case of each

 

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such Asset as to which such Nonmaterial
Consents were not obtained (or otherwise are not in full force and effect) (the
“Restricted Assets”), whether to:

 

(i)            accept
the assignment of such Restricted Asset, in which case, as between Buyer and
Seller, such Restricted Asset shall, to the maximum extent practicable and
notwithstanding the failure to obtain the applicable Nonmaterial Consent, be
transferred at the Closing pursuant to the Bill of Sale, Assignment and
Assumption Agreement or as otherwise provided under this Agreement; or

(ii)           reject the assignment of such
Restricted Asset, in which case, notwithstanding Sections 2.1 and 2.4, (A)
neither this Agreement, the Bill of Sale, the Assignment and Assumption
Agreement, nor any other document related to the consummation of the
Contemplated Transactions shall constitute a sale, transfer, assignment,
assumption, conveyance or delivery, or an attempted sale, transfer, assignment,
assumption, conveyance or delivery, of such Restricted Asset, and  (B) Seller shall retain such Restricted
Asset and all Liabilities arising therefrom or relating thereto.

 

ARTICLE 3. 
REPRESENTATIONS AND WARRANTIES OF SELLER

 

As of the Effective Time (as though
made at and as of the Effective Time) and as of the Closing Date, Seller
represents and warrants to Buyer as follows:

 

3.1          ORGANIZATION AND GOOD
STANDING.

 

(a)           Seller is a Delaware corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to conduct its
business as it is now being conducted, to own or use the properties and assets
that it purports to own or use, and to perform all its obligations under or
related to the Assets. Seller is duly qualified to do business as a foreign
corporation and is in good standing under the laws of the State of Maryland.

 

(b)           Seller has no Subsidiary and
during the period from January 1, 2000, to the Closing Date the
Gaithersburg Business was not owed or operated by any Subsidiary of Seller.

 

3.2          ENFORCEABILITY;
AUTHORITY; NO CONFLICT.

 

(a)           This Agreement constitutes the
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms. Upon the execution and delivery by Seller of the
Gaithersburg Lease Assignment, the Bill of Sale, the Assignment and Assumption
Agreement, the Security Agreement, the Lender Subordination Agreement, and each
other agreement to be executed or delivered by Seller at the Closing
(collectively, the “Seller’s Closing Documents”), each of Seller’s Closing
Documents will constitute the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms. Seller has the absolute
and unrestricted right, power and authority to execute and deliver this
Agreement and the Seller’s Closing Documents and to perform its obligations
under this Agreement and the Seller’s Closing Documents, and such action has
been duly authorized by all necessary corporate action.

 

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(b)           Neither the execution and
delivery of this Agreement by Seller, nor the consummation or performance of
any of the Contemplated Transactions by Seller, will give any Person the right
to prevent, delay or otherwise interfere with any of the Contemplated
Transactions pursuant to:

 

(i)            any
provision of the Seller’s certificate of incorporation or bylaws;

(ii)           any resolution adopted by the
board of directors or the shareholders of Seller;

(iii)          any Legal Requirement or any
Order to which the Gaithersburg Business, or any of the Assets, may be subject,
except where such breach would not result in a material adverse effect;

(iv)          any Gaithersburg Contract that
is an Asset; or

(vi)          result in the imposition or
creation of any Encumbrance upon or with respect to any of the Assets
(excluding under the Security Agreement or any security agreement between
Lender and Buyer).

 

(c)           Except as set forth in Schedule 3.2(c),
Seller is not required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.

 

3.3          ASSETS.  The Assets (a) constitute all of
the assets, tangible and intangible, of any nature whatsoever, necessary to
operate the Gaithersburg Business in the manner operated by Seller from
September 24, 2003, to the Effective Time, and (b) include all of the
operating assets of Seller used in the Gaithersburg Business.  The Assets do not constitute all or
substantially all of Seller’s assets.

 

3.4          LEASED REAL
PROPERTY.  The only real property in which Seller has a
leasehold interest which was used in or related to the Gaithersburg Business
from September 24, 2003, to the Effective Time is the Gaithersburg
Facility.  During the period from the
commencement of the Gaithersburg Lease to the Effective Time, the Gaithersburg
Facility was not used for any business or purpose other than the Gaithersburg
Business.

 

3.5          TITLE TO ASSETS;
ENCUMBRANCES.

 

(a)           Seller owns good and marketable
title to its leasehold interest in the Gaithersburg Facility, free and clear of
any Encumbrances other than (i) those described in Schedule 3.5(a),
(ii) the Gaithersburg Lease and (iii) liens for Taxes for the current tax year
which are not yet due and payable, and for which Seller is liable under the
Gaithersburg Lease (“Permitted Real Estate Encumbrances”).  A true and complete copy of the Gaithersburg
Lease has been delivered to Buyer.

 

(b)           Seller owns good and
transferable title to all of the other Assets free and clear of any
Encumbrances other than those described in Schedule 3.5(b)
(“Permitted Non-Real Estate Encumbrances” and, together with the Permitted Real
Estate Encumbrances, the “Permitted Encumbrances”).

 

10

 

3.6          CONDITION OF
GAITHERSBURG FACILTY.

 

(a)           To the Seller’s Knowledge, use
of the Gaithersburg Facility for the purposes for which it is presently being
used by the Gaithersburg Business is permitted as of right under all applicable
zoning legal requirements and is not subject to “permitted nonconforming” use
or structure classifications.  To the
Seller’s Knowledge, all Improvements on or at the Gaithersburg Facility within
the premises subject to the Gaithersburg Lease are in compliance with all
applicable Legal Requirements, including those pertaining to zoning, building
and the disabled, are in good repair and in good condition, ordinary wear and
tear excepted.  To the Seller’s
Knowledge, the Gaithersburg Facility abuts on and has direct vehicular access
to a public road or has access to a public road via a permanent, irrevocable,
appurtenant easement benefiting the real property subject to the Gaithersburg
Lease or comprising a part of the real property subject to the Gaithersburg
Lease, is supplied with public or quasi-public utilities and other services
appropriate for the operation of the Gaithersburg Business. To the Seller’s
Knowledge, there is no existing or proposed plan to modify or realign any
street or highway or any existing or proposed eminent domain proceeding that
would result in the taking of all or any part of the real property subject to
the Gaithersburg Lease (including the Gaithersburg Facility) or that would
prevent or hinder the continued use of the Gaithersburg Facility as heretofore
used in the conduct of the Gaithersburg Business.

 

(b)           Each item of Gaithersburg
Tangible Personal Property is in good repair and good operating condition,
ordinary wear and tear excepted, is suitable for immediate use in the Ordinary
Course of Business. No item of Gaithersburg Tangible Personal Property is in
need of repair or replacement other than as part of routine maintenance in the
Ordinary Course of Business.  All
Gaithersburg Tangible Personal Property used in the Gaithersburg Business is in
the possession of Seller.

 

3.7          GAITHERSBURG
INVENTORIES.  Since September 24, 2003, there has been no
material change in the condition of the Gaithersburg Inventory.  The Gaithersburg Inventory does not include
any Inventory not owned by Seller, including goods already sold.  The quantities of each item of the
Gaithersburg Inventory (whether raw materials, work-in-process or finished goods)
are not excessive but are reasonable in relation to the Gaithersburg Business
as heretofore conducted.

 

3.8          TAXES.

 

(a)           There are no Encumbrances on any
of the Assets that arose in connection with any failure (or alleged failure) to
pay any Tax.

 

(b)           There is no tax sharing
agreement, tax allocation agreement, tax indemnity obligation or similar
written or unwritten agreement, arrangement, understanding or practice with
respect to Taxes (including any advance pricing agreement, closing agreement or
other arrangement relating to Taxes) that is included among the Assets or
relates to the Gaithersburg Business.

 

3.9          NO MATERIAL ADVERSE
CHANGE.  Since
September 24, 2003, there has not been any material adverse change in the
Gaithersburg Business, including its operations, prospects, assets, results of
operations or condition (financial or other), and, to Seller’s Knowledge, no
event has occurred or circumstance exists that could reasonably be expected to
result in such a material

 

11

 

adverse change; provided, however,
that in no event shall any of the following constitute a material adverse
change in the business, operations, prospects, assets, results of operations or
condition of the Gaithersburg Business: (i) any change resulting from
conditions affecting the industry which includes the Gaithersburg Business or
from changes in general business or economic conditions; (ii) any change
resulting from the announcement or pendency of any of the transactions
contemplated by this Agreement; or (iii) any change resulting from compliance
by Seller with the terms of, or the taking of any action contemplated or
permitted by, this Agreement.

 

3.10        EMPLOYEE BENEFITS.

 

(a)           Neither Seller nor any entity
that would be treated as a single employer with Seller for such purposes
maintains or has maintained within the preceding six years any employee benefit
plan subject to Title IV of ERISA.

 

(b)           Seller has, at all times,
complied, and currently complies, in all material respects with the applicable
continuation requirements for its welfare benefit plans, including (1)
Section 4980B of the Code (as well as its predecessor provision,
Section 162(k) of the Code) and Sections 601 through 608, inclusive, of
ERISA, which provisions are herein referred to collectively as “COBRA,” and (2)
any applicable state statutes mandating health insurance continuation coverage
for employees.

 

(c)           Except for the continuation
coverage requirements of COBRA, Seller has no obligations or potential
liability for benefits to employees, former employees or their respective
dependents of the Gaithersburg Business following termination of employment or
retirement.

 

(d)           No written or oral
representations have been made by Seller to any employee or former employee of
Seller who is or was employed at the Gaithersburg Facility or otherwise
employed or engaged in the Gaithersburg Business promising or guaranteeing any
employer payment or funding for the continuation of medical, dental, life or
disability coverage for any period of time beyond the end of the current plan
year (except to the extent of coverage required under COBRA) that would become
the responsibility of Buyer.  To the
fullest extent permitted by Legal Requirements, Seller is allocated all COBRA
responsibility arising out of or relating to this Agreement or the Contemplated
Transactions.  Seller has made no
written or oral representations to any employee or former employee of Seller
concerning the employee benefits of Buyer.

 

3.11        COMPLIANCE WITH LEGAL
REQUIREMENTS; GOVERNMENT AUTHORIZATIONS.

 

(a)           Seller is, and at all times
since January 1, 2003, has been, in compliance with each material Legal
Requirement that is or was applicable to the Gaithersburg Business.  To Seller’s Knowledge, no event has occurred
or circumstance exists with respect to the Gaithersburg Business that (with or
without notice or lapse of time) (A) may constitute or result in a material
violation by Seller of, or a material failure on the part of Seller to comply
with, any material Legal Requirement with respect to the Gaithersburg Business
or (B) may give rise to any material obligation on the part of Seller to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature with respect

 

12

 

to the Gaithersburg Business.  Seller has not received, at any time since
January 1, 2003, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible or potential material violation of, or material
failure to comply with, any Legal Requirement with respect to the Gaithersburg
Business or (B) any actual, alleged, possible or potential obligation on the
part of Seller to undertake, or to bear all or any portion of the cost of, any
material remedial action of any nature with respect to the Gaithersburg
Business.

 

(b)           Schedule 3.11(b)
contains a complete and accurate list of each Gaithersburg Government
Authorization the absence of which would have a material adverse effect on the
Gaithersburg Business.  Each
Gaithersburg Government Authorization is valid and in full force and effect.
The Gaithersburg Government Authorizations collectively constitute all of the
Government Authorizations necessary to permit Seller to lawfully conduct and
operate the Gaithersburg Business in the manner in which it currently conducts
and operates the Gaithersburg Business and to permit Seller to own and use the
Assets in the manner in which it currently owns and uses such Assets.

 

3.12        LEGAL PROCEEDINGS;
ORDERS.

 

(a)           There is no pending or, to
Seller’s Knowledge, threatened Proceeding by or against Seller that relates to
and is likely to materially affect the Gaithersburg Business or any of the
Assets.  To Seller’s Knowledge, there
are no pending or threatened Proceeding that may have the effect of preventing,
delaying, making illegal or otherwise interfering with, any of the Contemplated
Transactions or Seller’s performance thereunder.  To the Seller’s Knowledge, no event has occurred or circumstance
exists that is reasonably likely to give rise to or serve as a legitimate basis
for the commencement of any such Proceeding.

 

(b)           There is no Order to which the
Gaithersburg Business or any of the Assets is subject.

 

3.13        ABSENCE OF CERTAIN
CHANGES AND EVENTS.  Since
September 24, 2003, Seller has operated the Gaithersburg Business only in
the Ordinary Course of Business and there has not been any:

 

(a)           payment (except in the Ordinary
Course of Business) or increase by Seller of any bonuses, salaries or other
compensation to any Seller employee employed at the Gaithersburg Facility or
otherwise employed or engaged in the Gaithersburg Business, or entry into any
employment, severance or similar Contract with any Seller employee employed at
the Gaithersburg Facility or otherwise employed or engaged in the Gaithersburg
Business;

 

(b)           [reserved];

 

(c)           damage to or destruction or loss
of any material asset or property of Seller used in or related to the
Gaithersburg Business, whether or not covered by insurance;

 

13

 

(d)           entry into, termination of or
receipt of notice of termination of any material license, distributorship,
dealer, sales representative, joint venture, credit or similar Contract to
which Seller is a party used in the Gaithersburg Business;

 

(e)           sale (other than sales in the
Ordinary Course of Business), lease or other disposition of any material asset
or property of Seller used in the Gaithersburg Business;

 

(f)            cancellation
or waiver of any claims or rights with a value to Seller in excess of $10,000
related to the Gaithersburg Business;

 

(g)           indication by any customer,
vendor or supplier of the Gaithersburg Business of an intention to discontinue
or materially change the terms of its relationship with Seller with respect to
the Gaithersburg Business;

 

(h)           material change in the
accounting methods used by Seller with respect to the Gaithersburg Business; or

 

(i)            Contract
by Seller to do any of the foregoing.

 

3.14        GAITHERSBURG
CONTRACTS; NO DEFAULTS.

 

(a)           Except as set forth on  Schedule 3.14(a),
there are no Gaithersburg Contracts that:

 

(i)            were
not entered into in the Ordinary Course of Business;

(ii)           are with any labor union or
other employee representative of a group of employees relating to wages, hours
and other conditions of employment;

(iii)          involve a sharing of profits,
losses, costs or liabilities by Seller with any other Person, other than Seller
employees;

(iv)          provide for payments to or by
any Person based on sales, purchases or profits, other than direct payments for
goods, products or services;

(v)           contain covenants that in any
way purport to restrict Seller’s business activity or limit the freedom of
Seller to engage in any line of business or to compete with any Person;

(vi)          contain a power of attorney
granted by Seller; or

(vii)         contain or grant any warranty,
guaranty and/or other similar undertaking with respect to the contractual
performance by Seller which were entered into other than in the Ordinary Course
of Business.

 

(b)           Schedule 3.14(b)
identifies all Gaithersburg Contracts (the “Material Gaithersburg Contracts”)
that:

 

(i)            involve
expenditures, including capital expenditures, by Seller in excess of Ten
Thousand Dollars ($10,000);

(ii)           involve performance of services
or delivery of goods or materials to Seller of an amount or value in excess of
Ten Thousand Dollars  ($10,000);

 

14

 

(iii)          involve performance of services
or delivery of goods or materials by Seller of an amount or value in excess of
Ten Thousand Dollars  ($10,000); or

(iv)          was entered into other than in
the Ordinary Course of Business.

 

(c)           Except as set forth in Schedule 3.14(c):

 

(i)            each
Material Gaithersburg Contract identified or required to be identified in Schedule 3.14(b)
is in full force and effect and is valid and enforceable in accordance with its
terms; and

(ii)           each Material Gaithersburg
Contract identified or required to be identified in Schedule 3.14(b)  is assignable by Seller to Buyer without the
Consent of any other Person.

 

(d)           Except as set forth in Schedule 3.14(d):

 

(i)            Seller
is, and at all times since January 1, 2003, has been, in material
compliance with all applicable terms and requirements of each Material
Gaithersburg Contract;

(ii)           to Seller’s Knowledge, each
other Person that has or had any obligation or liability under any Material
Gaithersburg Contract is, and at all times since January 1, 2003, has
been, in material  compliance with all
applicable terms and requirements of such Material Gaithersburg Contract;

(iii)          to the Seller’s Knowledge, no
event has occurred since January 1, 2003, and no circumstance exists, that
(with or without notice or lapse of time) may contravene, conflict with or
result in a material Breach of, or give Seller or any other Person the right to
declare a default or exercise any remedy or right under, or to cancel,
terminate or modify, any Material Gaithersburg Contract; and

(iv)          Seller has not given to or
received from any other Person, at any time since January 1, 2003, any
notice or other communication (whether oral or written) regarding any actual,
alleged, possible or potential violation or Breach of, or default under, any
Material Gaithersburg Contract.

 

(e)           There are no renegotiations of,
attempts or demands to renegotiate, or outstanding rights to renegotiate any
material amounts paid or payable to Seller under Material Gaithersburg
Contracts with any Person.

 

(f)            Each
Material Gaithersburg Contract has been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any material Legal
Requirement.

 

3.15        ENVIRONMENTAL MATTERS.

 

(a)           To Seller’s Knowledge, Seller
is, and at all times has been, in material compliance with, and has not been
and is not in material violation of or liable under, any Environmental Law with
respect to the Gaithersburg Business and the Assets.

 

15

 

(b)           To the Seller’s Knowledge, there
are no pending or threatened claims, Encumbrances, or other restrictions of any
nature against Seller resulting from any Environmental, Health and Safety
Liabilities or arising under or pursuant to any Environmental Law with respect
to the Gaithersburg Facility or any of the Assets.

 

(d)           To the Seller’s Knowledge,
neither Seller nor any other Person for whose conduct is or may be held
responsible has any Environmental, Health and Safety Liabilities with respect
to the Gaithersburg Facility.

 

3.16        EMPLOYEES.

 

(a)           Seller has not violated the
Worker Adjustment and Retraining Notification Act (the “WARN Act”) or any
similar state or local Legal Requirement. The employment terminations in
connection with the sale of the Gaithersburg Business located at the
Gaithersburg Facility do not result in a sufficient number of employment
terminations to trigger application of the WARN Act.

 

(b)           To the Knowledge of Seller, no
officer, director, agent, employee, consultant, or contractor of Seller is
bound by any Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor (i) to engage in, perform
or continue to perform any conduct, activities, duties, obligations or
practices with respect to the Gaithersburg Business or (ii) to assign to Seller
or to any other Person any rights to any invention, improvement, or discovery.

 

3.17        LABOR DISPUTES;
COMPLIANCE.

 

(a)           To the Knowledge of the Seller,
Seller has complied in all material respects with all Legal Requirements relating
to employment practices, terms and conditions of employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, and
collective bargaining, the payment of social security and similar Taxes and
occupational safety and health. Seller is not liable for the payment of any
Taxes, fines, penalties, or other amounts, however designated, for failure to
comply with any of the foregoing Legal Requirements.

 

(b)           Except as disclosed in Schedule 3.17(b),
(i) Seller has not been, and is not now, a party to any collective bargaining
agreement or other labor contract; (ii) since January 1, 2000, there has
not been, there is not presently pending or existing, and to Seller’s Knowledge
there is not threatened, any strike, slowdown, picketing, work stoppage or
employee grievance process involving the Gaithersburg Business; (iii) to
Seller’s Knowledge no event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute with respect to
the Gaithersburg Business; (iv) there is not pending or, to Seller’s Knowledge,
threatened against or affecting Seller any Proceeding relating to the alleged
violation of any Legal Requirement pertaining to labor relations or employment
matters with respect to the Gaithersburg Business, including any charge or
complaint filed with the National Labor Relations Board or any comparable
Governmental Body, and there is no organizational activity or other labor
dispute against or affecting Seller with respect to the Gaithersburg Business;
(v) no application or petition for an election of or for certification of a
collective bargaining agent is pending with respect to the Gaithersburg
Business; (vi) no grievance or arbitration Proceeding exists that might have an

 

16

 

adverse effect upon the Gaithersburg
Business; (vii) there is no lockout of any employees by Seller, and no such
action is contemplated by Seller, with respect to the Gaithersburg Business;
and (viii) to Seller’s Knowledge there has been no charge of discrimination
filed against or threatened against Seller with the Equal Employment
Opportunity Commission or similar Governmental Body arising out of the
Gaithersburg Business.

 

3.18        INTELLECTUAL PROPERTY
ASSETS.   Schedule 3.18
contains a complete and accurate list of all Gaithersburg Software Contracts,
except for any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available Software programs with a value of less than
$1,000 under which Seller is the licensee.

 

3.19        BROKERS OR
FINDERS.  Except
as set forth on Schedule 3.19,  Seller has not incurred any obligation or
liability, contingent or otherwise, for brokerage or finders’ fees or other
similar payments in connection with the sale of the Gaithersburg Business or
the Assets or the Contemplated Transactions.

 

3.20        SECURITIES LAW
MATTERS.

 

(a)           Seller is acquiring the
Promissory Note for its own account and not with a view to its distribution
within the meaning of Section 2(11) of the Securities Act.

 

(b)           Seller confirms that Buyer has
made available to Seller the opportunity to ask questions of the officers of
Buyer and to acquire such additional information about the business and
financial condition of Buyer as Seller has requested.

 

3.21        DISCLOSURE.

 

(a)           No representation or warranty or
other statement made by Seller in this Agreement, the certificates delivered
pursuant to Section 2.7(a) or otherwise in connection with the
Contemplated Transactions, contains any untrue statement or omits to state a
material fact necessary to make any of them, in light of the circumstances in
which it was made, not misleading.

 

(b)           Seller does not have Knowledge
of any fact that has specific application to Gaithersburg Business or the
Assets (other than general economic or industry conditions) and that may
materially adversely affect the Gaithersburg Business or the Assets that has
not been set forth in this Agreement.

 

ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER

 

As of the Effective Time (as though
made at and as of the Effective Time) and as of the Closing Date, Buyer
represents and warrants to Seller as follows:

 

4.1          ORGANIZATION AND GOOD
STANDING.  Buyer
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Maryland, with full corporate power and authority to
conduct its business as it is now conducted, to own or use its properties and

 

17

 

assets that it purports to own or use
and to perform all its obligations hereunder. 
Buyer is a close corporation without a board of directors.

 

4.2          ENFORCEABILITY;
AUTHORITY; NO CONFLICT.

 

(a)           This Agreement constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. Upon the execution and delivery by Buyer of the
Assignment and Assumption Agreement, the Promissory Note, the Gaithersburg
Lease Assignment, the Security Agreement, and each other agreement to be
executed or delivered by Buyer at Closing (collectively, the “Buyer’s Closing
Documents”), each of the Buyer’s Closing Documents will constitute the legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its respective terms. Buyer has the absolute and unrestricted right, power
and authority to execute and deliver this Agreement and the Buyer’s Closing
Documents and to perform its obligations under this Agreement and the Buyer’s
Closing Documents, and such action has been duly authorized by all necessary
corporate action.

 

(b)           Neither the execution and
delivery of this Agreement by Buyer nor the consummation or performance of any
of the Contemplated Transactions by Buyer will give any Person the right to
prevent, delay or otherwise interfere with any of the Contemplated Transactions
pursuant to:

 

(i)            any
provision of Buyer’s articles of incorporation or bylaws;

(ii)           any resolution adopted by the
shareholders of Buyer;

(iii)          any Legal Requirement or Order
to which Buyer may be subject; or

(iv)          any Contract to which Buyer is a
party or by which Buyer may be bound.

 

Except for the Lender, Buyer is not and
will not be required to obtain any Consent from any Person in connection with
the execution and delivery of this Agreement or the consummation or performance
of any of the Contemplated Transactions.

 

4.3          LEGAL PROCEEDINGS;
ORDERS.

 

(a)           To
Buyer’s Knowledge, there is no pending or threatened Proceeding that may have
the effect of preventing, delaying, making illegal or otherwise interfering
with, any of the Contemplated Transactions or Buyer’s performance
thereunder.  To the Buyer’s Knowledge,
no event has occurred or circumstance exists that is reasonably likely to give
rise to or serve as a legitimate basis for the commencement of any such
Proceeding.

 

(b)           To Buyer’s Knowledge, there is
no Order to which the Gaithersburg Business or any of the Assets will be
subject on or after Closing Date.

 

4.4          NO MATERIAL ADVERSE
CHANGE.  Within
the preceding sixty days, there has not been any material adverse change in
Buyer, including its operations, prospects, assets, results of operations or
condition (financial or other), and, to Buyer’s Knowledge, no event has
occurred or circumstance exists that could be reasonably be expected to result
in such a material adverse change; provided, however, that in no
event shall any of the following constitute a material adverse

 

18

 

change in the business, operations,
prospects, assets, results of operations or condition of the Buyer: (i) any change
resulting from conditions affecting the industry which includes the Buyer’s
business or from changes in general business or economic conditions; (ii) any
change resulting from the announcement or pendency of any of the transactions
contemplated by this Agreement; or (iii) any change resulting from compliance
by Buyer with the terms of, or the taking of any action contemplated or
permitted by, this Agreement.  Within
the past one hundred eighty days, Buyer has not defaulted on or obtained
forbearance with respect to any material obligation, including any debt
obligation.

 

4.5          BROKERS OR FINDERS.  Except to MBO Finance (Buyer’s equipment
loan broker), Buyer has not incurred any obligation or liability, contingent or
otherwise, for brokerage or finders’ fees or other similar payment in
connection with the Contemplated Transactions.

 

4.6          DISCLOSURE.

 

(a)           No representation or warranty or
other statement made by Buyer in this Agreement, the certificates delivered
pursuant to Section 2.7(b) or otherwise in connection with the
Contemplated Transactions, contains any untrue statement or omits to state a
material fact necessary to make any of them, in light of the circumstances in
which it was made, not misleading.

 

(b)           Buyer does not have Knowledge of
any fact that has specific application to Buyer (other than general economic or
industry conditions) and that may materially adversely affect the ability of
the Buyer to satisfy its obligations to the Seller in connection with the
Contemplated Transactions.

 

4.7          SOLVENCY.

 

(a)           Buyer is not now insolvent and
will not be rendered insolvent by any of the Contemplated Transactions. As used
in this Section, “insolvent” means that the sum of the debts and other probable
Liabilities of Buyer exceeds the present fair saleable value of Buyer’s assets.

 

(b)           Immediately after giving effect
to the consummation of the Contemplated Transactions: (i) Buyer will be able to
pay its Liabilities as they become due in the usual course of its business;
(ii) Buyer will not have unreasonably small capital with which to conduct its
present or proposed business; (iii) Buyer will have assets (calculated at fair
market value) that exceed its Liabilities; and (iv) taking into account all
pending and threatened litigation, final judgments against Buyer in actions for
money damages are not reasonably anticipated to be rendered at a time when, or
in amounts such that, Buyer will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum
probable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered) as well as all other
obligations of Buyer. The cash available to Seller, after taking into account
all other anticipated uses of the cash, will be sufficient to pay all such
debts and judgments promptly in accordance with their terms, including, without
limitation, the Promissory Note.

 

19

 

ARTICLE 5. 
CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE

 

Buyer’s obligation to purchase the
Assets and to take the other actions required to be taken by Buyer at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived in writing by Buyer, in
whole or in part):

 

5.1          ACCURACY OF
REPRESENTATIONS.

 

(a)           All of Seller’s representations
and warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), shall be accurate in
all material respects as of the Effective Time (as though made at and as of the
Effective Time) and as of the Closing Date.

 

(b)           Each of the Seller’s
representations and warranties in Sections 3.2(a), and each of the
representations and warranties in this Agreement that contains an express
materiality qualification, shall be accurate in all material respects as of the
date of Effective Time (as though made at and as of the Effective Time) and as
of the Closing Date.

 

5.2          SELLER’S PERFORMANCE.  All of the covenants and
obligations that Seller is required to perform or to comply with pursuant to
this Agreement at or prior to the Closing (considered collectively), and each
of these covenants and obligations (considered individually), shall have been
duly performed and complied with in all material respects.  The Seller’s covenant and obligation in
Section 2.7(d) shall have been duly performed and complied with in all
respects.

 

5.3          CONSENTS.

 

(a)           The Landlord and Seller shall
have Consented to the sale, assignment and transfer of the Gaithersburg Lease
from Seller to Buyer by executing and delivering the Gaithersburg Lease
Assignment, which Gaithersburg Lease Assignment (when signed by Buyer at
Closing) shall be in full force and effect.

 

(b)           The Lender and Seller shall have
Consented to the Security Agreement, and Consented to the subordination of the
security interest granted by Buyer to Seller thereby by executing and
delivering the Lender Subordination Agreement, which the Lender Subordination Agreement
shall be in full force and effect.

 

5.4          ADDITIONAL
DOCUMENTS.  Seller
shall have caused the documents and instruments required by Section 2.7(a)
and the following documents to be delivered (or tendered subject only to
Closing) to Buyer:

 

(a)           Releases of all Encumbrances on
the Assets, other than Permitted Encumbrances;

 

(b)           Certificates dated as of a date
not earlier than the tenth (10th) business day prior to the Closing
as to the good standing of Seller and payment of all applicable state Taxes by
Seller, executed by the appropriate officials of the State of Maryland; provided,
however, that if Buyer waives this condition, Seller shall provide the
same within thirty (30) days of the Closing Date; and

 

20

 

(c)           Such other documents as Buyer
may reasonably request for the purpose of:

 

(i)            evidencing
the accuracy of any of Seller’s representations and warranties;

(ii)           evidencing the performance by
Seller of, or the compliance by Seller with, any covenant or obligation
required to be performed or complied with by Seller prior to or at Closing;

(iii)          evidencing the satisfaction of
any condition referred to in this Article 5; or

(iv)          otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.

 

5.5          NO PROCEEDINGS.  There shall not have been commenced or
threatened against Buyer, or against any Related Person of Buyer, any
Proceeding (a) involving any challenge to, or seeking Damages or other relief
in connection with, any of the Contemplated Transactions or (b) that may have
the effect of preventing, delaying, making illegal, imposing limitations or
conditions on or otherwise interfering with any of the Contemplated
Transactions.

 

5.6          NO CONFLICT.  Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), contravene or conflict with or result in a
violation of any applicable Legal Requirement or Order.

 

5.7          GOVERNMENT
AUTHORIZATIONS.  Buyer shall have
received such Gaithersburg Government Authorizations as are necessary or
desirable to allow Buyer to operate the Gaithersburg Business and from and
after the Closing.

 

5.8          EMPLOYEES.  Seller shall have terminated all
of Seller’s Active Employees, effective immediately before Closing, except for
those Active Employees who shall remain employed by Seller after Closing who
are identified on Schedule 5.8 (the “Retained Active
Employees”).  Buyer shall not have any
Liability for any of the Retained Active Employees.

 

5.9          FINANCING.  Buyer shall have obtained, on terms and
conditions satisfactory to Buyer in its sole and absolute discretion, financing
secured by any or all of the Assets, or any or all other assets of Buyer, in
the amount of at least Nine Hundred Twenty-five Thousand Dollars ($925,000) in
order to consummate the Contemplated Transactions, and Buyer shall have closed
on said financing.

 

ARTICLE 6. 
CONDITIONS PRECEDENT TO SELLER’S OBLIGATION TO CLOSE

 

Seller’s obligation to sell the Assets
and to take the other actions required to be taken by Seller at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived in writing by Seller in whole
or in part):

 

21

 

6.1          ACCURACY OF
REPRESENTATIONS.

 

(a)           All of Buyer’s representations
and warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), shall be accurate in
all material respects as of the date of this Agreement.

 

(b)           Each of the Buyer’s
representations and warranties in Sections 4.2(a), and each of the
representations and warranties in this Agreement that contains an express
materiality qualification, shall be accurate in all material respects as of the
date of this Agreement.

 

6.2          BUYER’S PERFORMANCE.  All of the covenants and obligations that
Buyer is required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these covenants and
obligations (considered individually), shall have been performed and complied
with in all material respects.  The
Buyer’s covenant and obligation in Section 2.7(d) shall have been duly
performed and complied with in all respects.

 

6.3          CONSENTS.

 

(a)           The Landlord and Buyer shall
have Consented to the sale, assignment and transfer of the Gaithersburg Lease
from Seller to Buyer by executing and delivering the Gaithersburg Lease
Assignment, which Gaithersburg Lease Assignment (when signed by Seller at
Closing) shall be in full force and effect.

 

(b)           The Lender shall have Consented
to the Security Agreement, and Consented to the subordination of the security
interest granted by Buyer to Seller thereby, by executing and delivering the
Lender Subordination Agreement, which Lender Subordination Agreement (when
signed by Seller at Closing) shall be in full force and effect.

 

6.4          ADDITIONAL DOCUMENTS.  Buyer shall have caused the documents and
instruments required by Section 2.7(b) and the following documents to be
delivered (or tendered subject only to Closing) to Seller:

 

(a)           [reserved]

 

(b)           such other documents as Seller
may reasonably request for the purpose of

 

(i)            evidencing
the accuracy of any of Buyer’s representations and warranties;

(ii)           evidencing the performance by
Buyer of, or the compliance by Buyer with, any covenant or obligation required
to be performed or complied with by Buyer;

(iii)          evidencing
the satisfaction of any condition referred to in this Article 6;

(iv)          evidencing the Buyer’s ability
to pay the Promissory Note in accordance with its terms; or

(v)           otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.

 

6.5          NO PROCEEDINGS.  There shall not have been commenced or
threatened against Seller, or against any Related Person of Seller, any
Proceeding (a) involving any challenge to, or seeking

 

22

 

Damages or other relief in connection
with, any of the Contemplated Transactions or (b) that may have the effect of
preventing, delaying, making illegal, imposing limitations or conditions on or
otherwise interfering with any of the Contemplated Transactions.

 

6.6          NO CONFLICT.  Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), contravene or conflict with or result in a
violation of any applicable Legal Requirement or Order.

 

ARTICLE 7. 
ADDITIONAL COVENANTS

 

7.1          EMPLOYEES AND EMPLOYEE
BENEFITS.

 

(a)           For the purpose of this
Agreement, the term “Active Employees” shall mean all employees employed at the
Effective Time by Seller at the Gaithersburg Facility or otherwise exclusively
employed or engaged by Seller at the Effective Time in the Gaithersburg
Business, including employees on temporary leave of absence, including family
medical leave, military leave, temporary disability or sick leave, but
excluding employees on long-term disability leave.  The term “Hired Active Employees” shall mean the Active Employees
who are offered and accept employment with Buyer.

 

 (b)          Buyer shall offer employment to
those Active Employees listed on Schedule 7.1(b) (as stated
thereon), and may, but shall not be obligated to, offer employment to any or
all of the other Active Employees except the Retained Active Employees.  Immediately after Closing, excluding the
Hired Active Employees and the Retained Active Employees, substantially all the
other Active Employees shall be available for hiring by Buyer, in its sole and
absolute discretion.  Excluding the
Retained Active Employees, after Closing Seller shall not discourage any Active
Employee from joining or accepting employment with Buyer, or otherwise
interfere with Seller’s efforts to employ any Active Employee.

 

(c)           It is understood and agreed that
(i) Buyer’s expressed intention to extend offers of employment to the Active
Employees as set forth in this Agreement (including those listed on Schedule 7.1(b))
shall not constitute any commitment, Contract or understanding (expressed or
implied) of any obligation on the part of Buyer to a post-Closing employment
relationship of any fixed term or duration or upon any terms or conditions
other than those that Buyer may establish pursuant to individual offers of
employment, and (B) employment offered by Buyer is “at will” and may be
terminated by Buyer or by an employee at any time for any reason (subject to
any written commitments to the contrary made by Buyer or an employee and Legal
Requirements). Nothing in this Agreement shall be deemed to prevent or restrict
in any way the right of Buyer to terminate, reassign, promote or demote any of
the Hired Active Employees after the Closing or to change adversely or
favorably the title, powers, duties, responsibilities, functions, locations,
salaries, other compensation or terms or conditions of employment of such
employees.

 

(d)           [reserved]

 

23

 

(e)           Seller shall be solely
responsible for (i) the payment of all wages, compensation and other
remuneration due to Active Employees with respect to their services as
employees of Seller through the Effective Time, (ii) the payment of any
termination, severance or similar payments required to be paid due to the
Contemplated Transactions, and (iii) the provision of health plan continuation
coverage in accordance with the requirements of COBRA and Sections 601 through
608 of ERISA.

 

(f)            Seller
shall be solely liable for any claims made or incurred by Active Employees and
their beneficiaries under Seller’s Employee Plans, all subject to the terms of
the applicable Employee Plans.

 

(g)           All Hired Active Employees who
are participants in Seller’s retirement plans shall retain their accrued
benefits under Seller’s retirement plans as of the Effective Time, and Seller
(or Seller’s retirement plans) shall retain sole liability for the payment of
such benefits as and when such Hired Active Employees become eligible therefor
under such plans.

 

(h)           Neither Seller nor its Related
Persons will make any transfer of pension or other employee benefit plan assets
to Buyer.

 

(i)            Buyer
will set its own initial terms and conditions of employment for the Hired
Active Employees and others it may hire, including work rules, benefits and
salary and wage structure, all as permitted by law.  Buyer is not obligated to assume any collective bargaining
agreements under this Agreement.

 

(j)            Unless
prohibited by applicable Legal Requirements or by the applicable employee
benefit plan (or any related insurance policy), the Hired Active Employees will
be allowed credit for their service with the Seller for vesting and eligibility
to participate purposes only (and not for accrual of benefits), in the employee
benefit plans of the Buyer; provided, however, that if the Hired
Active Employee did not participate in a similar Employee Plan maintained by
the Seller, such service shall not be required to be credited for the Hired
Active Employees under the benefit plan maintained by the Buyer. Unless prohibited
by applicable Legal Requirements or by the applicable employee benefit plan (or
any related insurance policy), the Hired Active Employees (and, as applicable,
their covered dependents) will be allowed to participate in all such benefit
plans of the Buyer without being subject to any waiting periods (assuming such
Hired Active Employee satisfied any waiting period under the corresponding
Employee Plan of Seller) or any restrictions or limitations for pre-existing
conditions.  If anything set forth in
this Section 7.1(j) is prohibited by the applicable employee benefit plan
(or any related insurance policy), Buyer covenants and agrees to use reasonable
efforts to obtain a waiver of such prohibition or to otherwise obtain
appropriate consent thereto.

 

(k)           Buyer shall not have any
responsibility, liability or obligation, whether to Active Employees, former
employees, their beneficiaries or to any other Person, with respect to any
employee benefit plans, practices, programs or arrangements (including the
establishment, operation or termination thereof and the notification and
provision of COBRA coverage extension) maintained by Seller.

 

24

 

7.2          PAYMENT OF TAXES
RESULTING FROM SALE OF ASSETS BY SELLER.  Except as otherwise provided in Sections 2.7(d), 5.2 and 6.2,
Seller shall pay in a timely manner all Taxes resulting from or payable in
connection with the sale of the Assets pursuant to this Agreement, regardless
of the Person on whom such Taxes are imposed by Legal Requirements.

 

7.3          PAYMENT OF
LIABILITIES.  Each of Buyer and
Seller shall pay, or make adequate provision for the payment in full all of its
respective Liabilities under this Agreement.

 

7.4          RESTRICTION ON
DISSOLUTION, REORGANIZATIONS AND DISTRIBUTIONS.  Seller shall not dissolve, or make any
distribution of the proceeds received pursuant to this Agreement, until the
later of (a) Seller’s payment, or adequate provision for payment, of all of its
obligations pursuant to Sections 7.2 and 7.3, or (b) the lapse of more than one
year after the Closing Date.  Buyer
shall not dissolve or take any other corporate action that would impair its
ability to satisfy its obligations to Seller pursuant to the Promissory Note
until such Promissory Note is paid in full.

 

7.5          REMOVING EXCLUDED
ASSETS.  Within a reasonable
time after Closing (and in no event later than November 30, 2003), Seller
shall remove all Excluded Assets from the Gaithersburg Facility. Such removal
shall be done in such manner as to avoid any damage to the Gaithersburg
Facility and any disruption of the business operations conducted by Buyer after
the Closing.  Any damage to the Assets
or to the Gaithersburg Facility resulting from such removal shall be paid by
Seller within thirty (30) days after said removal.  Should Seller fail to remove the Excluded Assets as required by
this Section, Buyer shall have the right, but not the obligation, (a) to remove
the Excluded Assets at Seller’s sole cost and expense; (b) to store the
Excluded Assets and to charge Seller all storage costs associated therewith;
(c) to treat the Excluded Assets as unclaimed and to proceed to dispose of the
same under the laws governing unclaimed property; or (d) to exercise any other
right or remedy conferred by this Agreement or otherwise available at law or in
equity. Seller shall promptly reimburse Buyer for all costs and expenses
incurred by Buyer in connection with any Excluded Assets not removed by Seller
on or before the Closing Date.

 

7.6          REPORTS AND RETURNS.  Seller shall promptly after the Closing
prepare and file all reports and returns required by Legal Requirements
relating to the business of Seller as conducted using the Assets, to and
including the Effective Time.

 

7.7          ASSISTANCE IN
PROCEEDINGS.  Seller will cooperate
with Buyer and its counsel, and Buyer will cooperate with Seller and its
counsel, in the contest or defense of, and make available its respective
personnel and provide any testimony and access to its respective books and
Records in connection with, any Proceeding involving or relating to (a) any
Contemplated Transaction or (b) any action, activity, circumstance, condition,
conduct, event, fact, failure to act, incident, occurrence, plan, practice,
situation, status or transaction on or before the Closing Date involving
Seller, the Assets or the Gaithersburg Business.  Notwithstanding the foregoing, neither Seller nor Buyer shall be
required to cooperate with the other in connection with a claim of one party
against the other.

 

25

 

7.8          NONCOMPETITION,
NONSOLICITATION AND NONDISPARAGEMENT.

 

(a)           (i)            For a period of five (5) years
after the Closing Date, Seller shall not (A) engage in, render or otherwise
provide, or (B) directly or indirectly invest in, own, manage, operate,
finance, control, advise, or render services to any Person engaged in,
rendering or otherwise providing off-set printing or Non-Offset Printing
services to any Existing Customers;  provided,
however, that Seller, solely through Seller’s existing Virginia
Facility, may continue to provide Non-Offset Printing services to those
customers identified as the “Shared Customers” in Schedule 7.8(a)(i)
(the “Shared Customers”).

 

(ii)           For a period of five (5) years after the Closing Date,
Seller shall not (A) engage in, render or otherwise provide, or (B) directly or
indirectly invest in, own, manage, operate, finance, control, advise, or render
services to any Person engaged in, rendering or otherwise providing off-set
printing services within the Restricted Area.

 

(iii)          Notwithstanding anything contained in Section 7.8(a)(i)
to the contrary and for the avoidance of doubt, Seller may continue to provide
to any customer, electronic imaging and photocopying services (including
bindery services and related packaging) without limitations.

 

(iv)          Notwithstanding any other provision of this
Section 7.8(a), Seller may purchase or otherwise acquire up to (but not
more than) four percent (4%) of any class of the securities of any Person (but
may not otherwise participate in the activities of such Person) if such
securities are listed on any national or regional securities exchange or have
been registered under Section 12(g) of the Exchange Act.

 

(v)           For purposes of this Agreement, (A) “Existing Customers”
shall mean the customers of the Gaithersburg Business identified on Schedule 7.8(a)(v),
(B) “Non-Offset Printing” shall mean non-offset color printing and high volume,
black and white duplication (including bindery services and related packaging
services), and (C) the “Restricted Area” shall mean (1) Montgomery, Prince
George’s, Anne Arundel, Howard, Frederick and Baltimore Counties, Maryland, (2)
Fairfax, Loudoun and Arlington Counties, and the Cities of Alexandria and
Fairfax, Virginia, and (3) the District of Columbia.

 

(b)           (i)            For a period of five (5) years
after the Closing Date, Seller shall not, directly or indirectly:

 

(1)           solicit the business of any Existing Customer for a purpose
that would violate Section 7.8(a);

(2)           cause, induce or attempt to cause or induce any Existing
Customer (other than Shared Customers), supplier, vendor, licensee, licensor,
franchisee, employee, consultant or other business relation of Buyer to cease
doing business with Buyer, to deal with any competitor of Buyer, or in any way
interfere with its relationship with Buyer for a purpose that would violate
Section 7.8(a);

(3)           cause, induce or attempt to cause or induce any Person who
was at the Effective Time, or who was at any time within the twelve (12) months
preceding the Effective Time, an Existing Customer (other than Shared
Customers), supplier,

 

26

 

vendor, licensee, licensor, franchisee, employee, consultant
or other business relation of Seller to cease doing business with Buyer, to
deal with any competitor of Buyer, or in any way interfere with its
relationship with Buyer; or

(4)           hire, retain or attempt to hire or retain any employee of
Buyer or individual providing full-time services as an independent contractor
to Buyer, or in any way interfere with the relationship between Buyer and any
of its employees or individuals providing full-time services as independent
contractors; provided, however, that this
Section 7.8(b)(i)(4) shall not apply to Active Employees.

 

(ii)           Neither Seller nor its Related
Person shall (1) employ, hire or otherwise engage, at any time during the
sixty-three (63) month period immediately following the Effective Time, Edward
Perlman, Donald Broomall, or Albert Barnett, or (2) employ, hire or otherwise
engage, at any time during the twenty-four (24) month period immediately
following the Effective Time, any other Active Employee; provided, however,
that either Seller or its Related Person, at any time, may employ, hire or
otherwise engage (A) any such other Active Employee (i.e., any Active Employee
other than Edward Perlman, Donald Broomall, or Albert Barnett) who, at any time
after the Effective Time, is affirmatively terminated by Buyer as an employee
of Buyer or (B) any Retained Active Employee.

 

(c)           After the Closing Date, Seller
will not disparage Buyer, Buyer’s name, any of Buyer’s shareholders, directors,
officers, employees or agents, or Buyer’s business operations (including the
Gaithersburg Business).  After the Closing
Date, Buyer will not disparage Seller, Seller’s name, any of Seller’s
directors, officers, employees or agents, or Seller’s business operations.

 

(d)           If a final judgment of a court
or tribunal of competent jurisdiction determines that any covenant, term or
provision contained in this Section 7.8 is invalid, illegal or
unenforceable, then the parties agree that the court or tribunal will have the
power to reduce the scope, duration or geographic area of the covenant, term or
provision, to delete specific words or phrases or to replace any invalid,
illegal or unenforceable covenant, term or provision with a covenant, term or
provision that is valid, legal and enforceable and that comes closest to
expressing the intention of the invalid, illegal or unenforceable term or
provision. This Section 7.8 will be enforceable as so modified after the
expiration of the time within which the judgment may be appealed. This
Section 7.8 is reasonable and necessary to protect and preserve Buyer’s
legitimate business interests and the value of the Gaithersburg Business and
the Assets, and to prevent any unfair advantage conferred on Seller.

 

7.9          CUSTOMER AND OTHER
BUSINESS RELATIONSHIPS. 
After the Closing and for a period of six (6) months, Seller will
cooperate with Buyer, at Buyer’s sole expense, in its efforts to continue and
maintain for the benefit of Buyer those business relationships of Seller
existing prior to the Closing and arising out of the Gaithersburg Business or
the Assets, including relationships with lessors, employees, regulatory
authorities, licensors, customers, suppliers, vendors and others, provided,
however, that such cooperation shall in no event be required in a manner
that is materially disruptive or otherwise interferes or conflicts with
Seller’s business.

 

27

 

7.10        USE OF BUYER’S
SERVICES AND REFERRAL OF BUSINESS TO BUYER.

 

(a)           For a period of five (5) years
after the Closing Date, Seller shall use Buyer for all of Seller’s and its
Related Person’s off-set printing needs or requests within the Restricted Area;
provided, however, that the prices, terms, quality and delivery
thereof offered by Buyer to Seller or its Related Person, as the case may be,
are competitive with other printing companies offering such digital printing
and off-set printing services within the Restricted Area and provided  further
that Seller shall not be required to use Buyer for Non-Offset Printing provided
by Seller’s existing Virginia Facility.

 

(b)           For a period of five (5) years
after the Closing Date, Seller shall refer to Buyer all Third Party requests
for off-set printing services, and inquiries regarding digital printing or
off-set printing services, which are received by Seller or its Related Persons
(other than requests and inquiries regarding Non-Offset Printing to be provided
by Seller’s existing Virginia Facility).

 

7.11        BULK SALES.  Buyer and Seller hereby waive
compliance with the bulk-transfer provisions of the Uniform Commercial Code (or
any similar law) of Maryland and Virginia (the “Bulk Sales Laws”) in connection
with the Contemplated Transactions.

 

7.12        BUYER FINANCIAL
STATEMENTS.  During the period
from the Closing Date to the date on which the Promissory Note is paid or
satisfied in full, Buyer, upon the request of Seller, agrees to provide financial
statements of Buyer’s business operations. 
All such financial statements of Buyer provided to Seller shall be used
by Seller solely to evaluate the value and collectability of the unpaid balance
of the Promissory Note or in a Proceeding to collect the unpaid balance of the
Promissory Note.  All such financial
statements of Buyer provided to Seller shall be deemed Confidential Information
subject to Article 9.  Buyer shall
provide Seller with prompt notice (and in any event within 5 business days) of
any uncured default with respect any obligation of Buyer to the Lender or of
any uncured breach or default with respect to the Gaithersburg Lease.  Any such notice shall detail the nature of
the uncured default or breach and the Buyer’s proposed remedy thereof.

 

7.13  FURTHER ASSURANCES.  The parties shall cooperate reasonably with
each other and with their respective Representatives in connection with any
steps required to be taken as part of their respective obligations under this
Agreement, and shall (a) furnish upon request to each other such further
information; (b) execute and deliver to each other such other documents; and
(c) do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
Contemplated Transactions; provided, however, that neither Party
shall be required to dispose of or make any changes to its business, expend any
material funds, or incur any other material burden in order to comply with this
Section 7.13.  Notwithstanding
anything to contrary contained in this Agreement, to the extent necessary to
effect the intent of the parties with respect to the Effective Time of the
Contemplated Transactions and otherwise, the parties agree and acknowledge that
certain transition services will be required by the Seller’s employees during
the period from the Effective Time until the Closing and that Buyer and Seller
shall cooperate fully with respect to meeting obligations to the Active
Employees, including, if necessary, reimbursement of salary and benefits during
such period for Hired Active Employees by Buyer to Seller.

 

28

 

7.14        USE OF SELLER’S NAME.  For a period of ninety (90) days after the
Closing Date, the Buyer may refer to the Gaithersburg Business as “formerly
On-Site Sourcing’s Gaithersburg Facility” (or using words of similar import) on
the telephone, in e-mail and other electronic communications, in correspondence
and in other communications, including those with Existing Customers, potential
customers, vendors and suppliers.

 

ARTICLE 8. 
INDEMNITIES; REMEDIES

 

8.1          SURVIVAL.  All representations, warranties, covenants
and obligations in this Agreement, the certificates delivered pursuant to
Section 2.7, and any other certificate or document delivered pursuant to
this Agreement shall survive the Closing and the consummation of the
Contemplated Transactions, subject to Section 8.6. The right to
indemnification, reimbursement or other remedy based upon such representations,
warranties, covenants and obligations shall not be affected by any
investigation (including any environmental investigation or assessment)
conducted with respect to, or any Knowledge acquired (or capable of being
acquired) at any time, whether before or after the execution and delivery of
this Agreement, with respect to the accuracy or inaccuracy of or compliance
with any such representation, warranty, covenant or obligation. The waiver of
any condition based upon the accuracy of any representation or warranty, or on
the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification, reimbursement or other remedy based upon
such representations, warranties, covenants and obligations.

 

8.2          INDEMNIFICATION AND
REIMBURSEMENT BY SELLER. 
Seller will indemnify and hold harmless Buyer, and its Representatives,
shareholders and Related Persons (collectively, the “Buyer Indemnified
Persons”), and will reimburse the Buyer Indemnified Persons for any loss,
liability, claim, damage, expense (including costs of investigation and
defense, court costs and reasonable attorneys’ fees and expenses), whether or
not involving a Third-Party Claim (collectively, “Damages”), arising from or in
connection with:

 

(a)           any Breach of any representation
or warranty made by Seller in (i) this Agreement, (ii) the certificates
delivered pursuant to Section 2.7, (iii) any transfer instrument or (iv)
any other certificate, document, writing or instrument delivered by Seller
pursuant to this Agreement;

 

(b)           any Breach of any covenant or
obligation of Seller in this Agreement or in any other certificate, document,
writing or instrument delivered by Seller pursuant to this Agreement;

 

(c)           any Liability arising out of the
ownership or operation of the Gaithersburg Business or the Assets prior to the
Effective Time other than the Assumed Liabilities;

 

(d)           any brokerage or finder’s fees
or commissions or similar payments based upon any agreement or understanding
made, or alleged to have been made, by any Person with Seller (or any Person
acting on its) in connection with any of the Contemplated Transactions;

 

29

 

(e)           any product printed, produced or
delivered by, or any services provided by, Seller, in whole or in part, prior
to or on the Closing Date;

 

(f)            any
noncompliance with any Bulk Sales Laws in respect of the Contemplated
Transactions;

 

(g)           any Employee Plan established or
maintained by Seller; or

 

(h)           any Retained Liabilities.

 

8.3          INDEMNIFICATION AND
REIMBURSEMENT BY SELLER—ENVIRONMENTAL MATTERS.  In addition to the other indemnification
provisions in this Article 8, Seller will indemnify and hold harmless
Buyer and the other Buyer Indemnified Persons, and will reimburse Buyer and the
other Buyer Indemnified Persons, for any Damages (including costs of cleanup,
containment or other remediation) arising from or in connection with:

 

(a)           any Environmental, Health and
Safety Liabilities arising out of or relating to the ownership or operation by
Seller on or prior to the Effective Time of the Assets or the Gaithersburg
Business; or

 

(b)           any bodily injury (including
illness, disability and death, regardless of when any such bodily injury
occurred, was incurred or manifested itself), personal injury, property damage
(including trespass, nuisance, wrongful eviction and deprivation of the use of
real property) or other damage of or to any Person or any Assets in any way
arising from or allegedly arising from any Hazardous Activity conducted by
Seller with respect to the Gaithersburg Business or the Assets prior to the
Effective Time or from any Hazardous Material that was Released or allegedly
Released by Seller on or at the Gaithersburg Facility or Assets at any time on
or prior to the Effective Time.

 

Buyer will be entitled to control any
Remedial Action, any Proceeding relating to an Environmental claim and, except
as provided in the following sentence, any other Proceeding with respect to
which indemnity may be sought under this Section 8.3. The procedure
described in Section 8.9 will apply to any claim solely for monetary
damages relating to a matter covered by this Section 8.3.

 

8.4          INDEMNIFICATION AND
REIMBURSEMENT BY BUYER. 
Buyer will indemnify and hold harmless Seller, and its Representatives,
and Related Persons (collectively, the “Seller Indemnified Persons”), and will
reimburse the Seller Indemnified Persons, for any Damages arising from or in
connection with:

 

(a)           any Breach of any representation
or warranty made by Buyer (i) this Agreement, (ii) the certificates delivered
pursuant to Section 2.7, (iii) any other certificate, document, writing or
instrument delivered by Buyer pursuant to this Agreement;

 

(b)           any Breach of any covenant or
obligation of Buyer in this Agreement or in any other certificate, document,
writing or instrument delivered by Buyer pursuant to this Agreement;

 

30

 

(c)           any Liability arising out of the
ownership or operation of the Gaithersburg Business or the Assets after the Effective
Time;

 

(d)           any claim by any Person for
brokerage or finder’s fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by such Person with Buyer
(or any Person acting on Buyer’s behalf) in connection with any of the
Contemplated Transactions; or

 

(e)           any Assumed Liabilities.

 

8.5          LIMITATIONS ON
AMOUNT—SELLER.  Seller shall have
no liability (for indemnification or otherwise) with respect to claims under
Section 8.2(a) until the total of all Damages with respect to such matters
exceeds Fourteen Thousand Two Hundred Fifty Dollars ($14,250) and then only for
the amount by which such Damages exceed Fourteen Thousand Two Hundred Fifty
Dollars ($14,250). However, this Section 8.5 will not apply to claims under
Section 8.2(b) through (h) or to matters arising in respect of Sections
3.2, 3.5, 3.8, 3.15, 3.19, or 3.20 or to any Breach of any of Seller’s
representations and warranties of which the Seller had Knowledge at any time
prior to the date on which such representation and warranty is made or any
intentional Breach by Seller of any covenant or obligation.

 

8.6          LIMITATIONS ON
AMOUNT—BUYER.  Buyer will have no
liability (for indemnification or otherwise) with respect to claims under
Section 8.4(a) until the total of all Damages with respect to such matters
exceeds Fourteen Thousand Two Hundred Fifty Dollars ($14,250) and then only for
the amount by which such Damages exceed Fourteen Thousand Two Hundred Fifty
Dollars ($14,250). However, this Section 8.6 will not apply to claims
under Section 8.4(b) through (e) or matters arising in respect of Sections
4.2, 4.5, 4.7, or to any Breach of any of Buyer’s representations and
warranties of which Buyer had Knowledge at any time prior to the date on which
such representation and warranty is made or any intentional Breach by Buyer of
any covenant or obligation.

 

8.7          TIME LIMITATIONS.

 

(a)           Seller will have liability (for
indemnification or otherwise) with respect to any Breach of (i) a covenant or
obligation to be performed or complied with prior to the Closing Date (other
than those in Sections 2.1 and 2.4 and Articles 7 and 9, as to which a claim
may be made at any time) or (ii) a representation or warranty (other than those
in Sections 3.5, 3.8, 3.15, 3.19, or 3.20, as to which a claim may be made at
any time), only if on or before September 30, 2006, Buyer notifies Seller
of a claim specifying the factual basis of the claim in reasonable detail to
the extent then known by Buyer.

 

(b)           Buyer will have liability (for
indemnification or otherwise) with respect to any Breach of (i) a covenant or
obligation to be performed or complied with prior to the Closing Date (other
than those in Sections 2.3 and 2.4 and Articles 7 and 9, as to which a claim
may be made at any time) or (ii) a representation or warranty (other than that
set forth in Sections 4.2, 4.5 or 4.7, as to which a claim may be made at any
time), only if on or before September 30, 2006, Seller notifies Buyer of a

 

31

 

claim specifying the factual basis of
the claim in reasonable detail to the extent then known by Seller.

 

8.8          RIGHT OF SETOFF.  The terms of the Promissory Note provide for
certain rights of set-off with respect to the parties’ mutual obligations.
Neither the exercise of nor the failure to exercise such rights of setoff will
constitute an election of remedies or limit the parties in any manner in the
enforcement of any other remedies that may be available to them.

 

8.9          THIRD-PARTY CLAIMS.

 

(a)           Promptly after receipt by a
Person entitled to indemnity under Section 8.2, 8.3 (to the extent
provided in the last sentence of Section 8.3) or 8.4 (an “Indemnified
Person”) of notice of the assertion of a Third-Party Claim against it, such
Indemnified Person shall give notice to the Person obligated to indemnify under
such Section (an “Indemnifying Person”) of the assertion of such
Third-Party Claim, provided that the failure to notify the Indemnifying
Person will not relieve the Indemnifying Person of any liability that it may
have to any Indemnified Person, except to the extent that the Indemnifying
Person demonstrates that the defense of such Third-Party Claim is prejudiced by
the Indemnified Person’s failure to give such notice.

 

(b)           If an Indemnified Person gives
notice to the Indemnifying Person pursuant to Section 8.9(a) of the
assertion of a Third-Party Claim, the Indemnifying Person shall be entitled to
participate in the defense of such Third-Party Claim and, to the extent that it
wishes (unless (i) the Indemnifying Person is also a Person against whom the
Third-Party Claim is made and the Indemnified Person determines in good faith
that joint representation would be inappropriate or (ii) the Indemnifying
Person fails to provide reasonable assurance to the Indemnified Person of its
financial capacity to defend such Third-Party Claim and provide indemnification
with respect to such Third-Party Claim), to assume the defense of such
Third-Party Claim with counsel satisfactory to the Indemnified Person. After notice
from the Indemnifying Person to the Indemnified Person of its election to
assume the defense of such Third-Party Claim, the Indemnifying Person shall
not, so long as it diligently conducts such defense, be liable to the
Indemnified Person under this Article 8 for any fees of other counsel or
any other expenses with respect to the defense of such Third-Party Claim, in
each case subsequently incurred by the Indemnified Person in connection with
the defense of such Third-Party Claim, other than reasonable costs of
investigation. If the Indemnifying Person assumes the defense of a Third-Party
Claim, (i) such assumption will conclusively establish for purposes of this
Agreement that the claims made in that Third-Party Claim are within the scope
of and subject to indemnification, and (ii) no compromise or settlement of such
Third-Party Claims may be effected by the Indemnifying Person without the
Indemnified Person’s Consent unless (A) there is no finding or admission of any
violation of Legal Requirement or any violation of the rights of any Person;
(B) the sole relief provided is monetary damages that are paid in full by the
Indemnifying Person; and (C) the Indemnified Person shall have no liability
with respect to any compromise or settlement of such Third-Party Claims
effected without its Consent. If notice is given to an Indemnifying Person of
the assertion of any Third-Party Claim and the Indemnifying Person does not,
within ten (10) days after the Indemnified Person’s notice is given, give
notice to the Indemnified Person of its election to assume the defense of such
Third-Party Claim, the

 

32

 

Indemnifying Person will be bound by
any determination made in such Third-Party Claim or any compromise or
settlement effected by the Indemnified Person.

 

(c)           Notwithstanding the foregoing,
if an Indemnified Person determines in good faith that there is a reasonable
probability that a Third-Party Claim may adversely affect it or its Related
Persons other than as a result of monetary damages for which it would be
entitled to indemnification under this Agreement, the Indemnified Person may,
by notice to the Indemnifying Person, assume the exclusive right to defend,
compromise or settle such Third-Party Claim, but the Indemnifying Person will
not be bound by any determination of any Third-Party Claim so defended for the
purposes of this Agreement or any compromise or settlement effected without its
Consent (which may not be unreasonably withheld).

 

(d)           Notwithstanding the provisions
of Section 10.4, Seller hereby consent to the nonexclusive jurisdiction of
any court in which a Proceeding in respect of a Third-Party Claim is brought
against any Buyer Indemnified Person for purposes of any claim that a Buyer
Indemnified Person may have under this Agreement with respect to such
Proceeding or the matters alleged therein and agree that process may be served
on Seller with respect to such a claim anywhere in the world.

 

(e)           With respect to any Third-Party
Claim subject to indemnification under this Article 8: (i) both the
Indemnified Person and the Indemnifying Person, as the case may be, shall keep
the other Person fully informed of the status of such Third-Party Claim and any
related Proceedings at all stages thereof where such Person is not represented
by its own counsel, and (ii) the parties agree (each at its own expense) to
render to each other such assistance as they may reasonably require of each
other and to cooperate in good faith with each other in order to ensure the
proper and adequate defense of any Third-Party Claim.

 

(f)            With
respect to any Third-Party Claim subject to indemnification under this
Article 8, the parties agree to cooperate in such a manner as to preserve
in full (to the extent possible) the confidentiality of all Confidential
Information and the attorney-client and work-product privileges. In connection
therewith, each party agrees that: (i) it will use its commercially reasonable
efforts, in respect of any Third-Party Claim in which it has assumed or participated
in the defense, to avoid production of Confidential Information (consistent
with applicable law and rules of procedure), and (ii) all communications
between any party hereto and counsel responsible for or participating in the
defense of any Third-Party Claim shall, to the extent possible, be made so as
to preserve any applicable attorney-client or work-product privilege.

 

8.10        OTHER CLAIMS.  A claim for indemnification for any matter
not involving a Third-Party Claim may be asserted by notice to the party from
whom indemnification is sought and shall be paid promptly after such notice.

 

8.11        INDEMNIFICATION IN
CASE OF STRICT LIABILITY OR INDEMNITEE NEGLIGENCE.  THE INDEMNIFICATION PROVISIONS IN THIS
ARTICLE 8 SHALL BE ENFORCEABLE REGARDLESS OF WHETHER THE LIABILITY IS
BASED UPON PAST, PRESENT OR FUTURE ACTS, CLAIMS OR LEGAL REQUIREMENTS
(INCLUDING ANY PAST, PRESENT OR FUTURE BULK SALES LAW, ENVIRONMENTAL LAW,

 

33

 

FRAUDULENT TRANSFER ACT, OCCUPATIONAL
SAFETY AND HEALTH LAW OR PRODUCTS LIABILITY, SECURITIES OR OTHER LEGAL
REQUIREMENT) AND REGARDLESS OF WHETHER ANY PERSON (INCLUDING THE PERSON FROM
WHOM INDEMNIFICATION IS SOUGHT) ALLEGES OR PROVES THE SOLE, CONCURRENT,
CONTRIBUTORY OR COMPARATIVE NEGLIGENCE OF THE PERSON SEEKING INDEMNIFICATION OR
THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED UPON THE PERSON SEEKING
INDEMNIFICATION.

 

ARTICLE 9. 
CONFIDENTIALITY.

 

9.1          DEFINITION OF
CONFIDENTIAL INFORMATION.

 

(a)           As used in this Agreement, the
term “Confidential Information” includes any and all of the following
information of Seller or Buyer that has been or may hereafter be disclosed in
any form, whether in writing, orally, electronically or otherwise, or otherwise
made available by observation, inspection or otherwise by either party or its
Representatives (collectively, a “Disclosing Party”) to the other party or its
Representatives (collectively, a “Receiving Party”):

 

(i)            all
information that is a trade secret under applicable trade secret or other law;

(ii)           all information concerning
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and
ideas, past, current and planned research and development, current and planned
printing or distribution methods and processes, customer lists, current and
anticipated customer requirements, price lists, market studies, business plans,
computer hardware, Software and computer software and database technologies,
systems, structures and architectures;

(iii)          all information concerning the
business and affairs of the Disclosing Party (which includes historical and
current financial statements, financial projections and budgets, tax returns
and accountants’ materials, historical, current and projected sales, capital
spending budgets and plans, business plans, strategic plans, marketing and
advertising plans, publications, client and customer lists and files,
contracts, the names and backgrounds of key personnel and personnel training techniques
and materials, however documented), and all information obtained from review of
the Disclosing Party’s documents or property or discussions with the Disclosing
Party regardless of the form of the communication; and

(iv)          all notes, analyses, compilations,
studies, summaries and other material prepared by the Receiving Party to the
extent containing or based, in whole or in part, upon any information included
in the foregoing.

 

(b)           Any trade secrets of a
Disclosing Party shall also be entitled to all of the protections and benefits
under applicable trade secret law and any other applicable law. If any
information that a Disclosing Party deems to be a trade secret is found by a
court of competent jurisdiction not to be a trade secret for purposes of this
Article 9, such information shall still be considered Confidential
Information of that Disclosing Party for purposes of this Article 9 to the
extent included within the definition. In the case of trade secrets, Buyer and
Seller each hereby waives any requirement that

 

34

 

the other party submit proof of the
economic value of any trade secret or post a bond or other security.

 

9.2          RESTRICTED USE OF
CONFIDENTIAL INFORMATION.

 

(a)           Each Receiving Party acknowledges
the confidential and proprietary nature of the Confidential Information of the
Disclosing Party and agrees that such Confidential Information (i) shall be
kept confidential by the Receiving Party; (ii) shall not be used for any reason
or purpose other than to evaluate and consummate the Contemplated Transactions
or as otherwise specifically permitted by this Agreement; and (iii) without
limiting the foregoing, shall not be disclosed by the Receiving Party to any
Person, except in each case as otherwise expressly permitted by the terms of
this Agreement or with the prior written consent of an authorized
representative of Seller with respect to Confidential Information of Seller or
an authorized representative of Buyer with respect to Confidential Information
of Buyer.  Buyer and Seller shall each
disclose the Confidential Information of the other party only to its
Representatives who require such material for the purpose of evaluating the
Contemplated Transactions or for any other purpose specifically permitted by
this Agreement, and are informed by Buyer or Seller, as the case may be, of the
obligations of this Article 9 with respect to such information. Buyer and
Seller shall each (A) enforce the terms of this Article 9 as to its
respective Representatives; (B) take such action to the extent necessary to
cause its Representatives to comply with the terms and conditions of this
Article 9; and (C) be responsible and liable for any breach of the
provisions of this Article 9 by it or its Representatives.

 

(b)           Unless and until this Agreement
is terminated, Seller shall maintain as confidential any Confidential
Information of the Seller relating to the Gaithersburg Business, any of the
Assets or the Assumed Liabilities.

 

(c)           From and after the Closing, the
provisions of Section 9.2(a) above shall not apply to or restrict in any
manner Buyer’s use of any Confidential Information of the Seller relating to
the Gaithersburg Business, any of the Assets or the Assumed Liabilities.

 

9.3          EXCEPTIONS.  Sections 9.2(a) and (b) do not apply to that
part of the Confidential Information of a Disclosing Party that a Receiving
Party demonstrates (a) was, is or becomes generally available to the public
other than as a result of (i) a breach of this Article 9 by the Receiving
Party or its Representatives or (ii) a breach prior to Closing of the
Confidentiality Agreement by the Receiving Party or its Representatives; (b)
was or is developed by the Receiving Party independently of and without
reference to any Confidential Information of the Disclosing Party; or (c) was,
is or becomes available to the Receiving Party on a non-confidential basis from
a Third Party not bound by a confidentiality agreement or any legal, fiduciary
or other obligation restricting disclosure. 
Notwithstanding anything to the contrary in this Agreement, any party to
this Agreement (and each employee, representative, or other agent of such
party) may disclose to any and all persons, without limitation of any kind, the
tax treatment and tax structure of the transactions described in this Agreement
and all materials of any kind (including opinions or other tax analysis) that
are provided to it relating to such tax treatment and tax structure.

 

35

 

9.4          LEGAL PROCEEDINGS.  If a Receiving Party becomes compelled in
any Proceeding or is requested by a Governmental Body having regulatory
jurisdiction over the Contemplated Transactions to make any disclosure that is
prohibited or otherwise constrained by this Article 9, that Receiving
Party shall provide the Disclosing Party with prompt notice of such compulsion
or request so that it may seek an appropriate protective order or other
appropriate remedy or waive compliance with the provisions of this
Article 9. In the absence of a protective order or other remedy, the
Receiving Party may disclose that portion (and only that portion) of the
Confidential Information of the Disclosing Party that, based upon advice of the
Receiving Party’s counsel, the Receiving Party is legally compelled to disclose
or that has been requested by such Governmental Body, provided, however,
that the Receiving Party shall use reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded by any Person to whom
any Confidential Information is so disclosed. The provisions of this
Section 9.4 do not apply to any Proceedings between the parties to this
Agreement.

 

9.5          RETURN OR DESTRUCTION
OF CONFIDENTIAL INFORMATION. 
If this Agreement is terminated, each Receiving Party shall (a) destroy
all Confidential Information of the Disclosing Party prepared or generated by
the Receiving Party without retaining a copy of any such material; (b) promptly
deliver to the Disclosing Party all other Confidential Information of the
Disclosing Party, together with all copies thereof, in the possession, custody
or control of the Receiving Party or, alternatively, with the written consent
of the Disclosing Party, destroy all such Confidential Information; and (c)
certify all such destruction in writing to the Disclosing Party, provided,
however, that the Receiving Party may retain a list that contains general
descriptions of the information it has returned or destroyed to facilitate the
resolution of any controversies after the Disclosing Party’s Confidential
Information is returned.

 

9.6          ATTORNEY-CLIENT
PRIVILEGE.  The Disclosing
Party is not waiving, and will not be deemed to have waived or diminished, any
of its attorney work product protections, attorney-client privileges or similar
protections and privileges as a result of disclosing its Confidential
Information (including Confidential Information related to pending or
threatened litigation) to the Receiving Party, regardless of whether the
Disclosing Party has asserted, or is or may be entitled to assert, such
privileges and protections. The parties (a) share a common legal and commercial
interest in all of the Disclosing Party’s Confidential Information that is
subject to such privileges and protections; (b) are or may become joint
defendants in Proceedings to which the Disclosing Party’s Confidential
Information covered by such protections and privileges relates; (c) intend that
such privileges and protections remain intact should either party become
subject to any actual or threatened Proceeding to which the Disclosing Party’s
Confidential Information covered by such protections and privileges relates;
and (d) intend that after the Closing the Receiving Party shall have the right
to assert such protections and privileges. No Receiving Party shall admit,
claim or contend, in Proceedings involving either party or otherwise, that any
Disclosing Party waived any of its attorney work-product protections,
attorney-client privileges or similar protections and privileges with respect
to any information, documents or other material not disclosed to a Receiving
Party due to the Disclosing Party disclosing its Confidential Information
(including Confidential Information related to pending or threatened
litigation) to the Receiving Party.

 

36

 

ARTICLE 10. GENERAL PROVISIONS

 

10.1        EXPENSES.  Except as otherwise provided in this
Agreement, each party to this Agreement will bear its respective fees and
expenses incurred in connection with the preparation, negotiation, execution
and performance of this Agreement and the Contemplated Transactions, including
all fees and expense of its Representatives. 
If this Agreement is terminated, the obligation of each party to pay its
own fees and expenses will be subject to any rights of such party arising from
a Breach of this Agreement by another party.

 

10.2        PUBLIC ANNOUNCEMENTS.  The parties acknowledge that Seller is a
public company subject to the Exchange Act and the SEC rules and regulations
thereunder.  Except as to the extent
required by law (including the Exchange Act and any SEC rules or regulations
thereunder), without the prior written consent of the other party, neither
Seller or Buyer or its respective Representatives will make, directly or
indirectly, any public comment, statement, announcement, press release,
communication or similar publicity with respect to this Agreement or the
Contemplated Transactions; provided, however, Seller and Buyer
may make disclosures with respect to this Agreement or the Contemplated
Transactions to its respective Representatives, the Landlord or the
Lender.  If Seller or Buyer is required
by law (including the Exchange Act or the SEC rules and regulations thereunder)
to make any such disclosure, such party must first provide to the other party
the content of the proposed disclosure, the reasons that such disclosure is
required by law, and the time and place that the disclosure will be made.  Upon the consummation of Closing, Seller and
Buyer will jointly issue a customary press release, the form and content of
which shall be as mutually agreed by Seller and Buyer.  Seller and Buyer will consult with each
other concerning the means by which Seller’s employees, customers, suppliers,
vendors and others having dealings with Seller will be informed of this
Agreement or the Contemplated Transactions.

 

10.3        NOTICES.  All notices, Consents, waivers and other
communications required or permitted by this Agreement shall be in writing and
shall be deemed given to a party when (a) delivered to the appropriate address
by hand or by nationally recognized overnight courier service (costs prepaid);
or (b) received or rejected by the addressee, if sent by certified mail, return
receipt requested, in each case to the following addresses and marked to the attention
of the person (by name or title) designated below (or to such other address or
person as a party may designate by notice to the other party):

 

	
  Seller:

  	
   

  	
   

  
	
   

  	
   

  	
  On-Site Sourcing, Inc.

  832 North Henry Street

  Alexandria, VA  22314

  Attention: Jason Parikh, Chief Financial Officer

  

 

With a copy of notice to Seller, that shall not be required for there
to be adequate notice hereunder:

 

	
   

  	
   

  	
  Wilmer Cutler & Pickering

  1600 Tysons Boulevard, 10th Floor

  Tysons Corner, Virginia 22102

  Attention: Thomas W. White

  

 

37

 

	
  Buyer:

  	
   

  	
  Colornet Printing and Graphics, Inc.

  19200F Chennault Way

  Gaithersburg, MD  208789

  Attention: Max Wepasnick, Treasurer

  

 

With a copy
of notice to Buyer, that shall not be required for there to be adequate notice
hereunder:

 

	
   

  	
   

  	
  Shulman, Rogers, Gandal, Pordy &
  Ecker, P.A.

  11921 Rockville Pike, Third Floor

  Rockville, Maryland 20852

  Attention:  Christopher C. Roberts

  

 

10.4        JURISDICTION; SERVICE
OF PROCESS.  Any Proceeding
arising out of or relating to this Agreement or any Contemplated Transaction
may be brought only in the courts of the State of Maryland, County of
Montgomery, or, if it has or can acquire jurisdiction, in the United States
District Court for the Southern District of Maryland, and each of the parties
irrevocably submits to the exclusive jurisdiction of each such court in any
such Proceeding, waives any objection it may now or hereafter have to venue or
to convenience of forum, agrees that all claims in respect of the Proceeding
shall be heard and determined only in any such court and agrees not to bring
any Proceeding arising out of or relating to this Agreement or any Contemplated
Transaction in any other court. The parties agree that either or both of them
may file a copy of this Section with any court as written evidence of the
knowing, voluntary and bargained agreement between the parties irrevocably to
waive any objections to venue or to convenience of forum. Process in any
Proceeding referred to in the first sentence of this section may be served
on any party anywhere in the world.

 

10.5        ENFORCEMENT OF
AGREEMENT.  Each party
acknowledges and agrees that it would be irreparably damaged if any of the
provisions of this Agreement are not performed in accordance with their
specific terms and that any Breach of this Agreement by the other party could
not be adequately compensated in all cases by monetary damages alone.
Accordingly, in addition to any other right or remedy to which the parties may
be entitled, at law or in equity, each party shall be entitled to enforce any
provision of this Agreement by a decree of specific performance and to
temporary, preliminary and permanent injunctive relief to prevent Breaches or
threatened Breaches of any of the provisions of this Agreement, without posting
any bond or other undertaking.

 

10.6        WAIVER; REMEDIES
CUMULATIVE.  The rights and
remedies of the parties to this Agreement are cumulative and not alternative.
Neither any failure nor any delay by any party in exercising any right, power
or privilege under this Agreement or any of the documents referred to in this
Agreement will operate as a waiver of such right, power or privilege, and no
single or partial exercise of any such right, power or privilege will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right arising out of this Agreement or any of
the documents referred to in this Agreement can be discharged by one party, in
whole or in part, by a

 

38

 

waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of that party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.

 

10.7        ENTIRE AGREEMENT AND
MODIFICATION.  This Agreement
supersedes and terminates all prior agreements, whether written or oral,
between the parties with respect to its subject matter (including the Letter of
Intent and the Confidentiality Agreement) and constitutes (along with the
Schedules, Exhibits and other documents delivered pursuant to this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. The Recitals are hereby
incorporated into this Agreement. 
Unless the context indicates otherwise, all references to this Agreement
include its Schedules and Exhibits. 
This Agreement may not be amended, supplemented, or otherwise modified
except by a written agreement executed by the party to be charged with the
amendment.

 

10.8        SCHEDULES.

 

(a)           The information in certain
Schedules constitutes (i) exceptions to particular representations, warranties,
covenants and obligations as set forth in this Agreement or (ii) descriptions
or lists of assets and liabilities and other items referred to in this
Agreement. If there is any inconsistency between the statements in this
Agreement and those in the Schedules (other than an exception expressly set
forth as such in the Schedules with respect to a specifically identified
representation or warranty), the statements in this Agreement will control.

 

(b)           The statements in the Schedules
relate only to the provisions in the Section of this Agreement to which
they expressly relate and not to any other provision in this Agreement, except
that if a disclosure in the Schedules of any particular exception reasonably
puts the parties on notice of an exception to a related Section of this
Agreement, such disclosure shall be deemed to apply to both the particular
Section noted in the Schedules and the related Section of this
Agreement.

 

10.9        ASSIGNMENTS,
SUCCESSORS AND NO THIRD-PARTY RIGHTS.  No party may assign any of its rights or delegate any of its
obligations under this Agreement without the prior written consent of the other
party, except that Buyer may collaterally assign its rights hereunder to the
Lender, or any banks or commercial finance or other lending institutions regularly
engaged in the business of lending money (excluding venture capital, investment
banking or similar institutions and their affiliates which sometimes engage in
lending activities but which are primarily engaged in investments in equity
securities), providing financing or re-financing to  Buyer.  Subject to the
preceding sentence, this Agreement will apply to, be binding in all respects
upon and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed
to give any Person other than the parties to this Agreement any legal or
equitable right, remedy or claim under or with respect to this Agreement or any
provision of this Agreement, except such rights as shall inure to a successor
or permitted assignee pursuant to this Section 10.9.

 

39

 

10.10      SEVERABILITY.  If any provision of this Agreement is held
invalid, illegal or unenforceable by any court of competent jurisdiction, the
other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid, illegal or unenforceable only in part
or degree will remain in full force and effect to the extent not held invalid,
illegal or unenforceable.

 

10.11      CONSTRUCTION.  The headings of Articles and Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to “Articles” and “Sections”
refer to the corresponding Articles and Sections of this Agreement, including
the Schedules and Exhibits, unless otherwise specifically provided in this
Agreement.

 

10.12      TIME OF ESSENCE.  With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.

 

10.13      GOVERNING LAW.  This Agreement will be governed by and
construed under the laws of the State of Maryland without regard to
conflicts-of-laws principles that would require the application of any other
law.

 

10.14      EXECUTION OF
AGREEMENT.  This Agreement may
be executed in one or more counterparts, each of which will be deemed to be an
original copy of this Agreement and all of which, when taken together, will be
deemed to constitute one and the same agreement. The exchange of copies of this
Agreement and of signature pages by facsimile transmission shall constitute
effective execution and delivery of this Agreement as to the parties and may be
used in lieu of the original Agreement for all purposes. Signatures of the
parties transmitted by facsimile shall be deemed to be their original
signatures for all purposes.

 

IN WITNESS WHEREOF, the parties, by
their duly authorized officers, have executed and delivered this Agreement as
of the date first written above.

 

	
  SELLER:

  	
   

  	
  BUYER:

  
	
  On-Site
  Sourcing, Inc.,

  a Delaware corporation

  	
   

  	
  Colornet
  Printing and Graphics, Inc.,

  a Maryland close corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Jason Parikh, Chief Financial Officer

  	
   

  	
   

  	
  Max L. Wepasnick, Chief Executive
  Officer

  

 

53118
– Asset Purchase Agreement (SRGPE second final 10-7).doc

 

40

 

SCHEDULE 1.1

 

DEFINITIONS

 

For purposes of this Agreement, the
following capitalized terms and variations thereof have the meanings specified
or referred to in this Schedule 1.1:

 

“Accounts Receivable” — (a) all trade
accounts receivable and other rights to payment from customers of Seller and
the full benefit of all security for such accounts or rights to payment,
including all trade accounts receivable representing amounts receivable in
respect of goods shipped or products sold or services rendered to customers of
Seller, (b) all other accounts or notes receivable of Seller and the full
benefit of all security for such accounts or notes, and (c) any claim, remedy
or other right related to any of the foregoing.

 

“Agreement” — as defined in the first
paragraph of this Agreement.

 

“Assets” — as defined in
Section 2.1.

 

“Assignment and Assumption Agreement” —
as defined in Section 2.7(a)(iii).

 

“Assumed Liabilities” — as defined in
Section 2.4(a).

 

“Bill of Sale” — as defined in
Section 2.7(a)(ii).

 

“Breach” — any breach of, or any
inaccuracy in, any representation or warranty or any breach of, or failure to
perform or comply with, any covenant, agreement or obligation, in or of this
Agreement or any other Contract, or any event which with the passing of time or
the giving of notice, or both, would constitute such a breach, inaccuracy or
failure.

 

“Bulk Sales Laws” — as defined in
Section 7.11.

 

“Buyer” — as defined in the first
paragraph of this Agreement.

 

“Buyer Indemnified Persons” — as
defined in Section 8.2.

 

“Claims” — claims of Seller against
Third Parties, whether choate or inchoate, known or unknown, or contingent or
non-contingent, including all claims for refund of Taxes and other governmental
charges of whatever nature.

 

“Closing” — as defined in
Section 2.6.

 

“Closing Date” — the date on which the
Closing actually takes place.

 

“COBRA” — as defined in
Section 3.10(b).

 

41

 

“Code” — the Internal Revenue Code of
1986.

 

“Confidential Information” — as defined
in Section 9.1(a).

 

“Confidentiality Agreement” – the
“Mutual Non-Disclosure, Non-Use, Non-Solicitation and Standstill Agreement”
dated August 11, 2003, between Seller and Buyer.

 

“Consent” — any approval, consent,
ratification, waiver or other authorization.

 

“Contemplated Transactions” — all of
the transactions contemplated by this Agreement.

 

“Contracts” — any agreement, contract,
purchase order, job ticket, Lease, consensual obligation, promise or
undertaking (whether written, oral or in electronic format, and whether express
or implied), whether or not legally binding, arising out of or relating to the
Overall Business.

 

“Damages” — as defined in
Section 8.2.

 

“Disclosing Party” – as defined in
Section 9.1(a).

 

“Effective Time” – 11:59 pm on
September 30, 2003.

 

“Employee Plans” – all “employee
benefit plans” as defined by Section 3(3) of ERISA, all specified fringe
benefit plans as defined in Section 6039D of the Code, and all other
bonus, incentive-compensation, deferred-compensation, profit-sharing,
stock-option, stock-appreciation-right, stock-bonus, stock-purchase,
employee-stock-ownership, savings, severance, change-in-control,
supplemental-unemployment, layoff, salary-continuation, retirement, pension,
health, life-insurance, disability, accident, group-insurance, vacation,
holiday, sick-leave, fringe-benefit or welfare plan, and any other employee
compensation or benefit plan, agreement, policy, practice, commitment, contract
or understanding (whether qualified or nonqualified, currently effective or
terminated, written or unwritten) and any trust, escrow or other agreement
related thereto that (i) is maintained or contributed to by Seller or any other
corporation or trade or business controlled by, controlling or under common
control with Seller (within the meaning of Section 414 of the Code or
Section 4001(a)(14) or 4001(b) of ERISA) (“ERISA Affiliate”) or has been
maintained or contributed to in the last six (6) years by Seller or any ERISA
Affiliate, or with respect to which Seller or any ERISA Affiliate has or may
have any liability, and (ii) provides benefits, or describes policies or
procedures applicable to any current or former director, officer, employee or
service provider of Seller or any ERISA Affiliate, or the dependents of any
thereof, regardless of how (or whether) liabilities for the provision of
benefits are accrued or assets are acquired or dedicated with respect to the
funding thereof .

 

“Encumbrance” — any charge, claim,
lien, option, pledge, security interest, mortgage, right of first option, right
of first refusal or similar restriction, including any restriction on use,
transfer, receipt of income or exercise of any other attribute of ownership.

 

42

 

“Environment” — soil, land surface or
subsurface strata, surface waters (including navigable waters and ocean
waters), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life and any other environmental
medium or natural resource.

 

“Environmental, Health and Safety
Liabilities” — any cost, damages, expense, liability, obligation or other
responsibility arising from or under any Environmental Law or Occupational
Safety and Health Law, including those consisting of or relating to:

(a)           any environmental, health or
safety matter or condition (including on-site or off-site contamination,
occupational safety and health and regulation of any chemical substance or product);

(b)           any fine, penalty, judgment,
award, settlement, legal or administrative proceeding, damages, loss, claim,
demand or response, remedial or inspection cost or expense arising under any
Environmental Law or Occupational Safety and Health Law;

(c)           financial responsibility under
any Environmental Law or Occupational Safety and Health Law for cleanup costs
or corrective action, including any cleanup, removal, containment or other
remediation or response actions (“Cleanup”) required by any Environmental Law
or Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or

(d)           any other compliance, corrective
or remedial measure required under any Environmental Law or Occupational Safety
and Health Law.

 

The terms “removal,” “remedial” and
“response action” include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA).

 

“Environmental Law” — any Legal
Requirements designed to minimize, prevent, punish or remedy the consequences
of actions that damage or threaten the Environment or public health or safety.

 

“ERISA” — the Employee Retirement
Income Security Act of 1974.

 

“Exchange Act” — the Securities
Exchange Act of 1934.

 

“Excluded Assets” — as defined in
Section 2.2.

 

“Existing Customers” — as defined in
Section 7.8(a)(v).

 

“GAAP” — generally accepted accounting
principles for financial reporting in the United States, applied on a
consistent basis.

 

“Gaithersburg Business” — as defined in
Recital B.

 

“Gaithersburg Claims” – all Claims
which are at the Effective Time (or which at any time during the period from
June 30, 2003, to the Effective Time were) used in the Gaithersburg
Business or arising out of the Gaithersburg Business.

 

43

 

“Gaithersburg Contracts” – all Seller
Contracts which are at the Effective Time (or which at any time during the
period from June 30, 2003, to the Effective Time were) used in the
Gaithersburg Business or related to the Gaithersburg Business including Seller
Contracts with customers, vendors or suppliers of the Gaithersburg Business,
but excluding (a) all Contracts with customers as to which Seller fully
performs its obligations prior to the Effective Time, (b) all Contracts with
customers as to which Seller has been paid in whole or in part, or has accrued
an Account Receivable, prior to the Effective Time, and (c) all Contracts with
customers as to which Seller will be entitled to any payment under
Section 2.2(d) after the Effective Time.

 

“Gaithersburg Facility” – the premises
located at 18630 Woodfield Road, Gaithersburg, Maryland 20879-4711, which are
subject to the Gaithersburg Lease.  The
Gaithersburg Business is located at the Gaithersburg Facility.

 

“Gaithersburg Government
Authorizations” – all Government Authorizations (including all pending
applications therefor or renewals thereof) which are at the Effective Time (or which
at any time during the period from June 30, 2003, to the Effective Time
were) used in the Gaithersburg Business, including any occupancy permit for the
Gaithersburg Facility and any business licenses for the Gaithersburg Business,
but excluding any Government Authorizations which expire or terminate in the
Ordinary Course of Business  prior to
the Effective Time.

 

“Gaithersburg Intangible Rights and
Property” – all intangible rights and property which are at the Effective Time
(or which at any time during the period from June 30, 2003, to the
Effective Time were) located at the Gaithersburg Facility or used in the
Gaithersburg Business, including all Gaithersburg Intellectual Property Assets,
going concern value and goodwill of the Gaithersburg Business, telephone,
telecopy and e-mail addresses and listings used in the Gaithersburg Business or
related to the Gaithersburg Business, covenants of confidentiality,
non-competition or non-solicitation in favor of Seller used in the Gaithersburg
Business or related to the Gaithersburg Business.

 

“Gaithersburg Intellectual Property
Assets” – all Trade Secrets which are at the Effective Time (or which at any
time during the period from June 30, 2003, to the Effective Time were)
located at the Gaithersburg Facility, used in the Gaithersburg Business or
related to the Gaithersburg Business, but excluding (a) all Trade Secrets which
are sold by Seller in the Ordinary Course of Business prior to the Effective
Time, and (b) all Trade Secrets the Seller’s Contract for which expires or
terminates in the Ordinary Course of Business prior to the Effective Time.

 

“Gaithersburg Inventories” – all
Inventories which are at the Effective Time (or which at any time during the
period from June 30, 2003, to the Effective Time were) located at the
Gaithersburg Facility, used in the Gaithersburg Business or related to the
Gaithersburg Business, but excluding all Inventories which are consumed,
expended or sold by Seller in the Ordinary Course of Business prior to the
Effective Time.

 

“Gaithersburg Lease” – the “Agreement”
dated April 27, 2000, between Seller, as the tenant, and the Landlord, as
the landlord, relating to the premises located at 18630 Woodfield Road,

 

44

 

Gaithersburg, Maryland 20879-4711,
including the five-year renewal provision set forth in Section 39 thereof.

 

“Gaithersburg Lease Assignment” – as
defined in Section 2.7(a)(i).

 

“Gaithersburg Records” – all Records
which are at the Effective Time (or which at any time during the period from
June 30, 2003, to the Effective Time were) located at the Gaithersburg
Facility, used in the Gaithersburg Business or related to the Gaithersburg
Business, including lists and Records of or relating to customers of the
Gaithersburg Business (including Records of such customers’ names, addresses,
telephone/fax numbers, e-mail addresses and contacts, and of such customers’
business, order, payment and credit history, correspondence, and credit
rating), referral sources, production reports and Records, service, maintenance
and warranty Records, equipment logs, operating guides and manuals, financial
and accounting Records, creative materials, advertising materials, promotional
materials, studies, reports, correspondence and other similar documents and
Records.  Notwithstanding the preceding
sentence, with respect to personnel Records, the Gaithersburg Records shall
include, subject to Legal Requirements, only the name, residence address,
social security number and Seller’s date of hire for the Hired Active
Employees, which shall be set forth on Schedule 5.8.

 

“Gaithersburg Software” – all Software
which is at the Effective Time (or which at any time during the period from
June 30, 2003, to the Effective Time was) located at the Gaithersburg Facility,
used in the Gaithersburg Business or related to the Gaithersburg Business, but
excluding (a) all Software which is consumed, expended or sold by Seller in the
Ordinary Course of Business prior to the Effective Time and (b) all Software
the Seller’s Lease for which expires or terminates in the Ordinary Course of
Business prior to the Effective Time.

 

“Gaithersburg Tangible Personal
Property” – all Tangible Personal Property which is at the Effective Time (or
which at any time during the period from June 30, 2003, to the Effective
Time was) located at the Gaithersburg Facility or used in the Gaithersburg
Business.

 

“Government Authorization” — any
Consent, license, registration or permit issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant
to any Legal Requirement, and all pending applications therefor or renewals
thereof.

 

“Governmental Body” — any:

(a)           federal, state, local,
municipal, foreign or other government;

(b)           governmental or quasi-governmental
authority of any nature (including any agency, branch, department, board,
commission, court, tribunal or other entity exercising governmental or
quasi-governmental powers);

(c)           body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power; or

(d)           official of any of the
foregoing.

 

“Hazardous Activity” — the
distribution, generation, handling, importing, management, manufacturing,
processing, production, refinement, Release, storage, transfer, transportation,

 

45

 

treatment or use (including any
withdrawal or other use of groundwater) of Hazardous Material in, on, under,
about or from the Gaithersburg Facility or any part thereof into the
Environment and any other act, business, operation or thing that increases the
danger, or risk of danger, or poses an unreasonable risk of harm, to persons or
property on or off the Gaithersburg Facility.

 

“Hazardous Material” — any substance,
material or waste which is regulated by any Governmental Body, including any
material, substance or waste which is defined as a “hazardous waste,”
“hazardous material,” “hazardous substance,” “extremely hazardous waste,”
“restricted hazardous waste,” “contaminant,” “toxic waste” or “toxic substance”
under any provision of Environmental Law, and including petroleum, petroleum
products, asbestos, presumed asbestos-containing material or
asbestos-containing material, urea formaldehyde and polychlorinated biphenyls.

 

“Improvements” — all buildings,
structures, fixtures and improvements located on any real property, including
those under construction.

 

“Indemnified Person”— as defined in
Section 8.9(a).

 

“Indemnifying Person” — as defined in
Section 8.9(a).

 

“Inventories” — all inventories of
Seller, including all finished goods, work in process, raw materials,
consumables, spare parts and all other materials and supplies to be used or
consumed by Seller in the production of finished goods.

 

“IRS” — the United States Internal
Revenue Service and, to the extent relevant, the United States Department of
the Treasury.

 

“Knowledge” — an individual will be
deemed to have Knowledge of a particular fact or other matter if (a) that
individual is actually aware of that fact or matter, or (b) a prudent
individual could be expected to discover or otherwise become aware of that fact
or matter in the course of conducting a reasonably comprehensive investigation
regarding the accuracy of any representation or warranty contained in this
Agreement.  A Person (other than an
individual) will be deemed to have Knowledge of a particular fact or other
matter if any individual who is serving, or who has at any time served, as a
director, officer or general manager of that Person (or in any similar
capacity) has, or at any time had, Knowledge of that fact or other matter (as
set forth in clauses (a) and (b) above), and any such individual will be deemed
to have conducted a reasonably comprehensive investigation regarding the accuracy
of the representations and warranties made herein by that Person or individual.

 

“Landlord” — 18630 Laytonsville
Partnership, which is the landlord under the Gaithersburg Lease.

 

“Lease” — any lease or rental
agreement, license, right to use agreement, or installment or conditional sale
agreement relating to any tangible or intangible personal property or fixtures,
including those pertaining to the leasing, licensing or use of any Tangible
Personal Property or Software, but excluding the Gaithersburg Lease.

 

46

 

“Legal Requirement” — any federal,
state, local, municipal or foreign law, ordinance, principle of common law,
code, regulation, rule, statute or treaty.

 

“Lender” – as defined in
Section 2.7(a)(vi).

 

“Lender Subordination Agreement” – as
defined in Section 2.7(a)(vi).

 

“Letter of Intent” – the letter of
intent dated September 22, 2003, from Buyer to Seller, countersigned as
accepted by Buyer on September 22, 2003.

 

“Liability” — with respect to any Person,
any liability, debt or obligation of such Person of any kind, character or
description, whether known or unknown, absolute or contingent, accrued or
unaccrued, disputed or undisputed, liquidated or unliquidated, secured or
unsecured, joint or several, due or to become due, vested or unvested,
executory, determined, determinable or otherwise, and whether or not the same
is required to be accrued on the financial statements of such Person.

 

“Material Gaithersburg Contact” – as
defined in Section 3.14(b).

 

“Nonmaterial Consents” – as defined in
Section 2.8(c).

 

“Non-Offset Printing” - as defined in
Section 7.8(a)(v).

 

“Occupational Safety and Health Law” —
any Legal Requirement designed to provide safe and healthful working conditions
and to reduce occupational safety and health hazards, including the
Occupational Safety and Health Act, and any program, whether governmental or
private (such as those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working
conditions.

 

“Order” — any order, injunction,
judgment, decree, ruling, assessment or arbitration award of any Governmental
Body or arbitrator.

 

“Ordinary Course of Business” — an
action taken by a Person will be deemed to have been taken in the Ordinary
Course of Business only if that action:

(a)           is consistent in nature, scope
and magnitude with the past practices of such Person and is taken in the
ordinary course of the normal, day-to-day operations of such Person;

(b)           does not require authorization
by the board of directors or shareholders of such Person and does not require
any other separate or special authorization of any nature; and

(c)           is similar in nature, scope and
magnitude to actions customarily taken, without any separate or special
authorization, in the ordinary course of the normal, day-to-day operations of
other Persons that are in the same line of business as such Person.

 

“Overall Business” – as defined in
Recital A.  Prior to the Effective Time,
the Overall Business includes the Gaithersburg Business.

 

47

 

“Permitted Encumbrances” — as defined
in Section 3.5(b).

 

“Person” — an individual, sole
proprietorship, partnership, corporation, business trust, limited liability
company, limited liability partnership, joint stock company, trust,
unincorporated association, joint venture, or other entity or a Governmental
Body.

 

“Proceeding” — any action, arbitration,
audit, hearing, investigation, litigation or suit (whether civil, criminal,
administrative, judicial or investigative, whether formal or informal, whether
public or private) commenced, brought, conducted or heard by or before, or
otherwise involving, any Governmental Body or arbitrator.

 

“Promissory Note” — as defined in Section 2.7(b)(ii).

 

“Purchase Price” — as defined in
Section 2.3.

 

“Receiving Party” – as defined in
Section 9.1(a).

 

“Record” — information or data that is
written, type, printed or otherwise inscribed on a tangible medium or that is
stored in an electronic or other medium and is retrievable in perceivable form.

 

“Related Person” —

(a)           With respect to a particular
individual:

(i)            each
other member of such individual’s Family;

(ii)           any Person that is directly or
indirectly controlled by any one or more members of such individual’s Family;

(iii)          any Person in which members of
such individual’s Family hold (individually or in the aggregate) a Material
Interest; and

(iv)          any Person with respect to which
one or more members of such individual’s Family serves as a director, officer,
partner, executor or trustee (or in a similar capacity).

(b)           With respect to a specified
Person other than an individual:

(i)            any
Person that directly or indirectly controls, is directly or indirectly
controlled by or is directly or indirectly under common control with such
specified Person;

(ii)           any Person that holds a Material
Interest in such specified Person;

(iii)          each Person that serves as a
director, officer, partner, executor or trustee of such specified Person (or in
a similar capacity);

(iv)          any Person in which such
specified Person holds a Material Interest; and

(v)           any Person with respect to which
such specified Person serves as a general partner or a trustee (or in a similar
capacity).

For purposes of this definition, (a)
“control” (including “controlling,” “controlled by,” and “under common control
with”) means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise, and shall be
construed as such term is used in the rules promulgated under the Securities
Act; (b) the “Family” of an individual includes (i) the individual, (ii) the
individual’s spouse, (iii) any other natural person who is related to the
individual or the individual’s spouse within the second degree and (iv) any
other natural person who resides with

 

48

 

such individual; and (c) “Material
Interest” means direct or indirect beneficial ownership (as defined in Rule
13d-3 under the Exchange Act) of voting securities or other voting interests
representing at least ten percent (10%) of the outstanding voting power of a
Person or equity securities or other equity interests representing at least ten
percent (10%) of the outstanding equity securities or equity interests in a
Person.

 

“Release” — any release, spill,
emission, leaking, pumping, pouring, dumping, emptying, injection, deposit,
disposal, discharge, dispersal, leaching or migration on or into the
Environment or into or out of any property.

 

“Remedial Action” — all actions,
including any capital expenditures, required or voluntarily undertaken (a) to
clean up, remove, treat or in any other way address any Hazardous Material or
other substance; (b) to prevent the Release or Threat of Release or to minimize
the further Release of any Hazardous Material or other substance so it does not
migrate or endanger or threaten to endanger public health or welfare or the
Environment; (c) to perform pre-remedial studies and investigations or
post-remedial monitoring and care; or 
(d) to bring all Facilities and the operations conducted thereon into
compliance with Environmental Laws and environmental Government Authorizations.

 

“Representative” — with respect to a
particular Person, any director, officer, manager, employee, agent, consultant,
advisor, accountant, financial advisor, legal counsel or other representative
of that Person.

 

“Retained Active Employees” — as
defined in Section 5.8(a).

 

“Restricted Assets” – as defined in
Section 2.8(c).

 

“Retained Liabilities” — as defined in
Section 2.4(b).

 

“SEC” — the United States Securities
and Exchange Commission.

 

“Securities Act” — the Securities Act
of 1933, as amended.

 

“Security Agreement” – as defined in
Section 2.7(a)(v).

 

“Seller” — as defined in the first
paragraph of this Agreement.

 

“Shared Customers” — as defined in
Section 7.8(a)(i).

 

“Software” — all computer software and
subsequent versions thereof, including source code, object, executable or
binary code, objects, comments, screens, user interfaces, report formats,
templates, menus, buttons and icons and all files, data, materials, manuals,
design notes and other items and documentation related thereto or associated
therewith, including Software which is owned by Seller or leased or licensed to
Seller.

 

49

 

“Subsidiary” — with respect to any
Person (the “Owner”), any corporation or other Person of which securities or
other interests having the power to elect a majority of that corporation’s or
other Person’s board of directors or similar governing body, or otherwise
having the power to direct the business and policies of that corporation or
other Person (other than securities or other interests having such power only
upon the happening of a contingency that has not occurred), are held by the
Owner or one or more of its Subsidiaries.

 

“Tangible Personal Property” — all
fixed assets, machinery, equipment, tools, furniture, office equipment,
computer hardware, supplies, materials, vehicles and other items of tangible
personal property (other than Inventories) of every kind owned, leased or
licensed by Seller (whether or not carried on Seller’s books), together with
any express or implied warranty by the manufacturers, sellers, lessors or
licensors of any item or component part thereof and all maintenance records and
other documents relating thereto.

 

“Tax” — any income, gross receipts,
license, payroll, employment, excise, stamp, property, environmental, customs,
vehicle or other title or registration, franchise, employees’ income
withholding, foreign or domestic withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer, value
added, alternative, add-on minimum and other tax, fee, assessment, levy,
tariff, charge or duty of any kind whatsoever and any interest, penalty,
addition or additional amount thereon imposed, assessed or collected by or
under the authority of any Governmental Body or payable under any tax-sharing
agreement or any other Contract.

 

“Tax Return” — any return (including
any information return), report, statement, schedule, notice, form,
declaration, claim for refund or other document or information filed with or
submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection or payment of
any Tax or in connection with the administration, implementation or enforcement
of or compliance with any Legal Requirement relating to any Tax.

 

“Third Party” — a Person that is not a
party to this Agreement.

 

“Third-Party Claim” — any claim against
any Indemnified Person by a Third Party, whether or not involving a Proceeding.

 

“Trade Secrets” – all know-how, trade
secrets, confidential or proprietary information, customer lists, Software,
technical information, data, process, technology, and plans.

 

50

 

SCHEDULE 2.1(a)

 

LEASEHOLD
IMPROVEMENTS

 

1.             MD
Location Leasehold Improvements

2.             MD
Remodeling Cost

3.             Leasehold
Improvements-Electricals

4.             Aircon
Blower

5.             (3)
71/2 ton and (1) 5 ton split aircon system

6.             MD
Leaseholder Improvements

7.             New
Press Installation cost

8.             Concrete
slab replacement

9.             Pempo
Uprights and Beams – LI

10.           Floor
preparation and application of floor coating system

11.           Painting
of ONSS MD

12.           Electrical
connections for new machine

13.           Cabling,
electricals MD

14.           Install
Lightings MD

15.           MD
Improvements, ceiling, metal studs, doors, insulation

16.           MD
Improvement eqpt rental

17.           Circuit
for Bay, lights, Exterior, Receiving Booths, Office

18.           Circuit
for Press, F/Lift, Charger, Bindry, Heat Machine

19.           Renovation,
electrical hook-ups, cabling connections

20.           Restroom
renovations

21.           Floor
renovation

22.           Leasehold
Improvement – Gaithersburg

23.           Leasehold
Impr Gaithersburg

24.           Cabling,
electrical MD

25.           Remodeling
bathrooms/entranc

26.           Renovation
work

27.           Carpentry,
concrete plumbing

28.           Install
Furnaces

 

51

 

SCHEDULE 2.1(b)

 

EQUIPMENT

 

	
  Rosback Stitching Machine

  
	
  Imation 447L-Auto Laminator

  
	
  GBC Model 111PM 16 DB-2

  
	
  Versa Punch Model WP 7000

  
	
  7500 Booklet Maker

  
	
  APPLE G3 266 MAC

  
	
  PROSIGNIA 200 SERVER

  
	
  Compaq deskpro
  6400x/1000/cd6/64

  
	
  3Com Superstack II Baseline
  10/100 24 port

  
	
  Deskpro EP Celeron 433
  4.3GB Computer

  
	
  Polar Cutter 45’ Digital
  Programmble cutter

  
	
  Stahl Folder Model B-26
  w/cont feeder

  
	
  Heidelberg Automatic letter
  Press

  
	
  Heidelberg KBS Diecutter

  
	
  Heidelberg KBS Diecutter

  
	
  Miller Diecutter 28”
  Simplex

  
	
  Miscellaneous Press Eqpt

  
	
  Smart 340 Scanner Scitex

  
	
  G3 Mac Workstation

  
	
  G3 Mac Workstation

  
	
  MIsc Office Equipment

  
	
  Blaze 96 Scitex Imaging
  Workstation

  
	
  Compaq Proliant 1600 PIII
  550 Mhz

  
	
  Compaq Deskpro EP PIII
  128MB 10GB PC

  
	
  Apple Power Mac  G4 MT Computer

  
	
  Cisco DSU/CSU Module for
  Cisco 2000 - Network Equipment

  
	
  Compaq Proliant ML330T,
  733MHZ, 64MB PC

  
	
  Compaq Deskpro EP 667
  Computer

  
	
  Compaq EESKPRO EP 667
  Computer

  
	
  Heidelberg Clamping bars,
  Grippers, Motor for suction

  
	
  Willy Scissors Jack

  
	
  New Heidelberg Quickmaster
  4-Color Offset Press

  
	
  Gretag Densitometer

  
	
  S206V Punching Tool

  
	
  Packaging Assembly USP13-Q
  230V

  
	
  (6) Stel Modular stations

  
	
  (8) Panel Concept Stations

  
	
  (2) Steelcase Modular
  Stations

  
	
  Punch Tool 4:1 O/S Oval
  .2475P

  
	
  (11) Tract #400 Ergonomic
  swivel chairs

  
	
  CHallenge Single cornering
  machine

  
	
  Dell 4100 Series PIII
  800MHZ 10GB PC

  
	
  Horizon Collator/Saddle
  Stitcher-to manuf. booklets

  
	
  Compaq Deskpro EN SFF 700
  mhz 128 MB Computer

  
	
  HP 1100CXI Printer

  

 

52

 

	
  Compaq 36.4GB Hot Plug HD

  
	
  Control cables for
  Heildeberg Press

  
	
  CI-3000 Coil Inserter

  
	
  HP Designjet 5000PS 42inch
  6-color printer

  
	
  Apple PowerMac G4 Computer

  
	
  DELL PIII 933 GX110 Low
  Profile 133 Hhz PC

  
	
  DELL PIII 933 GX110 Low
  Profile 133 Hhz PC

  
	
  DELL PIII 933 GX110 Low
  Profile 133 Hhz PC

  
	
  DELL PIII 933 GX110 Low
  Profile 133 Hhz PC

  
	
  DELL PIII 933 GX110 Low
  Profile 133 Hhz PC

  
	
  DELL PIII 933 GX110 Low
  Profile 133 Hhz PC

  
	
  Digicoil Coi Inserter

  
	
  Gretag Densitometer

  
	
  Heidelberg Press SM74-6P3+L

  
	
  Compaq Proliant ML350

  
	
  (4) 256MB SR+DRAM

  
	
  (4) 9.1 GB Pluggable Wide
  Ultra (Hard Drive)

  
	
  Comapq Smart Array 431
  Contoller

  
	
  (5) Workbench, steel

  
	
  Shelvings

  
	
  Desk 36 in, w. Hutch

  
	
  Corner Desk, Cherry, Slate

  
	
  Corner Hutch, Cherry, Slate

  
	
  (4) Cabinets, File, 3-drawer

  
	
  Openview PRO MON Port
  switch

  
	
  American Power Back Pro UPS
  1400VA

  
	
  Ethernet bar code-500 emp
  cap

  
	
  Symbol ls2104 laser sccan
  w/trigger

  
	
  Sym ocanywhere v10 h/r box
  host/remote

  
	
  Dymo lavelwriter el60 mac
  & win

  
	
  1Brisque4 with trendsetter
  connectivity

  
	
  1Trendsetter 3230s

  
	
  1 Spectrum
  oprion/trendsetter 3230-factory install

  
	
  1 External disk tower for
  bisque w/73GB drive

  
	
  3-73GB Drives for external
  tower

  
	
  Stainless steel sink

  
	
  Optra E312L Laser Printer

  
	
  New 2001 Chev white

  
	
  Compaq EP Series P350 (Tsfr
  fr VA, added as new, not in FAS)

  
	
  Dell 600 celeron computer,
  17” monitor

  
	
  CI-3000 Coil Inserter

  
	
  HP5000 42” Upgrade kit dye
  to UV

  
	
  HP5500PS 60” UV printer

  
	
  Model T1850 73” rotary
  trimmer, base and waste catcher

  
	
  Power mac G4 dual 1.25GHz
  w/apple studio 17” flat panel

  
	
  Apple studio display, 20”
  cinema display (flat panel)

  
	
  HP Laserjet 5si

  
	
  Canon Laserclass 9500 fax

  
	
  Dell Optiplex GX110

  

 

53

 

	
  Toshiba TV 19”

  
	
  Philco TV

  
	
  Macbeth TD904

  
	
  APC Backups Pro 650

  
	
  APC Backups 500

  
	
  APC Backups 450

  
	
  NuArc Model VLT51F Drafting
  table

  
	
  Fujifilm Color Art CA680T
  III

  
	
  Fujifilm FLH85P Plate
  Processor

  
	
  NELA Ternes Plate Puncher
  Model Infinity

  
	
  Fuji PS800HB FUJI PS-Plate
  Processor

  
	
  Douthitt Corp. Frame Vacuum
  Plate

  
	
  Large Drafting table

  
	
  Bacher Plate puncher

  
	
  Heidelberg plate puncher

  
	
  Dell Power Edge 2400

  
	
  Compaq Personal Workstation
  500A

  
	
  APC Backups 650

  
	
  APC backups 650

  
	
  Lacie CD Recordable

  
	
  Storage Dimensions Tape
  drive

  
	
  HP Sure Store Tape 2000

  
	
  Umax Vista S8

  
	
  On-Line power power supply

  
	
  Weldotron

  
	
  Nygren-Dahly 3 hole punch

  
	
  Challenge Hole Puncher

  
	
  Trimmer FC 20A

  
	
  Polar Mohr

  
	
  Compaq Deskpro

  
	
  APC Backups 500

  
	
  Snap Server

  
	
  Encad Novajet Pro 60E

  
	
  Compaq deskpro

  

 

54

 

SCHEDULE 2.1(c)

 

SOFTWARE

 

1.             (a)           Software
License Agreement dated as of July 24, 2000, between printCafe Systems,
Inc., and Seller, including Attachment 1.1, Attachment 1.2, and Addendum –
Other Terms and Conditions.

 

(b)           Invoices
from printCafe relating to Item 1(a) above dated October 3, 2002, and
October 30, 2001, respectively (all paid in full).

 

2.             Axtent Raptor Firewall V6.5

 

3.             MOLP Level C Win 2000 Server

 

4.             MS MOL 5.0 SQL Server

 

5.             Microsoft Business 5.0 Office 2000 Bus.
5.0

 

6.             MS Office – Mac.

 

7.             Claris Filemaker Pro v. 5.0

 

8.             Adobe Illustrator 9.0 Upgrade for PowerMac

 

9.             Adobe pagemaker Plus. Pothoshop 5.5.
Illus8.0 Acrob 4.0

 

55

 

SCHEDULE 2.1(e)(i)

 

CONTRACTS
WITH CUSTOMERS

 

1.             Purchase Order #RV39544 dated 02-01-00
from Lockheed Martin Corporation to Seller.

 

2.             Order for Supplies or Services
#263-00056485 -00-BPA/G dated 05/10/02 from various Institutes of NIH to
Seller.

 

56

 

SCHEDULE 2.1(e)(ii)

 

CONTRACTS
WITH VENDORS OR SUPPLIERS

 

1.             (a)           Heidelberg
Service Contract 700006240 for Heidelberg QuickMaster DI 46-4 (PLUS VERSION)
991225, Serial No. 991225.

 

(b)           Invoice
#702087971 dated 07/27/02 from Heidelberg to Seller relating to Item #1(a)
above (paid in full).

 

2.             Lease Agreement No. E608678,
Schedule No,. 00240, between Avaya Financial Services and Seller,
including the purchase option therein.

 

57

 

SCHEDULE 2.2(c)

 

CERTAIN
RIGHTS TO PAYMENT

WHICH ARE NOT ACCOUNTS RECEIVABLE

 

Subject to verification by Buyer promptly after Closing:

 

	
  1.

  	
   

  	
  Invoice #705415 from Washington Printing Supplies

  	
   

  	
  $

  	
  2,060.30

  	
   

  
	
  2.

  	
   

  	
  Invoice #95-69609 from Kohl & Madden

  	
   

  	
  $

  	
  3,476.86

  	
   

  
	
  3.

  	
   

  	
  Invoice #9002133549 from Xpedex

  	
   

  	
  $

  	
  5,175.92

  	
   

  
	
  4.

  	
   

  	
  Invoice #256514 from Frank Parsons

  	
   

  	
  $

  	
  3,531.22

  	
   

  

 

58

 

SCHEDULE 2.2(l)

 

CERTAIN EXCLUDED
ASSETS

 

1.             Cannon 105 with RIP
attachment. Serial # MND016445.

2.             Xerox Docutech Serial
# W11-036797.

3.   1995 GMC W4 14’ Box Truck VIN#
J8DB4B1K1S7015530.

 

59

 

SCHEDULE 2.7(c)

 

Buyer Encumbrances or
Leases Prior to Effective Time

 

Neither Lender nor Seller shall
be entitled to any Encumbrance on the following:

 

1.             Gaithersburg Lease.

2.             The items listed in
the chart below:

 

	
   

  	
   

  	
  Equipment Encumbered or Leased

  	
   

  	
  Secured
  Party

  	
   

  	
  Financing
  Statement

  
	
  1.

  	
   

  	
  Plate
  Burner/Scorer

  	
   

  	
  Vector
  Financial

  	
   

  	
  capital
  lease (no UCC on record at SDAT or Mont. Co., MD)

  
	
  2.

  	
   

  	
  Konica 7075
  Copier

  	
   

  	
  Advanta
  Leasing

  	
   

  	
  capital
  lease - SDAT Financing Statement

  #181054845

  filed 8/4/2000

  
	
  3.

  	
   

  	
  Company
  Truck –  Toyota 4 Runner

  	
   

  	
  Toyota
  Financing Cc

  	
   

  	
  see
  certificate of title

  
	
  4.

  	
   

  	
  Company
  Truck – GM delivery van

  	
   

  	
  GMAC

  	
   

  	
  see
  certificate of title

  
	
  5.

  	
   

  	
  Duplo
  Bookmaker and related items, as more fully described in the financing
  statement

  	
   

  	
  Heller/GE
  Capital

  	
   

  	
  SDAT

  Financing Statement 

  #181078004 

  filed 3/26/2001

  
	
  6.

  	
   

  	
  Company
  Truck – Ford delivery truck

  	
   

  	
  Ford Motor
  Credit

  	
   

  	
  see
  certificate of title

  
	
  7.

  	
   

  	
  Proofers/CTP/Mail
  and related items, as more fully described in the financing statement

  	
   

  	
  US Bancorp

  	
   

  	
  SDAT 

  Financing Statement 

  #181131077 

  filed 9/23/2002

  
	
  8.

  	
   

  	
  Komori L528

  	
   

  	
  Heller/GE
  Capital

  	
   

  	
  chattel
  mortgage (no UCC on record at SDAT or Mont. Co., MD)

  
	
  9.

  	
   

  	
  Konica 7085
  Copier, as more fully described in the financing statement

  	
   

  	
  US Bancorp

  	
   

  	
  SDAT 

  Financing Statement 

  #181154907 

  filed 5/15/2003

  
	
  10.

  	
   

  	
  Toshiba
  copier, as more fully described in the financing statement

  	
   

  	
  ABB
  Structured Finance (Americas) Inc.

  	
   

  	
  true lease -
  SDAT 

  Financing Statement 

  #181125303 

  filed 7/18/2002

  

 

60

 

SCHEDULE 2.8(c)

 

GREATAMERICA LEASE

 

1.             With
respect to the Lease Agreement last signed 12/3/99 between GreatAmerica Leasing
Corporation and Seller, including the purchase option therein:

 

(a)           If Seller can buyout
said lease for $3,104 or less (16 monthly payments x $194/month = $3,104), then
Seller shall so buyout said lease and promptly thereafter Buyer shall reimburse
the Seller in the amount of said buyout.

 

(b)           If Seller is unable to
buyout said lease for $3,104 or less, then Seller shall assign said lease to
Buyer, and Buyer shall accept said assignment.

 

61

 

SCHEDULE 3.2(c)

 

SELLER’S REQUIRED
NOTICES AND CONSENTS

 

Seller needs to obtain Consents
with respect to the following:

 

1.             Gaithersburg
Lease.

 

2.             Lease
Agreement last signed 12/3/99 between GreatAmerican Leasing Corporation and
Seller, including the purchase option therein.

 

3.             Lease
Agreement No. E608678, Schedule No,. 00240, between Avaya Financial Services
and Seller, including the purchase option therein.

 

4.             Software
License Agreement dated as of July 24, 2000, between printCafe Systems, Inc.,
and Seller, including Attachment 1.1, Attachment 1.2, and Addendum – Other
Terms and Conditions.

 

5.             Consent
of ONSS Board of Directors.

 

6.             Consent
of Wachovia (formally First Union) Bank in the form already provided to Seller
prior to Closing.

 

7.             Consent to assignment
for Heidelberg Service Contract.

 

8.             Release
from Branch Banking & Trust relating to a financing statement filed by
Commerce Bank, in the form provided to Seller prior to Closing.

 

62

 

SCHEDULE 3.5(a)

 

CERTAIN PERMITTED
REAL ESTATE ENCUMBRANCES

 

1.             Gaithersburg Lease.

 

SCHEDULE 3.5(b)

 

PERMITTED NON-REAL
ESTATE ENCUMBRANCES

 

1.             None.

 

SCHEDULE 3.11(b)

 

GAITHERSBURG
GOVERNMENT AUTHORIZATIONS

 

1.             Maryland business
license.

 

SCHEDULE 3.14(a)

 

CERTAIN GAITHERSBURG
CONTRACTS

 

1.             None.

 

63

 

SCHEDULE 3.14(b)

 

MATERIAL GAITHERSBURG
CONTRACTS

 

1.             Potentially
only — Purchase Order #RV39544 dated 02-01-00 from Lockheed Martin Corporation
to Seller.

 

2.             Potentially
only — Order for Supplies or Services #263-00056485 -00-BPA/G dated 05/10/02
from various Institutes of NIH to Seller.

 

3.             Lease
Agreement last signed 12/3/99 between GreatAmerican Leasing Corporation and
Seller, including the purchase option therein.

 

4.             Lease
Agreement No. E608678, Schedule No,. 00240, between Avaya Financial Services
and Seller, including the purchase option therein.

 

5.             Heidelberg
Service Contract 700006240 for Heidelberg QuickMaster DI 46-4 (PLUS VERSION)
991225, Serial No. 991225.

 

64

 

SCHEDULE 3.14(c)

 

EXCEPTIONS

 

1.             See Schedule
3.2(c) re required Consents.

 

SCHEDULE 3.14(d)

 

EXCEPTIONS

 

1.             None.

 

SCHEDULE 3.17(b)

 

EXCEPTIONS

 

1.             None.

 

SCHEDULE 3.18

 

SOFTWARE CONTRACTS

 

1.             See Schedule
2.1(c).

 

SCHEDULE 3.19

 

SELLER’S BROKERS OR FINDERS

 

1.             Invoice from Judd
Hill of Blue Star Capital for finder’s fees.

 

SCHEDULE 5.8

 

RETAINED ACTIVE
EMPLOYEES

 

1.             Takia Fagans

2.             Kenneth Minor

 

65

 

SCHEDULE 7.1(b)

 

ACTIVE EMPLOYEES TO
BE OFFERED EMPLOYMENT BY BUYER

 

1.             Active Employees to be offered
employment by Buyer:

 

Altman, Stuart

Barnett, Albert

Broomall, Donald

Broomall, Tony

Edlund, Paul

LeBlanc, Michael

Perlman, Edward

Pusateri, Robert

Reynolds, Theodore

Saah, Jan

Wells, James

Whisman, Joe

 

2.             Active Employees to be offered
employment by Buyer, but at a reduced rate of pay:

 

Anthony, Robert

Frost, Melva

Remington, Louis

 

66

 

SCHEDULE 7.8(a)(i)

 

SHARED CUSTOMERS

 

 

1.             The Shared Customers are those marked with an
asterick on the lists of Existing Customers set forth on Schedule 7.8(a)(v).

 

67

 

SCHEDULE 7.8(a)(v)

EXISTING CUSTOMERS

1.     The
Existing Customers are the following:

 

	
  Rep:

  Barnett

  Custno

  	
   

  	
  Company

  	
   

  	
  Rep:

  Pearlman

  Custno

  	
   

  	
  Company

  	
   

  	
  Rep:

  Broomall

  Custno

  	
   

  	
  Company

  	
   

  
	
  AES001

  	
   

  	
  AES
  Corporation

  	
  *

  	
  AES001

  	
   

  	
  AES
  Corporation

  	
  *

  	
  AC&001

  	
   

  	
  Ault
  Clark & Assoc., LTD

  	
   

  
	
  AGM001

  	
   

  	
  American
  Gear Manufacturer’s Assn

  	
   

  	
  AGO001

  	
   

  	
  Agora
  Publishing

  	
   

  	
  ACD001

  	
   

  	
  Alexandria
  Country Day School

  	
   

  
	
  AHA001

  	
   

  	
  American
  Heart Association

  	
   

  	
  AOC001

  	
   

  	
  Association
  of Community Cancer Centers

  	
   

  	
  APR001

  	
   

  	
  Ansco
  Printing

  	
   

  
	
  ALI002

  	
   

  	
  Alignment
  Strategies

  	
  *

  	
  ARE002

  	
   

  	
  Ambrosia
  Grille

  	
   

  	
  ASC001

  	
   

  	
  Aspen
  Systems Corporation

  	
   

  
	
  ASI002

  	
   

  	
  American
  Society Interior Designers

  	
   

  	
  ART003

  	
   

  	
  Art
  Litho

  	
   

  	
  AWC001

  	
   

  	
  Austin
  Weston Center

  	
   

  
	
  CAP001

  	
   

  	
  Capital
  Educators

  	
  *

  	
  ASC003

  	
   

  	
  All
  Saints Catholic Church

  	
   

  	
  BFF001

  	
   

  	
  Best
  Friends Foundation

  	
   

  
	
  CCC002

  	
   

  	
  Core
  Communications Corp.

  	
   

  	
  BWC001

  	
   

  	
  Business
  Wire Corp., Inc.

  	
   

  	
  BSC002

  	
   

  	
  Bay
  Saver, Corp.

  	
   

  
	
  EMA001

  	
   

  	
  Envelope
  Manufacturers Association

  	
   

  	
  CD&002

  	
   

  	
  Cline
  Davis & Mann, Inc.

  	
   

  	
  BSY001

  	
   

  	
  BAE
  Systems

  	
   

  
	
  FAA001

  	
   

  	
  FAA

  	
   

  	
  CES001

  	
   

  	
  Archstone-Smith

  	
  *

  	
  CAC001

  	
   

  	
  CACI

  	
   

  
	
  FAA002

  	
   

  	
  FAA
  - New England Region

  	
   

  	
  CES003

  	
   

  	
  Charles
  E. Smith Commercial Realty

  	
  *

  	
  CAM001

  	
   

  	
  Community
  Associations Management

  	
   

  
	
  FP&001

  	
   

  	
  Florida
  Power & Light Company

  	
   

  	
  CFF001

  	
   

  	
  Cystic
  Fibrosis Foundation

  	
   

  	
  CAT001

  	
   

  	
  Chemical
  Automation Technology

  	
   

  
	
  HER001

  	
   

  	
  Hospitality
  Education Resource

  	
   

  	
  CFS001

  	
   

  	
  Consortium
  for School Networking

  	
   

  	
  CHO001

  	
   

  	
  Charleston
  Properties

  	
   

  
	
  HER002

  	
   

  	
  HERO

  	
   

  	
  CIN006

  	
   

  	
  Cover,
  Inc

  	
   

  	
  CIN003

  	
   

  	
  Concepts,
  Inc.

  	
   

  
	
  HGY001

  	
   

  	
  Hills
  Gymnastics

  	
   

  	
  CSP002

  	
   

  	
  Cystic
  Fibrosis Services

  	
   

  	
  COC001

  	
   

  	
  Camp
  Olympia Country Day School

  	
   

  
	
  HHM001

  	
   

  	
  Howard
  Hughes Medical Institute

  	
  *

  	
  DII001

  	
   

  	
  Dimensions
  International

  	
   

  	
  D&P001

  	
   

  	
  Designers
  & Planners

  	
   

  
	
  HSP001

  	
   

  	
  Head
  Start Publications

  	
  *

  	
  DLM001

  	
   

  	
  DC
  Life Media

  	
   

  	
  DBI001

  	
   

  	
  Dragon
  Bridge, Inc.

  	
   

  
	
  IAC001

  	
   

  	
  Intl.
  Anti-Counterfeiting Coalition

  	
  *

  	
  FM187

  	
   

  	
  NCQA

  	
   

  	
  DCC003

  	
   

  	
  Discovery
  Creek Children’s Museum

  	
   

  
	
  IGR002

  	
   

  	
  Immix
  Group

  	
   

  	
  FM225

  	
   

  	
  Reznick
  Fedder & Silverman

  	
  *

  	
  DCI001

  	
   

  	
  Digital
  Color Ink

  	
   

  
	
  INT010

  	
   

  	
  Intellibridge
  Corporation

  	
   

  	
  FMC003

  	
   

  	
  Fraunhofer
  MD, Center for Experimental Software

  	
   

  	
  EFT001

  	
   

  	
  Eastcoast
  Fundraising t/a Jeanne’s

  	
   

  
	
  JLC001

  	
   

  	
  Johnston,
  Lemon Co., Inc.

  	
   

  	
  HAS001

  	
   

  	
  Hastings
  Group

  	
   

  	
  EXP001

  	
   

  	
  EXPERIS

  	
   

  
	
  MCO005

  	
   

  	
  MH
  Concepts

  	
   

  	
  HCH001

  	
   

  	
  Harvest
  Church

  	
   

  	
  FUT001

  	
   

  	
  Futrex

  	
   

  
	
  MEM002

  	
   

  	
  MYER-EMCO

  	
  *

  	
  HLC001

  	
   

  	
  Healthcare
  Leadership Council

  	
   

  	
  GSA001

  	
   

  	
  GSA/FSS

  	
   

  
	
  MIS001

  	
   

  	
  Missaticum

  	
   

  	
  ICG001

  	
   

  	
  Infinity
  Conference Group

  	
   

  	
  HNS001

  	
   

  	
  Hughes
  Network Systems

  	
   

  
	
  NCI002

  	
   

  	
  NCIIA
  - National Collegiate

  	
  *

  	
  IEC001

  	
   

  	
  Independent
  Electrical Contractors

  	
  *

  	
  HPI001

  	
   

  	
  Hewlett
  Packard, Inc.

  	
   

  

 

68

 

	
  NCS001

  	
   

  	
  National
  Corrugated Steel Pipe Association

  	
  *

  	
  INF001

  	
   

  	
  Inform
  Business Systems Inc

  	
   

  	
  ICH001

  	
   

  	
  Interfaith
  Chapel

  	
   

  
	
  NCS002

  	
   

  	
  National
  Center for State Courts

  	
  *

  	
  ISM001

  	
   

  	
  Information
  Systems Marketing, Inc.

  	
  *

  	
  IRR001

  	
   

  	
  Investor
  Responsibility Research

  	
   

  
	
  NEM001

  	
   

  	
  National
  Electrical Manufacturer

  	
  *

  	
  MHM002

  	
   

  	
  M.
  H. Meyerson & Co., Inc.

  	
   

  	
  JG&001

  	
   

  	
  JL
  Gainer & Associates

  	
   

  
	
  NHA001

  	
   

  	
  National
  Healthcare Anti-Fraud Assn

  	
  *

  	
  MLA002

  	
   

  	
  Maxsell
  Lawn and Landscaping

  	
   

  	
  LIN002

  	
   

  	
  LKC,
  Inc.

  	
   

  
	
  NHA002

  	
   

  	
  NHCAA-Institute
  for Health Care

  	
  *

  	
  MLD001

  	
   

  	
  Marriott
  Lodging Design & Production Svcs.

  	
   

  	
  LOC005

  	
   

  	
  Lockheed
  Martin

  	
   

  
	
  NRA001

  	
   

  	
  NRA
  Institute for Legislative Actio

  	
  *

  	
  MWM001

  	
   

  	
  Moms
  With a Mission

  	
   

  	
  LOC006

  	
   

  	
  Lockheed
  Martin Corp

  	
   

  
	
  PNA001

  	
   

  	
  National
  Associaton of PIA

  	
   

  	
  NAD001

  	
   

  	
  National
  Automobile Dealers

  	
   

  	
  LOC007

  	
   

  	
  Lockheed
  Martin

  	
   

  
	
  PTI001

  	
   

  	
  Pal
  Tech, Inc.

  	
  *

  	
  NIH001

  	
   

  	
  National
  Institute of Health

  	
   

  	
  LTC001

  	
   

  	
  Long
  Term Care Planning Services, Inc.

  	
   

  
	
  RRU001

  	
   

  	
  River
  Road Unitarian Church

  	
   

  	
  NRI001

  	
   

  	
  National
  Reprographics, Inc.

  	
   

  	
  MBS001

  	
   

  	
  MAC
  Business Solutions

  	
   

  
	
  SFH002

  	
   

  	
  Society
  for Human Resource Management

  	
  *

  	
  NWM001

  	
   

  	
  Nigeria
  Whispers Magazine

  	
   

  	
  MCO002

  	
   

  	
  MGM
  Communications

  	
   

  
	
  SMD001

  	
   

  	
  Synectics
  for Mgmt Decisions, Inc.

  	
  *

  	
  PCC005

  	
   

  	
  Pohanka
  Collision Center

  	
   

  	
  MMA001

  	
   

  	
  Most
  Mail

  	
   

  
	
  SMW001

  	
   

  	
  Sugarloaf
  Mountain Works

  	
   

  	
  PE&001

  	
   

  	
  Pharmaceutical
  Education & Research Institute

  	
  *

  	
  MPR001

  	
   

  	
  Minuteman
  Press

  	
   

  
	
  TAS001

  	
   

  	
  The
  Ad Store

  	
   

  	
  PPI002

  	
   

  	
  Print
  Promotions, Inc.

  	
   

  	
  MST001

  	
   

  	
  Management
  Support Technology, Inc.

  	
   

  
	
  TEP001

  	
   

  	
  The
  Export Practitioner

  	
   

  	
  PRI006

  	
   

  	
  PricewaterhouseCoopers

  	
   

  	
  NMB001

  	
   

  	
  NEA
  Member Benefits

  	
   

  
	
  TMC001

  	
   

  	
  The
  Mills Corporation

  	
  *

  	
  RFS001

  	
   

  	
  Reznik,
  Fedder & Silverman

  	
  *

  	
  QCR001

  	
   

  	
  Quartermaine
  Coffee Roasters

  	
   

  
	
  TTR001

  	
   

  	
  The
  Trademark Register

  	
   

  	
  SBS001

  	
   

  	
  Swidler
  Berlin Shereff Friedman LLP

  	
   

  	
  RHD001

  	
   

  	
  Rockville
  Harley Davidson

  	
   

  
	
  TWI002

  	
   

  	
  Tropic
  Wash Inc

  	
   

  	
  SCB003

  	
   

  	
  St.
  Charles Borromeo Parish

  	
   

  	
  RTI001

  	
   

  	
  Realty
  Tools, Inc.

  	
   

  
	
  ULI001

  	
   

  	
  Urban
  Land Institute

  	
  *

  	
  SJT001

  	
   

  	
  St.
  John the Apostle R.C. Church

  	
   

  	
  SBS002

  	
   

  	
  Small
  Business Success, Inc.

  	
   

  
	
  WSC001

  	
   

  	
  Washington
  Shakespeare Company

  	
   

  	
  SLS001

  	
   

  	
  Sylvan
  Learning Systems, Inc.

  	
   

  	
  SEX001

  	
   

  	
  Staff
  Xpress

  	
   

  
	
   

  	
   

  	
  Kenny’s
  Jewelry Repair

  	
   

  	
  SRO001

  	
   

  	
  Shulman
  Rogers Gandal Pordy

  	
   

  	
  SJE001

  	
   

  	
  St.
  John’s Episcopal School

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  STC001

  	
   

  	
  St.
  Theresa Church

  	
   

  	
  SWI002

  	
   

  	
  Sue
  Widome

  	
   

  
	
   

  	
   

  	
  Totals

  	
   

  	
  TAF001

  	
   

  	
  The
  Assoc. for Research in Vision and Opthamology

  	
   

  	
  TCB001

  	
   

  	
  The
  Chesapeake Biological Lab.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  TCO001

  	
   

  	
  The
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  TCC006

  	
   

  	
  The
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  TMC001

  	
   

  	
  The
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  Trademark Register

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  TTR001

  	
   

  	
  The
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  UAR001

  	
   

  	
  Under
  Armour

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  UEF001

  	
   

  	
  Ummah
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69

 

EXHIBIT 2.5

 

ALLOCATION OF
PURCHASE PRICE

 

In accordance with IRS Form
8594:

 

	
  (a)

  	
   

  	
  Classes I to V assets (inclusive)

  	
  —

  	
  $

  	
  1,325,000

  	
   

  
	
  (a)

  	
   

  	
  Class VI
  assets

  	
  —

  	
  $

  	
  50,000

  	
   

  
	
  (b)

  	
   

  	
  Class VII
  assets

  	
  —

  	
  $

  	
  50,000

  	
   

  
	
   

  	
   

  	
  Total

  	
   

  	
  $

  	
  1,425,000

  	
   

  

 

EXHIBIT 2.7(a)(i)

 

GAITHERSBURG LEASE
ASSIGNMENT

 

The Gaithersburg Lease
Assignment shall be in the form attached hereto and incorporated herein.

 

EXHIBIT 2.7(a)(ii)

 

BILL OF SALE

 

The Bill of Sale shall be in
the form attached hereto and incorporated herein.

 

EXHIBIT 2.7(a)(iii)

 

ASSIGNMENT AND
ASSUMPTION AGREEMENT

 

The Assignment and Assumption
Agreement shall be in the form attached hereto and incorporated herein.

 

EXHIBIT 2.7(a)(v)

 

SECURITY AGREEMENT

 

The Security Agreement shall be
in the form attached hereto and incorporated herein.

 

70

 

EXHIBIT 2.7(a)(vi)

 

LENDER SUBORDINATION
AGREEMENT

 

The Lender Subordination
Agreement (both the Subordination of Debt Agreement and the lien subordination
letter) shall be in the forms attached hereto and incorporated herein.

 

EXHIBIT 2.7(b)(i)

 

PROMISSORY NOTE

 

The Promissory Note shall be in
the form attached hereto and incorporated herein.

 

71Exhibit 10.145

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”)
is dated as of October 10, 2003, among The Immune Response
Corporation, a
Delaware corporation (the “Company”), and the purchasers identified on
the signature pages hereto (each a “Purchaser” and collectively the “Purchasers”);
and

 

WHEREAS, subject to the terms and conditions set forth
in this Agreement and pursuant to Section 4(2) of the Securities Act (as
defined below), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to the Purchasers, and the Purchasers, severally and not
jointly, desire to purchase from the Company in the aggregate, up to 5,940,595
shares of Common Stock and Warrants to purchase up to 2,970,298 shares of Common
Stock.

 

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 agrees as follows:

 

ARTICLE I.

DEFINITIONS

 

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

 

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

 

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

 

“Business Day” means any day except Saturday,
Sunday and any day which shall be a federal legal holiday or a 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 a closing of the purchase and
sale of the Common Stock and Warrants pursuant to Section 2.1(a).

 

“Closing Date” means the date of a Closing.

 

“Closing Price” means on any
particular date (a) the last reported closing bid price per share of
Common Stock on such date on the Trading Market (as reported by Bloomberg L.P.
at 4:15 PM (New York time) as the last reported closing bid price for regular
session trading on such day), or (b) if there is no such price on such date,
then the closing bid price on the Trading Market on the date nearest preceding
such date (as reported by Bloomberg L.P. at 4:15 PM (New York time) as the
closing bid price for regular session trading on such day), or (c)  if the
Common Stock is not then listed or

 

1

 

quoted on the Trading Market and if prices for the Common Stock are
then reported in the “pink sheets” published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions
of reporting prices), the most recent bid price per share of the Common Stock
so reported, or (d) if the shares of Common Stock are not then publicly
traded the fair market value of a share of Common Stock as determined by an
appraiser selected in good faith by the Purchasers of a majority in interest of
the Shares then outstanding and reasonably acceptable to the Company.

 

“Commission” means the Securities and Exchange
Commission.

 

“Common Stock” means the common stock of the Company, $0.0025
par value per share, and any securities into which such common stock may
hereafter be reclassified.

 

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

 

“Company Counsel” means Pillsbury Winthrop LLP.

 

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

 

“Effective Date” means the date that the
Registration Statement is first declared effective by the Commission.

 

“Exchange Act” means the Securities Exchange
Act of 1934, as amended.

 

“FW” shall mean Feldman Weinstein LLP with
offices at 420 Lexington Avenue, New York, New York 10170-0002.

 

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

 

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

 

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

 

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

 

“Per Share Purchase Price” equals $2.02,
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.

 

2

 

“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.

 

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

 

“Registration Rights Agreement” means the
Registration Rights Agreement, dated as of the date of this Agreement, among
the Company and each Purchaser, in the form of Exhibit B hereto.

 

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

 

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

 

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

 

“Securities Act” means the Securities Act of
1933, as amended.

 

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

 

“Subscription Amount” means, as to each
Purchaser and the Closing, the amounts set forth below such Purchaser’s
signature block on the signature page hereto, in United States dollars and in
immediately available funds.

 

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

 

“Trading Day” means (i) a day on which the
Common Stock is traded on a Trading Market, or (ii) if the Common Stock is not
listed on a Trading Market, a day on which the Common Stock is traded on the
over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices); provided, that in the event that the
Common Stock is not listed or quoted as set forth in (i), (ii) and (iii)
hereof, then Trading Day shall mean a Business Day.

 

“Trading Market” means the following markets or
exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the New York Stock Exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market.

 

3

 

“Transaction Documents” means this Agreement,
the Registration Rights Agreement and the Warrant executed in connection with
the transactions contemplated hereunder.

 

“Warrants” means the Common Stock Purchase
Warrants, in the form of Exhibit C, issuable to the Purchasers at
Closing, which warrants shall be exercisable immediately and have an exercise
price equal to $3.32 and a term of exercise of 5 years.

 

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

 

ARTICLE II.

PURCHASE AND SALE

 

2.1           Closing.  At one or more Closings, the Purchasers
shall purchase, severally and not jointly, and the Company shall issue and
sell, in the aggregate, up to 5,940,595 shares of Common Stock and Warrants to
purchase up to 2,970,298 shares of Common Stock on the Closing Date.  Each Purchaser shall purchase from the
Company, and the Company shall issue and sell to each Purchaser, a number of
Shares equal to such Purchaser’s Subscription Amount divided by the Per Share
Purchase Price.  Upon satisfaction of
the conditions set forth in Section 2.2, the Closings shall occur at the
offices of FW, or such other location as the parties shall mutually agree.

 

2.2           Closing Conditions.

 

(a)   At each Closing (unless otherwise specified below) the
Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i)    this Agreement duly executed by the
Company;

 

(ii)   within 3 Business Days of the Closing Date, a
certificate evidencing a number of Shares equal to such Purchaser’s
Subscription Amount divided by the Per Share Purchase Price, registered in the
name of such Purchaser;

 

(iii)  within 3 Business Days of the Closing Date, a Warrant,
registered in the name of such Purchaser, pursuant to which such Purchaser
shall have the right to acquire up to the number of shares of Common Stock
equal to 50% of the Shares to be issued to such Purchaser at such Closing;

 

(iv)  the Registration Rights Agreement duly executed by the
Company; and

 

(v)   a legal opinion of Company Counsel, in the form of Exhibit
A attached hereto.

 

(b)   At a Closing, each Purchaser shall deliver or cause to
be delivered to the Company the following:

 

(i)    this Agreement duly executed by such Purchaser;

 

4

 

(ii)   such Purchaser’s Subscription Amount as to such
Closing by wire transfer to the account of the Company as provided to the
Purchasers in writing prior to the Closing Date; and

 

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

 

(c)   All representations and warranties of the other party
contained herein shall remain true and correct as of the Closing Date (except
for representations and warranties that speak as of a specific date, which
representations and warranties must be correct as of such date).

 

(d)   As of the Closing Date, there shall have been no
Material Adverse Effect with respect to the Company since the date hereof.

 

(e)   From the date hereof to the Closing Date, trading in
the Common Stock shall not have been suspended by the Commission (except for
any suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the Closing), and, at any time prior to
the Closing Date, trading in securities generally as reported by Bloomberg
Financial Markets shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities.

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1           Representations
and Warranties of the Company. 
Except as set forth or incorporated by reference in (i) the SEC Reports,
which qualify the following representations and warranties in their entirety,
or (ii) the corresponding section of the Disclosure Schedules delivered
concurrently herewith, the Company hereby makes the following representations
and warranties as of the date hereof and as of the Closing Date to each
Purchaser:

 

(a)   Subsidiaries.  All
subsidiaries of the Company are listed on Exhibit 21.1 of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2002 (each a
“Subsidiary”).  The Company owns,
directly or indirectly, all of the capital stock of each Subsidiary free and
clear of any Liens, and all 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.

 

(b)   Organization and Qualification. 
Each of the Company and the Subsidiaries is an entity duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite corporate
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 duly qualified to conduct
business and is in good standing as a foreign corporation or other entity in
each jurisdiction in which the nature

 

5

 

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 operations, assets, business or financial
condition 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”).

 

(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 thereunder.  The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith.  Each Transaction
Document has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof, assuming the
valid execution and delivery thereof by the Purchasers, will constitute the
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ and contracting parties rights generally
and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (iii) with
respect to the indemnification provisions set forth in this Agreement and the
Registration Rights Agreement, as limited by public policy, and in each case
(i), (ii) or (iii) regardless of whether enforceability is considered in a
proceeding in equity or at law.

 

(d)   No Conflicts.  The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated thereby do
not and will not (i) conflict with or violate any provision of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other
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, 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) 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) 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 United
States federal and state securities laws and regulations), or by which any
material property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as would not 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

 

6

 

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 (a) the filing with the
Commission of the Registration Statement, the application(s) to the Nasdaq
SmallCap Market for the listing of the Shares and Warrant Shares for trading
thereon, and applicable Blue Sky filings, (b) such as have already been
obtained or such exemptive filings as are required to be made under applicable
securities laws, and (c) such other filings as may be required following the
Closing Date under the Securities Act, the Exchange Act and corporate law.

 

(f)    Issuance of the Securities. 
The Securities are duly authorized and, the Shares and Warrant Shares,
when issued and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens.  The Company has reserved from
its duly authorized capital stock the maximum number of shares of Common Stock
issuable pursuant to this Agreement and the Warrants.

 

(g)   Capitalization.  The
capitalization of the Company as of June 30, 2003, is as described in the
Company’s most recent periodic report filed with the Commission.  The Company has not issued any capital stock
since such filing other than pursuant to the exercise of employee stock options
under the Company’s stock option plans, pursuant to the conversion or exercise
of Common Stock Equivalents outstanding on the date hereof and issuances in the
Company’s ordinary course of business. 
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, which right has not been complied with
or waived prior to the Closing.  Except
for (i) the purchase and sale of the Securities, (ii) employee stock options
under the Company’s stock option plans, (iii) grants made in the ordinary
course of the Company’s business and (iv) preferred stock to be issued to
Cheshire Associates LLC in connection with the conversion of the outstanding
promissory notes the rights, preferences and privileges of which have not yet
been designated, to the Company’s knowledge there are no outstanding options,
warrants, calls, relating to, or securities, rights or obligations convertible
into or exchangeable for, or giving any Person any right to subscribe for or
acquire from the Company, any shares of Common Stock, or contracts or
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock,
or securities or rights convertible or exchangeable into shares of Common
Stock.  The issue 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 such securities.

 

(h)   SEC Reports; Financial Statements. 
The Company has filed all reports required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or
15(d) of the Exchange Act, for the two years preceding the date hereof (or such
shorter period as the Company was required by law to file such material) (the
foregoing materials, including the exhibits thereto, being collectively
referred to herein as the “SEC Reports” and, together with the
Disclosure Schedules to this Agreement, the “Disclosure Materials”) on a
timely basis or has received a valid

 

7

 

extension of such time of
filing and has filed any such SEC Reports prior to the expiration of any such
extension.  As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.  The financial
statements of the Company included in the SEC Reports comply in all material
respects with applicable accounting requirements and the rules and regulations
of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

 

(i)    Material Changes.  Since June
30, 2003, (i) there has been no event, occurrence or development that has had
or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or required to be disclosed in 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; provided, however, the promissory notes
issued to Cheshire Associates LLC will be converted into a series of preferred
stock of the Company, the rights, preferences and privileges of which have not
yet been designated.  The Company does
not have pending before the Commission any request for confidential treatment
of information.

 

(j)    Litigation.  There is no
action, suit, inquiry, notice of violation, proceeding or investigation pending
or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any of their respective properties before or by any
court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”)
which (i) materially and 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, to the knowledge of the
Company, 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

 

8

 

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.

 

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

 

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

 

(n)   Title to Assets.  The Company
and the Subsidiaries have good and marketable title in fee simple to all real
property owned by them that is material to the business of the Company and the
Subsidiaries, taken as a whole, and good and marketable title in all personal
property owned by them that is material to the business of the Company and the
Subsidiaries, taken as a whole, 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.  To the knowledge
of the Company, 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 material compliance.

 

(o)   Patents and Trademarks.  To the
knowledge of the Company and each Subsidiary, the Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which

 

9

 

the failure to so have
could have or reasonably be expected to result in a Material Adverse Effect,
other than intellectual property generally available on commercial terms from
other sources (collectively, the “Intellectual Property Rights”).  There is not pending or, to the Company’s
knowledge threatened, any claim or action alleging that the Intellectual
Property Rights used by the Company or any Subsidiary violates or infringes the
rights of any Person.  The Company has
taken all steps reasonably required in accordance with sound business practice
and business judgment to establish and preserve its ownership of such
Intellectual Property Rights.

 

(p)   Internal Accounting Controls. 
The Company and each of its subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has established disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company’s Form 10-K or 10-Q, as the case may be, is being
prepared.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s controls and
procedures as of a date within 90 days prior to the filing date of the Form 10-Q
for the quarter ended June 30, 2003 (such date, the “Evaluation Date”).  The Company presented in its Form 10-Q for
the quarter ended June 30, 2003 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 significant changes in the
Company’s internal controls (as such term is defined in Item 307(b) of
Regulation S-K under the Exchange Act) or, to the Company’s knowledge, in other
factors that could significantly affect the Company’s internal controls.

 

(q)   Certain Fees.  Except as
disclosed in Section 3(q) of the Disclosure Schedule, 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 this
Agreement.  The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by or on
behalf of other Persons for fees of a type contemplated in this Section that
may be due in connection with the transactions contemplated by this Agreement.

 

(r)    Private Placement. Assuming the accuracy of the Purchasers
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchasers as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.

 

10

 

(s)   Investment Company. The Company is not an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.

 

(t)    Form S-3 Eligibility.  The Company
is eligible to register the resale of its Common Stock by the Purchasers under
Form S-3 promulgated under the Securities Act.

 

(u)   Application of Takeover Protections. 
The Company and its Board of Directors have taken all necessary action,
if any, in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Company’s Certificate of
Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Purchasers as a result
of the Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation the
Company’s issuance of the Securities and the Purchasers’ ownership of the
Securities.

 

(v)   Disclosure.  The Company
confirms that the Company has not provided any of the Purchasers or counsel
with any information that constitutes or might constitute material, non-public
information.   The Company understands
and confirms that the Purchasers will rely on the foregoing representations and
covenants in effecting its purchase of the Securities. All disclosure provided
to the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Disclosure Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.

 

(w)  No Integrated Offering. Neither the Company, nor any of its affiliates, nor
any Person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would cause this offering of the Securities to fail to
qualify for an exemption from registration under the United States Federal
securities laws.

 

Each Purchaser acknowledges and agrees that the
Company does not make or has not made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in this Section 3.1.

 

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

 

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

 

11

 

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.

 

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

 

(c)           No Public Sale or Distribution.  Such Purchaser is (i) acquiring the Shares
and (ii) upon exercise of the Warrants will acquire the Warrant Shares, for its
own account and not with a view towards, or for resale in connection with, the
public sale or distribution thereof; provided, however, that by
making the representations herein, such Purchaser does not agree to hold any of
the Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act and the
provisions of this Agreement including, but not limited to, Section 4 hereof.
Such Purchaser is acquiring the Securities hereunder in the ordinary course of
its business. Such Purchaser does not have any agreement or understanding,
directly or indirectly, with any Person to distribute any of the Securities.

 

(d)           Accredited Investor Status.  Such Purchaser is an “accredited investor”
as that term is defined in Rule 501(a) of Regulation D.  Such Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.

 

(e)           Reliance on Exemptions.  Such Purchaser understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and
such Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Securities.

 

(f)            Information.  Such Purchaser and its advisors, if any,
have been furnished with all publicly available materials relating to the
business, finances and operations of the Company and such other publicly
available materials relating to the offer and sale of the Shares and Warrants
as have been requested by such Purchaser. 
Such Purchaser and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. 
Neither such inquiries nor any other due diligence investigations
conducted by such Purchaser or its advisors, if any, or its representatives
shall modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained herein.  Such Purchaser understands that its investment in the Shares and
Warrants involves a high degree of risk. 
Each Purchaser is not relying on the Company or any of its employees,
representatives or agents with respect to the legal, tax, economic and related
considerations as to an investment in the Securities.  Such Purchaser has sought such accounting, legal and tax advice
only from its own advisors as it has considered

 

12

 

necessary to make an informed investment decision with respect to its
acquisition of the Shares and Warrants.

 

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

 

(h)           Experience of Such Purchaser.  Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters, including investing in biotechnology companies,
so as to be capable of evaluating the merits and risks of the prospective
investment in the Shares and Warrants, 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 Shares and
Warrants and, at the present time, is able to afford a complete loss of such
investment.

 

(i)            Residency.  Such Purchaser is a resident of (or, if an entity, has its
principal place of business in) the jurisdiction set forth beside such
Purchaser’s name on the signature pages hereto.

 

(j)            Investment Representations and Covenants.  Each Purchaser has completed or caused to be
completed the Stock Certificate Questionnaire attached hereto as Exhibit D
and the Registration Statement Questionnaire attached hereto as Exhibit E
for use in preparation of the Registration Statement and the answers thereto
are true and correct as of the date hereof and will be true and correct as of
the effective date of the Registration Statement and the Purchasers will notify
the Company immediately of any material change in any such information provided
in the Registration Statement Questionnaire occurring prior to the sale by it
of all of the Shares and/or the Warrant Shares, if any, or until the Company is
no longer required to keep the Registration Statement effective.

 

(k)             Confidentiality.  Until the Company publicly announces that
this Agreement and the Transaction Documents have been entered into, each
Purchaser agrees with the Company to keep strictly confidential all information
concerning this Agreement, the Transaction Documents and the transactions
contemplated hereby and thereby.  Each
Purchaser understands that the information contained in the Transaction
Documents is strictly confidential and proprietary to the Company and has been
prepared, in large part, from the Company’s publicly available documents and
other information and is being submitted to each Purchaser solely for such
Purchaser’s confidential use.  Each
Purchaser hereby acknowledges that it is prohibited from reproducing and/or
distributing the Transaction Documents, or any other offering materials or
other information provided by the Company in connection with such Purchaser’s
consideration of its investment in the Company, in whole or in part, or
divulging or discussing any of their contents to third parties.  Further, each Purchaser understands that the
existence and nature of all conversations and presentations, if any, regarding
the Company and the Transaction Documents must be kept strictly
confidential.  Each Purchaser
understands that United States Federal and state securities laws impose restrictions
on trading based

 

13

 

on information regarding the transactions contemplated by the
Transaction Documents.  In particular,
each Purchaser hereby acknowledges that disclosure of information regarding the
transaction contemplated in the Transaction Documents may cause the Company to
violate Regulation FD and agrees not to engage in any such unauthorized
disclosure.  The restrictions in this
subsection shall cease upon the Company’s public announcement that the
Transaction Documents have been entered into.

 

(l)            Continued Listing.  Each Purchaser understands that there is no
assurance that the Company will satisfy the criteria for continued quotation of
the Common Stock on The Nasdaq SmallCap Market.

 

(m)          Requirements of Foreign Jurisdictions.  The Purchaser acknowledges, represents and
agrees that no action has been or will be taken in any jurisdiction outside the
United States by the Company or the Placement Agent that would permit an
offering of the Shares, or possession or distribution of offering materials in
connection with the issue of the Shares, in any jurisdiction outside the United
States where action for that purpose is required.  Each Purchaser outside the United States will comply with all
applicable laws and regulations in each foreign jurisdiction in which it
purchases, offers, sells or delivers Shares or has in its possession or
distributes any offering material, in all cases at its own expense.  The Placement Agent is not authorized to make
any representation or use any information in connection with the issue,
placement, purchase and sale of the Shares.

 

(n)           Such Purchaser is not an affiliate (as such
term is defined in Rule 12(b)(ii) under the Exchange Act) of any director or
officer of the Company for purposes of Rule 4350(i)(1)(A) of the NASD, Inc.
Marketplace Rules.

 

The Company acknowledges and agrees that each
Purchaser does not make or has not made any representations or warranties with
respect to the transactions contemplated hereby other than those specifically
set forth in this Section 3.2.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Transfer
Restrictions.

 

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

 

14

 

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

 

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

 

The
Company acknowledges and agrees that a Purchaser may from time to time pledge
pursuant to a bona fide margin agreement with a registered broker-dealer or
grant a security interest in some or all of the Securities to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under
the Securities Act and, if required under the terms of such arrangement, such
Purchaser may transfer pledged or secured Securities to the pledgees or secured
parties.  Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of legal
counsel of the pledgee, secured party or pledgor shall be required in connection
therewith; provided that the pledgee’s or secured party’s further transfer of
such Securities is registered by any applicable securities laws.  Further, no notice shall be required of such
pledge.  At the appropriate Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as
a pledgee or secured party of Securities may reasonably request in connection
with a pledge or transfer of the Securities, including the preparation and
filing of any required prospectus supplement under Rule 424(b)(3) under the
Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of Selling Stockholders thereunder.

 

(c)           Certificates evidencing the Shares and Warrant Shares
shall not contain any legend (including the legend set forth in Section
4.1(b)), (i) while a registration statement (including the Registration
Statement) covering the resale of such security is effective under the
Securities Act, or (ii) following any sale of such Shares or Warrant Shares
pursuant to Rule 144, or (iii) if such Shares or Warrant Shares are eligible
for sale under Rule 144(k), or (iv) if such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission), in
which event the Company shall cause the Company’s transfer agent to effect the
removal of the legend hereunder.  If all
or any portion of a

 

15

 

Warrant is exercised at a
time when there is an effective registration statement to cover the resale of
the Warrant Shares, such Warrant Shares shall be issued free of all
legends.  The Company agrees that
following the Effective Date or at such time as such legend is no longer
required under this Section 4.1(c), it will, no later than three Trading Days
following the delivery by a Purchaser to the Company or the Company’s transfer
agent of a certificate representing Shares or Warrant Shares, as the case may
be, issued with a restrictive legend, deliver or cause to be delivered to such
Purchaser a certificate representing such Securities that is free from all
restrictive and other legends.  The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section.

 

(d)           In addition to such Purchaser’s other available
remedies, the Company shall pay to a Purchaser, in cash, as liquidated damages
and not as a penalty, for each $1,000 of Shares or Warrant Shares (based on the
Closing Price of the Common Stock on the date such Securities are submitted to
the Company’s transfer agent) subject to Section 4.1(c), $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such damages
have begun to accrue) for each Trading Day after such third Trading Day until
such certificate is delivered. Nothing herein shall limit such Purchaser’s
right to pursue actual damages for the Company’s failure to deliver certificates
representing any Securities as required by the Transaction Documents, and such
Purchaser shall have the right to pursue all remedies available to it at law or
in equity including, without limitation, a decree of specific performance
and/or injunctive relief.

 

(e)           Each Purchaser, severally and not jointly, agrees that
the removal of the restrictive legend from certificates representing Securities
as set forth in this Section 4.1 is predicated upon the Company’s reliance that
the Purchaser will sell any Securities pursuant to either (i) the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, which Purchaser hereby covenants to do whenever so
required, or (ii) an exemption therefrom. Purchaser further covenants and
agrees that it is familiar with the SEC’s Manual of Telephone Interpretation
item A.65 respecting the Purchaser’s inability to directly cover any short sale
made prior to the Effective Date with any Registrable Securities, and agrees to
comply with the same.

 

4.2           Furnishing of Information.  As long as any Purchaser owns Securities,
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.

 

4.3           Integration.  The Company shall not sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market.

 

4.4           Intentionally Omitted.

 

4.5           Securities Laws
Disclosure; Publicity.  The Company
shall, by 8:30 a.m. Eastern time on the Business Day following the Closing
Date, file a Current Report on Form 8-K,

 

16

 

disclosing the closing of the
transactions contemplated hereby and make such other filings and notices in the
manner and time required by the Commission. 
Each Purchaser shall consult with the Company before issuing any press
releases with respect to the transactions contemplated hereby, and a Purchaser
shall not issue any such press release or otherwise make any such public
statement without the prior consent of the Company, except if such disclosure is
required by law, in which case the Purchaser shall promptly provide the Company
with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of
any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (i)
as required by United States federal and state securities laws in connection
with the registration statement contemplated by the Registration Rights
Agreement and (ii) to the extent such disclosure is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure permitted under subclause (ii).

 

4.6           Shareholder Rights
Plan.  No claim will be made or
enforced by the Company or any other Person that any Purchaser is an “Acquiring
Person” under any shareholders rights plan or similar 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.

 

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

 

4.8           Intentionally Omitted.

 

4.9           Intentionally Omitted.

 

4.10         Indemnification of
Purchasers.   The Company will
indemnify and hold the Purchasers and their directors, officers, shareholders,
partners, employees and agents (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, court costs
and reasonable attorneys’ fees and costs of investigation (collectively,
“Losses”) that any such Purchaser Party may suffer or incur as a result of or
relating to any material misrepresentation, breach or inaccuracy of any of the
representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents; provided, however, that
the Company will not be liable in any such case to the extent such Losses arise
out of or is based upon (a) the failure of the Purchaser to comply with applicable
securities laws or the covenants and agreements contained in this Agreement
(including, without limitation Section 4.1 hereof) (unless such failure shall
be a result of the Company breaching any of its obligations to the Purchaser
hereunder) or the Registration Rights Agreement or to perform its obligations
under law or (b) the inaccuracy of any representation or warranty made by such
Purchaser in this Agreement in any material respect. The Company will

 

17

 

reimburse such Purchaser for
its reasonable legal and other expenses (including the cost of any
investigation, preparation and travel in connection therewith) incurred in
connection therewith.

 

4.11         Reservation of Common
Stock.  The Company shall 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 the Warrants.

 

4.12         Listing of Common
Stock.  The Company hereby agrees to
use commercially reasonable efforts to maintain the listing of the Common Stock
on the Trading Market on which the Shares are traded as of the date hereof, and
as soon as reasonably practicable following the Closing (but not later than the
earlier of the Effective Date and the first anniversary of the Closing Date) to
list the applicable Shares and Warrant Shares on such Trading Market. The
Company further agrees, if the Company applies to have the Common Stock traded
on any other Trading Market, it will include in such application the Shares and
the Warrant Shares, and will take such other action as is necessary or
desirable in the opinion of the Purchasers to cause the Shares and Warrant
Shares to be listed on such other Trading Market as promptly as possible.  The Company will use reasonable efforts to
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Trading Market.

 

4.13         Future Financings.  From the date hereof until 15 Trading Days
after the Effective Date, other than as contemplated by this Agreement, neither
the Company nor any Subsidiary shall issue or sell any Common Stock or Common
Stock Equivalents.  Notwithstanding
anything herein to the contrary, the 15 Trading Day period set forth in this
Section 4.13 shall be extended for the number of Trading Days during such
period in which (y) trading in the Common Stock is suspended by any Trading
Market, or (z) following the Effective Date, the Registration Statement is not
effective or the prospectus included in the Registration Statement may not be
used by the Purchasers for the resale of the Shares and the Warrant
Shares.  Notwithstanding anything to the
contrary herein, this Section 4.13 shall not apply to the following (a) the
granting of options or stock to employees, officers, directors and consultants
of the Company pursuant to a grant approved by a majority of the Board of
Directors or pursuant to any stock option plan duly adopted by a majority of
the non-employee members of the Board of Directors of the Company or a majority
of the members of a committee of non-employee directors established for such
purpose, or (b) the exercise of any security issued by the Company in
connection with the offer and sale of the Company’s securities pursuant to this
Agreement, or (c) the exercise of or conversion of any convertible securities,
notes, options or warrants issued and outstanding on the date hereof, provided
such securities have not been amended since the date hereof (unless, in the
case of notes, the sole purpose of such amendment is to extend the maturity
date) or (d) commercial transactions, collaborations, acquisitions or other
strategic transactions or investments, the primary purpose of which is not to
raise capital. 

 

4.14         Equal Treatment of
Purchasers.  No consideration shall
be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of the Transaction Documents unless the
same consideration is also offered to all of the parties to the Transaction
Documents.

 

18

 

ARTICLE V.

MISCELLANEOUS

 

5.1           Fees and Expenses.  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, except that the Company
shall pay a document preparation fee of $25,000 to FW, counsel for the placement
agent, at closing.  The Company shall
pay all stamp and other taxes and duties levied in connection with the sale of
the Securities.

 

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

 

5.3           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 specified on the signature pages attached hereto prior to
6:30 p.m. (New York City time) on a Trading Day and electronic confirmation of
successful transmission is received, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number on the signature pages attached hereto on a day that is not a
Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(c) the 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.

 

5.4           Amendments; Waivers.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and by each Purchaser with respect to such Purchaser or, in the
case of a waiver, by the party against whom enforcement of any such waiver 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 either party to exercise any right hereunder
in any manner impair the exercise of any such right.

 

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

 

5.6           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; provided, however, no consent shall be required in
connection with a merger, consolidation or sale of substantially all of the
Company’s assets.  Any Purchaser may
assign any or all of its rights under this Agreement to any Person, provided
such transferee agrees in writing

 

19

 

to be bound, with
respect to the transferred Securities, by the provisions hereof that apply to
the “Purchasers”.  Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided by this Agreement.

 

5.7           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 4.10.

 

5.8           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 hereto hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, New York 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. 
Each party hereto hereby irrevocably waives personal service of process
and consents to process being served in any such suit, action or proceeding by
delivering a copy thereof via 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
manner permitted by law. Each party hereto (including its affiliates, agents,
officers, directors and employees) 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 Agreement or the
transactions contemplated hereby. If either party shall commence an action or
proceeding to enforce any provisions of a Transaction Document, 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 with the
investigation, preparation and prosecution of such action or proceeding.

 

5.9           Survival.  The representations, warranties, agreements
and covenants contained herein shall survive the Closing and delivery of the
Shares and exercise of the Warrants.

 

5.10         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, such signature shall create a valid and binding

 

20

 

obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile signature page were an original thereof.

 

5.11         Severability.  If any provision of this Agreement is held
to be invalid or unenforceable in any respect, the validity and enforceability
of the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

 

5.12         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, 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 and customary
and reasonable indemnity, if requested. 
The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with
the issuance of such replacement Securities.

 

5.13         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 described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.

 

5.14         Intentionally Omitted.

 

5.15         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 of the obligations of any other
Purchaser under any Transaction Document. 
Nothing contained herein or in any 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 Document. 
Each Purchaser shall be entitled to independently protect and enforce
its rights, including without limitation, the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.  Each
Purchaser has been represented by its own separate legal counsel in their
review and negotiation of the Transaction Documents.  For reasons of administrative convenience only, Purchasers and
their respective counsel have chosen to communicate with the Company through
FW.  FW does not represent any of the
Purchasers in this transaction but only 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 the
Purchasers.

 

(Signature Page Follows)

 

21

 

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

 

	
  THE
  IMMUNE RESPONSE CORPORATION

  	
  Address for Notice

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attn:

  
	
  By:

  	
   /s/ John M.
  Bonfiglio

  	
   

  	
  Tel:

  
	
   

  	
  Name: John M. Bonfiglio

  	
  Fax:

  
	
   

  	
  Title: Chief Executive Officer

  	
   

  
				

 

With
copy to (which shall not constitute notice):

 

Pillsbury
Winthrop LLP

50
Fremont Street

San
Francisco, CA 94105

Attn:
Thomas E. Sparks, Jr., Esq.

Tel:
(415) 983-1000

Fax:
(415) 983-1200

[SIGNATURE PAGE CONTINUES]

 

22

 

[PURCHASER
SIGNATURE PAGES TO IMNR SECURITIES PURCHASE AGREEMENT]

 

	
  Alpha Capital Aktiengesellschaft:

  	
   

  	
  Address for Notice

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Thomas Hackl

  	
   

  	
   

  	
   

  
	
   

  	
  Name: Thomas Hackl

  	
   

  	
  Attention: Arie Rabinowitz

  
	
   

  	
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[PURCHASER
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  BRISTOL INVESTMENT
  FUND, LTD.

  	
   

  	
  Address for Notice

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Paul Kessler

  	
   

  	
   

  	
   

  
	
   

  	
  Name: Paul Kessler

  	
   

  	
  Attention: Amy Wang, Esq.

  
	
   

  	
  Title: Director

  	
   

  	
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24

 

[PURCHASER
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  Name of Investor
  Entity:

  	
  Address for Notice

  
	
  Cohanzick
  Partners, L.P.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/  David K. Sherman

  	
   

  	
  Attention: David K. Sherman

  
	
   

  	
  Name: David K. Sherman

  	
  Fax:

  
	
   

  	
  Title: Authorized Agent

  	
   

  
	
   

  	
   

  
	
  Subscription
  Amount:  61,881 shares for $124,999.62

  	
   

  
	
   

  	
   

  
	
  With a copy to:

  	
   

  
				

 

25

 

[PURCHASER
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  Name of Investor
  Entity:

  	
  Address for Notice

  
	
  Cranshire Capital L.P.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/  Keith Goodman

  	
   

  	
  Attention: Mitchell P. Kupin

  
	
   

  	
  Name: Keith Goodman

  	
  Fax:

  
	
   

  	
  Title: CFO - 
  Downsview Capital, Inc.

  	
   

  
	
   

  	
  THE GENERAL PARTNER

  	
   

  
	
   

  	
   

  
	
  Subscription
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26

 

[PURCHASER
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  CRESCENT INTERNATIONAL
  LTD.

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attention: Mel Craw/ Maxi Brezzi

  
	
  By:

  	
   /s/  Mel Craw Maxi Brezzi

  	
   

  	
  Tel:

  
	
   

  	
  Name: Mel Craw Maxi Brezzi

  	
   

  
	
   

  	
  Title: Authorized Signatories

  	
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27

 

[PURCHASER
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  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  Colbart
  Birnet L.P.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Ezra Birnbaum

  	
   

  	
  Attention:

  	
   

  
	
   

  	
  Name: Ezra Birnbaum

  	
  Fax:

  	
   

  
	
   

  	
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28

 

[PURCHASER
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  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  Ellis
  International.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  John Cabot

  	
   

  	
  Attention: Matt Drillman

  	
   

  
	
   

  	
  Name: John Cabot

  	
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[PURCHASER
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  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  ENABLE GROWTH PARTNERS
  LP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Mitchell
  Levine

  	
   

  	
  Attention: Mitch Levine

  	
   

  
	
   

  	
  Name: Mitchell Levine

  	
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[PURCHASER
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  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  Gabriel Capital, L.P.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  David K. Sherman

  	
   

  	
  Attention: David K. Sherman

  	
   

  
	
   

  	
  Name: David K. Sherman

  	
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31

 

[PURCHASER SIGNATURE PAGES TO
IMNR SECURITIES PURCHASE AGREEMENT]

 

	
  Gamma Opportunity Capital
  Partners, LP:

  	
  Address for Notice:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Christopher Rossman

  	
   

  	
  Attention: Christopher Rossman

  	
   

  
	
   

  	
  Name: Christopher Rossman

  	
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32

 

[PURCHASER
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  GRYPHON MASTER FUND, LP

  	
  Address for Notice:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Michael Schulten

  	
   

  	
  Attention: Ryan Wolters

  	
   

  
	
   

  	
  Name: Michael Schulten

  	
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33

 

[PURCHASER
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  LANGLEY PARTNERS, L.P.:

  	
  Address for Notice:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Jeffrey Thorp

  	
   

  	
  Attention: Jeffrey Thorp

  	
   

  
	
   

  	
  Name: Jeffrey Thorp

  	
  Fax:

  	
   

  
	
   

  	
  Title:
  Managing Member of Langley Capital, LLC,

  its General Partner

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
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[PURCHASER SIGNATURE PAGES TO
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  Name of Investor Entity:

  	
  Address for Notice

  	
   

  
	
  Magellan International Ltd.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Anna Marie Lowe

  	
   

  	
  Attention: Anna Marie Lowe

  	
   

  
	
   

  	
  Name: Anna Marie Lowe

  	
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  Name of Investor
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  Address for Notice

  
	
  OMICRON MASTER TRUST

  	
   

  
	
  By: Omicron Capital
  L.P., as advisor

  	
   

  
	
  By: Omicron Capital
  Inc., its general partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Fax:

  
	
  By:

  	
   /s/  Olivier Morali

  	
   

  	
  Attention: Brian Daly

  
	
   

  	
  Name: Olivier Morali

  	
   

  
	
   

  	
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  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  PLATINUM PARTNERS VALUE

  	
   

  	
   

  
	
  ARBITRAGE FUND LP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Mark Nordlicht

  	
   

  	
  Attention:

  	
   

  
	
   

  	
  Name: Mark Nordlicht

  	
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[PURCHASER SIGNATURE
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  PORTSIDE GROWTH AND
  OPPORTUNITY FUND

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Jeffrey Solomon

  	
   

  	
   

  
	
   

  	
  Name: Jeffrey Solomon

  	
   

  
	
   

  	
  Title: Authorized Signatory

  	
   

  
	
   

  	
   

  
	
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  Address for Notice

  	
   

  
	
  SF Capital Partners Ltd

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Brian H. Davidson

  	
   

  	
  Attention:

  	
   

  
	
   

  	
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39

 

[PURCHASER
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  Address for Notice

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/  Murray Todd

  	
   

  	
  Attention:

  
	
  Silver Oak Investments,
  Inc.

  	
  Fax:

  
	
  Name: Murray Todd

  	
   

  
	
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[PURCHASER
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  SMITHFIELD FIDUCIARY
  LLC

  	
   

  	
  Address for Notice

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/ Adam J.
  Chill

  	
   

  	
   

  	
  Attention: Ari J. Storch/ Adam J. Chill

  
	
   Name: Adam J. Chill

  	
   

  	
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41

 

[PURCHASER
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  Entity:

  	
  Address for Notice

  	
   

  
	
  Solomon Strategic
  Holdings, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  A P MacKellar

  	
   

  	
  Attention: A P MacKellar

  	
   

  
	
   

  	
  Name: A P MacKellar

  	
  Fax:

  	
   

  
	
   

  	
  Title: Director

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Subscription
  Amount:  $250,000

  	
   

  	
   

  
					

 

42

 

[PURCHASER
SIGNATURE PAGES TO IMNR SECURITIES PURCHASE AGREEMENT]

 

	
  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  Spectra Capital
  Management

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Greg Porges

  	
   

  	
  Attention: Ian M. Estepan

  	
   

  
	
   

  	
  Name: Greg Porges

  	
  Fax:

  	
   

  
	
   

  	
  Title:  Sole
  Member

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Subscription
  Amount:  $500,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  
					

 

43

 

[PURCHASER
SIGNATURE PAGES TO IMNR SECURITIES PURCHASE AGREEMENT]

 

	
  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  Stonestreet, L.P.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  M. Finklestein

  	
   

  	
  Attention:

  	
   

  
	
   

  	
  Name: M. Finklestein

  	
  Fax:

  	
   

  
	
   

  	
  Title: President

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Subscription
  Amount:  $500,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  
					

 

44

 

[PURCHASER
SIGNATURE PAGES TO IMNR SECURITIES PURCHASE AGREEMENT]

 

	
  Name of Investor
  Entity:

  	
  Address for Notice

  
	
  THE TAIL WIND FUND
  LIMITED

  	
   

  
	
  By: Tail Wind Advisory
  & Management Ltd.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/  David Crook

  	
   

  	
   

  
	
   

  	
  Name: David Crook

  	
   

  
	
   

  	
  Title: Chief Executive Officer

  	
   

  
	
   

  	
   

  
	
  Subscription
  Amount:  $1,250,000

  	
   

  
				

 

45

 

[PURCHASER
SIGNATURE PAGES TO IMNR SECURITIES PURCHASE AGREEMENT]

 

	
  Name of Investor
  Entity:

  	
  Address for Notice

  	
   

  
	
  TCMP3

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   /s/  Steven Slawson

  	
   

  	
  Attention:

  	
   

  
	
   

  	
  Name: Steven Slawson

  	
  Fax:

  	
   

  
	
   

  	
  Title: Principal

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Subscription
  Amount:  $250,000.00

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
   

  
					

 

46

 

EXHIBIT C

 

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

 

Warrant
No. «Warrant No»

 

 

COMMON STOCK PURCHASE WARRANT

 

 

To Purchase «Shares» Shares
of Common Stock of

 

The Immune Response Corporation

 

THIS
COMMON STOCK PURCHASE WARRANT CERTIFIES that, for value received, «Purchaser»
(the “Holder”), is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after October 10, 2003 (the “Initial Exercise Date”) and on or
prior to the close of business on October 10, 2008 (the “Termination Date”)
but not thereafter, to subscribe for and purchase from The Immune Response
Corporation, a corporation incorporated in the State of Delaware (the “Company”),
up to «Shares» shares (the “Warrant Shares”) of Common Stock, of the
Company (the “Common Stock”). 
The purchase price of one share of Common Stock (the “Exercise Price”)
under this Warrant shall be $3.32,
subject to adjustment hereunder. 
The Exercise Price and the number of Warrant Shares for which the
Warrant is exercisable shall be subject to adjustment as provided herein. Capitalized terms used and not otherwise
defined herein shall have the meanings set forth in that certain Securities
Purchase Agreement (the “Purchase Agreement”), dated October 10, 2003,
between the Company and the purchasers signatory thereto.

 

47

 

1.     Title to Warrant. 
Prior to the Termination Date and subject to compliance with applicable
laws and Section 7 of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part.

 

2.     Authorization of Shares.  The
Company covenants that all Warrant Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant will, upon exercise of the
purchase rights represented by this Warrant in accordance with the terms and
conditions hereof, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

 

3.     Exercise of Warrant.

 

(a)  Except as provided in
Section 3(c) herein, exercise of the purchase rights represented by this
Warrant may be made at any time or times on or after the Initial Exercise Date
and on or before the Termination Date by the surrender of this Warrant and the
Notice of Exercise Form annexed hereto duly executed, at the office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the registered Holder at the address of such Holder appearing on the
books of the Company) and upon payment of the Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check of immediately available
funds drawn on a United States bank or by means of a cashless exercise pursuant
to Section 3(d), the Holder shall be entitled to receive a certificate for the
number of Warrant Shares so purchased. 
Certificates for shares purchased hereunder shall be delivered to the
Holder within five (5) Trading Days after the date on which this Warrant shall
have been exercised as aforesaid. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have been
issued, and the Holder or any other person so designated to be named therein
shall be deemed to have become a holder of record of such shares for all
purposes, as of the date the Warrant has been exercised by payment to the
Company of the Exercise Price and all taxes required to be paid by the Holder,
if any, pursuant to Section 5 prior to the issuance of such shares, have been
paid.  If the Company fails to deliver to
the Holder a certificate or certificates representing the Warrant Shares
pursuant to this Section 3(a) by the close of business on the fifth Trading Day
after the date of exercise, then the Holder will have the right to rescind such
exercise.  In addition to any other
rights available to the Holder, if the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to an
exercise by the close of business on the fifth Trading Day after the date of
exercise, and if after such fifth Trading Day the Holder is required by its
broker to purchase (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”),
then the Company shall (1) pay in cash to the Holder the amount by which (x)
the Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the

 

48

 

Company timely complied with its exercise and delivery obligations
hereunder.  For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In, together
with applicable confirmations and other evidence reasonably requested by the
Company.  Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely
deliver certificates representing shares of Common Stock upon exercise of the
Warrant as required pursuant to the terms hereof.

 

(b)   If this Warrant shall have been exercised in part, the Company shall,
at the time of delivery of the certificate or certificates representing Warrant
Shares, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.

 

(c)   Notwithstanding anything herein to the contrary, in no event shall the
Holder be permitted to exercise this Warrant for Warrant Shares to the extent
that (i) the number of shares of Common Stock beneficially owned by such
Holder, together with any affiliate thereof (other than Warrant Shares issuable
upon exercise of this Warrant) plus (ii) the number of Warrant Shares issuable
upon exercise of this Warrant, would be equal to or exceed 4.999% of the number
of shares of Common Stock then issued and outstanding, including shares
issuable upon exercise of this Warrant held by such Holder after application of
this Section 3(c).  As used herein,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules promulgated thereunder.  To the extent that the limitation contained
in this Section 3(c) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder) and of which
a portion of this Warrant is exercisable shall be in the sole discretion of
such Holder, and the submission of a Notice of Exercise shall be deemed to be
such Holder’s determination of whether this Warrant is exercisable (in relation
to other securities owned by such Holder) and of which portion of this Warrant
is exercisable, in each case subject to such aggregate percentage limitation,
and the Company shall have no obligation to verify or confirm the accuracy of
such determination.  Nothing contained
herein shall be deemed to restrict the right of a Holder to exercise this
Warrant into Warrant Shares at such time as such exercise will not violate the
provisions of this Section 3(c).  The
provisions of this Section 3(c) may be waived by the Holder upon, at the
election of the Holder, not less than 61 days’ prior notice to the Company, and
the provisions of this Section 3(c) shall continue to apply until such 61st day
(or such later date, as determined by the Holder, as may be specified in such
notice of waiver).  No exercise of this
Warrant in violation of this Section 3(c) but otherwise in accordance with this
Warrant shall affect the status of the Warrant Shares as validly issued,
fully-paid and nonassessable.

 

(d)   If, but only if, at any time after one year from the date of
issuance of this Warrant there is no effective Registration Statement
registering the resale of the Warrant Shares by the Holder, this Warrant may
also be exercised at such time by means of a “cashless exercise” in which the
Holder shall be entitled to receive a certificate for the

 

49

 

number
of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by
(A), where:

 

(A) = the VWAP on the Trading Day preceding the date
of such election;

 

(B) =  the
Exercise Price of the Warrants, as adjusted; and

 

(X) = the number of Warrant Shares issuable upon
exercise of the Warrants in accordance with the terms of this Warrant.

 

As
used herein, “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 Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or
quoted on a Trading Market and if prices for the Common Stock are then quoted
on the OTC Bulletin Board, 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 on the OTC Bulletin
Board and if prices for the Common Stock are then reported in the “Pink Sheets”
published by the National Quotation Bureau Incorporated (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
of the Shares then outstanding and reasonably acceptable to the Company.

 

4.     No Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price.

 

5.     Charges, Taxes and Expenses. 
Issuance of certificates for Warrant Shares shall be made without charge
to the Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached
hereto duly executed by the Holder; and the Company may require, as a condition
thereto, the payment of a sum sufficient to reimburse it for any transfer tax
incidental thereto.

 

6.     Closing of Books.  The
Company will not close its stockholder books or records in any manner which
prevents the timely exercise of this Warrant, pursuant to the terms hereof.

 

7.     Transfer, Division and Combination.

 

(a)   Subject to compliance with any applicable securities laws and the
conditions set forth in Sections 1 and 7(e) hereof and to the provisions of
Section 4.1 of the

 

50

 

Purchase Agreement, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant, so long as
the amount of Warrant Shares transferred is equal to at least 25,000 shares (on
an as exercised basis) at the principal office of the Company, together with a
written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to
pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  A
Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

 

(b)   This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 7(a), as
to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.

 

(c)   The Company shall prepare, issue and deliver at its own expense (other
than transfer taxes) the new Warrant or Warrants under this Section 7.

 

(d)   The Company agrees to maintain, at its aforesaid office, books for the
registration and the registration of transfer of the Warrants.

 

(e)   If, at
the time of the surrender of this Warrant in connection with any transfer
of this Warrant, the transfer of this Warrant shall not be registered pursuant
to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such transfer (i) that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a
written opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect
that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky
laws, (ii) that the holder or transferee execute and deliver to the Company an
investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an “accredited investor” as defined in Rule 501(a)
promulgated under the Securities Act.

 

8.     No Rights as Shareholder until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to the exercise hereof.  Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

 

9.     Loss, Theft, Destruction or Mutilation of
Warrant.  The Company covenants that upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of

 

51

 

loss, theft or destruction,
of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

10.   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 be a Saturday, Sunday or a legal
holiday, then such action may be taken or such right may be exercised on the
next succeeding day not a Saturday, Sunday or legal holiday.

 

11.   Adjustments of Exercise Price and Number of
Warrant Shares.  The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of the
following.  In case the Company shall
(i) pay a dividend in shares of Common Stock or make a distribution in shares
of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock, then the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive the kind and number of
Warrant Shares or other securities of the Company which it would have owned or
have been entitled to receive had such Warrant been exercised in advance
thereof.  Upon each such adjustment of
the kind and number of Warrant Shares or other securities of the Company which
are purchasable hereunder, the Holder shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of Warrant Shares purchasable pursuant hereto immediately prior
to such adjustment and dividing by the number of Warrant Shares or other
securities of the Company resulting from such adjustment.  An adjustment made pursuant to this
paragraph shall become effective immediately after the effective date of such
event retroactive to the record date, if any, for such event.

 

12.   Reorganization, Reclassification, Merger,
Consolidation or Disposition of Assets.  In case the Company shall
reorganize its capital, reclassify its capital stock, consolidate or merge with
or into another corporation (where the Company is not the surviving corporation
or where there is a change in or distribution with respect to the Common Stock
of the Company), or sell, transfer or otherwise dispose of all or substantially
all its property, assets or business to another corporation (including by way
of a spin-off) and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation (“Other Property”),
are to be received by or distributed to the holders of Common Stock of the
Company, then the Holder shall have the right thereafter to receive upon
exercise of this Warrant, the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event.  In
case of any such reorganization,

 

52

 

reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12.  For purposes of this Section 12, “common
stock of the successor or acquiring corporation” shall include stock of such
corporation of any class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not subject to redemption
and shall also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock,
either immediately or upon the arrival of a specified date or the happening of
a specified event and any warrants or other rights to subscribe for or purchase
any such stock.  The foregoing
provisions of this Section 12 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.

 

13.   Voluntary Adjustment by the Company.  The
Company may at any time during the term of this Warrant reduce the then current
Exercise Price to any amount and for any period of time deemed appropriate by
the Board of Directors of the Company.

 

14.   Notice of Adjustment. 
Whenever the number of Warrant Shares or number or kind of securities or
other property purchasable upon the exercise of this Warrant or the Exercise
Price is adjusted, as herein provided, the Company shall give notice thereof to
the Holder, which notice shall state the number of Warrant Shares (and other
securities or property) purchasable upon the exercise of this Warrant and the
Exercise Price of such Warrant Shares (and other securities or property) after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.

 

15.   Notice of Corporate Action.  If
at any time:

 

(a)           the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or other distribution, or any right to
subscribe for or purchase any evidences of its indebtedness, any shares of
stock of any class or any other securities or property, or to receive any other
right, or

 

(b)           there
shall be any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger of the Company with, or any sale, transfer or other disposition of all
or substantially all the property, assets or business of the Company to,
another corporation or,

 

(c)           there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company;

 

then,
in any one or more of such cases, the Company shall give to Holder (i) at least
20 days’ prior written notice of the date or expected date on which a record
date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
liquidation or winding up, and (ii) in the case of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, at least 20 days’ prior written notice
of the date

 

53

 

when
the same shall or is expected to take place. 
Such notice in accordance with the foregoing clause also shall specify
(A) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (B) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is expected to take place and the time,
if any such time is to be fixed, as of which the holders of Common Stock shall
be entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up.  Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder appearing
on the books of the Company and delivered in accordance with Section
18(d).  Failure to provide such notice
shall not affect the validity of any action taken in connection with such
dividend, distribution, subscription or purchase rights, or proposed
reorganization, reclassification, recapitalization, merger, consolidation,
sale, transfer, disposition, conveyance, dissolution, liquidation or winding
up.

 

16.   Authorized Shares.  The
Company covenants that during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant. 
The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for the Warrant Shares upon the exercise of the purchase rights under this
Warrant.  The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Trading Market upon which the Common
Stock may be listed.

 

Except
and to the extent as waived or consented to by the Holder, the Company shall
not by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant
against impairment.  Without limiting
the generality of the foregoing, the Company will (a) not increase the par value
of any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares upon the exercise of
this Warrant, and (c) use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.

 

Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

 

17.   Call.  At any time and from time to
time following the Effective Date, the Company shall have the right, upon 5
Business Days’ prior written notice to the Holder (“Call Notice”), to call all
or any portion of this Warrant at a price equal to $.05 per Warrant at any
time,

 

54

 

provided that (i) the
Warrant Shares have been registered for resale pursuant to the Securities Act
for at least the 10-Trading Day period preceding the Call Notice, (ii) the VWAP
of the Common Stock on a Trading Market is equal to or greater than $8.00 per
share (subject to adjustment to reflect forward or reverse stock splits, stock
dividends, recapitalizations and the like)(the “Threshold Price”) for at least
20 consecutive Trading Days over any 30 Trading Days, and (iii) the Call Notice
is delivered within 3 Business Days’ of the most recent day in the previous
clause (ii) that the Common Stock reached the Threshold Price.  At any time prior to the effective date of
such call, the Holder shall have the right to exercise this Warrant in
accordance with its terms.

 

18.   Miscellaneous.

 

(a)   Jurisdiction.  This Warrant shall constitute a contract
under the laws of New York, without regard to its conflict of law, principles
or rules.

 

(b)   Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

 

(c)   Nonwaiver and Expenses.  No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

 

(d)   Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement; provided upon any permitted assignment of this Warrant, the assignee
shall promptly provide the Company with its contact information.

 

(e)   Limitation of Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

 

(f)    Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.

 

(g)   Successors and Assigns.  Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the successors
and permitted assigns of

 

55

 

Holder.  The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.

 

(h)   Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.

 

(i)    Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

 

(j)    Headings.  The headings used in this Warrant are for
the convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.

 

(k)   Entire Agreement.
This Warrant, the Purchase Agreement and the Registration Rights Agreement
constitute the entire agreement between the Company and the Holder with respect
to this Warrant.

 

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

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized.

 

56

 

	
  Dated:  October 10, 2003

  	
   

  
	
   

  	
   

  
	
   

  	
  THE IMMUNE RESPONSE
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

57

 

NOTICE OF EXERCISE

 

To:          The Immune Response Corporation

 

(1)   The undersigned hereby elects to purchase
                    
Warrant Shares of The Immune Response Corporation pursuant to the terms of the
attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if
any.

 

(2)   Payment shall take the form of (check applicable
box):

 

o
in lawful money of the United States; or

 

o
the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 3(d), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 3(d).

 

(3)   Please issue a certificate or certificates
representing said Warrant Shares in the name of the undersigned or in such
other name as is specified below:

 

 

 

The Warrant Shares shall be delivered to the following:

 

 

 

 

 

(4)  Accredited
Investor.  The undersigned is an
“accredited investor” as defined in Regulation D promulgated under the
Securities Act of 1933, as amended.

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  «Purchaser»

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Dated:

  	
   

  
										

 

58

 

ASSIGNMENT FORM

 

(To assign the
foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

 

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

 

                                                                                                                                               whose
address is

 

                                                                                                                                                                              .

 

 

 

 

                                                                                                                                                      Dated:                  ,
             

 

 

	
   

  	
  Holder’s Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature Guaranteed:

  	
   

  	
   

  	
   

  

 

 

NOTE:  The signature to this
Assignment Form must correspond with the name as it appears on the face of the
Warrant, without alteration or enlargement or any change whatsoever, and must
be guaranteed by a bank or trust company. 
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.

 

59

 

EXHIBIT D

 

STOCK CERTIFICATE QUESTIONNAIRE

 

Pursuant
to Section 3.2 of the Securities Stock Purchase Agreement, please provide us
with the following information:

 

1.             The exact name that your Shares are to be Registered
in (this is the name that will appear on your stock certificate(s)).  You may use a nominee name if appropriate:

 

 

2.             The relationship between the Purchaser of the Shares
and the Registered Holder listed in response to item 1 above:

 

 

3.             The mailing address of the Registered Holder listed in
response to item 1 above:

 

 

4.             The Social Security Number or Tax Identification
Number of the Registered Holder listed in response to item 1 above:

 

 

 

60

 

EXHIBIT
E

 

REGISTRATION STATEMENT QUESTIONNAIRE

 

In
connection with the preparation of the Registration Statement, please provide
us with the following information:

 

1.             Pursuant to the “Selling Stockholder” section
of the Registration Statement, please state your or your organization’s name
exactly as it should appear in the Registration Statement:

 

 

2.             Please provide the number of shares of
The Immune Response Corporation Common Stock that you or your organization will
own immediately after Closing, including those purchased by you or your
organization pursuant to this Agreement and those shares of Common Stock
purchased by you or your organization through other transactions:

 

 

3.             Have you or your organization had any position, office
or other material relationship within the past three years with the Company or
its affiliates?

 

Yes   
           No

 

If yes, please indicate
the nature of any such relationships below:

 

 

 

 

 

61

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