Document:

purchagmt.htm

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

           This Securities Purchase Agreement (“Agreement”) is made as of the date last indicated below on the acceptance page hereof, by and between PREMIER ALLIANCE GROUP, INC., a Delaware corporation having its principal offices at 4521 Sharon Road, Suite 300, Charlotte, North Carolina 28211 (the “Company” or “Borrower”) and the Purchaser (“Purchaser”) whose name and address are set forth on the Signature Page to this Agreement.

                                                        R E C I T A L S

           A.           The Borrower desires to obtain funds from each Purchaser in order to provide working capital for marketing, acquisitions, expansion and to further the operations of the Borrower.

           B.           The Borrower is conducting a private offering (the “Offering”), for which American Capital Partners, LLC  is acting as placement agent on a “best efforts” basis (the “Placement Agent”), of units (“Units” or “Securities”) consisting of 7% Convertible Promissory Notes substantially in the form as annexed hereto as Exhibit A, (the “Notes”) with such Convertible Note automatically converting at the closing of the Company’s next round of financing, in the same security as the next round of financing (the “Conversion Shares”) at a conversion price equal to the lesser of (a) $0.50, or (b) a twenty-five percent (25%) discount to the next round of financing, and 50% warrant coverage (the “Warrant”), with an exercise price equal to the lesser of (a) $0.65, or (b) the exercise price of the warrants issued in the next round of financing (collectively the Notes and the Warrant shall be referred to herein as the “Securities”); provided however that the Company may call the Warrants if: (i) the Company registers the Common Stock underlying the Warrants with the Securities and Exchange Commission; and (ii) the Company’s Common Stock, subsequent to the registration of the Warrant Shares, trades above $1.30 per share each day for ten (10) consecutive trading days and averages in excess of fifty thousand (50,000) shares of volume per trading day, with each Unit to be sold at a negotiated price of $50,000 per Unit (the “Offering Price”) (i.e. face value based on the principal amount subscribed for), pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D (“Regulation D”) and/or Regulation S (“Regulation S”) as promulgated under the Securities Act; and

 

B. Purchasers understand that there is a great deal of risk, illiquidity and uncertainty in the purchase of the Units herein, and that no assurance can be made that the Borrower will repay the Notes, complete its business plan or, if completed, that it will be successful in doing so.  Purchasers have received and examined all of the Borrower’s SEC Reports (as defined in Section 3.7.1).

C. The offering of Units is being made directly by the Borrower through the Placement Agent (as hereinafter defined), to accredited investors only, under Regulation S and/or Rule 506 of Regulation D of the Securities Act, as amended, on a “best efforts $1,000,000 maximum” basis, which may be increased without notice to investors, wherein up to a maximum of 20 Units, or up to $1,000,000 principal amount of Notes and Warrants may be sold (the “Maximum Offering”).

D. There is no escrow agent in this offering and moneys will not be held in any segregated or secured account pending acceptance or rejection.  Accordingly, there is also no minimum offering amount and your funds reflecting the Purchase Price will become immediately available for use by the Borrower and susceptible to rights of third party creditors without protection.  Purchasers and third party agents will not have an opportunity to approve of a Closing / subscription acceptance, or to request refund of any moneys submitted to the Borrower until such time as subscriptions are accepted or rejected or a Termination Date occurs. Purchasers acknowledge and agree that their subscriptions are irrevocable and binding commitments on the part of the Purchaser and that once their funds have been tendered with the appropriate subscription documents the Borrower may utilize and disburse funds and conduct a Closing and issue to Purchasers their respective Securities without any advanced consent or notice to Purchasers or the Placement Agent.  The Borrower may reject any subscriptions in whole or in part for any reason or for no reason to return funds to the Purchaser to the extent of such non accepted funds, or, retains the right to hold the same for acceptance or rejection at a future closing, until termination of the offering, at which time, any unused subscription funds shall be returned to Purchaser.

 

AGREEMENT

           It is agreed as follows:

           1.           PURCHASE AND SALE OF UNITS.

           1.1           Purchase and Sale.  In reliance upon the representations and warranties of the Borrower and each Purchaser contained herein and subject to the terms and conditions set forth herein, at Closing, each Purchaser shall purchase, and the Borrower shall sell and issue to each Purchaser, Units, at a negotiated purchase price of face value, the Principal Amount of Notes and corresponding Warrants set forth on the signature page annexed to the end of this Agreement as executed by such Purchaser (the “Purchaser Signature Page”), issued in such Purchaser’s name, at a purchase price of $50,000 per Unit (the “Purchase Price”). Partial Units may be accepted at the discretion of the Borrower and Placement Agent.

2.           CLOSING.

           2.1           Date and Time.  The sale of Units will take place in one or more closings (“Closing”), subject to the satisfaction of all the parties hereto of their obligations herein.  The Purchasers shall submit an executed copy of this Agreement to the Borrower and Placement Agent along with the Purchase Price by bank wire (or, with the consent of Placement Agent, by check) directly to the Borrower.  The Closing of the sale of Units contemplated by this Agreement shall take place from time to time as subscriptions are received, without any consent of, or notice to, Purchasers.  Subscriptions that are not accepted will be returned with any funds (less wire fees).  The Closing shall take place at the offices of the Borrower or at such other place as the Borrower and the Placement Agent shall agree in writing (each, a “Closing Date”) on or before November 15, 2012, unless otherwise extended by the Borrower and Placement Agent up to a maximum of 30 days (the “Termination Date”).

2.2           No Escrow Agent.  There is no escrow agent and no minimum offering amount.  Purchasers understand and acknowledge that the Borrower may or may not raise capital other than their own subscription and, that the Borrower may accept subscriptions from Purchasers at any time.  Purchasers acknowledge and agree that their subscriptions are irrevocable and binding commitments on the part of the Purchaser and that once their funds have been tendered to the Borrower with the appropriate subscription documents and their subscription received.  The Borrower may reject any subscriptions in whole or in part for any reason or for no reason and shall return funds to the Purchaser to the extent of such non accepted funds, or, retains the right to hold the same for acceptance or rejection at a future closing, until the Termination Date of the offering, at which time, any unused subscription funds shall be returned to Purchaser.

 

3.           REPRESENTATIONS AND WARRANTIES OF THE BORROWER.

 

As a material inducement to each Purchaser to enter into this Agreement and to purchase the Units and for Placement Agent to assist in placing the offering, the Borrower represents and warrants that the following statements are true and correct in all material respects as of the date hereof and will be true and correct in all material respects at Closing, except as expressly qualified or modified herein.  All references in this Section 3 to the Notes, Conversion Shares, Warrants or Warrant Shares (collectively, the “Securities”) or shall be deemed to include the Placement Agent Warrants (each as defined in Section 8 below) and shares issuable upon exercise of the Placement Agent Warrants, unless the context requires otherwise.

 

           3.1           Organization and Good Standing.  The Borrower is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has full corporate power and authority to enter into and perform its obligations under this Agreement, and to own its properties and to carry on its business in all jurisdictions as presently conducted and as proposed to be conducted.  The Borrower and its subsidiaries have all government and other licenses and permits and authorizations to do business in all jurisdictions where their activities require such license, permits and authorizations, except where failure to obtain any such license, permit or authorization will not have a Material Adverse Effect, as defined herein.

           3.2           Capitalization.  As of October __, 2012, the Borrower is authorized to issue 90,000,000 shares of Common Stock, of which, 15,786,069 shares were issued and outstanding, and 10,000,000 shares of “blank check” preferred stock authorized, of which 2,000,000 have been designated as Series B Convertible Preferred Stock of which 1,160,000 are issued and outstanding, and 2,500,000 have been designated as Series C Convertible Preferred Stock of which 2,380,952 are issued and outstanding. All outstanding shares of the Borrower’s capital stock have been duly authorized and validly issued, and are fully paid, nonassessable, and free of any preemptive rights.  There is only one class and series of common stock of the Borrower, without any special series, rights, preferences or designations assigned to any particular shares of Common Stock. The Borrower does not have any outstanding notes, convertible debt, derivative securities or notes other than as specifically set forth in the SEC Reports.

3.3           Authorization and Enforcement.  This Agreement,  the Note, and Warrants and any other agreements delivered together with this Agreement or in connection herewith (collectively “Transaction Documents”) have been duly authorized, executed and delivered by the Borrower and are valid and binding agreements of the Borrower enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.  The Borrower has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder. The Borrower has calculated the average percentage rate and compensation given to Purchaser, Placement Agent or otherwise in connection herewith and has determined that the interest rate offered hereby does not violate the law of the state of New York or North Carolina and is fully enforceable. The Borrower understands that Purchaser and Placement Agent have relied on the foregoing representation and warranties as well as all other representations and warranties of the Borrower herein in making an investment decision.

                      3.4           Reservation and Valid Issuance of Securities.  The Notes and Warrants have been duly and validly authorized and delivered and are fully enforceable as against the Company. The Company has reserved 1.5 times (150%) of the number of shares into which the Notes are initially convertible (the “Conversion Shares”) and for which the Warrants are initially exercisable, and shall increase the amount of shares reserved for issuance in the event of any adjustment required to satisfy the Note conversion or Warrant exercise terms from time to time.  The Conversion Shares and Warrant Shares issuable upon conversion of the Notes or exercise of the Warrants have been duly and validly authorized and, upon issuance upon conversion of the Notes or due exercise of the Warrant, will be validly issued, fully paid and non-assessable.  The Conversion Shares, upon issuance in connection with conversion of the Note are, and the Warrant Shares, upon issuance in accordance with the Warrants will be, free and clear of any security interests, liens, claims or other encumbrances, other than restrictions upon transfer under federal and state securities laws.  The shares of each Subsidiary are duly authorized, validly issued, fully paid and non assessable and held by the Borrower which has sole, and unencumbered marketable title and is the sole owner.

                      3.5           No Conflict, Breach, Violation or Default; Third Party Consents.  The execution, delivery and performance of the Transaction Documents by the Borrower and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Borrower’s Articles of Incorporation or the Borrower’s Bylaws, both as in effect on the date hereof (collectively, the “Company Documents”), or (ii) any statute, rule, regulation or order of any governmental agency, self regulatory agency, securities regulatory or insurance regulatory agency or body or any court, domestic or foreign, having jurisdiction over the Borrower or any of its assets or properties, or (iii) any material agreement or instrument to which the Borrower is a party or by which the Borrower is bound or to which any of its assets or properties is subject; except in the case of each of clauses (ii) and (iii), such as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  No approval of or filing with any governmental authority is required for the Borrower to enter into, execute or perform this Agreement or any Transaction Document.

           3.6           No Material Adverse Change.  Since June 30, 2012, except as identified and described in the SEC Reports (as defined below) or in Schedule 3.6, there has not been:

                                (i)           any change in the assets, liabilities, financial condition or operating results of the Borrower from that reflected in the financial statements included in the Borrower’s Annual Report on Form 10-Q for the quarter ended June 30, 2012 except for changes in the ordinary course of business which have not had and could not reasonably be expected to have a material adverse effect on the Borrower’s assets, properties, financial condition, operating results or business of the Borrower taken as a whole other than an effect primarily or proximately resulting from (A) changes in general economic or market conditions affecting the industry generally in which the Borrower operates, which changes do not disproportionately affect the Borrower as compared to other similarly situated participants in the industry in which the Borrower operates; (B) changes in applicable law or GAAP; and (C) acts of terrorism, war or natural disasters which do not disproportionately affect the Borrower (as such business is presently conducted) (a “Material Adverse Effect”), individually or in the aggregate;

                                (ii)           any declaration or payment of any dividend, or any authorization or payment of any distribution, on any of the capital stock of the Borrower, or any redemption or repurchase of any securities of the Borrower;

                                (iii)           any material damage, destruction or loss, whether or not covered by insurance, to any assets, licenses, government permits, self regulatory agency permit or license, or properties of the Borrower;

                                (iv)           any waiver, not in the ordinary course of business, by the Borrower of a material right or of a material debt owed to it;

                                (v)           any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Borrower, except in the ordinary course of business and which has not had a Material Adverse Effect;

                                (vi)           any change or amendment to borrower documents, or material change to any material contract or arrangement by which the Borrower is bound or to which any of its  assets or properties is subject;

                                (vii)           any material labor difficulties, labor disputes, non-compete or similar disputes, or labor union organizing activities with respect to employees of the Borrower;

                                (viii)           any material transaction entered into by the Borrower other than in the ordinary course of business;

                                (ix)           the loss of the services of any key employee, salesperson, or material change in the composition or duties of the senior management of the Borrower;

                                (x)           the loss or threatened loss of any customer which has had or could reasonably be expected to have a Material Adverse Effect;

(xi)           any default of any indebtedness or, to the knowledge of the Borrower, breach of contract agreement, in each case with aggregate liabilities of greater than $50,000; or

                                (xi)           any other event or condition of any character that has had or could reasonably be expected to have a Material Adverse Effect.

                      3.7           SEC Reports and Financial Statements.

                                3.7.1           The Borrower has made available to each Purchaser through the SEC’s EDGAR system accurate and complete copies (excluding copies of exhibits) of each report, registration statement, and definitive proxy statement filed by the Borrower with the United States Securities and Exchange Commission (“SEC”) since June 30, 2012 (collectively, the “SEC Reports”).  All statements, reports, schedules, forms and other documents required to have been filed by the Borrower with the SEC have been so filed.  As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the SEC Reports complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934 (the “1934 Act”), as amended; and (ii) none of the SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

                                3.7.2           Except for the pro forma financial statements, if any, the financial statements contained in the SEC Reports: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto at the time of filing and as of the date of each Closing; (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered (except as may be indicated in the notes to such financial statements and, in the case of unaudited statements, as permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments which will not, individually or in the aggregate, be material in amount); and (iii) fairly present, in all material respects, the financial position of the Borrower as of the respective dates thereof and the results of operations of the Borrower for the periods covered thereby, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.  All adjustments considered necessary for a fair presentation of the financial statements have been included.

                      3.8           Securities Law Compliance.  Without consideration of the actions of the Placement Agent (as defined in Section 8 herein), and assuming the accuracy of the representations and warranties of each Purchaser set forth in Section 4 of this Agreement, the offer and sale of the Securities comprising the Units will constitute an exempted transaction under the Securities Act, and registration of the Conversion Shares, Warrants or Warrant Shares under the Securities Act for issuance herein is not required.  The Borrower shall make such filings as may be necessary to comply with the Federal securities laws and the “blue sky” laws of any state in connection with the offer and sale of the Securities, which filings will be made in a timely manner.

                      3.9           Tax Matters.  The Borrower has timely prepared and filed all tax returns required to have been filed by the Borrower with all appropriate governmental agencies and timely paid all taxes shown thereon or otherwise owed by it.  The charges, accruals and reserves on the books of the Borrower in respect of taxes for all fiscal periods are adequate in all material respects, and there are no material unpaid assessments against the Borrower nor, to the Borrower’s Knowledge, any basis for the assessment of any additional taxes, penalties or interest for any fiscal period or audits by any federal, state or local taxing authority except for any assessment which is not material to the Borrower, taken as a whole.  All taxes and other assessments and levies that the Borrower is required to withhold or to collect for payment have been duly withheld and collected and paid to the proper governmental entity or third party when due.  There are no tax liens or claims pending or, to the Borrower’s Knowledge, threatened against the Borrower or any of its assets or property.  There are no outstanding tax sharing agreements or other such arrangements between the Borrower or other corporation or entity.  For the purposes of this agreement, “Company’s Knowledge” means the actual knowledge of the executive officers (as defined in Rule 405 under the Securities Act) of the Borrower.

                      3.10           Title to Properties.  Except as disclosed in the SEC Reports, the Borrower has good and marketable title to all real properties and all other properties and assets owned by it, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or currently planned to be made thereof by them; and except as disclosed in the SEC Reports, the Borrower holds any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or currently planned to be made thereof by them.

                      3.11           Intellectual Property.

Except as provided in the SEC Reports:

                                (i)           All Intellectual Property of the Borrower or its Subsidiaries is currently in compliance with all legal requirements (including timely filings, proofs and payments of fees) and is valid and enforceable.  No Intellectual Property of the Borrower which is necessary for the conduct of Company’s businesses as currently conducted has been or is now involved in any cancellation, dispute or litigation, and, to the Borrower’s Knowledge, no such action is threatened.

                                (ii)           All of the licenses and sublicenses and consent, royalty or other agreements concerning Intellectual Property which are necessary for the conduct of the Borrower’s business as currently conducted to which the Borrower is a party or by which any of its assets are bound (other than generally commercially available, non-custom, off-the-shelf software application programs having a retail acquisition price of less than $10,000 per license) (collectively, “License Agreements”) are valid and binding obligations of the Borrower and, to the Borrower’s Knowledge, the other parties thereto, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights generally, and there exists no event or condition which will result in a material violation or breach of or constitute (with or without due notice or lapse of time or both) a default by the Borrower under any such License Agreement.

                                (iii)           The Borrower owns or has the valid right to use all of the Intellectual Property that is necessary for the conduct of the Borrower’s business as currently conducted and for the ownership, maintenance and operation of the Borrower’s properties and assets, free and clear of all liens, encumbrances, adverse claims or obligations to license all such owned Intellectual Property and Confidential Information, other than licenses entered into in the ordinary course of the Borrower’s business.  The Borrower has a valid and enforceable right to use all third party Intellectual Property and Confidential Information used or held for use in the business of the Borrower.

                                (iv)           To the Borrower’s Knowledge, the conduct of the Borrower’s business as currently conducted does not infringe or otherwise impair or conflict with (collectively, “Infringe”) any Intellectual Property rights of any third party or any confidentiality obligation owed to a third party, and, to the Borrower’s Knowledge, the Intellectual Property and Confidential Information of the Borrower which are necessary for the conduct of the Borrower’s business as currently conducted are not being Infringed by any third party.  There is no litigation or order pending or outstanding or, to the Borrower’s Knowledge, threatened or imminent, that seeks to limit or challenge or that concerns the ownership, use, validity or enforceability of any Intellectual Property or Confidential Information of the Borrower and the Borrower’s use of any Intellectual Property or Confidential Information owned by a third party, and, to the Borrower’s Knowledge, there is no valid basis for the same.

                                (v)           The consummation of the transactions contemplated hereby and by the other Transaction Documents will not result in the alteration, loss, impairment of or restriction on the Borrower’s ownership or right to use any of the Intellectual Property or Confidential Information which is necessary for the conduct of the Borrower’s business as currently conducted.

                                (vi)           The Borrower has taken reasonable steps to protect the Borrower’s rights in its Intellectual Property and Confidential Information.  Each employee, consultant and contractor who has had access to Confidential Information which is necessary for the conduct of Company’s business as currently conducted has executed an agreement to maintain the confidentiality of such Confidential Information and has executed appropriate agreements that are substantially consistent with the Borrower’s standard forms thereof, except where the failure to do so has not had and could not reasonably be expected to have a Material Adverse Effect, individually or in the aggregate.  Except under confidentiality obligations, there has been no material disclosure of any Confidential Information to any third party.

                      3.12           Environmental Matters.  To the Borrower’s Knowledge, the Borrower (i) is not in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), (ii) does not own or operate any real property contaminated with any substance that is subject to any Environmental Laws, (iii) is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, or (iv) is not subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim has had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; and there is no pending or, to the Borrower’s Knowledge, threatened investigation that might lead to such a claim.

                      3.13           Litigation.  Except as disclosed in Schedule 3.13, there are no pending material actions, suits or proceedings against or affecting the Borrower, or any of its properties; and to the Borrower’s Knowledge, no such actions, suits or proceedings are threatened or contemplated against the Borrower.

                      3.14           No Directed Selling Efforts or General Solicitation.  Neither the Borrower nor any Person, as defined below, acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.  “Person” means any individual, corporation, company, limited liability company, partnership, limited liability partnership, trust, estate, proprietorship, joint venture, association, organization or entity.

                      3.15           No Integrated Offering.  Neither the Borrower 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 Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Borrower on Section 4(2) for the exemption from registration for the transactions contemplated hereby or would require registration of the Securities under the Securities Act.  For purposes of this Agreement, “Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common control with, such Person.

                      3.16           Questionable Payments. To the Borrower’s Knowledge, none of its current or former stockholders, directors, officers, employees, agents or other Persons acting on behalf of the Borrower, has on behalf of the Borrower or in connection with its business: (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (iii) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (iv) made any false or fictitious entries on the books and records of the Borrower; or (v) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

                      3.17           Transactions with Affiliates.  Except as disclosed in the SEC Reports, none of the officers or directors of the Borrower and, to the Borrower’s Knowledge, none of the employees of the Borrower is presently a party to any transaction with the Borrower (other than as holders of stock options and/or warrants, and for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the Borrower’s Knowledge, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

                      3.18           Internal Controls.  Except as set forth in the SEC Reports, the Borrower is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Borrower except where such noncompliance could not have or reasonably be expected to result in a Material Adverse Effect.  Except as set forth in the SEC Reports, the Borrower maintains, and will use commercially reasonable best efforts to maintain, a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements and to maintain asset accountability both in conformity with GAAP and the applicable provisions of the 1934 Act, (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. Except as set forth in the SEC Reports, the Borrower has established disclosure controls and procedures (as defined in the 1934 Act Rules 13a-14 and 15d-14) and designed such disclosure controls and procedures to ensure that material information relating to the Borrower, including the subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Borrower’s most recently filed period report under the 1934 Act, as the case may be, is being prepared.  The Borrower’s certifying officers have evaluated the effectiveness of the Borrower’s controls and procedures as of the end of the period covered by the most recently filed periodic report under the 1934 Act (such date, the “Evaluation Date”).  The Borrower presented in its most recently filed periodic report under the 1934 Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no significant changes in the Borrower’s internal controls (as such term is defined in Item 308 of Regulation S-K for smaller reporting companies) or, to the Borrower’s Knowledge, in other factors that could significantly affect the Borrower’s internal controls.

                      3.19           Disclosures.  Neither the Borrower, the Placement Agent, nor any Person acting on any of their behalf has provided the Purchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information.  The written materials delivered to the Purchasers in connection with the transactions contemplated by the Transaction Documents do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

3.20           No Market Manipulation.  The Borrower and its Affiliates have not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Securities or affect the price at which the Securities may be issued or resold.

 

            3.21           Information Concerning Borrower.  The SEC Reports and Transaction Documents contain all material information relating to the Borrower and its operations and financial condition as of their respective dates which information is required to be disclosed therein.  Since the date of the financial statements included in the Reports, and except as modified in the Transaction Documents, or in the Schedules hereto, there has been no Material Adverse Effect relating to the Borrower's business, financial condition or affairs not disclosed in the SEC Reports. The SEC Reports do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, taken as a whole, not misleading in light of the circumstances when made.

 

3.22           Stop Transfer.  The Borrower will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Securities, except as may be required by any applicable federal or state securities laws and unless contemporaneous notice of such instruction is given to the affected Purchaser.

 

3.23           No General Solicitation.  Neither the Borrower, nor any of its Affiliates, nor to Borrower’s Knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities

 

3.24           Dilution.   The Borrower's executive officers and directors understand the nature of the Securities being sold hereby and recognize that the issuance of the Securities will have a potential dilutive effect on the equity holdings of other holders of the Borrower’s equity or rights to receive equity of the Borrower.  The Board of Directors of the Borrower has concluded, in its good faith business judgment that the issuance of the Securities is in the best interests of the Borrower.  The Borrower specifically acknowledges that its obligation to issue the Conversion Shares upon conversion of the Notes, and Warrant Shares upon exercise of the Warrants, is binding upon the Borrower and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Borrower or parties entitled to receive equity of the Borrower.

 

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

 

3.26           Third Party Beneficiaries.  The Borrower acknowledges that Placement Agent, its representatives, and other selling agents (if any), are direct intended beneficiaries of the representations and warranties made hereby in respect of all of the Placement Agent Warrants issued to them or their affiliates, and, are also deemed third party beneficiaries to the representations and warranties made hereby to the Purchasers.

4.           REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER.

           Each Purchaser individually and not jointly hereby represents warrants and covenants with the Borrower as follows.  For avoidance of doubt, these warranties and representations are made to the Borrower as well as to the Placement Agent and their agents and representatives and affiliates and other members of the selling group (if any) and their representatives and affiliates, as third party beneficiaries hereto:

           4.1           Legal Power.  Each Purchaser has the requisite individual, corporate, partnership, limited liability company, trust, or fiduciary power, as appropriate, and is authorized, if such Purchaser is a corporation, partnership, limited liability company, or trust, to enter into this Agreement, to purchase the Shares hereunder, and to carry out and perform its obligations under the terms of this Agreement or any other Transaction Documents to which it is a party.

           4.2           Due Execution.  The execution and performance of the terms under this Agreement and the Accredited Investor Questionnaire commencing Page SP-2 appended at the end of this Agreement (the “Questionnaire”) and Purchaser Signature Page hereto, have been duly authorized, if such Purchaser is a corporation, partnership, limited liability company, trust or fiduciary, executed and delivered by such Purchaser, and, upon due execution and delivery by the Borrower, this Agreement will be a valid and binding agreement of such Purchaser.

                      4.3           Access to Information.  Each Purchaser understands that an investment in the Securities involves a high degree of risk and long term or permanent illiquidity, including, risk of loss of their entire investment.  Each Purchaser also understands that the Borrower has limited capital and is not profitable and will likely not be able to repay the Notes, and is dependent on a conversion event to satisfy its obligations thereunder.  Each Purchaser represents that such Purchaser has been given full and complete access to the Borrower for the purpose of obtaining such information as such Purchaser or its qualified representative has reasonably requested in connection with the decision to purchase the Securities.  Each Purchaser represents that such Purchaser has received and reviewed copies of the SEC Reports.  Each Purchaser represents that such Purchaser has been afforded the opportunity to ask questions of the officers of the Borrower regarding its business prospects and the Shares, all as such Purchaser or such Purchaser’s qualified representative have found necessary to make an informed investment decision to purchase the Shares.

                      4.4           Restricted Securities.

                                4.4.1           Each Purchaser has been advised that none of the Securities have been registered under the Securities Act or any other applicable securities laws and that Shares are being offered and sold pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D and/or Regulation S thereunder, and that the Borrower’s reliance upon Section 4(2) and/or Rule 506 of Regulation D and/or Regulation S is predicated in part on such Purchaser representations as contained herein (including, for avoidance of doubt, the Questionnaire).  Each Purchaser acknowledges that the Securities will be issued as “restricted securities” as defined by Rule 144 promulgated pursuant to the Securities Act.  None of the Securities may be resold in the absence of an effective registration thereof under the Securities Act and applicable state securities laws unless, in the opinion of counsel reasonably satisfactory to the Borrower, an applicable exemption from registration is available.

                                4.4.2           Each Purchaser represents that such Purchaser is acquiring the Shares for such Purchaser’s own account, and not as nominee or agent, for investment purposes only and not with a view to, or for sale in connection with, a distribution, as that term is used in Section 2(11) of the Securities Act, in a manner which would require registration under the Securities Act or any state securities laws.

                                4.4.3           Each Purchaser understands and acknowledges that the certificates representing the Notes, Conversion Shares, Warrants and, if issued, the Warrant Shares, will bear substantially the following legend:

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, (ii) THE BORROWER RECEIVES AN OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE BORROWER STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (iii) THE BORROWER OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.”

                                4.4.4           Each Purchaser acknowledges that an investment in the Shares is not liquid and is transferable only under limited conditions.  Each Purchaser acknowledges that such securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available.  Each Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits limited resale of restricted securities subject to the satisfaction of certain conditions and that such Rule is not now available and, in the future, may not become available for resale of any of the Securities.  Each Purchaser is an “accredited investor” as defined under Rule 501 under the Securities Act.  Each Purchaser understands and acknowledges that the Borrower was once a “shell” company and accordingly, if it becomes delinquent in filing its Securities Exchange Act of 1934 (“Exchange Act”) reports, any Conversion Shares and Warrant Shares will become illiquid until such time as the Company becomes current in its Exchange Act reports.

                                4.4.5           The representations made by each Purchaser on the Questionnaire (commencing page SP-2 appended at the end hereof) and Purchaser Signature Page are true and correct.

                      4.5           Purchaser Sophistication and Ability to Bear Risk of Loss.  Each Purchaser acknowledges that it is able to protect its interests in connection with the acquisition of the Securities and can bear the economic risk of investment in such securities without producing a material adverse change in such Purchaser’s financial condition.  Each Purchaser, either alone or with such Purchaser’s representative(s), otherwise has such knowledge and experience in financial or business matters that such Purchaser is capable of evaluating the merits and risks of the investment in the Securities.

                      4.6           Purchases by Groups.  Each Purchaser represents, warrants and covenants that it is not acquiring the Shares as part of a group within the meaning of Section 13(d)(3) of the 1934 Act or otherwise purchasing with intent to control voting over the Borrower.

4.7           Independent Investigation.  Each Purchaser in making his decision to purchase the Units herein, has relied solely upon an independent investigation made by him and his legal, tax and/or financial advisors and, is not relying upon any oral representations of the Borrower or the Placement Agent.

4.8           No Advertising.  Each Purchaser has not received any general solicitation or advertising regarding the offer of the Units or any of the Securities.

4.9           Certain Trading Activities.  Each Purchaser has not directly or indirectly, nor has any person acting on behalf of or pursuant to any understanding with such Purchaser, engaged in any transactions in the securities of the Borrower (including, without limitation, any short sales involving the Borrower’s securities) since the time that such Purchaser was first contacted by the Borrower or the Placement Agent regarding the investment in the Borrower contemplated by this Agreement.  Each Purchaser covenants that neither it nor any person acting on its behalf or pursuant to any understanding with it will engage in any transactions in the securities of the Borrower (including short sales) prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

4.10           Placement Agent Review.  Each Purchaser acknowledges that neither Placement Agent nor any of Placement Agent’s representatives, sub-agents, or affiliates, has made a purchase recommendation, research report or provided a rating, opinion, buy or sell recommendation, or, independently verified the accuracy, completeness, materiality or otherwise, of any information, representation or warranty contained in this Purchase Agreement, the SEC Reports, or any offering materials provided, that such placement agent related entities and their principals shall have no liability for any representation (express or implied) contained in, or for any omissions from, the Purchase Agreement or any offering documents provided or any other written or oral communications transmitted to the recipient in the course of his or her evaluation of the investment, and that it is understood that each prospective investor will make an independent investigation and analysis of a potential investment in the Borrower with its legal, tax or financial advisors, and will be relying upon same in making any such investment.

4.11           Regulation S; Non-U.S. Person Status.  For purposes of compliance with the Regulation S exemption for the offer and sale of the Securities to non-U.S. Persons, if the Purchaser is not a “U.S. Person,” as such term is defined in Rule 902(k) of Regulation S,1 the Purchaser represents and warrants they are a person or entity that is outside the United Sates, and further represents and warrants as follows:

4.11.1                      The Purchaser is not acquiring the Securities for the account or benefit of a U.S. Person.

4.11.2                      If the Purchaser is a legal entity, it has not been formed specifically for the purpose of investing in the Borrower.

4.11.3                      The Purchaser hereby represents that he, she or it has satisfied and fully observed the laws of the jurisdiction in which he, she or it is located or domiciled, in connection with the acquisition of the Securities, including (i) the legal requirements of the Purchaser’s jurisdiction for the acquisition of the Securities, (ii) any foreign exchange restrictions applicable to such acquisition, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, which may be relevant to the holding, redemption, sale, or transfer of the Securities; and further, the Purchaser agrees to continue to comply with such laws as long as he, she or it shall hold the Investment Securities.

4.11.4                      To the knowledge of the Purchaser, without having made any independent investigation, neither the Borrower nor any person acting for the Borrower, has conducted any “directed selling efforts” in the United States as the term “directed selling efforts” is defined in Rule 902 of Regulation S, which, in general, means any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the marketing in the United States for any of the Securities being offered.  Such activity includes, without limitation, the mailing of printed material to investors residing in the United States, the holding of promotional seminars in the United States, and the placement of advertisements with radio or television stations broadcasting in the United States or in publications with a general circulation in the United States, which discuss the offering of the Investment Securities.  To the knowledge of the Purchaser, the Securities were not offered to the undersigned through, and the undersigned is not aware of, any form of general solicitation or general advertising, including without limitation, (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

4.11.5                      The Purchaser will offer, sell or otherwise transfer the Securities, only (A) pursuant to a registration statement that has been declared effective under the Securities Act, (B) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S in a transaction meeting the requirements of Rule 904 (or other applicable Rule) under the Securities Act, or (C) pursuant to another available exemption from the registration requirements of the Securities Act, subject to the Borrower’s right prior to any offer, sale or transfer pursuant to clauses (B) or (C) to require the delivery of an opinion of counsel, certificates or other information reasonably satisfactory to the Borrower for the purpose of determining the availability of an exemption.

4.11.6                      The Purchaser will not engage in hedging transactions involving the Securities unless such transactions are in compliance with the Securities Act.

4.11.7                      The Purchaser represents and warrants that the undersigned is not a citizen of the United States and is not, and has no present intention of becoming, a resident of the United States (defined as being any natural person physically present within the United States for at least 183 days in a 12-month consecutive period or any entity who maintained an office in the United States at any time during a 12-month consecutive period). The Purchaser understands that the Borrower may rely upon the representations and warranty of this paragraph as a basis for an exemption from registration of the Securities under the Securities Act of 1933, as amended, and the provisions of relevant state securities laws.

4.12           Public Statements.  The Purchaser agrees not to issue any public statement with respect to the Offering, Subscriber’s investment or proposed investment in the Company or the terms of any agreement or covenant between them and the Borrower without the Borrower’s prior written consent, except such disclosures as may be required under applicable law.

4.13           Acceptance or Rejection.  The Subscriber understands, acknowledges and agrees with the Company that this subscription may be rejected, in whole or in part, by the Company, in the sole and absolute discretion of the Company, at any time before any Closing notwithstanding prior receipt by the Subscriber of notice of acceptance of the Subscriber’s subscription.

 

4.14           Confidential.  The Purchaser acknowledges that the information made available to the Purchaser other than the SEC Reports is confidential and non-public and agrees that all such information shall be kept in confidence by the Purchaser and neither used by the Purchaser for the Purchaser’s personal benefit (other than in connection with this subscription) nor disclosed to any third party for any reason, notwithstanding that a Subscriber’s subscription may not be accepted by the Company; provided, however, that (a) the Purchaser may disclose such information to its affiliates and advisors who may have a need for such information in connection with providing advice to the Purchaser with respect to its investment in the Borrower so long as such affiliates and advisors have an obligation of confidentiality, and (b) this obligation shall not apply to any such information that (i) is part of the public knowledge or literature and readily accessible at the date hereof, (ii) becomes part of the public knowledge or literature and readily accessible by publication (except as a result of a breach of this provision) or (iii) is received from third parties without an obligation of confidentiality (except third parties who disclose such information in violation of any confidentiality agreements or obligations, including, without limitation, any subscription or other similar agreement entered into with the Borrower).

 

                      4.15           The Subscriber understands that the Notes and Warrants 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 Subscriber’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of such Subscriber set forth herein in order to determine the availability of such exemptions and the eligibility of such Subscriber to acquire the Units.

4.16           Third Party Beneficiaries.  The Purchaser recognizes that the Placement Agent is a third party beneficiary of its representations, warranties and covenants made herein and that Placement Agent may rely on the same in connection with acting as placement agent in this offering.

5.           COVENANTS OF BORROWER RELATING TO NOTE AND WARRANT.

5.1           Reservation of Shares.  The Borrower hereby covenants to maintain, reserved and authorized for issuance upon exercise of the Warrants or Conversion Shares, such number of Warrant Shares and Conversion Shares as equals 150% of the amount of shares that such Notes and Warrants are convertible into or exchangeable for at any time and from time to time.  The Borrower hereby further agrees to take all further acts, including amending its charter or amending any filing with any exchange or quotation service in order to effectuate the foregoing.

5.2           Maximum Payments.  Nothing herein shall be deemed to require that the Borrower pay any interest or make any payment that exceeds the maximum amount permissible by law.  The Borrower has covenanted that it has calculated the total interest and other payments payable hereunder and, as a condition to closing, has determined that the same does not exceed the legal limits provided by law. In the event that the Borrower determines that a payment may exceed legal limits for any reason, the Borrower shall first 1) repay that amount of Note or make such payments to the maximum amount that law would permit or permit the holder of the Notes to convert in whole or in part at the then prevailing rate, and then 2) submit, at its own cost, to an independent valuation consultant agreed to by the Placement Agent, as to the value of remaining consideration to be repaid under the Note.

           6.           COVENANTS OF THE BORROWER AND PURCHASER

           6.1           Use of Proceeds.  The Borrower shall also at or before closing pay to their stock transfer agent the cost of all Warrant Share certificates and Conversion Share certificates anticipated to be issued. The Borrower intends to employ the remaining net proceeds (i.e. after all legal costs, placement agent fees, offering costs, etc.) from the purchase and sale of the Units for purposes of working capital, marketing, acquisitions, expansion and to further the operations of the Borrower only and not for the repayment of any single existing debt in excess of $10,000.

6.2           Registration Rights.  For purposes of this Section 6.2, all references to the Purchaser shall be deemed to mean and include, the Purchaser, Placement Agent and their respective assigns as holders of Registrable Securities (as defined in Section 6.2.1(b) below).

6.2.1           Mandatory Registration.  The Borrower agrees to file, with the Securities and Exchange Commission, of a Registration Statement registering the resale of all of the Conversion Shares and the exercise and resale of the Warrant Shares, within 60 calendar days of the last Closing or Termination of this Offering, whichever is later.  The Borrower hereby agrees and covenants to use best efforts to obtain effectiveness of said registration statement, and to maintain effectiveness of the same, continually for at least 1 year following the effective date thereof.

6.2.2           Registration Process.  In connection with the registration of the Registrable Securities pursuant to Section 6.2.1, the Borrower shall:

(a)           Prepare and file with the SEC the Registration Statement and such amendments (including post effective amendments) to the Registration Statement and supplements to the prospectus included therein (a “Prospectus”) as the Borrower may deem necessary or appropriate and take all lawful action such that the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and that the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the period commencing on the effective date of the Registration Statement and ending on the date on which all of the Registrable Securities may be sold to the public without registration under the Securities Act in reliance on Rule 144 (the “Registration Period”) include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(b)           Comply with the provisions of the Securities Act with respect to the Registrable Securities covered by the Registration Statement until the earlier of (i) such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by each Purchaser as set forth in the Prospectus forming part of the Registration Statement or (ii) the date on which the Registration Statement is withdrawn;

(c)           Furnish to each Purchaser and its legal counsel identified to the Borrower (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Borrower, one copy of the Registration Statement, each Prospectus, and each amendment or supplement thereto, and (ii) such number of copies of the Prospectus and all amendments and supplements thereto and such other documents, as the Purchaser may reasonably request in order to facilitate the disposition of the Registrable Securities;

(d)           Register or qualify the Registrable Securities covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions as the Purchasers reasonably request, (ii) prepare and file in such jurisdictions such amendments (including post effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take all such other lawful actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all such other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Borrower shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify, (B) subject itself to general taxation in any such jurisdiction or (C) file a general consent to service of process in any such jurisdiction;

(e)           As promptly as practicable after becoming aware of such event, notify each Purchaser of the occurrence of any event, as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare an amendment to the Registration Statement and supplement to the Prospectus to correct such untrue statement or omission, and deliver a number of copies of such supplement and amendment to each Purchaser as such Purchaser may reasonably request;

(f)           As promptly as practicable after becoming aware of such event, notify each Purchaser (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of any stop order or other suspension of the effectiveness of the Registration Statement and take all lawful action to effect the withdrawal, rescission or removal of such stop order or other suspension;

(g)           Take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Purchaser of its Registrable Securities in accordance with the intended methods therefor provided in the Prospectus which are customary under the circumstances; and

(h)           Cooperate with the Purchasers to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to the Registration Statement, which certificates shall, if required under the terms of this Agreement, be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Purchaser may request and maintain a transfer agent for the Common Stock.

6.2.3           Obligations and Acknowledgements of the Purchasers.  In connection with the registration of the Registrable Securities, each Purchaser shall have the following obligations and hereby make the following acknowledgements:

(a)           It shall be a condition precedent to the obligations of the Borrower to include the Registrable Securities in the Registration Statement that each Purchaser wishing to participate in the Registration Statement (i) shall furnish to the Borrower such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and (ii) shall execute such documents in connection with such registration as the Borrower may reasonably request.  Prior to the first anticipated filing date of a Registration Statement, the Borrower shall notify each Purchaser of the information the Borrower requires from such Purchaser (the “Requested Information”) if such Purchaser elects to have any of its Registrable Securities included in the Registration Statement.  If a Purchaser notifies the Borrower and provides the Borrower the information required hereby prior to the time the Registration Statement is declared effective, the Borrower will file an amendment to the Registration Statement that includes the Registrable Securities of such Purchaser provided, however, that the Borrower shall not be required to file such amendment to the Registration Statement at any time less than five (5) business days prior to the effective date.

(b)           Each Purchaser agrees to cooperate with the Borrower in connection with the preparation and filing of a Registration Statement hereunder, unless such Purchaser has notified the Borrower in writing of its election to exclude all of its Registrable Securities from such Registration Statement;

(c)           Each Purchaser agrees that, upon receipt of any notice from the Borrower of the occurrence of any event of the kind described in Section 6.2.2(e) or 6.2.2(f), such Purchaser shall immediately discontinue its disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until the Purchaser’s receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6.2.2(e) and, if so directed by the Borrower, the Purchaser shall deliver to the Borrower (at the expense of the Borrower) or destroy (and deliver to the Borrower a certificate of destruction) all copies in the Purchaser’s possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; and

(d)           Each Purchaser acknowledges that it may be deemed to be a statutory underwriter within the meaning of the Securities Act with respect to the Registrable Securities being registered for resale by it, and if a Purchaser includes Registrable Securities for offer and sale within a Registration Statement such Purchaser hereby consents to the inclusion in such Registration Statement of a disclosure to such effect.

6.2.4           Expenses of Registration.  All expenses (other than underwriting discounts and commissions and the fees and expenses of a Purchaser’s counsel) incurred in connection with registrations, filings or qualifications pursuant to this Section 6.2, including, without limitation, all registration, listing, and qualifications fees, printing and engraving fees, accounting fees, and the fees and disbursements of counsel for the Borrower, shall be borne by the Borrower.

6.2.5           Indemnification and Contribution.

(a)           Indemnification by the Borrower.  The Borrower shall indemnify and hold harmless each Purchaser and each underwriter, if any, which facilitates the disposition of Registrable Securities, and each of their respective officers and directors and each Person who controls such underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the 1934 Act (each such Person being sometimes hereinafter referred to as an “Indemnified Person”) from and against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, not misleading, or arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Prospectus or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Borrower hereby agrees to reimburse such Indemnified Person for all reasonable legal and other expenses incurred by them in connection with investigating or defending any such action or claim as and when such expenses are incurred; provided, however, that the Borrower shall not be liable to any such Indemnified Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement made in, or an omission or alleged omission from, such Registration Statement or Prospectus in reliance upon and in conformity with written information furnished to the Borrower by such Indemnified Person expressly for use therein or (ii) in the case of the occurrence of an event of the type specified in Section 6.2.2(e), the use by the Indemnified Person of an outdated or defective Prospectus after the Borrower has provided to such Indemnified Person an updated Prospectus correcting the untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage or liability.

(b)           Indemnification by the Purchasers and Underwriters.  Each Purchaser agrees, as a consequence of the inclusion of any of its Registrable Securities in a Registration Statement, and each underwriter, if any, which facilitates the disposition of Registrable Securities shall agree, severally and not jointly, as a consequence of facilitating such disposition of Registrable Securities to (i) indemnify and hold harmless the Borrower, its directors (including any person who, with his or her consent, is named in the Registration Statement as a director nominee of the Borrower), its officers who sign any Registration Statement and each Person, if any, who controls the Borrower within the meaning of either Section 15 of the Securities Act or Section 20 of the 1934 Act, against any losses, claims, damages or liabilities to which the Borrower or such other persons may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances under which they were made, in the case of the Prospectus), not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Borrower by the Purchaser or underwriter expressly for use therein, and (ii) reimburse the Borrower for any legal or other expenses incurred by the Borrower in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that such Purchaser shall not be liable under this Section 6.2.5(b) for any amount in excess of the net proceeds paid to such Purchaser in respect of Registrable Securities sold by it.

(c)           Notice of Claims, etc.  Promptly after receipt by a Person seeking indemnification pursuant to this Section 6.2.5 (an “Indemnified Party”) of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a “Claim”), the Indemnified Party promptly shall notify the Person against whom indemnification pursuant to this Section 6.2.5 is being sought (the “Indemnifying Party”) of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is materially prejudiced and forfeits substantive rights and defenses by reason of such failure.  In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof.  Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out of pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (i) the Indemnifying Party shall have agreed to pay such fees, costs and expenses, (ii) the Indemnified Party shall reasonably have concluded that representation of the Indemnified Party by the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or disparate from those available to the Indemnifying Party, or (iii) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim.  If the Indemnified Party employs separate legal counsel in circumstances other than as described in the preceding sentence, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party.  Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of counsel for the Indemnified Party (together with appropriate local counsel).  The Indemnified Party shall not, without the prior written consent of the Indemnifying Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnifying Party from all liabilities with respect to such Claim or judgment or contain any admission of wrongdoing.

(d)           Contribution.  If the indemnification provided for in this Section 6.2.5 is unavailable to or insufficient to hold harmless an Indemnified Party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions or alleged statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations.  The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6.2.5(d) were determined by pro rata allocation (even if the Purchasers or any underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6.2.5(d).  The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(e)           Limitation on Purchasers’ and Underwriters’ Obligations.  Notwithstanding any other provision of this Section 6.2.5, in no event shall (i) any Purchaser have any liability under this Section 6.2.5 for any amounts in excess of the dollar amount of the proceeds actually received by such Purchaser from the sale of Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are registered under the Securities Act and (ii) any underwriter be required to undertake liability to any Person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement.

(f)           Other Liabilities.  The obligations of the Borrower under this Section 6.2.5 shall be in addition to any liability which the Borrower may otherwise have to any Indemnified Person and the obligations of any Indemnified Person under this Section 6.2.5 shall be in addition to any liability which such Indemnified Person may otherwise have to the Borrower.  The remedies provided in this Section 6.2.5 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity.

6.2.6           Rule 144.  With a view to making available to the Purchasers the benefits of Rule 144, the Borrower agrees to use its best efforts to:

(a)           comply with the provisions of paragraph (c)(1) of Rule 144; and

(b)           file with the SEC in a timely manner all reports and other documents required to be filed by the Borrower pursuant to Section 13 or 15(d) under the 1934 Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Purchasers, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144.

6.2.7           Common Stock Issued Upon Stock Split, etc.  The provisions of this Section 6.2 shall apply to any shares of Common Stock or any other securities issued as a dividend or distribution in respect of the Conversion Shares or the Warrant Shares.

6.2.8           Termination of Registration Rights.  The registration rights granted in this Section 6.2 shall terminate with respect to a Security upon the date such Security is first eligible to be resold pursuant to Rule 144 of the Securities Act.

6.3           [Omitted.]

6.4.           [Omitted.]

 

6.5           [Omitted.]

 

 

6.6           Filing of Reports.  Borrower shall (i) within sixty (60) days of the last closing or termination of this Offering a Registration Statement, with respect to the Registerable Securities (“Registration Filing Date”); (ii) obtain effectiveness of such Registration Statement as soon as practicable thereafter (the “Registration Effectiveness Date” and, collectively, the “Registration Date”) and maintain effectiveness for at least 1 year thereafter, and (iii)  file on a timely basis, any and all reports or amendments thereto, as it is required to file in order to remain fully current with all of its reporting obligations under the Exchange Act so as to enable sales without resale limitations one (1) year from the date of final Closing, pursuant to Rule 144, as amended (“Rule 144 Sales”). The Borrower shall pay for all opinions or similar letters to its transfer agent, as well as pay for all transfer agent costs, relating to the removal of the Rule 144 restrictive legend on share certificates representing the Conversion Shares or Warrant Shares.

For avoidance of doubt, all references herein to filings to be made on a “timely basis” shall include and mean, any extension periods permissible under Rule 12b-25 of the Exchange Act, provided that the Borrower has complied with such rule, but not beyond said extension date.

 

7.           CONDITIONS

                      7.1           Conditions Precedent to the Obligation of the Borrower to Close and to Sell the Units.  The obligation hereunder of the Borrower to close and issue and sell the Units to the Purchasers at a Closing is subject to the satisfaction or waiver, at or before such Closing of the conditions set forth below.  These conditions are for the Borrower’s and Placement Agent’s sole benefit and may be waived by the Borrower and Placement Agent at any time in their sole discretion.

                                7.1.1           Accuracy of the Purchasers’ Representations and Warranties.  The representations and warranties of each Purchaser (including, for avoidance of doubt, those relating to the Questionnaire) shall be true and correct in all material respects as of the date when made and as of such Closing as though made at that time, except for representations and warranties that are expressly made as of a particular date, which shall be true and correct in all material respects as of such date.

                                7.1.2           Performance by the Purchasers.  Each Purchaser shall have performed, satisfied, and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Purchasers at or prior to such Closing.

                                7.1.3           No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

                                7.1.4           Delivery of Purchase Price.  The Purchase Price for the full principal amount of Notes shall be available in cleared funds and authorized by the Borrower and Placement Agent, in their sole and absolute discretion, for distribution on such Closing in accordance with the terms hereof.

                                7.1.5           Delivery of Transaction Documents.  The Transaction Documents shall have been duly executed and delivered by the Purchasers to the Borrower.

                      7.2           Conditions Precedent to the Obligation of the Purchasers to Close and to Purchase the Shares.  The obligation hereunder of the Purchasers to purchase the Shares and consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver, at or before such Closing, of each of the conditions set forth below.  These conditions are for the Purchasers’ sole benefit and may be waived by the Purchasers and Placement Agent at any time in their sole discretion.

                                7.2.1           Accuracy of the Borrower’s Representations and Warranties.  Each of the representations and warranties of the Borrower in this Agreement and the other Transaction Documents shall be true and correct in all material respects as of such Closing, except for representations and warranties that speak as of a particular date, which shall be true and correct in all material respects as of such date.

                                7.2.2           Performance by the Borrower.  The Borrower shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Borrower at or prior to such Closing.

                                7.2.3           No Suspension, Etc.  Trading in the Common Stock of the Borrower shall not have been suspended by the SEC or the OTC Bulletin Board (except for any suspension of trading of limited duration agreed to by the Borrower, which suspension shall be terminated prior to the Closing)..

                                7.2.4           No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement.

                                7.2.5           No Proceedings or Litigation.  No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been initiated, against the Borrower, or any of the officers, directors or affiliates of the Borrower seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions.

                                7.2.6           Notes and Warrants.  At the Closing, the Borrower shall have delivered to the Purchasers the Notes and Warrants and shall have delivered to the Placement Agent the Placement Agent’s Warrants and Placement Agent’s Shares along with all appropriate board resolutions or other necessary documentation in order to issue the Shares in such denominations as each Purchaser may request.  The Borrower shall also deliver confirmation from their law firm that the cost for any and all 144 opinion or legend removal letters have been or are being escrowed from proceeds of the offering for the benefit of Purchasers, and from the transfer agent that the cost of all certificates to be issued for Warrant Shares and Conversion Shares have been irrevocably paid for.  The Borrower shall also deliver this Agreement, duly executed by the Borrower.

                                7.2.7           Secretary’s Certificate.  The Borrower shall deliver to the Placement Agent, a secretary’s certificate, dated as of the each Closing Date, as to (i) the resolutions adopted by the Board of Directors approving the transactions contemplated hereby, (ii) the Borrower’s Articles of Incorporation, (iii) the Bylaws, each as in effect at such Closing, and (iv) the authority and incumbency of the officers of the Borrower executing the Transaction Documents and any other documents required to be executed or delivered in connection therewith.

7.2.8           Officer’s Certificate. On the first Closing Date, the Borrower shall have delivered to the Placement Agent a certificate signed by an executive officer on behalf of the Borrower, dated as of such first Closing Date, confirming the accuracy of the Borrower’s representations, warranties, and covenants as of such first Closing Date and confirming the compliance by the Borrower with the conditions precedent set forth in paragraph 7.2.9 as of such Closing.

7.2.9           Material Adverse Effect.  No Material Adverse Effect shall have occurred at or before such Closing Date.

7.2.10           Opinion of Counsel.  Counsel for the Borrower shall have delivered to the Placement Agent, an opinion, in reasonably satisfactory form, to the effect of the due/valid issuance of all Securities, due authority, validity, binding effect of all related agreements and the Warrants and, no defaults or conflicts caused by this Agreement and related transactions.  Notwithstanding that New York law governs this Agreement, such opinion may be given under Delaware law on the assumption that the laws of the states of New York and Delaware are identical.

8.           PLACEMENT AGENT/LEGAL FEES.

           8.1           Placement Agent’s Commissions; Sub-Agent’s Commissions.  The Borrower acknowledges that it has retained American Capital Partners, LLC to act as its managing Placement Agent (“Placement Agent”) and that Placement Agent may engage additional sub-agents that are FINRA member firms (“Sub-Agents”), to assist with the Borrower’s private placement.  The Borrower shall pay to the Placement Agent (and/or their respective agents): (a) a fee in cash equal to a maximum of 8% of the gross cash proceeds to the Borrower resulting from the sale of certain of the Units in this Offering; and (b) a fee equal to a maximum of such number of warrants as equals 8% of the shares of Common Stock (“Placement Agent Warrants”) initially underlying the Notes issued in the Offering, which securities shall have the  same terms and conditions as provided to  the Purchasers (collectively, the “Placement Agent Fees”).

           8.2           Legal Fees.   The Borrower shall reimburse all legal fees to placement agent in an amount not to exceed $12,500 of which the Company has already paid $5,000 towards such legal fees.  In addition, the Borrower shall reimburse Placement Agent’s hourly expenses for any subsequent closings after the first Closing, or for any material modifications of the Transaction Documents made at any time so long as previously agreed to in writing by the Borrower and the Placement Agent.

9.           MISCELLANEOUS.

                      9.1           Indemnification.  Each Purchaser agrees to defend, indemnify and hold the Borrower harmless against any liability, costs or expenses arising as a result of any dissemination of any of the Securities by such Purchaser in violation of the Securities Act or applicable state securities law.

                      9.2           Governing Law.  The validity and interpretation of this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.  Each of the parties hereto and their assigns hereby consents to the exclusive jurisdiction and venue of the Courts of the State of New York, located in the City and County of New York and the United States District Court, Southern District, for the State of New York with respect to any matter relating to this Agreement and performance of the parties’ obligations hereunder, the documents and instruments executed and delivered concurrently herewith or pursuant hereto and performance of the parties’ obligations thereunder and each of the parties hereto hereby consents to the personal jurisdiction of such courts and shall subject itself to such personal jurisdiction.  Any action, suit or proceeding relating to such matters shall be commenced, pursued, defended and resolved only in such courts and any appropriate appellate court having jurisdiction to hear an appeal from any judgment entered in such courts.  The parties irrevocably waive the defense of an inconvenient forum to the maintenance of such suit or proceeding.  Service of process in any action, suit or proceeding relating to such matters may be made and served within or outside the State of New York by registered or certified mail to the parties and their representatives at their respective addresses specified in Section 9.7, provided that a reasonable time, not less than thirty (30) days, is allowed for response.  Service of process may also be made in such other manner as may be permissible under the applicable court rules.  THE PARTIES HERETO WAIVE TRIAL BY JURY.

                      9.3           Successors and Assigns.  Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto.

                      9.4           Entire Agreement.  This Agreement and the Exhibits hereto and thereto, and the other documents delivered pursuant hereto and thereto, constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants, or agreements except as specifically set forth herein or therein.  Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein.

                      9.5           Severability.  In case any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

                      9.6           Amendment and Waiver.  Except as otherwise provided herein, any term of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), with the written consent of the Borrower and a majority of the Purchasers, or, to the extent such amendment affects only one Purchaser, by the Borrower and such Purchaser.  Any amendment or waiver effected in accordance with this Section shall be binding upon each future holder of any security purchased under this Agreement (including securities into which such securities have been converted) and the Borrower.

                      9.7           Notices.  All notices and other communications required or permitted hereunder shall be in writing and shall be effective when delivered personally, or sent by facsimile or email (with receipt confirmed), provided that a copy is mailed by registered mail, return receipt requested, or when received by the addressee, if sent by Express Mail, Federal Express or other express delivery service (receipt requested) in each case to the appropriate address set forth below:

If to the Borrower:                                Premier Alliance Group, Inc.

4521 Sharon Road #300

Charlotte, NC  28211-3627

Attn:  Mark Elliott, Chief Executive Officer

With a copy to:                                           Ruskin Moscou Faltischek, P.C.

1425 RXR Plaza

Uniondale, New York 11556

Facsimile:  (516) 663-6891

Email: SRubin@rmfpc.com

Attention:  Seth I. Rubin, Esq.

                      If to the Purchaser:                                At the address set forth on the Purchaser’s Signature Page

With a copy to:                                           American Capital Partners, LLC

205 Oser Ave.,

Hauppauge NY 11788

Facsimile:  (631) 670-1352

Attention:  Anthony Gardini

With a copy to:                                           Levy International Law, LLC

590 Madison Avenue, Suite 2100

New York, New York 10022

Facsimile:  (646) 219-1574

Email: Rlevy@LevyLawNY.com

Attention:  Ron Levy, Esq.

                      9.8           Faxes, Electronic Mail and Counterparts.  This Agreement may be executed in one or more counterparts.  Delivery of an executed counterpart of the Agreement or any exhibit attached hereto by facsimile transmission or electronic mail (any such delivery, an “Electronic Delivery”), shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.  At the request of any party hereto, each other party hereto shall re-execute original forms hereof and deliver them in person to all other parties.  No party hereto shall raise the use of Electronic Delivery to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of Electronic Delivery as a defense to the formation of a contract, and each such party forever waives any such defense, except to the extent such defense related to lack of authenticity.

                      9.9           Enforcement. In addition to other remedies available in law or in equity, the Note shall be deemed and considered an irrevocable instrument for the payment of money only, enforable on its face and by its terms in summary proceeding or, at the election of the holder thereof, a regular or other proceeding.  Note holder shall be entitled to reimbursement of any and all costs and fees relating to enforcement of this Agreement or the Note or Warrant, including reimbursement of legal fees.

                      9.10           Titles and Subtitles.  The titles of the paragraphs and subparagraphs of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

9.11           Further Assurances.  At any time and from time to time after the Closing, upon reasonable request of the other, each party shall do, execute, acknowledge and deliver such further acts, assignments, transfers, conveyances and assurances as may be reasonably required for the more complete consummation of the transactions contemplated herein.

9.12           Legal Fees.  In the event any suit or other legal proceeding is brought for the enforcement of any of the provisions of this Agreement, the parties hereto agree that the prevailing party or parties shall be entitled to recover from the other party or parties upon final judgment on the merits reasonable attorneys’ fees, including attorneys’ fees for any appeal, and costs incurred in bringing such suit or proceeding.

APPLICABLE ONLY IN THE EVENT ANY UNITS ARE SOLD TO FLORIDA RESIDENTS - FLORIDA LAW PROVIDES THAT WHEN SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE MADE IN FLORIDA IS VOIDABLE BY THE PURCHASER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE BORROWER, AN AGENT OF THE BORROWER OR AN AUTHORIZED ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.  THIS SALE IS BEING MADE IN FLORIDA. PAYMENTS FOR TERMINATED SUBSCRIPTIONS VOIDED BY PURCHASERS AS PROVIDED FOR IN THIS PARAGRAPH WILL BE PROMPTLY REFUNDED WITHOUT INTEREST.  NOTICE SHOULD BE GIVEN TO THE BORROWER AT THE ADDRESS SPECIFIED HEREIN.

  

	
  

	
1  Regulation S provides in part as follows:

 

	
  

	
1.

	
“U.S. person” means:  (i) any natural person resident in the United States; (ii) any partnership or corporation organized or incorporated under the laws of the United States; (iii) any estate of which any executor or administrator is a U.S. person; (iv) any trust of which any trustee is a U.S. person; (v) any agency or branch of a foreign entity located in the United States; (vi) any non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person; (vii) any discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and (viii) any partnership or corporation if: (A) organized or incorporated under the laws of any foreign jurisdiction; and (B) formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act of 1933, as amended, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a)) who are not natural persons, estates or trusts.

 

	
  

	
2.

	
The following are not “U.S. persons”: (i) any discretionary account or similar account (other than an estate or trust) held for the benefit or account of a non-U.S. person by a dealer or other professional fiduciary organized, incorporated, or (if an individual) resident in the United States; (ii) any estate of which any professional fiduciary acting as executor or administrator is a U.S. person if: (A) an executor or administrator of the estate who is not a U.S. person has sole or shared investment discretion with respect to the assets of the estate; and (B) the estate is governed by foreign law; (iii) any trust of which any professional fiduciary acting as trustee is a U.S. person, if a trustee who is not a U.S. person has sole or shared investment discretion with respect to the trust assets, and no beneficiary of the trust (and no settler if the trust is revocable) is a U.S. person; (iv) an employee benefit plan established and administered in accordance with the law of a country other than the United States and customary practices and documentation of such country; (v) any agency or branch of a U.S. person located outside the United States if: (A) the agency or branch operates for valid business reasons; and (B) the agency or branch is engaged in the business of insurance or banking and is subject to substantive insurance or banking regulation, respectively, in the jurisdiction where located; and (vi) the International Monetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the United Nations, and their agencies, affiliates and pension plans, and any other similar international organizations, their agencies, affiliates and pension plans.

 

ATL 18,540,721

  

  

  

[Counterpart Signature Page To Securities Purchase Agreement of

Premier Alliance Group, Inc]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth on the Purchase Signature Page hereto.

                                                                PURCHASER

                                                                (By Counterpart Form - See Purchaser SignaturePages following the Questionnaire)

                                                                COMPANY

                                                                PREMIER ALLIANCE GROUP, INC

                                                                (By Execution of Acceptance Page followingCertificate of Signatory)

  

  

  

PURCHASER SIGNATURE PAGES

           The undersigned Purchaser has read the Securities Purchase Agreement of Premier Alliance Group, Inc, a Delaware corporation dated as of October  __, 2012, and acknowledges that the completion of this Questionnaire and the execution of the Purchaser Signature Page that follows shall constitute the undersigned’s execution of such Agreement.  This Questionnaire is and shall remain part of the Agreement.  All capitalized terms used herein shall be as defined in such Agreement

 

 

I hereby subscribe for ____ Unit(s), at a Purchase Price of $50,000 per Unit, each Unit comprised of a $50,000 Principal Amount of 7% Convertible Promissory Notes and ______ Common Stock Purchase Warrants initially exercisable at $____, for an aggregate Purchase Price of  $__________________.  

 

           I am a resident of the State(s) or Country of __________________ and.

                                                                                                                                          

  Please print above the exact name(s) in which the Shares and Warrants are to be held

My address is:                                           

                                

                                

My phone number is:                                                                                                                                          

[Continued]

SP-

ATL 18,540,721

  

  

  

ACCREDITED INVESTOR QUESTIONNAIRE

Premier Alliance Group, Inc Offering of Units

I acknowledge that the offering of the Units is subject to the Federal securities laws of the United States and state securities laws of those states in which the Units are offered, and that, pursuant to the U.S. Federal securities laws and state securities laws, the Units may be purchased by persons who come within the definition of an “Accredited Investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act (“Regulation D”).

 

 

By initialing one of the categories below, I represent and warrant that I come within the category so initialed and have truthfully set forth the factual basis or reason I come within that category.  All information in response to this paragraph will be kept strictly confidential.  I agree to furnish any additional information that the Borrower deems necessary in order to verify the answers set forth below.

 

NOTE:  You must initial at least ONE category.

 

Individual Purchaser:

(A Purchaser who is an individual may initial either Category I, II, or III)

 

	
  

	
Category I

	 	
I am a director or executive officer of the Borrower.

 

	
  

	
Category II

	 	
I am an individual (not a partnership, corporation, etc.) whose individual net worth, or joint net worth with my spouse, presently exceeds $1,000,000.*

 

Explanation.  In calculation of net worth, you may include equity in personal property and real estate other than your principal residence, including cash, short term investments, stocks and securities.  Equity in personal property and real estate should be based on the fair market value of such property less debt secured by such property.

 

	
  

	
Category III

	 	
I am an individual (not a partnership, corporation, etc.) who had an individual income in excess of $200,000 in 2010 and 2011, or joint income with my spouse in excess of $300,000 in 2010 and 2011, and I have a reasonable expectation of reaching the same income level in 2012.**

	
  

	
____________________

* For purposes of this Accredited Investor Questionnaire, “net worth” means the excess of total assets at fair market value, including cash, stock, securities, personal property and real estate (other than your primary residence), over total liabilities (other than a mortgage or other debt secured by your primary residence). In the event that the amount of any mortgage or other indebtedness secured by your primary residence exceeds the fair market value of the residence, that excess liability should also be deducted from your net worth. Any mortgage or indebtedness secured by your primary residence incurred within 60 days before the time of the sale of the securities offered hereunder, other than as a result of the acquisition of the primary residence, shall also be deducted from your net worth.

**  For purposes of this Accredited Investor Questionnaire, individual income means adjusted gross income, as reported for federal income tax purposes, less any income attributable to a spouse or to property owned by a spouse, increased by the following amounts (but not including any amounts attributable to a spouse or to property owned by a spouse): (i) the amount of any tax-exempt interest income under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), received; (ii) the amount of losses claimed as a limited partner in a limited partnership as reported on Schedule E of Form 1040; (iii) any deduction claimed for depletion under Section 611 et seq. of the Code; (iv) amounts contributed to an Individual Retirement Account (as defined in the Code) or Keogh retirement plan; (v) alimony paid;(vi) any elective contributions to a cash or deferred arrangement under Section 401(k) of the Code; and (vii) for applicable taxable years, any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income pursuant to the provisions of Section 1202 of the Code.

 

Entity Purchasers:

(A Purchaser which is a corporation, limited liability company, partnership, trust, or other entity may initial either Category IV, V, VI, VII or VIII)

 

	
  

	
Category IV

	 	
The Purchaser is an entity in which all of the equity owners are “Accredited Investors” as defined in Rule 501(a) of Regulation D.  If relying upon this category alone, each equity owner must complete a separate copy of this Agreement.

 

_____________________________________________________

 

_____________________________________________________

 

	 	
_____________________________________________________

	 	
(describe entity)

 

	
  

	
Category V

	 	
The Purchaser is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Units offered, whose purchase is directed by a “Sophisticated Person” as described in Rule 506(b)(2)(ii) of Regulation D.

 

	
  

	
Category VI

	 	
The Purchaser is an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Units, with total assets in excess of $5,000,000.

 

_____________________________________________________

 

_____________________________________________________

 

	 	
_____________________________________________________

	 	
(describe entity)

 

	
Category VII

	 	
The Purchaser is a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.

 

_____________________________________________________

 

_____________________________________________________

 

_____________________________________________________

                            (describe entity)

	
  

	 

	
Category VIII  ____

	
Any bank as defined in section 3(a)(2) of the Securities Act of 1933, as amended (“Act”), or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

_____________________________________________________

 

_____________________________________________________

 

	
  

	
_____________________________________________________

(describe entity)

Executed this _____ day of  _________, 2012 at ____________________, ________________.

[Continued]

SP-

ATL 18,540,721

  

  

  

REGULATION S CERTIFICATION

(For Non “U.S. Person” Individual or Entity Purchasers Only)

This Regulation S Certification (“Certification”) is being delivered in connection with the Securities Purchase Agreement dated April __, 2012 (the “Agreement”), by and between Premier Alliance Group, Inc, a Delaware corporation (the “Company”), and each of the purchasers who execute the Purchaser Signature Page thereto (the “Purchaser”), and may be relied upon by the Borrower, its transfer agent and its counsel in connection with the transactions contemplated by the Agreement and the issuance of Units contemplated by the Agreement.  The undersigned Purchaser, being a party to the Agreement hereby certifies that the following statements are true, correct, and complete as of the date of this Certification.  Capitalized terms used and not defined herein shall have the meanings assigned to them in the Agreement.

1. Purchaser is familiar with Regulation S (“Regulation S”) promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the U.S. Securities Act of 1933, as amended (the “Securities Act”).

2. Purchaser is a not a “U.S. Person,” as defined in Regulation S and as set forth in the Agreement.

3. Purchaser and each Unit Holder (as defined below) understand and acknowledge that (A) the Securities have not been registered under the Securities Act, are being sold in reliance upon an exemption from registration afforded by Regulation S; and that such Securities have not been registered with any state securities commission or authority; (B) pursuant to the requirements of Regulation S, the Securities may not be transferred, sold or otherwise exchanged unless in compliance with the provisions of Regulation S and/or pursuant to registration under the Securities Act, or pursuant to another available exemption thereunder; (C) the Borrower is under no obligation to register the Securities under the Securities Act or any state securities law, or to take any action to make any exemption from any such registration provisions available; and (D) the Borrower will refuse to register any transfer of Securities not made in accordance with the provisions of Regulation S, and/or pursuant to registration under the Securities Act of pursuant to another available exemption thereunder.

4. Purchaser has requested that certificates representing the Securities be issued in the name of certain clients or customers of Purchaser who have provided funds for the acquisition of the Securities (such persons and entities referred to as “Unit Holders”).  No Unit Holder is a “U.S. Person” as defined in Regulation S.  Neither Purchaser nor any Unit Holder is acquiring the Securities for the account of any U.S. Person.

5. Neither Purchaser nor any Unit Holder was formed specifically for the purpose of acquiring the Securities pursuant to the Agreement.

6. The offer leading to the issuance of the Securities, to any transfer of Securities to the Unit Holders, and to the issuance of certificates to the Unit Holders, was made in an “offshore transaction” as defined in Regulation S.  For purposes of Regulation S, Purchaser understands that an “offshore transaction” as defined under Regulation S is any offer or sale not made to a person in the United States and either (A) at the time the buy order is originated, the purchaser is outside the United States, or the seller or any person acting on his/her behalf reasonably believes that the purchaser is outside the United States; or (B) for purposes of (1) Rule 903 of Regulation S, the transaction is executed in, or on or through a physical trading floor of an established foreign exchange that is located outside the United States or (2) Rule 904 of Regulation S, the transaction is executed in, on or through the facilities of a designated offshore securities market, and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the U.S.

7. Neither Purchaser, nor any affiliate or any person or entity acting on Purchaser’s behalf, nor any Unit Holder, has made or is aware of any “directed selling efforts” in the United States, which is defined in Regulation S to be any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the Securities.

8. Purchaser understands that the Borrower is the issuer of the Securities which are the subject of the Agreement, and that, for purpose of Regulation S, a “distributor” is any underwriter, dealer or other person who participates, pursuant to a contractual arrangement, in the distribution of securities offered or sold in reliance on Regulation S and that an “affiliate” is any partner, officer, director or any person directly or indirectly controlling, controlled by or under common control with any person in question.  Purchaser agrees that Purchaser will not, during the Restricted Period set forth under Rule 903(b)(iii)(A), act as a distributor, either directly or through any affiliate, nor shall he/she sell, transfer, hypothecate or otherwise convey the Securities other than to a non-U.S. Person.

Resale Restrictions

9. Purchaser is purchasing the Units for its own account and risk and not for the account or benefit of a U.S. Person (as defined in Regulation S).  Purchaser understands, acknowledges and agrees that he/she must bear the economic risk of an investment in the Securities for an indefinite period of time and that prior to any such offer or sale, the Borrower may require, as a condition to effecting a transfer of the Securities, an opinion of counsel, acceptable to the Borrower, as to the registration or exemption therefrom under the Securities Act and any state securities acts, if applicable.

10. Purchaser will, during and after the expiration of the distribution compliance period, as set forth under Regulation S Rule 903(b)(3)(iii)(A), offer, sell, pledge or otherwise transfer the Securities only in accordance with Regulation S, or pursuant to an available exemption under the Securities Act.  The issuance of the Securities pursuant to the Agreement has neither been pre-arranged with a purchaser who is in the U.S. or who is a U.S. Person, nor is it part of a plan or scheme to evade the registration provisions of the United States federal securities laws.  During such distribution compliance period, Purchaser will not engage in hedging transactions with regard to the common stock of the Borrower, unless in compliance with the Securities Act.

Legends

11. Purchaser acknowledges, on behalf of Purchaser and the Unit Holders, that substantially the following legend may appear on any certificates that may be issued in respect of the Securities:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN OFFERED AND SOLD IN AN “OFFSHORE TRANSACTION” IN RELIANCE UPON REGULATION S AS PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION.  ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) AND MAY NOT BE TRANSFERRED OTHER THAN IN ACCORDANCE WITH REGULATION S, PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE BORROWER.  THE SECURITIES REPRESENTED BY THIS CERTIFICATE CANNOT BE THE SUBJECT OF HEDGING TRANSACTIONS UNLESS SUCH TRANSACTIONS ARE CONDUCTED IN COMPLIANCE WITH THE SECURITIES ACT.

IN WITNESS WHEREOF, the undersigned has executed this Regulation S Certification as of the date set forth below.

PURCHASER:

NAME:                                                                

By:                                                                

Title:                                                                

DATED: ________________________________

[Signature Page to Regulation S Certification]

[Signature Pages Continue]

SP-

ATL 18,540,721

  

  

  

PURCHASER SIGNATURE PAGE

(For Individual Purchasers)

           This Securities Purchase Agreement of Premier Alliance Group, Inc (including the Questionnaire) is hereby executed and entered into by the below Purchaser.

	
 

No. of Units: __________(@$50,000 per Unit)

 

Principal Amount $_______________

 

No. of Warrants: _______________

 

Purchase Price $_____________

	
 

 

Signature (Individual)

 

 

Name (Print)

 

 

Street address

 

 

City, State, Zip Code & Country

	  	  

	  	
 

Tax Identification or Social Security Number

 

(            )                                                                

Telephone Number

 

(            )                                                                

Facsimile Number

	  	
Address to Which Correspondence Should Be Directed (if different from above)

 

____________________________________

c/o Name

____________________________________

Street Address

 

	  	
____________________________________

City, State, Zip Code & Country

 

(______)____________________________

Telephone Number

 

(______)____________________________

Facsimile Number

SP-

ATL 18,540,721

  

  

  

PURCHASER SIGNATURE PAGE

(for Corporation, Partnership, Trust or Other Entities)

This Securities Purchase Agreement of Premier Alliance Group, Inc (including the Questionnaire) is hereby executed and entered into by the below Purchaser:

	
 

No. of Units: __________(@$25,000 per Unit)

 

Principal Amount $_____________

 

No. of Warrants: _______________

 

Purchase Price $_____________

	
____________________________________

Name of Entity

 

 

Type of Entity (i.e., corporation, partnership, etc.)

 

 

 

Tax Identification or Social Security Number

 

 

State of Formation of Entity

 

 

Name of Signatory Typed or Printed

 

Its:                                                                

Title

 

	  	
Address to Which Correspondence Should Be Directed (if different from above)

 

____________________________________

c/o Name

____________________________________

Street Address

 

	  
	  	
____________________________________

City, State,  Zip Code & Country

 

(______)____________________________

Telephone Number

 

(______)____________________________

Facsimile Number

	  

*If Units are being subscribed for by an entity, the Certificate of Signatory that follows must also be completed.

SP-

ATL 18,540,721

  

  

  

CERTIFICATE OF SIGNATORY

                    (To be completed if Units are being subscribed for by an entity)

           I,__________________________________, am the ___________________________ of

 (the “Entity”).

           I certify that I am empowered and duly authorized by the Entity to execute and carry out the terms of the Securities Purchase Agreement and to purchase and hold the Shares and Warrants that comprise the Units.  The Securities Purchase Agreement has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation of the Entity.

           IN WITNESS WHEREOF, I have hereto set my hand this ______ day of _________, 2012.

	  	
 

Signature

SP-

ATL 18,540,721

  

  

  

ACCEPTANCE PAGE TO SECURITIES PURCHASE AGREEMENT OF

PREMIER ALLIANCE GROUP, INC.

The foregoing subscriptions for ________ Units, for a purchase price of $50,000 per Unit, or an aggregate Purchase Price and Principal Amount of 7% Convertible Promissory Notes of $___________ , and Common Stock Purchase Warrants to purchase _______________ shares, in accordance with the foregoing Securities Purchase Agreement, AGREED AND ACCEPTED; provided, however, that the Borrower may accept additional subscriptions from time to time without consent of Purchasers until the maximum offering amount (plus the over-allotment option, if any) are accepted and Closed upon, in accordance with this Agreement:

PREMIER ALLIANCE GROUP, INC.

By:           /s/ Larry Brumfield                                                                

Name:

Title: Chief Financial Officer and Secretary

Date:  ___________________

SP-

ATL 18,540,721

  

  

  

COMPANY DISCLOSURE SCHEDULE

 

           Capitalized terms not otherwise defined in this Company Disclosure Schedule shall have the same meaning as in the Agreement.

 

           The disclosure of any matter in this Company Disclosure Schedule should not be construed as indicating that such matter is necessarily required to be disclosed in order for any representation or warranty in the Agreement to be true and correct in all material respects.  Any description of any document included in this Company Disclosure Schedule is qualified in all respects by reference to such document.

Schedules

  

  

  

SCHEDULE 3.6

NO MATERIAL ADVERSE CHANGE

The Company’s line of credit expires in October 2012 and the Company is in negotiation with its lender to increase its line of credit at the time the line of credit expires.  The current line of credit is limited to a borrowing base of 75% of eligible receivables or $1,500,000. If the Company is unable to effectively renegotiate its expiring line of credit, such failure may have a materially adverse effect on the Company’s business.

  

  

  

SCHEDULE 3.13

LITIGATION

The Company is currently involved in a lawsuit pending in the Southern District Court in the State of New York brought against Greenhouse Holdings, Inc., among other defendants by Emissary Capital Group, LLC., Amit Tandon, Ajay Tandon and Rajunder Bither.

The Company is currently involved in a lawsuit against Greenhouse Holdings, Inc., by Jamar Electric relating to past collections issues.

The Company is currently involved in a lawsuit brought against Greenhouse Holdings, Inc., by Anlin Industries relating to past collections issues.

  

  

  

EXHIBIT A

Form of 7% Convertible Promissory Note

  

  

  

Exhibit B

Form of Common Stock Purchase Warrantconvnote.htm

Exhibit 10.2

THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS.  THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Principal Amount: $50,000                                                                                                Issue Date: October [__], 2012

PREMIER ALLIANCE GROUP, INC.

7% CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, Premier Alliance Group, Inc., a corporation organized under the laws of the State of Delaware (hereinafter called “Borrower” or the “Company”), hereby promises to pay to [_______________________] , an individual with an address at _____________________________, ________  or his permitted registered assigns or successors in interest or order (the “Holder”), without demand, the sum of Fifty Thousand Dollars (US$50,000) (the “Principal Amount”), with simple interest at the annual rate of seven percent (7%) on the Maturity Date (as hereinafter defined) if and to the extent not sooner paid or converted.  The “Maturity Date” of this Note shall be the date that is fifteen (15) months from the date hereof, subject to conversion and acceleration as provided in Section 2 or Section 3 hereof.

This 7% Convertible Promissory Note (the “Note”) has been executed and issued pursuant to the terms of a Securities Purchase Agreement between the Borrower and the Holder and certain other Holders of Notes, dated of even date herewith (the “Purchase Agreement”) pursuant to which the Holder acquired this Note and Common Stock Purchase Warrants.  This Note is not secured and is convertible as provided herein.   Unless otherwise separately defined herein, all capitalized terms used in this Note shall have the same meaning as is set forth in the Purchase Agreement. The following terms shall apply to this Note:

ARTICLE I

INTEREST

1.1.             Interest Rate.   Interest on this Note shall be simple interest and accrue at the annual rate of seven percent (7%) per annum.  Interest will be payable on the Maturity Date, accelerated or otherwise, at which time the Principal Amount and remaining accrued but unpaid interest shall be due and payable, or sooner as described below.  All computations of interest payable hereunder shall be on the basis of a 365-day year and actual days elapsed in the period for which such interest is payable. Accrued interest on the outstanding Principal Amount shall be due and payable on the Maturity Date in cash; provided, however, that at the sole option of the Company, any interest due may be paid in the form of Common Stock of the Company, at the applicable Voluntary Conversion Price (as hereinafter defined) subject to adjustment herein or Mandatory Conversion Price.

1.2. Default Interest Rate.  Following the occurrence and during the continuance of an Event of Default (as defined below), which, if susceptible to cure is not cured within the cure periods (if any) set forth in Article III, otherwise then commencing from the end of the applicable cure period the annual interest rate on this Note shall (subject to the limitations set forth in Section 4.7) be the lesser of ten percent (10%) per annum or the highest rate permissible by law, and be due on demand.

ARTICLE II

CONVERSION RIGHTS

           2.1.           Holder’s Conversion Rights.

 (a)           Voluntary Conversion Rights.  For so long as this Note remains outstanding and not fully paid, the Holder shall have the right, but not the obligation, to convert all or any portion of the then aggregate outstanding Principal Amount of this Note, together with any accrued and unpaid interest thereon, into shares of Common Stock of the Borrower or its successor in interest (the “Conversion Shares”), subject to the terms and conditions set forth in this Article II, at the rate of $0.50 per share of Common Stock (as may be adjusted as provided herein, the “VoluntaryConversion Price”). The Holder may exercise such right by delivery to the Borrower of a written Notice of Conversion pursuant to Section 2.2.

(b)           Mandatory Conversion.  In the event that Common Stock Equivalents (as hereinafter defined) are issued at any Funding Event,  all principal and interest on the Notes shall be automatically converted (the “Mandatory Conversion”) into shares (the “Conversion Shares”) of the Company’s common stock par value $0.001 (the “Common Stock”) at a conversion price that is the lesser of: (i) a 25% discount to the effective price of the securities sold in such Funding Event, or (ii) $0.50 per share of common stock (the “Mandatory Conversion Price”); provided, however, that this Note shall not be subject to a Mandatory Conversion in the event that the Company is delinquent with the filing of its SEC Reports (as defined in the Purchase Agreement). The term   “Funding Event” as used herein shall mean the consummation of an equity, or convertible debt financing, in one or more series of transactions with aggregate gross proceeds of at least $300,000 by the Borrower after the date hereof. The term Common Stock Equivalents" shall mean Common Stock, or securities convertible into, exercisable for or exchangeable for, Common Stock.

           2.2.           Mechanics of Holder’s Conversion.

                      (a)           In the event that the Holder elects to voluntarily convert any amounts outstanding under this Note into Common Stock the Holder shall give notice of such election by delivering an executed and completed notice of conversion (a “Notice of Conversion”) together with the Holder’s original Note to the Company, which Notice of Conversion shall provide a breakdown in reasonable detail of the Principal Amount, accrued interest.  On each Conversion Date (as hereinafter defined) and in accordance with its Notice of Conversion, the Holder shall make the appropriate reduction to the Principal Amount and accrued and unpaid interest, shall issued a replacement Note therefor, and shall deliver such replacement Note to the Holder in accordance with the requirements of the Purchase Agreement.

(b)           In the event of a Mandatory Conversion due to a Funding Event, the Borrower shall provide each Holder with at least ten (10) business days’ notice (waivable by the Holder) of the specific terms of such offering and advising Holder of their requirement to exchange their entire Note.  For avoidance of doubt, the “Conversion Date” in the event of a Mandatory Conversion in the event of a Funding Event, shall be the first business day following the closing of the Funding Event.  A form of Notice of Conversion to be employed by the Holder is annexed hereto as Exhibit A.

(c)           No fractional Conversion Shares shall be issued upon conversion of this Note. Instead of any fractional shares that would otherwise be issuable upon conversion of this Note, the Company shall pay a cash adjustment in respect of such fractional share in an amount equal to the same fraction of the Voluntary Conversion Price or Mandatory Conversion Price then in effect.

           2.3.           Adjustments to Conversion Price.

                      (a)           The number of Conversion Shares to be issued upon each conversion of this Note pursuant to this Section 2 shall be determined by dividing that portion of the Principal Amount and interest to be converted, if any, by the then applicable Voluntary Conversion Price or Mandatory Conversion Price.

(b)           Adjustment to Voluntary Conversion Price Upon Issuance of Common Stock. Other than in connection with the Excepted Issuances or a Funding Event (as defined below), if the Company shall, at any time after the Issue Date and until the twelve (12) month anniversary of the Issue Date, issue or sell any Common Stock or Common Stock Equivalents, to any person or entity, except in connection with a Funding Event, at a price below the Voluntary Conversion Price then immediately upon such issuance or sale, the Voluntary Conversion Price in effect immediately prior to such issuance or sale shall be adjusted on a weighted average basis. For purposes of Section 2.3 “Excepted Issuance” shall mean (i) shares issued or issuable pursuant to a currently authorized stock option plan of the Borrower (or by its successor after a merger), (ii) shares currently issuable upon exercise of existing warrants or upon conversion of existing notes or outstanding convertible securities of the Borrower (or its successor), as disclosed herein, (iii) shares of Common Stock or Common Stock Equivalents issued to the Company’s (or its successors) shareholders as a dividend (other than a stock split effectuated through a dividend) or other distribution without payment of any consideration by such shareholders for such additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion thereof), so long as the Voluntary Conversion Price is appropriately adjusted, or the securities issuable to a Subscriber upon conversion of a Note or exercise of a Warrant appropriately take such additional securities into account, pursuant to the terms of the Notes and the Warrants; and (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company which shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

(c)           The Voluntary Conversion Price or Mandatory Conversion Price, as applicable, and number and kind of shares or other securities to be issued upon conversion shall be subject upon the happening of certain events while this conversion right remains outstanding, as follows:

i.           Merger, Sale of Assets, etc.  If (A) the Company effects any merger or  consolidation of the Company with or into another entity, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions,  (C) any tender offer or exchange offer (whether by the Company or another entity) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, (D) the Company consummates a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more persons or entities whereby such other persons or entities acquire more than the 50% of the outstanding Common Stock (not including any shares of Common Stock held by such other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock purchase agreement or other business combination), (E) any "person" or "group" (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act) is or shall become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate Common Stock of the Company, or (F) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "Fundamental  Transaction"), this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to convert into such number and kind of shares or other securities and property as would have been issuable or distributable on account of such Fundamental Transaction, upon or with respect to the securities subject to the conversion right immediately prior to such Fundamental Transaction.  The foregoing provision shall similarly apply to successive Fundamental Transactions of a similar nature by any such successor or purchaser.  Without limiting the generality of the foregoing, the anti-dilution provisions of this Section shall apply to such securities of such successor or purchaser after any such Fundamental Transaction.

ii. Reclassification, etc.  If the Company at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes, this Note, as to the unpaid principal portion hereof and accrued interest hereon, shall thereafter be deemed to evidence the right to convert into an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change.

iii.           Stock Splits, Combinations and Dividends.  If the Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock by issuance of Common Stock, the Voluntary Conversion Price or the Mandatory Conversion Price, as applicable, shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

(d)           Whenever a conversion price, whether a Voluntary Conversion Price or Mandatory Conversion Price, is adjusted pursuant to this Section 2.3, the Company shall promptly mail to the Holder a notice setting forth the Voluntary Conversion Price or Mandatory Conversion Price after such adjustment and setting forth a statement of the facts requiring such adjustment.

2.5 Issuance of Replacement Note.  Upon any loss or destruction of this Note, a replacement Note containing the same date and provisions of this Note shall be issued by the Company to the Holder for the outstanding Principal Amount of this Note and accrued interest which shall not have been converted or paid.

2.6 Liquidated Damages; Failure to Issue Conversion Shares.  In the event that the Note is converted, in whole or in part, the Company shall deliver to Holder (or in accordance with Holder’s delivery instructions) certificates representing the Conversion Shares reflecting principal and interest so converted, in the name of Holder, within ten (10) business days of receipt of the Notice of Conversion.  The Borrower understands that failure to deliver all of the Conversion Shares it is required to deliver on a timely basis may cause irreparable financial harm to the Holder or its assign.  In the event that Borrower fails to deliver certificates representing the Conversion Shares within such ten (10) business day period, in addition to damages for default or at law or in equity available to the Holder, and without limiting Holder’s rights thereunder, Borrower shall pay to Holder liquidated damages equal to 2% of the number of Conversion Shares it is required to deliver for each 30 calendar day period that it has failed to deliver a certificate representing the Conversion Shares.  During any failure to deliver shares, and for avoidance of doubt, the Note shall be deemed issued and duly held by the Holder and Holder shall be entitled to seek any enforcement or collection remedy on this Note as permitted by law, interest shall continue to accrue and the Voluntary Conversion Price shall continue to be adjustable downward provided in this Section 2.

ARTICLE III

EVENTS OF DEFAULT

3.1 The occurrence of any of the following events of default (“Event of Default”) shall, at the option of the Holder hereof, make all sums of principal and interest then remaining unpaid hereon and all other amounts payable hereunder immediately due and payable, upon demand, without presentment, or grace period, all of which hereby are expressly waived, except as set forth below:

3.2 Failure to Pay Principal or Interest.  The Borrower fails to pay any the Principal Amount, interest or other sum due under this Note when due and such failure continues for a period of twenty (20) calendar days after receipt by the Borrower of written notice of such default.

3.3 Breach of Covenant.  The Borrower breaches any material covenant or other term or condition of this Note in any material respect and such breach, if subject to cure, continues for a period of 10 business days after written notice to the Borrower from the Holder, provided that if such breach cannot reasonably be cured within such 10-day period and Borrower shall have commenced to cure such breach within such 10-day period and thereafter diligently proceeds to cure the same, such 20-day period shall be extended for so long as it shall require the Borrower in the exercise of due diligence to cure such default, not to exceed 45 business days in the aggregate.

3.4 Breach of Representations and Warranties.  Any material representation or warranty of the Borrower made in the Purchase Agreement shall be false or misleading in any material respect as of the Issue Date, except to the extent such representation or warranty is made as of a different date in which case such representation or warranty shall have been false or misleading in any material respect as of such date.

3.5 Receiver or Trustee.  The Borrower or any Subsidiary of Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for them or for a substantial part of their property or business; or such a receiver or trustee shall otherwise be appointed and not dismissed within 60 calendar days.

3.6 Judgments.  Any money judgment, writ or similar final process shall be entered or filed against Borrower or any subsidiary of Borrower or any of their property or other assets for more than $250,000, and shall remain unvacated, unbonded, unappealed, unsatisfied, or unstayed for a period of 60 calendar days.

3.7 Non-Payment.   A default by the Borrower under any one or more obligations (including, without limitation, any office lease or pre-existing loan currently outstanding) in an aggregate monetary amount in excess of $100,000 for more than 90 calendar days after the due date, unless the Borrower is contesting the validity of such obligation in good faith and has segregated cash funds equal to not less than one-half of the contested amount.

3.8 Bankruptcy.  Bankruptcy, insolvency, reorganization, or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower or any Subsidiary of Borrower and if instituted against them are not dismissed within 60 calendar days of initiation.

3.9 Sale of Assets. A disposition of all or substantially all of the assets of the Borrower (excluding any transaction relating to the sale and lease back of the Borrower’s equipment).

3.10 Failure to Deliver Common Stock or Replacement Note.  Borrower’s failure to timely deliver Conversion Shares to the Holder pursuant to and in the form required by this Note or the Purchase Agreement.

3.11 Use of Proceeds. Proceeds of this Note not being utilized substantially in accordance with the intended uses set forth in the Purchase Agreement and the related offering document and for no other purposes.

3.12 Cross Default.  A default by the Borrower of a material term, covenant, warranty or undertaking of any Transaction Document which is not cured after any required notice and/or cure period.

3.13 Reservation Default.   Failure by the Borrower to have reserved for issuance upon conversion of the Note the amount of Common Stock as set forth in this Note and the Purchase Agreement.

ARTICLE IV

MISCELLANEOUS

4.1           Failure or Indulgence Not Waiver.  No failure or delay on the part of Holder hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.  All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

           4.2           Notices.  All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur.

If to the Borrower:                                Premier Alliance Group, Inc.

4521 Sharon Road #300

Charlotte, NC  28211-3627

Attn:  Mark Elliott, Chief Executive Officer

With a copy to:                                           Ruskin Moscou Faltischek, P.C.

1425 RXR Plaza

Uniondale, New York 11556

Facsimile:  (516) 663-6891

Email: srubin@rmfpc.com

Attention:  Seth I. Rubin, Esq.

	 	
If to the Purchaser:

	
At the address set forth on the Purchaser’s Signature to the Purchase Agreement

4.3           Amendment Provision.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented or reissued, then as so amended or supplemented or reissued.

4.4           Assignees.  This Note, and the conversion rights described herein, shall not be assignable by the Holder without the prior written consent of the Borrower, which shall not be unreasonably withheld. Subject to the restrictions of the preceding sentence, the rights and obligations of the Borrower and the Holder shall be binding upon and benefit the successors, assign, heirs, administrators and transferees of the parties.

4.5           Cost of Collection.  In the event that Holder is required to take legal or other action to enforce its rights or obtain collection under this Note,  Borrower shall pay the Holder hereof reasonable costs of collection, or enforcement of the terms hereof, including attorneys’ fees.

4.6           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York, including, but not limited to, New York statutes of limitations.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the State Supreme Court of the State of New York, County of New York.  Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Note.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of the Holder.

4.7           Maximum Payments.  Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law.  In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law (such as, without limitation, the usury laws), any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower, or if no further amounts are owed by the Borrower to the Holder, shall be refunded to the Borrower.  Borrower hereby irrevocable consents to the reformation of this Note, as may be necessary by a court of law, so as to enable enforcement of this Note pursuant to summary judgment or summary proceeding.  For avoidance of doubt, in the event that, for any reason, a finding by a court having jurisdiction over this Note is made that limits enforceability as a result of excessive interest or other origination or investment banking fees pursuant to the laws of any jurisdiction, then, such defense shall not be deemed to bar a summary proceeding or summary judgment on the Note but rather, the Note shall be fully and absolutely enforceable as to all principal and, the court having jurisdiction shall, after an inquest, have power to reform the Note so as to reduce interest amount to such amount as is immediately enforceable pursuant to summary judgment or summary proceeding and grant such award, plus any legal or enforcement fees of Holder(s).

4.8.           Construction and Enforcement.   Each party acknowledges that its legal counsel participated in the preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of this Note to favor any party against the other. This Note reflects an investment made by Holder or its assignor to the Borrower.  This Note is intended as, and shall be deemed an unconditional obligation of Borrower for the payment of money only and, without limitation to any other remedies of Holder (such as, without limitation, summary judgment after initiation of a proceeding, or equitable remedies), shall be enforceable against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought.  For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.

4.9           Redemption.  This Note may be prepaid by the Borrower, in whole or in part, at any time and from time to time, without premium or penalty, upon 30 days’ prior written notice to the Holder.

4.10           Shareholder Status.  The Holder shall not have rights as a shareholder of the Borrower with respect to unconverted portions of this Note.  However, the Holder will have the rights of a shareholder of the Borrower with respect to the Shares of Common Stock to be received after delivery by the Holder of a Conversion Notice to the Borrower.

4.11           Non-Business Days.  Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of New York, such payment may be due or action shall be required on the next succeeding business day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.

  

  

  

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an authorized officer as of the ____ day of October 2012.

PREMIER ALLIANCE GROUP, INC.

By:  /s/ Larry Brumfield

Name: Larry W. Brumfield

Title: Chief Financial Officer and Secretary

[Signature Page to Convertible Promissory Note of Premier Alliance Group, Inc.]

  

  

  

NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

[Check Box That Applies]

________The undersigned hereby elects to convert $_________ of the principal and $_________ of the interest due on the Note issued by Premier Alliance Group, Inc., a Delaware corporation (the “Company”) into shares of Common Stock  of the Company according to the conditions set forth in such Note, as of the date written below.

(Alternative In Event of Exchange For in a Funding Event)

________ The undersigned has received a Notice of Mandatory Conversion as a result of a Funding Event and hereby tenders the Note in exchange for shares of Common Stock at the conversion price as adjusted thereby as provided in the note (i.e. the lesser of the Mandatory Conversion Price then in effect or a 25% discount to the Funding Event price)

Date of Conversion/Exchange:_______________________________________________________________

Conversion Price:___________________________________________________________________

Shares To Be Delivered:______________________________________________________________

Signature:_________________________________________________________________________

Print Name:_______________________________________________________________________

Address:__________________________________________________________________________

 __________________________________________________________________________

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